Axfood AB (publ) (AXFOF) Q2 2024 Earnings Call Transcript

Axfood AB (publ) (OTCPK:AXFOF) Q2 2024 Earnings Conference Call July 12, 2024 3:30 AM ET

Company Participants

Klas Balkow – CEO
Anders Lexmon – CFO

Conference Call Participants

Fredrik Ivarsson – ABG
Magnus Raman – Kepler
Simen Aas – DNB Markets
Daniel Schmidt – Danske Bank

Operator

Welcome to the Axfood, Q2 2024 Report Presentation. [Operator Instructions]

Now, I will hand the conference over to speakers CEO, Klas Balkow; and CFO, Anders Lexmon. Please go ahead.

Klas Balkow

Thank you and good morning, everyone. And thank you also from our side to join today’s call. As you heard, Anders Lexmon is with me here today to present the interim report for the second quarter of 2024. And in the investor section of our website, you will find the presentation material for today’s call, and a recording will also be made available afterwards. So, with that, I would like to get started and please turn to Page 2.

Today’s agenda is as follows. First, we’ll have a brief market overview, and then I will give you a review of our quarterly performance, and after that, Anders will take you through our financials. And following Anders’ part, we’ll talk about our progress we are making with some of our strategic initiatives and investments for the future. And of course, this will also include logistics, but also our announced acquisition of the hypermarket concept, City Gross.

And finally, we’ll have a brief summary to conclude the presentation before we open up for questions. So, with that, we are now on Page 3, but let’s go directly to Page 4 and take a look at the development during the quarter. Market growth amounted to approximately 2.2% in the second quarter, which is a lower level than we’ve seen before.

The calendar effect was however negative at minus 1.2%, basically a reversal from the positive Easter effect that supported market growth in the first quarter. Inflation was low during the quarter and amounted to approximately 1.1% according to Statistics Sweden.

A strong focus on price value continues to dominate the market dynamics. The fact that households now have a slightly more optimistic outlook following the sharp drop in inflation has not had any major impact on consumption patterns, and clearly, it’s still a very intense competitive environment out there. With that said, volumes in the food retail market are continuing to recover. This is evident when taking the price and calendar effect into account, which results in a volume growth of 2.3%.

With that, go to Page 5. Now, going into this year, we were mindful that we would be operating in an environment with low inflation, cost pressure, and intense competition. And against this backdrop, we knew that relevant offerings and price positions are more important than ever, hence our dedication to these areas in the last six months. And despite the exceptionally high comparison figures, we once again outgrew the market in this quarter.

Retail sales grew by 2.6%, driven by continued volume growth with a strong inflow of customers. Over a two-year period, growth amounted to almost 20%, significantly higher than the rate of the market, which was around 11%. It is clear that our concepts are strengthening their market positions, which have been significantly improved in recent years, and that customers appreciate what we are offering.

Now with that, turn to Page 6. If you look at our e-commerce, our sales increased 7.4%, which again was higher in the market, and our share of consumer sales from e-commerce was approximately 5.2%, roughly 1 percent point higher than the penetration of the market. So, we are clearly overrepresented on online capturing more than our fair share of this channel.

So, we are now moving on to Page 7, and so let’s look into some of our key ratios. And consolidated net sales for Axfood grew 1.2% during the quarter. Willys posted solid growth and Hemkop’s like-for-like development was strong, however, the development for Dagab held back total growth, largely due to softer sales to external customers, but also due to a negative calendar effect also in Dagab of 1.1%, that will be reversed in the third quarter.

And with that go to Page 8. Now, looking at our profit. In total group reported and adjusted operating profit amounted to SEK836 million and the margin was 4.0%. As a reminder, last year we disclosed cost-affecting comparability related to the transition to the new logistic structure. Although the transition is still ongoing, related costs are no longer deemed as affecting comparability as parallel warehouse operations are being phased out gradually. However, our transition costs have been somewhat higher than we initially anticipated.

