HORNBACH Baumarkt AG

Welcome to our hybrid analyst and investor conference of Hornbach Group. My name is Antje Kelbert, head of investor relations at Hornbach. On behalf of Hornbach and the entire investor relations team, I am delighted to welcome you today here in Frankfurt, as well as digitally as participants of our hybrid format. I would like to extend an equally warm welcome to our board members. From Hornbach Management AG, our CEO Albrecht Hornbach and our CFO Karin Dom are with us today. Hornbach Baumarkt AG is represented by CEO Erich Harsch. According to today's agenda, Mr. Hornbach and Mr. Harsch will first provide an overview of the past financial year 2022-23 and present the group's key developments. Ms. Dohm will then conclude with a tour through our financial results. Afterwards, you have the opportunity to put your questions to the speakers. This will not only be possible for participants here in the room, but also for our digital participants. Questions cannot be asked via the webcast tool, but only by telephone. To do so, please dial in using the telephone dial-in details that were sent to you by email upon registration. If you need the help of an operator during the conference call, please press star and zero on your phone. I would like to draw your attention to the fact that the conference will also be broadcasted by video stream and telephone, so that also video and audio recording will be undertaken from the entire conference and subsequently be published on the company's website. If you continue to participate in the conference, you declare your consent to this data processing. Please also note our disclaimer, which is valid for the presentations as well as the Q&A session. And now I would like to hand over to our CEO Albrecht Hornbach and looking forward for the upcoming presentations. Thank you.

