Inwido AB (publ)

STO:INWI

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 report conference call. [Operator Instructions] I must advise you that this conference is being recorded today, Wednesday, 6th of February 2019. I'd now like to hand the conference over to your first speaker today, Mr. Henrik Hjalmarsson. Thank you and please go ahead, sir.

[Henrik Hjalmarsson, President & CEO]

Thank you, Maria. Good morning, everybody, and welcome to the presentation of Inwido's Q4 and full year results 2018. My name is Henrik Hjalmarsson and I am the President and CEO of Inwido. We will give you a short summary of the quarter. I will talk a bit about the overall market development, some key highlights from the quarter and the year and a short perspective on the outlook. I am also joined by Peter Welin, CFO and Deputy CEO, who will then give a bit more of a deep dive into the financial performance of the quarter.As Maria said, we'll -- we should spend about 25 to 30 minutes presenting and then we will open up the line for questions.Could we please shift to Slide 2. Just before we get started, I would like to say a few words about my predecessor, Hakan Jeppsson, who several of you have either met or talked to or known well. Hakan was instrumental in building the Inwido we have today and his strong drive, great business acumen and not the least his considerate leadership to a large extent brought us where we are today. We will miss Hakan as a colleague and as a friend and as a great boss. But fortunately, one of Hakan's key strengths was to build capable teams, and we all feel we stand well prepared to take over and lead Inwido to further success in creating more shareholder value going forward.Could we please shift to Slide #3. I also just want to take the opportunity given this is my first earnings call to say a few words about myself. I have been with Inwido about 1.5 years and have during that period run the businesses in Sweden and Norway. In that capacity, I have obviously also been a member in the group management team who worked closely together with Hakan and the rest of the management in defining the strategy Simplify that we are now rolling out and starting to gain some positive impacts from. Before I joined Inwido I spent the past 10 years in the food business, Findus, latterly as CEO of, first, the Swedish and Danish business and then the entire Nordic business. I have had the good fortune of working myself through most of the functions in being responsible for supply chain, sales, marketing, et cetera. I am a mechanical engineer by training. And I live just outside of Malmo in a town called Lomma with my wife and 2 wonderful boys, albeit maybe sometimes a bit lively.Next slide, please. Just to summarize some of the market conditions then, Inwido's performance in the quarter and for the full year and also some of the key priorities going forward. So next slide, please, Slide #5. So what do we see in the market then? I think it's worth highlighting that we are obviously active as the -- Europe's leading window supplier and one of the leading door players in a quite fragmented market in many ways; both obviously with geographical differences but also more importantly by channel differences in the geographies.But I think there are a few key themes that we can see in the markets in quarter 4. One of them is obviously that we see an industry market that's turning down in some geographies and we see that both in terms of building starts but also new permits for new builds. This is particularly true for the markets in Sweden and in Finland. However on the positive side, we see a continuing healthy consumer demand, but we also see that we have some local variations in that.We are -- in the Swedish market, for example, we've had a softer consumer market development for a while. Whereas in Denmark, we are with healthy consumer demand and in fact -- and I will get back to that -- we are doing a really good job in capitalizing our development as well. Based on these two we see varying competition pressures but particularly in Sweden we see quite strong competition and it's an impact of obviously the 2 former bullets.Although we are -- our home market by choice is the consumer market in Sweden and also in Finland we have are the 2 markets, where we have some industry business of scale. What we also see when we see a turndown in the industry market is temporary disturbances on the consumer mind -- consumer side, sorry, as competitors who are normally more active on industry side try to go in and fight for deals on the consumer side. And that tends to create some temporary disturbances there as well.Consumer confidence is turning a bit down but it's still on very healthy levels and we also know that we have -- and we see that we have some underlying renovations demand in some of the markets. And we have seen that raw material prices on some of the key input materials that we