Axfood AB (publ)

Welcome to the Axfood Q2 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 Balko and CFO Anders Lexman. Please go ahead.

Thank you and good morning, everyone. And thank you also from our side to join today's call. As you heard, Anders Lexman is with me here today to present the interim report for the second quarter of 2024. And in the investor section of our website, you will find the presentation material for today's call and a recording will also be made available afterwards. So with that, I would like to 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 quarterly performance. And after that, Anders will take us through our financials. And following Anders' part, I will talk about our progress we are making with some of our strategic initiatives and investments for the future. And of course, this will also include logistics, but also our announced acquisition of the hypermarket concept Titegross. And finally, we'll have a brief summary to conclude the presentation before we open up for questions. So with that, we are now on page number three. But let's go directly to page number four and take a look at the development during the quarter. Market growth amounted to approximately 2.2% in the second quarter, which is a lower level than we've seen before. The calendar effect was, however, negative at minus 1.2%. basically a reversal from the positive Easter effect that supported market growth in the first quarter. Inflation was low during the quarter and amounted to approximately 1.1%, according to Statistics Sweden. A strong focus on price value continues to dominate the market dynamics. The fact that households now have a slightly more optimistic outlook following the sharp drop in inflation has not had any major impact on consumption patterns. And clearly, it's still a very intense competitive environment out there. With that said, volumes in the food retail market are continuing to recover. This is evident when taking the price and calendar effect into account, which results in a volume growth of 2.3%. With that, go to page number five. Now, going into this year, we were mindful that we would be operating in an environment with low inflation, cost pressure and intense competition. And against this backdrop, we knew that relevant offerings and price positions are more important than ever, hence our dedication to these areas in the last six months. And despite exceptionally high comparison figures, we once again outgrew the market in this quarter. Retail sales grew by 2.6%, driven by continued volume growth with a strong inflow of customers. Over A two-year period, growth amounted to almost 20%, significantly higher than the rate of the market, which was around 11%. It is clear that our concepts are strengthening their market positions, which have been significantly improved in recent years, and that customers appreciate what we are offering. Now, with that, turn to page number six. At e-commerce, our sales increased 7.4%, which again was higher than the market. And our share of consumer sales from e-commerce was approximately 5.2%, roughly 1% higher than the penetration of the market. So we are clearly overrepresented on online, capturing more than our fair share of this channel. So we're now moving on to page number seven. So let's look into some of our key ratios. And consolidated net sales for Axfood grew 1.2% during the quarter. Willys posted solid growth and Hemship's like-for-like development was strong. However, the development for Dagab held back total growth, largely due to softer sales to external customers, but also due to a negative calendar effect also in Dagab of 1.1%. That will be reversed in the third quarter. With that, go to page number eight. Now, looking at our profit. In total, Group reported an adjusted operating profit amounted to 836 million SEK, and the margin was 4.0%. As a reminder, last year we disclosed cost-affecting comparability related to the transition to the new logistic structure. Although the transition is still ongoing, related costs are no longer deemed as affecting comparability, as parallel warehouse operations are being phased out gradually. However, our transition costs have been somewhat higher than we initially anticipated. While the quarterly development in the retail chains was solid with positive like-for-like growth, the decline in profit was mainly due to a negative development of AgA due to softer sales, transition costs and costs related to operational disruptions of around 40 million SEK. In the quarter, we also incurred acquisition related costs of 26 million SEK for city growth acquisition. And in addition, in May, we were affected by the temporary operational disruptions in the store's payment system. And this is estimated to have an impact profit negatively by 20 million SEK. perhaps it's needless to say we are not pleased with the profit development in dagab for the quarter but we had a lot of costs and headwinds as you've heard and the extraordinary items partly explains it and i'll talk more about the moving parts here later on in the presentation but let's now move on to our segments and turn into page number nine and we're going to villis Willys' growth of 2.6% was higher than the market's, which is very strong performance given the exceptionally high comparison figures. Compared with the same period two years ago, Willys has grown more than twice as much as the market. An operating profit in the segment increased slightly to 509 million SEC, corresponding to an operating margin of 4.5%. The profit development was primarily attributable to growth in like-for-like sales and effective cost control. but was negatively impacted by higher staff costs and increased rental levels. We are now on slide number 10. I want to emphasize Ville's ambition to offer Sweden's cheapest bag of groceries is key, and during the quarter Ville secured its price position. Ville's growth compared to the market shows that its strategy is working. This is also confirmed by customer surveys, high levels of customer satisfaction. And we also see a strong loyalty among existing customers. As an example, for quite some time now, Willys has been Sweden's most recommended food retail chain. And the gap to its main competitors is significant. And if you look at customer willingness to recommend, what we call a net promoter score, is obviously a way of measuring customer satisfaction. However, we also measure customer satisfaction index, And our service show a high level for Willis in line with the main competitor, despite very different offerings and significantly higher than its second main competitor. With that, let's turn page. And we are now on page number 11, and we'll go into Hemship. And Hemship once again posted strong growth in like-for-like sales of 4.6% during the quarter, driven by clearly higher volumes. Total retail sales growth was 2%. And as a reminder, three large stores left the chain on February 1st, which mainly explains the difference in total and like-for-like growth. And net sales increased by 5.2%. While the development for Hemship banner was strong, Tempo delivered softer performance as a result of the continued challenging market climate for smaller store formats. An operating profit amounted to 87 million SEC, and the operating margin was 4.4%. The significant increase in operating profit was primarily attributable to the strong like-for-like growth. The quarter was also characterized by improvements to the operational efficiencies and effective cost controls. And with that, turn to next page, page number 12. And also in Hemshep, it's continuing its work on its assortment, price value, and store modernizations. And customer surveys demonstrate the progress the chain has been making in the last couple of years in terms of appeal. Customer satisfaction has clearly improved. And when we analyze the development compared to its closest competitors, we see a clear effect. Hempshire is the only one with a positive trend. This has resulted in a narrowed gap compared to two of its closest competitors and a widened gap in relation to the third. And obviously, Hemship continues its journey to strengthening the profile. And this work has paid off, which is why the chain has been so well in the market for a long time now. And let's move on to page number 13, and we'll go into Snabgross. The café and restaurant market is facing a softer market, as many consumers are prioritizing other types of spending than eating out. This, of course, has had an impact on Snabgo's development. Sales during the quarter increased 1.9% in total and 1.5% on a like-for-like basis. And positively, the number of customers continued to increase. And in addition, the trend in consumer sales through Snabgo's club continued also to be strong. Operating profit amounted to 84 million SEK, corresponding to an operating margin of 5.5%. The profit development was mainly impacted by growth in like-for-like sales and increased costs primarily related to staff and higher rental levels. And with that, let's go to page number 14 and we'll look into Dagab. And as I mentioned, the decline in profit for the group was mainly explained by a weak development in Dagab in this quarter. Dagab's net sales increased by 0.8%. on the back of low inflation, a negative calendar effect, and softer sales to external customers, including the smaller store formats. The sales development was clearly not enough to offset the general cost inflation. But in addition, the muted sales growth, Dagab experienced higher costs related to the ramp up of our new logistical structure. And also Dagab incurred costs of 40 million SEK related to operational disruptions. And I will talk more about this when we come down to the strategy review. But now let's turn to page number 15, and it's time for Anders to walk us through our financial development. So please go to the next page, and we'll have now page number 16. Anders, please go ahead.

