Hornbach Hldg Ag

Good morning, ladies and gentlemen, and a very warm welcome to our Investor Relations Update Call on the second quarter and first half year of fiscal 2022-23. My name is Antje Kelbert, Head of Communications and Investor Relations at Hornbach. With me in this call is our host of today, Karin Dom, CFO of Hornbach Management AG. We are accompanied by our Investor Relations colleagues, Anna Spies and Fabian Philbock. I would like to draw your attention to the fact that the audio webcast will be recorded and a replay as well as a transcript will subsequently be published on our website. If you continue to participate in this webcast, you declare your consent to this dating. Before we now take a closer look on the developments of the first six months and the second 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.

Thank you, Antje. And also from my side, a very warm welcome on this morning. Allow me to begin with a quick overview. First of all, as you have seen in the figures that we published earlier this morning, I would like to emphasize that we have a really strong demand still ongoing in our business. Specifically, in the DIY products, we see that that has remained very steadily throughout not only the second quarter, but also the first half year of 2022-2023. The general positive trends have continued into this second quarter, and we continue to see stable and strong demand across all our geographical regions, which resulted in net sales growth of 5.2% in the first half. In the world where we see a strong need for changing energy sources, we are a reliable partner for our customers to undertake their energy saving refurbishments projects. We see continued good demand for insulation specifically and product use energy and water consumption. As expected, we're also seeing a decline and adjusted EBIT from the very high levels we achieved during the last two years. Nevertheless, if you compare that to 2019 and 20, we have grown by almost 40%. Our outlook as of June 2022 remains therefore also unchanged. As said earlier this year, we continue to expect a slight increase in sales and adjusted EBIT level to decline to a low double-digit percentage range compared to the previous year. Let me look and give you some ideas about our expansion strategy where we're also well on track. Yesterday, we celebrated our latest store opening in Constanze in Romania, one of the largest harbors at the Black Sea, where we had our third opening in this current financial year. The first two ones were in Slovakia, in Nitra, and in Enschede in the Netherlands earlier in March. Our subsidiary, the Baustoff Union, also continued to grow as well with a takeover of two locations in the southwest of Germany, at July 1st this year. We also advanced our ICR expansion with the start of the Bodenhaus online shop in September and further managed to bring our migration of the Spiker platform in an ongoing plan with Luxembourg, Slovakia, Czech Republic and Romania having already migrated. Let's double click on the net sales in the first quarter, in the first half year as well as in the second quarter. Customer demand, as said, remained on a high level, and net sales have grown by 2.2% in Q2, resulting overarchingly, as said earlier, in a 5.2% growth for the first half year. Net sales of the subgroup Hornbach Baumarkt, including the online business, grew by 4.9%, with stronger growth outside of Germany of 8.6%, bringing up the share of the international business to slightly above 50%. Let's say that Baustoff Union increased significantly by 9.7% on top of the 11.8% growth achieved already last year. Just a reminder, Baustoff Union caters mainly for professional customers and is still profiting from full order books in the building industry. They are also able to pass on price increases faster and in a different manner than the Baumarkt business. On a like-for-like basis, sales declined slightly in Q2 from a very high level in the previous years. The quarter was mainly impacted by a somewhat slower start in June. However, like-for-like performance has picked up in July as well as in August. Also with respect to current trading, we can say that we have also seen a very good performance into our Q3 so far in September. Overall, for the first six months of 2022-2023, like-for-like sales were ahead of last year in Germany as well as in the other European countries. Our three-year like-for-like figure of 28.7% underscores the significant and sustainable acceleration in growth over the past years for Hornbach. The strong performance is also reflected in significant market share gains since 2019. Market share in Germany increased from 13 percent in 2019 to 14.7 percent this year on the back of a successful interconnected retail execution specifically throughout those years. The strong market share development in the Netherlands was driven by like-for-like sales growth of 35.5 percent as well as also some expansion in that country. We opened there over the course of those years three stores. In Switzerland, as well as in Czech Republic and Austria, you see that we also managed to gain significant market share. In two cases, Czech Republic and Austria, we had no openings. In Switzerland, we opened one store throughout the course of those years. A couple of thoughts on the e-commerce side, where we have similarly to the information we gave you earlier, seen a strong demand on an ongoing basis, specifically in the direct delivery scheme. Click and collect was used to a lesser extent in Q1, as there were no restrictions for our stationary stores compared to the previous year. Meanwhile, direct delivery, as mentioned, has seen not only a stable amount, but also a slight increase in Q2. Total e-commerce share of Hornbach Baumarkt sales in the first half of 2022-2023 were at 14.8% compared to 9.8% in 2019-2020. So we see here an elevated level underscoring the sustainable success of our interconnected retail strategy. When we move down the P&L a little bit, let's have a look into some of the other figures there. you see that gross margin was down by 1.7%, reflecting the challenges with regard to rising purchasing