While the quarterly development in the retail chains was solid with positive like-for-like growth, the decline in profit was mainly due to a negative development in Dagab due to softer sales, transition costs, and costs related to operational disruptions of around SEK40 million.

In the quarter, we also incurred acquisition-related costs of SEK26 million for City Gross acquisition. And in addition, in May, we were affected by the temporary operational disruptions in the stores payment system, and this is estimated to have an impact profits negatively by SEK20 million.

And perhaps it’s needless to say we are not pleased with the profit development in Dagab for the quarter, but we had a lot of costs and headwinds as you’ve heard, and the extraordinary items partly explains it, and I’ll talk more about the moving parts here later on in the presentation. But let’s now move on to our segments, and turning to Page 9, and we’re going to Willys.

Willys growth of 2.6% was higher than the markets, which is very strong performance given the exceptionally high comparison figures. Compared with the same period two years ago, Willys has grown more than twice as much as the market. And operating profit in the segment increased slightly to SEK509 million, corresponding to an operating margin of 4.5%. The profit development was primarily attributable to growth in like-for-like sales and effective cost control, but was negatively impacted by higher staff costs and increased rental levels.

And we are now on Slide number 10, and want to emphasize Willys’ ambition to offer Sweden’s cheapest bag of groceries is key, and during the quarter, Willys secured its price position. Willys’ growth compared to the market shows that its strategy is working. This is also confirmed by customer service which shows high levels of customer satisfaction. And we also see strong loyalty among existing customers. As an example, for quite some time now, Willys has been Sweden’s most recommended food retail chain, and the gap to its main competitors is significant.

And if you look at customer willingness to recommend what we call a net promoter score is obviously a way of measuring customer satisfaction, however, we also measure customer satisfaction index and our surveys show a high level for Willys in line with the main competitor, despite very different offerings and significantly higher than its second main competitor.

With that, let’s turn page, and we are now on Page 11 and we’ll go into Hemkop. And Hemkop once again posted strong growth in like-for-like sales of 4.6% during the quarter, driven by clearly higher volumes. Total retail sales growth was 2.5%, and as a reminder, three large stores left the chain on February 1st which mainly explains the difference in total and like-for-like growth, and net sales increased by 5.2%.

While the development for Hemkop banner was strong, Tempo delivered softer performance as a result of the continued challenging market climate for smaller store formats. And operating profit amounted to SEK87 million and the operating margin was 4.4%. The significant increase in operating profit was primarily attributable to the strong like-for-like growth. The quarter was also characterized by improvements to the operational efficiencies and effective cost control.

And with that, turn to next page, Page 12. And also in Hemkop, it’s continuing its work on its assortment, price [technical difficulty] and store modernizations and customer service demonstrate the progress the chain has been making in the last couple of years in terms of appeal. Customer satisfaction has clearly improved, and when we analyze the development compared to its closest competitors, we see a clear effect.

Hemkop is the only one with a positive trend. This has resulted in a narrowed gap compared to two of its closest competitors and a widened gap in relation to the third. And obviously, Hemkop continues its journey to strengthening the profile and this work has paid off, which is why the chain has been so well in the market for a long time now.

And let’s move on to Page 13, I will go into Snabbgross. The cafe and restaurant market is facing a softer market as many consumers are prioritizing other types of spending than eating out. This of course has had a impact on Snabbgross development. Sales during the quarter increased 1.9% in total and 1.5% on a like-for-like basis.

And positively, the number of customers continued to increase. And in addition, the trend in consumer sales through Snabbgross Club continued also to be strong. Operating profit amounted to SEK84 million, corresponding to an operating margin of 5.5%. The profit development was mainly impacted by growth in like-for-like sales and an increased costs primarily related to staff and higher rental levels.

And with that, let’s go to Page 14, and we’ll look into Dagab. And as I mentioned, the decline in profit for the group was mainly explained by a weak development in Dagab in this quarter. Dagab’s net sales increased by 0.8% on the back of low inflation, a negative calendar effect and softer sales to external customers including the smaller store formats.

