Nobia AB

STO:NOBI

Earnings Call Transcript 2020-Q3

[Operator]

Hello and welcome to Nobia Q3 Report 2020. [Operator Instructions]Today, I'm pleased to present to Tobias Norrby, Head of IR. Please begin your meeting.

[Tobias Norrby, Head of Investor Relations]

Good morning, everyone, and welcome to Nobia's presentation of the third quarter results. We will follow the usual procedure this time as well. We will start with an overview by our President and CEO, Mr. Jon Sintorn; before our CFO, Mr. Kristoffer Ljungfelt, digs into all of the financial details. And after that, we will do a Q&A session. And with that, I leave it over to you, Jon.

[Jon Sintorn, President & CEO]

Thank you, Tobias. Good morning, everyone, and again, welcome to this telco with regards to our third quarter results. I'm sure you all share with me, this is the highlights of the day, almost as exciting as the presidential election in the U.S. sector. Jokes aside, I think it's fair enough to say that we are still in a pandemic, in a crisis, managing the pandemic as recent events show. And I would like to take this opportunity to start out with a big thank to all our employees, customers and other stakeholders that have been able to manage this very, let's call them, erratic and straight and unprecedented times. What we can see for the third quarter, it was characterized by overall stabilization and recovery if we compare to the second quarter situation that we had. With that said, the segments and geographies were impacted by different phases of the pandemic. Overall, we had a strong situation in the Nordics, however, somewhat hampered by productivity and cost managing higher sick rates, working from home situations, some difficulties in installing machinery, those type of things. But overall, demand and performance from the Nordics were strong during the third quarter. Then goes for the U.K. in terms of stabilization and recovery from the second quarter as well as Austria, where we had a complete lockdown coming back from that. Especially by the end of the quarter, demand was again picking up. And it is that underlying demand, which is fairly strong. Because of the strong stay-at-home trend that supports consumer sales in all of our markets. In terms of project sales, in the Nordics, it's been fair to good. However, in the U.K., especially social housing but also projects like the big projects in the London area for, as example, has been weak. We have continued with this quarter with a very solid cash flow. Our immediate actions during the second quarter was obviously to safeguard our cash flow and optimizing a lot on our cash flow, and we continue to perform well during the third quarter and built up a strong cash position, which is a very nice and comfortable, so to say, it brings a lot of comfort, which is good to see. And during the third quarter, we also had our new organizational structures, the structure put in place, we are far ahead on that one. There is still some things going on further down in the organization. But at the top level, we are now complete and are able to start managing and start operating in this new structure, where we try to delegate some of the group decisions to the commercial regions. But also consolidate a lot of local operations to the regions as well. So we can leverage more on our scale for improving our local competitiveness, driving our strong brands in their respective markets. Let me go now on to Slide #3 in the presentation. As you can see, our organic net sales declined 2%. It was a 3% increase in the Nordics, as I was referring to earlier, and 10% increase in Central Europe, it was a 9% decline in the U.K. region as segments of the market are still imposed lockdown recovery. But as I mentioned, it was, let's call it, erratic. It was very low early in the quarter and coming -- picking up quite significantly by the end of the quarter. It was lower EBIT driven by the U.K. sales decline. As I just mentioned, a continued solid cash flow. And as a consequence, the strengthened financial position, actually, net cash position, excluding IFRS 16, leasing and pension provisions. If we look on the right-hand side, the net sales, SEK 3.105 billion in net sales, organic growth, as said, minus 2% compared to 3% up last year. Our gross margin, 35.7% compared with 37.6% and EBIT SEK 195 million compared to EUR 267 million. Our margin at 6.3% versus 8.2% last year. I think the third quarter shows that we have built a stronger company compared to the crisis we have a couple of years -- some years back, we have been able to manage our balance sheet and our cash flow and to decent degrees the profitability during this unprecedented time. Moving on to Slide #4, kitchen market trend in third quarter. The Nordic market is seemed to be in line with previous year, market growth in Denmark, consumer demand benefiting from stay-at-home trend. And I will probably -- and I'm sure Kristoffer will repeat this as well in his presentation. The underlying demand has been good to strong during this period of time. It has been difficulties with lockdowns, coming back from that and more difficult to manage this situation as such, there is some cost related to that. But the underlying demand has been good to strong during this quarter. And we see that going forward as well. In the U.K., governmental lockdown measures in the U.K., from end of March to June, prevented markets on functioning normally, consumer demand benefiting from stay-at-home trend. Repeating again, the underlying demand, specifically from the consumer and trade segments, are good to strong, whereas the project business in the U.K. have been significantly more hampered. And again, Central Europe demand increased due to the pent-up demand following the restrictions and lockdown measures and that specifically in Austria, where we had a complete lockdown during the second quarter, and then the pent-up demand really made Austria hit off well, so to speak, during the third quarter, it was nice to see. Again, there is an underlying demand, which is good to strong in our market. It is more difficult to manage the situations market-by-market depending on where they're at in the dynamic and various situations, which is driving a bit more of cost and complications. But overall, a decent to -- a healthy market conditions, then moving on to Slide #5 and moving on to Kristoffer with some further details.