Inwido AB (publ)

STO:INWI

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, welcome to the Inwido Q2 Teleconference 2020. Today, I'm pleased to present Henrik Hjalmarsson and CFO, Peter Welin. [Operator Instructions] Speakers, please begin your session.

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Good morning, everybody. My name is Henrik Hjalmarsson, I'm President and CEO of Inwido. And with me, I have Peter Welin, CFO and Deputy CEO. And we will go through Inwido's second quarter 2020 report. I will start by going through a brief summary, an overview of the numbers, short summary by business area and then a few words on the outlook, and Peter will then go through the detailed financials. And there will be plenty of time for questions at the end. Next page, please, Page 2. Just a very brief introduction to Inwido for those of you who might be new. We are the largest window group in Europe and a leading door manufacturer. Clear market leader in the Nordic region with a strong presence in the U.K. and Ireland and a challenger position in Poland and Germany. 2019, we had net sales of SEK 6.6 billion, and an operating EBITA margin of 9.7%. And we've got roughly 4,400 employees in 12 countries and we market and sell all the spectacular brands you can see at the bottom of this page. Next page, please, Page 3. I just thought to take the opportunity to briefly mention our approach to ESG given that we don't take enough time to talk about our contribution to sustainable living, particularly then in the form of energy saving windows, but also sustainable window production. Our view on this is our own developed Inwido Sustainability Compass, which consists of 3 legs. The first one being to be an environmental friend. Meaning not only that we'll obviously reduce our carbon emissions, our waste generation, but also, for example, that we will increase our usage of wood from sustainable sources. The second one is to be a good place to work, obviously being a safe and healthy work environment, but also developing our employees, for example. And the third leg is to be a responsible business, contributing to a responsible and sustainable business society, but also contributing to society overall, not the least in the locations where we are active. Next page, please, Page 4. If we look at the summary of the second quarter, overall, I'd say that we're satisfied with the quarter. Happy to report the fifth consecutive quarter with strengthened margins and a strong cash flow. In the quarter, we've obviously seen pockets of COVID-19 impact. I'll come back to that in a little bit. But from a group perspective, overall, it's been limited to date. We saw increased order intake and a stronger order backlog at the end of the quarter. We saw, in general, positive consumer markets with some variation, which I'll come back to, where the industry markets being fairly stable but a bit more cautious. And really pleasing to see that our investments -- long-term investments for growth in e-Commerce are paying off, as we see 44% growth in e-Commerce and the strong order intake, which means that we're now -- e-Commerce in the quarter was 13% of total sales. Next page, please, Page 5. So if we look at the numbers then, sales grew to SEK 1.719 billion organically. That was a 1% growth. The operating EBITA strengthened to SEK 202 million versus SEK 187 million last year, which means that the operating EBITA margin strengthened by 0.9 percentage points to 11.8%. Order intake grew by 2%, which means that the order backlog at the end of the quarter was 12% stronger than the same time last year. Good operating cash flow again at SEK 482 million, considerably improved versus last year's SEK 163 million. And that means that our net debt versus operating EBITA came in at 1.7x, considerably better than the 2.8x from last year and also well below our target.Next page, please, Page 6. So in terms of one of our key concerns this spring, COVID-19, overall, as I mentioned, we've seen a limited operational and financial impact in total as a group. I'm really pleased given that one of our key priorities has been to protect our employees, and keep them safe and healthy, that we have very few employees who've been sick enough to be forced to seek medical attention, and hence, we confirmed infective. As we mentioned briefly, after quarter 1, we were forced at the back end of quarter 1 to shut down the activity in the U.K. and Ireland, which then obviously has impacted the customer activity there. We've also seen an impact on the direct sales with installation model in Finland given restrictions in how and under what circumstances we could visit consumers in their homes. After the Q1 lockdown in the U.K. going in then to the beginning of Q2, we've successfully