use, we have had some inflation and Peter will actually come back to that a bit later in the presentation.Next slide, please, Slide 6. So if you look at the -- at our performance in the quarter, I think when we look back at quarter 4, 2018 with some reflection, I think we will be able to say that it was a -- in a sense a quite dynamic and almost in some respects a bit turbulent quarter but that we managed those circumstances quite well. And overall we are happy with the performance in the quarter.Sales development continued to hold up well and the key -- and we had some really strong segments which we will come back to, the key deviator which led to a slight organic top line deterioration was actually Elitfonster in Sweden and Pihla, Tiivi in the Finnish market.One of the key contributors is the e-commerce operations we have with e-commerce growing organically over 30% and with good margins, which is really contributing to the overall margin developments in the business. And also showing that the conscious e-commerce investments we've made over time is actually paying off in a really nice way.We show the second highest operating EBITA so far in a quarter 4 with an improvement year-over-year, as you see. The Danish businesses are delivering well. I think we have to say that we are really happy with the way we -- the Danish market yes, is a strong market particularly on the consumer side but we are doing a really good job in capitalizing on that development. Particularly in terms of managing our overall business portfolio and our margin mix.And the key deviator, based on what I talked about before in terms of market development and the competitive pressure, Elitfonster in the Swedish business.The order backlog at the end of the quarter is 7% down and I'll -- Peter will come back a bit more to that later. Nice to note is that the consumer share, which is a very, very conscious strategic move from our side, is growing. And it's actually growing not just in the geographies where we have a strong consumer sentiment where there is like for example in the Danish business is also growing for example in Elitfonster and some of the other key Swedish businesses where we see a growing consumer share, which is exactly in line with our long-term plan.The cost efficiency initiatives in the savings program we have initiated is starting to pay off. Peter will talk a bit more about that later. And we are in progress with implementing our Simplify strategy, obviously, not starting to see any major impact in business performance yet. We are still in early days but the adaptation is great that we see obviously a clear potential from this as we've communicated before.Next slide, please, Slide 7. Looking at the full year development and we have to say that 2018 has proven to be a tougher year competition wise than we had anticipated when we started the year. We -- and that's particularly true then in Sweden and Finland and particularly too for the industry segments in those markets.Overall I think we've managed those challenges well. And we are obviously particularly with what we've done in terms of capitalizing on the strong market in the Danish companies, and not the least as I said before, the great development we have in our e-commerce operation.Net sales overall for the year increased by 5%. We are strengthening our EBITDA and the operating EBITDA margin is a slight deterioration versus last year. We're carrying some poor performance from earlier in the year. So despite our nice recovery and margin in quarter 4, we still see a slight deterioration over the year; but overall very healthy levels. And I think we should also note that particularly in the tougher climate we are an absolute standout in the industry in terms of our ability to over time generate healthy returns.I talked about the fact that the competition is tougher in general. The picture is a bit scattered, however, and -- but in general that's the case and particularly true for the markets for the geographies in Sweden and Finland.We have a -- the new governance structure Simplify for with much better customer and consumer focused decision making closer to the market, and improved efficiency, was launched in quarter 4 and we starting to see impacts of that. And we can also note very satisfactory turnarounds in both the companies in the U.K. and the companies in Norway, going back into profit for the year.The Board is proposing a dividend in line with the dividend policy, taking into account both the net profit and our capital structure, and of SEK 2.5 and which is obviously then also taking into consideration the net debt to EBITDA situation, which Peter will come back to later.Next slide please, Slide 8. Looking at the operating segments, Inwido North, as I mentioned a little bit before, where the key geographies are, the companies in Finland and in Sweden had a tougher year with a more demanding competition than we'd expected