XXL ASA

Good morning, ladies and gentlemen, and welcome to the fourth quarter results presentation. My name is Tolle Gretterud, and I have the pleasure of guiding you through today's presentation. Our CEO, Freddy Sobin, and our CFO, Lars Syse Kristiansen, will take you through the presentation and then followed by a Q&A session. And for media, there will be an opportunity to perform separate interviews after the presentation. So please direct your request to our press contact. So without further introductions, I turn the floor over to you, Fredrik.

Thank you, Tolle. Good morning, everyone in the room and everyone joining us online. Welcome to the Q4 presentations. And just as you see in front of you, we're very happy to report that Q4 for XXL was yet another quarter of positive sales development, actually sales turnaround materializing further, despite a quite challenging market still. Now, jumping through the disclaimer onto the agenda, I'll start today as per usual with the CEO update, then leave over to my esteemed colleague Lars, our CFO, to guide you through our financial results and then end with some final remarks. So let us get going. Let's start with sales. In retail, everything is about sales. Everything is about top line. And I'm very happy to report that Q4 was yet another quarter of positive sales development, of sales recovery. And all through 2024, we have delivered quarter by quarter actual recovery in our sales. So Q4 ending at index 98, which I believe is a strong signal from us, actually breaking Q4 down. And that is despite quite challenging market conditions. Breaking it down month by month, we see that October was a bit of a, let's call it a challenging start with a late winter. But then coming into November, we had a strong black week period. Going into December, we actually had a month of growth. Even though only by 1%, it's the first time in a long time that we are delivering growth, which we're very pleased with, which is a very motivating proof point for the entire organization. We are now increasingly back on track. Digging a bit deeper, what is actually driving that growth? We see five main pockets of growth. The first one being Black Week and Christmas, strong and important period for the company, and with strong execution both in stores and online, we succeeded to grow during both commercial periods. Furthermore, e-commerce is back to growth, something we're also very proud of. And Sweden, while the market was down by 2.9% in Q4, according to Sportindex, we were up by more than 3%, meaning that Sweden is not only driving the growth for the group in Q4, we're actually also taking back important market shares in the market. So very happy to see that as well. Furthermore, private label, we did a considerable step change in the quarter, accelerating private label growth, and that was also one of our growth drivers. And lastly, XXL Rewards, our loyalty program. Since launching the new program with points and bonuses in October of 2023, Back then we had 3.4 million members. Now we are over 4.3 million members. And I think that is also a strong signal that customers are increasingly joining our club, increasingly loyal to the XXL concept and increasingly coming back to shop with us. So many good signals with underlying growth pockets that we will continue to definitely capitalize on for the year ahead. Now, going one level deeper, what's actually driving this, I would say, is strong collaborations with many of our key brands. We have strengthened many of our partnerships and collaborations and are really achieving win-win with many key brands. And as you know, XXL is all about great brands and great prices. Furthermore, I really want to take the time and say a big, big thank you to the entire XXL organization. In Q4, we really showed what we can do when we are one XXL working together towards one goal. We are back on track. We are delivering growth once again. And as we now have January behind us, we want to give you a trading update. And also here, we continue on the growth trajectory starting in December. In January, we actually deliver almost 4.5% growth. Once again, the first month in quite a long time with even more material growth for the company, something we're very happy to see because the market is quite challenging still. The growth drivers for this month is a stronger commercial plan where we are better at leveraging the full width of our assortment, growing in many non-seasonal product categories as well. Also happy to see that actually all markets, Norway, Sweden and Finland, is driving the growth. So we're seeing growth across the line, across geographies. And we see very strong retail performance in January with both footfall increasing, conversion rates increasing, as well as items per basket and all of this with stable gross margins. So once again, I really think that sales turnaround is materializing. And that, of course, is coming from our strategy, our turnaround plan called Reset and Rethink. We've talked about it many times in many forums, believe me, not least internally in the organization. But let's focus a bit on the reset part, our must win battles, which is all about really getting the retail basics back in place in the company. Also here. All must win battles are showing positive indicators that we are moving in the right direction. Starting with category reset, meaning our assortment, meaning our product offering may be the most important thing for us. We have since long been saying that we will retake our low price position in the market. We will increase our mass market appeal. And we are delivering on that as we now see that low, meaning our good, better and best pricing levels, low is increasing. Now, about 40% is back where it should be. That in itself is a lot driven by private label, which during the quarter took a big step up with more than six percentage points increase in sales share. So category reset, definitely. XXL is back with a very good, strong assortment delivering. Availability, however, is still a challenge for us. Inventory remains at record low levels at 1.8 billion. It's slightly up year over year with 2%. But in volume, thanks to our new strategy, we actually have 14% more volume within the same inventory value, meaning we have more pieces, we have more product to fill our stores with. And of course, that is also driving our conversion rate because below you see store operations and both better availability, more products in stores together with strong sales tactics from our staff means that conversion rate is up with 1.5% in the quarter or sorry, percentage points even. a strong and good number, and that is again driven by all three markets. Conversion rates are increasing across the line. So once again, the strategy is really proving itself in all markets. Pricing, we continue with our new pricing strategy, which is data driven and very disciplined. We see that that delivers more than two percentage points in growth and gross margin. So also, we're not just giving away margin, we're actually increasing it year over year. The same goes with e-commerce, where we're increasing the margin with more than 3% year over year. So all must-win battles actually delivering with positive indicators, but ultimately, as you saw, December growing, January growing. So we are definitely moving in the right direction. The plan is materializing as we speak. To refuel the plan, to refuel Reset and Rethink, we have launched a consensus equity solution, which we believe is in the best interest of all shareholders. The rights issue that we are now in the process of completing is in the amount of 600 million. I think what's important to say is this is the first time in a long time where the full amount, all capital raised, will be used towards operations. we will not use it to pay down long-term debt. So we're really refueling our strategy. We're refueling XXL. This is a consensus solution among all our main shareholders. And it was approved in our extra general meeting on the 29th of January. So now it's mostly formalities remaining. And with that, ladies and gentlemen, I leave over to our CFO, Lars-Susse Kristiansen.

