Europris Asa

Good morning everyone and welcome to AvroPris presentation of results for the third quarter. It's been a busy quarter for us where we show a steady growth in AvroPris and the OOB integration is progressing according to plan. Joining me on stage to present the results today are CFO Stina Byhre and ER Manager Trine Englöcken will manage the Q&A session at the end of the presentation. But please feel free to send in your questions as we speak. Before we start, I would like to thank ABG for hosting today's event and also wish a very welcome to the live audience we have in the room here today. The growth journey of Europris has been stable and good for many, many years. And before the pandemic, we had almost 30 years of consecutive growth for the Europris chain. And during the pandemic, many new customers discovered our low price stores. In the years after, we have managed to keep these customers at Europris. And we have also completed acquisitions of Strikkemekka, Lekerkassen. And in May this year, we completed acquisition of the Sweden Good morning everyone and welcome to AvroPris presentation of results for the third quarter. It's been a busy quarter for us where we show a steady growth in AvroPris and the OOB integration is progressing according to plan. Joining me on stage to present the results today are CFO Stina Byhre and ER Manager Trine Engreken will manage the Q&A session at the end of the presentation. But please feel free to send in your questions as we speak. Before we start, I would like to thank ABG for hosting today's event and also wish a very welcome to the live audience we have in the room here today. The growth journey of Avropis has been stable and good for many, many years. And before the pandemic, we had almost 30 years of consecutive growth for the Avropis chain. And during the pandemic, many new customers discovered our low price stores. In the years after, we have managed to keep these customers at Europris, and we have also completed acquisitions of Strikkemekka, Lekekassen, and in May this year, we completed acquisition of the Swedish discount retailer, ÖOB. The acquisition of ÖOB adds around 4 billion to our top line. And of course, that impacts the group reported figures quite significantly. We have also added the segment Sweden, which consists of ÖOB. But if you want to look at comparable figures, you should look at segment Norway, which consists of Europris and the PurePlay companies. Let's have a quick look at the highlights for the quarter. Group sales increased by 50.4%, with an organic growth of 4.4%. EBIT was 168 million, which is a decrease of 67 million, of which segment Norway was down 22 million, and we recorded a loss in segment Sweden of 45 million. Stina will provide more details on the group figures and the segments in her financial review later on. We have delivered a satisfactory quarter in what I would call a challenging market. The campaign-driven low price concept of Avropace and also of ÖOB continue to deliver and we stay relevant in the market. And especially in Norway, we also see that we have taken new market shares and that we are showing sales growth above the market. The autopist chain had a growth of 3.5% in the quarter compared to 1.7% growth for the shopping centers in Norway. And year-to-date, the autopist chain has a growth of 3.8% compared to 3.5% growth for both the shopping centers and the broad variety retail index as reported by Statistics Norway. So the market has been a little bit tougher. We are continuing to beat the market, which is our long-term goal. And in Sweden, we saw flat footfall and sales in the third quarter, which is actually an improvement from the reductions we saw in the first half of the year. So overall, we're satisfied with the sales development, but many consumers remain cautious about their spending. We see especially that they're holding back on investment purchases and that sales are concentrated more on campaigns and consumables. This change in sales mix in combination with the depreciation of the currency both in Norway and Sweden and also higher freight costs put pressure on the gross margin. As a discount retailer, we have to be aware of the price position and we have demonstrated very good sales development and also won several price tests during the quarter. So we are showing steady development and I'm really pleased to see that the concept continues to take market shares in Norway. Let's have a look at ÖBE and the integration plan we presented back in July. We set high ambitions for ÖBE and operations in Sweden, and we aim to grow ÖBE by one billion by 2028 and achieving an EBIT margin of 5%. We are in the reds now, but are confident that our plan