Hornbach Hldg Ag

Good morning and a very warm welcome to our Q2 and half year update call for the Hornbach Group. My name is Antje Kelbert, Head of Investor Relations. As usual, we published our financial results at 7 a.m. this morning. The reporting period comprises the first six months of our fiscal year 2026-27 from 1st of March to the end of August 2026. Together with me is our CFO, Dr. Joanna Kowalska. She will guide us through our latest financial results and we will also take your questions later on. Please note that this conference call, including the Q&A session, will be recorded and made available along with the transcript on our company website. Kindly also take note of the disclaimer which applies to the entire presentation as well as the Q&A session. After the presentation, we will take your questions. The technicalities will be explained by our moderator at the beginning of the Q&A session. With that, I'm pleased to pass the floor to Joanna, who will now take us through the main developments in Q2 and the first of half fiscal year.

Over to you, Joanna. Thank you, Antje. Good morning and welcome. It's my pleasure to present you our half year results this morning. As usual, I would like to start with a brief outline of the macroeconomic and retail environment we faced during our first half year. Consumer sentiment in Europe continues to remain subdued while geopolitical tensions affect purchasing prices and logistic costs. However, we delivered strong quarterly results against this challenging backdrop. Following a good Q1, the positive trend continued over the summer season, resulting in a satisfying Q2 and first half year. The outlines of our results were already disclosed in a preliminary basis at the beginning of September, which we confirmed with today's numbers. In a nutshell, group net sales in Q2 grew by 7.3%. With these results, we were able to once again outperform the European D&Y industry. Our bottom line also benefited from that development and adjusted EBIT in Q2 came in 12.8% higher than last year. For me personally, it is particularly important that we maintain a clear focus in these challenging times. This means remaining committed to our expansion strategy, to invest in our existing store network, and to keep our costs very much in focus. Overall, we are very pleased with our half-year performance. Our results demonstrate that the strength of our project-focused business model, our diversified European footprint and the commitment of our entire organization. Let us now have a deeper look at today's results from operating and strategic highlights to financials and outlook. It has been a busy quarter for us, so I would like to start with an overview of our latest operational and strategic highlights. First, our customer feedback remains very positive. In the latest customer surveys published in September, Hornbach again ranked number one in overall customer satisfaction in Germany and Austria. We also achieved strong results across key categories such as assortment, price, product quality, service and digital channels. This underlines that our project focus model continues to resonate very well with our customers. Our effort to keep our stores and assortment attractive is paying off. Second, We are continuously following our expansion strategy and are building on a very strong foundation. We operate a highly productive store network with many well-established locations. We continue to invest in these proven assets and regions to enhance customer experience and support future growth. In particular, our established network of stores contributes to our cash flow. A recent example is the opening of new drives in the Netherlands. Another one is our new store in Graz-Liebenau, we just opened in September. This store broadens our footprint in Austria, a long-established Hornbach region. And third, We continue this expansion journey by proactively seeking new opportunities to strengthen our network. And as just mentioned, one of these rare but attractive opportunities has recently become available to us in the German market. As we all know, Helwig will leave the market and more than 100 of their stores in Germany have been affected. Out of this portfolio, at least 35 stores will be taken over by German D&Y retailers. As shown on the map, we will take over six of these locations in key German regions. All stores are lease properties. These six locations are planned to be added to our portfolio as of December 2026. As a side mark, the transaction remains subject to review by the German Federal Cartel Office. As of today, we are aiming to reopen the stores in spring 2027, under the Hornbach brand. And of course, as a consequence, we will see some limited additional capex for store equipment and vehicle fleet. For sure also pre-opening cost in Q4 will be higher by a mid single digit million euro in order to prepare for the re-openings in spring. In addition, we also have to stock these stores with our assortments. Pre-opening costs also include employee related expenses for the six stores prior to opening. For two stores we will take over employees as of December and the employees for the other four stores will be hired ahead of the planned openings. This opportunity enables us to further densify our network, improve our regional footprint in Germany and support additional market share gains. But most importantly, it will help us to serve even more customers and projects. Overall, this transaction aligns perfectly with our well-established and proven expansion strategy. We remain focused, disciplined and committed to investing where we see long-term value. And this leads us to strong financial