Ceconomy Ag Ord

Good morning everyone and welcome to our Q1 results call. With me today are CEO Bernhard Dittmann and CFO Karen Zornmoser, who will guide you through today's presentation. Before we start, let me briefly address the usual formalities. Firstly, please be aware that this call is being recorded. A replay will be available on our website later today. Secondly, please keep in mind that today's presentation and potentially also some answers to your questions during the Q&A session may contain forward-looking statements. For additional information in this context, please refer to the disclaimer. But now let me hand over to our CEO. The floor is all yours.

Good morning, everyone, and thank you for joining the call. Today, I would like to begin with a quick review on our first quarter. I will then pass over to Karin, who will guide you, as usual, through the financials. and the outlook for the year. We will close also as usual with a Q&A session where we are happy to answer your questions. Ladies and gentlemen, I would like to pick up where we had ended the last call and emphasize that our utmost focus is on execution. In the first quarter, we executed with a focus on the Black Friday period as well as the Christmas trading. And this year's Black Friday period was again successful. On the flip side, however, as Black Friday continues to gain importance, we again noticed that the Christmas business was impacted by pull-forward effects. The improvements of our online platforms in the past financial year and our service offerings have supported solid growth rates in our online business as well as the service and solutions business. Higher income from service and solutions as well as our cost optimization efforts contributed to our bottom line results improvement. Our operations in Germany performed particularly well in the first quarter. Karin will come back to this later. At the same time, however, we also faced some challenges in the first quarter. First, the performance of the Polish business is still not satisfying. We have worked out an action plan along some management changes to steer against the negative development. Second, we face an overall unfavorable macroeconomic environment in some countries paired with intense competition. We are keeping a close eye on this and want to make sure that we deliver a resilient performance also in this environment. These developments reflected well on our sales and earnings. Let's take a quick look at the guidance relevant to key figures for the first quarter. Our sales adjusted for FX and portfolio effect were down 0.5%. If we also exclude the IBU business, which is not treated as a portfolio measure, the underlying sales development would have been almost flat. Adjusted EBIT increased by 20 million euros versus the prior year period. This figure underlines the progress we have made over the last month. To sum this up, we managed to build the foundation for a sound financial year 2019-2020. Let's now take a closer look at our Black Friday performance. In 2018, for the first time, we set up a focused concept to leverage this important season of the year in the best possible way. It worked out well. We have therefore built on this proven concept in 2019 and managed to even be better prepared. For example, The countries were equipped with a detailed, harmonized playbook in advance to ensure a very disciplined campaign across the whole period and across all segments. In this context, the clear focus on services and the cross-selling of bundles has proven to be the right one for our customers. Our recent updated web platform functions very well without any disruptions, which is crucial in peak trading periods like this one. Coupled with a better availability and a strong improved delivery performance, this led to big improvements in customer satisfaction. Members of our loyalty programs took on the early access option to shop ahead of everyone else. With these efforts, we were successful in building again a profitable Black Friday, both in our stores and online. We are grateful to our thousands of committed colleagues who work hard to deliver a great customer experience every day. The Black Friday period was on top of all our minds. A look at the figures on the next slide underlines this. Black Friday was again the strongest single day ever for us. In total and compared to the prior year, we sold more than 1 million more items. Samsung and Apple smartphones, as well as Samsung TVs, were among the top three of our best-selling items with respect to net sales, as well as the total number of sales units. Dyson floor care products were also very popular, while gamers were eager to get the Nintendo Switch. We recorded around 15% more online shoppers who visited our web shops. In addition, we welcomed around 2% more customers in our stores during the five-day Black Friday period versus last year. These are impressive figures. All in all, we generated double-digit sales growth rates during that Black Friday period for both our stores as well as online. To give you some more flavor, let me briefly highlight that in particular, bundle offerings were very well received by our customers. And this plays exactly into our service strategy. We have successfully linked product sales with services and accessories. Especially popular, we're ready to use pre-installed smartphones and notebooks, both showing an impressive sales boost of about 60%. The same holds true for sales in screen protection offers, which increased by almost 70% compared to previous year. Both services are part of our core service offerings at the smart bus. Let me remind you that the increased focus on the attachment of service and solutions certainly supports our bottom line. Taking all of this together, we are very satisfied with a very executed Black Friday period. So this is it from my side for the moment. Let me now pass over to Karin for the deep dive into the Q1 financial performance.

