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Okay. So I welcome you to the quarterly presentation of Europris. As usual, we would start with -- know a lot registered today, but we will have some handouts. And of course, it's summer so we have a family package of Mr.Freeze. You can buy it at Europris at NOK 29.90 or you can go to Kiwi and pay NOK 48.90, so it's your choice. And this is also something for the snacks, 4 for NOK 20. You can buy it at Nille, 1 for NOK 10, but 4 for NOK 20 sounds better, so that's also an offer. So we have a goodie bag for those of you who have -- who are attending today, so please feel free to pick it up before you leave.The main message today is, overall, of course, we are not satisfied with delivering results which is lower than last year. There's 1 bad news and 3 good news. The bad news is that the costs in the very central warehouse and in logistics was much higher than expected. That's the bad news. The good news is that we have a sales growth which I think is among the best in the market. And I think I've never seen actually such a gap to the market as we are seeing now. So it's a huge gap to the market. So we are actually doing what most retailers are dreaming about, to grow the business.The other good news is the fact that the things we need to do to fix the cost issues are within our control 100%, so we are not depending on the market or anything else. And the other good thing is that once we're through it and we have implemented better processes and systems and routines, I strongly believe that we will actually be in a better position than we were before because that's actually -- it's good for us in a way, long term.So we'll just get into the results. The highlight is that we have a very strong top line growth, as I said, almost 10% like-for-like growth in this quarter. Of course, comparability is not -- is impacted by Easter, but still, it's a 10% gap to the market, so that's quite a lot. The gross margin was down to 42.4%, but most of that, from 43.8% to 42.4%, is due to 2 factors. One is the mix effect of Easter, which is, in this quarter, is 0.8 percentage points. We had a very good Easter but we are selling lower-margin products in Easter, so that's one thing. And then the second thing is the supplier bankruptcy, which is something that is, I think, is the first time it happens in my time at Europris, so it's -- of course, that doesn't happen every quarter, but it just happened to happen in this quarter, and that's 0.4% effect on the margin. OpEx, we talked about, and we will come back to later. This is the bad news in this quarter with a serious cost overrun, which means that net profit is down. So we're selling a lot more but not earning more. If you look at the first half, which is more representative, we still have a 5.0% like-for-like growth and this is with 1 sales day less than the last year, which means that it's close to 6% if you sales day adjust it. And as I said, that's something which is very rare in the market. Market figures came in yesterday and that was market was down 0.4 percentage points in the same period, but we were up 5.0. So very, very, very good sales development. Gross margin, as I said, slightly down, and then again, OpEx on the high side. Yes. The main driver for the sales growth is customer growth, so that's a very positive thing. We're seeing that the customers are coming to us, which is very -- also very different from the market development. In fact, I actually looked at the market figures yesterday and SSB has some figures from January to May, and in this period, Europris was actually growing almost twice as much as the e-commerce in Norway. SSB has the figures for growth of e-commerce in Norway and that was almost half of what the Europris have at the moment, so sales growth is really, really good. The main drivers are the seasonal execution. We are the seasonal store of Norway and we have, once again, managed to do a little bit better in the seasons all the way through to the stores and that's one of the key drivers behind the good sales growth. The other driver is also that we have been even better at implementing sales campaigns, so we are selling more of the products that we put on campaign. We think that also long term will increase customer satisfaction and price perception. So it's a positive also long-term effect.Yes, you've seen these figures, the gap to the market. I think that, of course, it's more important about the year-to-date figures than the quarterly figures, but the year-to-date were all more than 5 percentage points above-market growth on like-for-like, which again is market is surprising on the low side and we are doing really well.The long-term vision, and I think it's important to reiterate it on a day like today. The long-term vision is that we want to be the best discount variety retailer in Europe. And I honestly think that when we fix the things that we needed to fix in terms of on the purchasing side, in terms of managing volumes and putting in place better routines and systems, we will come out strengthened from this process. So that is still valid and still intact.Some of you might ask what is really -- what are you doing and I think on the sales side, I think that you always have to have a portfolio of category development initiatives. In the summer, what we have been able to do is a combination of -- you see trampolines on the left-hand side there. Trampolines is a sector, like a segment where we have been doing well over many years. Then we have started to face more competition. This year, we have innovated with an oval trampoline, and we also changed the design and some of the features on the trampolines. We also did a cooperation with Espen Jansen, which is one of the -- quite famous in Norway, and the result is more than 40% growth in this category. So that's just an example of how you have to -- you don't get anything for free in the retail market at the moment so you really have to work on category development initiatives in order to create that growth above the market, and trampoline is a good example of it. Garden furniture is another one where we have