to turn around ÖBE will show good results and that we are doing the right actions at the moment. Our plan is based on three key initiatives. First of all, it's about category harmonization and joint sourcing. And what we're focusing on is basically to introduce the same private label assortment across the two store chains. And in ÖOB, introduce the same non-food assortment as we have in Europris. We will improve the customer experience. That means upgrading the stores, introducing the same shop-in-shop layouts on the same touch and feel to inspire the customers as we see in Aeropolis. And we will strengthen execution across the whole value chain. And this is about sharing best practices between the two store chains and make sure that we implement the retail machinery that has delivered growth year after year in Aeropolis also into Obea. And I'm pleased to report that the integration is progressing according to plan. We have two organizations that we see are in really good spirit, and we see very good and solid contributions, both from employees in Autopeace and the OBEA. Collaboration and the mood is good, and that is also always a very good basis for the collaboration. And during the quarter, we have made significant progress and made some important changes to the ÖOB plan. André Sjåset, who presented the turnaround plan back in July here in Oslo, he has taken over as country manager for ÖOB. André has been in Sweden since late April. He knows the organization very well and has got off to a very good start as the new country manager of ÖOBL. We have closed down ÖOBL's sourcing offices in China and consolidated all operations at the joint sourcing office that Europis and Tokmani has together in Shanghai. The joint sourcing and negotiations are progressing as planned and making good progress and showing good results. And the AI pair project is also on track. So I think we truly state that we are making the progress that we were aiming for in the quarter. And we are also implementing the Aeropeace base of working and have started to introduce the key elements of what I would call our retail machinery. And that is, of course, all concentrated about campaigns as the first start. But we're also implementing the same management principles and the very tight follow-up routines as we have in Aeropeace to be close to the business every day and collaborate between the different departments in the company. We are implementing Avidope's campaign principles and methodology. You can see it on the pictures. We have introduced basically the same layout for the weekly marketing leaflet and also introducing the same kind of structure for the offers. And we have also adjusted the number of printed leaflets to match the same as in Europe. We follow now the same campaign plans, which also allows in the future for having the same campaigns across the two countries. And to support all these changes, I'm sending one of my absolute best district managers from Europis over to Sweden, he's relocating now, to support their stores in implementing all these changes. Because what's happening in Sweden right now is a lot of changes at the same time, and they need support, but we see that they are very positive to what we're doing, and they see results from the actions that we have already taken. So very good to see that the employees from Europis want to contribute and move over to Sweden and that the Swedes are very positive to see the support they get. We are also testing the visual profile of Europis in selected stores with very positive feedback from both employees and the customers. So it's a lot of things going on. You can already start to see the results in the stores. And to sum up the integration, I think we've made significant progress in the quarter, and we know it will take time to see the results transform into change sales mix and also profits. But we are even more confident now, after this quarter, that the measures we're taking are the right ones to make the change and turnaround of the OBM. On sustainability, we continue to get recognition for our climate efforts. And this quarter, we received the top score in PricewaterhouseCoopers Climate Index for 2024. And this adds to the recognition we have already received by Financial Times and Statista, who named us as one of Europe's climate leaders, and the A-minus score we received from CDP. And Europis has established climate targets aligned with the Paris Agreement, and we joined the science-based targets two years ago. And in this quarter, we will actually file our final targets which means that we are committed to zero emissions by 2050. With this, I will leave the floor to Stina, who will present the financial review.