Thank you, Bernhard, and good morning to everyone in the call. Ladies and gentlemen, I'm pleased to look back at a solid first quarter of the year. Let me guide you through the quarterly development in detail. Total sales came in at around 6.8 billion euros. This represents a slight decline of 0.8%. Adjusted for forex and portfolio effects and iBoot, sales came in roughly on prior year's levels. A look at the individual segments reveals a mixed picture. In DACH, sales more or less stayed flat despite a demanding comparison base. In Germany, we recorded a strong double-digit increase in sales over the Black Friday period. However, as Black Friday continues to gain importance, this was also accompanied by a sales pull forward. Consequently, the Christmas business in the first weeks of December was weaker than in the previous year. This was also reinforced by the late timing of Black Friday in a deliberately less campaign-intensive post-Black Friday period. In Western and Southern Europe, Forex and portfolio-adjusted sales declined by 2.9%. In Spain, the absence of a strong VAT campaign in the prior year period had a negative impact on the sales development. In Italy, sales were down on the back of a currently weaker consumer climate and intense competition. In the Netherlands, sales continued to decline. However, we have noticed a slight trend improvement towards the end of the quarter as the initiated countermeasures seem to start taking effect. In Eastern Europe, we saw a mixed picture and in total a sales increase of 11.3%. Turkey recorded a mid-double-digit sales growth, particularly driven by a positive market environment. On the other hand, in Poland, the sales decline continued, which was linked to an intense competitive environment. On the other segment, Sweden showed a solid sales development in local currency. The sales decline of the segment is linked to the sale of iBoot. In Q1 of the prior year, iBoot still accounted for around 15 million euros of sales. Let me now talk about online and service and solution. In the first quarter, online sales, excluding the Greek media market business, increased by around 4% compared to last year. Adjusted for iBoot, online sales even increased by 6%. Keep in mind that we faced a challenging comparison base with 28% online sales growth in the prior year period. The strong Black Friday campaigns had a particularly positive effect on the online business. Another reason for the positive development is our pickup option, which continues to be very well received amongst our customers. 47% of all online orders in the first quarter were picked up in our stores. I'm even more pleased to look at the development of our service and solution business in this quarter. Services and solutions developed very positively, with sales up to 10%. This growth was largely driven by a strong demand for extended warranties, thanks to our improved offerings. Also, demand for our smart bar services was soaring in this reporting period. We experienced double-digit growth rates for all three core services. ready to use, screen protection, and in-store repairs. Finally, although our business with mobile contracts increased slightly. Let us now move to slide 13 for a few on cross-profit, OPEX, and EBIT. In the first quarter, we had a slight trend improvement in the cross margin compared to the previous quarter. The cross margin only declined by 10 basis points to 18.3%. However, we continue to see pressure on the goods margin. In the first quarter, this was partly compensated by our growing exposure to services and solutions. Our cross margin also benefited from the successful management of the Black Friday campaign period in the first quarter. At the same time, due to our strict cost management, we reduced operational expenses by 50 basis points. This was largely driven by lower personal expenses supported by our reorganization and efficiency program, but also other operating cost savings related to an optimized personal deployment in our German stores. Furthermore, lower material and location costs had a positive effect. As a result, Adjusted EBIT increased by €20 million to €289 million. This includes a positive effect of IFRS 16 in the amount of €2 million. Underlying EBIT growth was driven by the DACH segment. Germany posted a significant increase in earnings, while the development in other countries in DACH was stable. Our active operational cost management has greatly contributed to this development in Germany. Also, the execution of our strategic initiatives continues to take effect. This translated into a higher income from services and solutions. Unfortunately, the group's earning improvement was not supported by all regions. Earnings in Western and Southern Europe were impacted by a weak consumer climate, and an intense competitive environment in Italy. The lower sales in Spain due to the timing differences and promotional periods also had a negative impact on the result of the segment. We expect to catch up the slight earnings shortfall during the next quarter. In the Netherlands, earnings continued to decline while we saw a slight trend improvement towards the end of the quarter. In Eastern Europe, the continuing difficult and competitive environment in Poland continued to weigh on profitability in the region. In Turkey, earnings developed slightly positive in a supportive market environment. Overall, it is fair to say that we see first improving momentum, especially in Germany with even more to become visible in the course of the year. I will now shortly explain the bridge from adjusted to reported EBIT. In the first quarter, we booked a positive EBIT effect related to the Greek transaction, which took place at the end of November. This effect amounted to 33 million euros