The sales development was clearly not enough to offset the general cost inflation. But in addition, the muted sales growth, Dagab experienced higher costs related to the ramp up of our new logistical structure and also Dagab incurred costs of SEK40 million related to operational disruptions, and I will talk more about this when we come down to the strategy review.

But now, let’s turn to Page 15 and it’s time for Anders to walk you through our financial development. So, please go to next page and we will have now Page 16.

And Anders, please go ahead.

Anders Lexmon

Thank you, Klas.

During the first half of the year, net sales for the group increased by 3.1% to approximately SEK41 billion. Retail sales increased by 4.7%, which was higher than the food retail market in total where growth amounted to 4.2%. Operating profit, excluding items affecting comparability decreased with 2.3% to just over SEK1.6 billion.

Like-for-like growth and effective cost control in the retail chains was offset by higher costs, associated with the restructuring of logistics, as well as increased costs related to personnel and higher rents. The operating margin, including items affecting comparability was slightly lower and amounted to 4.0%.

Let’s turn page to Page 17. In the second quarter, cash flow was minus SEK174 million, and compared with last year SEK165 million lower, mainly due to negative cash flow from net working capital. The positive calendar effect in Q1 from Easter was reversed in Q2, and furthermore, we also had a negative calendar effect in Q2 related to the number of payment days. The negative cash flow from investments activities of SEK427 million was significantly lower than last year as we now have a lower pace in automation investments.

Investments in our retail operation was however higher in Q2 compared to last year due to more store establishments. And the investment in joint group functions was in line with last year. During the first six months, we strengthened our cash flow from both due to a stronger operating cash flow and a lower investments. At the end of the second quarter, we utilized approximately SEK0.7 billion of our credit facilities, SEK0.4 billion less than the second quarter last year.

Then turn page to Page 18. We also in the second quarter strengthened our financial position compared to last year, but compared to Q1, we saw a slight increase in net debt due to a lower cash position. The net debt ratio excluding IFRS 16 amounted to 0.1 which was 0.2 lower than a year ago. The equity ratio at the end of the second quarter amounted to 21.1%, 1.2% higher than the second quarter last year.

And total investments excluding leasehold for the first half year amounted to SEK714 million, SEK394 million lower compared to last year. And again, we now see a lower pace in investment related to the logistics center in Balsta. Investments in relation to net sales continued to come down and amounted to 1.7% in the first half year.

And then please go to Page 19. Despite the negative net working capital effect in the second quarter, we have a positive development of rolling 12 month net working capital both in absolute and relative terms. At the end of the quarter, the net working capital compared to sales was minus 3.5%, the decrease with 0.3 percentage points compared to year-end 2023. We saw improvements in trades payable, as well as in trade receivables. The positive development in current liabilities contributes to a lower level of capital employed, which in combination with an increase in profit improves the return on capital employed.

So, to summarize, we leave the second quarter with a strong financial position, and thereby Klas, I hand over to you again.

Klas Balkow

Thank you, Anders.

And we’re now on Page 20. But let’s turn now to Page 21, as I would like to give you some more color on our progress with the new logistical structure. Let me start by saying, our ongoing efforts to establish a new logistical structure are extensive. We continue to make significant and are confident that with this transition to a new logistic platform we will significantly improve our productivity and competitiveness in the market.

And in the last months we have gradually scaled up our frozen food volumes at the new logistics center in Balsta. This means that we now have operations up and running in all temperature zones as dry, refrigerated volumes has been fully transferred. We have come a long way in the ramp up of the facility and in addition we are now also running early tests with the e-comm deliveries.

While Balsta is obviously the largest investment in our new logistical structure, we’re also strengthening our operations in the southern part of Sweden, and notably, the expansion of a new automated high-bay warehouse in Backa, Gothenburg intensified during the quarter. These investments will significantly improve warehouse capacity and efficiencies to meet the significant volume growth we have seen in recent years.

And lastly, in our fruit and vegetable warehouse in Landskrona, work is ongoing to start to realize the efficiencies after the automation solution was installed in the first quarter this year. This initiative will also contribute to our new logistical structure being highly efficient.

