Nobia AB

STO:NOBI

Earnings Call Transcript 2020-Q2

[Operator]

Hello and welcome to the Nobia AB 2020 Q2 results. [Operator Instructions] Today, I'm pleased to present Tobias Norrby, Head of IR. Please begin your meeting.

[Tobias Norrby, Head of Investor Relations]

Good afternoon, everyone, and welcome to this presentation of Nobia's second quarter results. I am Tobias Norrby, Head of Investor Relations at Nobia. The presentation today will be conducted by our President and CEO, Mr. Jon Sintorn; before our CFO, Kristoffer Ljungfelt, will dig into the financial details of the report. With that, I hand over to you, Jon.

[Jon Sintorn, President & CEO]

Thank you, Tobias, and again, good afternoon, and welcome, everybody, for this call with regards to the second quarter results for Nobia. And needless to say, this quarter has been challenging and unpredictable in an unprecedented way. I think you've heard -- probably heard several calls on the same topic, but it's worthwhile to repeat. It has been a very challenging quarter. Obviously, we have had health and safety first and made sure and have made sure that we have complied with all the regulations and restrictions in the various countries. And that's been a very important theme for all our operations and activities throughout the company, but also with customers and partners during this quarter. On top of that, obviously, taking care of the business, so business continuity with especially cash flow has been in focus, which I believe we have been able to do in a more than a decent way.Despite this challenging business climate, with this uncertainty there has been, the Nordic sales are close to flat, which is quite an achievement. Governmental lockdown measures have had a significant negative market impact in especially the U.K. and Central Europe, that being Austria. We have taken restructuring measures in the U.K. and in the Nordics. And we have also announced a new organizational structure. Coming at the end of the quarter, the last third of the quarter, operations have been normalizing. Increasingly, April, May, June, it has been an improvement for each month. So by the end of the quarter, it has been normalizing. With that said, not at what we would call the normal level throughout the markets. Those were some highlights for the second quarter.And if we look into the -- some numbers for the Nobia group for this quarter, organic net sales declined by 25% at the group level, a big number in a negative way. 56% decline was related to the U.K. region, and that was related to the corona lockdown measures. And as mentioned, sales in the Nordics, on par with last year if we [ include ] some conversions of own stores to franchise. So organic sales -- organic net sales declined by 25%. That means that net sales for the second quarter of this year was SEK 2.741 billion compared to the SEK 3.751 billion that we had second quarter of 2019.Obviously, we have a lower EBIT, driven by this sales decline. Furlough schemes in the various countries and cost measures taken have mitigated some of that. But at the end of the day, we end up with a minus SEK 43 million as EBIT results compared to the SEK 391 million we had in the second quarter of 2019. In the minus SEK 43 million, we also have minus SEK 108 million related to the restructuring measures that we have taken and the IFRS 9. So our margin has gone from the second quarter of 2019 as EBIT margin was at 10.4%. Now this quarter of this year, it's a minus 1.6%. As I mentioned, business continuity and cash flow, apart from health, has been in mind. So with that, I'm, if not, not at all content or pleased with the EBIT results, I am content with the strengthened financial position. I think the company has done a tremendous job safeguarding both business continuity and the cash and the financial position. So we have a low net debt, even, I would say, very low, and Kristoffer will get back on that. As we move -- so from that perspective, we are solid going into the third quarter. If as -- when if sales are growing, we can expect accounts receivable increase, but we still have some structural improvements done in terms of cash flow management during this position. And then one remark on the financials on that. The P&L results, the EBIT not very good. But the cash flow situation, we have managed, I would say, really well in a difficult time. Moving into the kitchen market trend in the second quarter. The Nordic market is deemed to be slightly down versus previous year. There has been modest, but still market growth in Denmark, which was, however, offset by softer markets in the other Nordic countries and that, especially, Norway being softer. As for the U.K., the governmental