Kid ASA

Okay, welcome to this third quarter presentation by KID. We have the management, Marianne and Mats with us. We will do this is that they will present the numbers and then we will go to the Q&A. Please send in questions during the chat and we will take them after the presentation. So by that I give the word to Marianne.

Thank you and good morning everyone and welcome to the third quarter presentation. I will leave this page hanging for a couple of more seconds, as I know that Mats will get back with a lot more information regarding the financials later. So we will not use a lot of time on this page. The third quarter comes with a short-term pay for a long-term gain. We are investing in a new Nordic warehouse that are going to make a fundament for our future growth. But it comes with some short term impacts that are negative on cost and revenues this quarter. Revenues were impacted by limited product availability in our physical stores this quarter. It's due to some logistical challenges. We met some bottlenecks and some ramp up challenges that are maybe not so uncommon in these kinds of projects. This has caused a revenue shortfall mainly for non-seasonal products and autumn products that arrived late in our stores. But we are confident that our customers are still with us and that our assortment is still commercial and doing well. And why are we so sure about that? It's because we see online growth this quarter because our customers, they turn to our online platforms to buy products they couldn't find in our stores. And we also see growth within the spring and summer assortment this quarter. And spring and summer assortment was distributed from the old warehouse setup in Lier for Kit and in Borås for Hemtex. And we had enough availability of spring and summer. And it led to a good growth within spring and summer assortment. This quarter, we have invested in customers' satisfaction by providing free home delivery for those buying online. It comes with some extra shipping costs, but we think it was the right thing to do when customers could find their products online and not in our stores. Growth in new categories have been soft this quarter, but we see a strong growth in focused categories like kitchenware, bathroom and lighting, where we have been expanded with new product groups. And regarding the Norwegian warehouse, approximately 15% has been established under a short-term agreement this quarter. After several years with growth, and especially after the acquisition with Allhemtechs, we have experienced a clear need of renewal and increased capacity. It's not only within the logistics, but also within our store portfolio and within technology and systems. We have easily said we have outgrown the warehouse, the stores, our systems. Some call it growing pace. I like to say that this is a sign that we are moving in the right direction and gaining market shares. And to grow further, we must invest. And you all know that we focus on long-term strategy. We are building for the future. not for the next day, week or quarter. And this year, our focus has been to establish a new Nordic warehouse that can offer efficiency and more capacity to support further growth. And as I mentioned last time, 2024 was definitely the last year it was even possible to get the Christmas assortment through the old warehouse setup. This year it had to be done through a new warehouse setup. And regarding the new warehouse, we have had an ambitious timeline. That's true to the kids spirit. I know it's a culture that has been driving us forward for many years. This project has proven complex and implementation and fine tuning has taken somewhat more time than we expected. We haven't fully reached our potential by the end of third quarter, and it will still take some time before we see the full efficiency and cost saving effects because the systems and optimization solutions still needs to be stabilized. But with that said, note that efficiency and capacity is improving every week. It's going in the right direction. And we are confident that our new warehouse will be a strong foundation for future growth, though we're having some short-term struggle this quarter. The photo on the page was taken a couple of weeks ago when I was in Biorett, and you can see some of the optimization and convoyer systems that will give us a future level of efficiency far behind what we have had before. System modernization is crucial not to fall behind. We see that customers' expectations and customer behavior change rapidly within retail. A number of system changes and improvements have already been implemented over the last two years. and further ones are planned. We have already completed much of the system renewal through the warehouse project by shifting to improved core system for logistics sourcing and supply chain operations. And next year, we will be focusing on implementing a new point of sale POS system to streamline in-store operation and to offer a much better customer journey than we have today. And with a new warehouse providing scalability, efficiency, and capacity, combined with further modernization of systems that impact stores and customers, we will deliver next generation customer experience and are ready for future growth. By the end of 26, we expect to have a fully modernized system portfolio ready for the future, even though modernization never truly ends. That's it. Mats, I think we are ready for your slides.

