Hornbach Hldg Ag

The conference is now being recorded. Good morning, ladies and gentlemen, and welcome to the conference call regarding the third quarter and nine-month results 2021-2022 of Hornbach Group. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Antje Kelbert.

Thank you, and good morning. For those of you who have not attended our call on Monday, my name is Antje Kelbert and since 1st of December, I am heading the Communications and Investor Relations Department. After our pre-resolved disclosure on the 7th of December, we have today published the full set of figures for the first nine months and the third quarter 2021-22. Our CFO, Karin Dohm, will be our presenter today and also take your questions. Together with us on the call is my investor relations colleague, Anne Spies. Let us right away dive into the highlights of the past quarter and I hand over to our CFO, Karin Dom.

Thank you very much, Antje, and a very warm welcome from my side as well to this Q3 event. I'm very much looking forward to run you through some of those key figures of last quarter as well as of the nine months that we just finished, and then obviously very happy to take your questions afterwards. So let me start. We had a very good third quarter. We saw strong sales still coming in way above the pre-COVID levels. There is a slight element of inflation, but as said, we see higher levels of demand for home improvement on an ongoing basis. Earnings are down from last year, but well ahead of pre-COVID levels as well. And we have a sustainably higher earnings position that reflected also or that was reflected in the credit ratings which was upgraded to double D plus at the October 13th. We raised our full year guidance on December 7 to reflect those better than expected developments in Q3 against the strong previous year. Caution, of course, that we are still not yet in a full COVID clean situation. I come later to those details where we currently have some closures or limitations to our store activity. But first, a little bit about our organic expansion. We continued that in the third quarter as we did in the previous quarters of this fiscal year. We opened two new stores. one in the Netherlands and one in Switzerland. We also extended one of our existing Dutch stores with a new format called Hornbach Floren, which is focusing specifically on floors, tiles, and anything that you and clients might think about when home improving their specific floor situation. With that all in account, we have now 167 stores as of November 30th. We also could build, as we did in the previous quarters, on a very effective management of the COVID pandemic. And we also managed to keep, despite the challenging situations that we have around logistics, logistical chains, and, of course, the general availability of goods, we managed to be well-stocked and to ramp up our capacities, also looking into the specific requirements of the Christmas season, and of course, in preparation also of the next spring. Looking a bit into the specific figures, you see here robust sales growth in all three quarters, and once again, as I said earlier, significantly higher level than pre-COVID. To make sure we have a little bit of that comparison, we included here not only last year, but also the year before. We have, as we said, a little bit of inflation that drives partially our sales growth. But in general, the cocooning, the homing trends, and the general request to home improve, whether it's in a DIY fashion or whether customers reach out to merchants and chandeliers is still in high demand and still higher than pre-COVID on a robust level. Like for like sales, same here. We had a growth on top of a very strong prior year, specifically when you compare those figures across the various countries. We have, of course, as I mentioned earlier, still a couple of limitations to our activity. I would like to point out specifically the Netherlands. They had, especially at the beginning of the year, so when we look into nine-month figures, they had limitation with regard to store openings and the possibility for customers to enter the stores. We also, as you know, have their new restrictions in the Netherlands, which will now affect our fourth quarter. So that is something to take into account. We had in the third quarter specifically a couple of closures in Austria and Slovakia. for three and two weeks respectively, but that had no major effect on the figures you see here for Q3. Coming a bit into the details of the e-commerce activities, once again here, good dynamics. We're very happy with the development on a rolling 12-month basis. We see e-commerce share of total sales reaching slightly above 20%. The growth slowed down in the course of the year, which we expected, as higher growth in Q1 was driven in part by lockdowns and the number of geographies. However, it remains robust at 10% in Q3. Click and Collect more than doubled in the course of the year, while direct delivery grew by 16%. Specifically in Germany, and I'll also talk about other regions in a minute, specifically in Germany, we managed to outperform the sector in a continuous manner. You see here the comparisons between the competitors and our performance when it comes to sales, like-for-like