Axfood AB (publ)

Welcome to the Axfood Q1 2024 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 hash 5 on their telephone keypad. Now, I will hand the conference over to speakers CEO Klaas Balco and CFO Anders Lexman. Please go ahead.

for joining today's call. With me here today to present the Interim Report for the first quarter of 2024 is our CFO, as you heard, Anders Leksman. In the investor section of our website, you will find the presentation material for the call and the recording will also be made available after the presentation. And with that, let's get started and please turn to page number two. Today's agenda is as follows. First, we'll have a brief market overview, and then I will give you a review of our first quarter performance. After that, Anders will take you through the financials. And following Anders' part, I will talk about the progress we are making with some of our strategic initiatives and investments for the future. Then just a brief summary of the presentation before we open up for Q&As. So we are now on page number three, but let's go straight into page number four and take a look at the developments during the first quarter. Market growth amounted to just over 6% during the quarter, with help from a calendar effect of roughly 2% through the leap day and the timing of Easter. However, inflation was substantially lower than before. In total, inflation amounted to slightly more than 1% in the quarter, which is then according to Statistics Sweden. Summarizing it all and taking the price and calendar effect into account, the adjusted sales growth at almost 3% was actually the highest in three years. In other words, the market is now displaying a solid recovery after the pressure on volumes in previous years. But the market is still very much characterized by price conscious consumers and our competitors are focusing a lot of strategic price investments, campaigns and marketing. It is still a very intense competitive environment. And this is, of course, something we follow closely. With that, please go to next page, page number five. And if we look then at our performance, given that actually we are facing uniquely high comparison figures, our beginning of the year was strong with 7% growth in retail sales. As over the two year period, our growth amounted to 28%, almost double the rate of the market, which was 16. The fact that we posted solid growth in the quarter in a market with low inflation was a result of significant volume growth. This confirms to us that our customers appreciate our offerings in our various concepts. With that, turn to page, and we are then on page number six. And if we then look at our e-commerce, our sales increased almost 9%, which again was higher than the market. And market growth continued to improve. However, growth in e-commerce still lags physical stores and is clearly muted compared to the growth rates we have seen in this channel a couple of years ago. But our share of consumer sales from e-commerce was almost 6%, one percentage point higher than the penetration of the total market. Move on to page number seven and looking at some of our key ratios. Consolidated net sales for Axfood grew by just over 5% during the first quarter, driven by higher volumes from strong customer traffic. Our strong sales performance in Billis and Hemship drove our overall growth. Dog app sales to external customers was, however, somewhat softer, which held back the overall net sales growth. Please turn to the next page, page number eight. And in total, group operating profit amounted to 817 million SEK, and the operating margin was 4.0%. Last year, we had a significant cost affecting comparability relating to the transition to the new logistic structure. Although the ramp up of our Bolsta logistic center is still ongoing, related costs are no longer deemed as affecting comparability. as parallel warehouse operations are being phased out gradually during this year. On an adjusted basis compared to last year, the increase in operating profit was mainly the result of strong growth and effective cost control. Higher rental levels and increases, however, had a negative impact on our profit. The adjusted operating margin was 4.0%. Let me now go into our various segments and turn to page number nine and we'll start with Willys. Total and like for life sales growth in the Willys segment approached 8% and 6% respectively. Higher volumes was the primary contributor to the strong performance. Willys therefore continued to gain market share, although at somewhat slower rate than previously, which is natural given the exceptionally high comparison figures. If I compare to Same period two years ago, village has grown more than twice as much versus the market. And if we look at the cross-border shipping, shopping, both total and like-for-like sales increased significantly for Eurocash due to high levels of customer traffic and a positive Easter performance. Our operating profit in this segment increased to 484 million sex, corresponding to an unchanged operating margin of 4.3%. Strong growth in like-for-like sales and effective cost control compensated for the costs associated with higher rent levels and salary increases. And let me just continue a little bit on Willys. If you go to page number 10. Willys has a unique and competitive offering with the ambition to deliver Sweden's cheapest bag of groceries and has attracted many new customers for a long time. And regarding the number of customers that makes purchases on a regular basis, Villis saw a positive development for this key ratio with an increase of 6% year on year. Loyalty is, in other words, strong, and we see that the customer Villis has attracted in recent years and also continues to shop within the chain. In addition, the rate of increase of members in the Villis Plus loyalty program continues to be on a high level. Growth in new membership is significantly higher than in 2021, i.e. the year before inflation took off. And actually, the average amount of new members on a monthly basis in the first quarter exceeded the 2021 monthly average by more than 30%. The total number of members in our Willys Plus is now just over 3.6 million. And finally, Willys penetration is still the highest among concepts in the market. And we are pleased to see that we have been able to maintain this level, a level that we expect to increase with more and more store establishments. Now turn to page number 11, and we'll look into the Hemship segment. The first quarter saw another good performance from Hemship. Net sales in the segment increased almost 8%, and like for like, retail sales growth was 7%. While the development for the Hemship banner was strong, Tempo delivered somewhat weaker performance as a result of the challenging market climate for smaller store formats. Operating profit amounted to 101 million SEK and the operating margin was 5.2%. The significant increase in operating profit was primarily attributable to the strong like-for-like growth in the group-owned stores and lower costs related to campaigns. The quarter also saw improved operational efficiencies and good cost control with lower, particularly electricity costs. Turning now to page number 12. And if I dig a little bit deeper into Hemshep, I want to comment that we continue to see Hemshep's position, particularly by focusing on price value through popular everyday products, campaigns and communication. But also Hemshep has continued to invest in the modernization of existing stores. Over the last two years, the number of store modernizations have amounted to more than 60. This is almost a third of the total store base. And lastly, Hemship is also enhancing its sustainability profile. For example, Hemship is an industry leader in the sale of organic products. And during the quarter, the chain was recognized for its work with an award from Sweden's organic farmers. With that, we'll go to page number 13. And let's look into snub growth. In the cafe and restaurant market, the beginning of the year was weak, including a negative effect from the Easter. This was reflected in snub growth performance, even though snub growth once again gained market shares. Sales during the quarter increased 3% in total and 1.5% on a like-for-like basis. Operating profit amounted to 27 million SEK, corresponding to an operating margin of 2.3%. A weak growth in like-for-like sales could not fully offset increased costs primarily related to personnel and higher rent levels. While Snabgross navigated in a challenging B2B market, Snabgross Club expanded and two additional stores were converted in the quarter to the membership-based consumer concept. With that, we'll continue to the next page, which will be page number 14. And the look at DAGAP. Our net sales for DAGAP increased 4%. Strong growth in sales for Axfood's Groupon stores was offset by softer sales development to our external customers, including small formats and the service trade. A reported and adjusted operating profit amounted to 268 million SEC, and the operating margin both underreported and on an adjusted basis once was 1.4%. The higher operating profit was primarily attributable to volume growth and positive currency effects. However, higher logistical costs related to the transition to the new logistic platform had a negative impact on operating profit. In addition, the accelerated climate transition to renewable fuel in transports impacted operating profit negatively. I'll talk more about both these initiatives shortly. However, first and turning now to page number 15, it's time for Anders to talk you through the financial development, which was strong in the quarter. So please go to the next page, number 16. And Anders, please go ahead.

