Meko AB

STO:MEKO

Earnings Call Transcript 2020-Q1

[Operator]

Good morning and welcome to the Mekonomen Group Quarter 1 Report 2020. My name is Anna, and I will be your operator to today's meeting. [Operator Instructions] I will now hand you over to CEO, Pehr Oscarson, your host for this meeting. Thank you.

[Pehr Oscarson, President & CEO]

Thank you. Very welcome, everyone. I'm glad you can join us today. I have Asa Kallenius, CFO, with me. And we're going to guide you through Mekonomen's first quarter in 2020. We had a solid start in the quarter with growth and EBIT level in line with the same period of last year. But then in March, we started to see clear effects from the COVID-19 pandemic. We acted forcefully and with a broad range of measures to mitigate the effects. Thanks to this, our EBIT level in the end of April is at comparable level at the same period last year. Mekonomen is an international company that enables mobility. We have done so for decades, and we will do so in the future. We have a stable and proven business model, and we are well positioned for the future. Then if we move on to Page 3 in the presentation. I'd like to talk a little bit now more about the extraordinary events which we had in March, where we experienced a significant impact from the pandemic in early March, foremost in Norway and Denmark, where the mobility restrictions were deployed very early from the government. In Sweden, we have had less restrictions resulting in less impact, but still noticeable. We believe that the negative development in the markets will continue for some time before it gradually gets better, as the mobility restriction are being eased on all markets. We see now clear signs of mobility reliefs in all our markets, which has led to an increased demand, why we believe that the pandemic is not going to have long-term impact to our industry. At the same time, it's still unsure situation at this point, and we will adapt our business as needed. Then in the end of March, we were exposed to a data breach affecting the business area of MECA/Mekonomen and with businesses in Sweden and Norway. Overall, we were successful in handling the breach. We had good backups and the system are restored and in full use since April 15. We estimate that the incident had a minor negative financial impact to our reported EBIT in Q1. We also expect a negative financial impact in Q2. Losses in both quarters are estimated to be covered by the terms and condition in our cyber insurance agreement. Then move on to Page 4, a little bit about our actions. We acted forcefully and implemented a broad range of contingency measures to mitigate the impact of -- on earnings and cash flows. The main priorities has always been the health and safety of our employees. We have continued to focus on the core business and to make sure that we have a high level of service to our customers. And we have taken -- I'm now on Slide 5. We are taking measures to reduce costs to ensure a strong position going forward, such as secure logistics chains and availability to improve our EBIT through thoughtful actions. We are reevaluating approved and planned investments and focusing on improving working capital. And secure the future financing through early discussions with the banks. And to compensate for the collapsed Norwegian kroner, we have sharply increased prices in Norway from early May, complemented by further adjustments to our pricing in other markets. Approximately 30% of our cost cuts will be permanent, which is possibly for the future efficiency of Mekonomen Group. Then I will hand over to Asa and some numbers.

[Asa Kallenius, Chief Financial Officer]