Let’s now go to Page 22, but while we have made progress with the logistics transition in the quarter, we also faced some certain headwinds. First, although we have come a long way, we are a couple of months behind in the transition. This means that we are not operating as efficiently as we want to, as we still to some extent are running double warehouse operations. As communicated last fall, we knew we would be delayed and have some additional cost.

And secondly, given our volumes in recent years, we have during the transition identified a need to rebalance volumes between warehouses to optimize logistical flows. A month ago or so, we communicated that we decided to keep our existing warehouse in Orebro to handle convenience trade volumes there instead in Balsta. In addition, during the quarter we have moved Snabbgross volumes to Hassleholm, from Backa which is a warehouse that is better suited to handle Snabbgross type of assortment, as well as to free up capacity in the Backa warehouse. Work on optimizing logistical flows is always ongoing, but these two initiatives are quite large in scale.

And while in the transition itself, an initiative to balance logistical flows drives extra cost due to inefficiencies, we also in the quarter had higher cost associated with operational disruptions. More specifically, we experienced problems while ramping up our frozen food volumes in Balsta. But I’m now glad to be able to say that these disruptions we noted in May and partly April is now sold and during the last few weeks we are back on track.

And overall, the restructuring of logistical drives higher cost in the short-term, both from higher than usual levels of staffing, but also clearly from extra transport. We do this priority to maintain service levels because we cannot optimize, as you know, and compromise on the customer meetings in the stores.

And all this said, our expectations remain unchanged regarding the long-term upside with the new logistical structure, i.e., in terms of annual efficiency improvements, cost savings, and improved competitiveness. And we are now in a better position to be on track with the restructuring and to accelerate our efforts with gradual adjustments in the second half of the year.

With that now let’s turn to Page 23. And on June 11, we signed an agreement to acquire the City Gross hypermarket chain in which we already have joint control through minority stake. We are delighted to have reached this agreement and now await the review of the Swedish Competitive Authority, as well as, the EU Commission. We believe strongly in this acquisition and we believe strongly in City Gross. The hypermarket segment is growing and is attractive to the Swedish consumers.

As two players have almost 90% share in this segment, we are confident that there is a demand for a relevant and strong third concept. As owners, we will invest in developing in the concept, streamlining its operations, and improve customer offerings to create a long-term profitable growth. This is something we have both experience and knowledge of, thanks to the extensive work and developments we have carried out over the years in both Willys and Hemkop. And we look forward to working to strengthen the chain’s position and more clearly challenge the major players in the growing hypermarket segment.

And moving now to Page 24. Last quarter we talked about our efforts to accelerate the use of renewable fuel. As you may know, our ambition here entails that we are over a two-year period with transition to using renewable fuel or electricity in our own and procured transports which will be five years ahead of plan.

Following up on the clear progress we made in the first quarter, I can confirm that we are continuing to make progress also in the second quarter. Our CO2 emissions from our own transports amounted to 8.8 kilos per tonne on goods transported. This represent the sequential decline from the first quarter, and if we put it in perspective and look back a couple of years to 2021, it represents a steep 48% decrease.

In other words, emissions from our own transports have halved during the relatively short period. And I also want to inform that we during the quarter made decision to reapply to set science-based targets in line with the Paris agreement through the science-based target initiative.

And we’re now on Page 25. Our outlook for the year is unchanged, and it covers investments and new store establishments. And for new establishments we open up four new stores in the quarter, of which two Willys, one Willys Hemma, and one Snabbgross. Note that one of the new Willys stores was a reestablishment which replaced an existing smaller stores in the same town.

With that, go to Page 26 and let me summarize. We summarized a quarter in which we once again outgrew the market despite the exceptionally high comparison figures, and saw an increased volume from continued high inflow of customers. We made clear progress with our new logistical structure, however, faced some headwinds in the quarter, which negatively impacted the profit development. We are confident in our many investments that will create a solid platform for improved competitiveness in the future.