Thank you, Mrs. Kelbert, ladies and gentlemen. I would like to offer you a warm welcome to our 2023 Analyst and Investor Conference. We are delighted to see your interest as well as the guests present here. We would also like to warmly welcome everyone who is joining us online. My colleagues Karin Dom, CFO, and Erich Harsch, CEO of Honbach Baumarkt AG and I will report to you today on the performance of the Honbach Group in the 2022-2023 financial year. And we would also like to provide you with some insights into our plans for the current fiscal year. Last Friday, the supervisory boards of Honbach Management AG and Honbach Baumarkt AG took some important decisions which set out the way ahead for our group. My colleague Erich Harsch will, in addition to his activities as CEO of Honbach Baumarkt AG, be appointed to the Board of Management of Honbach Management AG as of June 1st, 2023, where he will be responsible for the do-it-yourself store division. Following the successful delisting of the Hornbach Baumarkt AG shares at the end of February 2022, we thus aim to underline that we see Hornbach as one retail company. Our key success factors are people, the customers who shop with us every day and the colleagues who each day give their best. The second major decision is to appoint Christa Theurer, Jan Hornbach and Nils Hornbach to the Board of Management of Hornbach Baumarkt AG. Christa Theurer studied business administration and has been with Honbach since 1994. She began her career as a procurement assistant. Since October 2019, she has been a member of the management of Honbach Baumarkt AG in its Germany region and in this function responsible for the operative business. Jan Hornbach also studied Business Administration and joined Hornbach as a trainee on October 1, 2009. Since June 2016, Jan has been the Managing Director of Hornbach International GmbH and thus responsible for the operative business of our foreign companies. Niels Hornbach studied mathematics in England as well as logistics and supply chain management. In May 2015, he joined Hornbach as team leader for customer logistics network management. Since October 2019, Niels Hornbach has been a member of the management for the e-business and customer logistics division. And since October 2021, he has managed the group-wide e-business division. The appointments of these new members of the Board of Management will strengthen the overall management of our operative business, not least because this will allow the country managing directors, divisional directors and Board of Management to now work more closely together. Not only that, the appointment of two family members to the Board of Management of Honbach Baumarkt AG marks further commitment by the founding family to the company and its future as a family-run business. Ladies and gentlemen, only those who are prepared to change can successfully shape the future. Today, more than ever, we need the entrepreneurial spirit and power of innovation that enabled previous generations to build the successful business we see today. That is exactly where we plan to start, as a successful retail company with a long tradition and great relevance for the future. As a crisis-resistant employer for more than 25,000 colleagues across Europe, and as a reliable supplier to families, to people who like to do things themselves, to home improvement enthusiasts and to our professional customers. Our aim is to be available across all channels to everyone who would like to enhance their home and garden or make their living space more energy efficient. And that regardless of whether they prepare to use our app, our website, any of our 171 do-it-yourself stores and garden centers, or one of our 39 builders merchant outlets to make their purchase with us. Wherever they come into contact with Hornbach, they should be absolutely certain the well-being of our customers is the top priority for us as respectable merchants. We are experienced professionals when it comes to projects in home and gardens. In the 21-23 financial year on which we are reporting today, we again managed to convince people of our performance capacity. Despite the inflationary environment and resultant reduction in our customers' purchasing power, we managed to increase group-wide sales by 6.6%. That is particularly pleasing as the 2021-22 financial year before was a record year with exceptionally strong results. And we were able to further significantly expand our market shares compared with pre-pandemic levels in all the countries where we operate our stores and our online shops. Like in previous years, the past financial year was also characterized by a high degree of uncertainty. We were repeatedly called on to act quickly and to respond to difficult external circumstances. Russia's attack on Ukraine, one of the world's largest grain producers, the effect on the European and in particular the German supply of energy and commodities, and the impact of internationally agreed sanctions led to further disruptions in supply chains and to significant rises in the price of food, commodities and energy especially. While Europe began to normalize its approach to dealing with coronavirus, lockdowns in China continued to impede the global flow of goods. As a result, we saw a sharp rise in inflation and falling purchasing power across the world and in all countries in which the Honbach Group operates, factors which placed a massive strain on public and private household finances. To combat inflation, major central banks such as the Federal Reserve Bank in the US and the European Central Bank raised their respective base rates on several occasions and significantly. The security community in Europe and NATO countries, always carefully balanced, received a severe shock, while global investment and spending patterns have changed for the medium term, also in terms of military spending. And even though we face new challenges every day, we must not get tired and rest on our success. More than ever before, successfully running a retail business today means this – speed, adaptability and anticipating people's needs at an early stage. A glance at the Kundenmonitor 2022, the customer survey in which we are ranked first among do-it-yourself stores in Germany for customer satisfaction, shows how well we have managed this in the past year. In Sweden and the Netherlands, we held top position in the retailer of the year 2022 survey. Thanks to our popularity with customers and our attractive range of products and services, and in particular, the focus on our permanent low price guarantee, as well as our highly developed project expertise, we were able to generate consolidated sales of Euro 6.3 billion in the past year. As I have already mentioned, this is a growth of 6.6%. Sales continued to be at a significantly higher level than before the pandemic. They also grew in all quarters of the past financial year, driven by persistently high demand and price inflation. A three-year comparison shows that our like-for-like sales net of currency items has grown by more than 28% in this time period. The online share of do-it-yourself store sales, including click and collect, stood at 14.1% in the 2022-23 financial year. We generated sales of €823 million in this area, but witnessed a reduction of 12.8% compared with the previous year. And that was due to declining demand for click and collect only. We are convinced that we are on the right course with our ICR interconnected retail strategy. Our direct online orders remain high and at a higher level, much higher level than before the pandemic. In other words, we can confirm that online retail is now well established in the do-it-yourself sector. The strong performance despite adverse conditions in the past financial year is also reflected in our adjusted EBIT. Here we were able to generate solid earnings of €290 million in the 2022-23 financial year and this figure came in 20% lower than the record performance in the 2021-22 financial year with earnings performance impacted by the persistent inflation dynamics we saw throughout the year. That said, if we look at the figures for 19-20, also a year with particularly good earnings, we remain 28% above the results in that period prior to the pandemic. Erich Hasch and Karin Dohm will provide you with further figures and more detailed insights into the performance of our group later in the presentation. Ladies and gentlemen, if you watch the news, then you are confronted with a daily flow of information on the manifold challenges we face. From my conversations with colleagues as well as in my personal environment, I have noticed a great deal of uncertainty about the turning point in history that we are currently witnessing. The concerns raised relate on the one hand to the security of our energy supply, affordable living space, investments in buildings and heating systems, and our infrastructure and mobility. On the other hand, they also address the way we deal with each other and the socio-cultural aspects of our communal life. In our forecast for the current financial year, we see ongoing macroeconomic challenges in terms of inflation and product prices. Not only that, the subdued start to the spring this year due to poor weather conditions has also had a noticeable impact on our business. Erich Harschen-Carrington will provide you with further information about this later in the session. One thing is nevertheless clear to me, we can only master the challenges if we act with confidence and vigour to tackle the things that lie ahead. So, to conclude my comments, I would like to explain how we address these challenges at Hornbach and what we offer our customers. In six points. First, flexibility. For decades now, we have offered competent advice on projects in people's homes and gardens. Regardless of whether people prefer to do the project themselves, have parts performed by tradespeople, or have the whole project implemented from start to finish by our tradespeople service and thus by professionals, whatever route they choose, we accompany them in their projects as a reliable partner. Second point, trust. In periods of high inflation and increased cost of living, price is especially important. With our permanent low price guarantee, we offer transparency and the price guarantee even after the purchase has been made. If customers shop with us and the price is subsequently reduced within 30 days of their purchase, the difference is automatically credited to the customer account and can be used for their next purchase. This approach offers security, particularly when stocking goods for larger scale projects. And the third, availability. Our product range is structured to optimally meet what customers actually need to implement their projects. That means we do not offer only the core products needed for the projects, but we also offer everything else that is required, such as the right tools, for example. fourth reliability we cultivate relationships based on close partnership with our suppliers and manufacturers we rely on a multi-supplier strategy and are in constant dialogue when it comes to new products commodity prices after all our customers should not only discover and purchase the latest trends with us they should also be certain that they have received the best value for money in the sector And fifth, the right thing for everyone. People who shop at HONBACH are real doers. They generally implement their projects themselves. In structuring our product range, we attach the greatest priority to quality and sustainability. And there has to be the right solution for every budget. Our popular private labels play a key role here. With these, we deliberately cover the whole spectrum of product categories, good, better, best. And the sixth point. with which we aim to inspire our customers in future as well, is especially important to me. It's our colleagues. The dedication they have shown in recent years, the energy and lifeblood that so many people contribute to our company, we simply cannot praise them highly enough. Retail is detail, as they say in English. You can have an amazing product range or the best logistics in the sector, two standards we have set ourselves. In the end, though, it is about the people who sell the products, whether they offer advice in the ails, help customers plan their bathroom, or handle the checkout process. What counts is human interaction. The impression that our customers gain from each and every colleague is what counts. And I assure you we will leave no stone unturned in the future as well to make sure that those who shop with us come away as satisfied customers. Thank you for listening and I want to hand over to Erich Harsch.

