HORNBACH Baumarkt AG

Good morning and welcome to our update call for the third quarter and the first nine months of the 2024-25 fiscal year for Honbach Holding. My name is Antje Kelbert, Head of Investor Relations. This morning at 7 a.m., we released our reports and presentation on our IR website. Karin Dohm, CFO of Honbach Group, will take you through financial highlights and development of our first nine months. Before I hand over to Karin, I would like to remind you that the entire conference call, including the Q&A session, will be recorded and made available with the transcript on the company's website. Following Karim's remarks, we will open the floor to questions. If you are unable to get your question during the call, please reach out to the investor relations team afterwards. Please also take note of this disclaimer, which is valid for the entire presentation and for the Q&A session. And now, Karim. hand over to you. Please go ahead.

Thank you, Antje. Good morning and a warm welcome from my side. Thank you for joining us so shortly before the holidays. We achieved solid growth over the first nine months of our financial year, despite a continued challenging macroeconomic environment, especially in Germany. Sales were up 0.5% to 4.95 billion euros. Our market share rose in most countries and our customer frequency picked up. Gross margin continued to improve and was up by 1.3 percentage points in the first nine months. Adjusted EBIT came in at 300 million euros, significantly stronger than last year's results. Let me do a little bit of a deep dive now into our P&L. As highlighted, our net sales in the first nine months of 2024-25 were slightly above prior year's levels. Hornbach Baumarkt contributed with a sales growth of 1.1%, benefiting especially from organic growth across Europe. This is an outstanding development for two reasons. Firstly, we achieved this growth against the backdrop of low inflation and softening prices in the DIY sector. And secondly, we're still navigating a market characterized by soft consumer sentiment and reluctant spending behavior, especially regarding larger projects. Thus, our strong sales growth means that our offering remains highly relevant to our customers. As mentioned, customer frequency picked up over the last nine months, with an increase in footfall of 1.6%. While average tickets were still slightly down year over year, Q3 showed signs of good recovery. Once again, our focus on multiple attractive markets across Europe is paying off, as demonstrated by solid growth in the other Europe segments. This is also reflected in our like for like figures. All regions, apart from Switzerland, achieved positive sales growth on a like for like basis in Q3, summing up to a noteworthy 3.7% outside of Germany. Especially Sweden and Romania, having seen negative like for like momentum in the previous year, have performed well over the course of the current fiscal year. In sum, Like-for-like sales growth for the first nine months was up 1.1%, based on an equal number of business days as the prior year. Turning now to e-commerce. The share of e-commerce sales of Hornbach Baumarkt came in at a stable 12.4% in the first nine months of 2024-25. Looking at quarterly developments, we achieved slight e-commerce growth in Q3, driven by click and collect as well as direct delivery. In particular, click and collect, as well as all online sales with in-store contact, performed well and are growing again. This confirms our view that the interconnectedness of online and offline channels is highly relevant for our business. Therefore, we continuously invest into all components of the customer journey, providing attractive and state-of-the-art touchpoints both online and offline. We are absolutely convinced that the great customer experience across all channels is coupled with unmatched convenience, are incremental for our future growth and profitability. As previously mentioned, our solid performance also shows in our market share development. I'm extremely proud of my colleagues who once again managed to expand market shares in key regions, especially in times of, as cited, softer consumer sentiment. We remain confident that our customer value proposition will continue to pay off and that we are able to gain share against the background of active competition in all our regions. Let us continue to go through our P&L. Our gross margin increased by 1.3 percentage points compared to last year's nine months, continuing on the higher levels we achieved in the first half of the year. While gross profit increased by 4.3% in the nine-month period, total cost increase was limited to plus 1.5%, despite necessary salary raises that affected our Q3 cost base. As pointed out in earlier calls, we will continue to work on our cost and process efficiency. Let's now take a look at earnings. Overall, we improved our adjusted EBIT by 11.4% compared to the same period last year. In addition, We are pleased with a more balanced EBIT contribution across regions, with Germany now representing 37% compared to 32% in the prior year's period. Our solid earnings performance has consequently also resulted in higher cash flows in the nine-month period. Our cash flow from operating activities increased by 20.1%, primarily driven by better net results along with ongoing enhanced working capital management. Cash flow from investing activities was lower in the first nine months compared to previous year. Nevertheless, allow me to remind you that we still expect full year 2024-25 total capex to come in at a range of 160 to 100 million euros with larger investments into new stores coming up in Q4. Regarding the gross capex split, roughly half was spent on land and real estate thus far, mainly for new stores, while the rest was spent on store updates and equipment as well as software. Moving on to our balance sheet. Our consolidated balance sheet remains strong, almost unchanged at 4.5 billion euros. The equity ratio was up slightly, coming in at 46.8%, once again providing reassurance and consistency for all our stakeholders. Reduced net financial debt and strong rolling 12-month EBITDA resulted in an improved debt ratio of 2.3 compared to 2.5 at the beginning of our fiscal year. November, S&P confirmed our rating at BB+, with a stable outlook. All in all, our balance sheet underpins our robust financial position and the resilience of our business model, providing the foundation needed to capture future growth opportunities. Against the background of recent capital market developments, let's have a quick look at the development of our share. As media coverage has focused heavily on share index developments in Germany lately, I would like to quickly point out that Hornbach Holding's share has outperformed German indices this year. Even against the DAX, our share has an impressive headroom of 8%. Independent of or especially because of the current macro environment, our strategic focus remains unchanged. Seize long-term opportunities. This includes investing continuously into our sustainable growth, maintaining our strong market position, furthering our operational excellence, sustaining a strong balance sheet and paying an attractive dividend. Perseverance and looking beyond short-term quarterly results continue to pay off for us. We are innovative by tradition and create stable conditions for positive change. Therefore, we are confident in our business model and our ability to grow. Before we open the floor for questions, let's have a quick look at our full year guidance. Anticipating typical seasonal performance in Q4, the earning forecast for 24-25 remains unchanged. We continue to expect an adjusted group EBIT at slightly above the level of 23-24 financial year, with gross margin stabilization at the current higher level. Taking the development of the first nine months into account and in the light of ongoing challenging consumer environment, we expect net sales at previous year's level. It's indicated we will reopen our store in Nuremberg shortly before the end of this fiscal year. Next fiscal year, we will open four stores, one in Germany, one in Austria, and two in Romania, adding 63,000 square meters of new retail space with a corresponding sales potential next year. Overall, we feel that our organization is well prepared to capitalize on the recovery and the home improvement market going forward. With that, I conclude my presentation and hand back to Antje for the Q&A session.

