Axfood AB (publ)

Welcome to the Axfood Q3 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.

Well, good morning, everyone, and thank you for joining today's call. As you heard, together with our CFO Anders Lexman, it is time for us to present to you Axfood's interim reports for the third quarter 2023. As always, in the investor section of our website, you will find the presentation material for today's call, and the recording will also be made available after the presentation. And with that, please turn now to page number two and we'll get started. Here you'll find today's agenda. First, I would like to give you a brief market review and then a review of our third 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 logistical platform and also the outlook for the year before we open up for questions. We are now on page number three, and let's go straight to page number four and take a look at the development during the quarter, first for the market and then for Axfood. Market growth amounted to just over 6% during the third quarter. The annual inflation rate continued to come down significantly on a sequential basis and amounted to 9.1%. If you compare that to 14.5% during the second quarter and 20.1% during the first quarter this year. While market growth has continued to be lower than the overall food price inflation, the gap has narrowed a lot over the past couple of months, which implies that the volume mix component is not as negative as before, although it is still weak and even more so if you look back two years instead of just one. With that, consumers are still very much under pressure financially as the cost of living has gone up dramatically over the past year. And as before, the third quarter was characterized by an ongoing strong focus on value for money and a high level of activity in the market. Let's go to the next slide, please. Number five. If you then look at Axford, we are continuing to perform very well. Our growth rate was 13% in the third quarter, which was double the rate of the market. Increased customer traffic resulted in higher volumes, and this represents a larger part of the overall growth compared to previously. But pricing was, of course, also a highly significant contributor to our growth. But with our house of brand strategy and strong market presence, we have a favorable position in this market where value for money is more important than ever for our consumers. If you look at the e-commerce, our sales increase slightly more than 8%. We are clearly winning also here and obviously growing a lot faster than the market where growth is basically flat. Overall, the performance of the e-commerce channel on the market is weak, and the penetration level was only 3.6% of total grocery retail sales in the third quarter. Please go to the next page, number six. Looking at our net sales, our consolidated net sales for Axfood grew by almost 9% during the third quarter. This increase is attributable to high food price inflation, but also an increase in new customers. While growth was mainly driven by villas, all our segments reported high single-digit or even double-digit sales growth in the quarter. Let's go to the next page, page number seven. And if you look at our profit, in total, group operating profits amounted to slightly more than one billion SEK, and the operating margin was 5.1%. The reported operating profit includes items affecting comparability of minus 60 million SEK related to the restructuring of our logistical operations and more specifically the transition to the new logistic center in Bålstan. The adjusted operating profit which excludes items affecting comparability increased approximately 8%. The increase was mainly the result of strong growth and effective cost control. Overall this compensated for lower gross margin in the segments Also, negative currency effects as well as costs associated with higher rental levels and salary increases also had a negative impact on profit. The negative effect from the discontinuation of reduced payroll taxes for young people amounted to minus 49 million SEG. And if you look at the adjusted operating margin, it's unchanged compared to prior year at 5.4%. But let's now dig into our various segments and turn into page number eight. We look into Willys. Willys once again reported exceptional growth, reaching an impressive 16% this quarter. Like for like retail sales increased by slightly more than 12%. And the favorable development was attributable to volume growth from higher customer traffic as well as pricing. I'm also pleased to see that our cross-border trade grocery chain Eurocash noted a healthy sales increase. Our operating profit increased 8% and amounted to 652 million SEK, corresponding to an operating margin of 6%. The very strong growth in like-for-like sales and effective cost control compensated for a lower gross margin. With the high activity level in the market, we have not fully passed through supplier price increases to the consumers. But also costs associated with high rental levels and salary increases negatively impacted the profit. Move now to next page, page number nine. And let's talk a little bit more about Willys. Willys momentum is indeed very strong. The number of new customers is continuing to grow at a rapid rate. And new and existing customers alike are becoming increasingly loyal and shopping more at the chain. On this slide, you see a chart that we have showed before with the number of new members in Willys Plus, which is Willys' loyalty program. And the number here is growth by rate. In 2021, the average monthly growth rate was approximately 25,000 in terms of new members. That figure went up quite a lot last year to just over 35,000 new members per month on average. This year, the average is almost 42,000, so even higher. And although the monthly growth rate has come down somewhat, if you compare with the last winter, it is still significantly higher than what we saw prior to 2022. And August actually represented the highest growth rate since March. And the total number of members in Viljus Plus is now more than 3.5 million. But turn now to page 10. And quite recently, we commissioned a broad survey to dig deeper into the changed shopping behaviors among consumers over the past year. Among other things, the survey covered where consumers usually do their grocery shopping and also if they had changed recently. And 18% of respondents replied that they have changed their behavior and started to shop for grocery in a different store than in the past. Of course, of the consumers that have started to shop at Willys, which represent quite a decent chunk of the 18%, a full 81% stated that they were satisfied with their experience. And I should add that only a small percentage stated that they were not satisfied. The rest applied that they were not sure or uncertain. And lastly, When asked about intended loyalty, a very high percentage of full 78% of new Willys customers stated that they would continue to shop at Willys also when the food price inflation pressure eases. So to sum up, many have discovered Willys last year, and in general, they are very happy with experience and intend to continue to shopping there in the future. This is, of course, a survey, so results should be viewed cautiously. However, with that said, all these figures are a very positive sign for us. Let's now move on to Hemshep, and we are now on page number 11, and we'll dig into the Hemshep segment. Net sales growth for Hemshep was strong at 11%. Retail sales growth was 8%, which was higher than the market. sales on a like-for-like basis increased six percent and overall growth for the stores in the hemship chain was better than the growth for the tempo chain the operating profit for hemship amounted to 78 million sec and the operating margin was 4.4 percent and similar to the situation for villis positive effects from growth and effective cost control were offset by negative effects from a lower gross margin as well as higher rental levels and standards Well, let's go to page number 12, and I'll talk a little bit more about Hempshire. Hempshire is also performing very well. And this is actually the fourth consecutive quarter in which they are outperforming the market growth. Adding on to that, when looking at Hempshire's performance, you really should be comparing it to the growth in the segment Hempshire is in, which is the traditional grocery. And in terms of that comparison, the outperformance is even more significant. And to us, there are multiple reasons behind Hemshöp's strong growth. First, they maintain a high pace in store refurbishment, which yields modern and attractive stores. And second, they continue to work on their price value proposition, mainly is Altibra pris offering, which especially competitive prices on a large selection of products in the stores. Hemshöp is also strengthening its assortment in many ways, including meal kits and ready-made food. And lastly, Hemship is solidifying its sustainability position by offering a wide assortment of sustainable and healthy products, as well as providing guidance and incentives to responsible consumption. With that, let's move to Snabgås, moving to page number 13. At the same time, we are seeing a certain slowdown in the cafe and restaurant markets from previously high levels. Obviously, now this has an impact to Snabgross to some extent. However, Snabgross' affordable and flexible offering have resulted in good growth, and it's clear that they are taking market shares in this environment. Sales increased 9% in total and 7% on a like-for-like basis. And developments in the newly established stores and sales to consumers through the member-based Snabgo's club store concept contributed also to this growth. Operating profit in the quarter was lower compared to prior year and amounted to 86 million SEK, corresponding to an operating margin of 6%. Growth in like-for-like sales was offset by negative effects from costs related to new stores and high costs related to rental levels and salaries. Let's now go to the last segment, Dagab, on page number 14. Net sales for Dagab increased 9% in the quarter, mainly attributable to sales to food retail stores. Sales to convenience stores also increased, however, at a slower rate. And in general, right now, the food retail market is stronger than the convenience trade, which is reflected here. Throughout this year, Logad's profit is impacted by cost affecting comparability related to the new logistical platform. In total, reported operating profit amounted to 280 million SEK. Excluding cost affecting comparability, the adjusted operating profit amounted to 340 million SEK, and the adjusted operating margin was 1.8%. The higher profit was primarily driven by the strong growth. A negative currency effect contributed negatively, while synergies from Bergendals acquisition had a positive effect on profit. And now it's time for Anders to talk you through the financial development in the quarter. So please go to next page, page number 16. Anders, please go ahead.