early in the year. We see some decreasing industry market volumes as I talked about before, which means that competition is increasing.We obviously have a large number of mitigating actions to meet this. And we are really focused on also taking some of the key structural decisions that deliver both, let's say, manages these -- some of these challenges and competition short term but creates a stronger standing Inwido in these geographies in the long term.Simplify will definitely generate some benefits in these markets. We see a number of consumer growth initiatives so I'll come back just to mention a couple of those a bit later. And we're also taking efficiency measures. As I said, Peter will come back to some of that, which is impacting positively.I talked about the fact that the Norwegian business is back into profits and displaying that actually in a quite remarkable recovery in the quarter. Sales is down by 1% in the quarter and operating EBITDA margin as a consequence of the tougher competition is also slightly down. And the order backlog at the end of the quarter is 14% down.Next slide, please, Slide 9. If we then look at the other operating segment, Inwido South, to some extent -- or I mean overall, a really strong performance. The markets in the Danish geography, where we have some of our bigger companies in this operating segment, is stronger, particularly the consumer mind -- the consumer part. But I have to say, we're also doing in the market and in those companies a really strong job of capitalizing on that stronger market. And that's showing really positive results and for some time now.I mentioned before, e-commerce has a really strong growth, over 30% organic growth, and the profitability development is also very satisfying. So the long-term investments that we're making in this area is paying off nicely and we see good potential there obviously.We've achieved a turnaround in U.K., as I mentioned. And we're seeing that very clearly in quarter 4. Reported sales is 16% up, the EBITDA margin is strengthening healthily, now at 19.1%, and the order backlog is actually 14% up year-over-year.Next slide, please, Slide 10. Just briefly looking at the outlook, and pretty much in line with what I mentioned before when we look in the rear-view mirror.Overall, the industry market is softening. It's not dramatic but it's noticeable. The new build volumes are still on relatively strong levels, but it is coming down in relative terms.The consumer confidence is trending slightly down, but it's still on healthy levels overall, and particularly for the longer term, we clearly see that the renovation demand in several of the key markets in the -- in Northern Europe is actually is there. So there is an underlying demand.And we are -- yes, I think that pretty much summarizes it, that the markets in Sweden and Finland based on the industry sales development, industry market development is still a bit challenging, but there is a consumer market opportunity.The e-commerce segment is expected to continue to grow, both in terms of increased share of wallet, so to speak, but also an increased offering overall on online as in other -- many other industries. So we see that trend continuing. But we also know that quarter 1, which we're stepping into now, is low season, and there is lower consumer activity in the quarter, and in the very short term, that's obviously a consideration to keep in mind.Next slide, please, Slide 11. Looking at the key priorities in the short term, obviously getting full implementation across the industry and leveraging the new Simplify strategy fully is the key priority, enabling customer-focused and decentralized decision making, and making sure that we're close to the market in decision making. Get that implemented and leveraging results from that across the group, continuing to strengthen the balance sheet to allow for further acquisitions.Obviously, the initiative battery that we had across Elitfönster, which is -- has been one of the key challenging companies in the operating segment North for the quarter and partner for the year, both in terms of efficiency initiatives, but also critically in terms of consumer growth initiatives. One of those being Elitfönster Pa Plats, a new convenience-focused and consumer-focused proposition that's being rolled out in the market.We will obviously continue with cost and efficiency improvements across several of the geographies and several other companies, and also continuing investments in IT and digitalization, and particularly in the Simplify model, where decision making and let's say developing the proposition to the customer is done increasingly locally, closer to the market. Continuing to find the right tools and business support to grow in their respective focus categories, and focus market is going to be critical going forward for us.So with that, I'm going to hand over to Peter Welin, CFO and Deputy CEO. Peter?