Thank you, Mariana. Good morning, everyone. For the third quarter, reported group revenues increased by 15.1 million compared to last year. This represents an increase of 1.7%. I will come back to the highlights for the segments shortly. As Marianne mentioned, this quarter the revenue growth, especially in our physical stores, was negatively impacted by the transition of the warehouse and internal logistical constraints. contributing to reduced inventory level and product availability in our stores. We estimate that the revenue shortfall to be in the range from 30 to 40 million this quarter, primarily linked to non-seasonal assortment and autumn products. Please also bear in mind that the revenue development this quarter comes on top of the growth base from last year. in specific for Kin Integra. The product availability has been better online compared to the physical store, resulting in a strong online revenue development, and I'm pleased to report an online revenues of total 129.5 million this quarter, representing an increase on a constant currency basis of 26.3 million. In terms of share, the online revenue share increased by 3 percentage points to 14.4%, driven up by both Hemtex and Kidd. Including the Click and Collect, the share increased further by 3.7 percentage points compared to last year to 19.8% this quarter. In terms of categories, we continue observing a positive underlying development across our focused categories. And I would like to highlight that bathroom, homeware, kitchenware and lighting standing out as important drivers this quarter and deliver strong commercial results. Kid Interior performed best of our two segments with a total revenue growth of 1.9%. This comes on top of the base, the revenue base from last year. The development is driven up by number of transacting customers online, offset by decreased number of customers in our physical stores. Additionally, we had a slight negative impact this quarter from reduced average basket size due to the product mix. Hemtex delivered a reported revenue growth of 1.4%. And as you can see, we have a significant currency effect as the Hemtex numbers in local currency was decreased by 1.8%. This is driven up and positively impacted by the online development. in terms of revenue by 30.2%. This development is positively impacted by, as for KID, increased number of transacting customers online and offset by number of customers in our stores. We have also a slightly reduced average basket size in Hemtech's as for KID. Overall, given the negative impact from the temporary internal logistical constraints, related to the warehouse transition, we are satisfied with the online revenue development in the third quarter and the commercial results from our products and assortment. On the gross margin side, we delivered a gross margin of 61.8% for the group, which represents a decrease by 0.3 percentage points from previous year. The development was mainly driven down by HEMTEX and was neutral effect from KID Interior. The gross margin is strong in a historical perspective and the development is mainly due and explained by somewhat increased campaign activity to address the revenue development linked to the logistical constraints as explained The campaign activity was partly offset by lower share of freight in the cost of goods sold this quarter compared to last year, which was last year a consequence of the elevated freight rates observed throughout 2024. Summarized, the group gross margin of 61.8% is considered robust and is well in line with our financial objectives. Reported operating expenses increased by 12% in the quarter from last year. This is a high number, but it's important to note that the development is impacted by non-recurring items from strategic investments largely related to the common new warehouse and the transition in Sweden. This comes along with Other factors that we also will explain. In general, in retail, our cost base is subject to inflationary pressure and wage settlements, but this quarter is impacted, as I said, by this warehouse transition, and I will give some more flavor to that. The reported employee benefit expenses decreased by 5.1 million, and the development is mainly explained that we have a lower bonus accrual this year compared to previous year. In addition that we have a line shift where we last year had own employees in the Norwegian logistical setup. Whereas we now in the new setup in Sweden in the ramp up phase have external workforce booked as other OPEX and not employee benefit expenses. The decrease is partly offset by the increased from last year's wage settlements, to our great employees, hours spent in our new stores, and as a result of the high store project activity year to date. In terms of worked hours, we have tight control to our hours in our like-for-like stores, and the increase we see Above the wage settlement is linked to new stores and the store projects comprising increased floor space. These are both initiatives to drive future like-for-like growth for Heat Group. Finally, on the employee benefit expenses, we have a negative currency effect compared to last year of 2.4 million. The reported operating expenses increased by 43.1 million. And here, this increase is largely attributed to the warehouse transition and must be seen in light of the reduction, as I explained, in the employee benefit expenses. We have also some additional costs from increased floor space and last mile distribution following Among others, the strong online revenue development. The Veras ramp-up in Sweden increased our logistic hours, which is supported by external workforce in the transition and ramp-up. This is mainly related to onboarding personnel to new processes, new systems, as well as transferring goods, the remaining goods from the warehouse in Norway to the new common warehouse in Sweden. As I said, these external workforce hours is booked as other OPEX and not employee benefit expenses, which gradually and partially will be hired as permanent on employees going forward. One important driver this quarter is instability and inefficiency, which we have experienced during the transition and ramp-up phase, driving hours in the logistics. The progress overall was positive throughout the quarter, and costs from this reduced efficiency are considered temporary. And the