Thank you, Claes. And for the first quarter, the cash flow was 129 million SEK and compared with last year, 377 million higher. mainly due to a strong cash flow from the operating profit and positive networking capital development. We had a positive calendar effect in Q1 as well as a positive impact from a lower degree of parallel warehouse operations compared to last year and also improvements in accounts payable. The negative cash flow from investments activities of 353 million SEK was significantly lower than last year as we know now have a lower pace in automation investments. Investments in our retail operation was also lower in Q1 compared to last year due to few stores but investments in joint group functions was in line with last year. At the end of the first quarter we utilized approximately 0.8 billion SEK of our credit facilities approximately 0.7 billion SEK less than in the first quarter And then let's turn to page number 17. We have further strengthened our financial position in the first quarter compared to a year ago. The net debt has increased slightly compared to year end due to higher utilization of the credit facilities. However, the net debt ratio remains unchanged at zero. The equity ratio has been very stable and even increased over the last couple of years. The ratio at the end of the first quarter amounted to 19.4%, 1.3% higher than the first quarter level last year. Total investments excluding leasehold for the first quarter amounted to 354 million. 197 million lower compared to last year. And again, we now see a lower pace in investments related to the new logistics center in Bålstam. This means that we now also see investments in relation to net sales are coming down and amounted to 1.7% in Q1. And then let's turn to page number 18. looking at the capital efficiency we have a positive development of networking capital in both absolute and relative terms at the end of the quarter the net the networking capital compared to sales was minus 3.4 percent a decrease with two percent we see a positive impact from more efficient warehouse operations with a lower degree of parallel warehouse operations from the transition to the new logistics center in Bolsa, and also improvements in trade payables. The positive development in current liabilities contributes to a lower level of capital employed, which, in combination with an increase in profit, improves the return on capital employed. So to summarize, we go into the second quarter with a strong financial position. And with that, Claes, I hand over to you.