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Thank you, Jon. So let me shed some more light on the market, in the various markets where we're at, albeit it might be some repetition on what Jon has already said. Starting with the Nordics then, which now represents over 50% of the 12-month rolling net sales. And Denmark had a very strong 12-month period with growth in all segments, and that continued into this quarter, to some extent, driven by the strong market, but also gaining market share during this period of time. The launch of the new attractive product concepts have fueled the growth, but there's also been a strong trend in personalized kitchens and availability of color options, which is giving us some cutting-edge in the market for the moment. Sales in Sweden, which represents 13% in the quarter in the 12-month rolling sales, was somewhat down. But also in Sweden, the kitchen trends and our strong campaign in Marbodal with a new color palette, which we call [indiscernible] has spurred growth in the consumer segment whilst the project segment was declining somewhat during Q3. On a positive note, then also the Norwegian sales was coming back after a tough year with falling oil prices, weak currency and quite extensive lockdowns. Both sales and order books in the quarter were growing in both segments. So that's on a good note. In Finland, however, which now represents 7% of 12 months rolling. The project market remains very soft and has done so over this period. And if -- we believe it will take another 6 to 9 months before the Finnish market will recover. It's, however, hard to see that the market will return to previous levels as we had back in 2018. We also see a shortfall of profitability in Finland, this last period, driven by low pricing in the project market, which is something we will address during the next 6 to 12 months. So judging from the order books we have in the Nordics after Q3 has been completed. We continue to believe in a strong consumer sales backed by the trends we see in the market and also the trends on the kitchen concepts that we can offer. However, the project sales would probably be declining to some extent, especially on the back of a soft market in Finland. Moving over to U.K. then, which is 37%, and on a 12-month rolling basis. This is, of course, distorted somewhat by the factory lockdowns we had during the first half of the year. Retail sales in the quarter was down 15%, which was an effect of the lower order books we had going into Q3, driven by the Q2 lockdowns. However, and as Jon was stating many times, the order intake was strong in the period, as we experienced large upswing in website visits, design appointments, et cetera. And we are, therefore, allocating more resources towards this segment to further drive the order intake. Trade had a strong quarter with double-digit growth despite, also here, a weak order book going into the quarter. And we believe that we had a stable to somewhat growing market share in this segment. And it also suggests that our push in trade is paying off, and we will continue now to streamline the assortment to become even more relevant as there is still some adjustment to be done. And this will take some resources and cost to get this structure in place. Again, the project market, you see here it represent 25% of the U.K. sales over a 12-month period, has been extremely weak in -- throughout the corona crisis and also -- so in Q3, where it has been declining by 30%, 40%, depending on the subset segment you look at. Property development in London as well as social housing across the U.K. are lagging much behind. However, we are confident that the market will come back, not at least as a result of the pent-up demand for new housing. But currently, we estimate that it will take up until Q1 or possibly Q2 in 2021 until this segment is back to normal. And the large drop in turnover here is also one of the reasons why we have quite bad drop-through in U.K. in the quarter. So looking into the numbers for the -- let's move to number -- Page #6. We -- again, back to the Nordics, we had an organic growth of 3% and 6%, if you exclude the impact from the conversion into franchisees in Denmark. Gross margins declining somewhat, but you must remember that we also had a currency loss of SEK 15 million, representing almost a percentage point. And profitability or EBIT of SEK 183 million, which is equating to 12.3% EBIT margin. And we had some effect also from lower productivity in the quarter, which we expect to remediate by later on this year. Then we move over to U.K. And organic growth here was negative 9%. Again, the project market declining with big numbers, whilst the stay-at-home trend was supporting the consumer demand over this period of time. Gross margin declining to 34.1%, with an EBIT of SEK 13 million. I should also add here that the gross margin was somewhat affected by the pricing coming in from the Q2 order book, where there have been substantial price pressure throughout the corona lockdown period. However, the pricing is more or less normalized since August. We're also spending a lot of time and effort to safeguard an eventual Brexit transition, which we will see how that will go out in terms of communication in U.K. in the following months to come. Now moving over to Slide 8, which is the trend of the top line in U.K. So you can see back in April, where we had an 86% decline of top line, following by May, negative 55, and June 28. We still had a somewhat subdued order book coming into the third quarter where July, but foremost, August was still down and especially again in the product segment, but recovering slightly in September. So it's just to shed some more light on that development. The next slide, please. Slide #9, Central Europe. Organic growth in Central Europe was 10%, and it was mainly fueled by the fact that we could keep the factory open in Austria in August, where normally we have a holiday. So the new management team in Austria has done a great job there to drive growth, which also led to stronger profitability. We were slightly worried that the social housing in the Netherlands will be equally impacted by the lockdowns as they have been in the U.K. However, we saw the social housing coming back very strongly towards the end of the quarter and Bribus doing a strong September results, driving the top line and also getting a good drop-through on the volume growth. All in all, EBIT margin of 11.9%. Then, Jon also mentioned the strong financial position we have, and it's very nice to see that our cash flow continued to grow compared to last year. Operating cash flow improved to SEK 484 million compared to SEK 346 million last year. We are doing well in both, in terms of working capital and lower investments during this period of time. However, we believe that the investment will start to slightly increase again. And there is a large effect on the timing for tax and VAT payments. And currently, we estimate that lagging effect to be almost SEK 0.5 billion, which will affect the cash flow starting from Q4 and then into Q1. Having said that, our net debt currently is net cash positive, actually, of about SEK 100 million, which means that we have a very strong position and are able to continue with our strategic investment. And now back to you, Jon.