and mainly resulted from the deconsolidation of the negative net asset book value for medium accrues in our consolidated economy account and from a positive fair value of the 25% joint venture stake. On the other hand, we still had some trailing restructuring expenses related to the reorganization and efficiency program. Those, the positive net gain amounted to 30 million euros. We still expect a limited amount of trailing restructuring expenses to come in the next quarters. So in total, we continue to expect a smaller positive net effect of around 10 million euros in this financial year. Taking the positive earnings effect into account, as well as the other adjustment items related to CREES and FNAC, reported EBIT came in at 319 million euros in Q1. This represents an improvement of 84 million euros compared to the prior year period. As you might recall, in the prior year period, charges for top management changes and restructuring in the amount of 34 million euros burdened the results. Let us now look at the bridge from EBIT to EPS on slide 15. Please keep in mind here that we now see the reported figures. In the current period also, the effects from IFRS 16 are included. Along with the EBIT improvement, earnings before taxes improved by 92 million euros to 327 million euros. This was additionally supported by an increase in the net financial result from the MVU dividend in the amount of €13 million. Higher interest expenses, mainly due to the recognition of the interest component for operating leases under IFRS 16, had an opposite effect. The tax rate improved by 5.3 percentage points This improvement is mainly related to the non-taxable gain related to the Greek transaction. Our underlying tax rate, which means before any effects from associates, MVU or the restructuring, stood at 38%. Please keep in mind that the improvements from tax consolidation projects in the past two financial years seen from the activation of tax loss carry-forwards and those mainly one-time expense reductions, while the structural tax improvements that we executed are sustainable. At the same time, we are also currently working on additional minor improvements in Germany and in other countries. Therefore, we continue to expect the underlying tax rate to develop towards 35% in this financial year. On the back of the lower tax rate and the EBIT improvement, earnings per share increased by 17 euro cents to 47 euro cents. Moving on to slide 16. Pre-cash flow in the first three months amounted to €1.4 billion. €21 million, an increase of €27 million compared to the prior year period. However, this increase is related to the adoption of IFRS 16. We will also provide you with a lease-adjusted free cash flow, subtracting the repayment of lease liabilities for better free cash flow comparability under IFRS 16. Of course, there is no overall change in total cash flow for the group from the first time application of IFRS 16. The least adjusted free cash flow in the first three months remained below the prior year's level. This can be partly explained by the expected cash outflows related to the reorganization and efficiency program. Also keep in mind, please, The positive EBITDA effect related to the Greek transaction are not cash effective and those weigh on the other operating cash flow line. Furthermore, in the prior year, the other operating cash flow benefited from lower trade tax receivables and the settlement of receivables in connection with the Russia transaction. Another reason for the decline of the adjusted free cash flow, a higher cash tax payment. In the previous year, we benefited from lower tax expense payments due to tax optimization measures in the financial year 17-18, which became largely cash effective in the first quarter of the financial year 18-19. We expect to receive a major share of tax refunds for the most recent tax optimization in the current financial year, which should result in a year-on-year decline in cash taxes in the coming quarter. Let's now move on to the outlook. The underlying assumptions for the financial year 2019-2020 that we presented during our full-year call are still valid. With this in mind, we confirm our outlook for this financial year. With regards to sales, we still expect a slight increase in forex adjusted sales compared to the prior year. We continue to expect our adjusted EBIT to come in at 445 to 475 million euros. This includes a positive effect of pre-assembly 5 to 15 million euros due to the transition to IFRS 16. Our view on the development of the segments also remains unchanged. We expect DACH to contribute to the positive EBIT development and, in particular, Germany. At the same time, we stay cautious with respect to the developments in the Netherlands and Poland. Therefore, the segments Western Southern Europe and Eastern Europe are expected to perform broadly on prior year's level. The outlook is adjusted for portfolio changes and non-recurring effects in connection with the reorganization and efficiency program. Also, the earnings effect from associates such as FNUC are not taken into account. With respect to FNUC, as you are aware, the share price has declined quite strongly in the last week. At the current stage, share price level there is a risk of an impairment as of the next end of period that is end of march however let me be clear here a potential impairment of fnac stake would of course not be cash affected it would not trigger a capital increase nor affect our guidance overall the market and we believe that the fnac shares are currently undervalued and expect them to converge towards their fair value. I would now like to turn the call back to Bernard for his closing remarks. I look forward to your questions at the end of the session. Thank you, Karin.