Thank you, Freddie. So with that, let's take a closer look at the Q4 financials. We'll start at the top line with the operating revenue coming in just north of 2 billion in the quarter. That's a slight decrease versus the same quarter last year. 1.8%. But if you look at the total year where the top line revenue comes in at 7.2 billion, a 10% decrease versus 23, that means that we have seen an improvement in top line performance throughout the year. That is the same as well. If you double click on quarter four, as Freddie mentioned, a challenging start with availability challenges, followed by strong performance in November and December, returning to growth with a strong execution of the black and Christmas period, driving top line sales across the XXL markets. Looking at the countries, we see that Sweden is driving growth in the quarter, growing on the full quarter level. Norway sales is rebounding, following maybe one or two quarters behind the development that we see in Sweden. Whereas Finland remains a challenging market for XXL, as well as the sporting goods industry in general. Looking at the category levels, we saw muted winter conditions in Q4 compared to the same quarter last year. That means lower sales in alpine skis, cross-country skis, but we were able to partially offset that by increases in categories such as apparel, running and bikes. On the gross profit level, coming in at 719 million in the quarter, a 2.2 percentage points increase versus the same period last year. That increase driven by a negative reward provision last year that we do not have in this quarter, but also the significantly improving private label share that Freddie also commented on earlier in the presentation. Switching to OPEX, we see a relatively flat OPEX in the quarter coming in at 701 million. However, it's important to note that we have significant non-recurring costs booked in this quarter relating to the ongoing equity financing process as well as a VAT. dispute in Norway that we are making a provision for in this quarter. I'll come back to that with more detail in a little bit. That leaves us with an EBITDA improvement of 31 million. Looking at the markets again, we see a significant EBITDA improvement in Sweden. Norway also improving EBITDA, offsetting a reduced top line with cost reductions. Whereas with that improvement in Norway and Sweden is partially offset by a reduced EBITDA in Finland, as well as for the logistics and HQ segment where we are booking those non-recurring costs this quarter. Switching to inventory, we continued to execute a strong discipline in terms of managing our inventory, and it's relatively flat year over year. As Freddie mentioned, though, it's important to note that throughout the year, the average inventory has been approximately 10% lower than what we had in 2023. Liquidity 341 million coming out of this year and I'll comment a bit more on the changes in the liquidity position later on in the presentation. Switching to EBITDA, we see this 31 million improvement in the quarter where we see that we are able to more than offset the reduction on the top line with margin improvements as well as cost reductions throughout the XXL value chain. That picture is the same if you look at 2024 full year where we have been able to improve EBITDA with 153 million and actually almost 100 or above 190 million if you look at the non-recurring costs we have posted. managing to offset the revenue decline with significant improvements in margin and cost. Obviously not a satisfactory EBITDA level, but a good performance in terms of being able to improve the margin and taking out costs in the XXL value chain throughout the year that we are happy to see and that we will continue to work on also in 2025. And looking at costs, we are happy to report a gross cost saving of approximately 300 million on the target for the cost program launched in Q2 2023. When looking at the development in cost, we have to make a couple of adjustments in the baseline. We have to adjust for the weakening of the Norwegian currency, as well as the direct inflationary effects we have on the real estate rental contracts for our stores, as well as our personnel. That brings the comparable baseline to 3.5 billion, and we are reporting now a cost reduction of 300 million from that down to 3.2 billion. reporting a majority of those cost savings on the personnel cost side, but also seeing operational improvements and cost reductions within logistics and other operational costs. It's important for us to say that we are not done with taking out costs from the XXL value chain. We will continue to make improvements on the logistics and freight side. We'll continue to work on taking out scale effects through improved procurement efforts, as well as reducing personnel costs and improving our marketing practices. Looking at the balance sheet in Q4 and for the full year, our net debt comes out at approximately 1.2 billion. The increase in net debt predominantly driven by the bridge loan that we took out in Q4. The liquidity reserves 341 million being reduced with more than 400 million compared to the same period last year. That reduction is driven by a reduction in the revolving credit facilities of approximately 300 million. The operating cash flow negative 34 million where we have negative changes in working capital offsetting the positive EBITDA development. In 2023 last year, we saw the opposite direction, negative EBITDA being offset by positive working capital, as we saw significant build-downs of the inventory in the company throughout 2023. We do have some severe adverse P&L effects in the quarter, amounting to approximately 800 million. It's important to underline that the majority of that has no cash effect for the company. First of all, we are posting non-recurring effects connecting to the ongoing equity issue of approximately 15 million in the OPEX line this quarter. And we see a write-down of goodwill and the deferred tax assets of approximately 740 million. of which 670 of that is goodwill and 70 million can be found in the tax cost line in the P&L. Again, stressing none of those with cash effects. We're also making a 44 million provision relating to an ongoing VAT dispute in Norway, connecting to campaigns executed by XXL in the period 2015 to 2020. This case has been idle for a long time, since 2021, but now we are expecting a conclusion in Q2 this year and we are therefore making a precautionary provision this year, 38 million of which can be found on the OPEX line. As Freddie said, we're pleased to be in the completing stages of our equity issue, raising 600 million from a fully guaranteed rights issue and also prolonging the company's existing loan facilities. The EGM has already approved this transaction and the timeline going forward is that we expect the subscription period to start in the end of February, following an approval of our prospectus. with an end to that subscription period mid-March and then the closing of the transaction on or about March 20th. And that concludes the review of the financials, Freddie.

