BHG Group AB (publ)

Thank you, operator, and good morning, everyone. Moving to slide three, please. We're happy to share the highlights of the second quarter with you, a quarter in which our business saw a significant acceleration on what was already a strong first quarter of the year. With both our segments, DIY and home furnishing, performing well, the second quarter, in fact, developed into our strongest today. Today's agenda follows that of our recent earnings calls and is divided into five sections. We'll start with the results highlights, followed by a business update. I'll then hand it over to Jesper, who will walk us through the financials in more detail, after which I will summarize the quarter. We'll then end the call with a Q&A session. Slide five, please. The second quarter is our seasonally strongest one. This time around, our normal peak season combined with changed consumer behaviors in the wake of the corona pandemic, including Consumers spending more time at home, realizing that they will travel less for some time to come, and discovering the benefits of shopping online. That is what I would call the usual benefits, such as an unviable assortment at the best prices delivered to your doorstep, but now also the added benefits of not having to unnecessarily risk contracting the virus. All of this, in turn, resulted in a higher share of wallets going to products for the home than usual. As the online leader in home improvement, BHE was well-placed to benefit from these developments. Net sales came in at 2.7 billion SEC, which corresponded to total growth of 58% and organic growth of 42%. We recorded an adjusted EBIT of 233 million SEC, translating to an adjusted EBIT margin of 8.6%, and delivered by far the strongest quarterly cash flow from operating activities to date, amounting to 605 million SEC. BET's financial position is now stronger than ever and allows us to execute our organic growth initiatives robustly while combining these with a continued active acquisition strategy. Commenting briefly on segment performance, more on which later, while the home furnishing segment had a strong quarter, it was to a large extent a continuation of what the segment delivered also in the three previous ones. Rather, it was the DIY segment, which experienced an exceptionally strong demand, clearly boosted, by the changed consumer behaviors that I already mentioned, with growth figures for many of its constituent businesses of well over 100%. Although we expect to return to more normal growth levels, the demand we experienced was quite constant over the three months of the quarter, and the third quarter also started well. Slide six, please. From inception, our strategy has included being the consolidator in the growing online market for home improvement. The group's sales growth of more than 40% per annum in the past five years, is the result of combining organic growth initiatives with consistently adding new businesses under the DHE umbrella through acquisitions. When it comes to organic growth, we are now reporting our fifth consecutive quarter-on-quarter increase, following up last quarter's 22% with this quarter's 42%. And the 42% number at group level was comprised of an organic growth of 32% in the home furnishing segment and 48% in the DIY segment. As always, there's a lag between our reporting and when we can gain more comprehensive insights into overall market developments. However, judging by preliminary data, the picture that we see, just like in the first quarter of the year, is one of a continued increase in online penetration, especially for furniture and home furnishings, for which we believe the offline market was soft. On the DIY side, there's plenty of evidence that the total market, which started turning around already in the fourth quarter of 2019, grew strongly. Still, with total growth of 58% and organic growth of 42%, we are convinced that we further strengthened our leading market position. Slide 7, please. Our strategy remains focused on four cornerstones. Firstly, a continued expansion of our leading product range. Our portfolio is now approaching 1 million unique products. Secondly, scale and a high share of own brands in our sales mix. With a strong growth in the quarter, we continued building scale advantages and a significant share of the growth in the DIY segment came from our own brands, both those which we have developed organically and those which have been added through recent acquisitions. Thirdly, creating the most appealing shopping experience and dominating digitally. We grew our digital footprint significantly in the quarter, seeing more than 90 million visits to our destinations. And finally, offering the market's best professional guidance, service, and support, including our own installation network, for which we now offer services covering in excess of 100,000 products in the DIY range, as well as our own last-mile delivery on the home furnishing site, which continued expanding its coverage during the quarter. This is our ecosystem. Turning to slide 9, please. Briefly on this slide, we reported total sales in excess of 6.2 billion SEC in 2019 and are now at an LTM sales level of 7.6 billion SEC. with an EBIT margin that continues to expand. Moving to the right-hand side, we're the European leader in the online home improvement space, and our geographic composition is well balanced, with Sweden remaining our single most important market, but with even stronger organic growth in the geographies in which we have more recently established ourselves. Slide 10, please. In the first quarter earnings call, we concluded that our business was well-placed to navigate the uncertainties of the pandemic. Our performance in the second quarter now backs this conclusion up. We, of course, continue monitoring and managing developments closely. With regards to people, we're continuously adapting the measures to the specific circumstances of our various office, warehouse, and showroom environments, with the primary objective of ensuring safety and the secondary objective of securing business continuity. The measures are effective and continue allowing us to stay fully operational. With regards to operations, we worked hard in the quarter to handle various aspects linked to the exceptional demand. This has included managing inventory optimally, working closely with our logistics partners, and adding customer service capacity along the way. However, sales within some categories, such as the garden one, was somewhat held back by select product availability issues. Further, some of our logistics partners initially struggled to meet the higher volumes, and this also led to a heavy load on our customer service teams, particularly at the start of the quarter. We have now made good progress on working through the backlog that arose. Moving on to cash, we had a record cash flow in the quarter, resulting from the combination of the exceptional growth and our asset-light business model. This provides us with ample strategic flexibility moving forward. When it comes to demand, clearly the DIY segment has been positively affected, and demand within the home furnishing segment has at least not been adversely affected. With the progress achieved in the second quarter, we believe that we have established a new base from which we will continue growing. And finally, linked to demand, online migration. The underlying shift from offline to online accelerated in the quarter, especially within the home furnishing market. And this shift is set to continue. All in all, four months into the pandemic starting to affect Europe significantly, it's clear that overall our business has benefited from a higher share of consumers' wallets, uncertainties around how the pandemic will evolve remain, but we feel confident that we're well positioned in the face of this uncertainty. I'll now hand it over to Jesper, who will walk us through the financials and more details.

