Hornbach Hldg Ag

Good morning, ladies and gentlemen, and a warm welcome to our investor relations update call on the third quarter and first nine months of our fiscal year 2022-23. My name is Antje Kelbert, Head of Communications and Investor Relations at Heumbach. Please welcome with me our host of today's call, our CFO, Karen Dohm. Together with Karen and me are our IR colleagues, Anna Spies and Fabian Philbock. May I remind you, that this audio webcast will be recorded and, as usually, a replay on the website and a transcript will be published. If you continue to participate in the webcast, you declare your consent to this data processing. Please also note our disclaimer, which is valid for the entire presentation as well as the Q&A session. Karen Dohm will now guide you through our financial achievements and figures and will take your questions afterwards. Happy to hand over and start our quarterly deep dive. Thank you, Karin. Thank you, Antje, and a very warm welcome also from my side. Let us begin with a quick overview of the key highlights. With a strong sales momentum over the past nine months, we have demonstrated that even in challenging times, our business model proves resilient and our organic growth strategy works well. We continue to see stable and strong demand for DIY products from both private customers and professionals. Our net sales growth has accelerated in Q3, resulting in a plus of 6.7% in the first nine months. We continue to see specifically good demand for insulation, electrical equipment, and alternative energy generation. As already expected, We are seeing a decline in adjusted EBIT from the very high levels we achieved during the last two years. However, compared to pre-pandemic 2019-2020 levels, we have grown by almost 36%. Our outlook as of June 22 remains unchanged and is now reconfirmed. We continue to expect a slight increase in sales and our adjusted EBIT level to decline at a low double-digit percentage range compared to previous year. With respect to our expansion strategy, we are well on track. We have opened three new Baumarkt stores so far in the first nine months of the year. Baustoff Union has continued to grow as well, with a takeover of two new locations in July. Furthermore, We have continued to expand our ICR strategy with the launch of the Bodenhaus online shop in September. Over the last nine months, we have also launched several initiatives to support our employees. In Germany, we started a flexible working hours program. This allows more than 11,000 employees to reduce or increase their hours within the framework that is legally possible. or they can, for example, use vacation pay or Christmas allowances for extra vacation days. In Switzerland, our colleagues have reduced working hours for all employees, extended parental leave, and increased flexibility for breaks. Other countries are working on similar projects. We have also relaunched our employee share program, switching from Baumark to holding shares this year, including now all group employees within Hornbach Group. To ease the inflation from paying for our employees, we are paying inflation boni in various countries as well. For example, in Germany, Hornbach Baumark will pay out 10 million from January to June 2023. Let us now take a closer look on our financial results. As I mentioned in the introduction, customer demand continues to be strong. Net sales have grown by 10.4% in Q3 resulting in 6.7% growth for the first nine months of 2022-2023, and this on top of the very strong growth rates we've seen over the past years. Net sales of the subgroup Hornbach Baumarkt, including the online retail, grew by 6.4%, with particularly strong growth outside of Germany, where we grew 9.6%, bringing up the share of the international business to over 50%. Net sales at Baustoff Union also increased significantly by 11.7% to 343 million. Baustoff Union is the subsidiary which is mainly catering for professional customers. Our strong growth performance is also mirrored in our like-for-like figures. In total, Baumarkt sales grew by 7.2% in Q3. In Germany, we saw an even stronger growth at 7.8%. Outside Germany, we have some countries which are performing especially well. I would like to mention here the Netherlands, Romania, and Slovakia. In Sweden, we have a very challenging macroeconomic situation currently, with interest rates on mortgages rising significantly, together with real estate prices falling. In Switzerland, we face a cautious consumer sentiment and a hesitancy to make large purchases currently, despite a relatively robust economic environment. With respect to current trading, we have so far seen a very good performance in December. Allow me to point out, though, we had store closures and restrictions in some countries last winter, notably in Austria and the Netherlands. Overall, for the first nine months of 2022-2023, Our like-for-like sales were ahead of last year in Germany as well as in the other European countries. Our strong and continued growth is also reflected in the three-year figure comparison of roughly 30%. Looking further into the market share development, you can see here that our market shares have grown significantly since 2019. In Germany, our market share increased from 13.2% in 2019 to 14.9% in 2022, on the back of the successful interconnected retail execution during the COVID period. The strong market share development in the Netherlands was driven by like-for-like sales growth of 37.4%, as