again thank you anders and we are now on page 19 but let us quickly turn page and go to page 20. as you know we have been busy in previous years with the large-scale development projects to secure our competitiveness for the future and the new logistic platform has been the biggest one this work is proceeding and during the first quarter the ramp up of the new logistics center in bolsta continues The deployment of automation and transfer of inventory for dry and refrigerated goods is now complete. And the operations within the frozen assortment were also initiated recently, according to plan. And e-commerce logistics will be added later in the year. We continue to expect improvements in efficiency from the second half of the year. But during the quarter, we also put automation at our new fruit and vegetable warehouse in Landskrona into operation. The scale of this automation solution is obviously smaller than in Bålsta, but nevertheless, it gives us a competitive edge and efficiencies over time. And let's now move to page 21. Sustainability at Axford is wide-ranging, and we are continuously taking steps in many areas. Right now, we are, for example, expanding the assortment of sustainable and healthy products, with a particular focus on hybrid products that are both meat and plant-based. In addition, we are devoting a lot of efforts to increase self-generated energy from solar panels. But today, I would like to highlight our accelerated transition to renewable fuel. We communicated an increased ambition a couple of months ago, an ambition entailing that we over a two-year period would transition to using renewable fuel or electricity in our own and procured transports between warehouses and stores. which is five years ahead of plan. In the quarter, fossil-free fuel use accounted for 86% of the total in our own transports, compared to 58% during the same quarter last year. This naturally led to drastically reduced climate impact of a full 29% per ton of goods transported during the period, or during the quarter. We are now on page 22. Our outlook for the year is unchanged and it covers investments and new store establishments. Regarding new store establishments, note that we didn't have any in the first quarter. However, rest assured, we have a solid agenda to expand our presence during the year with a 10 to 15 new Groupon stores covering our different concepts. And then go to the final page, page 23. let me summarize we summarize the quarter characterized by a continued positive trend in the customer traffic volume growth and strengthening market despite very high comparison figures our growth was once again strong which led to a solid earnings performance additional steps were also taken as part of the investments to improve our competitiveness over time and as you may have seen The board of directors has now appointed my successor, Simon Margolis, who is currently managing director of Hemsjöfskedjan, and I know she looks forward to continue to drive the agenda forward as of August 15. With a strong financial position and an ambitious agenda for the continued development, we have a good opportunity to move towards being the leader in affordable, good and sustainable food. And with that, please turn to page 24 and I hand over to the operator to open up the line for questions. Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Yes, good morning, Claes and Anders. Hope you can hear me. A couple of questions from me then. Starting off with warehouse costs, you said that you're not sort of You're not putting them out as one-offs, but could you say something about sort of transfer costs when it comes to balls than the fact that you're running sort of double warehousing for the time being?