opened up, not yet back at full activity but getting there slowly. We've seen some operational disturbances in the supply chain backwards in-sourcing and also from sick leave in our factories, partly then impacting our efficiency, particularly in Sweden. We have -- in terms of support packages, we have temporary deferral of taxes and fees of SEK 68 million. That's included in this, Peter will come back to that. And we have government support of a total of SEK 16 million in the quarter, and that's mainly related to furlough or temporary leave in the U.K. and compensation to the employees for that. In terms of the long-term impact of COVID-19, it's -- I would say it's hard to predict at the moment. We have stayed very close to the situation, and we've got detailed plans to take up costs rapidly if needed. Next page, please, Page 7. If we summarize in the first half of 2020, we've seen sales growth to SEK 3.167 billion, organically just shy growth. Operating EBITA strengthening to SEK 251 million, which means that the operating EBITA margin has strengthened by 0.6 percentage points to 7.9%. And again, strong operating cash flow in the first half of the year at SEK 515 million versus SEK 213 million last year. Next page, please, Page 8. If we look then at the performance by business areas, starting with Business Area South, we saw overall good growth and strong order backlog, not the least driven then by e-Commerce, which had 44% growth, as I mentioned, and a strong order intake, plus 37% in the quarter. We've seen continued strong delivery in the larger Danish units. U.K. and Ireland, obviously impacted by the shutdowns through the quarter. But as I said, successfully opening up, not fully -- back in full swing yet, but on their way. And development in Poland in the quarter was stable, which means that sales was 3% up to SEK 711 million. Operating EBITA margin strengthened considerably to 19.3%. And the order backlog at the end of the quarter was 29% up versus the same time last year. Next page, please, Page 9. Looking at Business Area North. We saw overall positive underlying consumer demand, particularly in Sweden and Norway. However, as I mentioned, in the direct sales with installation model in Finland, we were impacted negatively due to the restrictions imposed by the government. Industry markets overall relatively stable, but still cautious in the quarter. And as I also mentioned previously, we had some operational disturbances with -- in the sourcing supply chain and also with high sick leave, impacting efficiency negative. Reported sales slightly down to SEK 970 million with an operating EBITA margin of 7.6% versus 7.8% in the same period last year. And the order backlog at the end of the quarter, 2% up versus last year. Next page, please, Page 10. Looking at the market outlook. Overall, it's still uncertain due to the COVID-19 development. It's obviously pleasing to see that we entered quarter 3 with a stronger order backlog versus last year, which will support our near-term delivery. However, in the medium to long term, we see consumer demand being impacted potentially by negative factors, such as higher unemployment and potentially reduced home prices, but also potential positive factors, such as say, government stimuli packages, which there are discussions of in a couple of geographies we're active in and also potential changes in behavior. The industry market response after COVID-19, both in terms of how permit processes but also building processes are impacted, is a bit uncertain. We clearly see underlying demand in Ireland and the U.K., which creates a market potential. But again, the exact form and timing for that is a bit too early to tell. And the e-Commerce segment, as you've seen in the quarter is obviously doing really well. And the question is, if that's an accelerated step change or if it's a COVID-19 impact. Next page, please, Page 11. So if we look at our focus in the near term, that remains largely the same, which is to get our way through the COVID-19 development in a robust and resolute way, but also obviously preparing for time beyond. So we're going to continue to strengthen our positions in the key geographies in this dynamic market, utilizing the opportunities that we see. We want to continue proactive and aggressive cost management, both to meet changes in demand but also to support our margin delivery. We will continue our investments in e-Commerce growth. We will also continue to work to strengthen the balance sheet to create resilience, but also strategic flexibility before when the time is right. And lastly, continue actions to drive growth and capitalize on the market opportunity. Next page, please, Page 12, and I'll hand over to Peter to take you through the financials.