Thank you, Adam. The exceptional demand that we saw at the very end of the first quarter continued throughout the second quarter. As Adam mentioned, net sales increased 57.7% to reach 2.695 million SEK, and organic growth reached 41.8%. On the back of the external growth, we reported the highest EBIT and EBIT margin to date. EBIT grew by 127.6% in the quarter to reach 232.7 million SEK, corresponding to an EBIT margin of 8.6%. The high adjusted EBIT margin was the result of, one, a disciplined execution, or pricing and product mix strategies, including the continuously growing private label share of sales in the do-it-yourself segment. And two, operational leverage as a result of the exceptional growth. Finally, just as in the past three quarters, we did not treat any items as affecting comparability in the second quarter. Next slide, please. Turning to some of the sales drivers in the quarter, The number of visits to the group's destinations increased by 110% to 92 million, generating 893,000 orders during the quarter. The strong trend in the number of visits to the group's destinations, which reached an annual rate of more than 350 million, was also the reason for the slightly lower conversion rates. The group's sales mix changed during the period. Among other things, because of the sharp growth in product categories with slightly lower AOV, as well as growth in Denmark within the due-to-sale segment and Eastern Europe within the home furnishing segment, both of which are marketed with structurally lower AOVs than the group's other units. However, as the gross margin trend clearly demonstrates, this did not have any negative effect on earnings, since a large share of products with lower AOV could be sent as postal packages to a service point. which meant that a strong gross margin could be maintained. Next slide, please. Exceptional top-line growth at 57.7% resulted in strong operating leverage, translating to a gross margin increase of 69.9% and an EBIT increase exceeding 100%. The gross margin, which is impacted by the peak season and thus a higher number of sales campaigns than in the first quarter of the year, as well as the different product NICs, improved on the prior year during the quarter by 1.8 percentage points to reach 25.1%. The pure product margin, which is the measure most commonly used by our listed peers, amounted to 35.7%. Just as in the first quarter, the gross margin improvement was driven by a continued focus on cost and process efficiencies in purchasing and logistics, as well as a growing share of sales from our own brands. Before turning to the segments, a note on currency effects. The depreciating NOC primarily impacted the home furnishing segment adversely, but the net effect on the EBIT level was largely offset by rapid pricing adjustments in the period. Let us now turn to our duty sales segment. Next slide, please. The do-it-yourself segment performed exceptionally well in the quarter. Net sales grew by 73.8% to reach 1.819 million SEC and organic growth accelerated to 48.3%. Growth in the segment had already picked up towards the end of 2019 and throughout the first quarter. It subsequently accelerated sharply in the second half of March and has since continued through the second quarter and into the third. The P&L in the due-to-sale segment was nicely leveraged with a top-line growth of 74%, translating to an EBIT increase of more than 200%, reaching 162.6 million SEC, corresponding to an EBIT margin of 8.9%. The due-to-sale segment continued to consolidate its position as the leading online player in the Nordics through rapid assortment expansion, extending the range of installation services and expanding its share of own brands. Next slide, please. The home furnishing segment is now in its seventh consecutive quarter with good growth and strong margin structure. Net sales in the home furnishing segment grew by 32.3% in the quarter, reaching 886 million SEK of which organic growth amounted to 31.5%. Adjusted EBIT increased by 55.9% and reached 85.1 million SEK in the quarter, corresponding to an EBIT margin of 9.6%. All geographic markets, except Norway, with its currency headwinds, grew by more than 25% in the period, and growth was especially brisk in the segments Eastern European and Danish operations. Changed customer behaviors in the wake of the pandemic had seemingly changed less of an impact on the home furnishing segment than the do-it-yourself segment. However, we also estimate that the total market did not develop as favorable for the home furnishing segment as it did for the do-it-yourself segment. The rollout of the last mile logistics operations in Sweden is progressing according to plan. The infrastructure which was launched in southern Sweden at the end of the first quarter has now been established. And a continued rollout is planned, probably most likely with the metropolitan areas of Helsinki and Oslo next in line. Let us turn to cash flow. Next slide, please. The exceptional demand in the period strengthened the usual seasonal profile for working capital, with inventory buildups during the first quarter prior to the peak season, with high sales and thus high cash conversion during the second quarter. Cash flow from operating activities amounted to 605.1 million SEK, the strongest contribution for a single quarter to date. This corresponds to a cash conversion in relation to adjusted EBITDA of more than 220%. The right-hand graph showing the development in liquidity walks us through the starting period position of 270.3 million SEK, adding the cash flow from operations, deducting the impact of investing activities, a majority of which is M&A related, and finally, the financing activities, which consist of a mix of amortization of leasing liabilities while funding the ongoing M&A agenda through an acquisition facility, bringing us to the period end, 898.1 million SEC of liquidity at hand. Next slide, please. Our strong operating performance translated to a net cash position of 26.7 million SEK at the end of the quarter, accordingly an outperformance of the medium-term capital structure target range. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of 524 million SEK. Our financial position is stronger than ever, which means that we can continue to execute both organic and inorganic growth initiatives. Handing it back over to you, Adam, to summarize and conclude.