inefficiency peaked in this quarter. But we will and may have some impact in terms of additional costs going forward before we are at fully stabilized speed and capacity. Summarized during the quarter, non-recurring operating expenses of approximately 8 million were booked as other OPEX and RENFUL costs. This is linked to the NOC or the 30 million communicated with the Q4 presentation last year. This quarter, we also try to quantify and estimate the effect from the inefficiency in the transition period. The estimate is 10 million this quarter, and I will explain and present a more detailed overview on the next slide. As for employee-benefit expenses, we also had a negative currency effect in the reported numbers compared to what we saw last year of 1.9 million in the other OPEX. As I said, please note that going forward, we'll have a line shift as we will increase the share of own-to-own employees from external workforce related to the warehouse in Sweden. Now that we have reviewed the OPEX figures, I would take a moment to explain some one-off effects in the presented cost base. These factors can seem complex, and I won't make it difficult to see the full picture, so I break them down to you and clarify what's temporary versus what reflects our underlying performance, since we have significant one-off effects this quarter. compared to last year. As Marianne said, in short, the new common warehouse in Sweden is a strategic move, but the transition has been operationally complex. We pushed for an ambitious timeline in true kid spirit, which also added risk and temporary inefficiency. While all elements were in place, fine tuning across systems, personnel, and optimization solutions, has taken longer time than expected. As communicated in Q4 last year, we expected non-recurring costs of 30 million in 2025, mainly related to the double warehouse rental for 2025 in both Norway and the expanded warehouse in Sweden, transferring goods to the new site from Norway in addition to some scaling costs. Related to these 30 million, we reported five millions in the first quarter this year, nine million previous quarter, and eight million this quarter, totaling 22 million year to date. In addition, we see that inefficiencies driving costs mainly related to inefficiency and hours in the logistic operations and last mile distribution. It's difficult to quantify the effect, but we have estimated the effect and what has been booked this quarter to be in the size of 10 million in Q3. In addition to an estimate of 8 million previous quarter, which is disclosed today. Bringing this, we have 18 million in total. regarding inefficiency as per year to date. The table on the right side shows the combined figures, and I will share some brief comments on each element. We have employee benefit expenses in the first quarter. It's limited, but it's related to offering job seeker training for our former employees in the warehouse in Norway. The second one is the rental costs which represent double warehouse rent and is related to the Norwegian warehouse starting double rent in February 2025. Please note that this cost is booked as depreciation and financial expense according to IFRS 16. Please also note that this rental cost for the Norwegian warehouse facility is dependent on the ongoing sub-lease process and might be partially recurring in 2026. The logistic hours is an estimate based on the efficiency we would have achieved without the instability and startup challenges we had this quarter and previous quarter. terms of last mile distribution this number refers to estimated additional costs from among others the free shipping option Marianne mentioned which we offered our customers in the absence of the pickup in store functionality was not available for our customers in addition we have had some effect from sub optimal home delivery in the ramp interface from the new warehouse to online customers. Other operates includes several elements, but it is largely related to transportation of goods from Norwegian warehouse to the warehouse in Sweden and estimated double operating costs for the warehouse facility in Norway. The impairment, then we have the total estimated non-recurring operating expenses and last two elements is related to impairment which was 25 millions communicated and reported previous quarter related to the warehouse in Norway and we had a Disarjo which was a one-off effect from realized loss recognized in Q2 and is related and explained by a change in the sourcing and hedge setup for the group. To summarize the development in the third quarter, we had revenue development impacted by the warehouse transition, but with strong online revenue growth in both segments. We delivered a robust and strong margin, slightly impacted by campaign activity, but well in line with our financial objectives. And the OPEX base, as I have explained, largely impacted by non-recurring items and one-off effects related to the warehouse transition. This, as Marianne said, is a crucial and key investment enabling future growth for the whole key group. This all in all results in an EBITDA of 204.7 million. In terms of cash flow, I would like to highlight following items for the quarter. The cash flow from operations was negatively impacted by net working capital changes, mainly from inventory buildup. This is also for securing Q4. The cash flow from investment this quarter is increased from last year and mainly relates to our store projects in Norway and Sweden, in addition to some more and final investments to the warehouse related to the warehouse project in Sweden. Additionally, we also have investments to IT initiatives and projects. The cash flow from financing is explained by lease payments following IFRS 16, net interest expense and use of overdraft facility. This results in a change in cash for the quarter of 1.9 million. This cash flow follows a cyclical and historical pattern for Kidd Group. At the end of the quarter, we have cash and available credit facilities of total 192.3 million. Excluding IFRS 16, net interest-bearing debt was billion, 47.9 million, resulting in a financial gearing ratio of 1.96 at the end of the third quarter. All in all, a satisfactory financial position for the key group. That said, I would give the word to Marianne, taking us together through the store portfolio.