achievements in the last reporting period. Hornbach Group net sales in Q2 reached 1.8 billion euros, as said, a strong increase of 7.3% versus prior year. For the first half, net sales amounted to 3.8 billion euros, 6% above last year. This was driven by strong German and even better international sales growth at Hornbach Baumarkt AG, including newly opened stores in Austria, Romania and Slovakia. As you can see, like-for-like sales, so excluding new stores, grew by 5.4% in Q2 and 4% in the first six months. Hornbach Baumarkt once again outperformed the D&Y sector. The D&Y sector in Germany saw significantly weaker figures from March to August compared to our result. Based on data of the industry association BHB, which underline our outperformance every month since beginning of our fiscal year. But also in Europe, we at least matched or outspaced the overall sector performance. Gross profit increased by more than 6% in the second quarter. For the first half year, gross profit grew by 5% to 1.3 billion euros in six months, resulting in a gross margin of 34.6%. Adjusted EBIT came in very strong in Q2, increasing by 12.8%. For six months, adjusted EBIT amounted to 286 million euros, a plus year-on-year of 4.9%. Despite higher capex, our free cash flow improved compared to prior year's level. And now, We take a deeper dive into our six months financial in more detail, starting with our top line sales performance. As mentioned, group sales increased by 6%. Looking at sales of Hornbach Baumark AG, we saw an increase of 5.9% to 3.6 billion euros. We are again benefiting significantly from our diversified European footprint. Sales in our other European market grew by 7.7% and now account for 54% of Baumarkt sales, as you can see on the right side. However, we also saw growth in Germany picking up, increasing by a plus of 3.8% in the first half year. Our group business resilience results from a well-balanced geographical mix. We remain committed to this diversified strategic direction and will continue to push ahead with our expansion plans. As you can see also, Bałysztof Union performed well and contributed to our growth, increasing in sales by 8.6%. This was driven by an improved building sector development and one new location. Let us now take a look at market share development. Once again, we were able to further expand our market shares in all Hornbach countries for which data is available. Let us take a look at this map. The left side shows our top three regions with the strongest performance. In Czechia, we are number one and were able to further increase our market share to above 40%. In the Netherlands, the positive development continues as well as customers value our project-focused offering. We also continue to improve our position in Switzerland. The right side of the map shows that we also achieved gains in highly competitive markets such as Germany and Austria. Our ambition is to continue this growth path by strengthening and expanding our presence across Europe. This is not only about expansion, but also very much about driving profitable growth in our existing retail space. So, a closer look at like-for-like sales development is important. As you can see, sales on a like-for-like basis, excluding newly opened stores, increased by 4%. This was primarily driven by robust consumer demand and increased footfall of 3.5%. But also the average basket size increased during the first half year. Other Europe remains the driving force with an increase of 4.8%. However, compared to last year, German like-for-like sales picked up notably by 3.2%. This means that we once again outperformed the German D&Y market which developed negatively from March to May compared to our Q1 performance. In the summer months from June to August the D&Y industry in Germany saw weaker growth rates than Hornbach. Our top three performance in the last reporting period were the Netherlands, Slovakia and Czechia. The Netherlands continued the latest track record, achieving a strong development of nearly plus 10%. Also, Slovakia recorded strong growth. In the current fiscal year, customer sentiment improved due to higher purchase power. Czechia grew by 4.6%, driven by higher footfall, as well as increase in average ticket size. In Romania, Current inflation concerns and low economic growth are weighing on customer spending in general. However, we are confident that this situation will stabilize in the short term. Overall, like-for-like sales growth trends across Europe remain balanced. This supports our confidence to translate current stress into further growth. The negative calendar effect we experienced in Q1 was fully offset in Q2, resulting in a comparable number of business days in the first half year. Sales performance was also positively supported by e-commerce. With a plus of €39 million, e-commerce sales grew by 8.6% in the first half. Direct delivery accounting for the largest share of our online business, growing by 4%. Click and collect recorded a strong increase of 19% and continuation of the positive development we saw in Q1. Click and collect remains an important channel for our customers with increasing relevance. Our strong e-commerce sales are an indicator for customer trust and loyalty for our online offerings. As a result, the e-commerce share of Hornbach Baumarkt sales rose to 13.5% in the last six months. And compared to the pre-pandemic times, we now have doubled our e-commerce sales. Let us now look into the profits for the period. Gross profit rose by 5% or 63 million euros benefiting from strong sales growth. Gross margin remained under pressure due to increased logistic costs and rising purchase prices linked to the