Kid ASA

Good morning everyone and welcome to our third quarter presentation. I'm Marianne Fulford, CEO of Kit Group and with me is Mads Kigen, our CFO. Please feel free to post questions in the chat and we'll answer as many as we can at the end of the presentation. And then let's talk about third quarter. We delivered a strong period with solid growth across both KID and Hemtex. Group revenues increased by 12.3% and reached just over 1 billion in Q3. The commercial performance was strong with growth-based growth across segments and categories. Growth was supported by more transacting customers in our physical stores and strong seasonal assortment. Good product availability allowed us to meet customer demand and support our campaign throughout the quarter. Last year, limited product availability affected sales in our store due to our new Nordic warehouse. Even adjusting for last year's out-of-stock impact, we continued to outperform the market in third quarter, which we are very pleased with. We deliver a strong gross margin and a solid growth in EBITDA, up 38.5%. OPEX decreased by 0.6%, and Mads will of course take you through the details later. So, overall, we're pleased to see broad-based growth combined with operational improvements. Warehouse operations were stable, productivity was high, both segments delivered strong results, OPEX was tightly controlled, and cash generation was strong. So, let's take a closer look at the operational highlights. Upper category development continues to be an important driver of customer traffic and sales growth across both Kidd and Hemtex. During the quarter, we saw broad-based growth across all major categories. Bed linen, bathroom products, duvets and pillows performed particularly well. Selected permanent low-price products across major categories performed well and supported customer traffic. While we have strengthened our offering at lower price points, we continue to see growth across both the premium segment and value segment. Our autumn assortment also had a strong quarter. Product arrived earlier and assortment renewal together with strong customer demand supported sales across all categories. New categories introduced since 2022 grew by 28% and we're pleased with a quarter of solid growth across both our core and new categories. The development across our sales channels also need a little context. Physical stores delivered strong growth while group online revenues declined. Please bear in mind, last year, limited product availability in stores shifted more demand online. With good product availability in our stores this year, the comparison between channels is different. Overall, we're pleased to see growth across both brands supported by our assortment and more customer shopping in our stores. And before I move on, I'd like to take a moment to talk a bit more about our seasonal assortment. Thank you for watching! Seasonal products encourage impulse purchases, and customers know that if they want to get a hand on the season's favorite, they can't wait for a promotion campaign. These collections are only available for a limited time, and once they're gone, they're gone. We always place our seasonal collections at the front of our stores, and this keeps our entrance area new and inviting, with frequent changes that give customers something new to discover. This strategy drives increased traffic into our stores. The season's colors and patterns bring collections together across almost all our product categories. and therefore support growth across all of them. Through third quarter, we once again saw a solid growth in our seasonal assortment, both due to earlier product availability and a strong commercial assortment. Our warehouse operations are back on track and remain stable throughout the quarter. Product availability was good and the flow of goods to our stores was reliable and efficient, supporting strong sales development. Operational efficiency improved compared with last year, reflecting higher productivity. We continue to work on our processes and see even more opportunities for further improvements over time. Regarding the Norwegian warehouse, temporary sublist agreements still cover approximately 65% while we're working on a long-term solution. Our system modernization is also progressing according to plan, and during third quarter, our work continued with a lot of testing and development of the remaining solutions. We are planning less implementation activity during the important fourth quarter. The priority is now very easy, stable operations and keeping our team's focus on customers into peak season. The European online pilot is also progressing following the launch of hemtex.de in Germany in second quarter. We are continuing to learn about our customers, assortment and pricing. and our approach remains gradual with limited investments and financial risk as we build experience. And store portfolio development continues as well. We completed two store projects during the quarter and we have a substantial pipeline of signed projects and new stores going forward and I will return to that later. So now Mads, will you walk us through the financials?