[Peter Welin, Deputy CEO & CFO]

Thank you so much, Henrik. And then we'll go to the next page, Page #13, please. On this page, we can see the income statement. To the left, you can see Q2. In the middle, you can see year-to-date, Q1 and Q2. And through right, we can see a rolling 12 months as well as 2019. If we start with Q2, sales was up plus 1%. Adjusted for currency, meaning organic growth was also plus 1%. Somewhat lower gross margin, too, due to the COVID-19 impact in U.K., Ireland and Finland. And in addition, we have also production disturbances, particularly in Sweden. And we also have a negative mix impact. However, this has then be compensated by lower overhead costs and thereby, operating EBITA has been approved from SEK 107 million to SEK 202 million. Inwido has received government subsidies related to COVID-19 of SEK 16 million in the quarter. And this subsidy has been booked as reduced costs and mainly impacted gross profit. The margin -- operating EBITA margin has been improved from 10.9% to 11.8%. And thanks to the improved margin, latest 5 quarters, operating EBITA margin for latest 12 months is now up to 10%. Inwido has, in the quarter, restructuring cost of SEK 8 million related to write-down of central projects and also restructuring costs related to COVID-19. So further down the income statement, we can see that earnings per share was plus 20% compared to last year and also profit after taxes also plus 20%. And Inwido had some positive currency impact in the quarter due to stronger Swedish krona. So earnings per share has been improved from SEK 2.05 to SEK 2.46 in the quarter. Looking at year-to-date, sales is more or less in the same level as last year. Gross margin is below last year. And this, once again, we have been compensated lower gross margin with low overhead costs and thereby, operating EBITA has been improved from SEK 232 million to SEK 251 million this year, improvement by 8%. We also had further down the income statement, we can see that earnings per share is somewhat below last year, mainly due to negative exchange impact from Q1. On a only 12-month basis, sales is up to SEK 6.644 billion, operating EBITA SEK 664 million, giving an operating EBITA margin of 10% and earnings per share is now on SEK 7.41. If we then turn page, we go to Page #14. And this page is showing sales and order intake for Q2. You can see sales to the left and order intake to the right. You can see 2018, '19 and 2020. As we said before, sales was plus 1% in the quarter and also organically, it's also plus 1%. North was on the same levels last year in the quarter when it comes to sales and South was plus 3%. COVID-19 had a negative impact on a direct sales model in Finland, and also negative impact in Ireland and in Great Britain. Then in South, e-Commerce has been compensated to lower sales in U.K. and Ireland, and e-Commerce had a growth of 44% in the quarter and now stands at 30% of the total sales of the group in the quarter. You can see the order intake to the right. The order intake was plus 2% compared to last year. North minus 4% and South plus 11%. And here, e-Commerce has an increase of 29% in the quarter you can see the order intake. The order intake was plus 2% compared to last year and somewhat below the level of 2018. If we then turn to page, we go to Page #15. This page shows the backlog from Q2 2015 until Q2 2020. For Q2 2020, we started with a higher backlog in the quarter compared to last year. And then the order intake grew by 2%, where sales was plus 1% in the quarter. And thereby, the backlog continued to grow in the quarter and was ended the quarter plus 12% compared to last year, equal to SEK 1.262 billion, SEK 135 million higher backlog this year compared to last year. And a backlog of SEK 1.2 billion, SEK 1.3 billion is the highest backlog ever for Inwido end of a quarter. If we then go to next page, we go to Page #16. This page shows the operating EBITA margin and also operating EBITA. To the left, you can see Q2 and to the right, you can see year-to-date, January to June. You can see 2018, '19 as well as 2020. If we start with the quarter, the margin has been improved from 10.9% to 11.8% this year, and we're also above the level of 2018 of 10.6%. Comparing to the last 2 years, gross margin has been lower compared to last year. And then this has been compensated by lower overhead costs and thereby improved operating EBITA margin. The operating EBITA margin of SEK 202 million, that is above SEK 200 million, and that is the second time that Inwido has reached above SEK 200 million in the second quarter. Looking at year-to-date, we can also see improvements. The margin has improved from 7.3% to 7.9% this year; and looking at 2018, was 7.7%. And also year-to-date, we had the same tendency, lower gross profits or gross margin, and then it has been compensated by lower overhead costs and improved the margin compared to previous year. If we then turn page, we go to Page #17. This page is showing the net debt versus operating EBITA to the left; and to the right, you can see the cash flows from operating activities. Net debt has decreased in the quarter and was end of the quarter SEK 1.330 billion, a reduction of SEK 895 million to last year. Inwido has, during the last 2 years, reduced net debt by more than SEK 1 billion, SEK 1.56 billion if we compare to June 2018. Looking at net debt versus EBITDA, it has been reduced from 2.8 to 1.7 when we exclude the IFRS 16 impact. And if we compare that to 2018, it was around 3.2. So a reduction from 3.2 2018 to 2.8 2019 and now 1.7 in 2020. Inwido has deferral of taxes and fees of SEK 68 million in the quarter. If these would have been paid in Q2, the net debt versus EBITDA would instead have been 1.8 and not 1.7. If we include IFRS 16, the net debt would increase by SEK 371 million, and the net debt versus the EBITDA would have been 1.9 instead of 1.7. If we look to the right, we can see the cash flows from operating activities. The cash flow has been strong in Q2 or in 2020. The graph illustrates cash flows from operating activities January to June 2017 to 2020. Please note that 2017 and 2018 are excluding IFRS 16, whereas 2019 and 2020 are including IFRS 16. The operating cash flows have been approved, thanks to improved results when we exclude a negative currency impact, less tax payments compared to last year and then improved working capital. The main contributor has been increasing operating liabilities, and this includes the deferral of taxes and fees of SEK 68 million, which will be paid in Q3. So we had a negative impact of this SEK 68 million in Q3 when it comes to the cash flows. I'll now hand over back to Henrik, he will make a short summary before we open up for questions.