Thank you, Mr. Hornbach, for your comments. And dear analysts, investors and capital market representatives, I too would like to welcome you warmly and thank you for attending this analyst and investor conference today to discuss our results for the financial year 2022-2023. Mr. Hornbach, you just spoke about the most important factor driving our success at Hornbach, our people. At HORNBACH, we have 25,118 colleagues who, day in, day out, give their very best to enable our customers to implement improvements to their homes. Or helping customers find exactly the screw they need, mix the right shade of paint, or recommend the best plans for the balcony. Behind the figures we will present you here today and in our annual reports, we should not forget our people and the vital role they play. Alongside our colleagues, It is our customers, of course, who are our most important stakeholders. And they are growing in number. In the 22-23 financial year, more than 300,000 customers shopped with us each day. One development with which we are especially pleased is that the share of commercial customers, who we refer to as professional customers, has reached a good level. We see this segment in particular as harboring great potential for the future. With our product range, our product availability and our professional customer service, we are well prepared. A further benefit of our targeted strategy to attract professional customers is that it also enables us to win over manufacturers who would otherwise only supply professional specialist retailers. Our popularity with customers has enabled Hanbach Baumarkt AG report net sales of EUR 5.8 billion at the balance sheet date as of February 28, 2023. This represents growth of 6.3% compared with the previous year. In terms of our net sales, we have therefore beaten the previous year's record figure. On a like-for-like basis and net of currency items, we generated growth of 3.6% in 2022-23 financial year. The figure for Germany was 2.4%, while our international business achieved 4.7%. Our stores in the Netherlands posted a particularly strong performance, but we were also noticeably ahead of the average in Romania and the Czech Republic Slovakia region as well. The development in our market share is also pleasing. In Germany, our market share rose to 14.9%, back in 2019 it was 13.1%. We achieved the highest market share in the Czech Republic, where we have 34.4% of the market. In addition to this, we are also well positioned in other countries, 26.1% in the Netherlands, 17.8% in Austria and 13.5% in Switzerland. We have opened four new DIY stores and garden centers in the past financial year in Nitra in Slovakia, Enschede in the Netherlands, Constanza in Romania and Leipzig here in Germany. Together with the two specialist flooring stores we manage under the Bodenhaus brand, Hornbach Baumarkt AG currently operates 171 locations in nine countries. and European countries. The DIY store division contributes 93% of sales at the overall group level, with the remainder being generated by Hornbach Baustoff Union, which operates 39 builders merchant outlets in Germany and France, two more than in the 21-22 financial year. Hornbach is the market leader in Germany when it comes to multi-channel retail. That is because we offer our customers a seamless customer journey. We call this interconnected retail and, with sales of EUR 823 million, this e-commerce model is a key pillar of our success. We are also the market leader when it comes to surface productivity. Our sales of Euro 2,925 per square meter put us well ahead of our competitors. And we consistently pass on the advantages generated by this high level of surface productivity to our customers in the form of our permanently low prices. People often ask whether our permanent low-price policy – in other words, the abandonment of bait-and-switch offers – is still the right approach today. In times of high inflation, there is pressure on the gross margin and the profit we can achieve. But if you consistently view your company from the perspective of the customer, as we do, then they should always be able to shop at attractive prices and cover their current needs, not just when the retailer happens to make a special offer. A company who focuses on short-term special price offers is not a genuine partner for the projects of its customers. Ladies and gentlemen, a number of unforeseen challenges arose in the last year. However, we still managed to get a great deal done. One example is the topic of bespoke working hours. This model has five components, three of which enable employees to reduce their working hours. A fourth component allows them to redistribute or compress their working hours, such as in a four-day week. The fifth component permits them to increase their weekly working hours up to 42.5 hours for a period of 3, 6 or 9 months maximum. This model has been in force here in Germany since the 1st of January 2023 and has already been utilized by around 25% of our colleagues. The feedback we have received is very positive. For our colleagues, it offers a good opportunity for them to balance their work and private lives. And it is also very positive for us as a company. After all, satisfied employees create satisfied customers. It is particularly pleasing to note that in planning their working hours, our colleagues are focusing on customers' needs. Extra work, for example, is generally performed during the peak season, with days off being taken off outside this season. Thanks to our successful performance in the past financial year and given the opportunities created by the federal government for inflation compensation payments, we have invested a total of 10 million euros for our colleagues in Germany. One third of this sum relates to the 2022-23 financial year. Full-time employees here in Germany received and will receive an additional monthly payment of €150 from January to June 2023, which is €900 in total. Trainees and members of dual study work programs receive 100 euros a month, making up for 600 euros in total, over and above their normal incomes. Part-time staff receive prorated payments. For our company in Germany, there were two further milestones to highlight. Firstly, the opening of our new store in Leipzig in February. We invested 55 million euros in a listed building on Alte Messe, the historic trade fair site in Leipzig. At this location, we were able to integrate all the innovations we have devised in terms of store module development. Secondly, and this is now outside the 22-23 financial year, the opening of our new logistics center in Essingen in the Pfalz, directly next to the company headquarters at the end of April 23. Since 1999, we have operated a logistics center in Essingen. and this has now been joined by a second center. The new building covers more than 24,000 square meters divided into two halls. The front hall serves a cross-stocking center for lengthy and bulky goods. This is where merchandise that is pre-commissioned by suppliers is handled without having to be stored. We use the second hall as a regional warehouse for goods that are not delivered in the store straight away. we invested more than 25 million euros in this new facility. Before I offer you some insights into our outlook for the current financial year, I would like to turn to one topic that is especially important to me. That is Corporate Social Responsibility . When it comes to CSR, we need ambitious projects and approaches. We have pursued this for decades, long before the topic became a megatrend, back in the times when people still spoke of respectable merchants rather than CSR. At the same time, we also need the right underlying conditions to promote value-based business activity. What I, as a CEO, would like to see is a legal framework that promotes a combination of what is needed in economic terms and what makes sense for sustainability. After all, the finest ambitions and measures are of no use at all if they fail to account for the fundamentals of business management and customers' perspectives. Ladies and gentlemen, we expect that sales and earnings alone will no longer safeguard a company's operating capacity in the future. As we look into how the way we live will develop in the future, we can see trends indicating a more away from the growth economy that dominated to date. Value orientation is a topic that is set to play an ever greater role in all its aspects. Time will be a key currency for people in future. We already see this topic today in the discussions around the four-day working week and the balance between work and private lives. We are responding to these developments, for example, with our bespoke working hour model. Sustainable actions are rooted in a sense of awareness of each individual. That is why we are working on a daily basis to promote our value-based approach also in our internal platforms and conferences. As a retail company with operations in nine European countries, it is important for us that everyone should be able to tackle matters on hand and shape developments along these lines under their own responsibility. Our hearts are closed to our DIY customers because we too like to knuckle down and get things done. And the more people who become active and allow themselves to be guided by a clear value-based approach, the better we will be able to solve the challenges that lie ahead. Ultimately, one thing is clear. We have no choice but to reflect again and again on the way we do business and to develop new, even more value-driven strategies for the future. In the documents you have received and in our non-financial group report, you will find extensive information about these strategies, our specific commitments and our CSR policy. In the remuneration report, you can also see details of the individual ESG targets, which, alongside existing financial performance criteria, will in future form the basis for determining variable management remuneration. As a work community, we can be proud of what we achieved in the 2022-23 financial year. If we see persistently high inflation and the rainy weathers in many regions in March and April and account for subdued levels of customer confidence, then it should be clear that success is never guaranteed. Results such as those we have achieved in 2022-2023 require a great effort from us all. After all, competition is very tough in the European retail sector. In response to the challenges we have highlighted, notably the ongoing momentum in inflation and product prices, as well as the poor weather at the start of the season in the first quarter of 2023, we are now increasing the focus on our cost base. That includes optimizing operating expenses at our stores and in our administration. At the same time, we intend to uphold our long-term growth ambitions and our proven permanent low-price strategy. It remains to be seen how much leeway customers will have to consume as the year progresses and which projects are carried out as planned or possibly postponed due to inflation and cost growth. Given the tricky start due to weather conditions in this cold and wet spring season, we cannot exclude the possibility that increased expenses, such as the inflation compensation payments made to our colleagues, will also lead to a lower level of operating earnings. We therefore currently expect first quarter earnings to fall significantly short of the previous year's quarter. In the past, we have always shown that we are resilient and frequently outperform developments in our sector as a whole. One of our strengths is that we do not simply accept given circumstances, but react flexibly and innovatively to changes and attempt to anticipate these in advance. Let's take energy efficiency refurbishment as one example. This is a topic that has moved even more clearly into the foreground due to climate change and the increase of energy prices last year. For several years, we have offered the right solutions that consumers need for individual projects. Whether the project involves full heat insulation, new windows or doors, or heating and sanitary solutions, all the products consumers need are available at our stores at specialist retailer quality. These products are permanently part of our basic product range rather than short-term listings. And because we have offered them for such a long time, we have also built up a high level of advisory expertise. Advisory expertise is one thing. Good ideas are just as important and we have to continue aligning our company to what consumers need. That is why we have set ourselves the standard of regularly reviewing our processes and structures and looking closely to see what we can do without and where we have to invest. That way we will be able to report on our successful business performance in future as well. To conclude, I would like to take this opportunity to thank Albrecht Hornbach and the Supervisory Board of Hornbach Management AG very warmly for appointing me to the Board of Management at Hornbach Management AG and the trust they have placed in me. Together with the additions made to the Board of Management of Hornbach Baumarkt AG, This is a forward-looking decision to secure the future capacity of our group of companies. And now, Karin Dohm, I will hand over to you to offer our guests some further insights into the financial performance. Thank you very much for listening.