[Peter Welin, Deputy CEO & CFO]

Thank you so much, Henrik. We then turn the page and we go directly to page #13. On this page, you can see the income statement for Q4 2018 and '17 as well as the full year results for '18 and '17.Sales increased by 5% in the quarter, and organic growth was minus 2%. Gross margin was improved compared to last year. However in Q4 last year, we had some restructuring costs connected to the cost saving program that was launched end of last year. It's therefore just some unjustified only to comparing to last year when looking at gross margin. The underlying gross margin adjusted for these restructuring costs was a little bit behind this year compared to last year.However, when we look at operating EBITDA and the operating EBITDA if adjusted for restructuring costs, the operating EBITDA was improved this year by 7% in Q4 from SEK 201 million to SEK 215 million.Further down in the income statement, the improvement compared to last year in the quarter is higher due to better operating results and also due to the restructuring costs.Inwido had some restructuring cost in Q4 this year, mainly connected to project Simplify launched end of 2018. On the other hand, we had some positive onetime results related to revaluation of the earnouts and the net results on the restructuring costs was thereby 0 in the quarter. When it comes to Simplify, all cost has been taken now in Q4 2018 and we don't foresee any new restructuring costs in project Simplify in 2019.Earnings per share ends at -- ended at SEK 2.31 for the quarter and operating EBITA as well as earnings per share was the second highest result in Q4 for Inwido. If we look to the right and we look at the full year, sales was improved by 5% and organic growth was also for the full year minus 2%. Operating EBITA ended at SEK 657 million compared to SEK 649 million last year. And EBITA was 90% above last year and earnings per share ended at SEK 7.47, which is actually the highest ever for Inwido.If we turn page and we go to Page #14. This page is showing the cost saving program that was launched end of last year. We launched a cost saving program in Q4 2017. The program had a target to reach SEK 100 million, with full impact from January 2019 and in Q4, net savings within expenses was SEK 35 million adjusted for currency and acquisitions. Total expenses were last year SEK 307 million and expense have been reduced by SEK 35 million and therefore acquisitions and Simplify cost has been added and FX impact, ending to a level of SEK 291 million in Q4 2018.The cost savings of SEK 35 million is a result of the cost saving program launched last year, plus other savings within expenses when comparing to last year. Inwido has the [ side ] savings in expenses also has savings within installation teams in U.K., closure of Varobacka in Sweden, restructuring of Austria and closure of loss-making businesses in Denmark.If we then turn page, we go to Page #15. This page shows sales and order intake in Q4 for '16, '17 and '18. You can see sales development to the left and the order intake to the right. Sales was improved by 5% in the quarter. The organic growth was minus 2%. Inwido North had a negative growth of 7%, whereas Inwido South had a positive organic growth of 8%. Inwido succeeded to fill up sales in Q4 with consumer orders in beginning of the quarter with rather short delivery times and could thereby mitigate the impact of the lower order backlog in the beginning of the quarter.If we look at the order intake to the right, you can see that the order intake was improved by 4% in total, and when taking away acquisitions, it was more or less in line with last year. The lower order intake in the quarter, adjusted for acquisitions, compared to the sales in a quarter is normal for the season. We had a low seasonality, so order intake was SEK 1.5 billion, whereas sales was SEK 1.9 billion. That is quite normal for Inwido looking at our seasonality.If we turn page and we go to Page #16. And this page shows the order backlog end of each quarter from 2013 until this year. The backlog has decreased in the quarter compared to quarter 3, which is normal for the season. However, the backlog end of December was 7% behind last year. The backlog of Inwido North was 40% behind last year, whereas the backlog of South was 40% above last year. Inwido North has a higher degree of industry sales. If you look at the sales, you can see that's a 9% of sales within North are industry sales compared to only 6% of South. So Inwido North has thereby, been more impacted by the turndown within industry market as Henrik mentioned.Inwido has a positive order intake on the consumer orders in Q4, which gave a positive result impact in Q4. At the same time, we also know that the consumers are guided strongly by season, few want to replace winters -- sorry -- few want to replace windows in the winter. And thus, we cannot expect to see the same effect in Q1 2019 as we had in Q4 2018. The lower order backlog within North will have a negative impact on the start of Q1, everything else equal. However when then comparing to Q1 2018, we also had a negative winter impact Q1 last year, affected the performance end of Q1 last year and also affected performance of the beginning of Q2 in 2018.If we then turn the page and we go to Page #17. This page shows operating EBITA and operating EBITA margin for Q4 and the full year for the years '16, '17 and '18. The margin was improved in Q4 this year from 11.3% last year to 11.5%, thanks to higher degree of consumer sales and the cost savings. The operating EBITA of SEK 215 million was the second highest result for Q4 and the result was in 2016 -- the record was in 2016, with an operating EBITA of SEK 227 million. The margin of the full year 2018 was just below 10%, ending at 9.9% and also slightly behind last year of 10.2%. Year 2018 had a tough start mainly due to the cold and long winter, which impacted the result and profitability end of Q1 '18 and also beginning of Q2 2018. The result has thereafter been improved in Q3 and Q4 with high results and the result ended above last year. The margin, however, could not be fully compensated in the second half compared to the first half.If we then turn the page and we go to Page #18. This page shows the development of the acquisitions in 2018. To the left, you could see the accumulated operating EBITA for 2017 for those acquisitions that we have made since 2014 since we made the IPO. In 2017, the acquisition had an operating EBITA margin of 9.4%. In 2018, the results of these acquisitions have been improved by 38% and the margin has been improved by -- to 11.3%. The cost saving program, synergies and the performance within e-commerce are the driver behind the improvements this year compared to last year. With this page, we want to show and explain that the margin increase in '18 is not related to the acquisitions. The later acquisitions are more or less developing according to plan and contributing positive to the EBITA margin.And if we then turn the page, we turn the page to Page #19. This is the final page for the presentation. We will thereafter this page open up for the questions. This page shows net debt and net debt versus EBITDA latest 2 years. Net debt has decreased in the second half of 2018. This is normal for Inwido. The seasonality of the business can also be seen in net debt development. The net debt versus EBITDA ended at 2.7% and was an improvement by 50 basic points (sic) [ basis points ] since June. Last year, net debt versus EBITDA was improved by 20 basic points (sic) [ basis points ] in the second half. The effort to reduce net debt and improve the cash flow has given effect, however, the level is still above the target of 2.5 regarding net debt to EBITDA.I just received an email saying there was some problems when it comes to the telephone conference, some has been disconnected. But we open up for questions and hope that we have someone on the line.