Thank you, Jesper. So summarizing on slide 20, our position was strong going into the quarter and further strengthened during it. We have our people, supply, demand, and financial position all under control. Our growth accelerated significantly, reaching the highest level on recent records. Gross and bottom-line margins are at good levels and continue moving higher on the back of strong operational control and a sound mix development. The financial position is strong with ample cash on hand and significant ongoing credit facilities. Our strategy is firmly in place, execution is ongoing, and it revolves around our four strategic pillars which make up the BHG ecosystem. And finally, with strong total and organic growth as well as expanding margins, we are on the path to reaching our mid-term financial targets, which were set in conjunction with our IPO in March 2018, and include reaching $10 billion in net sales. This concludes our presentation, and we now open up the call for questions. Over to you, operator.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. Our first question is from Jos Sandstrom from SCB. You may begin your question.

Morning, guys. This is Gustav Sandstrom with SCB. I have a few questions, if I may. Firstly, I didn't see that you wrote out the performer organic growth or the organic growth in the acquired businesses, if you'd like. So could you give us that? That would be very helpful. Thanks.

Sure. So the performer organic growth ended up at 44.2% at the group level. So it was higher than the organic growth, as you see, Gustav, and also very clearly shows what we also mentioned in the report, which is that the newly acquired businesses have developed very strongly.

Sure. And is it fair to assume in a typical Q2 that June is slightly smaller than April and May, given outside furniture, I guess, is mainly sold in April and May, for instance?

historically, the seasonal pattern, as you know, Q2 is the seasonally strongest quarter, and May typically is the single strongest month. So that's the typical pattern.