Thank you, Karin. Ladies and gentlemen, let me briefly summarize. In the first quarter, we succeeded in laying the foundation for a solid full year. We focused on Black Friday. By doing so, we not only succeeded in increasing our online sales, but also in attracting more customers to our stores, which is our pillar of MediaMarkt.com. This proved again to be a core asset in an omnichannel business model. At the same time, our focus was on further implementing our key initiatives, and we are making progress. So overall, Q1 was another important step on our journey. At the end of March, we will show you where we want to go from here. Therefore, I'm happy to invite you to our strategy update on the 26th of March. I'm looking forward to this event. We have a lot to present. We will share our view on the market and a customer-centric business model with you. We will also include deep dives on selected operational initiatives. Moreover, we will provide you with a roadmap as well as financial impact, so you will be able to track our implementation process. An invitation including all details will be sent out early next week. With this, I would like to conclude our presentation. Thank you everyone for your attention. I will now turn the call over to the operator for your questions.

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 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. 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 1 at this time. One moment for the first question please. The first question comes from the line of Nicholas Langley with Exane BNP Paribas. Please go ahead.

Hello. Good morning, everyone. I've got three questions, please. The first one on the gross margin. So among the 10 basis point decline in Q1, was there anything exceptional in there? Or do you think this 10 basis point decline is a good indication for the next quarters? Second question, how much of the savings related to the reorganization and efficiency program were generated in Q1? And what's the outlook for the coming quarters? And finally, FNAG Darty recently said they are looking at strategic options for their business in the Netherlands. Could you be interested by that asset? And do you think it's feasible from an antitrust perspective? Thanks.

Niklas, let me start with the third question on FNAC and their stake in the Netherlands business. I think we have our own table of work to do. For that reason, we are not keen on taking new assets in countries before we have done the execution on our core tasks and that we always say it's a transformation of our business, doing CADMAN, doing logistics, doing the systems, bringing them into the game and making them ready. Everything else would be a distraction, so we are not keen on these assets.

Good morning, Nicola. While there are exceptional effects on our cost margin, Actually, our cost margin benefited from the successful management of the campaign period around Black Friday, as Bernhard mentioned before, and in addition through a higher income from service and solutions. Nevertheless, we see continuing pressure on our goods margin from competition, particularly in West and Southern Europe, as well as in Eastern Europe. So it's a positive effect. in the margin what we have seen in the Q1, but again, we still see pressure on the margin in the rest of the financial year. The second question was, what are the effects of the reorganization and efficiency program in Q1? Actually, we will not specifically break down the program related savings on a quarterly basis. The cost savings generated in relation to the program are in line with the communicated targets. This is also visible when you are looking at our cost structure in Q1. And if you look at our cost structure, you can see cost savings amounted to 44 million in Q1 before IFRS 16 effect. They were mostly driven by personal cost savings of around 26 million as a result of our reorganization and efficiency program, but also as a result of other operating cost savings, in particular due to efficiency measures related to an optimized personal deployment in our German store. I hope that answered your question, Nicolas.

Yeah, it does. Thanks for that.

The next question comes from the line of Volker Bosse with Baader Bank. Please go ahead.