[Operator]

[Operator Instructions] Thank you. We will now take our first question.

[Johan Dahl, Former Analyst]

Johan Dahl from SEB. Can you just talk briefly about -- you talked about the northern operations, tough market conditions going forward. Both -- it appears that you're both betting on driving volumes and efficiency savings. If you were to focus only on efficiency saving, cost out initiatives, what are you actually doing here in the north?

[Henrik Hjalmarsson, President & CEO]

Yes, Johan, thanks. Henrik here. I think to be -- not to make this too complicated, but I think both of those are actually critical for us because we're specifically talking about challenges in the industrial segment and we have a very -- as you know we have a very conscious strategy over time to drive the consumer share up, which is both positive in terms of a more stable overall demand profile and also positive in terms of a higher margin potential. Looking specifically at cost management, it's largely actually around some structural activities that's been ongoing throughout this year with the closure of the plant in Väröbacka as example. And it's also about overhead efficiency and particularly investing in automating, let's say, overhead and back office activities in general, which will support that. I think also worth -- secondly worth mentioning is obviously ongoing, should I call it manufacturing optimization at the lack of a better phrase, to make sure that we may continuously improve our conversion efficiency. I would say those are the critical aspects at the moment.

[Johan Dahl, Former Analyst]

Of these cost out measures you mentioned, how much of that is -- what was completed in 2018 and what is sort of new actions?

[Henrik Hjalmarsson, President & CEO]

I actually cannot give you a firm straight answer on that. Some of that has been delivered in '18 and some remains to be delivered in '19, but we'll have to come back with a more firm answer on the exact split of that, unfortunately.

[Johan Dahl, Former Analyst]

Okay. Would you be able to provide a number? I mean you talked about SEK 35 million positive impact Q4 from cost savings. Could you just talk about what was that for the full year 2018? And what's sort of comping over into 2019?

[Henrik Hjalmarsson, President & CEO]

No, not a number that I can give you now straight off the back. But it's -- we can make a bit clearer estimate and come back with that at a later point.

[Johan Dahl, Former Analyst]

Please do. Final question just on working capital. Can you just get the -- describe where we stand now year-end 2018 initiatives ongoing to improve the situation and what's the opportunities or potentially headwinds on that area?

[Peter Welin, Deputy CEO & CFO]

We have some increase in net working capital in 2018 mainly related to the restructuring. That's the problem we had last year when it comes to our production disturbances. So we're built in even more inventory et cetera in 2018, underlying and we have built up since more inventory. We are focusing on when it comes to working capital. I think we are a little bit high right now and I see some improvements when it coming into 2019 when it comes to working capital. And if you look especially in December, you can see that the liability, short-term liabilities was a little bit higher than what perhaps we see for the future that can be improved.

[Johan Dahl, Former Analyst]

Well is there any particular reasons for that improvement in working capital next year that you're seeing?

[Peter Welin, Deputy CEO & CFO]

We -- I think we can reduce our inventory. Mainly it's connected to the inventory that we can take down the inventory during 2019 comparing to 2018.

[Operator]

We will now take the next question.

[Carl Ragnerstam, Analyst]

It's Carl Ragnerstam from Nordea. Can you hear me?

[Henrik Hjalmarsson, President & CEO]

Yes, we hear you loudly.

[Carl Ragnerstam, Analyst]

Can you perhaps quantify the negative earnings impacts from raw materials and pricing in Inwido North in the quarter? And also is it possible for you to implement further price increases? I mean due to the increasing competition.