[Jon Sintorn, President & CEO]

Okay. Thank you, Kristoffer. Summarizing at Slide #11. From this quarter, we can see that there is a market stabilization compared to the first half year, with specifically the second quarter of this year, and our underlying demand is okay. I could say, overall, a healthy business conditions. With that said, recent events adds uncertainty and probably additional cost. We can see that for managing the situation, and in the U.K. remains the largest uncertainty, both in terms of the lockdown situation just announced this weekend, but also obviously, the Brexit situation ahead of us. With that said, we do deem the risk for temporary factory closures as limited. In the guidelines just sent out, we see that we will be able to continue to operate our factories. So we see limited risk there, which is obviously good. And then as a summary, we do have a solid balance sheet to support our exciting strategic agenda. We were supposed to share this on a Capital Markets Day mid-March of this year, but we were obviously caught up by managing the immediate pandemic crises. But during this time, at the same time as managing the crisis, we have also continued to prepare and work on our strategic agenda and projects. We'd love to share this with you, aiming, let's say, mid-March again, somewhere around the end of the first quarter would be a good approximate timing. Because we would really like to share our direction of travel and the plan and strategy we have going on for the future. With that said, we have concluded the presentation for the third quarter, and we are ready for a Q&A session to begin. So operator, please open up for questions.

[Operator]

[Operator Instructions] Our first question comes from Fredrik Moregard from Pareto Securities.

[Fredrik Moregard, Analyst]

Good morning, everyone, and thank you. First of all, obviously, we've been ramping up your production quite quickly since the lockdowns in Q2. Can you tell us something of any supply chain issues that you've been experiencing that might have impacted your margins here in Q3?

[Jon Sintorn, President & CEO]

Well, first of all, its first closing and then ramping up is a difficult exercise with additional cost and then get the material flow to work on this rapid increase have been -- I should say, difficult for us. Panels like goods and other.

[Fredrik Moregard, Analyst]

Okay. Do you have -- you haven't really experienced as much supply chain issues then in the past quarter, it's been mainly about you being able to ramp up your factories then.

[Jon Sintorn, President & CEO]

Well, as I said, first closing and then opening and get started again is obviously a difficult exercise and get everything to work. And then at the same time, having people being very mindful on sick rates and what not. It's been a daunting task to manage that situation. And then the material flows going from very little to a lot, a high demand for that has -- our sourcing team has worked day and night basically to manage that situation.