Thank you, Marianne, and good morning, everyone. Let me take you through the financial performance and the key drivers for the third quarter. Overall, the third quarter represents a strong commercial and financial development for the key group. We have strong revenue growth across both segments, a positive gross margin development, good cost control, and significantly improved profitability. Group reported revenues increased by 12.3% to above 1 billion in the third quarter. In constant currency, the revenue growth was significantly stronger at 15.2%, compared with 0.5% in the same quarter last year. Like-for-like revenue growth increased by 14.6%, including online sales, compared with a decline of 1.7% last year. So overall, the underlying revenue development was robust. It is worth keeping the comparison base in mind when looking at the strong growth this quarter. Last year, we estimated a revenue shortfall of approximately 30 to 40 millions in Q3 due to a limited product availability. We estimated a similar absolute impact in the fourth quarter last year. However, the fourth quarter is significantly larger quarter, meaning that the relative impact was materially higher in the third quarter. So part... of the strong year-on-year growth this quarter reflects normalized product availability and softer comparison base. The normalization of product availability is also reflected in the channel development. Physical stores delivered strong growth while group online revenues decreased by 4.1% in constant currency. Last year, limited product availability in physical stores shifted part of customer demand towards the online channel. The online comparison is therefore particularly strong, with group online revenue increasing by 26.3% in the third quarter last year. Looking into the segments, Kidd Interior delivered revenue growth of 14.3%, with a like-for-like growth of 13.5%. Online revenues in Kidd Interior was broadly stable and increased by 0.5%. Hemtex also delivered a very strong quarter, where the reported revenues increased by 8.7%. Currency continued to have significant translation effect on the reported figures. Measured in constant currency, revenues increased by 17%, with a like-for-like growth of 16.6%. The online revenues decreased by 10.6%. Also note that the Hemtex online figures include sales from Germany following the launch of Hemtex during the second quarter this year. Overall, the revenue development was broad-based across both segments and all major categories. We saw a particularly strong development in bed linen, bathroom products, duvets and pillows, and also was supported by autumn assortment, which performed very well. was driven by earlier product availability, assortment renewal and strong customer demand. So, the key takeaway on the revenues is a strong underlying commercial performance across both segments, supported by normalized product availability compared with last year. At the same time, the soft third quarter comparison base is important to take into consideration when assessing the year-on-year growth, as mentioned. Moving on to gross margin, the group gross margin increased by 0.5 percentage points to 62.3 compared to 61.8% last year. Kidd Interior gross margin remained unchanged at 61.6%, while Hemptex increased by 1.4 percentage points to 63.4%. For Kid Interior, the margin was positively impacted by favourable currency effects. This was also offset by higher discounted sales volumes compared with last year, reflecting a more normal level of product availability this quarter. Importantly, this does not reflect a structural change in our campaign plan. The margin was impacted by the available volumes of products. The margin was also negatively impacted by higher sales of pink ribbon pins compared with last year. For Hemtex, the margin was also positively impacted by favorable currency effects. In addition, Hemtex benefited from a temporary positive SECNOC effect in the cost of goods sold, reflecting favorable currency hedge rates. This is a temporary benefit, which will gradually normalize as more recent exchange rates are reflected in the cost of goods sold. Overall, we are pleased with the gross margin development. And the gross margin for the group of 62.3 is a strong level. Please note that the quarter includes favorable currency effects, including the temporary SECNOC benefit in HEMTX. Finally, when assessing the current margin level, it is relevant to keep in mind our long-term financial objective of maintaining gross margins in line with levels achieved over the past 10 years. Moving on to operating expenses, the reported OPEX was broadly unchanged compared with last year, decreasing by 0.6%, while revenues increased by 12.3%. As a result, the OPEX sales ratio improved significantly to 46.2% compared with 51.9% last year. In constant currency, employee benefit expenses increased by 15.9 million, and the main drivers were general salary increases, higher bonus accruals, reflecting the strong performance this quarter, and as well as higher personnel cost in the logistics. Looking at the logistics, there are two effects to keep in mind. First, we have increased the share of permanent in-house employees and reduced the use of external workforce. This shift comes from the other OPEX to employee benefit expenses and therefore exchanges to the cost mix between the two lines. Second, the underlying operational efficiency has improved significantly compared