[Henrik Hjalmarsson, President & CEO]

If you look at more historic perspective, Inwido has been very good to increase sales prices in relation to the material prices. So when we had a material price increases, we could mitigate that impact to increase the sales prices. However this year especially now in Q3 and Q4, this has not been the case. And I cannot give you any strong figure here, but it does -- it is the reason why the margin -- one of the main reasons why the margin has been decline in North comparing to last year. Going in the future, of course, it depends on what's going to happen on the markets. If we can see the finished market has been very -- helping very much doing during this winter, we have one of our competitors went into bankruptcy [ Doormosten ] and let's see what's going to happen with them when it comes to the -- for the future. Right now the production is closed. And we see, of course, that if the competition is limited, we cannot make we -- if you take Finland for example, we don't believe that our competitors can be so tough when it comes to prices as they have been in 2018 because they are not making any money. So looking at their income statement and their cash flow they -- it will be hard for them to continue with this price pressure.

[Carl Ragnerstam, Analyst]

Okay. So we can expect some price increases to be materialized in 2019 or further?

[Henrik Hjalmarsson, President & CEO]

In a perfect world and in a normal world, I would say yes.

[Carl Ragnerstam, Analyst]

And one more for me. Can you also comment on the split in the order backlog between consumer and industry in the North segment?

[Henrik Hjalmarsson, President & CEO]

The total backlog of the North is 14% at the end of last year and it's mainly related to the industry orders whereas the consumers is more stable comparing to last year.

[Carl Ragnerstam, Analyst]

And in the South, is it e-commerce driving the order backlog purely?

[Henrik Hjalmarsson, President & CEO]

It's not only e-commerce it's also the other units are having higher backlog. Also if you look at the companies in Denmark and if we look further down in U.K. has also a little bit higher backlog when comparing to last year. So it's not only the e-commerce.

[Operator]

We will now take the next question.

[Rasmus Engberg, Head of Research]

It's Rasmus here at Handelsbanken. It's my turn to ask you a question.

[Henrik Hjalmarsson, President & CEO]

Yes. Welcome back.

[Rasmus Engberg, Head of Research]

I was disconnected from the call in the middle of things so excuse me if this has been said, but let me first start by express my condolences, the tragic events at the end of last year.

[Henrik Hjalmarsson, President & CEO]

Thank you.

[Peter Welin, Deputy CEO & CFO]

Thank you.

[Rasmus Engberg, Head of Research]

I wondered if you could help us understand the dividend cut here. How should we see that really? Is it the function of the acquisitions that you made in the middle of last year or is there anything in the outlook that has changed materially during the fourth quarter that we should sort of be aware of?

[Henrik Hjalmarsson, President & CEO]

I mean -- so I think fundamentally, as I said when I commented the dividend in the presentation, it's a -- the dividend proposed by -- well, first of all, it's a Board issue, rather than a management issue. But the proposition proposed -- sorry the dividend proposed by the Board is in line with the dividend policy, which takes into consideration net profit and takes into consideration the capital structure. And given that our -- despite the nice improvement in net debt to EBITDA during the quarter and in the latter half of the year, we are still on the high side of our targets. And as such, as I said very much in line with the policy, the Board proposed a slightly reduced dividend versus last year. And obviously, the net debt to EBITDA situation that we are in is partly a consequence of some very strategic and elaborate acquisition decisions that we've made throughout the year. So yes, I think that answers your question.

[Rasmus Engberg, Head of Research]

This pretty much does not relate to anything in the fourth quarter. That's what I was wondering. And then I had another question like as we look into Q1, I know it's a really small quarter and you have less consumer sales normally, and it's quite a lot of winter right now. And there was quite a lot of winter last year, so it's hard to say anything. But as we look into Q2, should we then sort of expect a continued increase in the share of consumer order as the decline you see is coming from industrial. That's a pretty reasonable assumption, I guess?

[Henrik Hjalmarsson, President & CEO]

Yes, if you look at the situation as of today, the answer to that question is, yes. And also when comparing to last year, what happened last year was not only there was a winter, it was a long winter and cold winter. So the order intake end of Q1 impacted sales end of Q1, but especially the beginning of Q2. So if we don't have the same long cold winter as in last year, we see a positive trend when comparing to 2018.

[Operator]

We will now take the next question.

[Emmanuel de Figueiredo, Chief Investment Officer]

This is Emmanuel from LBV Asset Management. On your presentation, you mentioned in Slide 6 that e-commerce sales had good margins. Can you maybe just help us understand where the -- when you mean good margins, are they in line with the group or they are bit higher or lower than the average of the group? That's one question. And the second question is, given that some of your competitors are struggling in Sweden, and I believe this is nothing new, does this mean that you have more ability to do M&A? Or actually, there could be opportunities in countries like the U.K. for example?