Hello, good morning. Volker Bosse, Baader Bank. A couple of questions from my side. First, on your adjusted EBIT, it increased by 7.4% in the first quarter. which is still below the 10% earnings growth for the full year. So my question is, what drives your confidence that the earnings momentum will gain momentum here in the course of the year? And second question is on online sales. Are you satisfied with your trend with plus 4%? Looks a bit weakish given that the market grew by plus 10%. And what is your expectations? for the rest of the year. And the third question would be on your problem countries. Let's call it that way. Netherlands, Spain, Italy, Poland. You mentioned you saw an improving trend at the end of the quarter. Has that improving trend continued in January? And come back on Italy. In earlier calls you said we achieved a turnaround here. This turnaround did not materialize. and in regards to Netherlands, you called the distribution center as a kind of problem in that country. You mentioned that was solved out, but it does not seem that that solved the issues in the Netherlands. Perhaps a bit of background of your updated view on these countries. And finally, as you mentioned Fnacdati, could you give us kind of guidance what magnitude of potential impairment risk you see at Fnacdati at current share price levels. Thank you.

Volker, I will take your questions. Number one, the adjusted EBIT increase. You're asking is it really in line with our yearly guidance because the expected increase is higher. I think we explained clearly that the savings from 2021 program will increase throughout the year, so we expected more savings in the upcoming quarters. I think that should answer that question. The second point was online. Are we happy with our online sales of 4.3%? Number one, if you take iBoot out with a pure online business, it would have been 6%. And we are actually, we were satisfied with our development in our online channel because we had a lot of traffic in the online channel. We had Black Friday contributing positively to the campaigns. And we had actually, we had tough comps against previous year where we had increased by 28% in the first quarter. That was a tough comparison. So in general, we were quite happy. But what we also learned, and that is an experience we made in this first quarter, that we had a very successful Black Friday in many of our countries, in almost all of our countries. What happened was that this success surprised also some competitors. So in the time afterwards, there was fierce reaction. Apparently, they were completely overstocked. So there was a fierce reaction on the market after our campaigns. which led then to also a slower Christmas business for us because they just tried to get rid of their stock. And that is reflecting right now a situation in the market where there are some players and we have basically in almost all of the countries we have some players who are tremendously under pressure and they react I would partly say strangely to this situation, but they have to get their cash flow, so they're trying to get rid of whatever they have on stock. And that results in some kind of strange market situation. And that's also the reason why we have this intense price pressure in the market coming up. And the question is, and this question is still open, how far will this market price pressure lead, and where is it going to stop? For that reason, it's crucial that we stick to our strategy going for services because services and solutions is our pillar where we can be really strong with our asset base, with our customer contact, where online players can't have a say.

Very good. Regarding your first question, what Bernard just mentioned, we expect a strong growth in the services and solutions business, and therefore we expect a positive impact out of that. And in addition to that, we expect accelerating savings from the reorganization and efficiency programs. which will step up in the next quarter and should reach the full run rate in Q4, once all leaving employees have actually left their payroll. Regarding your question about FNUC, if you have in mind that we had a purchase price of €70 and at the current share price of around €45, This would mean that we would see an impairment of around 200 million. But please keep in mind that this is not guidance relevant for us. I think that answered your question. No, no, no.