Thank you and also from my side a very warm welcome. I will of course double click a little bit on some of those figures you already heard from Erich Harsch and Albrecht Hornbach and shed some more light on some of the components of our last year financial statements. Quick overview about some of the key KPIs, of course. On the back of stable and strong demand from our customers and some price inflation, we managed to grow our sales last year by 6.6%. The adjusted EBIT declined by 20% below the record level of the previous year. And our investments into real estate, new buildings or remodeling of existing stores accumulated to 203.5 million euro. All in and compared to previous year, we invested 14% more into our expansion. We move further through the P&L. You see that the surpassing of the threshold of six billions and delivering this net sales growth came on the back of a series with an average sales CAGR of 9.5% over the last five years. Our main operating part of the business is with 5.8 billions, of course, Hornbach Baumarkt AG and the respective group. We specifically managed to grow our sales internationally with 9.8% and our business outside of Germany contributes to more than 50% of the sales. Net sales at subgroup Baustoff Union, which is mainly catering to professional customers in the building industry, increased significantly by 11.6% to 421 million. Our strong growth performance is also mirrored in our like-for-like sales developments. Just a short reminder, these figures only take into account the development of Hornbach Baumarkt and of those stores, which have been open at least for one year. In total, Baumarkt like-for-like sales grew by 3.6% in the last fiscal year. In Germany, we grew at 2.4%. Outside of Germany, we have a number of countries which are performing extremely well, for example, the Netherlands, Romania and Slovakia. In Sweden and Switzerland, we have continued to see a tough market with consumers hesitant to spend money on large DIY projects. Our continued strong growth is also reflected in the three years figure comparison of 28% for the group. This also underscores the fact that we have successfully gained market share in the majority of the countries, as you can see on this page. In Germany, our market share grew from 13.1% in 2019 to 14.9% in 2022. This was particularly driven by the successful execution of our interconnected retail strategy during the COVID period. The strong market share development in the Netherlands, which we mentioned before, was driven by like-for-like sales growth of 36.8%, as well as an expansion with three new stores. In Switzerland, expansion was partly driven by the opening of one new store, while in the Czech Republic and Austria, we gained market share without any new store openings. When we talk a little bit more about e-commerce, which you heard before stood at 14.1% for the financial year 2022-2023, it also shows some development following the fact that the last year was the first year where we had no limitations to our store opening, especially not in the B2C business. first direct delivery as you can see is well established now as a shopping channel in home improvement and click and collect significantly decreased by roughly one third as our customers could re-enter the store and thus preferred to come directly and not to use click and collect when we look a little bit more into the cost side You can see here that our gross margin was down by 1.6 percentage points, reflecting specifically the challenges mentioned earlier that were brought upon us by rising purchasing prices and transportation costs during the last year. In line with our everyday low price strategy, we have not fully passed on all our costs to our customers. This is a conscious decision in order to affirm our position as price leader and be a reliable partner to our customers. The increase in selling and store expenses was mainly due to our expansion, wage increases and higher energy costs. The cost ratio of general and administration expenses increased slightly due to investments into IT and IT headcount as well as some inflationary expenses. Summing it up, our adjusted EBIT came, as mentioned earlier, in at 290.1 million. Non-operating charges on earnings, which relate mainly to IAS 36 impairments, rose from 7.6 million to 31.6 million. One major reason for this development was the rise of the risk-free interest rate, which is a component of our WAC. The profitability in the operational and the geographical split is as you can see here. The previously mentioned challenges such as the reduction of the gross margin, the increase of logistic costs and salaries have of course had their strongest impact on the Baumarkt business. Hornbach Baustoff Union could safeguard their previous year's EBIT. In the result of Hornbach Immobilien AG, the slightly risen rental income as part of the expansion and some inflation is mirrored. With respect to the geographical development, we've seen a more pronounced decline in profitability in Germany with an adjusted EBIT minus of 34%. Outside of Germany, the reduction was only at 13%. All in the region other Europe contributed 72% of the group's adjusted EBIT. Some further figures on the chart here show you that the earnings before taxes decreased by 30.6% to 218.3 million compared to previous year. However, they remain well ahead of pre-COVID levels. Earnings per share amounted to 9.83 euro, which brought us to the suggestion in line with our dividend policy as we propose a stable dividend of 2.4 euro at our AGM on July 7th. This is leading us to a payout ratio of 24.4%. As a reminder, last year we saw 19.2% payout ratio. A look onto our cash flow. If you see here in the slide, cash flow from operating activities in the fiscal year 2022-2023 increased compared to the previous year, containing impacts from a reverse factoring program. Funds from operations were at 403.7 million, slightly down from previous year. CapEx, as mentioned at the beginning, was at 203.5 million and the split is approximately 60% on land and real estate, mainly for new stores. A look at the balance sheet gives you another time the confirmation that Hornbach can once again present a strong balance sheet as of February 28, 2023. And compared to the end of February in the previous year, the consolidated balance sheet increased in total by 9.8% to 4.7 billion. This was mainly driven by our store expansion as well as increased inventories. The equity ratio at 40.1% continues to represent a very comfortable level. Last but not least, reflecting on the outlook of the current year as well as the current trading, as you also heard some details from Erich Harsch. As already mentioned, we are cautious on our guidance to fiscal year 2023-24. We are facing ongoing macroeconomic challenges, including inflation and its impact on product pricing. And as said, the weather at the start of the spring season was not supportive in our key markets. We currently expect net sales at the Hornbach Holding Group to be around previous year's sales. In response to the ongoing challenges, we are currently taking a look at our cost base. This includes the optimization of operational costs in our stores and administration. At the same time, we want to continue to deliver our long-term growth strategy and ongoing commitments to price leadership. Summing it all up, we see a downside for the adjusted EBIT and a risk that we cannot rule out a decline between 5% to 15% from the levels of 2022-2023. This uncertainty is driven by the insecurities around the assessment of consumer behavior given the interplay of inflation, real wage developments and interest rates along the impact of efficiency measures that we introduce. This EBIT guidance is partially driven by the low start into our Q1, namely March and April. As Erich Harsch said, we expect our first quarter's earnings to be significantly lower than the previous year's first quarter earnings. Of course, I cannot end my session without also having a little bit of highlights here on our key investments. As you know from any of our investors, sessions and inter exchanges. And with that, I would like to hand over to Antje Kelbert and we're happy to take your questions.