Morning Dan. I don't know if you remember, we talked about that the new plan will approximately affect around 20 million tech for the year. and uh in the quarter we have we are around that 20 million but we're still not ready but it's not only due to the time lag it's also we have had some disturbances it's been a special quarter with some it's been some snow effects it's been some electrical things it's been a bit of a software changes so it's been so so we are on that so so it will be slightly higher but it's not only due to the time lag it's also due to some of the other disturbances but over time or i would say over the full year it will not be any uh any material effects.

I hope you can hear me. There's something wrong with the operator. But it was already slightly higher than sort of the half of those 20 in Q1, and it's going to be slightly more than the 20 when we summarize the first half. Is that a good interpretation?

I think that's more or less what I said. We were already at that 20 in the first quarter. Okay, sorry. But again, it was not only related to the time lag. We had some disturbances that cost a bit, but it was more related to other things. So it will be somewhat higher, but of course it depends also how now we're rolling it out. And now we are in the in the face of rolling out the frozen goods. And in that we are on line with our plans. But I just want to make sure that even if we are somewhat higher, it will not be material for the full year.

Okay, good. And then just moving on to Hemsjö, which really sticks out, at least what I think, in the quarter with a profitability level that's on a completely new level and you have some explanations on the slide, but is this sort of what we should expect going forward? Is there any sort of one-offs in these numbers that you haven't talked about in the slides?

Well, I think it's a fair reaction in a way. It's a very strong quarter, but it's also, as you know, if you look at the actual numbers, it could also vary by quarter, to be fair to say. And as I commented, we had somewhat lower campaign-related costs in the quarter. However, with that said, when we get the strong like-to-like in our Groupon stores, and with the work that we've done now with modernization, with also driving further efficiencies in the stores, we see some of this effect. But again, it could also vary by quarter. But it's a fair comment. It's a strong quarter by M-ship. Okay. And with volume growth.

Yes, and so I just want to move on to Willis on the other end. With sales coming down, of course, and this of course makes sense given the comp base that you do have, but EK is really sort of taking the upper hand, it looks like, in their report today with Maxi reporting growth of 12% and from a completely different base, of course. But they're also writing that they are seeing increasing customer traffic. Are you in any sense sort of seeing that your customers that you've gained from ICA are coming back to ICA again?

No, but I would even say that we had a fantastic quarter last year on Willis. But I would even say that customer traffic and in volume growth, this is even a stronger quarter for us. So I think that the Willis performance is strong, but obviously... We don't have the same inflation numbers, but we have a very strong volume growth and a very positive influence of new customers. We continue to see that. Your comment is more related to if I look at the market growth. Last quarter, we had over 20% growth. The market was 8%, 9%. It's positive now to see that the overall market is growing. is coming up again. I think that's healthy for the overall total market. But from a village perspective, we continue to see a strong performance, particularly with a very strong volume growth.

Okay. And just finally for Anders, the financial net at 93, is that a good indication for the coming quarters?

Yeah, I would say it's a fairly good assumption, actually. Thank you. Thank you, guys. Thanks. Thanks.

The next question comes from Fredrik Ivasen from ABG Sundal Collier. Please go ahead.

Thank you. Good morning, gentlemen. Can I start off by following up on Daniel's question on Hemsherp? You said lower campaign costs, and that is despite the fact that we had Easter in Q1, which we obviously didn't have in last year, and that usually comes with more campaigning, I think. How should we think about Q2 and the rest of the year in terms of campaign costs?

What is related to the campaign's cost is what I'm referring to that is a bit of marketing is included, how aggressive we are in terms of number of marketing activities. So that's the comment regarding to that. Hemshöp is, you know, compared to some others, it's not really... Eastern is not really the biggest... activities for HempShop in that perspective. So it was more of a quarter to quarter mix in terms of marketing that could differ between the quarters. But again, what I think is the positive we need to, and that we'll see in the second quarter, what is related to in terms of how we are performing is obviously the like for like development in our group on stores. If we continue that journey, if we continue to drive the positive efficiencies that we have in our stores and get that positive, healthy customer coming in, that is also reflected in our margins.