[Peter Welin, Deputy CEO & CFO]

If I take the first question, when it comes to the margins, the margins of e-commerce is above the group margin, so they are actually a positive impact to the group. And when it comes to acquisitions...

[Henrik Hjalmarsson, President & CEO]

Yes. I mean fundamentally, obviously changes in the capacity landscape, whether it be struggling competitors or others, is in one sense or always an opportunity for some sorts of structural activity, whether it be M&A or something else. But that said, nothing specifically in I think to say on the Sweden/Finland note at the moment other than, other than that. And obviously, the fact that we're continuously evaluating our best options from that perspective.

[Emmanuel de Figueiredo, Chief Investment Officer]

And can I maybe just ask a follow-up, which is, on your outlook, you say that Sweden and Finland is challenging and you've already explained that it mainly comes from the industry part and you claim that there is a consumer opportunity. When you say there is a consumer opportunity in Sweden and Finland, what do you mean by those? You think you're going to get market share because of the way you sell your product? Or maybe if you can just give a[Audio Gap]

[Unknown Analyst]

First one would be on your Q1 and you're highlighting the low seasonality and the lower consumer pace in this quarter. Is this just a hint on the seasonality? Or is there something new because last year also there was low seasonality and lower consumer spending?

[Henrik Hjalmarsson, President & CEO]

No, it's only reflecting the seasonality we have within the business.

[Unknown Analyst]

Sorry, the second question would be on your U.K. business, you talked about the turnaround and it's great to see. Have you any remarks on the outlook for the next months concerning the Brexit? Are there any comments from you?

[Henrik Hjalmarsson, President & CEO]

So far we've not seen any major Brexit impact. When you look at our performance in the U.K., the sales have declined very little. However, the result has been improved mainly related to the cost saving program that we initiated last year. So the result impact is related to the cost savings program, whereas the Brexit impact, so far not seen an impact, but of course is impossible to foresee exactly the future when it comes to Brexit.

[Unknown Analyst]

Third question would be on your depreciation. You are an average of or you had depreciation of SEK 39.3 million at average of 3 quarters and the fourth quarter's what was SEK 46.5 million, is this a new run rate for the next quarters or whether some special effects in the fourth quarter, for example, for the Simplify program?

[Henrik Hjalmarsson, President & CEO]

No, it was not anything special when it comes to Simplify in the Q4. It was extra depreciations Q4, 2017, but nothing extra in '18.

[Unknown Analyst]

Okay. So the SEK 46 million would be the new run rate for the next quarters?

[Henrik Hjalmarsson, President & CEO]

It depends on the when the CapEx was launched. But it's a higher -- we have increased the CapEx during the last year compared to 4, 5 years ago. So thereby is a -- we foresee a little bit higher depreciations for the future.

[Unknown Analyst]

So now the depreciation is kicking in. I was wondering because depreciation in Q3 was only SEK 37 million, so it's a step up of nearly EUR 9 million to EUR 10 million (sic) [ SEK 9 million to SEK 10 million ] quarter-on-quarter?

[Henrik Hjalmarsson, President & CEO]

Okay. I can't give an answer on that specific questions, sorry.

[Unknown Analyst]

Okay. Then my last question also had one question on the dividend and dividend policy. Would you confirm, if you come back to net debt level below the 2.5, would you come back to a payout ratio of 50%?

[Henrik Hjalmarsson, President & CEO]

I think actually we'd have to defer that question to the Board and in the end to the AGM. I mean, we will refer to the dividend policy and then -- and the dividend policy says that the net profit -- the dividend share of net profit should be around 50%. So given that yes, somewhere along those lines. But as I said, it's a Board and AGM issue more than a management issue.

[Unknown Analyst]

I think the dividend is a disappointment today. If you look at the share price, you cut the dividend by SEK 1 and the share price is going down SEK 4 to SEK 5. So I think this is the most disappointing point today. Okay, many thanks for your answers.

[Henrik Hjalmarsson, President & CEO]

Thank you.

[Operator]

There are no further question at this time, please continue.

[Henrik Hjalmarsson, President & CEO]

Okay. Yes, thank you very much, everybody. And we then close this earnings presentation. Thank you, everybody. Bye-bye.

[Operator]

Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.