Hello, and good morning, everybody. Now I am at Page 6. As we heard earlier in the presentation, we had a solid start in the quarter with a growth of 3% and an EBIT level in line with the same period last year. In March, as Pehr said, we started to see clear negative effects from the COVID-19 pandemic. In the quarter, sales declined with 1% and EBIT was SEK 59 million. So far in this pandemic, we have acted very fast and forcefully to safeguard EBIT levels. In April, we will see a decrease in sales, but due to the forceful actions, EBIT is on similar level as the same period last year when adjusted for expected reimbursement from the cybersecurity insurance. And in May, sales has recovered notable in most of our markets, except for Poland. They are still more in the close-down mode than the Nordic countries. Over to Page 6 (sic) [ Page 7 ] some explanations how the results distribute over our business areas. 3 of our 4 business areas are not very affected on EBIT level from the COVID-19 in Q1. FTZ is minus SEK 9 million on EBIT, Inter-Team on the same level as last year and Sørensen og Balchen in Norway, minus SEK 1 million. MECA/Mekonomen was affected from COVID-19 in 2 ways: lost sales due to lower demand; and heavily effect by FX, both at gross margin and FX in the balance sheet. FX is mostly related to the collapse of the Norwegian krone during March. Over to gross margin on the next page. We had gross margin amounting to 44% in this quarter. It is a decline compared to the same period last year. Compared to last year, we had positive effects from synergies and this is seen as additional synergies because we already had synergies at this point last year. And this -- we have a positive impact from bonuses and synergies, even though we had to decrease our forecast for supplier bonuses this year low -- due to lower volume. So it impacts gross margin with plus 0.4%. We have this heavy effect from currencies, as earlier described, from Norwegian krone, Polish zloty and Swedish krona towards the euro, affecting gross margin negatively by almost 1% in the quarter. And in addition, we have a negative effect from market pressure, product mix, et cetera. And this is a combination of lower sales in the business area MECA/Mekonomen who normally have -- has higher margins. And we have also an unfavorable mix -- product mix. Due to the mild winter, we sold less winter-related products with high margins. And also during the data breach in MECA/Mekonomen, we had sales with lower margins due to the fact that the stores needed to purchase from local competition to a higher price than normal, resulting in less margins. So yes, a combination of more than one thing. Now over to the business areas and how they performed in Q1. FTZ is the unthreatened market leader in Denmark with over half of the market share in the independent market. Net sale grew 2% in the quarter with a slightly lower margin, resulting in EBIT of minus SEK 9 million compared to 2019. Despite the slow market development and the comprehensive lockdown from early March due to the pandemic, we believe that we gained market shares in Denmark and we'll have advantage in the future. Forceful action has been taken to mitigate impact from COVID-19 going forward. Over to Page 11. FTZ recently launched a certification for workshops within electric and hybrid technique, where the first 50 workshop as -- have -- will be certified shortly. The FTZ Academy is expanding in size and are now way ahead of the competition in Denmark. The expansion of the academy means that FTZ would be in the forefront and the leading independent player in electric and hybrid training in Denmark. Independent workshops have not previously had access to this kind of extensive training opportunity. Over to next page, Inter-Team, our Polish company. Inter-Team is growing in a fast-growing market in January and February. Year-to-date, February, that is, they grew by 10%. And in March, we see a negative effect of COVID-19. Net sales ended at same level as 2019, and EBIT margin and EBIT was stable. Also here, we have taken forceful action to be -- to mitigate the impact from COVID-19 and the EBIT margin will be a strong focus going forward as it was during 2019. In Poland, we have -- over to Page 13. In Poland, we have increased our service level to customer in Southern Poland by successfully implementing a new warehouse management system, in the recently opened regional warehouse in Tychy, close to Cracow. And apart from increasing service levels to customer, we will also gain increased efficiency and optimization of cost going forward. And then over to MECA/Mekonomen. MECA/Mekonomen are by far market leaders as #1 and 2 in both Sweden and Norway. In the quarter, net sales decreased by 3%, and this is lower due to lower demand followed by COVID-19. And also data breach, of course. EBIT was negatively affected by the lower sales and the unfavorable exchange rate, mostly the collapse of the Norwegian krone. To mitigate that, we, in early May, increased our prices in Norway very sharply to compensate for the weak in Norwegian krone, complemented by further price adjustments also in Sweden. Our recently implemented country-based organization in MECA/Mekonomen will go further contribute to better efficiency in the business area. Also here, very forceful action throughout the operation has been taken and will be taking to mitigate the COVID-19 pandemic going forward. We have a very strong focus within the business area to receive permanent efficiency by cost reductions going forward. Over to Page 15. The merging of the central warehouse is proceeding as planned, where a large part of the project will be finalized during next month. Deliveries to both MECA Sweden and Norway are now made from Strängnäs instead of Eskilstuna. So by this time, we have no deliveries from Eskilstuna. Both MECA and Mekonomen in both Sweden and Norway have a distribution from Strängnäs. Over to Sørensen og Balchen. Sørensen og Balchen is, as you know, a very well maintained and very efficient business. Net sales did decrease by 6% in the quarter due to low demand due to COVID 19. Forceful actions was taken very early and resulted in a stable EBIT margins and EBIT, in line with the same period last year. Page 17. During March, Sørensen og Balchen initiated click and collect to integrate e-commerce with the BilXtra stores. It was a very successful start where the initial team has increased the numbers -- the number of online orders in total, and approximately 40% of online orders since beginning of April are now click and collect orders. That was some information regarding our business areas. And now over to Pehr, regarding market and footprint.