And I'm curious about net financials, 32 million. It was a big number last year in Q2, too, and then there was a fair amount of that related to earnouts. Could you help us break out the... composites in the net financials, FX, leases, earnouts, interest rates, whatnot.

Sorry, can you repeat the question, maybe?

What is the breakup of the net financials? What is included in that number for Q2?

The single largest number is of revaluation of earnouts. I guess it's 22 million or so in the quarter. And also, if you look at our interest cost, it's approximately 8 million in the corporate.

Great. I'm thinking about your level of coolness here, how you think about capital allocation and M&A. Obviously, you have a much stronger financial position now than what is stated in your financial targets. And I'm thinking, given that there might be a discrepancy on valuation now in terms of very strong growth, hard to reach a deal, and as you write in the report, also to actually meet people to shake hands. How do you think, what's your level of coolness? Are you happy to let this cash position go much further, or should we be looking at some type of shareholder returns medium term if you don't accelerate your M&A agenda? And is there also, is there an option here to perhaps acquire back some of the minorities and prepay earnouts to get a higher share of cash flow going forward?

I think as you are implying, Gustav, our very strong position now provides us with ample flexibility really to to do what we feel under current circumstances is the best course of action. And we continue being quite convinced that we will be able to put this cash to excellent use, funding organic but also acquisition strategies. So that is definitely the picture that we see today. And linking back to your question on the net interest as well, With the revaluation of the earnouts, as you know, we have an acquisition strategy which includes deferring upside to make sure that we have a maximum level of incentives in place for a period of three years or so following an acquisition. And the way that we see these liabilities going forward, we have a relatively low amount which is due this year. And then we have higher amounts the subsequent year and the year following that. So that's also something that we're taking into account when we project our cash flows going forward. But also, most certainly, we are very, very actively engaged in continuing to find excellent acquisition opportunities. But we're also cool, as you call it, in the sense that we won't be going into acquisitions where we apply less of a disciplined approach than we have today. And as we write in the report, both the fact that physical meetings are more difficult to arrange these days, but also, especially on the DIY side, with the strength in the overall market that we report, but also that our competitors have reported, that has affected evaluation expectations, especially, again, on the DIY side.

Right. And the last one for me, I might have some follow-ups, but I'm curious, have you received any governmental support, such as for furloughing or reduced working hours in Q2?

So the only ones that we've received are the reduced social expenses and In aggregate, they don't amount to a very substantial figure.

Less than 2 million?

No, slightly more than 2 million, actually.

Great. Thank you, guys.

Thank you.

Thank you. Next, we have Frederick Lavachan from ABG. You may begin your question.

Thank you. Hi, guys. A couple of questions for me as well. Firstly, maybe if you could say anything about the first three weeks of Q3. Are you holding up the strong pace of growth you saw in the end of June?

Hi, Fredrik. So we, as we write in the report, we had a nice and even level of demand through the quarter. And the way we've chosen to phrase how we're coming into the third quarter is that we continue to see strong performance rather than applying a fixed number to that and quantitatively relating it to Q2. Suffice it to say that we're very pleased still with the demand levels. But as we also write in the report, we continue... being of the firm belief that growth will revert back to more normal levels. And when exactly that happens is anyone's guess, but it will most likely or even most certainly happen.

Okay, sure.

And then on the positive change in working capital, mainly payables, I guess, how should we think about that going into Q3, Q4? Was there any calendar impact, for instance?

The main impact is through the exceptional demand, which led to the accelerated growth and linked into our business model. That is what it results in. So there's nothing... in addition to the exceptional demand that explains the development in the working capital. It's simply an effect of exceptional demand mixed with our asset-light business model.

Perfect. And then one last one on the share of own-brand sales. How much higher is the current rate versus a year ago?

We haven't quantified that specifically in the second quarter. The second quarter was exceptional in so many ways, but of course, headline-wise, it was clear that the DIY segment outpaced the home furnishing segment for both total and organic goals. And that's significant as it relates to your question because of the fact that the DIY segment has a lower share of private label than does the home furnishing segment. So the segment mix effect, all as equal, would push the share of private label down, but the share of private label within DIY in itself increased.

Perfect. That's all from me.

Thank you.

Thank you. Next, we have Nicholas Jackman from Carnegie. You may begin the question.