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

So next page, please, Page 18. So if we summarize the second quarter, we saw overall good consumer activity and particularly a strong e-Commerce performance. We've seen the fifth consecutive quarter of strengthened margins with continued good cash flow development. As I mentioned, COVID-19 impact on the customer side, mainly in the U.K. and Ireland and in the direct-to-consumer sales in Finland, but also some operational disturbances impacting efficiency. We've got detailed plans to take out costs if and when we need to, to face any fluctuation in demand, but we're also ready to capture opportunities in segments that are growing. And we entered the third quarter with a stronger order backlog than the same time last year, but the long-term consequences are still difficult to predict. Next page, please, Page 19. That was all from us. So with that, we open up for questions. So back to the operator, please.

[Operator]

[Operator Instructions] First question comes from Adela Dashian from Handelsbanken.

[Adela Dashian, Analyst]

First of all, I'd like to congratulate you on a very strong report by challenged times. That's very impressive. Then for my questions. Firstly, I'd like to ask about the e-Commerce platform. You experienced solid growth in Q2. What are your expectations for this segment going forward? If you could please give us an indication of what level of growth or a portion of total sales that's sustainable for Inwido as you release the e-Commerce?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. Thank you very much, Adela. So to answer that question, I think it's -- in the near term, obviously, we've got a strong order backlog in e-Commerce as we closed the quarter, and we had a good order intake in the quarter. So in the near term, we expect to see healthy growth. In the longer term, our ambitions that we signaled at the Capital Markets Day last year was without a specific time frame, we said that we have an ambition to double that business. And that will require considerable growth, and we want to maintain considerable growth. Whether it's sustainable to maintain that at the 44% level, I think it's maybe over time questionable, but we're targeting considerable continued growth.

[Adela Dashian, Analyst]

Okay. Great. And then secondly, you were able to bring down the net debt-to-EBITDA level quite dramatically in the quarter. Do you feel like you're in a better position to act on special acquisition targets today than you were in the beginning of the year despite COVID-19. So essentially, I'm asking how the M&A market is holding up for you?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. I think it's -- we -- I mean, obviously, we are in a situation with even better strategic flexibility given that the net debt situation is even further improved and the balance sheet is stronger. The overall market is still -- there's a lot of interesting opportunities, and we continue to have dialogues but with the exact timing of -- I mean as we've said, M&A is a clear strategic intent for us and a clear part of our strategic agenda, exactly when that will happen, I think it's still a bit too early to say.

