Hornbach Hldg Ag

Good morning and welcome to our Q1 2022-23 update call of Hannover Holding. My name is Antje Kelbert, Head of Communications and Investor Relations. After our pre-results disclosure on Monday, the 13th of June, we have today at 7 a.m. CET published the full set of figures for the first quarter 2022-23, comprising the period from 1st of March until end of May 2022. Good morning also to our CFO, Karin Dohm, who will be our presenter today and will also take your questions. Together with us on the call are my investor relations colleagues, Anna Spies and Fabian Filbo. Before we now take a closer look on the development of the past quarter, please be aware of this disclaimer, which is valid for the entire presentation as well as for the Q&A session. And now I have the honor to hand over to our CFO, Karen Dohm.

Thanks, Antje. And also from my side, a very good morning here for our update call. I'm very happy to welcome you all. A couple of figures summarizing our development over the last quarter. Saves and adjusted EBIT, as you know, have already been published via the announcement on June 13th. So that part is unchanged as of today. And we saw robust sales development in part driven by inflation, but we also continue to see higher levels of demand for home improvement products than in pre-COVID times. Online sales are at 15.3% of total sales in the first quarter. And as expected, this is lower in a year-on-year comparison as the reduction is mostly related to lower click and collect compared to last year when stores were still closed and it was the only way to shop. So we see here as set high levels on an overall comparison to pre-COVID level and change in mixture in relation to the opening of the stores. Earnings are down from last year, but once again, well ahead in comparison to pre-COVID levels. When we look into our expansion achievements in Q1, we have continued our physical store expansion in Europe as we announced together with our plan. In March, we opened two new stores in Slovakia and the Netherlands, and with that including, we have now 169 Hornbach Stoes across a number of nine countries. We will open two more stores as planned as of today in this fiscal year, one in autumn in Romania in Constanze and another one in Germany most likely towards the end of our fiscal year in February. Hornbach Baustoff Union will take over two builders' merchant outlets in the southwest of Germany by the end of this week. As said, customer demand remains steady in the first quarter so far. You see here an 8% growth, which is a great achievement, of course, on top of the already very strong growth rates that you saw at Hornbach over the last years. The sales of the subgroup Hohenbach Baumarkt, including online retail, grew by 8.2%. And we had some catch-up effects outside of Germany following sales restrictions at the beginning of 21-22, so the last year quarter, which you will see in more detail later here. Hohenbach Baustoffunion The subsidiary has grown by 6%, also a further achievement after very strong growth last year by 20.5%. When we look into the region split, sales here is equally split between Germany and the other European countries in which we're active. And overall, we have a strong performance in the net sales development. Earlier, we would like to take a little bit of a deep dive to double-click on the question of outside of Germany development. So the like-for-like sales as shown here on this slide give you a good indication where we especially had strong pickups. You see that in the Netherlands and Czech Republic, also in Romania and Slovakia. There were some underlying effects in comparison to Q1 2021-22 with some catch-up effects there due to closures in the comparative months of the previous year. In some regions, our spring season was impacted by cold weather. For example, specifically in Austria and Switzerland, where the season was, from a weather perspective, not as good as we had hoped for. E-commerce, as said, has developed strongly once again way above pre-covered levels nevertheless giving you a good indication about consumption behaviors in times of closures and of non-closures so as expected click and collect was used to lesser extend in q1 this year since there were no restrictions for our stationary stores on the other hand direct delivery is still very much in high demand as customers have experience the good service and availability there in our channels and like to take that into their considerations and behavior on an ongoing basis. All-in e-commerce share of Hornbach Baumarkt sales as said earlier was at 15.3% this quarter and as we think we have here once again reconfirmation of our ICR strategy as we are absolutely convinced that it's best to make sure that customers can choose their channel of preference and act accordingly to make sure that they can move also smoothly between those channels. When we look outside of Germany specifically, you see here that we have been able to gain further market share in a number of countries. As you know from some of our interactions we had in previous occasions, We are really convinced that that is one of the good bases to make sure that further growth is not only driven by expansion of floors and stores and therefore of, so to say, square meters or webshop activities, but also culminates ultimately in the growth of market share. In Germany, we saw a little bit of an downside development due to the normalization. Nevertheless, once again here, we're well above the pre-COVID times with now 14.9%. The effect that you see here is that due to the reopening, some customer flows were going into more local offline business instead of online business, and that's then driving that market share in Germany. Coming now to