Thank you very much for all your presentations and the insights you have given to us. And before we now start the Q&A session, I would like to give some guidance on how the Q&A session will be proceed. We will of course start with the questions from the participants here in the room. When you ask a question, please use the microphone in front of you. This is the only way that the digital participants will be able to hear your question. Please introduce yourself briefly by name at the beginning of your question. Following the questions from the room, questions can also be asked via the telephone conference. As no questions can be asked via the webcast tool, please dial in the telephone conference using the dial-in details that were sent to you. If you wish to ask a question in the conference, press star followed by one on your phone and mute your webcast. If you wish to move yourself from the question queue, you may press star followed by two. And now we will begin the Q&A session. Who would like to start with the first question here in the room?

Okay, can you hear me? Yes. Yeah, good afternoon, everybody. This is Benjamin Tillman from Birnberg. Maybe a couple of questions from my side to Mrs. Dohm. First of all, regarding full-year guidance for this year, maybe both on the top line and profitability levels, could you, maybe if you assume that top line is going to be flat on a year-over-year basis, could you maybe give a little bit of color how that is broken down in terms of volume growth and in terms of prices? Because when I look at inflation rates, we're probably still going to be at 5 or 5.5% until the end of the year. Are you not able to forward any price increases in 2023? Or are you able to do that and volumes are coming down? Like, how do we come up with the flat top line here?

Yeah, happy to take that, and if there are some additions that I might miss, also, of course, we can then add to that. I think two aspects here are important. Number one, as I said, we are in general, of course, cautious with our guidance in light of all the macroeconomic aspects which we mentioned. I think on the other hand as we said where we see that around previous year sales around means it might be slightly more in line with with also what we saw partially as a development in the previous year or it might be slightly below I think this reflects the the question mark that everybody has with regard to how does the the slowing in general, the macroeconomic slowing of the inflation play together with the fact that there might be some momentum in the behavior of competitors with regard to pricing in the market of goods and other services. And there might be, of course, some effect of wage increases on people's available spending power and on consumer behavior. And what makes it, of course, difficult for everybody is to understand how the one, and especially also in what sequencing, the one might affect the other. And that is a little bit why we have opened there this range.