Thank you Espen. Before I start and dive into the numbers, I would just like to repeat what Espen said on how to interpret the numbers. The group numbers are obviously impacted by including the ÖB figures. So when we talk about the change for the group or reported figures, this includes the ÖB numbers. And when we talk about organic change, this excludes the ÖB figures. And this is also the same as the change for segment Norway. Group sales were 3.2 billion in the third quarter. Reported growth is more than 50%. But if we look at the organic change, the top line grew by 4.4%. The gross margin for the group was 39.7%. Including EOB figures has a dilutive effect for the group. And this contributed with a decline of 4 percentage points. The organic decline on the gross margin was 1.6 percentage points or 1.3 percentage points if we exclude the impact of unrealized effects from currency hedging. where we this year had a loss of 7 million and last year had an unrealized gain of 2 million. And the gross margin has a lot of headwind, and I will take you through the main elements. One is the product mix, where we sell a higher share of consumables that on average have a lower margin. The second is that we have higher sales growth for campaign products. This is good for footfall, but it has a dilutive impact on the margin. We have also had worse surcharges implemented on our inbound freight costs following the situation in the Red Sea. And lastly, the Norwegian krona has been weaker over time. And due to our hedging strategy and inventory turnover, it takes some time for this to wash through in the P&L. And we also saw a negative impact in the third quarter. OPEX to sales was 26.5%. This is unchanged compared to last year. And we are pleased that we have been able to deliver a lower OPEX increase organically than what we previously anticipated when we communicated the 10% OPEX increase for the full year. EBIT was 168 million. This represents a decline of 67 million. And as Espen said, we have a negative EBIT of 45 million in ÖAB. And the organic decline was 22 million. The net profit was 84 million. This is a reduction of 60 million, obviously impacted by the factors that I have mentioned. And in addition, we had an unrealized loss on our interest rate swaps of 12 million this year compared to an unrealized gain of 2 million last year. I will comment on the year-to-date figures. Cash from operating activities was 365 million, down from 734 million last year. There was a more negative net change in working capital this year than last year. And this is impacted by a planned inventory buildup as we wanted to make sure we had no trouble with supply of goods following, as I mentioned, the situation in the Red Sea. And we have also increased the inventory of Christmas items as we last year sold out a bit too early. The net change in cash was negative with 582 million. The group had a net depth of 5.1 billion or 1.6 billion excluding lease liabilities. And the cash and liquidity reserves were 1.36 billion. I have explained for Segment Norway the organic decline on the P&L, so I will now focus on the top line development. Sales for Segment Norway were 2.2 billion, up 4.4%. And the Avropris chain had a like-for-like growth of 2.9%. And this was supported by higher footfall campaigns and also good results for upgraded categories. The Pureplay companies had sales of 155 million, up 11.6%. And this was attributable to strong development for Strikke Mekka. And it was very rewarding to see that the private label yarn that Strikke Mekka and Avropris has sourced together has been very welcomed by customers. Strikke Mekka also made a soft launch into Germany in the quarter. And we are happy to announce that we have recruited Kristoffer Langballe as Vice President of Digital Commerce. And with his solid professional background, we are confident that this will ensure more support and improved follow-up of the PurePlay companies. Segment Sweden had sales of 1 billion in the third quarter with a gross margin of 30.7% and an EBIT loss of 45 million. The footfall and like for like sales were stable in the third quarter. And as Espen said, this is an improvement compared to the development that we saw in the first half. ÖAB had growth in campaign sales and also higher sales of consumables, while the non-food sales had lower sales, which was impacted by low inventories and limited availability of goods. And with that, I will hand it back to Espen to take you through the outlook.

Thank you, Stina. First of all, I would like to say that we are ready for the important Christmas season ahead of us. As many might remember, last year we had the shortage of goods. This year we have fully stocked and are ready for the Christmas season and are really looking forward to that. We've been through a long period with high inflation that has put pressure on the households economy. We've seen more price conscious consumers over time and they have been selecting more campaign goods and also holding back on investment purchases. So it's been a tougher climate for the consumers for quite some time, but we are starting to see signs of relief. The interest rate has already come down in Sweden. The Norwegian National Bank are indicating that there might be interest rate reductions in Norway next year. Inflation is coming down in Sweden faster than in Norway and all in all this is quite positive and in combination with the outlook for real wage increases in both Norway and Sweden next year with stable unemployment rates that should be supportive for low price concepts like out of peace and of course consumption business in total. So I think that the outlook is easing up. It will take some time before we have volume growth, but it's positive for the total economy that this period with high inflation and the high interest rates are coming closer to the end. Regarding Erbea and Sweden, the turnaround plan we have presented is progressing as planned. It's an ambitious plan we have ahead of us, but we are really seeing that we're making progress and are really confident that we'll be able to lift the sales up to 5 billion by the end of 28 with an EBIT margin of 5%. So the long-term outlook is positive for that of this group. With that, I think we have concluded the presentation and we will open up for questions.