with last year when the warehouse was still in the transition and ramp up phase. Other operating expenses decreased by 7.1 million in constant currency, mainly reflecting lower logistics costs and lower online distribution costs, partly offset by higher marketing activity. Currency effects reduced the reported OPEX base by approximately 10.9 million compared with last year, primarily reflecting SECNOC translation effects. It is worth noting that the Norwegian krona has strengthened by approximately 7% against the Swedish krona compared with third quarter last year. This has also a translation effect on both Hemtech's revenues and cost when reported in NOC. Finally, Q3 last year was impacted by non-recurring warehouse-related cost and inefficiency. We estimated approximately 15 million of non-recurring items in the third quarter last year, excluding rental costs. This is relevant when assessing the year-on-year development in OPEX. Overall, we are pleased with the cost development, reflecting increased efficiency combined with tight cost control. Moving on to EBITDA. The EBITDA increased by 38.5% to 283.5 million. The improvement reflects strong revenue growth, improved gross margin and tight cost control supported by improved operational efficiency compared with last year. Overall, we are pleased with the strong profitability and operational leverage delivered in this quarter. Cash flow from operations was strong at 261.8 million during the third quarter. This development was supported by strong operating result and working capital development. Inventory increased during the quarter as we prepared for the important fourth quarter and Christmas shopping season. However, the negative cash flow impact from inventory buildup was lower than last year. Cash flow from investments mainly reflects investments mainly related to store openings, store projects and IT initiatives. Strong operating cash flow also enabled us to reduce our financial debt going through the quarter. The cash flow development in the third quarter follows a normal seasonal pattern of our business. Overall, we are pleased with the strong cash flow development in the courtroom. Moving on to our financial position, cash and available credit facilities amounted to 436.3 million at quarter end, providing financial flexibility for kid group. The net interest-bearing debt excluding IFRS 16 decreased to 963.7 million compared with last year, all above 1 billion. The gearing ratio improved to 1.6 times compared with 1.96 times last year. The improvement reflects the strong cash generation and debt reduction during the quarter. Overall, we consider the group to have a satisfactory financial position and sufficient financial flexibility. Finally, on dividend, the board of directors has decided to pay half-year dividend of 2.75 NOK per share as a prepayment for the fiscal year 2026. This compares with 2.50 NOK per share in November last year. Following the Q4 results, the Board will propose the next half-year dividend to the Annual General Meeting in May 2027. The dividend payment reflects the strong financial performance and cash generation, while maintaining a disciplined approach to capital allocation and financial flexibility. The proposed payment dates are shown on this slide. And with that, I will hand the presentation back to Marianne for an update on the store portfolio and the outlook.

Store portfolio development continues to support growth across both Kidd and Emtechs through refurbishment, expansion and relocations. And we will continue this work as an important part of our growth plans going forward. During the quarter, KID completed two store projects. And at quarter end, contracts had been signed for three new stores and six additional store projects in Norway. Last week, we opened a new store by the National Theatre in Oslo, where we are testing a new city concept with a different store design and more tailored assortment. So I would recommend those of you living or working nearby to have a visit. Hemtex did not complete any store projects during Q3. But at quarter end, contracts had been signed for two new stores in Sweden and 11 additional store projects. Across the group, that gives us a pipeline of 17 store projects and five new store openings going forward. So looking ahead, our main commercial focus is the upcoming Christmas season, of course. Good product availability supported by reliable warehouse operations and high capacity to serve our stores puts us in a strong position ahead of peak season. We will continue our work to further improve efficiency and productivity in our warehouse going forward. System modernization will also progress according to plan, with lower implementation activity during Q4 to support stable operations through peak season. Freight rates stabilized during third quarter, following the increases in the first half of the year. Though we will continue to monitor developments closely, and we do not expect any material delivery disruptions at the moment. We will continue our gradual European online expansion, building on what we learned from the pilot. And most important of all is our focus on commercial execution through the important Christmas season. We are pleased with the development in third quarter. And now it's all about building on that momentum and giving customers plenty of reasons to choose Kidd and Hemtex this Christmas. And with that, I think we're ready to open up for a Q&A.