the usual bestsellers, but we're also trying to develop new formats and new products with a slightly different sort of look and feel. Still, the old sort of bestsellers are the bestsellers, but we're all trying to innovate also in a category that is very large for us. And I think that we are the market leader on garden furniture in Norway.We're also working on some things more longer term. This is just a test that we're doing in a store on the home and kitchen category, where we think that we can do even better. We are not satisfied with the development so we're testing out some new sort of features, some new look and feel. And you will see that being implemented later, but not in the next quarter, but in sort of 2020.If you look at the store estate, I think it's fair to say that we opened 4 new stores in the quarter, 5 so far this year. And we look -- set to open 6 stores this year. We had 3 locations in the -- relocations in the quarter and I think you will see more of that as the store portfolio is sort of maturing. We will have more and more opportunities in this market to relocate to better locations. And that's one of the first thing we see in a softer real estate market, that we are getting opportunities today that we didn't get 5 or 10 years ago. So we'll see more of that. And I think that the key reason is many landlords want the format that are growing and winning into their sort of estate, so that's why we're getting those opportunities that we didn't get before. We also opened a city store in Central Oslo. It's still early days. It's only been open for 3 months but a promising start. So we're also looking actively for more locations, but we will be patient. We will do the right locations at the right price, so we'll see when the next store comes up, but it's a promising start and interesting format. It's not so easy to find stores with 1,127 square meter sales area and 40, 50 parking spaces in downtown Oslo, so that's why we have to innovate with the concept, too. Yes. The new central warehouse opened at the end of May on time and on budget, so it's very important to sort of emphasize that the logistical cost overrun that we have had is not related to the new warehouse. That's sort of -- it's more the fact that we have bought too many products at the maximum worst timing before that, the end of an old warehouse sort of system and setup and exactly at the moment when we were moving. But the new central warehouse opened on schedule, on time and on budget, it's important.We have given you -- updated a little bit the details on the transition that is going to happen on -- over the next few years. Espen will come back to it. As I said, we started with the Phase 1 of the new central warehouse, the low-rise part of it, in May this year on time and budget. Then we will, next year, in between February and March and June, we will start ramping up the high bay area in the new central warehouse. And then towards the end of 2020, early 2021, we will put in place this semi-automation production process. So that's sort of the 3 main phases of the new central warehouse. And given the situation we have seen this year, we have also decided to extend the rent in some of the old premises to avoid getting into the same situation next spring/summer, which is the high season for us. Christmas is higher, of course, in terms of sales, but in terms of volumes, spring/summer is the most demanding season for us. With that, I think I will hand over to Espen, who will take us through the financials.
Thank you, Pål. Yes, as Pål said, the gross margin in the quarter was 42.4%, down from 43.8% last year. It's 2 reasons for the decrease in the margin. It's the seasonal one that Easter came in the second quarter and Easter constitutes high sales or lower-margin seasonal items that impacted the margin by 0.8 percent points. In addition to that, we have made a loss provision of NOK 7 million for a potential supplier bankruptcy. It's a supplier where we had a return agreement and the claim we have originates from return of books in 2017 and 2018. So they have issued credit invoices that they are not able to pay us back, and we stopped payments to the supplier in October last year. And as Pål said, it's very seldom this happens and it's something that we are following up on.Well, on the cost side, operating expenses was 24.2% of sales compared to 30% last year. If we adjust for the IFRS 16 effect, OpEx rate was 31.1% in the second quarter. We are still increasing the number of directly operated stores which drives the costs and that was up by 6% to 229 stores compared to 216 stores last year. And as Pål has mentioned, operating expenses is impacted by the high fill rate at the central warehouse, which caused capacity constraints during the quarter. Additional costs in the quarter amounted to NOK 35 million, which was higher than what we expected for the second quarter.Looking into the capacity constraints, the reason for the high fill rate at the warehouse is misjudgments in the purchase of goods. Basically, we have purchased excessive volumes in the nonfood categories and the summer seasonal items have arrived in the warehouse too early. And this happened at the worst possible timing for us. We are at the end of the old warehouse structure and the logistics departments were moving into a new warehouse during the second quarter and the second quarter is the most volume-demanding season of the year.So when the summer seasonal items arrived early, it would have to be stored in the harbor and then it was ticking on container rent and also rent in the harbor as the warehouse is full and we couldn't pull the items in. In addition to that, it's created operational disturbance, so we had to establish picking of seasonal items in the harbor and distribute to the stores which meant that we get higher distribution costs as we couldn't combine the pallets with other goods in addition to internal transport of goods. So hitting basically all kind of cost lines, so we increased the personnel costs. We had the container rent and we also got more distribution costs and we also have to use some third-party handling to handle