Thank you, Claes. During the first nine months, net sales for the group increased with 12% to 16 billion SEK. Door sales increased by 16%, which was clearly higher than the full retail market in total, where growth amounted to 8%. The operating profit excluding items affecting comparability of minus 179 million SEK increased by 292 million SEK to 2.8 billion. The increase is mainly explained by the strong growth and effective cost control, partly offset by lower gross margins in the segment, and increased costs related to rent and salaries. The operating margin excluding items affecting comparability was unchanged at 4.6%. Items affecting comparability pertained entirely to parallel warehouse operation during the transition to the new logistics center in Bålsta. Last year, items affecting comparability included a capital gain of 221 million SEK for the divestment of mat.se. left hand turn page to page number 17. and let me then continue with the cash flow compared with last year the operating cash flow was 64 million sec lower this quarter in spite of strong growth and a stronger underlying operating cash flow this is mainly explained by negative working capital development and higher interest costs The cash flow from investment activities of 307 million SEK was in line with the CapEx Q3 last year. At the end of the third quarter, we utilized approximately 1.5 billion SEK of our credit facilities, approximately 0.6 billion SEK more than in Q2. Let's turn to page number 18. 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 Bålsta. Compared to Q2 this year, interest bearing loans have increased due to higher utilization of the credit facilities, although the net debt ratio was unchanged at 0.3. The equity ratio has been fairly stable over the last couple of years. The equity ratio at 22.7% was in line with prior year's Q3 trend, except last year's level, which was elevated due to the rights issue. Total investment, excluding leasehold for the first half year, was 292 billion lower compared to last year. Now we see a lower pace in investment related to logistics and However, the investment in the REIT operation was higher. We have a high ambition of new store establishment this year, and we have already established nine group-owned stores here to date. We expect the capex for the full year in the upper range of our guidance of 1.8 to 1.9 billion SEK. And let's then turn to page number 19. As I mentioned before, the cash flow for the first nine months 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 ratio is now minus 3.2%. 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 debt which have had a diluting effect on the return on capital employed however the return of capital employed is quite stable looking back at the recent quarters and by that class i hand over to you again