the cost structure and gross margin as well as some cost item developments when we move further into the P&L. Just what you see here is cost ratio with general and administration expenses remained fairly stable. There was an increased selling and store expenses. mainly due to higher costs for personnel and energy, as well as a deliberate increase in marketing spending relating to our spring campaign, where we increased spend to make sure, of course, that Hornbach has the right visibility, but also very consciously, as we had decreased that in the COVID years, to make sure we're back to normal levels. On a full year, that is expected to normalize then again. The gross margin was down by 1.3%. Driving factors here are, number one, of course, the rising purchase prices, which we partly did not pass on either because we were not willing to, as we are convinced that our all-time low price strategy is ultimately the good basis for customer satisfaction and customer loyalty. as well as some transportation costs, which kicks in here, and that all gave us some pressure on the gross margin amongst the challenging market environment. When we look onto the EBIT, our adjusted EBIT came in well above pre-COVID levels, despite, of course, being in a lower level compared to previous years, nevertheless, with 148 still way above what we saw pre-crisis. Margin is now at 8.2% for that quarter. Once again, also exceeding pre-COVID times clearly. Let me give you a couple of thoughts on our cash and the funds from operations. Cash inflow from operating activities in general was now at, with an inflow from funds of operation at 164.4 million, so well above the pre-COVID levels. The change in working capital resulted in a cash inflow of roughly 11.2 million. We have currently still, as you also see on our balance sheet, slightly higher inventory than we would usually do have at this time of the year. In those ongoing challenging logistical times, we think that's the right way to approach things to make sure that we have availability of goods and as little stock out as possible. Of course, we are monitoring that very closely to make sure that we are not creating any inefficiencies in the working capital environment, but nevertheless, we feel comfortable with the current development there and the status. CapEx was at 52.3 million in Q1, Approximately 72% of that was spent on land and real estate, as mentioned, mainly for new stores. And allow me to remind you, a lot of our other spending, so into IT and components of, for example, our webshop and other capabilities on the digital side is mainly going through P&L directly. So you do not see that here on the capital side to that degree. When we look onto the financing activity side, the cash outflow totaled 13.1 million in the first quarter. That was partially for the additional shares in Hornbach Baumarkt, and we also saw there some cash inflow from the bridge loan. The debt position has been now related to that additional share buyback has now been reduced to $70 million in June, so after the Q1 balance sheet date. And we transformed that into a long-term debt by issuing promissory note of $100 million, which are running for five, respectively, seven years. Free cash flow ultimately at $126.4 million inflow. As mentioned, balance sheet structure, once again, rock solid, very strong, and the structure itself absolutely unchanged to what you saw before. I mentioned the slightly higher inventories already. We had an increase in total by 4.7% and stand now at 4.5 billion with an equity ratio of 41.7%. very comfortable on that side, and inventories, as said, slightly higher, but not any portion of concerns on our side. Outlook for this year and for the next three quarters, obviously, as you also saw in our press statement this morning, we have a couple of months ahead of us where, like every other company, We have reduced visibility of some of those effects kicking in. We have, of course, still in all of our countries where we're active, high inflation rates and some we're moving well towards 20% when you look into specifically Eastern Europe. We have, of course, the ongoing publications of consumer index and sentiment observing institutions such as the GFK and others who give us an indication that there is, of course, some gloomy mood amongst customer sentiment. We have, of course, summer now with a couple of holiday, which is totally normal in this season, coming in. So I think you need to take into account that, as I said, that all gives a little bit of a blurred picture and reduces visibility, of course. Nevertheless, we gave our guidance a reconfirmation on the sales side. We gave you an update that we expect EBIT to come in lower than the previous year in an area of a double-digit percentage. range reduction. And of course, we reconfirm also that we keep our investments as planned. We are opening the new stores. We're also investing in further openings for the next years. Our lead time for new stores is, as said earlier, in some instances, more or less between 12 and 18 months. Sometimes it's even a bit longer. So you whatever we want to open next and the following fiscal year is currently starting to be prepared. So that is all going unchanged. We also keep up investments in whether that's incremental or directly going through P&L in our electronic side, so to say, into web shops and other capabilities to ensure that we are up to day and well abreast of of competition so that is unchanged by the reduced outlook. And maybe we stop there and as I said I'm very happy to take your questions and look forward to those.

Ladies and gentlemen at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And our first question is from the line of Thomas Maul from DZ Bank. Please go ahead.