lockdown measures from the end of March to June have prevented markets from functioning normally. There is a growing demand for remote selling due to social distancing measures and temporary closed physical stores, which we can see that trend. But as you heard on the organic growth numbers, very, very much down in the U.K. It's been incredibly difficult for -- in that market this quarter -- or the second quarter, I should say. Central Europe was impacted by lockdown measures in both Netherlands and Austria, but specifically in Austria was -- which was heavily impacted by the lockdown measures in April, but was gradually opening since May, and now not quite on a normal level, but much more like a normal level than just a few weeks or a month ago. So that was a few remarks with regards to the -- some highlights and market trends and some numbers for the group for the second quarter. And now we dig into some more details of the numbers and the regions by Kristoffer.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Thank you, Jon. And over to Slide #5 then, which is -- shows the split of share of sales in Nobia between the countries. And as you can see from the pie chart to the left, the Danish business now represents almost 30% of our business. However, the ratio is heavily impacted by the drop in U.K., of course, in the share of sales to U.K. during the first half of this year. And just like Jon was saying, the Danish market was growing slightly in the quarter, whilst we also saw a strong performance in both sales and operations in that country. And as we know, the other Nordic countries as well, the order intake in the beginning of April was very soft, which resulted in low dispatch in May, but however, recuperating towards the end of May and the beginning of June. Sweden then, 10% of sales, has performed relatively well considering the situation with a strong consumer campaign by the end of May, beginning -- sorry, end of April, beginning of May. And Norway then, and Jon was alluding to it, we have 7% of our sales to Norway. It has -- probably had the most challenging situation in the Nordics with concerns both regarding the housing starts and the eventual negative impact that the currency drop might have had on the economy. Then in Finland, 6% of our sales, we did estimate a decline during this year in Finland due to the unsustainable high levels of construction starts last year. During the crisis, it has performed pretty much in line with the expectations we had in the beginning of the year and have had also the same pattern as the other countries when -- with regards to April, May and June. Then moving over to Central Europe. And again, Jon was alluding to that as well, that in Austria, only representing 4% then, was heavily impacted by the big lockdown of the country. Whilst in Netherlands, the pattern are very similar to the Nordic ones with the split between the months as such. Then looking at U.K., and you can see that on the pie chart to the right, of course, the retail segment was heavily burdened by the pandemic as long as the stores were closed up until the mid of June, roughly. However, we saw some growth in remote selling directly to consumers, which picked up in the period. And what we have learned from this crisis, which -- on the positive note, is that consumers are actually more willing to make the entire purchase online through the health and service -- from remote selling of our salespeople, but also using the improved digital communication platforms, which people have learned to appreciate throughout this crisis. That creates some opportunities for us. So throughout the quarter, we tried to drive also that business. But of course, retail and the footfall into our stores have been very poor throughout the period. It was slightly easier to open up trade, which is 29% of our sales on a 12-month rolling basis, basically because we could do it through a call-and-collect basis. So out of our 150 trade counters, we gradually started to open up in May already for call and collect. For you that follow us and listened to the last press release, we did have some ongoing projects in the U.K. into April. However, the projects that were closed at that point in time have taken longer to reopen. And we also see that it's been more difficult to get into the social housing projects, which have then been delayed in terms of delivery from our parts. And thus, the project share of the sales has come down somewhat as well in U.K. Then over to next page, please, which is just a summary of the Nordic region. And I think we mentioned most of it. The sales decline of 2% was mainly driven by, of course, some lower volume, but lifted, again, by the good performance