[Fredrik Moregard, Analyst]

Sure. Can you provide some comments on the -- some more comments on the order book for your various regions and markets? And also, with regards to Austria, you said that you have seen some strong pent-up demand coming through this quarter. Have you seen that tapering off in -- towards the end of the quarter?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Well, we normally don't comment on the order books. But I can repeat what I said earlier that the consumer trends are bringing better order books to us, whilst we believe the project market would be somewhat lower. In U.K., it's very low activity within the project segment, and that will remain for yet some time. Concerning Austria and Holland, again, we kept the factory open for a longer period of time during August than what we normally are. And therefore, we have plenty of more delivery days. So I would not extrapolate that growth into the future.

[Operator]

Our next question comes from Adela Dashian from Handelsbanken. .

[Adela Dashian, Analyst]

Questions. My first one relates to one of your U.K. competitors that yesterday released a trading update stating that sales performance in the U.K. is down by about 7%. While your sales is down by about 25% year-to-date in the U.K., which implies a slower recovery pace. Could you please explain what drives this with respect -- discrepancy?I mean, you mentioned double-digit growth in trade and solid consumer demand. So is it your exposure to the project segment or is it something else that has hampered a faster recovery in the U.K.?

[Jon Sintorn, President & CEO]

The very fast answer to your question, you just answered, yes.

[Adela Dashian, Analyst]

Got it. Okay. And then if we could turn the page down to consumer sales in all the markets, specifically in the U.K. The demand that you're experiencing from your retail customers, is this softer than the Nordic countries? And going forward, do you expect the demand within retail to be enough to offset the softer project sales in the U.K.?

[Jon Sintorn, President & CEO]

Could you repeat the last question, please?

[Adela Dashian, Analyst]

Sure. Well, the demand within the retail segment in the U.K. be enough to offset the softer performance in projects?

[Jon Sintorn, President & CEO]

No. On your last question, it will not be able to offset that. We see a pickup in orders in this quarter in the U.K., in the retail. In terms of revenue sales, the weak second quarter shows in those numbers.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

And let me just clarify. The retail sales in the quarter was down 15%, mainly due to a soft order book coming into the quarter. The activity now in retail throughout the quarter has been considerably stronger and trade, which is a shorter dispatch time frame, has also grown well, in line with market, slightly better than market in Q3. We believe these 2 effects would help us gain better traction in Q4 than what you've seen with a negative 9% organic growth in Q3. So we believe that it's more reasonable that we can send off the -- or support growth in Q4 than what you have seen in Q3.

[Adela Dashian, Analyst]

But are you experiencing stronger demand from your retail customers in the Nordic countries than in the U.K.? Or is it pretty similar today?

[Jon Sintorn, President & CEO]

It's the same type of trend. And then it depends, of course, in which segment of the retail segment you look at and so forth. But the trend is the same across Europe, we believe that the demand for renovation is picking up.

[Adela Dashian, Analyst]

Okay. Great. And then if I could also ask about the factory ramps up. You mentioned that all factories are fully operating, but could you tell us something about what levels they're running at at the moment?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

In the Nordics, we are pretty full-ish, there's still some headroom. But we're running at pretty good low. In the U.K., it depends on which segment we are addressing, whereas, obviously, project sales and social housing is not a very big load and for trade and consumer, it's a better level.

[Operator]

Our next question comes from Matthias Holmberg from DNB. .

[Mattias Holmberg, Analyst]

First of all, on the new factory that you have in the pipeline in Jönköping. Could you please provide us with an update on the progress that you've made so far? And sort of what's next ahead here?

[Jon Sintorn, President & CEO]

So what we're doing is obviously continuing to prepare -- preparation work for that factory. Going into various designs of the actual -- of building and what type of machinery we need and those sorts of things and also permits and other, let's call it, certificate's and other permissions that you need in order to do this project. We're also in parallel working with the NBL, for [indiscernible] with the unions and also looking into the financing options that we have for these factories. So -- but all in all, in short, it's going well and in line with our time plan.

[Mattias Holmberg, Analyst]

Great. So the 2023 time line is still valid then?

[Jon Sintorn, President & CEO]

The time line that we have communicated is still valid.