Okay, thanks. And just a quick follow-up then. Was the campaign costs or marketing spend, or whatever you want to call it, unusually high in Q1 and more normalized in Q2 last year?

that's a fair way of looking at it a bit it was but it's you know it's not completely the whole difference here i just want to point out that but it was affecting it uh we had uh somewhat but also of course we we were able to be more positive in our uh in our in our operations and then of course compared to last year we had a leap day effect as well so yeah

Of course. Thanks. And the next one on cash flow, working capital release of around 300 million. Was this above or in line with your expectations? I guess you guided for two to 300 million plus for the full year.

It was in line. But as I mentioned, I mean, we have a quite big calendar effect due to Easter in Q1. So that will coming back to us in Q2. But The underlying improvement, I would say it's quite fair what we have assumed and what we see actually.

Okay, so no change of guidance there?

No.

Okay, great. And maybe last one. Curious to hear about Eurocash. We haven't talked about that for a while. Where is Eurocash nowadays in terms of profitability and maybe if we compare it to the 2019 level? Are you higher or below that level?

What I would like to comment more than regarding profitability, but I think it's positive to see now that the cross-border trade is healthy, it's coming back. We also saw a very positive eastern performance in terms of a lot of customers coming into our stores so uh obviously that is uh positive for us that we now are getting more and more back to normal level levels from a from a cross-border trade perspective okay fair enough that's uh that's all my questions thanks for looking thank you thanks thanks frederick

The next question comes from Gustav Hagius from SEB. Please go ahead.

Thanks for taking my questions. If I could follow up on Willis, you have had 6% growth in the quarter, obviously helped by Easter and the inflation that turned negative in the last month of the quarter. But could you Could you please help us understand, the margin was basically flat for Willis, or just a tiny bit down year over year. Could you help us break down to what extent Easter campaigning impacted that in a negative way, and to what extent volume leverage impacted it in a positive way, and what the net would be between those two? That would be helpful.

Thanks. I understand, Gustav, and even if, but I just want to make sure I saw you relate to the growth of Willis. Yeah, you can, I mean, the total growth of the segment is almost 8%. But it's also, if you look at a very low inflation number, as you can calculate, it's very much, it's even, as I pointed out, it's volume growth and it's a customer growth that I would say even better than last year. So it's a very positive from that. Then, of course, Eastern and the leap day has helped, which is equal to the market numbers as well. But, you know, margin-wise, what is very, I mean, Eastern is one thing, but it's not that much impacting as the volume growth is crucial for us. So that's what we are driving and making sure that if we get the volume and the sales with us, that will have a bigger impact, I would say, even if we have some more related, of course, it's more of a, there are some Eastern campaigns and there's some Eastern products and so forth that is stressing a bit. but also we should get volume out of that. Okay, but... I understand you want to have the difference between the two.

Yeah, but another way to put it would perhaps be keep in mind that Willis margins were flattish then in Q1 or slightly down with the negative calendar and in the presumption that negative food price inflation would also be a reality in Q2. How do you think one should model with its margins in Q2?

Well, as you know, I'm not guiding on that, but obviously what we are doing is we are looking into one of our most important key ratios is to make sure that we keep our price position in the market. So obviously that has an impact in terms of where the market is going. And then the related on the flip side of that is, of course, how many customers we are getting in and what the like for like will be that is in the end of the day, concluding the the operating margin.

Okay. I need to agree to them. On the operating profit, on the joint group and so forth, is there anything that you think is a bit lower than we had anticipated?

It's not significant as you saw, but it was somewhat lower, which was more related to that we had some higher IT costs last year. But there's no major... changes versus that there was more of a last year effect of somewhat higher costs.

Okay. Thanks. Those were all my questions.

Thank you, Gustav.

The next question comes from Anna Schumacher from BNP Paribas Exane. Please go ahead.

Hi, everyone, and thank you for taking my question. I have just one, and it's on the consumer. So the outlook appears to have improved for the consumer, at least sentiment has. Would you call out anything in particular in your data on how shopping habits are changing?