[Pehr Oscarson, President & CEO]

Thank you. We will move on to Slide 19, where we have updated with the number for 2019 on this slide. It's slowly changed over time. Most of the changes in Poland, which is the fastest-growing market. But as you all are aware, many of these numbers, when we talk about GDP and so on, will, of course, change during this year. So I will move to Slide 20 where this is how we normally show our market shares: 15% in Sweden; 25% in Norway; 28% in Denmark; and 4% in Poland. This is the market share when we reflect the whole market, both independent and branded, authorized and other workshops. But I would say, almost none of the other players are competing with us when it comes to size in any of the markets. And Page 21, here we look at the competitors who are most comparable to our business. And as you can see, there is -- and I would also like to say that when it comes to the banded change, it's very few comes up to the same size as we are -- but it -- as you can see, we are very clearly market leaders and with a good distance to our competitors in 3 of the 4 markets. Then I will move on to Page 22. As a large play -- or 23 actually. As a large player, we will continue to drive the industry through innovations. We have a proven core business, which is stable on demand on mobility. Our size and expertise in the industry makes us market leaders. For example, we are the leading aftermarket player within automotive technical training, and that's in all our markets. If we move on to Page 24, we are also the leading aftermarket player within electric and hybrid car competence. And as also mentioned, we most recently launched electric and hybrid training in Denmark, and the competence is very well appreciated. And it was -- I mean, the -- when we launched the trainings, it was fully booked for a long time, almost directly. So it's a very high interest in those trainings. I'm now at Page 25, where we would like to mention that we now also offer the first upper secondary school education for mechanics through distant learning. This is, of course, something which was invented or even fastly invented due to this corona crisis. But this secure continued growth of mechanics despite the ongoing pandemic, and it creates possibilities for the future when distance is not an obstacle. So we are well positioned for the future. I'm on Page 26. FTZ, strong sales culture and high availability. We have Inter-Team who is acting on a strong growing market and have the strong growth. MECA/Mekonomen with an unbeatable logistic operation and market leaders in Sweden and Norway. And Sørensen og Balchen, a very well maintained and efficient company. And we are also -- I would like to mention that we are in the forefront and very highly digitalized in this changing market landscape as we see now. Focus forward, as you can see on Page 27, is profitability. It's growth. And with growth, I mean, organic growth. We have a huge potential to gain market shares in all our markets, and we will succeed by creating the best value for the customers. So finally, Mekonomen Group enables mobility. We have done so for decades, and we will do it in the future as the technology develops and creates new opportunities. Our strong position, our stable business model makes us well positioned for the future. So with that, we would like to open up for questions.

[Operator]

[Operator Instructions] And the first question comes from Mikael Löfdahl from Carnegie.

[Mikael Löfdahl, Research Analyst]

Yes. Hope you can hear me. So I wondered if you could perhaps elaborate a little bit more on MECA/Mekonomen and the huge year-on-year earnings drop that we -- that you experienced in Q1. I mean I can see the EBIT bridge on Page 7 and so on. But given that the data breach as such was so late in March, and then you also mentioned that the financial impact from that was rather limited, I think some of these items that you mentioned on Page 7 is worth commenting. Also the other effects that you mentioned, they are combined some SEK 25 million on a year-on-year basis. So what are they? And also, given that a lot of these effects are related to FX, so apart from you raising prices in Norway, in particular, going into Q2, what's -- I mean, the other items will remain on a year-on-year basis, I guess? So what -- how come you are so optimistic on earnings recovery in Q2, which you have in the outlook statement?