And we also announced an important acquisition, City Gross which gives us additional presence, growth opportunities, and increased competition. And finally, this is my 30th and last earning call as President and CEO, Axfood. I must say that I’m really proud of the strong culture and broad expertise in the group with employees who are really passionate about our journey to lead in affordable, good and sustainable food. To step down from leading this fantastic company is for sure with mixed feelings.

But I also have to say I am very pleased with the Board of Directors’ choice of my successor, and it’s with pleasure that I, a month from now will hand over the leadership to Simone Margulies who will lead Axfood into the next chapter.

With those final remarks, that concludes today’s presentation, and please now turn to Page 27. And I hand over to the operator to open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG. Please go ahead.

Fredrik Ivarsson

Thanks so much. Can I start with a question on general consumer behavior? Curious here, if you’ve seen any changes in, for instance basket mix during the last quarters? I guess, I know that the private label in Willys was flat versus last year and level of organic also flattish in Willys. But if you made any other observations that you can share with us, that would be helpful.

Klas Balkow

Good morning, Fredrik. Overall, no, it’s generally, as we noted, we see the light of that market volume is coming back from a very soft 2023 in the market, and there’s some – obviously some more positive signals in terms of the economy and the interest and so forth. But we’ve seen any difference in the behaviors in the stores in terms of consumer’s patterns and price value, focus, et cetera.

Fredrik Ivarsson

Okay, interesting. Second one, a question on Dagab maybe, and how we should think about the second half of this year to start. I mean, you’ve been previously quite optimistic in terms of reaping efficiency gains already from Q3 and onwards, and now it seems like you have to sort of operate, I guess with higher cost levels than you wished for. So, what’s the net effect on the efficiency gains on the one-hand side and the temporary higher cost level on the other? If – in Q3, Q4.

Klas Balkow

Yes. And I think, as we try not to explain and how we look at it, three areas, basically. We – as you’ve seen, we’ve had a very soft sales in Dagab, and obviously that has impacted, but then we have the disruptions that we have pointed out and – to you, how much that has impacted. Obviously, we don’t forecast, and we don’t hope for any more disruptions like that. We are also now with the frozen assortment, we are in a much better place. We have a couple of more steps versus ten steps, so we are basically 80% there in terms of frozen, but we still need to work on that.

So that is still there. We are a couple of months later than we initially thought, than we talked last time. So, but we’re also equally confident that the efficiency improvements and all of that will come in and will start in the last – in the second half. So, even if we are a couple of months later, we’re still looking forward now to, in the fall now to start to improve the efficiencies and start to drive this fantastic warehouse to its capacity.

But yes, we are – we had some higher cost also related to not only the disruptions, but we still – we are still in this transition. As we talked about in Q1, we had higher costs related to that. We knew that when we went into this year. It is still some cost in Q2, it will be a significant lower cost, but we’ll surely have some also cost as we are not there yet, we are a few months later.

Fredrik Ivarsson

And on those costs, just to get a sense of the level, I think you talked about around SEK20 million or so in Q1. What it sounds like, it’s a bit higher in Q2.

Klas Balkow

Yes. If you have the remaining part of – if we are down SEK100 million, you are SEK40 million disruptions, that’s SEK60 million left. It’s a half split between sales, soft sales, and also the delay. So you’re around SEK25 million, SEK30 million in the transition, that will go down is our estimate now for Q3.

Fredrik Ivarsson

Okay, good. That’s very helpful. Thanks. And last question from my side before I jump back into the queue on the hiccup with the payment systems you had in May, I’m curious to hear what sits in that SEK20 million one-off that you estimate? Is it only lost sales, or is it only, or also significant amounts of sort of, I guess, costs to handle the whole thing in that number?

Klas Balkow

Well, of course, it’s got –

Fredrik Ivarsson

And also do you – yes, sure.