Thank you very much, Lars. So, commercially a strong quarter, I would say, but financially maybe a bit challenging with non-recurring and let's call it technical P&L effects. Looking more, again, high level, 2024, summarizing the year. Sales and gross margin is recovering. We are seeing a very positive trend quarter by quarter. And you see the gross margin being strengthened for the full year with almost 4.5%. We have been able to reduce cost, as Lars also was quite detailed about, and gross OPEX for the year is down by 235 million. So we are not done yet. We are satisfied, but not happy with the number. We can do more. So all in all, EBITDA for the full year is improved by 154 million. So it's up to 74 million. Once again, one step forward, but we have many more to go. And I would say the full EBITDA effect is hampered by lower sales volumes and the lowered sales and sales is down by almost 10 percent for the full year. is in itself hampered by the record low inventory because the inventory level in average for the year was down by 10% from 2 billion to 1.8 billion in average and also number of pieces meaning volume in average for the year was down by 8%. So inventory has definitely hampered sales But if we would have been able to defend sales levels from 2023 with the same gross margin and cost base as we have been able to now deliver in 2024, we would actually in a simulation, we would have a 400 million roughly EBITDA instead of the 74. So this just shows how top line sensitive we and, of course, everyone in retail are. And this is something we're now really are looking forward to turning around in 2025. Because 2025, when we really look into what we're heading into, will be all about growth. So we hope to be able to continue on our positive sales and gross margin trend. We see that our current inventory going into 2025 is both commercially stronger and also with a healthier composition. It can still be even stronger and healthier, but we have done a lot during the past two years and are in a much better place now from an inventory perspective. And also, as Lars mentioned, we will be continuing to take out costs to find further networking capital efficiencies to be able to operate an even leaner XXL. We want to run fast. We want to be able to achieve growth. We need to shake off some of that extra weight that we might have currently. Looking at what we think will drive the growth for 2025, then we are focusing more on our rethink initiatives. We will be focusing a lot on our stores, restructuring and elevating our store portfolio. We are very happy to open our first new store in quite a long time. It will be in Trollhättan in Sweden in April. We will also be refitting 10 to 15 stores throughout the year, as well as reconcepting 17 to 19 stores. So we will be touching a large part of our entire store portfolio, modernizing it, optimizing it. Yes, also to some degree, taking out commercial square feet to be able to deliver an even stronger and more modern store experience for all of our customers. So many projects and focus and attention will be going into our stores. Throughout 2024, we have been also testing a new media mix to a large extent. We will now be rolling that out to all markets and to the full extent this year. And by that, we hope to be seeing increased footfall to stores and increased visitors online. So a new and more modern media mix definitely should also be helping us to drive growth in the market. Furthermore, we are on a journey to strengthen our value for money proposition. We've seen great improvements during the fourth quarter with that. That in itself will be driven by our private labels and in-house brands. It will also be driven by many of our fantastically strong relationships with key brands, because XXL is about great brands and great prices still. So value for money will be strengthened throughout the year. And also, XXL Reward, while surpassing 4.3 million, is a milestone. We are now aiming for the next one. So XXL Reward, our loyalty program, which has proven itself to be very successful, we will further strengthen, develop and grow it throughout the year. So four initiatives that we will be driving through 2025 in order to rethink XXL, to strengthen it and to take it back to growth. because back to growth is what we will be focusing on. 2025 is the marathon continuing with regards to reset and rethink. Bouncing back to growth, securing that we have modern lean operations and still being very disciplined when it comes to capital and inventory steering. But all in all, we are optimistic. We are now increasingly certain that we are on the right way. Commercially, we are definitely proving it. And that is something we are looking forward to do all through 2025. And with that, ladies and gentlemen, I thank you very much for your time.