the flow of goods.We see now that inventory increase includes excess seasonal items. We will have some leftovers after the summer season this year. We are not afraid of obsolescence in the stock, but we will store them for next year. But that means it will take a full business cycle to reduce the inventory levels and bring it back to normal levels. During the second quarter, we have implemented better routines for control of purchase volumes and also the flow of incoming goods are -- have been changed. We have secured extra capacities so we have extended the rent on some of the vacated warehouses in Fredrikstad in order to secure capacity throughout winter to store the seasonal items and to avoid the same kind of situation as we had with the high fill rate so we can avoid storing goods in the harbor and getting container rent. So measures are taken and we could see that the costs -- additional costs decreased throughout the quarter as we got more capacity. So when we started moving and taking the new warehouse in Moss into use, we moved out of one of the warehouse at Fredrikstad in May, and then in early June, we emptied the harbor and filled that warehouse up with goods from the harbor. So costs are now down. Number of containers in the harbor are reduced to more normal level but we will be on high inventory levels until next year.When we look at EBITDA, adjusted EBITDA was NOK 296 million in the quarter compared to NOK 197 million last year. When we adjust for the IFRS 16 effect, the EBITDA was NOK 184 million. And of course, the EBITDA was impacted by the change in gross margin and the additional costs we had connection with the warehouse capacity constraints.On the cash flow, we have used some more investments on the new warehouse and on the new head office. I paid the dividend in the quarter with NOK 299 million, an increase of NOK 15 million from last year. And at the end of the quarter, we have cash and liquidity reserves of NOK 336 million, so a solid position.Pål, it's up to you to summarize.
Yes. I'll summarize the outlook. As we said, we still believe that we are, in terms of sales growth, we are in a market which is a very positive, even though we feel the market growth in Norway has been low. We are in a segment that is taking market share and we're just sort of in a very good position in a leading segment. We see that the short term here, we have been impacted by the higher OpEx but we have, as Espen said, we have taken measures to fix it and then sort of it will take a full business cycle for the inventory levels to normalize but, of course, the cost overruns are all the way down. So that's on the positive.We are still working on transforming Europris from a physical chain to an omni-channel chain and we are doing continuous development in our online presence. In this quarter, in particular, we had a very positive cooperation between the physical marketing and the digital marketing. That was one of the success factors in the seasonal sales development, so that's sort of a positive. Digital activities is not only e-commerce. It's also the eCRM and the digital marketing. We have a healthy pipeline of new stores. We will not open new stores if they are not profitable. And every year, we check them to see that they are profitable, but we see also that relocations are a bigger and bigger value driver for us going forward. And we will take over some -- a few franchise stores every now and then, even though it will not probably at the same pace as it has been over the last few years.So that's all. I think we'll open up for questions from the audience.
Gard Aarvik, Pareto. At the last quarterly presentation, you guided on the excess fill rate costs and also in Q3. I can't seem to find it anywhere here, so maybe I think then it was in the range of NOK 5 million to NOK 10 million. Do you have...
We maintain that guiding. That's in that range, but I would put it at the high end of that range, so around NOK 10 million in costs.
Okay. And could you maybe comment on the size of the excess inventory that you will carry through the business cycle? Is it a significant level?
That is -- we see that we will have leftovers after the summer season but it really depends on the sales in the coming weeks, how much it will be. We have started off selling down, having seasonal sales as usual. So it depends a little bit on the coming weeks. It's still early in July and it's difficult to say how much it will be. But assumption will be in the range NOK 50 million to NOK 60 million.
Markus Bjerke from SEB. Could you comment a little bit on the last part of the quarter just compared to last year in June, which was very challenging for a lot of retailers? And if you've seen any differences in the market if you compare shopping malls to high-street stores, if the shopping malls had a bigger delta compared to last year or if it's been more or less the same.
I think overall, we don't have many stores in shopping malls, so that sort of would be mostly out of not even in high streets but in sort of out of town. And so I think we are not the ones to comment on it. But if you look at the market figures for shopping malls, they had been on the lower side. And that's, as I said, that's probably on the surprisingly low side. But I think also the market in general will come -- I mean, June figures comes from the -- for the total market, we expect them to be also on the slightly negative side. So I think overall, the retail market in Norway is doing worse than expected, but the segment that we are in and there are certain other smaller segments are doing well. And as I said, in fact, we are actually outpacing the e-commerce in Norway at the moment, so I think as e-commerce is growing, of course, but actually discount variety retail is also doing very well.
Martin Stenshall from Danske here. Just some questions regarding the new stores and also the relocations this quarter. Can you please comment on the start of these new stores, how that has been? And also regarding the lease, let's say the contract terms, I mean, are you seeing significantly better terms now, let's say, compared to 1, 2 or 3 years back?