Thank you, Karin. We will now start the Q&A session. Our operator will share some instructions and then we will take your questions. Caroline, please go ahead.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We'll pause for a moment to allow everyone an opportunity to signal for questions. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad.

Operator, we have some questions.

Could you please take them into the line?

Yes, we will take the first question from line Thomas Mall from DZ Bank. The line is open now. Please go ahead.

Yes, good morning. Thomas from DZ speaking. Thanks for taking my question. I've got two. The first one, could you please elaborate a bit on current trading with regard to footfall and average shopping cart size? And the second one, can you please remind us of your expectations for the gross margin can we further expect gross margin to remain stable on that elevated level? Thank you.

Good morning, Thomas, and thank you for your questions. Current trading is strong. We saw, as highlighted, good interactions with customers, both frequency as well as basket size already in October and November and now. It is like that on an ongoing basis in December. We also see some components picking up which give us, so to say, conviction that the slowly, so to say, silver lining also on some larger projects is coming through. I'm thinking here specifically about prefabricated construction elements or things like that which keep getting more interest from customers than we saw in the earlier parts of this fiscal year. So there is a bit more momentum also on, let's say, mid-sized projects. We always said we don't see yet the large projects coming through, but we see certain momentum throughout the last two months and now also throughout December into that direction. Footfall is fine. Customer frequency higher than in the previous year. So that's all pointing towards the right direction. And then you had a second question with regard to gross margin. Yes, we definitely expect that to stay stable and positive as we are currently. I may remind you, though, that we're currently running in comparison to previous year where we had the gross margin picking up and our efforts on the purchase side already coming through in the winter months. So, of course, now the difference, so to say, between gross margin previous year and gross margin this year is becoming smaller or shrinking, but not because we're going down, but just because the like-for-like difference is becoming smaller. So we feel very good about it. And that's in combination with asset active customers and this tendency towards bigger projects gives us really strong convictions that we will have a good start into next year, independent whether you talk calendar or fiscal.

