CEO comment Q2, 2022
The kitchen market grew in the quarter driven by increased market prices and a strong project market on the back of a high number of housing completions. We predict these trends to continue throughout the year. Retail footfall was good as we entered the summer campaign period, especially in the UK. On the sourcing side, material availability remains challenging, but is gradually improving.
Demand continued to be high in the Nordics and we currently have a strong order book compared to last year. The organic growth of 6% was driven by price increases, which will continue as the most recent increases have not yet materialised. Double digit growth continued in Denmark, whilst supply chain constraints in Sweden and Norway impacted our ability to deliver on the strong order book. Extra resources, incl. additional shifts and temporary labour, have been put in place to increase capacity. Also, as our Nordic brands now are on the same product platform, we have started to move volume between factories. The investment in a new factory in Jönköping is proceeding on time and at budget. We are now pushing ahead to start some component manufacturing by the end of the year, which will then be far ahead of plan.
Organic growth in the UK was 5% (10% excl. the exited Benchmarx sales). Magnet retail had a strong quarter with 30 percent growth as we delivered on the order book from the winter sales campaign. Efforts to improve the mix through new product introductions, such as Nordic Nature and customized painted kitchens, are paying off through improved average order values. We are continuing to invest in sales-driving activities, primarily more kitchen design capacity, and recently opened the first flagship store in a new Magnet store format. The previously communicated cost-out programme, mainly to address overheads in the UK, was completed in the period. The total cost for the programme amounted to SEK 150m and will generate annual savings of SEK 140m.
The performance in Portfolio Business Units was mixed in the quarter. In Austria, strong organic growth and profitability improvements continued despite direct material headwind, whilst sales declined in the Netherlands and to the London super premium property market. The decline in the Netherlands was primarily a result of a cyber security incident that temporarily stopped production and delayed dispatch and invoicing in June. Production is now back to normal and the underlying market remains solid.
Our cost base was heavily impacted by the sharp price increases in wood related components for the last 12 months. Even if prices remain on a historical high level, the increases flattened out in some important categories in the quarter. In the next two quarters we expect our extraordinary price increases to materialise and compensate for the direct material on cost.
Our major strategic initiatives are progressing well according to plan. During the quarter we received the first machinery for our new factory in Jönköping, launched our first Group-wide digital sales solution for HTH and Magnet and put a new commercial organisation in place in the UK.
Jon Sintorn,
President and CEO