[Mattias Holmberg, Analyst]

Great. And a second question for me. We're seeing some countries in Europe sort of reversing back into lockdowns. And I just would like to hear your opinion on sort of what you see is different this time compared to what we saw in the second quarter? You mentioned that you don't believe that there will be any imminent closure of factories. Do you see a similar trend in, say, the retail stores and such?

[Jon Sintorn, President & CEO]

So our best assessment. And obviously, this is our assessment at this period in time is that last time, it was -- I think everybody felt a bit overwhelmed when the lockdown came and it was a matter of interpretation on how to deal with this situation and what not ending up with not us being forced to close the factories. But the -- at the retail level, there was expectations not to keep stores open and what not. We see a slightly different sentiment now, schools and universities being kept open. There is an essential list of -- essential stores, so to speak, being distributed, and it's clear guidance already from -- to get-go from the government on how to interpret this and more. And all this together makes us pretty confident if you can be confident in these times that we will be able to keep our factories open. There will be pick and collect maybe situations for trade, design appointments or digital interactions with consumers and what not, those sorts of things. But that will be a complete shutdown or that we'll not be able to operate our factories we see as unlikely at this point in time.

[Operator]

Our next question comes from Kenneth Toll from Carnegie.

[Kenneth Toll Johansson, Financial Analyst]

Yes. So you talked after the first quarter that you have made some changes in the U.K. manufacturing organizations and that we would see savings of that in the second half of this year. I know that the world didn't turn out what we wanted it to be since then. But could you maybe talk a bit, again, about what you did back then and how it could sort of support earnings going forward?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Yes. As you said, the world didn't turn out the way we expected back then. One of the main initiatives was to invest in our core factory Darlington in the U.K. to also take some volumes and panel manufacturing for the other factories. Now since we came into lockdown and saw the huge volume decline in product sales, we have not been able to fully do this transmission, and also, we -- do this transformation. And we also sit with a underutilized factory in terms of -- the Rixonway and social housing. So we still believe that the benefits will come in. Hopefully, as soon as we get stronger volume going for this, which will be, again, expected to Q1, Q2 in 2021, as I was alluding to before.

[Kenneth Toll Johansson, Financial Analyst]

And will that bring -- will that mean that you have different products being made in the different plants in the U.K.? And do you still have investments left to do in the U.K. manufacturing?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

We will have some investments to do in U.K., but not significant amounts. And what it basically means is that our platform, as you know, is the K20 platform. The Rixonway business and social housing will move over to the K20 platform. So that's ultimately what we are doing.

[Kenneth Toll Johansson, Financial Analyst]

So in the -- when that is done, then you will have more flexibility between the plants. So if the project business goes down significantly, you can manufacture for other segments and so on?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Exactly that.

[Kenneth Toll Johansson, Financial Analyst]

Okay. Sounds great. Then also, when you talk about your strategic initiatives and so on. Are most of the savings that you look for, are they related to this big plant that are planned for 2023, 2024? I mean all the plans you have now for making the assortment leaner and moving to K20 and so on. Are they being realized in 2023? Or are there more savings coming sort of next year in 2022 as well?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

We believe that we will have cost savings coming in way before the factory is ready. The Nordic factory is ready. So all the initiatives we do now with moving volumes over to K20 will give effect. And that's a -- during the time of the crisis, we have actually done some -- continue to do some changes to streamline the K20 platform as well. So we still foresee that, that will help to drive cost savings.

[Kenneth Toll Johansson, Financial Analyst]

Sounds good. And if I go to try -- you are starting to invest according with the plans you had before, again now. But will it take some time before you get those investments sort of back again? And will there be some extra costs? I mean just as when you stop production and restart it, there are some troubles, do you foresee the same thing in investing in your plants?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Well, the way it is now is that we are ramping up and have been ramping up throughout the Q3. And we can probably shed some more light on our CapEx profile when we go into the Q4 presentation. As we have, again, revised how that CapEx will pan out now, when things are getting more normalized, so to say.

[Operator]

Our next question comes from Adela Dashian from Handelsbanken.

[Adela Dashian, Analyst]

Yes. I have 2 follow-up questions on the U.K. market. If you could first explain the margin difference in the different segments? And then also, I know you've answered as plenty of times before, but could you give us an update on the Brexit scenario and what it looks like for you?