growth in the DIY sector in Germany. And as said, we have been outperforming that sector for years, but that positive gap has significantly widened in the last two years, partly driven as we are convinced by our successful ICR strategy combined with a very good management on the merchandising side and our logistical network. I've mentioned a little bit of you also beyond when we look into market shares. As said, really happy with the performance in Germany. You see here a really impressive gain in market share, now being beyond 15%. But also in other countries, looking for example into Netherlands, looking into Switzerland and others, we really are happy with the fact that we managed to gain further market shares. Not only this year, you know that we had had that positive development also in previous years, but it's a good continuation, so we're really happy with that. Bottom line, when we look into the adjusted EBIT, we're well ahead of pre-COVID levels again. with an increase in adjusted EBIT of 63.7% versus the nine months of 2019-2020, and currently an EBIT margin of 8.4%. So far in this quarter and in this fiscal year as well, we didn't have any non-operating earning items. When we look Below that surface into the various segments, we'll see largely the same picture for Hornbach Baumarkt, adjusted EBIT and profitability well ahead pre-COVID levels, although slightly down on last year's record level. However, a significant increase in adjusted EBIT for Hornbach Baustoff Union versus last year due to strong sales and positive gross margin effects. Looking onto the cost side, We maintained improved cost structures versus the pre-COVID levels. You see here the long-term comparison and a normalization in some cost items, as we talked about already in previous quarters, was deliberately achieved because we wanted to make sure we, for example, boost up our marketing activities, which were slowed down in the previous fiscal year. and also spend on projects and other components, thinking here also on, of course, ongoing IT spend, which we consider crucial to make sure that we keep our performance and with that our market shares and activity levels. Gross margin, of course, we have the same situation as all our competitors and many other companies currently. We see higher purchasing prices. We could largely cover them by selling prices, but there is, of course, an element of, as we mentioned earlier, of inflation as well. So we see that also coming through. When we look onto the cash side and the funds from operation, we're above previous year and well above, of course, the year before that, the year 2019 and 2020. We have had fluctuations in working capital resulting from a COVID-related exceptionally high order volume in the previous year and accelerated payments to suppliers in the current year to avoid negative interest. CapEx increased due to the accelerated expansion, and you will see that as well, of course, in the next year. As said, during the course of this year, we did not only open new stores this year. We also plan to have a similar amount around five in the next year, so you will see similar CapEx movements also in the next fiscal year. Cash flow from financing activities also includes incoming payments of 50 million from taking up financial loans and a similar amount outgoing for the redemption of loans. So the usual movements, nothing specific in comparison to any other year on that side. As said at the beginning, we confirmed our guidance and increased the outlook for the ongoing year. We, of course, have a couple of unknowns in this fourth quarter, which we just started. When you think about corona and the ongoing public discussion, it might be that we see the one or the other limitation in the next two and a half months. But nevertheless, we are confirming those figures. We are comfortable with those ranges. And the last, so to say, organic growth piece that we will see this year, talking about this fiscal year, is the opening of the fifth store. As you know, we are replacing in Paderborn one of our existing stores that will happen at the beginning of February as planned currently. So to sum it all up, let me just come back to why we think that key investment highlights are unchanged and even reconfirmed by the current development. We're obviously benefiting from those broader consumer trends, which we said earlier, we see not only as a single event, but as an ongoing trait. regarding cocooning, homing, the working from home, and of course the effects of demographic changes in our countries and the carbon dioxide footprint considerations, which will also trigger a couple of improvements in anybody's homes. We definitely think that our interconnected retail offering is one of our key differentiator, which is supported by our merchandising and logistic teamwork. Ultimately, we have a strong operational track record generating consistent organic growth in combination with leading productivity, specifically in Germany, when you measure us by sales per square foot. put onto this slide, which is the last one, and as well, we'll put that on our internet, the financial activities between now and our trading statement on March 22nd. And very happy, of course, now to take your questions.