well as significant expansion with three new stores. In Switzerland, expansion was partly driven by the opening of one new store While in the Czech Republic and Austria, we gained market shares without any new openings at all. Let us now look into the e-commerce development. Our e-commerce share of Hornbach Baumarkt Net Sales stood at 14.5% after the first nine months. In Q3, e-commerce, including click and collect, grew by 12%. The overall decline in the first nine months was mainly driven by a lower volume of click and collect, as we had in the previous years still COVID restrictions for our stationary stores, with periods where only click and collect was allowed for private customers. Moving down the P&L, let's take a closer look onto the cost development. Gross margin was down by 1.8%. reflecting the challenges regarding rising purchase prices and transportation costs. In line with our everyday low price strategy, we have not fully passed on all costs to our customers. This is a conscious decision in order to affirm our position as price leaders and to be a reliable partner for our customers. The cost ratio of general administration expenses increased slightly due to investments into IT headcount and inflationary effects. The increase in selling and store expenses was more pronounced, mainly due to expansion and wage increases, as well as higher energy costs. As a result, we see the following adjusted EBIT development. For the group, adjusted EBIT in Q3 came in at 48.9 million, which is 12.6 percent below the previous year's quarter. There were no adjustments in the third quarter, neither for the current nor for the previous year. After nine months, the adjusted EBIT for the group results at 326.3 million. That is 17% below the previous year's period. However, I would like to point out that we're still 36% above the level of the pre-COVID year 2019-2020. Some further key earnings figures in nine months are as well on much higher levels compared to 2019 and 20. Earnings before taxes decreased by 17.5% to 297 million compared to the previous year, and compared to 2019, 2020, we are more than 40% after the nine-month period. Our EPS amounted to 13.08 Euro, which is only slightly down from previous year by 4.3%, supported also by a higher share in the Baumarkt, Hohenbach Baumarkt AG after the delisting offer. Let us now have a look onto the cash flow development. Specifically here, cash flow inflow from operating activities in the first nine months of this year decreased compared to the previous year, mainly due to the working capital effects. Our funds from operations were at $389.7 million, well above pre-COVID levels. We currently carry some more inventory than usual due to our cautious purchasing behavior. In addition, a part of the increase in inventory is due to higher purchasing prices. Let me remind you, though, that in general, our inventory is non-perishable, non-seasonal, and not necessarily subject to short-term trends. As planned, CapEx stood at $158.6 million in the first nine months. Regarding the CapEx split, approximately 60% was spent on land and real estate, mainly for new stores in line with our expansion strategies. Honbach can once again present a strong balance sheet as of November 30th in 2022. Compared to February 28th, the consolidated balance sheet increased in total by 5.3 percent to 4.5 billion euros. This was mainly driven by our store extension as well as increased inventories. The equity ratio also increased, now standing at 43 percent, representing a very comfortable level for the group. Summing it up all up, following these very strong nine months, we reconfirm our outlook for the current financial year 2022-2023 as revised in June this year. We expect net sales to grow across the record level we have reached in the previous years, supported by continued strong customer demand and also partly driven by price inflation. Earnings are expected to fall behind last year's level by a double-digit percentage range reflecting the challenging macroeconomic business environment with political uncertainty as well as price and cost inflation. Our store openings are well on track. We have, as said at the beginning, already opened three stores in the current financial year, and our fourth one in Leipzig in Germany will follow in February. By the end of 2022-2023, we will have 171 stores in total at Hornbach Baumarkt. Let me now hand back to Antje. Thank you, Karin, for guiding us through our nine-month figures. We now take your questions and start the Q&A session. Operator, please go ahead.

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 that touch-tone 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. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and one on your telephone. And our first question is from the line of Jeremy Gagne from AutoBHF. Please go ahead.

Yes, thank you for taking my question. I have two questions regarding your publication. First, so congrats for these good figures, and I would like to know if it's coming from a specific exposure to a specific product, if you can tell us maybe a bit more about your your split on products because we see a lot of other players in Do It Yourself that are suffering and they don't have the same, I would say, positive tone on their figures. And that was a bit of a positive surprise, I would say. And I wanted to know how do you explain this outperformance? It comes from kind of product. geographical locations? How do you explain it?