we had towards the end of the quarter. If you adjust for the franchise -- franchising we did last year, the Nordic market was actually growing to a small extent, 1%. The gross margin was impacted by the swing between the months where some underabsorption in the slow months was compensated by better productivity towards the end of the quarter, although it was difficult to recuperate all of the gross margin. It should be mentioned also in this that some of the furlough subsidies are posted under other operating income. And thus, the underlying gross margin is slightly better than the 37.1%. The Nordic results were impacted by a SEK 24 million restructuring cost and IFRS 9 adjustments for bad debt. And regarding the IFRS 9 adjustment, that is based on potential future customer defaults, of which might happen as an effect of the corona pandemic. However, we have not seen -- as of today, we have not seen any larger customer defaults in -- during this period and throughout the corona crisis. So this is a precautionary measure that we take to set off this amount. EBIT of SEK 234 million compared to SEK 275 million last year. And if you add back the restructuring charge, we are slightly below -- just slightly below last year, which is then better than what we expected going into this quarter -- or going into the situation with the COVID-19. Next slide, please. It's the summary of the U.K. region, where net sales declined 56%, which is huge, of course. And the gross margin is heavily burdened by underabsorption in all operations. Also here, the furloughs subsidies were posted under other operating income. And thus, the underlying gross margin would have been slightly better which we have booked it here. EBIT of negative SEK 239 million was impacted by the SEK 57 million of restructuring charge and IFRS 9 bad debt provisions that we have mentioned before. And Jon will shed some more light on the restructuring program in the U.K. Moving over to Central Europe. Here, we had an organic growth decline of 16%, mainly driven by the closure in Austria throughout April, whilst the Netherlands was operating the entirety of this period, albeit at a softer market, of course. EBIT of SEK 25 million with -- compared to last year at SEK 32 million with still decent EBIT margin considering these very challenging times of 8.6%. And then if we move over to the slide with the organic growth by month, I think I was jumping that slide before. So that's Slide #8. Sorry for that. If we take Slide #8 here. I think this is an important slide in this presentation, which shows the organic growth development between the months in the U.K. So as you can see in March, the lockdown we had for 1 week in March contributed to a sales decline of 14% and then moving into April, as we are producing all our products, we make them to order we don't have any stock that we can deliver out more or less. So at the moment we close our manufacturing sites, we cannot dispatch anything. There's no inventory in between. And thus, we got the big hit already in April of a negative 86% top line decline in April. And then you can see how it has gradually improved with negative 55% in May and a negative 28% in June. And that's coming back also considering that we have reopened all of our stores now, albeit with some safety measures and social distancing measures. That's the pattern we have had. Now moving over to Slide 10 then, apologies for mixing up the slides here. Jon was alluding to the strong operating cash flow. And as you can see from this slide, we had an operating cash flow of SEK 716 million compared to SEK 244 million last year, mainly driven by an exceptionally strong working capital. The strong working capital basically have 3 parts. One is the lower account receivable balance. One part is the fact that we have used governmental subsidies to postpone VAT payments and other type of tax payments. And the third part is the fact that we have focused a lot within the business to drive positive cash flow. And I think that all these 3 bits have contributed very well to our cash flow performance. That enables us also to have a strong balance sheet when we go into next quarter, and Jon was also alluding to this, that the net debt, if you exclude the leasing liabilities following IFRS 16 and exclude the U.K. pensions, we have a net debt of SEK 231 million compared to last year's SEK 1.2 billion. So a large improvement, somewhat driven also by the fact that we haven't done any dividend this year, but it's very comfortable to see from a CFO perspective that we continue to have a strong balance sheet and a strong cash flow to support this business also going forward. With that, I'll leave over to you again, Jon.