Okay, thank you. Maybe a follow-up question regarding your store expansion. Usually we see three to five new store openings and now we see consumer spending is coming down in 2023. Is that also going to affect the number of stores you're aiming to open? Is it fair to assume that we should aim for the lower end, so roughly three stores, or Is that going to be such an exceptional year that we see maybe just one to two new stores?

So we're definitely opening one in this year, in summer. The fact that that is the only one currently is not so to say because we have pushed something out to later years, but it's just the lead time between taking the decision, safeguarding some land or buying something and then building and then opening. a store or having somebody else build it and we rent it that lead time can easily be a small number of years so we have a couple of stores that are in the pipeline to be open then next year that is also the reason why the capex which we foresee for this year is relatively unchanged to the previous year So, there will be, based on current planning, there will be a couple of openings in the next year. It's just the way it is spread across the years, so to say.

Okay, thank you.

Next question, please.

Thanks for taking my questions. I got two. Firstly, you just mentioned to have an increased focus on costs this fiscal year. Can you please shed some more light on the measures you are planning and maybe could you please quantify it a bit? And the second one, it's actually on your pricing. How long does it actually take you to pass higher prices to your clients? Is there anything like a, let's say, average time lag you can tell us? Thank you.

so about the costs it's a question how to manage it store by store and business units per business unit because we have a widespread of let me say success for example in the netherlands the the growth of sales is much higher than in other regions and the the the things you we want to do is of course depending how the individual situation of the business unit is and it's a question of enabling all the managers in the company that they look at their at their unit and that they do all the things which are necessary to keep the development of earnings in balance with the development of costs and efforts. And that's of course not so simple because when you come out of a two-year or three-year period of extremely growth then they have to get used a little bit to it and we want we do not want to make some things all over the company that's not sensible in a retailing business but we of course want For example, to use the possibility of natural fluctuation to adapt the number of hours of work which are invested store by store. And of course, we are considering which investments are really necessary for the future and which investments can be postponed a little bit. So it's a very, very, very many details you have to consider. It's not a question of overall guidelines or so that is not useful for a retailing business because we want to, as I said in my speech, we want to stay with our low prices and with our necessary investments for the future. And it's a difficult situation for all participants in our business. The German Association of Home Improvement Companies just told us that for the first quarter, January to March, for example, the development in the whole home improvement scenery in Germany was about minus of 7.5%, I think. we were a little bit better. So we're still continuing to get market shares, but the overall development is not as satisfying as it should be. And we have, of course, to adapt the costs in that stores, which are below the line and that's a management exercise. Second question, I forgot.

I think your question was with regard to how quickly that flows through. Is that right? Did I understand that correctly?

Yeah, absolutely. That's my question.

Yeah, of course, we have what you call a gliding average pricing. So that means that there is a delay, as you rightly assumed, between the lowering of the supply size, which we see since some time, and where we also, of course, put a lot of effort into to make sure that we negotiate with our suppliers to make sure that in those instances where we know that their starting point has come down now, that that is also, of course, passed on to us. And if we have that, then seeing that literally in the gliding average pricing takes just some time because it is an average. That means that it's a little bit different if you think about those quick turning goods versus some that are even in a totally normal environment, a couple of weeks maybe, or even longer with us. And of course, that makes a difference how quickly then you see that in the evaluation. So the answer is, unfortunately, it depends. But yes, that is, of course, an effect which we expect to see throughout this fiscal year, definitely.

Okay, next question, please.

Georg Geiger, Valley Holdings AG. Two questions, please, if I may. First, Mr. Haas, you mentioned that professional customers have reached a good level. Could you please quantify that level in percentage of turnover? And don't you fear that this customer group has new building permissions, at least in Germany, has plummeted and will have a negative impact on your sales and earnings this year? And second question, perhaps to Ms. Dohm, about the tax rate. It was 23% last year. As your structure, domestic and foreign, is nearly unchanged this year, do you expect a similar figure this year? Thank you.

So, the number we want to achieve is about 20% at the moment. That's the situation. It's still growing. It grew especially also during the pandemic area. era because the stock availability was pretty good at Hornbach and so many of that kind of customers went to Hornbach to buy. um i'm not afraid because of the big building projects because our professional customers are more doing the small projects in the households and not the big building because the big building things are done by special supplying structures not at the home improvement sector so In opposite, it could be that if there are less big building projects, it could be that there could be some hands-man capacity for the smaller projects and for the customers who want to improve a little bit, for example, for energy savings and so on.

You asked for the tax rate as well. So that was influenced in the past a little bit by the fact that we had the possibility to activate some of the deferred taxes in Sweden. So that brought Ceteris Paribus, so to say, the tax rate down. And we don't have that in the last year. So you see that 1% difference is driven by that effect.

And it will stay at this level also this year.

The 23.1, yes, or maybe slightly higher. It depends a little bit also on the, so to say, country mix. Yes, but at least it will, this 22.2 of the previous year, that was a special effect 23, 24, that is. probable aspect. We have some countries where currently corporate tax change proposals are out there. For example, Czech Republic, it's not that we see that coming through this year, but it might come, for example, next year or so. But yeah, for this year, probably 23, 24, something around that, based on today's knowledge.

Okay.

Benjamin, a follow-up? Yeah.

Yeah, maybe a follow-up question for me. Regarding Q1, could you maybe provide a ballpark range, what we can expect over there? You mentioned it's going to be significantly down on a year-over-year basis. You guided for full year 5% to 15% decline on adjusted EBIT. Is it fair to assume that Q1 is implying that we should aim for somewhere midpoint of the guidance? Maybe... A little bit of color over here. What can we expect?