Klas Balkow

Yes. You’re just staff up and related when these things happens, which doesn’t happen that often, but it was a major hiccup and which was part of the new transformed payment system. And of course, we had to focus on the staffing up to inform the consumers and the customers in that perspective, but relatively is also of course, that sales dropped as the consumers that could not pay with a normal payment system during that period. So, it’s a mix of these things.

Fredrik Ivarsson

Right. And then what’s a good estimate on the sales effect rather than the –

Klas Balkow

Once again, sorry, Fredrik what did you say?

Fredrik Ivarsson

Do you have a good estimate on the sales impact?

Klas Balkow

Yes. It was an estimate on the sales impact that was clearly in May, but I can’t say it’s significant for the quarter, but it was clearly in May.

Fredrik Ivarsson

Okay, fair. And the split on those SEK20 million, is it mainly in Willys, I assume?

Klas Balkow

Yes, correct.

Fredrik Ivarsson

Good. Okay, thanks. That’s all from my side. Thanks a lot, Klas, enjoy retirement.

Klas Balkow

Well, we’ll see. Thank you.

Operator

The next question comes from Magnus Raman from Kepler. Please go ahead.

Magnus Raman

Thank you. Hello, everybody. I think I’ll just delve a bit more on the extraordinary cost for a bit here. If we think about the acquisition cost here, the SEK26 million in Q2, do you see it as most costs have been taken in this quarter or any more costs to expect in Q3, firstly?

Klas Balkow

From an acquisition point of view, that’s – the cost has been taken.

Magnus Raman

Great. And then on the sort of logistical transition here, you mentioned already, you’re a few months behind and you gave some leads on those double transportation efforts here of roughly SEK25 million or SEK30 million cost for that. Is – Will you continue with this exercise throughout the Q3 quarter or have you already – yes.

Klas Balkow

No, you’re right. And I think – and I hope I was clear on that, that we had extra cost, as we knew in Q1. We also talked about that will continue in Q2, it became somewhat higher than we thought because we are later. So, it ended up in this SEK25 million, SEK30 million. Now we are in the end of it, so our expectation it will be lower than this in Q3, in the transition plan.

Magnus Raman

So lower than these numbers that continued cost also in Q3?

Klas Balkow

Lower than in Q2, yes.

Magnus Raman

Right. Maybe if we take it a different way, I mean, you’ve previously been talking about some six old sort of existing warehouses bound to be closed. Now you take a decision to keep one or two, I believe, open more long-term. Can you give any sort of just lead here of how many, if any warehouses have been fully closed to date? And how many, if any do you expect to close over the second half of ’24 or beyond?

Klas Balkow

We’ll go out with that as we go, but as we are now transforming, and I just – which is more, I think more important that we don’t see any change out of these moves that we are doing, we are not seeing any change in efficiency improvements when we look at the Dagab performance, when we are making this transformation.

Why have we done this? Clearly, the bigger one in this, the other one is more or less working in, with our timings. But why are we done the review part with service trade, I need to emphasize that it’s service trade, so which is because it’s a different type of logistics, it’s different type of send-outs to the stores with that.

And we learned during the exercise, when we have made this transformation, that it’s better suited to run that separately outside of Balsta, that will create better efficiencies in Balsta over time since we are focusing on the normal – help me here [Foreign Language] you know. So that will support that part, so since we have had significant volume growth and in that part, we will continue to drive that. It will suit us better to separate, and it will also suit service trade better to suit to keep that in Orebro.

So it doesn’t change the economics, but it will change the structure, that’s why we have worked on how we are now. When we’re learning about how they work and how we optimize Balsta, we also learned that we need to rebalance some of the volumes to better suit the structure, so it won’t change the efficiency gains, but it will change how we operate and we think it’s even a smarter way.

Magnus Raman

Right. Can I linger just there? Is it possible to say how many warehouses, owned warehouses have been closed to date and how many you expect to close? Or is it a work in progress?

Klas Balkow

It is possible. But we are – we are working on that and we are, for example, you have one up north that we are looking at and we work that together with the employees here when what timings of that will do, so that will happen. So, that will come in due time.