[Adela Dashian, Analyst]

Okay. Thirdly, if I could please also ask about the industrial market. It's clear to your comments today that the consumer market is performing better at this point. So what are your expectations for the industrial market going forward?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. I think from our perspective, that's maybe the area where it's most typical to have clear expectations, given that there are a lot of factors impacting, let's say, the desire for new homes as well as logistics in the construction process. So underlying, we do see in all our core markets, say, long-term underlying demand for new homes but the timing, I think, is very difficult to say. There are factors, I would say, pointing in a more positive direction, but they were also factors pointing in a more negative direction. So it's really an area where we're preparing for any scenario to be quite honest.

[Operator]

Our next question comes from Carl Ragnerstam from Nordea.

[Carl Ragnerstam, Analyst]

It's Carl here from Nordea. I have a few questions. First of all, if you could comment on the ramp-up in U.K. and Ireland. And what production pace you are currently running at roughly if you compare to a normalized level or...

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes, it's -- we're -- I would say we're roughly on average. We have 3 producing units over there, and it's roughly at 75%. Ireland, a bit more. Ireland is almost up at 100%, and U.K., around 75%.

[Carl Ragnerstam, Analyst]

And in terms of consumer demand in these markets, is it still healthy? Or is it more uncertainty? Or what do you see there?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes, I think consumer demand also there, it's -- I mean, I would say that those markets are actually still in the process of reopening up to some extent. Consumer demand has been healthy as that has started up, and it's been good. Whether that's sort of a backlog from the shutdown or whether that's a more permanent positive trend, it's a bit too early to say. But the initial indications as we've opened up has been quite positive.

[Carl Ragnerstam, Analyst]

Okay. Perfect. And I mean, your order intake growth in South was 44%, if I remember correctly. And could you perhaps try to split it between the markets, I mean, Denmark, U.K.? And I think you gave the number for e-Commerce.

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. Yes. So e-Commerce order intake growth was around that. It was just below 40%, but the overall order intake growth was plus 11% in Business Area South. The key driver of that is obviously e-Commerce, but also strong performance in the Danish units. Order intake is actually down still on a total level in the U.K., but obviously, in the process of recovering as we kick back up fully. But the key drivers of that is e-Commerce and Denmark.

[Carl Ragnerstam, Analyst]

Okay. Perfect. And you also mentioned that you had operational disruptions in Sweden and Finland. I mean, was it primarily in the first few months in the quarter? Or do you still see or experience such effects in your production units in these countries?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

No. It was predominantly linked to the earlier part of this. And the parts actually was, to a large extent, driven by logistics issues timing. As most of you are aware, we do basically just in fine production of tailor-made window. And the supply chain lead times are critical to ensure full efficiency. So we have to add some extra buffers, which impacted efficiency. And then secondly, then reinforced by the -- some increase particularly in some of the geographies.

[Carl Ragnerstam, Analyst]

Okay. Perfect. And the final one for me, if I may. If you could update us on the competitive landscape, whether you have seen any particular changes now after or -- yes. Now we have had COVID-19 impact for a few months?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

In the Nordic region, it's actually relatively stable. I would say there is, on a local level, some dynamics, but relatively stable as a whole. The most dynamic has actually been in the U.K. where 2 of the major players in the installer segment or competitors of our stem have actually gone through either administration or bankruptcy and are on their way, either in the midst of that or on their way out of that right now. So that's been more dynamic. And I think we've been, obviously, as a big player, relatively stable through that process. But that's where we've seen the most radical change.

[Operator]

[Operator Instructions] Our next question comes from Kenneth Toll, Carnegie.

