Axfood AB (publ)

Welcome to the Axfood Q2 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now, I will hand the conference over to speakers CEO Klaas Balco and CFO Anders Lexman. Please go ahead.

thank you and uh good morning everyone and uh thank you for joining today's call as you've heard uh today i have our cfo with me andres lexman and we're here to present to you the interim report for the second quarter of 2023 in the investor section on the website you will find the presentation material for today's call and the recording will also be made available after the presentation but with that let's get started and please page Turn page to page number two. And here you'll find today's agenda. First, I will provide you with a brief market overview and then go through our second quarter performance. After that, Anders will take you through the financials. And following on this part, I will talk about the progress we are making with our new and highly automated logistical center in Bolsta outside Stockholm. And also our recent initiatives in the area of sustainability with respect to renewable energy. Then we'll go through the outlook for the year before we open up for questions. So please go to the next page, page number three. So let's start by looking at the development during the quarter, first for the market and then for Axfood. And we are now on page four. Looking at the market, we had a market growth that amounted to 8.7% during the second quarter. The inflation remained high at 14.5%. However, the level was significantly lower on a sequential basis compared to the first quarter. And even more so in June. as you may have seen that inflation on food was 12.5%, which is around 8.5 percentage points lower than the peak level of inflation earlier on this year in February. The quarter was characterized by an ongoing strong focus on value for money and a high level of activity in the market. Swedish consumers have largely continued to search for low prices and campaign products, and it's clear that there is now a much greater awareness of price value. But while the market growth has continued to be weaker than the overall food price inflation, the gap has narrowed, which implies that the negative development for volumes and mix has improved. So the market seems to be recovering somewhat with respect to that. Looking ahead, we believe that the inflation rate will continue to decline, but I have to say there is still a great deal of uncertainty and many factors that can have an impact such as the uncertain geopolitical situation, the impact of climate change on harvests, and the continued very weak Swedish corona. Let's go to the next page, page number five. In this market climate, Axel is maintaining its momentum with a growth rate of 17% in the second quarter, significantly more than the market. Through increased customer traffic and higher volumes, we maintain a very high growth rate despite the significant decline in inflation. With our different concepts, we hold a strong position in the market where value for money has become increasingly important. In e-commerce, as you can see on the slide, our sales increased approximately 9%, which was more than the market growth, which was negative at approximately minus 3%. We are clearly continuing to outperform both on the total market as well as online. Please go to the next page, page number six. Our consolidated net sales for Axfood grew by almost 13% during the second quarter. This increase is attributable to high food price inflation, but also an increase in new customers. As you can see on the slide, all our segments reported double digit sales growth in the quarter. The share of retail sales and e-commerce was 5.0%, which was clearly higher than the overall market. Turn into page seven. In total, group operating profit amounted to 878 million SEK, and the operating margin was 4.2%. The reported operating profit includes item affecting comparability of minus 64 million SEK included in the dog segment. related to the restructuring of our logistical operations and more specifically the transition to the new logistic center in bolsta looking at the adjusted operating profit which excludes item affecting comparability increased approximately 14 percent the increase was mainly the result of strong growth and effective cost control overall this compensated for the lower gross margin in the segment and higher market investments Higher costs for rents and salaries also had a negative impact on our profit. In terms of rental costs, we saw these effects already in the first quarter as rents increased from January 1st. However, the impact from salaries as of April 1st as a result of salary increases of approximately 4% and the removal of lower employer payroll tax for young people. The adjusted operating margin was unchanged compared to the prior year at 4.5%. Let's look into our various segments, and we are now on page eight, and we'll go into the development within the Villius segment. Net sales growth for Villius amounted to a full 20%, while like-for-like retail sales increased by slightly more than 16%. The exceptionally strong development was attributable to pricing and volume growth from higher customer traffic. Sales for euro cash increased, but growth was not as significant as before, as we now have a fully annualized the adverse effects from the pandemic. Operating profit increased 8% and amounted to 503 million, corresponding to a lower operating margin of 4.6%. The very strong growth in like for like sales and effective cost control compensated at a lower gross margin. Due to intense quarter with a high activity level in the market, we have not fully passed through supplier price increases to consumers. Also, increased costs for rent and salaries have negatively impacted the profit. And lastly, I would just like to add that Eurocash has not yet fully recovered its profitability after the pandemic. Let's now go to the next page, page number nine. And Willys' ambition to offer Sweden's cheapest bag of groceries has attracted new customers for many years. And over the past year, the growth rate of new members in the Willys Plus loyalty program has accelerated even further. Willys is a very appreciated concept and customers are becoming more loyal. Actually, Willys is the Sweden's most recommended grocery chain based on Net Promoter Score. And as you can see, actually the gap between Vilius and the other players in the market has widened quite a bit recently. And for those of you who are not familiar with the MPS ratio, it is a widely common measure to rate willingness to recommend, which is a good proxy for customer satisfaction and loyalty. Furthermore, we also see that Vilius is strengthening its brand. And as an example, Willys this year reached an all-time high ranking in the Sustainability Brand Index, which is European's largest brand study, measuring the perception of stakeholders on a brand's sustainability. We clearly see that Willys is gaining ground among consumers, not at least with respect to brand image and loyalty. And this presents an excellent platform for Willys to build on to further strengthen its position in the long run. We're now on page 10, so let's turn the attention to Hemsherp. Net sales growth for Hemsherp amounted to 12%. In terms of retail sales growth, Hemsherp once again performed well, growing more than the market and clearly more than the traditional grocery segment. In total, retail sales, which includes tempo, increased by 10% and 9% on a like-for-like basis. And overall, growth for the stores in the Hemsherp chain was better than the growth for tempo. And the operating profit for Hemshep amounted to 73 million, and the operating margin was 3.9%. And key profit drivers were similar to the , meaning positive effects from growth and effective cost control, which offset negative effects from a lower gross margin as well as higher rents and salaries. Turning to page 11, Hemshep continuously develops this concept, and we see that initiatives in several different areas are yielding results. First, the pace of store refurbishments is high, which means that more and more stores are updated to a modern concept that customers really appreciate. Second, to boost its price value perception and attract the more price-conscious consumers, Hemshelp has improved its alltid bra pris offering, with especially competitive prices on a large selection of products in the stores. And thirdly, Hemship is strengthening its sustainability position, and they do really want to distinguish themselves from competition here by, for example, offering a wide assortment of sustainable and healthy products, as well as providing guidance and incentives to responsible consumption. As an example of progress in this area, Hemsjöp has had the highest share of organic food sales in the industry in the recent years. And lastly, Hemsjöp is working to expand the assortment of meal kits and ready-made food in store, which is an important category, not at least in times like this. Moving then to Snabgrås and page 12. SnubGhost continued to demonstrate strong sales growth in the second quarter with somewhat stable volume trends despite the somewhat weaker market. Sales increased 15% in total and 12% on a like-for-like basis. Developments in the newly established stores and sales to consumers member-based SnubGhost club store concept contributed to this growth. With the development in the quarter, annualized sales for Snabgross for the first time actually reached a milestone of 5 billion SEC. Operating profit amounted to 92 million SEC in the quarter, corresponding to an operating margin of 6.2%. The increase in operating profit was primarily attributable to the growth in like-for-like sales and effective cost control. And profit was adversely impacted by certain negative product mix effects, costs related to new stores, and higher costs related to rent and salaries. With that, let's go to page number 13, and we'll look into Dagab. Net sales for Dagab increased 14% in the quarter, mainly attributable to sales to food retail stores. Sales to the convenience trade also increased, however, at a slower rate due to weaker trends for that market than for the food retail market. Daga's profit was impacted by cost affecting comparability, which I mentioned before, and the operating profit amounted to 287 million SEK. The adjusted operating profit amounted to 351 million SEK, and the adjusted operating margin was slightly higher at 1.8%. The higher profit was primarily driven by the strong growth. And in addition, synergies coming from the Barindals acquisition contributed positively. And on the latter, we are well on track to achieving the estimated synergies of at least 200 million SEK annually by 2024, the latest. On the negative side, back to the profit, development was a clear weak Swedish Krona. The activity level for Dagab is high. The largest ongoing project is obviously the transition to the new logistical platform, which I will get back to you shortly on that subject. But first, it's time for Anders to talk you through the financials. So go to next page, page number 15. And Anders, please go ahead.