Thank you, Claes. During the first half of the year, net sales for the group increased by 3.1% to approximately 41 billion SEK. Retail sales increased by 4.7%, which was higher than the food retail market in total, where growth amounted to 4.2%. Operating profit excluding items affecting comparability decreased with 2.3% to just over 1.6 billion SEK. Like for light growth and effective cost control in the retail chains was offset by higher costs associated with the restructuring of logistics, as well as increased costs related to personnel and higher rents. The operating margin, including items effect and comparability, was slightly lower and amounted to 4.0%. Let's turn to page number 17. During the second quarter, cash flow was minus 174 million SEK and compared with last year, 165 million lower, mainly due to negative cash flow from networking capital. The positive calendar effect in Q1 from Easter was reversed in Q2, and furthermore, we also had a negative calendar effect in Q2 related to the number of payment days. The negative cash flow from investments activities of 427 million SEK was significantly lower than last year, as we now have a lower pace in automation investments. Investment in our retail operation was, however, higher in Q2 compared to last year due to more store establishments. And the investment in joint group functions was in line with last year. During the first six months, we strengthened our cash flow from both due to a stronger operating cash flow and the lower investments. At the end of the second quarter, we utilized approximately 0.7 billion SEK of our credit facilities, 0.4 billion SEK less than the second quarter last year. Then turn to page number 18. We also in the second quarter stayed in our financial position compared to last year, but compared to Q1, we saw a slight increase in net debt due to a lower cash position. The net debt ratio excluding IFRS 16 amounted to 0.1, which was 0.2 lower than a year ago. The equity ratio at the end of the second quarter amounted to 21.1%, 1.2% higher than the second quarter last year. And total investments excluding leasehold for the first half year amounted to 740 million SEK, 394 million lower compared to last year. And again, we now see a lower pace in investment related to the logistics center in Bålstam. Investments in relation to net sales continue to come down and amounted to 1.7% in the first half year. And then please go to page number 19. Despite the negative networking capital effect in the second quarter, we have a positive development of rolling 12-month networking capital, both in absolute and relative terms. At the end of the quarter, the networking capital compared to sales was minus 3.5%, a decrease with 0.3 percentage points compared to year-end 2023. We saw improvements in trades payable as well as in trade receivables. 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 leave the second quarter with a strong financial position, and thereby, Claes, I hand over to you again.