Morning, Anna. Well, very relevant. I think, first of all, as I started to come out on the report today, I think it's positive to see that if I look at from a total market perspective, volume growth is now back into the whole market, which of course is sending a signal that You know, consumers is now shopping even more in grocery stores, which is positive. We have a significant lower inflation rates at the moment, which is also positive for the households in that perspective. I think if you look at some of the key ratios that we saw, some of you have these high inflation rates, you saw some negative effects on sustainable goods and organic products and so forth. uh in our numbers at least we started to it's not falling it started actually to grow in some areas so that is in a way positive to start to see that we are you know getting more momentum back also in the more of a broader assortment uh fruit and vegetables and organic and so forth okay that's great thank you thank you

The next question comes from Frederik Evarsson from ABG Sundal Collier. Please go ahead.

Frederik, are you there?

Sorry, I was amused. So, just... Following up on the discussion we had on margin drivers overall, but I guess in village in particular, what we didn't touch upon was mixed effects, which you usually have a quite significant impact. And I assume you've had negative mixed effects for quite some time, given the the downtrading trend that we've seen among consumers. And then we also have the CPI, PPI Delta, which has been positive for quite some time. Isn't that supposed to possibly help your gross margin or product margins going forward?

Well, I think from a mix point of view, We've been pretty strong, obviously, because the consumer is more going to villas as the whole grocery bag is there on a very attractive level. You have seen a positive development for our private labels, which is one way where the consumer is looking for more of the price conscious products. Campaign levels, there are no major differences on the campaign levels versus last year in that perspective. So there's not much of a change on that. What was your second question, Fredrik, again? I lost it.

Yeah, I'll just last point on the CPI delta, which should be supportive of the margins.

But of course, we have a significant versus a year ago lower pressure flyers. That's also reflected, as you see, in the inflation numbers out to the market. So that is positive. Now, in terms of how that will reflect as we move on, As you know, these numbers where you also see there are some time nuggets in that, what is obviously difficult to forecast is where it will go as we move along. We now have a currency that is a bit of going in the wrong direction again. We are about to look into all the important period for harvest and so forth with climate change and how that will impact So there are many areas that could impact this as we move along. But fair to say in terms of raw material and so forth, we are still on a significant higher level than we were before the large inflation started. Okay, thanks. Thank you.

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Just a very short follow-up. I think you mentioned, Klaas, that when it comes to Willis Plus membership growth rate, it was up 30% versus the start of 2021. Just looking back at the chart that you had in connection with the CMD chart, Does that mean that you are, that is good, of course, but then on the other hand, does that mean that you're down 25% versus what you had in intake in Q1 last year?

Well, you're right, of course, that we had an enormous peak of new customers in the beginning of that, and then we are still on a very healthy level in terms of new, but you're right, we don't have that peak any longer. But it's also fairly natural. We presented also the penetration number where we are the highest number, I would say, and we are able to maintain that with six out of ten households shopping at Villis. At some point, with the number of stores we have, at some point you reach a roof in that. So, of course, we are on a good, strong level, we maintain that, but we also even lift it up further as we are still not present in all areas of Sweden. We still have a demand for the Willys concept, which when we track it, when we measure it, we see that the consumers would like to shop more at Willys versus what they can do because there is no nearby store. But versus what our store presence is in the market, I think we are at a very good level. But it's natural that we don't get that peak that we had. We're still on a very positive level.

Yeah. And on that topic, and I think it was fairly clear already a couple of months ago that you wouldn't have any new stores in Q1, but you still reiterate the 10 to 15 for the full year, and you've said it's going to be mostly Villis and Villis Hemma. Is that going to be very much towards the end of this year, or is it already coming now as sort of a steady stream?

I think we are pretty much out with the stores that are coming nearby, but for the full year it's in the range. I don't have that on top of mind, but I think it's out there for the one that comes now in the near period.

Good, thank you.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you, but just let me conclude and thank you for joining today's call and listening in and hope you all have a good day. Thanks a lot.