Sounds great. Thank you. Very helpful.

Thank you. We will take the next question from Lineworker, both from Baader Bank. The line is open now. Please go ahead.

Yeah, good morning. Thanks for taking my question. I would have two. EBIT declined in the third quarter. You mentioned in the press release that this was based on salary increases. So could you share some more details here, please. And given that trend here in the third quarter, is it fair to assume that also EBIT should decline in the fourth quarter, which would be possible given you have still some headroom to your full year guidance. So perhaps you take the opportunity to manage expectations here in regards to fourth quarter. And final one. I mean, we had November, we had the Black Week season. So what does it mean, Black Week, for you? Is it getting more important? Is it important at all? Or how do you look at this kind of important season, more and more important season for the overall retail environment? But not sure how does it play into the DIY sector. Thank you.

Yeah, thanks, Volker. So on the EBIT side, you're absolutely right. Year over year, Q3 shows obviously an EBIT reduction. And yes, that is driven by the fact that we have on the one side, you might remember in Germany, where obviously given the way our store network is distributed across countries, the vast majority of people who are subject to trade union agreements is, so to say, based in Germany. And therefore, we had the final agreement between the retail industry and the trading units coming through in September. So that has, of course, had its influence on our Q3 figures as over the course of 12 months, there was an increase of salary on 10%. And of course, this is always an area continuously and any time where we focus in making sure that we, on the one side, we're really, as you know, and we've said that often and keep repeating that, we're convicted that paying good salaries and being an attractive employer is key to having the right guys who then can also provide our customers with advice. So we're fine with that. But of course, we're keen to make sure that that we offset that with process efficiency, with continuous improvement, and with anything that we can do to make sure we are on top of things. And that has worked nicely, but of course not in that degree as we are on the same time gearing up for our new store openings. We have, as you know, in February there will be Nuremberg, in March there will be the next store, And then we have more coming up in 25. And that means we're starting, especially for these two I mentioned earlier, we're starting already now and bringing people onto our platform to make sure we can train them. We really have them there when things are kicking off. And that, of course, partially is a little bit of a front runner there, which you also will see partially or have seen partially in our Q3 figures. So we feel comfortable with that. And we are absolutely convinced that that's addressing your other part of the question, that Q4 will be a good Q4. You know, January, February, it is more on the more quieter side in home improvement. People are not doing a lot in the garden or outside. Often things are a little bit subdued there by nature, by season. It depends on a little bit what February will bring on the weather side. You probably recollect well, last February we had a very good season because things were picking up, temperatures were nice relatively early. So we need to see what February brings, but we're absolutely convinced that we will keep our guidance, that we will be fine on the Ebbets side as guided. So no concerns there as that we feel comfortable in in the way we're currently set up. And then you ask for Black Week. Black Week is definitely not such an important topic for us. We are with home improvement in an area of the business where we are anyhow not so much in the pre-Christmas part, apart of course from Christmas decoration and some other things. But our main season, as you know, is spring, is our Q1 season. Nevertheless, what also is playing here into it is we have our everyday low price strategy. So we are very actually outspoken also when you look a little bit into our communication to customers that we say to customer, look, we are really doing a hard job and try to make sure that you get the best price offers. We also, as you know, guarantee customers paybacks if they find something the same product somewhere else for a lower price, or if we lower the price of something that they bought maybe last week, they get an automatic payback. So these are things how we operate. And so something like Black Week and doing campaigns to that part is not really our game. We want to be a reliable project partner. It's not really important for us, the Black Week effect.

Thank you very much. All the best then. Merry Christmas. Same to you.

Thank you. We will take the next question from . The line is open now. Please go ahead.