I think we started off quite well. The stores, as I said, in areas which is, mostly in the last quarter, was -- had some promising start. So there's no big, major changes in the -- how they start. On the terms, I would have wanted it to be even better. We are seeing that the market is tilting towards the tenants, which is good, and especially the tenants that are growing and developing their format, so that's on the positive side. So I think still we don't see the rent levels coming down dramatically from 1 to 2 years ago, but we expect this trend to start accelerating in the years to come. And if you read in the papers, at some point, the tough situation in a total retail market has to also transform into lower prices. At the moment, it's doing it but not at a dramatic, and we think that it will, at some point, get more -- even more favorable for us.
The city store in downtown Oslo has been now up and running for some months. What is your perception of that now? Are you less or more keen to open more city stores?
I think we are more keen than we were on the opening day, so I mean it's positive. We're looking for stores, but it's a market where we want to be patient and make sure that we actually get the right locations and the right terms. So we are not stressed if we wait another quarter or 2 or 3 before we open the next 1, but we are more positive now than we were 3, 4 months ago. And I think also a lot of the landlords are more positive when they see the kind of -- the concept. But also the -- if you go to Gunerius, look to where the customers are in this center. It's at Europris.
You mentioned that you're likely to extend some lease contracts of warehouses in order to not end up in operational challenges. Could you please comment on, let's say, the extra costs that will impact the P&L?
Yes. The extra rent costs will be NOK 2 million per quarter from the fourth quarter of 2019 until then the first half of 2020. In addition to that, of course, some operating expenses in the warehouse as well. But mainly the warehouse will be used for storage of excess seasonal items.
And then regarding the excess, let's say, inventory levels, you mentioned that it might be, let's say, NOK 50 million to NOK 60 million, but it depends, of course, on how the summer progresses. What is your conservations about, let's say, discounting more in order to get the inventory level down versus then actually keeping the goods for, let's say, another 10 months?
Our calculation so that it's better to keep it on stock than doing a full sale down. I think it will be difficult to empty that in the market.
And also just to comment on it that the products are, of course -- they will be sold next year at the full price too, so that's one of the things behind this consideration.
Carl Bjerke from Arctic. I just had a question on your ownership stake in ÖoB. In Q1, you booked a NOK 6 million loss, and then this quarter, it was a NOK 3 million positive result. Is that sort of a -- is it showing a positive trend? Or how's the development there so far this year?
I think that basically shows that ÖoB, like many other retailers, have a cycle where the first quarter is always red and then they -- it gets more and more green towards the end of the year. So they are making the most of their profit in the fourth quarter. ÖoB, they have sales growth and have established a new cost level, but the turnaround takes time in order to get to the sales growth where they want it to be and establishing a seasonal concept. We know for sure, from our experience, that, that is something that takes 5 years at least to really make that kind of turnaround. But I believe they are on the right path. They just need to be patient to get the full results.
And I also saw in the report that you experienced some delays in agreeing on the final purchase price. When do you expect that issue to be resolved?
We expect that to be resolved before we report the third quarter results.
Questions from the web?
Yes. There are 3 questions from the web. Ole Martin from DNB asks, you look very pleased with the top line and volume development, but at the same time, inventory is up. What kind of products are not selling? And how could you be comfortable that these products will be selling next year? And he's also asking what is an ideal inventory level in your view.
I can comment on the first part of it. First of all, it's not that we are -- the inventory situation is not caused, as Espen said, by the fact that we are having products that is not being sold. We just bought too much of it. So it's no obsolescence in the inventory. And in fact, we have done quite a good summer season. We think that the market figures will show that we have sort of beaten the market solidly on the spring/summer season. So that's sort of on the first part of it.
Yes. When it comes to the inventory levels, it's difficult to set a hard target on that. But obviously, it should be lower than what it is today. And of course, as the CFO, you always want it to be very low. But we will work hard to reduce inventory in the next 12 months.
Thank you. Question from Tushar at Goldman Sachs. What is -- I'm sorry, a strong like-for-like growth in Q2. How much is it due to increase in basket size versus footfall?
The main driver is footfall. So customer growth is the main driver. There is also a slight increase in basket size but mainly driven by a number of items, if I remember right. So that's -- but the big driver is actually customer growth and that's a very positive thing.
Thank you. Last question, Petter Nyström, ABG. You mentioned higher inventories for seasonal products. Should we see that as an indication that you are expecting soft July sales for seasonal products?
At least we have products to sell in July, so we shouldn't be afraid that we run out.
I think there's no indication of that.
Okay. Thank you.
Okay. If there's no further question, we wish you all a happy summer.