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

Okay. I'll start with the first question. So -- and we often get this question. Basically, in retail, you probably have the highest gross margin, but you also have a high cost to serve in the market, right. Whilst in trade, the gross margin is slightly lower but also slightly lower cost to serve. Then in project markets, you have the lowest gross margin, but also very low cost to serve. So at the end of the day, we should be able to drive the same profitability in the various channels, albeit the structure of gross margins and SG&A is somewhat different. I hope that answered your question.

[Adela Dashian, Analyst]

It does, yes. And then on the Brexit scenario?

[Jon Sintorn, President & CEO]

Yes. In terms of Brexit, I think we know as much or as little as everybody else in the U.K. on what's really going to happen...

[Adela Dashian, Analyst]

Have you started on the price to prepare for a situation?

[Jon Sintorn, President & CEO]

Yes. Yes. No, we're working, obviously, the tariffs and customs and paperwork and admin and all of those sort of things that we need to do. We are working on them and we're also trying to -- as everybody else in the U.K. market, there is no one self-sufficient. If I put that way, everybody has to import quite a lot of components in order to run their factories and fulfill the demand from the customers. So that's a common -- for the industry, a common challenge that we are facing, and we are now trying to fill our warehouses with the sort of components to get back to our Brexit stock, as we call it, a year ago as much as we can to prepare.

[Operator]

Our next question comes from Victor Hanson from Nordea.

[Victor Hansen, Research Analyst]

I'm wondering if you could please elaborate on the dampen productivity in the Nordics, which you described in the report? And also, if we should expect this effect to continue significantly into Q4?

[Jon Sintorn, President & CEO]

Well, I'll start with 2 things. One, obviously, being more mindful on the health and safety of our staff. It's still higher sick rates. People being even more mindful with those sorts of things, that is a challenging situation for us. And then with the type of demand where we have a drive for color and those sorts of things. For example, we need to expand, extend machinery, all sorts of things and maybe the suppliers could be anything from Germany to Italy. And it's been more difficult to navigate in this -- when you can't really travel and you have accounting situations and those sorts of things. It's just more difficult to navigate in this environment.

[Kristoffer Ljungfelt, CFO & Acting Chief Investment Officer]

And to add to that, you've had a high volatility as well in the demand, where it's gone high and low between different months, et cetera, and the seasonality, which we are not used to, so to say. So it's -- and then it drives cost. Looking into the future, we don't expect the -- and I would say, even though we mentioned here productivity, it's not been a big problem for us, so to say, and it's more of a temporary nature, I would say, driven by the corona effect here. So we don't foresee any big cost moving on the Nordic supply chain. And then again to what Jon was alluding to, there are certain areas within the manufacturing, like the color schemes, for example, where we need to expand our capacity to some extent.

[Jon Sintorn, President & CEO]

And I should, as Kristoffer was mentioning, I should underline that as well, going from a negative something 1 month to plus something, but very high in the other months. It's obviously -- in terms of productivity, it's difficult to manage with this short period of time, but it's not a long-term effect that we see. It's very pandemic-related productivity issues.

[Operator]

Our next question comes from Fredrik Moregard from Pareto Securities. .

[Fredrik Moregard, Analyst]

Just a follow-up for me. On the franchise conversion in the Nordics, could you please provide us with an update on where we are in that process? And what sort of impact we could expect for the top line going forward as well as the shift in your cost base from fixed cost to more variable cost base?

[Jon Sintorn, President & CEO]

As we have more or less completed that transition. There will be a couple of percentage point's difference in Q4 as well. And then year-over-year effect will be less. There will be some also during next year, but less effect than what you've seen this for. I wouldn't make too big of an adjustment on the cost position. I mean, we have also the various streams growing in various ways. So net on that was a huge difference.

[Fredrik Moregard, Analyst]

Okay. Perhaps shifting some of the cost from the SG&A to cost of goods sold, I would assume.

[Jon Sintorn, President & CEO]

Yes. But it's a very small effect. And it's mainly related to the smaller stores, which we have franchised about 15 of them now, which would be the end of that program.

[Operator]

[Operator Instructions] Okay. There appears to be no further questions. So I will hand back to the speakers for any other remarks.

[Jon Sintorn, President & CEO]

Thank you very much. And with that, we conclude today's call and welcome you back on the 4th of February for our full year results. Have a nice day. Thank you.

[Operator]

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.