Well, not surprisingly, we continue a high project activity through 2025. We continue to develop our store portfolio towards the standard store size of 600 square metres. As you know, we have outgrown many of our stores already. They are too small to have the space for the total product range. And we know there is a potential for growth by increasing the number of square meters in both KID and in Hemtex. And that's what we do. We've had a high level of project activity in the first half of 25 with 21 projects compared to 16 last year. And in third quarter, we have had three projects at the same level as last year. We had Molde, Citylade and Parpilla in Hemtex this quarter. In addition, one new store was opened at 3 and another one was closed at 2 during this quarter. By the end of the quarter, Kidd signed contracts for three new stores and two extended stores in Norway. And Hemtex had signed one new store and two extended stores in Sweden by quarter end. So looking ahead, there is a few things we'd like to highlight. In the fourth quarter 25, we have lined up six store projects for Kidd and three for Hemtex. In addition, two extended stores One in Norway and one in Sweden will open. In October, we opened Kit's largest extended store at the largest shopping center in Norway, Lagunen in Bergen. And if you are in Bergen, I recommend you to stop by. The store is amazing. And next week, we are going to Barkaby in Stockholm to open the first Hemtex extended store. We have decided to postpone the digital launch in Germany and EU till 2026. It's because we have to make sure we have enough focus on core operation the next month. Main focus going forward will be to continue to stabilize and ramp up our warehouse. to further increase capacity and efficiency. Modernizing system portfolio, as I mentioned, will continue going forward to support future growth. And we are working towards securing a long-term solution for the Norwegian warehouse exit. And we are now in dialogue with several parties regarding a partial sublist or full termination of the facility through a new potential tenant. In the meantime, approximately 15% of the warehouse facility has been sub-listed under a short-term agreement, as mentioned. And last but not least, we are looking forward to Christmas season, and we are looking forward to presenting what I see as the best Christmas assortment ever. Okay.