[Asa Kallenius, Chief Financial Officer]

Well, I can start. Yes, you see the bridge, and we are optimistic also for MECA/Mekonomen going forward, even though the gap towards Q1 last year is very large in MECA/Mekonomen. But if we look at the bridge we made, you can see that lower volume. That's both due to COVID-19 and it's due to the data breach. The data breach will be over going forward. We are up and running since April 15. And the COVID-19 effects from sales, we see April, yes, there is a decrease. But in May, it looks really good for MECA/Mekonomen. And nobody knows what COVID-19 will mean going forward. But from what we see today, we see a recovery of the volumes in MECA/Mekonomen. And then to the FX. We have FX-related costs on gross margin. There are SEK 19 million in this bridge. And those -- that negative effect, we mitigated with the price increases we've done in Norway. They are approximately 8%. So they are very sharply increased of sales price in Norway. So we expect the gross margin to also recover going forward. It's an effect we had from the exchange rates from Swedish krona to Norwegian. And Norwegian krone to euro was exceptional during March, the end of March. And that's also -- we have a very large item on the OpEx from FX. And then that's from revaluating the balance sheet items, supply -- account payable and receivable. And that's also to be considered as long as we do not see extremely drop again, that's to be seen as a one-off item because it's just how it looked like in the end of March. And of course, when the Norwegian krone and also the Swedish krona were very weak, we have a great effect. But that effect is also to be seen as one-off item because we won't have it again as long as the exchange rates stay as they are today, and they had recovered. So in April and May, we have positive effects also from the reevaluating of the balance sheet. So I guess that's explanation, and over to you, Pehr.

[Pehr Oscarson, President & CEO]

Yes. Then from a more operational point of view, we also changed the organization in MECA/Mekonomen in mid-February to a country-based organization, which will lead to possible synergies and cost savings. Some of that potential, we got a little bit delayed due to the corona crisis where we needed to focus on other things. But I would also like to say that the cost-saving activities, which we have done since the crisis started is -- very much of them is in the business area of MECA/Mekonomen. And it's also there where we see a large portion of them actually to be permanent and that the cost will not come back. So we'll have that in Q2. That also contributes to the positive view which we have.

[Asa Kallenius, Chief Financial Officer]

Yes. And I can add to that also. That's -- we say in the report that we -- in April, we have a decline in sales from both the data breach, of course, and then COVID-19. But with the forceful action we have taken, we are able to save EBIT, and most of that is, of course, from MECA/Mekonomen business area, taking actions to mitigate this drop we saw in March. So we are quite confident that we will deliver better in MECA/Mekonomen going forward, and March is very, very exceptional. And it's very exceptional with the extremely movements in FX for our most essential currencies.

[Mikael Löfdahl, Research Analyst]

Just a question there on April and also in March. Is it fair to say that March typically is a rather big and important month you in Q1? And if so, how would you describe April for Q2? Is that a bit of a smaller quarter? Or is it more evenly spread over Q2?

[Pehr Oscarson, President & CEO]

It's a little bit -- that's usually -- it's a difficult question because it varies. You should -- it's difficult to split the quarters in that way because we have eastern, we have spring and we have entire changes and so on. So there was a lot of, let's say, movement, especially between April and May due to, let's say, outer circumstances. So we usually tend to combine the 2 months of -- to get a better grip on how we're performing. So it's -- I don't think we can be more clear on that.