[Jon Sintorn, President & CEO]

Thank you. I do have a few comments with regards to the new organizational structure, what we call the reorganization. So there is a new group management structure. And the main building blocks are that we are also operationally, not only reportingly, having what we call 3 distinct profit and loss entities, 2 commercial regions and 1 product supply entity. And the commercial regions are Commercial Region North, which is the Nordics and Commercial Region West, which is the U.K. And the purpose of that is to enable the organization to make wise business decisions closer to the customers. So we are decentralizing central functions into these, predominantly to the commercial regions. But we are also regionalizing local functions, especially noncustomer-facing activities. So those are the main things that we are implementing. And internally, we are working -- we will work according to the new structure by September 1. So there's work now further detailing at lower levels in this new organizational setup.We also have done a restructuring. And I was going to say, predominantly in the U.K. We have about 240 people, that is affected, unfortunately. It's a combination of both people related to our distribution and sales, but also in other areas, in the factories and operations. We've had also come to fruition in terms of immediate migration from operating our own stores to franchise in the Nordics. That was part of the new organization, which I believe will be -- enable us to better deliver on our business plans going forward. A few comments also on a market update. Operations are normalizing, but short-term performance, we believe, will be -- continuously be impacted by the corona-driven disruption. With that said, I don't know, the only thing you know about the future is that you don't really know what's going to happen in the future. It has been a very, very tough quarter, the second quarter. I do not foresee such a tough quarter going forward, but we will see continued effects by this crisis. Internally, I'm speaking about the initial phase of this crisis is over, but it's only the initial phase. The crisis is by no means over. That's our best assessment of [ weird ] times. So in the Nordic region, markets are normalizing, but strict social distancing measures are imposed in many ways in all countries to various degrees, but still, and construction sites are open. In the U.K., manufacturing restarted gradually by mid-May. Magnet Trade has been -- is open through our store network for call-and-collect activities. Retail is open, but by appointment only. And construction sites are mainly open but have been lagging in the speed and in the pace in which it has been opening up. And we still see, specifically in the social housing arena still slow openings. In the Central Europe region, markets are normalizing. Again, strict social distancing measures, specifically in Austria, but also in the Netherlands. Austria being -- in our markets, Austria being first to be completely locked down and maybe even worse in terms of lockdowns, the most locked down country, but has now gradually been opening up and are close to normal, even though face mask and other safety measures have to be in place. So that was a few comments on market updates, and we are ready for a Q&A session.

[Tobias Norrby, Head of Investor Relations]

Operator, please open up for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of Carl Ragnerstam of Nordea.

[Carl Ragnerstam, Analyst]

It's Carl here from Nordea. I have a few questions. First of all, if you could give any update on the current utilization rate of your production in the U.K. Also, if you could -- yes, I know it's -- it might be difficult. But if you could shed some light on the recovery pace so far in July, if you compare it to June, if you have seen any difference at all there? And also, if you could give some flavor if you currently see any difference in the recovery pace or in the consumer behavior between retail and trade.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

And the first question was?

[Carl Ragnerstam, Analyst]

Regarding the utilization rates?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

The utilization rates. Okay. If we -- I maybe can take the first one, Jon?

[Jon Sintorn, President & CEO]

Yes, you might take it.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes, well, first of all, our manufacturing -- all our manufacturing plants are open. It's not just pushing a button to restart everything. All the different parts need to flow in the same direction at the same time. So of course, it's been taking a little bit of time to move the volumes up. And mainly that is a comment for the U.K., where it's been totally closed. We're happy to say that all the production plants are open. We are building up our capacity in the U.K. However, I cannot comment on the utilization entirely, but there are much more activity in all the factories now in the U.K. As for the Nordics, well, they've been operated quite, well, not normally, but in terms of capacity, it's been more normalized, although it's been huge swings between the months as we have said. And the capacity rates have been quite like the last year's capacities. So we don't foresee any large change in that either.

[Jon Sintorn, President & CEO]

And then the second question, could you repeat it again just so we get? Consumer?

[Carl Ragnerstam, Analyst]

It was more of the recovery pace so far in July, if you compare it to [ June, ] and if you have seen any major differences so far. It's early on, but still.

[Jon Sintorn, President & CEO]

It is early on in July. But if we go back to the slide where Kristoffer was speaking of the organic growth development in the U.K., where April was very, very, very closed, May significantly closed, and still minus 28% in June, which is a horrific number in terms of organic growth. But compared to April and May, it was better. That steep of -- increase month by month as we saw from April to May to June, we are not seeing in July. So in that sense, the growth rate, so to speak, coming back is tampering off somewhat in the U.K. Other than that, I think it's early days in July to have any -- and it's summer vacation kind of period. So it's difficult to have any more projections on good consumer demand.