[Kenneth Toll Johansson, Financial Analyst]

You talked a bit about both lower gross margins but also lower overhead costs that mitigated this. I guess that the lower gross margins are partly a reason for the COVID-19 disturbances, but maybe the lower overhead costs have also been a result of this. I imagine that maybe salespeople may have not been able to travel as much as they used to do and so on. So how sustainable are both the sort of lower gross margins, but also the lower overhead costs once the COVID-19 effects disappear?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. We're not planning for the lower gross margins to be sustainable. So we're -- obviously, we expect there were -- you're right in the sense that there are some production disturbances and also the shutdowns that we've had has impacted gross margins negatively. So we should be able to recover those again as we see businesses coming back into full swing. But you're also right in the sense that the -- we've had temporary benefits on the overhead side. As, for example, we've had furloughs in Finland and the U.K. due to limited activity on the customer side on, for example, sales cost and administration costs. And as we get back into full activity again, that -- some of that cost will come back again. So your summary is in that sense, basically correct.

[Kenneth Toll Johansson, Financial Analyst]

Okay. Then I wonder when we talk about Finland, you said that you had some disturbances in the direct sales model, but were you able to have any work around there? Did -- I mean, did sales just stop completely? Or could you find other ways to reach our customers and keep sales volumes decent?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

For a short period, a couple of weeks, we were almost at the standstill, I would say. Then successively, we found other ways to approach, both to generate leads and to approach customers to kick back up. And now successfully, if it's open back, obviously going back to normal. But there were -- I would say there were a couple of weeks in late March, where it was almost at a standstill. Obviously, there was, as in many markets, a large uncertainty also in terms of what was actually allowed and what wasn't allowed.

[Kenneth Toll Johansson, Financial Analyst]

Okay. And finally, you have very, very good growth in the e-Commerce that we talked about earlier on the call. And do you find that you have production capacity enough to cater for this strong growth? Or are there logistic challenges? Or how easy is it to grow so much, so to say?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Look we've been -- I mean, in that sense, we've been fortunate that we've had a very clear plan to drive considerable growth in this business. And hence, we've made continuous investments. So we did a quite substantial CapEx in 2018, 2019, expanding the capacity in one of the plants in Estonia to enable growth, and we're now capitalizing. And I think the fact that we've gone from -- I guess, we've been averaging in the range of 10% to 15% growth in the past quarters, now it was considerably more than that. But it was still plan -- part of a plan to grow. So we have expanded our footprint to cater for that.

[Kenneth Toll Johansson, Financial Analyst]

Okay, great. And then I think that you mentioned that we should maybe not expect working capital to grow even lower after the first quarter since you have managed to take out quite a lot of working capital. But still, you still have a very good performance. So is this how low the working capital can go? Or were there any sort of unusual effects at the end of the quarter that brought down working capital?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

We obviously have the SEK 68 million of tax and fee deferrals, which is sort of synthetic improvement. But I think, to be quite honest, we were also positively -- it was positive in terms of how quickly we could do more. So I would say in the short to medium term, we're not expecting to maintain this pace of improvement. In the very long term, we will continue to do structural activities to be more cash efficient. But in the near term, this improvement rate is not going to be sustainable. So we will maintain and slowly try to improve this level, but not at the rate that we've seen in the past couple of quarters. I don't think that's a fair. That will be too much of a challenge for us.

[Kenneth Toll Johansson, Financial Analyst]

Okay. And then a final question. Do you have any sort of lockdowns or obstacles in your production right now? Or has everything sort of opened up?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. We have no -- I mean, there were -- when you run as many factories as we do in as many geographies, I'm sure that there's a single obstacle as we saw. But the only area where we're not -- where there is a structural COVID reason not to run full capacity is actually the U.K. where we're still working in the process of reopening, as I said. But in the other locations, all plants are running, and we've got the right circumstances also with regards to supply chain and the vast majority of all places to get to full operations.

[Kenneth Toll Johansson, Financial Analyst]

Yes. So your delivery time should not increase, although you have a very strong order book now in the third quarter?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Well, there might be pockets of increased lead times in certain segments, in certain geographies, but as a whole, no.

[Operator]

Our next question comes from [ Jules Sibley ], SEB.