Yeah, I think it's, as I said, we really see there a difference between what we saw now at the start of the year with regard to really adverse environment in all its components, whether it's weather, macroeconomic effects and others. And then the second half of the year, more probably than already the second quarter with regard to aspects, as mentioned earlier, potential for positive impact on gross margin, potential for other positive effects. If you compare that then, especially with the previous years, when we talked about lower logistical costs or also some other components that affect our balance sheet or our P&L. Nevertheless, when we say that the first quarter is expected to be below the previous year's first quarter, then it's probably a bit south of the whole year guidance and we expect a potential for an amelioration afterwards.

Okay, the next question.

Christoph Eckert, Eckert Mittelstand Invest. On your business in March and April, I'm just wondering, first of all, how do you strip out the macro effect versus the weather effect? How did you do the math? And secondly, it's not surprising to me that revenues are down because of the weather. I'm just wondering, the customer ticket in March, April, is it down year over year? Just to get a feel on, you know, when revenues come down, you know, what's the customer's frequency in your stores and what's the average ticket? Thank you.

You are very right. It's difficult to split what's the weather, what's the behavior of the customer, general behavior. uh we have one help we see which assortments are going down are going up and we we see that the assortments which are depending on the weather had a bigger decline than usual and than the other parts of the assortment and the the The rest is behavior. You know, you understand what I mean? We see the dependencies on the assortments which are dependent from weather conditions and we see the development of all the other things. And so also there is a little bit decline. Not pretty much. It's more the weather assortments. For example, plants for the garden and for outdoor things like terraces or other things which need a good weather outdoor. But it's not alone the weather. But it's an assumption, of course. Not clear facts.

So, like for like, the average ticket is slightly down. That's what you're saying.

Okay.

One follow-up, please. Yeah, maybe one follow up on that question before. Would you say this is true not only for retail customers, but also for professional customers that basket sizes were coming down? Or is that a mixed effect and then on a group level we see basket sizes are coming down?

No, we have not such a clear effect on the baskets. The baskets are not going down in a big dimension, really a very small bit. And we also have sometimes more customers. But what we are not knowing is what of this effect is because of the past year. Because in the past year and during the pandemic era, we had less frequencies of the single customer, but bigger baskets. Because the people wanted to go shopping seldom, more seldom. And now they can go very often, as often as they want to do. And of course the baskets get a little bit smaller because of the higher frequency. So it's very difficult to judge what's the real reason.

Thank you.

Okay, next question please from the room. Then we switch to the telephone conference and then we come back to the room. So no worries. Operator, are there questions in the telephone conference?

Yes, we have one question, which is from Christian Bruns from Montega. Your question, please.

Yes, hello. Christian Bruns from Montega. Yes, the first question is on your gross margin. 2022-23 saw a sharp decline in gross margin and now with regard to your high inventories at the end of the year and in combination with the weak Q1 start, It looks a little worrying to me that this unfavorable trend on the gross margin will continue. This is what you also think. The second question is on your reverse factoring program, which you introduced last year. Given your high level of liquidity, I cannot really understand why you introduced this large reverse factoring program. It's 250 million euros. And could you remind me what are the costs of this program? Because I think you will not get rid of these liabilities at face value. So just a little bit more flavor on your motivation to establish such a program.

Let me take the one on the reverse factoring and then we can talk about the gross margin. So the reverse factoring last year was especially to make sure it, as you probably know, this works like an extension, so to say, of the payment schemes. And that is always a better usage of your networking capital or of your working capital, thus then bringing it to your networking capital. And no, we didn't lose there any face value of the liabilities slash receivables. That didn't have any impact on that. There was no discount, so to say. The costs related to that in the last years were roughly 500 something thousand. And then it said that it was, as it is called also then, roll backwards over time. So that is just as at the technical upside is the same as an extension on the payment scheme from your suppliers. On gross margin, as I said earlier, we see a gross margin, of course, as a result of many, many components along the way of supply price, moving the goods and then selling them. And of course, we have currently a number of movements in those components. And yes, of course, it's our ambition to bring the gross margin up. and b there are also some movements which indicate to us that there is a likelihood for that in the in the over time the challenge is of course as said given given the way our business operates that it is difficult to say when exactly is that then coming through the p l but the tendency of some of those factors that comprise the the gross margin are more favorable than for example last year

okay okay next question please the next question is from ludovic allegra from kepler please go ahead yes hi everyone um just two questions um on my side um the first one is a follow-up question i'm not sure i i get the your answer regarding your volume and price assumption on your broadly flat sales guidance for this year. So could you just remind me your assumption in terms of volume and price? And my second question is on the Let's say home improvement trend. So we just saw sales warning of Home Depot in the US. They were guiding for flat sales at the beginning. So they just revised down the guidance to minus two, minus 5% for this year. They also talk about Meteor, but they say also that they are seeing a delay in big ticket purchasing. So my question is that are you seeing this already in your key markets? Thank you.

A couple of thoughts and on Home Depot, I mean, of course, as you can imagine, I just saw that across the headline, across the screen, but as I'm sitting here in this conference, I didn't have a chance to listen into what Home Depot said in detail, so you're probably way closer than I am in this very moment. Just one thought there in general. we are very much in home improvement. That means we are not totally disconnected from new building activities, but the focus is on home improvement. And in the US, many people, as you probably also know very well, are investing into their homes to safeguard the value of their homes or to be well positioned in buying and selling and then moving whilst in our countries, in the countries where we are active in continental Europe, many people invest into their homes because they live there and they want to have a nicer bath or a more beautiful kitchen or they want to have a new setup on their balcony or on their terrace. So the motivations are slightly different. Not totally different, but slightly different. What I'm trying to say is it's not that there is a one-on-one connection with regard to building activities, maybe as it is in the US. One thing where we totally expect to have a relatively strong impact or direct a relation is maybe better said with regard to the building. activities is our subsidiary, the Baustoff Union, because that is, as the name already indicates, is related more to building than maybe the the Baumarkt and gardening business. And to your first question on the sales guidance, as said, and I want to be very clear here, we say around last year's sales, based on current views. That might be slightly above, that might be slightly below. So if we were coming in at 2% below, that would still be from our vocabulary. And you see that also in our publications, what that always means, what ranges that implies that would be in that vicinity. That could also be 2% or 3% above. As said, it is currently, and I know that is partially a little bit dissatisfying, it is currently quite difficult to judge where things are heading, at what point and which positive developments we can capture or which adverse macroeconomic developments might come along our way.