[Mikael Löfdahl, Research Analyst]

Okay. Just one also to clarify. April, you're saying that you mentioned the data breach and also the -- what you expect to get from the cyber insurance. And -- but April, on a year-on-year basis, you expect to be unchanged before any payments coming from the cyber insurance? Or how should we interpret that?

[Asa Kallenius, Chief Financial Officer]

Well, we expect April to be on same level on -- sales drops, but forceful action take down cost. And together with the reimbursement, we expect due to the terms and condition in our insurance, we expect EBIT level to be on the same, more or less, than last year. So it's 1 week. So it's when we...

[Mikael Löfdahl, Research Analyst]

Okay when...

[Asa Kallenius, Chief Financial Officer]

Yes. So it's when we can...

[Mikael Löfdahl, Research Analyst]

So that's including what you get from the insurance though?

[Pehr Oscarson, President & CEO]

Yes.

[Asa Kallenius, Chief Financial Officer]

Yes. Yes, it is.

[Mikael Löfdahl, Research Analyst]

Okay. But excluding the actual operational impact? Or do you expect the insurance to cover the operational impact from the data breach in April?

[Asa Kallenius, Chief Financial Officer]

Yes.

[Pehr Oscarson, President & CEO]

Yes.

[Mikael Löfdahl, Research Analyst]

Okay. So what you're saying then is that April, on a year-on-year basis, we can take the data breach and put that aside, then the business in April is expected to be unchanged on a year-on-year basis, despite the drop in sales?

[Asa Kallenius, Chief Financial Officer]

Yes.

[Pehr Oscarson, President & CEO]

Yes. And thanks to the forceful actions in the cost savings. And of course, in those markets where we can use help from the local governments, that's also something which we, of course, have used. So we compensate with lower costs.

[Asa Kallenius, Chief Financial Officer]

Yes.

[Mikael Löfdahl, Research Analyst]

Okay. And just on -- also on the synergies, the purchasing synergies with FTZ and Inter-Team. What do you -- where are they in terms of size? And how much is left?

[Asa Kallenius, Chief Financial Officer]

Well, during -- we said we will have all synergies, the SEK 100 million during 2021. And last year, we have about 70% of those in the result. And it's -- so we are perhaps now at SEK 75 million or SEK 80 million or something like that. So we have the synergies. But each quarter, we make a forecast for the year volume. And since volume drops, we also need to adjust the supply of bonuses percentage. And that's why you don't see more synergies in the bridge for gross margin because you reach certain stairs in the supplier bonus stair, and we needed to take that down a bit due to less sales forecasted for this year.

[Pehr Oscarson, President & CEO]

And you can say, like this. That to reach 100% of better conditions, that is a target which we still are very confident. If that will leads to SEK 100 million, as we said, it's a little bit difficult because of the drop in the volumes. But percentage-wise, we -- it's working as planned.

[Asa Kallenius, Chief Financial Officer]

Yes. And when the volumes recover to what they were ahead of COVID-19, they would be in the result, of course.

[Pehr Oscarson, President & CEO]

Yes.

[Mikael Löfdahl, Research Analyst]

Okay. Just one final for me. Sorry for all the questions. But back to your guidance for Q2. And I'm rather amazed by -- I mean, the fact that you -- if you say that it's unchanged EBIT in the Q, in April so far, and you say that in May, sales have actually then recovered from April, then one could interpret that as May earnings could even be up year-on-year. And now you have basically May in your books. So your comment on that? And I mean, last year, you had -- if you look at EBITDA level, you had SEK 292 million for the entire Q2 versus SEK 116 million in this quarter. I mean, those SEK 292 million although -- are they representative for your Q2, then if you're speaking about April unchanged and maybe May and June, unchanged or even better? That implies then more than a doubling of your results on a quarter-on-quarter basis. You say that earnings or profitability is expected to increase significantly quarter-on-quarter. But it's a doubling of earnings. Is that on the cards?

[Pehr Oscarson, President & CEO]

We don't do guidance in that way. That would be your job to do that.