prices and transportation costs. In line with our everyday low price strategy, we have not fully passed on these costs to our customers. This is a conscious decision in order to affirm our position as price leader and be a reliable partner to our customers. The cost ratio of general and administration expenses increased only slightly due to higher headcount and inflationary effects in equipment costs. The increase in selling and store expenses was more pronounced, mainly due to extension and wage increases, as well as higher cost of energy. On the basis of gross profit that in absolute terms remained on previous year's levels, and the increase in selling and store costs, as well as general and admin costs, Our adjusted EBIT for the group came in at 277.4 million, which is 17.7% below previous year's period. Compared to pre-COVID levels, we still register an increase in adjusted EBIT by almost 40% and also an extensively improved EBIT margin. The same pattern repeats at the bottom line of the P&L. where we see levels of much higher earnings compared to 2019-2020. Earnings before taxes decreased by 16.7% to $260.6 million compared to the previous years, but are clearly ahead of 2019 and 2020 by almost 70%. Net income after minorities of 181.9 is only slightly down from previous year by 2.7% due to the higher share in Hornbach Baumarkt after the delisting offer. Earnings per share are at 11.37, so not much behind previous year's levels. Let us now have a look on the development of our cash flows. Cash inflow from operating activities decreased in the first half of 2022-23 compared to the previous year. It was at 311.7 million for the operating activities, so the funds from operations, way above pre-COVID levels, but as set behind the previous years. The change in working capital resulted in the cash outflow of 58.5 million. We are still carrying higher inventory than we would usually do to be able to have products available for our customers, which affects our working capital. I want to re-emphasize at this point that most of the inventory is non-perishable, non-seasonable, and not subject to short-term trends. CapEx was at 114.2 million in the first half of this fiscal year. Regarding that split, approximately 62.1% of CAPEX was spent on land and real estate, mainly for new stores. I mentioned earlier that we had yesterday the opening in Constanze, which of course was part of those investments, and we also are currently expecting to open one store in Germany at the end of our fiscal year, which is also partially reflected here as well as envisaged other openings in some of our countries where we already invested capex. The cash outflow from financing activities totaled 64 million in the first half, included amongst other things the outflow for the additional shares in Hornbach Baumarkt and the cash inflow from the bridge loan affecting that. Since the delisting and the start of the bridge The debt position has been reduced to $70 million in June 2022 and transformed into a long-term debt by issuing promissory notes for $100 million, running five, respectively, seven years. The free cash flow after dividends came in at $102 million. Once again, we can present you with a rock-solid balance sheet as of the end of August, quickly highlighting a few details. Comparison to February gives you a view that we have now an overarching consolidated balance sheet with an increase of 5.7%, totaling $4.6 billion. Equity ratio increased to 42.5%, giving us a very comfortable level there. Liquid funds are $80 million by the end of August. At this point, as I said earlier, we want to reconfirm our outlook for the current financial year as revised in June. We expect net sales to grow above the record level that we reached in the previous fiscal year, supported by an ongoing strong customer demand, also, of course, driven by price inflation to a certain extent. Earnings are expected to fall behind last year's levels by a low double-digit percentage. Reflecting the challenging business environment with political uncertainty, of course, in the outlook as well as price and cost inflation. Our store openings are well on track. We have already opened three stores in the current financial year. As said, we are expecting others, specifically Leipzig in Germany, to follow in February, so still in this fiscal year. By the end of 2022, 2023, we expect to have 171 stores in total in our group opened. A little bit of background on our outlook. Whilst the various macro uncertainties remain a challenge to every business and concerns around customer spending for the remainder of the year are growing across Europe. Our business fundamental though currently remains stable and intact. As a DIY company with long company history and proven capability to navigate and emerge stronger from external challenges, we see ourselves well positioned to consistently manage to outperform GDP and sector growth. We have a well diversified and stable business model addressing professional and retail customers alike. So we also have, as you know from previous interaction with us, different sales channels and geographies with a significant proportion of sales linked to repair and maintenance. Above all, we are committed to be a reliable partner for our customers to undertake all their DIY projects, including energy refurbishment and smart home projects. We are able to secure high product availability at reasonable prices through our multi-supplier strategy, featuring long-term and reliable relationships as well as more than 80% of sourcing from the countries where we are present. With our everyday low-price strategy, as well as a broad choice of private labels offering value for money, we see ourselves well-positioned to benefit from the continued high demand for renovation and refurbishing projects. And now I would like to hand over to start the Q&A session.

Ladies and gentlemen, at this time, we will begin the question-and-answer sessions. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are 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. First question is from the line of Thomas Wall from DZ Bank AG. Please go ahead.