The question is still open on the country side. You wanted to have some flavor on the countries. Where are we? Number one, I think in Spain, Karin and myself, we had recently in Barcelona to look at our Spain organization. I think we are finally seeing an organization which is really committed and executing systematically step-by-step the transformation in category management, in systems introduction, in logistics. But it will take time. They had done the pilot stores. They have learned a lot from it. They have started to reduce assortments quite extensively. You will hear about that on the Capital Markets Day. It will give a lot more flavor on this one. And we also had a very positive Black Friday, and again, this kind of what I said a minute ago about the price pressure after Black Friday, what's coming out of it. But Spain, I would say, is on track. is basically also on track. We have seen also here the same what I said before with the Good Black Friday and afterwards this fierce reaction from some competition. Poland and Netherlands are two weak countries. Netherlands, you are exactly right that you said we had the issue with implementing at the same time a new warehouse, changing the logistics provider, and introducing an IT system. a new IT system. All of the same, it just didn't work out. We are better now to some extent. The logistics provider is working much better. Collaboration works. The system is also getting in place or it's working. There is a lot of training going on right now for the people to live with the change processes. And number three on the On the warehouse, we are gradually filling the warehouse, the new warehouse, basically with the goods that we get to the central logistics structure in the Netherlands. By that, we also are now able to have a scheduled delivery which was extremely important, which we couldn't have that, and we were unable to supply in the last month. Now we are in the situation that we even can schedule delivery for the next day, which is a huge improvement compared to the past. But it will still take time that we have to convince the customers that we are able to deliver because we have disappointed the customers last year, and now we have to regain the trust from our customers. Poland is also a tricky situation. So we implement measures to push higher margin products and services, also specifically services to align the incentive structure for our store personnel accordingly. So basically we try to really get our people really looking at these We introduced the pricing tool in December to Poland because pricing tool right now is extremely important, especially when we have this kind of fierce price competition in the market that we know exactly where is our market, where is the price situation, and how do we react to it. So it was introduced in December. So they have to learn how to work with it, and I think we can slowly see some benefits from their learnings. We're also working on measures to improve stock availability. And what is it now? What else? We are looking also to introduce the web platform we have in Germany to roll it out into Poland because we have seen in Germany the much faster process of the web platform, response time four times faster than it was before. So that we have to also solve because website traffic is important for for Poland as well and then we can also make some more, work some more with the media budget in line with our online, for the online business. I think that should be it for the most important countries. I think in every country we are looking at dedicated steps to execute and to deliver. That's what we do.

Thanks for all that detailed information. Very helpful. Thank you very much. It was just the last question. Did the improving trend that you mentioned at the end of Q4 continued in January so far? Thanks.

Please, Volker, please. I hope you understand that we are not analyzing the queue for the development right now.

Okay. Thank you very much and all the best. Thank you.

The next question comes from the line of Fabienne Caron with Kepler Schriver. Please go ahead.

Yes. Good morning, everyone. Two questions for me. First, Caron, the way you talked about the growth margin development within the geography, I suspect between the lines that it's fair to assume that the growth margin in Germany was up, and so as a net for the group, it was only minus 10 basis points. if this positive trend in Germany growth margin should continue for the remaining part of the year. And the next question for you, Mr. Dutermann. I completely understand what you said on the Netherlands and Poland, where you are taking some measures. Can you give us a feeling of when do you expect the situation there to stabilize from your side?

Good morning, Fabienne. You're right, the cross-margin development in Germany was slightly up. We have seen a positive trend there, and hopefully we will see this positive trend in the rest of the financial year, based mainly on the development and the growth rate of our service and solution business.

Fabienne, Netherlands and Poland, what is the trend? As I said before, when you disappoint customers, you have to convince them again that you have become better. On that, you do not overnight. That's something tough we have to realize. It's just a situation. But if you think about yourself, if you are disappointed in a market, it takes some time until you go there again, until you... you are willing to change your mind. And I think that's the reason why we cannot just say we have disappointed last year and now we are basically up to normal. No, we have to earn our way through dedicated work to get back to the former situation where we were.

But this is for the Netherlands, right? Not for Poland?

Sorry, again, what did you just ask? It's for the Netherlands, not for Poland?

No, no, I'm just saying I understand that you disappointed customers in the Netherlands and it will take time, but I think in Poland it was more company-specific.

That's right. In the Netherlands, it will take some time, so we will only gradually see the change. In Poland, it's up for our... Now, I don't want to make a projection here because, as I said, we have rolled out tools into Poland. We have worked on measures, but I cannot say how quick the transformation or how quick the use of these tools will help to improve the business. I don't have a glass bowl in front of me to really be able to say that. I just say, and that's, I think, it took too long. It really took too long. Unfortunately, we didn't have Poland as last year on our map, although we could already see the slight deterioration at the beginning of the year. We didn't have it on our map for immediate measures to take on, and that unfortunately turned out worse, and we just need... The important thing is Poland is still a dynamic market, and we need to grow as fast as the market. And for that reason, we have to improve on several things in Poland. And I said already, online business is a part of it. And I said the tools we're doing on online, but I don't want to make a promise here, because we have started with the initiatives, with the action plans, But please, no promise here.

Okay, thanks. The next question comes from the line of Tushar Jain with Goldman Sachs. Please go ahead.