[Asa Kallenius, Chief Financial Officer]

Yes. No, exactly. And I think COVID-19, it's too early to say that it's over. We do not know what will come later in even this quarter. But what we can say is that April is the same level as last year. Based in that May has recovered. For all markets, except for Poland, they are still in lockdown situation, and we do not know when they would ease up in Poland. But what we can say -- so from the fact we have today is that Q2 will be looking better than Q1.

[Pehr Oscarson, President & CEO]

Definitely.

[Operator]

[Operator Instructions] The next question comes from Andreas Lundberg from SEB.

[Andreas Lundberg, Analyst]

Sorry, but I need to go back to your Q2 outlook. Because as you touched upon now, you expect EBIT, including reimbursement, to be rather flat in April. Doesn't that suggest a pretty sharp improvement of your EBIT margin? And if so, you also say that the second quarter -- do you expect substantially lower sales and EBIT margin compared to comparable quarter last year?

[Asa Kallenius, Chief Financial Officer]

Yes. Yes, you are absolutely right. And we need to correct that because EBIT margin should increase when EBIT is on sale level and sales go down. So it's -- we need to correct that in the report, shouldn't be said like that.

[Andreas Lundberg, Analyst]

But it's the Q2 comment that is incorrect?

[Pehr Oscarson, President & CEO]

Yes.

[Andreas Lundberg, Analyst]

Got it. Also, your comments on no need for liquidity as of now. Is that based on your Q2 outlook as well?

[Asa Kallenius, Chief Financial Officer]

Yes.

[Pehr Oscarson, President & CEO]

No -- yes.

[Asa Kallenius, Chief Financial Officer]

We had good liquidity ending Q1. We still have good liquidity today. So it's an outlook, yes.

[Andreas Lundberg, Analyst]

Okay. But you're going back now to your old covenants? Is that fair to say, after March 31, I think.

[Asa Kallenius, Chief Financial Officer]

We have sound financials and good liquidity. But we are in discussions with the banks for Q2 and onwards regarding additional amendments to adapt and update loan agreement to the change we see due to COVID-19. We will make an amendment with the banks. We are in discussion right now. But there is no need for extra liquidity. Our liquidity is good.

[Andreas Lundberg, Analyst]

Okay. And lastly, on the demand side. Have you seen so far any -- or what do you think about going forward when it comes to pent-up demand given that there's been a lockdown in some of your markets?

[Pehr Oscarson, President & CEO]

Again, I...

[Andreas Lundberg, Analyst]

No. I mean on the demand side, have you seen a pent-up demand now? Have you already seen it? Or do you expect to see it now when -- while at least some of your markets have been in lockdowns?

[Pehr Oscarson, President & CEO]

Yes. I think it's a little bit difficult to know exactly because there is -- I mean, markets like Denmark and Norway are still in partly lockdown. And so it's not fully open. But when -- as restrictions are lifted, then we see an increase in demand. Then the net or -- then it was definitely an effect in, I would say, the end of April and beginning of May, where it was postponed services and postponed tire change and so on, which made a bit higher demand than normal for a couple of weeks. Now that's probably more back to normal. But it's different in all the 4 markets. Poland is still very slow, and it's still a very restricted society. And Sweden has been quite stable all the time, but it's not like 100% in anywhere. So that is still, I would say, possibilities to improve better when restrictions are opened up or lifted.

[Andreas Lundberg, Analyst]

So if you have no restrictions during the summer or more easening of restrictions, do you expect that to help your demand?

[Pehr Oscarson, President & CEO]

Yes.

[Mikael Löfdahl, Research Analyst]

People also have more time and would stay out.