Thank you, Claes. So let me first sum up the first half year. During the first half, net sales for the group increased with a little more than 14% to 14 billion SEK. Store sales increased by 18.1%, which was clearly higher than the food retail market in total, where growth amounted to 8.9%. The operating profit, excluding items affecting comparability, of minus 119 million SEK increased by 212 million SEK to 1.7 billion SEK. The increase is mainly explained by the strong growth and effective cost control, partly offset by lower gross margins in the segments and increased costs related to rent and salaries. The operating margin excluding items affecting comparability was unchanged at 4.2%. Items affecting comparability pertained entirely to parallel warehouse operation during the transition to the new logistics center in Bålsta. In the year earlier period, items affecting comparability included a capital gain of 221 million SEK for the divestment of Matot SE. And then let's turn page to page number 16. Compared with last year, the operating cash flow was 507 million higher this quarter, mainly due to a reversal of the higher inventory levels reported in Q1. caused by inventory buildup ahead of Easter. We also in the second quarter had a higher inventory due to the restructuring in the logistic operations with the new logistics center in Bålsta. The strong cash flow from operating activities was also supported by the strong top line growth and operating profit. The cash flow from investment activities was 306 million lower due to a high level of automation capex in Q2 last year. Last year, also, financing activities was supported by the 1.5 billion SEK rights issue. At the end of the second quarter, we utilized approximately 1 billion SEK of our credit facilities, approximately 0.5 billion SEK less than in Q1. And let's go to page number 17. Coming over to the financial position, the net debt increased compared to last year due to higher leasehold debts connected to the new logistics center in Båstad. However, compared to Q1 this year, interest bearing loans have decreased due to lower utilization of the credit facilities. The equity ratio has been fairly stable over the last couple of years. Equity ratio at 19.9% was in line with prior years to Q2 trend, except last year's level, which was elevated due to the rights issue. Total investments excluding leasehold for the first half year was 327 million SEK lower compared to last year. We see a lower pace in investments related to the logistics center in Båstad. However, the investments in the retail operation was higher. We have a high ambition of new store establishments this year, And we have already established eight new group on store at the end of Q1. And then let's turn page to page number 18. As I mentioned before, the cash flow for the first half year was negatively affected by the development of the change in working capital, which also had an impact on the net working capital as a percentage of group sales. The reversal of this effect is expected gradually in the coming quarters as the warehouse transition progresses. The capital employed has increased over the last years, mainly due to the recognition of leasehold debts, which have had a diluting effect on the return on capital employed. However, at the end of the second quarter, the capital employed was in line with year end 2022. and slightly higher than the 20.3% reported in Q1. And thereby, Claes, I hand over to you again.