Good morning. Can you hear me? Yes. Three questions. The first one is on pricing. If you could comment on this in general, can you confirm that now we are basically again in a deflationary environment or are you still able to increase prices? First one. A second one would be regarding the like for like growth pattern in Baumarkt. because in Q3, you grew by 1.1% against a minus 4.3% the previous year. And this, I would like you to comment on this. It was, frankly speaking, a bit below my estimate. Is it correct that it was rather a bit a softer quarter also in your eyes, or is it in line with what you were expecting before. And the next one is in the cash flow statement, I see the 6.6 million Zuwendungen der öffentlichen Hand in the investing cash flow. Is it correct that this was basically not booked through the P&L, that's why it's in the investing cash flow section, or was there any P&L impact from this payment?

Third one.

So thanks for your questions. Let me start with pricing. I think the important way, we have two important things noteworthy, and that's why we're specifically very pleased with the way that sales have developed over the, especially this Q3. That is the fact, as you know, inflation in many parts, I know not in all parts, but in many parts of the economy are coming down. And also, obviously, in the main currency zones where we operate, which is, as you know, euro and then some neighboring, such as Swedish krona and others. So in many of those countries, interest rates also have come down. So, yes, macroeconomically, we are more on the side where prices come down. Slowly, gradually, not in big steps, but as a tendency, you're more on the downward development of sales prices than on an upward development. And as I said, the underlying message here is, and that is super important from my point of view, we have not only increased sales, but we also have increased volumes. And that is absolutely a very positive development. And that is a huge difference if you compare that to previous quarters. So yes, we are very satisfied with that. Specifically, as you could see in the figures, like for like sales outside of Europe with outside of Germany, excuse me, with 3.7%, that's really showing that we have a good momentum. And we all know there is the one or the other sentiment challenge in Germany, but we're absolutely convinced When we look onto the underlying product mixes, I mentioned these construction elements before and some other things that there is the momentum coming slowly back. So we are confident that we will have a good year coming up with 25, 26. And then you asked about some... Yeah, in the cash flow statement, you have the 6.6 million. Yeah, that is a little bit probably... you're alluding to the kfw elements where um that refers to some solar panel investments and other components so there you receive 6.6 million and how was this booked please what's this book sorry it's an investment yeah investments are always booked through obviously balance sheet, and you have the equivalent on the cash flow. But happy to take that offline if you want to be run by the teams through the specific bookkeeping. And then you ask for – no, I think I covered the other thing. Thank you. Yes.

Thank you. And happy Christmas and happy new year.

Thank you. We will take the next question from line Johan Wendin-Hohen from Value8. The line is open now. Please go ahead.

Good morning, Johan van der Hoven. Two questions for me, please. One about the cost development. You already said that the agreement with the trade unions with a plus 10% increase. I just wanted to double check, did that start in September? So there will be ongoing effect on the cost base. And the second question is about the new store opening. You mentioned two in Romania, one in Germany, and one in Austria. And I heard February and March. Can you give a bit more precise timing of the four shops? And the Nurmag one, is that calculated as a new one? Because that's a sort of renewed one, if I remember correctly.

Yeah, so absolutely. Thanks for the question. And let me start with a star question first. So first one coming up, Nuremberg in February. Absolutely correct. That's the reopening. We knocked it down roughly 12 months ago. It's the same location, but it's totally newly built. It's larger. It has more square meters, and therefore it has also more employees. And then come the new stores, so really net new. That is one in Germany that will come in March. Then we have one in Austria coming up probably in June, maybe June, July. Don't nail me down, so to say, on that. And then we have two in Romania coming up in October, September, October. So let's say after the summer break, I said, With these large building activities, it could always be that it moves a couple of weeks forward or backward, but that's the rough timeline. That means we will definitely have the two ones in Germany, Nuremberg in February and then Duisburg in March, that those will definitely participate fully from the busy season, which is, I think, something that is obviously dear to our heart, as usual. And then the one in Austria will be roughly half of the year, and the ones in Romania will be coming in in our Q3. So nicely spread across the year. And as said, coming back to your first questions on the cost development, yes, the agreement with VAUDE, that's the trade union in Germany, that was these 10% were split. there was first by half you could say 5.3 and 4.7 and the first one was kicking in in spring and now the second half was kicking in in September so it was a little bit split and yeah period okay so there's not a full effect of the 10% split over the year so It's split over the year, but on the other hand, there is a couple of head count growth due to the new stores. And as I said, we're really convinced that we will even that out over time.

Okay. All right. Thank you very much.

You're welcome.