[Carl Ragnerstam, Analyst]

Okay. And could you perhaps also give some flavor on the retail versus the trade behavior currently ?

[Jon Sintorn, President & CEO]

Overall, the trade has, because of call and collect, have been slightly -- have been better off than consumer.

[Carl Ragnerstam, Analyst]

Okay. Perfect. And Kristoffer, maybe for you. You mentioned that you implemented structural measures on your cash flow management. Could you perhaps give some indications what the short to mid-term impact would be? I guess it's on working capital management?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes. I mean it's -- you could say normal working capital management, and it's the usual suspects, stricter credit collection and working with the payment terms. It's really hard by today to judge exactly what the structural benefits would be on the longer term, but we expect that it will sustain the activities we have done so far. The -- I think it's easier to turn it around and say, on the accounts receivable balance, you can more or less use the ratios that we have normally to see how the drop in turnover has also decreased the receivable balance. And in terms of governmental subsidies, we speak about SEK 400 million, roughly of subsidies have postponed. However, also here, it's difficult to take an exact number because some of them will be there for a long period of time, and it's not entirely clear from the governments either what -- how that will pan out and the amount of repayments that have to be done.

[Carl Ragnerstam, Analyst]

Okay. Perfect. And the final one for me, if I may. In the Nordics, could you just give your general view of the current consumer confidence level? And do you think that there is sort of pent-up demand from consumers being cautious to have installers at home? Or should we still expect a quite soft market as we saw in Q2?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

We believe it's a bit too early to say. It's an important campaign starting after summer -- Nordic summer, so in mid-August. And it's hard to judge how the consumer campaign will pan out from that perspective. What we do believe is that the demand for house renovation and activities within the home has gone up. And we can see it from the interest in our website visits, et cetera. However, we have a capital good, and it's not like buying paint or bushes at home. So it's too early for us to say how this demand will play out when we come into autumn, really. And then like Jon was alluding to, I mean, trade -- they have the tradesmen picking up the sales and their own sales. And that's an important part of their business to keep selling kitchens. So it's been faster in picking up than the retail channel.

[Operator]

Our next question comes from the line of Adela Dashian of Handelsbanken.

[Adela Dashian, Analyst]

Adela Dashian from Handelsbanken here. You mentioned that you've experienced increased demand for the e-commerce platform as a result of the stores being closed. Could you please give us an indication of how much of the e-commerce sales grew in the quarter? And how much of total sales this represented?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Well, for us, it's not really e-commerce in the way that people take the journey through the digital platform and buy directly from the homepage, so to say. But we are doing much more of remote selling than what we have experienced before. Meaning that the service, et cetera, the drawing, the meetings are done online via the communication platforms. Normally, this has been -- well, when the store network was not open, the entirety of the sales order when -- the order was pushed through via these meetings, whilst now people use also the store networks to double click on some of the products and have some touch and feel of that. So we don't have the exact growth rate in terms of the online selling because of this fact.

[Adela Dashian, Analyst]

Got it. So it's more of enhancements being done on the digital side than sales actually taking place on websites, correct?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Say again. Could you repeat? It's more of...

[Adela Dashian, Analyst]

It's more of just enhancements being done on the digital side than actual sales taking place?

[Jon Sintorn, President & CEO]

Yes.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes.

[Adela Dashian, Analyst]

Got it. Okay.

[Jon Sintorn, President & CEO]

You can say that.

[Adela Dashian, Analyst]

Right. Okay. And then what about the order book for the remainder of the year. Could you give us an indication of what that looks like?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

No, we don't comment on the order book, and it's yet to be seen how this corona crisis will pan out.