[Unknown Analyst]

Just 1 quick question from my side regarding potential future M&A. So do you have any particular segment or country that you're interested to expanding, I mean, e-Commerce or are you planning to expand into Europe, Germany, for instance?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. So I think in terms of that, our key priorities from our M&A -- overall M&A priorities still stand in the sense that the dialogues we have are either in the Nordics, in the U.K. or in the German-speaking regions of Europe, basically. And that's where we're also focusing our efforts. We see, as we've said before, long-term, interesting potential in the U.K. market. We see, in some pockets, further opportunity to consolidate the market in the Nordics and then we see a lot of interesting links and opportunities between our current operations and the German market. So that's where we're targeting the dialogues that we're having, and that's where we're going to target our future activity.

[Operator]

Our next question comes from Roland Könen, Value-Holdings.

[Roland Könen, Fund Advisor]

Most of them has already been answered. Just 1 question is left. It's an add-on question on the government subsidies of the SEK 60 million. Could you please elaborate a bit on how much of the lost earnings are compensated with these subsidies?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. It's really -- it's hard to say that given the complexity of the operations. So I can't really give you a straight answer on that. I mean what we can say is, this is compensation for furloughing, mainly production employees, but also white collar employees. And it's a way -- it's been supportive in the sense, but otherwise we would have had to do permanent staff reductions to take out the costs during this period. But -- and it's -- mainly U.K. is the majority -- absolute majority of this. So exactly how much of the potential income this compensates for isn't an answer, I could say, in sort of straight at the bat. I don't know if you want to add anything to that, Peter.

[Peter Welin, Deputy CEO & CFO]

Even though we received these subsidies, we still made a loss in U.K. in the quarter. And last year, we made a positive result in the quarter.

[Roland Könen, Fund Advisor]

Okay. Fair enough. And congrats for the Q2 results again.

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Thank you, Ron.

[Peter Welin, Deputy CEO & CFO]

Thank you so much.

[Operator]

Our next question comes from Carl Ragnerstam, Nordea.

[Carl Ragnerstam, Analyst]

It's Carl here from Nordea, again. I just have 1 more from my side. I mean, regarding the green deal, we have seen, I mean, several, yes, different messages for Europe, we saw one communication in the U.K. And can you comment how this will or could potentially impact you and your business? I mean it's obviously quite difficult for you to say right now, I guess. But do you feel that you have the right product assortment and so on in order to capitalize on these programs?

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

I think, overall, I mean, without speculating, exactly when and how anything like this might happen, but if it happens, I think we're in a good situation to capitalize that in basically all our geographies. So we will continue to monitor that. I think in all the geographies where there's dialogue around this, we will continue to monitor it closely. Then those programs are a bit different by different geographies. Some of them are clearly targeting window replacement because it's a good way to save energy in your home. Others are more targeting sort of general improvements and can therefore be used for heat pumps and roofs or whatever else things you might do. But we're staying really close to it, and we feel that we're in a good position to capitalize on it, if it happens.

[Operator]

There appears to be no other questions. So I'll hand back to the speakers now for any other remarks.

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Yes. We have actually 2 other questions that come in via e-mail. The first one being e-trade. And the e-trade increasing then to 13% of sales. And the question is how -- what the margins are like in this -- within e-Commerce comparing to the rest of the business? And the e-Commerce margins continue to stay above the average of the group, which is obviously pleasing to see. So the growth in that sense in the quarter has not been at the expense of margins, but it's actually growing. And if anything, margins are actually increasing in the quarter. And there was also 1 more question, which was relating to the sustainability or the ESG slide and about being a good place to work and how we measure that. So we do employee satisfaction measurements in all our business units on a regular basis. The last one we did was in November of last year, and that's pleasing. It then showed a quite considerable improvement versus the one we did before. We measure that and we actually incentivized managing directors to continuously work with employee satisfaction, and they have part of their variable compensation based on that actually. Those were the questions we have via e-mail. No further questions, operator?

[Operator]

No. There appears to be no other further questions.

[Henrik Hjalmarsson, President, CEO & Executive VP of North]

Okay. Then we close this call, and we thank you very much for your attention. And wish you all a great summer. Thank you very much.