Thank you. We will take the next question from line from . The line is open now. Please go ahead.

Good morning, everyone. Just a couple from me, please. Could you talk a little bit more about Switzerland? I think you said, if I remember correctly, it's the one place where you haven't seen like-for-like growth, but I see that your share of the market's increased. Is that a particularly difficult market in recent months or an exciting market for you? And secondly, I'm sorry, I think I'm being very thick here. In terms of your guidance for the full year EBIT, that looks like, if we compare the total for the first three quarters, where this year is well up on last year and you're guiding for flat for the full year, that suggests quite a lot of costs in the fourth quarter. Are these mainly pre-opening costs for the stores that are coming in the start of next year, or is it quite a lot from the salary increase or something else? Thank you.

Yeah, I'm happy to take those questions. So first on Switzerland. Yes, we are happy with our market share development. And I think that shows how relevant we are for customers. Because right, as you alluded to, there is a general market sentiment in the sense of people keep holding back on DIY topics. So the market volume wasn't necessarily growing. And against that let's say, non-growing market volume, we increased our market share. For us, is that a good positive message? Our underlying performance is fine. We now just need a little bit of macroeconomic development to understand how can we grow beyond just growing market share. Taking business away from others is part of our retail game, as you know. So we're fine with that. But actually, of course, it's always more fun when you have a growing market. general market appetite, customer sentiment. But once again, similar to what we always said about Germany and Austria, we see a certain common pattern in the DACH region. So we think there will be a better mood in some of those countries or in all three of those in the next year. Good indications that that should turn slowly, gradually, but continuously. And then You ask for the guidance. On the other side, yes, we always said, and we stick to that, at or slightly above. So please don't miss the slightly above. And we always give the ranges, what slightly, for example, means in our wording, in our vocabulary, so to say. And please also take into account Q4 is not a super active quarter. Customers are spending time with other topics usually in Q4, plus usually it is cold, it might be wet, it might be freezing. So that's definitely not the time where people start spending activity time and or money into home improvement. Nevertheless, That's the cycle we've seen literally since the beginning of this company. Once spring is coming, once days are getting a bit warmer and then obviously also a bit longer. So somewhere in February or March, we will have all these effects and then we will have the uptick in general activity levels. So that depends a little bit, of course, whether that then flows into the end of this fiscal year or the beginning of the next fiscal year. talking about February or March. But on the other side, we're absolutely convinced at or slightly above. And slightly above is absolutely also something that we see currently coming towards us.

Fab, thank you. That's very clear.

You're welcome.

Thank you. We will take the next question from line Delta Motor from Capital Shores. The line is open. Please go ahead.

Good morning everyone, thank you for the presentation. Two questions from my side. As we go into a low interest rate environment in 2025, how do you expect this to affect the next business year, both on operational and cost standpoint? But as well, if you could give your outlook for the increase in transactions for the secondary market that could possibly finally trigger those large DUI projects that have been missing in the DACH region, particularly within Germany. And second, on the two stores opening in Romania, could you just highlight how the margin on that market compares to other countries within the international segment? Thank you.

Yeah, absolutely. So let's start with the question on the... Sorry, that was a little bit unclear. Was it lower consumer environment or lower interest rate environment?

Sorry, the acoustics were not... So, yeah, the outlook for next year, given the lower interest rate environment, both from lower interest rates, how they affect... how to expect them to affect the operations at Horbach and then as well your outlook on increased secondary market transactions, right, that could possibly trigger some activity in those larger DUI projects.

Okay, excellent. Thanks, Dorothe, for making that clear. So lower interest rate, definitely something where we think that has not only the potential but is a good reason actually for people to to go more into larger projects. You know, in Germany specifically, people love to save money. That is a nature of our macroeconomic environment and we see that currently a bit more even than anyhow usually. So that is something where you really need to make sure to have that in mind. We are absolutely expecting that lowering of interest rate as we already saw it this year will go on in bringing people into more spending, having also the, how do you say, having, so to say, the courage to go into larger projects where people definitely were holding back as interest rate and inflation were high and eating into people's purses. So we have had now interest rate coming down. We have had prices or inflation pressure coming down in many areas, not everywhere, but in many. And a lot of people had real wage increases. So I think if you sum that all up, we definitely think that the spending environment will improve specifically on goods and services. You know, this year we had a lot in experiences. People were going to traveling to the Olympics or maybe to some pop concerts or doing things like that. But they were holding back on services and on goods. And we're quite convinced that that is slowly but continuously changing. And as I said, we see that specifically in the footfall and the way the baskets develop on our side and the way that the composition of the basket is developing. And then secondary market, I guess you allude to the aspect of people moving home, is that correct?