[Operator]

Our next question comes from the line of Fredrik Moregard of Pareto Securities.

[Fredrik Moregard, Analyst]

Fredrik with Pareto here. First of all, with regards to the project market, I guess you guys are in close contact with your key project customers. What is your feeling about their confidence with regards to newbuild, starting new projects this year in this fall, which I guess would be some sort of indication for your project sales at least related to newbuilds for next year and so on.

[Jon Sintorn, President & CEO]

Well, as we saw during the second quarter, if I speak of the Nordics, most, if not all sites, were still open. So a lot of projects came to conclusion and fruition and continue to be run. I had a few interactions obviously with some key customers. I'm trying to understand whether the newbuilds would -- and new projects would be ignited at the same pace as before. Again, I mean, it's the same answer. It's too early to tell. We can't really see any trend speed up or speed down with regards to project sales. What we have seen is that the projects that was in the pipeline has been carried out at a slower pace because of limitations of regulations, more complicated, but still being carried out. But as of yet, we don't have any trend indication where the newbuilds are going. And we can't really see that with our bigger customers, at least I don't have that type of [ information. ]In the U.K., most sites were closed at least for some time. Not all in London, for example. Now significant more sites have been restarted. So there's still projects that have been ongoing, so to speak, that we are now seeing being included, that's even more early days in terms of understanding whether the newbuilds will start or not. But then in the London area, all sites were not closed. Then again, all sites are not yet open. So it's been more of a same, same situation from the start of this mess in that area.

[Fredrik Moregard, Analyst]

Okay. Is it fair to assume then that you're still seeing new projects being initiated?

[Jon Sintorn, President & CEO]

There is new projects being initiated, but whether that's on, let's call it, a normal level -- to expect that being on a normal or increased level than before or significant decrease, that we cannot tell yet. But just to be clear, it's not stop for newbuilds. That's not happening.

[Fredrik Moregard, Analyst]

Okay. That's helpful. Secondly, on capacity in the U.K., I mean even before the pandemic outbreak, you had some spare capacity in your factories in the U.K., you were planning to fill that going forward. I guess if we assume that there will be a couple of years or so before we can retrieve those volumes that will be lost this year, do you think that you could do some factory consolidation in the U.K.? Or how do you think about that manufacturing footprint that you have with quite a high cost base.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

It's too early to say. And it depends, of course, how quickly this volume comes back into the factories. We have spare capacity. We are looking at plans together -- in our strategic planning to, of course, grow our business in the U.K. as well. Another pillar of the strategic planning is to look at the manufacturing footprint, not just in the U.K., but across the Nobia sites, and we will have chance to come back on that when we know more.

[Operator]

Our next question comes from the line of Julius Rapeli of SEB.

[Julius Rapeli, Analyst]

It's Julius here from SEB. One question regarding the competitive situation, especially in the U.K. market, if you could just give a short update, if you have seen any difference in the competitive situation in the U.K. and other markets arising after this COVID-19 pandemic?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

If we have seen different behaviors in the U.K. compared to other markets? Or what was -- I think we had a disconnect in the line. Say it again.

[Julius Rapeli, Analyst]

Yes, just if you have seen any differences in the competitive situation in U.K. and in the other markets?

[Jon Sintorn, President & CEO]

Any changes among our competitors, how they act?

[Julius Rapeli, Analyst]

Exactly.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes. It's still quite similar across -- as we sell in various channels, I mean, the competitors we have in the U.K., they are often going in just one of the channels. It's been fairly similar. We believe that it's been good to have a strong brand in this period of time of uncertainty, both because of reliability at the consumer level and trade level, but also the fact that many people have migrated towards the online business where we have done some, I would say, great efforts in our company to pick up the remote selling very quickly. And from that perspective, I think we were quicker out the blocks than competition. But the situation is, from that perspective, quite similar.

[Jon Sintorn, President & CEO]

No, I don't think you can draw any material or differentiating conclusions.