Magnus Raman

All right. Then you mentioned the service trade and mentioned soft sales to external customers as a key reason behind the Dagab weakness. Is this – Can you delve on this a bit, this weakness, is that – do you see that as a more sort of permanent shift or something extraordinary happening in the quarter here?

Klas Balkow

No, I mean the – of course that we have a large part of external customers in Dagab and you can clearly see the impact for Dagab. Dagab is reporting 0.8% sales growth, obviously that is when you are touching on that with the normal cost inflation we have, of course that is the challenge. So we of course expect to see a higher growth.

We are now in, as we have also shared, we have external customers, we have in Hemkop, as we’ve seen, we have dropped a few stores, that has an impact. They are also part of the external part. We have some of the smaller formats, that is in this environment that we see and have had a tougher comp figures and is having a softer development. We of course want to support and do all that we can to support these customers as well, but they’ve had a more challenging time, that has an impact when the inflation is so low and when the volume is soft.

So in all, obviously to drive Dagab as a total, we also – one key component going forward is of course that we have a healthy sales development that will also drive our ability to drive both efficiencies but also profit development in Dagab.

Magnus Raman

Right. Thank you. And finally, I also want to congratulate you, the very strong development during those seven or eight years, even including today’s numbers and so on.

Klas Balkow

Thank you, Magnus. I appreciate that. Thanks a lot.

Magnus Raman

Thank you.

Operator

The next question comes from Simen Aas from DNB Markets. Please go ahead.

Simen Aas

Good morning, guys. Sorry to bother you about Dagab again, but I just have a follow-up on this. You previously talked about at the CMD that you expect sort of the SEK200 million to SEK300 million initially to start in this first or the second half of ’24. Is this sort of not pushed to ’25 or should we expect some of it to already be there in maybe Q4 and if Q3 is having some issues?

Klas Balkow

Yes, the target is still the same. We still see that coming in, but as I commented, we are a couple of months later, so it will more gradually come in during the fall. So correctly it’s a bit later, but there is no changes in our expectations in that area.

Simen Aas

Okay, okay. That’s clear. And then maybe on another topic then now with volumes obviously returning here in the first half of ’24 for the market, and you have obviously been growing volumes nonetheless, but could you just give us some color on that, on the gross margin in Willys and Hemkop? Have you seen any improvements here or any signs of easing competition now that sort of your main competitors also are growing volumes?

Klas Balkow

Well, as I – and I think it more relates to the initial question in terms of how the market dynamic is at this stage, even if we are seeing some positive signs, we still see kind of the same consumption patterns and it’s obviously also very competitive market still out there. So, there are no significant changes in that area yet.

Simen Aas

Okay. So, you don’t expect sort of the trough gross margins maybe, is that still ahead or do you think we should expect improvements now going forward?

Klas Balkow

What we expect going forward, that of course depends a lot on then how we can have different, or that of course depends on how the market development continues and move forward, of course. But what I can comment on over the first – the first half year now of this year, it is a competitive market out there, consumer patterns has not significantly changed – changed in that aspect, so we’re seeing the same.

Now, how it will move forward, of course, there’s many different things that can influence that, obviously overtime. But as we pointed out, we are, I guess for us it’s very important to secure that we meet the customers and we are getting that growth that will, over time, strengthen us. I’m super confident about that.

Simen Aas

Okay. Okay, that’s clear, Klas. And just one final one from me. So the gap obviously between you and the market has narrowed, and you barely beat them in Q2. But how should we think about that going forward? Do you think that you still will be able to beat the market going forward or should we expect sort of the hard comps to catch up with you in a way?

Klas Balkow

No, I think – I think if you look at the comps that we had during the period was of course extremely high when we – when we had this boom of inflation. Now if you look at before that period, we have gained market shares and we have grown faster than market over time. And of course, we have a clear ambition and a clear vision to, and a clear target to continue to outgrow the market.