Yeah, exactly.

Okay. Yeah, that's a very valid point because right spot on, that has been subdued over the last, and I would probably say over the last two years. And yes, that is supposed to pick up, although I would like to caution, obviously not very quickly. We see a set, we see a bit more sales and turnover in the construction elements. And we also see in those areas where we focus heavily more on the building, on the new building side. Our main business is obviously home improvement, but we have some areas of our business where we focus on new buildings and on helping building corporations and other customers. And we see from the interactions, from the way we discuss their activities, they give us the clear message that there is this silver lining on the horizon and that everybody is expecting that the building machine, so to say, especially on the residential side, will jump on and will be back into action in 2025. But only, I would definitely like to caution, only in the second half. That is not coming super quickly. It will come later. And then we will have more activity level in DACH region and specifically, of course, in Germany. So we are absolutely convinced that that will also be something that we will talk about in the second half specifically. The two stars in Romania. Romania is a country we're really happy with. for two reasons. Number one, we have their growth momentum in general. There are more locations in the pipeline beyond those two that we open next year. We have Romanian people are really super interested and active in home improvement. Also building activities are there way more active than in other countries where we operate. We have nice EBIT margins there, so we're really happy there and therefore We expect those stores, obviously they need first to open and then they need to be up and running, which usually takes to have them at a level where we want them to be. You usually need to calculate two to three years. In Romania, it's always a bit quicker. So two years is realistic. And then obviously they will be providing good EBITs and they will be providing good EBIT margins. So we're absolutely pleased on that side.

Okay, thank you for the clarity and happy holidays.

No, same to you.

Thank you.

Thank you. We will take the last question from Lionel Lars Hedge from HC Capital Advisors. The line is open now. Please go ahead.

Hello, good morning. Just one question regarding the guidance for the revenue. It was cut a little bit. from slightly above now to stable. And on the other hand, in this call, it sounded that you're quite happy with the sales development within Q3, that some things picked up. You have some good indications that trading in December looks quite good. So how does that fit together? On the one hand, a good sales development. On the other hand, the cut in the revenue guidance. Thank you very much.

Thanks, Lars. I think the underlying pattern, if you dial back the time and think about the beginning of this year, so somewhere into the beginning of the calendar year 24, I think the overall expectation of consumer sentiment coming back in light of, at that time, indications of interest rate cuts, indication of inflation going down, salary increases in many parts of Europe. So the expectation was, of course, to see a bit more of that, what we see now in the, so to say, in Q3. I spoke about the like-for-like sales growth specifically outside of Germany. So Yes, we see what we expected to see. We see it now a little bit later in the timeline than we had hoped for, so to say, at the beginning of the year. And once again, there is always this little bit, the known unknown, so to say, with regard to when are things picking up? Will it be February or March? Nevertheless, Q4 is by nature, by season, not the strongest quarter. So, yes, we think there will be a nice sales momentum in general, also compared to the previous year. Nevertheless, the lever that we have with Q4 with regard to volumes at general activity level is, of course, way smaller than we have it in Q1 or Q2. And therefore, that is the reason why.

Okay. Thank you very much. You're welcome.

Thank you. It appears no further question at this time. I'll hand it back over to your host for closing remarks.

Yeah, thank you, Caroline. And thank you for all your questions we have taken here. Please, if you have further topics and further discussion needs, please contact us at the Investor Relations Department. We would like also to invite you to all the capital markets events that are upcoming in the next month and weeks. So we will participate in a lot of conferences and we'll be on the road. So thank you very much for all your interest this morning. Have a nice day. Hope to see you soon. And for those of you who celebrate Christmas, happy Christmas season and for all, happy new year. Thank you.

Thank you for joining today's call. You may now disconnect.