current geopolitical tensions and oil price hikes. This led to a gross margin below the prior year at 34.6%. We are closely monitoring these developments and working to mitigate their impact. On the right side, you can see that total cost rose by 38 million euro or 4.9%. Our strong gross profit development was able to fully offset the increased cost base. Where did the additional costs come from? The main driver was selling and store costs, This is a consequence of expanding our store network and associated personal costs. In addition, we were confronted with higher operating costs in our store. However, as you can see, the cost ratio improved to 22.6% of sales. General and admin costs also experienced an increase. As expected, the main driver was higher personal expenses. And in addition, the development reflects higher costs for IT infrastructure and transformation projects, including S4HANA. Therefore, G&A cost ratio increased versus prior year. And since personal costs are a key component of all cost items, let me briefly provide some further details. Total personal costs across all cast lines amounted to €609 million, up by 4.9%. This increase was mainly driven by a larger workforce following new store opening, as well as salary increases. With that, we can now turn our attention to adjusted EBIT. Adjusted EBIT increased by €14.4 million or 4.9%. The graph on the left side underlines the strong contribution of our second quarter. On the right side, you can see adjusted EBIT split by geography. Other Europe contributed 64% to adjusted EBIT and the share of Germany was 36%. Let us now turn to the cash flow statement. Looking at our organic expansion, operating cash flow plays an important role in financing this growth strategy. The increase in operating cash flow to 352 million euros was mainly driven by a change in working capital. Tailwind came from stronger seasonal reduction of inventories and overall improved working capital measures. Headwind came from the repayment of the reverse factoring program. Funds from operations likely increased year on year. CapEx amounted to 121 million euros, 13 million euros above prior year. This is in line with our strategy of organic expansion. On the right side, you can see the capex split. Around 53% of investments related to land and real estate, preliminary tied to new store development. 34% of investments were located to store equipment for new and existing locations. And 14% of capex mainly went to software to drive digitalization. Here I would like to once again mention the migration to ASAP for Hanna which remains a top priority for us. The elevated cash flow from financing activities includes new promissory note loan and among others this was used to refinance the bond of Hornbach Baumarkt which was redeemed early at the end of July. Free cash flow after capex and dividend payments amounted to 195 million euros. The balance sheet total is upped by nearly 5 billion euros. This results from liquid funds and reflects cash from successful working capital, management and new loans. The equity ratio increased to 45.8% and net financial debt was reduced by 13% to 1.2 billion euros. This was mainly due to higher liquid funds. And this brings us to our guidance for the current financial year. We had a very successful first half year 2026-27. Driven by robust customer demand in a challenging macroeconomic environment, both sales and earnings developed positively compared to the prior year. At the same time, many uncertainties remain. Ongoing geopolitical tensions are likely to continue affecting, among others, consumer sentiment, sourcing and logistic costs. In addition, increased inflation puts pressure on sales and margins for the near-term future. Given this backdrop, we remain prudent in our forecast and confirm the guidance issued in May. For the Hornbach Holding Group, we currently expect net sales to be at or slightly above the level of the prior year. Adjusted EBIT is expected to be roughly at the previous year's level, and we will continue to invest in organic expansion across our entire network, including capturing attractive opportunities such as the one resulting from Helwig insolvency. Therefore, we expect higher investments in the coming financial year. CAPEX is likely to be significantly above the prior year level. For sure, this will put some pressure on our free cash flow compared to last year. Nevertheless, our operating cash flow remains solid. And as long as this holds, investing in future growth opportunities justifies a somewhat lower free cash flow in the current fiscal year. All in all, we are very pleased with the results in the first half year. The second half of the year is now underway and we are well prepared. We have seen a good start to the autumn season so far while continuing to support our customers in successfully realizing their projects. At the same time, we are maintaining our strategic expansion focus to further strengthen our business. Preparation for opening of the six new stores taken over from Helwig are progressing at full speed. With the planned openings in spring, we have set ourselves ambitious goals. In parallel, we remain focused on our expansion across Europe, including Serbia. Let me conclude, there is always a job to be done.

Thank you, Joanna, for walking us through the key developments and sharing your perspective. We will now move on to the question and answer session. To make sure we can take as many questions as possible, please limit yourself to one or two questions at a time and ask them one after another. I will now hand over to our moderator who will explain how the Q&A session will work. Moderator, please go ahead.