[Pehr Oscarson, President & CEO]

But there's a lot of recent speculation. And to some -- it's difficult to summarize. But for example, if there will be no restrictions in traveling domestic, but still very difficult to take the location abroad, then, of course, more people will use the car during July and August. That will definitely help us. On the other hand, if there will be a continued recession as a result of the pandemic, then we know that a lot of company cars may be standing still because offices are closed and so on. So there is a lot of big mix of effects. But again, Mekonomen and the independent aftermarket usually in this kind of a crisis, when it's financial crisis, is very seldom affected. We're not following much when it up, but nothing -- not so much down either. So we expect that if it goes back more to normal, then we would have a very stable business going forward.

[Operator]

The next question comes from Mats Liss from Kepler Cheuvreux.

[Mats Liss, Equity Research Analyst]

Can you hear me?

[Asa Kallenius, Chief Financial Officer]

Yes.

[Pehr Oscarson, President & CEO]

Yes.

[Mats Liss, Equity Research Analyst]

Yes. A couple of follow-ups, I guess. First, the price increases there in Norway were quite substantial and, I guess, positively affected the earnings going forward. But did you experience any prebuy impact from customers that are trying to stock up on the old price level? Or can you say something about that?

[Pehr Oscarson, President & CEO]

No. Because most of our customers, I don't have the numbers, but the very large portion of our customers is workshops, and they don't stop themselves. They buy from us on a daily demand. So there is -- could be some wholesaling business, but we didn't see any of that effect.

[Mats Liss, Equity Research Analyst]

Good. Secondly, coming back to this April earnings. I guess the reimbursement from the insurance was partly March-related and also April-related. I mean there was not a monthly reimbursement. It was covered a longer period. Have you adjusted for that in your sort of indication of the earnings level in April?

[Pehr Oscarson, President & CEO]

Yes. When we say that April earnings will be in line with last year, then we have taken in the account of that -- according to the terms and condition and the insurance, what that will give us. So that includes the reimbursement from insurance, yes.

[Mats Liss, Equity Research Analyst]

And do you expect to receive the reimbursement during the second quarter? Or is it sort of the final decision from the insurance company has already taken this? Your...

[Pehr Oscarson, President & CEO]

It's an ongoing discussion with the insurance company, so I would like not to comment on that.

[Asa Kallenius, Chief Financial Officer]

But we could say that we -- it's not 100% certain we will have it in Q2, it could be Q3 as well.

[Pehr Oscarson, President & CEO]

For partly.

[Asa Kallenius, Chief Financial Officer]

For partly. Because it's just [ 2 parts ] in the insurance. It covers extra cost we had due to the data breach, and it covers also loss of gross profit. So it's 2 part in the discussions we have.

[Mats Liss, Equity Research Analyst]

But we, you -- it's only a matter of time. It's -- I mean, you have the sort of boxed in, so to speak?

[Asa Kallenius, Chief Financial Officer]

Well, we are in discussions. But we...

[Pehr Oscarson, President & CEO]

We're very confident in what we are saying in the outlook of April.

[Asa Kallenius, Chief Financial Officer]

Yes.

[Mats Liss, Equity Research Analyst]

Yes. And finally, just about gearing and the covenants. I mean you adjusted or the bank adjusted in the first quarter there, and they are still there. And I guess the cost to service -- the debt have gone up a bit. Could you give some indication there for the second quarter going forward?

[Asa Kallenius, Chief Financial Officer]

No. We do not give any updates there. We are compliant with our covenants in Q1, and we are discussing -- due to the extraordinary situation, we are discussing with the banks to update our loan agreement according to that.

[Mats Liss, Equity Research Analyst]

Okay. So far, so good. You haven't sort of changed the covenants, they are still in place and you're basically -- well, the liquidity is sufficient. So you don't need to make any -- to have any adjustments made. It could be the case, given the -- that you see a pretty [ box ] in the second quarter also?

[Asa Kallenius, Chief Financial Officer]

We -- our liquidity is good as we speak. We are compliant with the covenants in Q1. But due to the extraordinary situations, we are in discussions with the banks to adjust our present loan agreement when it comes to the covenant.