Hi, good morning, guys. Just a couple of questions on my side. First of all, on this bundling and services, just trying to understand, do you get a sort of a disproportionate effect during Black Friday or the growth rate was more or less broadly stable throughout the quarter? And that's the sort of 100 we should be expecting. That's the first thing. Second one, in terms of pricing in different regions, I mean, there are some operational inefficiencies there which clearly can be sort of restored. But do you think you need to invest in pricing as well in some of the regions that are struggling? And finally, inventory was up. I just wanted to understand how are you comfortable with the inventory situation? Hello.

Yes, we are still here, Tisha. Good morning. Good morning. Actually, I mean, regarding your question to services and the online cross during the Black Friday period or during the first quarter. I mean, yes, in the first quarter, the online was more or less stable with a cross rate of 4.3%. What you have to know is that we saw a pretty good online growth during the Black Friday period, as Bernard already described. But we also saw that there was a pull-forward effect in December. And that led to the fact that, in summary, the cross rate ends up with 4.3% in the online business. But still, I mean, the services and solutions cross with 10% in the Q1 is a very good one in my mind. And as Bernard also mentioned, I mean, we have seen a big increase in the in the service and solution business based on the fact that we sold bundles during the Black Friday period.

So just one on that point, so the bundles just get a little bit more disproportionate effect during Black Friday, but the run rate could be much lower for the rest of the year. That's what I'm just trying to get a sense of.

No, no, no, I wouldn't say that. I wouldn't say that, Tushar. What we did last year, and I told you already last year, we're putting the basics in services. So we said we have clearly offerings at our smart bars. We had new contracts for insurance, for insurance, for Guaranty Plus. So we have put the basis for the foundation already last year. So in Q4, we could see that across board it was increasing. In Q1, it was very strong. Across all countries, we could see double-digit growth rates on services. So we are finally getting there that the people take it in all regions. They work on the concept. of selling services to the customers. So certainly we had a Black Friday, we had a peak. Yes, we had a peak because it was a peak day anyway. But in general, the concept is now being understood that we are really going for services and also executing it in all regions.

Noted.

Sorry?

That's great. It's just on inventory. Okay.

Okay. Inventories, yes. The inventory has increased by 119 million in Q1, mainly to the Black Friday-related demand pull forward, and subsequently lower December sales. That's the one reason. The other one is that we took over a logistic hub in Sweden, and this logistic hub was operated by an external service provider in the past. So that's two main reasons why you see an increase in inventories. But, I mean, we are very well aware of that and we are taking measures to reduce the inventory in the next quarter.

Increasing price. You asked pricing in different regions. Do we need to invest in prices? We certainly carefully look at the markets, at the prices in the markets. We see competition with very low earnings being fierce in pricing. So we also have partly with the question is these competitions or this competition who is really almost making no money or being at a loss situation and offering the lowest prices, how far will they continue to under beat prices in the market? That is the question. To some extent, with our price analytics, we see that coming, and we have to react to it, and that's what we will do. So for that reason, we have also in our guidance clearly said from the beginning that we expect continuous pressure on the product prices. But we want to compensate it, and that's the reason why the service solution impact is so important, that we want to compensate it more and more with service and solutions.

That's very clear. Can I just ask a sort of a high-level question in terms of when you look at through the quarter, getting a good Black Friday sales offset by Christmas, do you think it's a, probably I don't know whether it's a better strategy to be less aggressive over Black Friday and get a proper sell-through over Christmas period, or just wondering if you have any sort of a hindsight thoughts on that strategy that you implemented last year?

Just think about it. We would not participate in Black Friday. Just think about it. What happened?

I'm just saying this being less promotional. I know it's a very difficult stance to take going into Black Friday.

Okay. We did Black Friday campaign selectively. Very selectively. We didn't do it across board. So it was steered selectively, and I think that is also a very good approach.

Makes sense. Cool. Thank you very much.

At this time, there are no further questions. I hand back to Stephanie Richer, Vice President, Investor Relations, for closing comments.

Ladies and gentlemen, this concludes today's results call. Thank you for your time and questions. As usual, and in case you have any follow-up, please feel free to contact us at Investor Relations. We look forward to talking to you. Take care and bye-bye.