We have a follow-up question from Mr. Bruns. Mr. Bruns, please go ahead.

Thank you for taking my question. Yeah, I have a follow-up on IIS36. There are store impairments. I think the impairments are on stores. In Germany, I think 36 million. Can you give some flavor on which stores are impaired? And also, is there more to come? Because we see that the commercial real estate market is quite weak currently. And maybe another one on Sweden. Do you expect continuing losses there? given the tax rate remarks you made earlier.

Maybe I say something on IS36. That is quite straightforward. As you know, we need to take for our valuations the risk-free interest rate as published by ECB. So each time ECB increases the interest rate, we need to put that into the weighted average cost of capital. That is just a one-on-one effect. On the other hand, the risk factor, which is also one component of the WECC, has gone down, but all in that is just the effect that you then have when you compare that with you multiply it with your discounted cash flows and then it just, so to say, washes through up to a certain degree. So, if ECB continues to raise the risk-free interest rate, we will have more impairments independent of whether we have more sales and any other figure of our P&L that is relating to our own performance. It's just a set. It's a mathematical effect that you have in everybody's balance sheet or in every evaluation. Just to clarify, that figure doesn't relate to the stores in Germany specifically. That relates to all the stores. I said that is not driven by the individual performance of a store. It is just a mathematical effect of the risk-free interest rate.

Okay.

Sinead? The situation in Sweden is very difficult because many customers are suffering because of the dynamic interest growth and they have a pretty low income because there are not stable definitions for long-term level of the interest. and therefore the consumers in Sweden are pretty suffering and the situation is therefore pretty difficult. So I don't think that it will get more stable and more growing in the short term, but we have a long-term perspective and I think as in during the pandemic era it will be possible again to not to make minus in Sweden, but to get a better result there.

Okay, thank you.

The next question comes from Miro Zuzak from JMS Invest. Please go ahead.

Good afternoon and thank you for taking my question. I have just one left, please. And that's the interstate sensitivity of the leasing liabilities can you please comment on that what would an increase of one percent or what does it mean an increase of one percent towards the interest component of your lead liabilities thank you and like how how fast is it actually how flexible is it how fast is it adapting thank you

I need to admit, I can't tell you that from top of my head. Happy, very happy to come back on that afterwards, but I don't have it just now in my hands, I need to admit. But we can.

Okay. Thank you.

There are no further questions from the telephone and I am back to Antje. Thank you. Are here further questions in the room?

Yeah, Toba.

Thank you. Maybe one last question from my side to my smallest setback again. On your online business, actually, as expected, your online business declined last year after the corona boom. What are your expectations for your online business in the future? Could you please comment a bit on the issue of freight costs and to which extent freight costs are covered? Thank you.

Yeah, I think I said there are two effects. Obviously, click and collect is way less just used by customers as they can enter the store. Direct delivery, everybody has learned that also in home improvement, which was before Corona, not really a direct delivery business has components and is usable. um for that and that applies to to all types of customers that is b2c as well as b2b it is difficult to judge how that evolves now um and what is that so to say staying in in these dimensions Is that growing? Is that shrinking? Obviously, it depends also a little bit on, I think, the general development of marketplaces and of course of the expectations on shopping experience. So that's one of the reasons why we continuously invest into the whole ICR chain of our business. And the freight costs, Of course, we want to make sure we pass on as much as possible. It has always been also an element where it is difficult and where it also requires sometimes the question of where, especially in extents countries, or if somebody orders who is sitting somewhere where we have a long distance to cover, how do you price that? So, as I said, we're trying to capture as much as we can but sometimes it is not possible to pass on everything it's also a question of course sometimes from competition but that's the calculation needs to be based then of course on all parts and components of the of the value creation chain okay thank you are there any further questions in the room or in the conference okay one follow-up in the room

Yeah, hi, this is Benjamin again. Last question from my side, I promise. Just speaking as we spoke about Q1 and what we have seen in the past is usually that when we have Q1, earnings are gradually decreasing over the next quarters. As you mentioned that we probably should aim for the lower end of the full year guidance in Q1. Is it still fair to assume that also Q2, Q3 and Q4 and so on then are going to be a little bit weaker than Q1? Or do you think that the weather effect in Q1 or also year-over-year energy price impacts in H1 are going to be a little bit tougher compared to H2 and that that's going to be more of a mix effect? Or is that really just too hard to say because of weather and consumer behavior and

Yeah, I think it is of course difficult to answer, definitely. As all three of us said, we are seeing a couple of developments that might make things better from a P&L perspective, and there are still a couple of what you call known unknowns out there. And it's really difficult to say which comes in which month and then most likely has what effect on each quarter. And I think it's hardly therefore possible to give you a satisfying answer on a quarter by quarter basis, especially as we never really did guide on any quarterly effects. It's just what we said is meant to make sure we are as transparent as we can be, that we do expect that this first quarter, because obviously it has passed already for the better part of it, that this first quarter will be definitely below the last year quarter.

Thank you. All right, questions in the telephone conference? There are no further questions. Okay, it looks as if we have taken all your questions. So thank you very much for your interest and your participation in our hybrid analyst and investor conference. And we hope to meet you soon at any roadshows or conferences over the next weeks and months. So thank you very much and hope to see you soon. Goodbye.