[Julius Rapeli, Analyst]

All right. Then, Kristoffer, you mentioned the government subsidies and their effect in cash flow during the quarter. Just to confirm that I got the figure right, did you mention SEK 400 million, approximately?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes. But it's -- again, I'd be a little bit cautious on mentioning an exact figure on that because there are various governmental schemes related to various things, and they have different timings as well. But I think it's within those parameters, you could say.

[Operator]

And our next question comes from the line of Mattias Holmberg of DNB Markets.

[Mattias Holmberg, Analyst]

So it's quite encouraging to see how low you've managed to come in terms of net debt adjusting for IFRS 16. So I'm a bit curious what you believe that your debt capacity is approximately. And I understand that this, to some extent, may be a Board question, but if this financial muscle, so to speak, is earmarked for the planned factory construction in Sweden? Or if it potentially could be used for dividends or any further M&A at this point?

[Jon Sintorn, President & CEO]

You start Kristoffer. I was eager to start.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes, I'll start, [ because I'm kind of new with it.] Both of us were really eager to answer. I think, firstly, that the low net debt we see now would be, to some extent, reversed when these larger government payments will happen and also when we start to rebuild our receivable base. So I would say net debt is more reasonable to be around maybe SEK 1 billion than the SEK 231 million as we see it now, when the business has normalized. And again, it's difficult to know exactly when the government subsidies will end. So the timing of that is difficult to foresee. And with that, I hand over to you, Jon.

[Jon Sintorn, President & CEO]

And the second was if we're going to use our solid financial position either to dividends and/or M&A activities. Obviously, Board discussion, very much so -- but let me use this opportunity to praise and thank. They all have -- it's been -- in a very difficult, very unpredictable time, there's been an all hands on deck saying, let's make sure that we protect the company. So in that sense, there is a discussion in terms of the dividend earlier this year to make sure that we have as strong balance sheet as we possibly can have. We're still -- as I said, I think the initial phase of the crisis may be over, but the crisis is by no means over. I think there's a lot of companies, including ours, that are now trying to gear where -- and calibrate to see where [ can or ] is the business going and how much uncertainty around people, job situation and whatnot, what type of impact will that have. And that we must have some patience in that to see where the new normalized rate will be. The good thing is, we do have a strong balance sheet. And I do believe that dividend being one, M&A opportunities being second, we are absolutely -- we are not outruling that in our business planning. That will happen. It will not happen anytime very soon, I don't believe. But we do see that we could use it for that moving forward.

[Mattias Holmberg, Analyst]

I have also a follow-up to the very interesting chart that you have on the monthly development in the U.K. I understand you don't want to comment on what you've seen so far for Q3 too much. But I mean, I'm quite surprised when you say that May was more or less closed halfway in terms of operations, and you still managed to get the organic drop down to only 28%. Can you comment anything on what that implies or sort of the exit rate that you saw for the month when you had managed to open up a bit more?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes. Well, there are 2 effects in it. One is, and I think we have commented on that one before as well, there were very few canceled orders. So of course, we sit on an order book when we move into April to deliver after a strong winter sales campaign. And then you have no manufacturing sites that are open. So basically, the cancellation rate was still very low, and we pushed these orders out further out. So the moment we could open up the factories, we did have an order book to deliver on. And then gradually, we've been filling it up to some extent then from June and onwards. That's how you should see it. And then to some extent, there are more trade business coming in earlier than the retail business as such. But on a positive note then, we could also start the remote selling a little bit earlier than the store network as well, which led to some new orders coming in also in June. So there are 2 effects from that.

[Operator]

[Operator Instructions] There seem to be no further questions at this time. So I'll hand back to our speakers for the closing comments.

[Tobias Norrby, Head of Investor Relations]

Very good. Thank you, everyone, for calling in, and hope to hear from you next time on the 2nd of November when we report the third quarter results. So thank you very much.