We want to continue to – if you look at the position Willys has, as I pointed out in its report, it is – has continued to strengthen its brand, it’s continued to strengthen its consumer appeal, the measures and the ratios indicate all of that. Hemkop, I think is worth noting out, has done a fantastic journey, but they are still on that journey, they will continue to drive – to drive the positive impact of what Hemkop has.

And then of course, we have also other growth opportunities, the acquisition is one, there are more areas as well that we think that will lead us to continue to outperform the market, that is a clear ambition for us.

Simen Aas

Okay. That’s clear, Klas. And then just finally from me, just to congratulate you on a very nice journey in Axfood and good luck going forward.

Klas Balkow

Thank you, Simen.

Simen Aas

And thanks for taking my questions.

Klas Balkow

I appreciate that. Thanks a lot.

Operator

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Daniel Schmidt

Good morning, Klas and Anders. I think that I will start in the reverse order. And thank you, Klas for a very good collaboration and leadership over the past seven years.

Klas Balkow

Thank you.

Daniel Schmidt

I think it’s been really an impressive performance, especially in the past four years, you’ve been standing tall in a very, very strange market when it comes to COVID and hyperinflation and all that. So, I wish you best of luck going forward, and I hope we’ll see you again.

Klas Balkow

I’m sure we will. I’m sure we will. Thank you, Daniel. Appreciate that.

Daniel Schmidt

Yes. Just moving on then, to the regular agenda, and you mentioned soft sales, of course, when you talked about Dagab, and you also mentioned the negative calendar effect, which should swing back, I think you mentioned in Q3.

Klas Balkow

Yes.

Daniel Schmidt

And do you think that alone, is that making up a decent part of, if you split that 60 that you mentioned into 30 being transition and 30 being softer sales, is half of that 30, is that basically Easter effect? If you know, –

Klas Balkow

No. I mean, the calendar effect now, of course, is negative for Dagab and that will bounce back. But of course, there are some part of the 30 that you’re referring to, is of course related to effect. But I don’t think – I think we need to lift up the perspective, in that perspective. We have somewhat softer sales. We want to see that coming back, but it’s clearly impacted in, but also then we had a transition and we have the disruptions.

I think we’ve been trying to be as clear as we can now to divide these areas what has impacted. Of course, calendar effect is one, but we want to see a higher growth going forward as well for Dagab.

Daniel Schmidt

Yes. Okay, cool. And just maybe on that topic you mentioned, I think I had not seen that before, that you’re moving sort of Snabbgross from Backa to Hassleholm. Is that temporary or because you want to sort of, you mentioned that you want to accelerate the – the optimization when it comes to automation and so on, and also expand back. Is that going to move back then, when you’re done with that – those volumes?

Klas Balkow

That’s a good question. I think that what we’ve seen right now is to, and I think I said we always look at how we should optimize in the best way and so forth. And obviously, it’s a bit different assortment that works nicely as well in Hassleholm and for Snabbgross, and we’re looking at geographically as well.

So, if we’re going to reverse back, we’ll see. But right now it’s been very much focused on since we have to say we’ve had a fantastic volume growth over the years and we’ve easing up that for the northern part with Balsta, but we need to have that increased capacity with the new high-bay, and that will come in, in the spring 2025.

So, of course, up to then, we need to work on volume capacity, how that will move then later on, I will leave that to my successor. Clearly, it’s been more of a step now to secure improvements in Backa and to secure capacity in Backa until we have opened up the new high-bay warehouse.

Daniel Schmidt

Okay. Okay, cool. So spring ’25, and then we’ll know. And then just a very short one on these SEK26 million, do they fall under group costs?

Klas Balkow

Yes.

Daniel Schmidt

Yes. Okay, that’s all from me. And again, best of luck, Klas. [technical difficulty]

Klas Balkow

Thank you, Daniel.

Daniel Schmidt

And hope to see you.

Klas Balkow

We will, I’m sure. Thanks a lot.

Daniel Schmidt

Yes.

Operator

[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Klas Balkow

Well, that just concludes today, and I appreciate all the questions, and thank you for calling in. And lastly, thanks a lot, it’s been a fantastic journey. Thank you.