[Mats Liss, Equity Research Analyst]

Okay. I'm just -- the scenario there, you sort of stand -- or you didn't make the amortization -- EUR 5 million amortization at the end of the quarter. Do you expect to do the same in the second quarter?

[Asa Kallenius, Chief Financial Officer]

No. I will -- when we did that, we -- it was -- the situation with COVID-19 was very new, and we had an amortization coming up just in 1 week's time. Nobody knows then what this would lead to -- so that was from -- taken to be certain to have liquidity, but we have very good liquidity and we -- as we stated in the report, our financials are sound. So it's our intention to repay our debt as in the loan agreement. So I do not see that we will ask for -- not to repay the debts. We are following the bank agreement when it comes to the amortization.

[Mats Liss, Equity Research Analyst]

So the first quarter amortization will be made -- have been made or will be made in the second quarter?

[Asa Kallenius, Chief Financial Officer]

No. That will not be made in the second quarter, but we will make our ordinary repayments in the second quarter.

[Operator]

[Operator Instructions] The next person is Mika Karppinen from Handelsbanken.

[Mika Karppinen, Research Analyst]

Yes. This is Mika. Can you hear me?

[Asa Kallenius, Chief Financial Officer]

Yes.

[Pehr Oscarson, President & CEO]

Yes.

[Mika Karppinen, Research Analyst]

So you said that in April, sales were down 17%. Could you give more details on how the sort of sales were developing in different -- your operating countries? So it more import on sales growth in Sweden, Norway, Denmark and then the Central Europe as well?

[Pehr Oscarson, President & CEO]

We don't have that detailed in our report. But just to give a very high level, I would say that it's -- a large portion of that is due to the data breach in MECA/Mekonomen Sweden and Norway. Then it's Poland, who also are still not recovered or still very restricted where the sales is down. Better in Denmark, I would say, or closer to a normal situation in Denmark.

[Mika Karppinen, Research Analyst]

Okay. So the biggest hit is actually coming from the state of Britain, that is visible in MECA/Mekonomen, you mean? Okay. Good.

[Operator]

The next question comes from Mikael Löfdahl from Carnegie.

[Mikael Löfdahl, Research Analyst]

Sorry for bothering you. But just a follow-up on the FX impact for you. I think if I'm not wrong, there is a lag of around 3 months from what you purchased for and when you sort of sell the products, which means that there's a lag in the impact on gross margins as well from any spikes or declines in FX rates. And if this is true, the spike we had in both -- or in the euro against both the NOK and effect was in March. And after that, it has declined sharply. So the -- just by looking at the FX rates in Q1, that effect should rather come in Q2 or late Q2. And the price increases that you have implemented now, the question is that, will those sort of have time to compensate for that? So could you elaborate a bit on the impact from FX, please?

[Asa Kallenius, Chief Financial Officer]

Yes. The large impact we have from FX comes from the margins in Norway. And that will be compensated with the price increase. And we also -- because we buy in -- for MECA/Mekonomen, we buy goods into our central warehouse in Strängnäs. And I do not see -- we didn't buy that much due with COVID-19 because we had bought a lot ahead due to the Chinese New Year, et cetera. So I do not see any large impact from the purchasing prices in MECA/Mekonomen warehouse going forward because we have had a euro-SEK for a long time to [ 10 50 to 10 60 ]. And during the time, it was almost 11 now. We didn't buy that much due to the COVID-19.

[Operator]

[Operator Instructions] At the moment, there is nobody in the queue. So I will transfer you directly for your question. Thank you. [Operator Instructions] There is no further questions coming through, so I will hand the call back to you again. Thank you.

[Pehr Oscarson, President & CEO]

Okay. Then thank you all for listening, and thank you for good questions. So that will be all for us. Thank you and bye.

[Asa Kallenius, Chief Financial Officer]

Thank you.

[Operator]

Thank you for joining today's conference. To end the call, you may now replace your handset. Thank you.