Thank you, Marianne.

The last... I have one more slide. I forgot it, sorry. The board of directors has decided to pay a half-year dividend of 2.5 kroner per share as a payment for 2025, payable in November. So that was the last one, and then I think we can open up for a Q&A.

An important slide, you know, dividend is important indeed. Don't forget. Very good. We have received some questions on the chat, just to remind the followers that please just use the chat and send in questions. We have several questions regarding product availability going into Q4, so I'll just take one of them instead of having three or four questions on the same topic. Flows of goods improved through Q3, but how should we think about availability of both non-seasonal and seasonal goods going into Q4?

We cannot say too much about Q4 as there is much of Q4 left, but what we can say is that we are at a much better and more comfortable place now than we were in the third quarter. As I mentioned, we see that the efficiency is going upward every week, so there is no reason to be very negative regarding coverage of products. Of course, it's scary to say because hiccups can suddenly appear and we cannot guarantee that can not happen, but at the moment we are quite comfortable.

Perfect, thank you. And then we get a question here on the sales of the new categories, which was somewhat soft in the quarter. Can you explain that? And also, how is furniture sales doing?

During this quarter, you mean? Yeah, I would say that we are not 100% satisfied with how furniture did this quarter, but we must say that it's not only about furniture, it's more about the whole store this quarter that was less inspiring than it usually is. We know that products are selling each other. We know that if you have shelves without products and not an inspiring store, you don't attract the customers. And we also had some challenging challenges with, for example, carpets that was blocked from distribution because of some logistical challenges that has also affected the sale of new categories for just like an example. So I wouldn't pay too much attention to this quarter actually. And I can also mention that we have launched a new sofa at the moment doing very well and a new dining table doing well. So I still believe in furniture, absolutely.

Perfect. And then we have a question here on the campaign activity level. I think Mats mentioned that it was on a high end in this quarter. Is that more related to a more competitive market or is it more like your own behavior that has changed the campaign structure somewhat?

It's more like an internal strategy when we see that we need to fuel. We often use a campaign as a fueling.

That's how it was. slightly impacted by somewhat increased campaign activity.

Perfect. And then we have a question. You mentioned the sub-lease, both of you. Is it possible to give some more details on the sub-lease development in Lid?

What we have said is that we are in process with several different potential tenants for the facility in Leir. This quarter or in third quarter we succeeded in signing an agreement for sublease of approximately 15% of the warehouse facility and we have other leads we are working against. So we hope to some positive news for the sublease process when we report to Q4 in February next year.

Perfect. We also got some questions on the postponement on the international expansion. I think you covered that, talking about prioritizing core operations.

It's a very easy prioritization for us. We can do the launch anytime we are ready. The whole setup is ready, so we can just push the button when we want, but it's the wrong timing now. All the internal focus needs to be on the fourth and most important quarter and stabilizing the warehouse. That's the easy and correct answer to that question.

Perfect. Final one here is on store availability. How do you see the store availability now and also going forward in terms of new stores? More opportunities? is that the questions? Yeah I mean yeah exactly you know are you you know getting the stores and the location that you are looking at and at what terms basically?

Yeah we do not disclose our returns but we have the ambition of the 320 stores in the portfolio increasing a couple of stores in Estonia and yeah we are looking for some more in Finland but the major part and the residual from today's number of approximately 280 to 320 is in Sweden. We have some more opportunities, but it's not like a huge change in the market conditions.

Okay. Then we have some questions on the non-recurring items and that goes into 2026. Should we expect some non-recurring items for the warehouse in 2026? And I assume then you need to exclude, obviously, the additional rent cost because that depends on your sub-list, right? But on the other cost elements.

Yeah. The clear thing is the sub-list, as you say, is dependent on the process. But in terms of the other non-recurring items, we have not guided what we see going forward, but we see that we have peaks the inefficiency in the warehouse, driving hours in the logistic operations and last mile distribution that peaked in Q3. We may have, as Marianne said, some instability going forward, but we are progressing every week and we expect to have a reduced impact from the non-recurring going into the second quarter 2026.

Okay, perfect. I think that was the questions for today, so by that I'll leave the final remarks to you guys.

Yeah, we hope that since we have Christmas just around the corner, we will leave you with a Christmas commercial and thank you for today and see you next time.

Thank you.