Thank you. Yes. First question is on the COVID-19 impact here. You seem very, very certain that this is a step change in the market and that growth will come back to more normal levels, but from a higher sales level. I'm just curious how How convinced you are of this? What kind of evidence are you seeing that these effects we're seeing right now are not going to reverse going forward? Are you seeing anything in terms of cohort behavior or anything like that, any evidence that this is an acceleration that is likely to continue?

Well, I think that how I interpret your question, Niklas, and correct me if I'm wrong, is that do we believe that a new base has been established? Because we certainly don't believe that growth levels will remain up at the 40 plus percent. But if that is the correct interpretation, do we have a new base, so to speak? Then we believe that we do. We believe that there has been an acceleration in terms of the shift from offline to online. As we write in the report, it's probably been more pronounced within home furnishing, but we do believe that it's happened also in DIY. And that's a change which we don't have the market data to be able to quantify it yet, but we don't believe that it will revert back. So we don't believe that the increase in online penetration is a one-time effect that we'll see clawed back through the offline channel in the time to come. It's simply been what would have happened over a period of time, a longer period of time, has happened in a shorter space of time. So that's, I think, the main underlying reason why we believe that a new base has been established. But also, we believe that it's reasonable to see some... other spending categories being subdued for a long period of time. For instance, foreign holiday travel is difficult for us to see it coming back to pre-pandemic levels very quickly. It will be a staged comeback, we believe. So I also think that it's reasonable that our categories will continue benefiting from a higher share of the immediate effects of the ongoing pandemic subside.

Excellent. Thanks. And that was exactly what I meant with my question. The second question is on the EBIT margin. I think you said here in the statement that you talk about optics not really catching up with the strong sales growth. I'm curious how you see the current 8.6% adjusted EBIT margin in in Q2. Do you think that this is a level that could be sustained going forward, or has it been exceptionally strong in this particular Q2?

It's been exceptionally strong, certainly. The way that our group operates today, the 8.6 percent level is exceptional. So, if we look at sort of a normalized performance for BHG under the current circumstances and into the short and medium term. We don't believe that we'll be able to notch up this type of EBIT margin. Longer term is another question. And as you know, part of our midterm financial targets is that we're striving to reach 7%. And we very clearly see the path to that 7% EBIT margin number. And that target was communicated as all the mid-term financial targets in conjunction with the March 18 IPO. And back then, we applied something like a five-year horizon to reaching that target. that's still our belief that we'll be able to get there and perhaps we'll get there quicker than the five years from March 18. And we're approaching a point in time when it will be suitable for us to raise our sights and to stake out new targets for the next five years, both for net sales and adjusted EBIT. And when we do that, it's quite likely that we'll have a target which is higher than the 7% for that next leg of our journey. But that really is for the next leg of the journey.

Thank you. That's very interesting. I look forward to hearing more on that. Thirdly, you mentioned some supply issues in the garden segment, I think you believe. Is that the only segment that has been impacted? Have you otherwise had... the availability of products that you expected during the quarter. And basically, have your sales been materially impacted by supply issues during the quarter, or is this more of a minor issue in selected product categories?

It's been a minor issue overall. And as we also commented after the first quarter, we are in a good position with our broad product range to substitute products that are temporarily out of stock or unavailable from the suppliers with alternative options. So that has helped mitigate the impact. But having said that, again, within specific categories, and garden is the one that was the most affected one, It's had somewhat of an impact. It also shows a little bit in the average order value where some of the items that have high price points were the ones where we had this still relatively limited but supply shortage. But overall, it's not a material impact on us.

Okay. Thank you. Finally, from my end, in association with the Q1 results, you talked a bit about continental European expansion, and I'm curious if you could elaborate a bit on your view here. Same as we talked about acquisitions before being perhaps a little bit delayed right now because of pricing and because of the difficulties in the diligence. Is it the same with European expansion? Do you think that expanding to new markets at the moment is difficult and maybe put on hold? Or what's your view here?

No, actually, we don't think that the pandemic in itself is a major hindrance in this regard. And when it comes to the valuation levels, it's been within the DIY segment that that's been felt much more tangibly than on the home furnishing side. So, Nothing materially has changed with regards to our outlook for European expansion, including the option of using the M&A toolkit as one avenue of getting there.

And can you remind us what that agenda is? How soon in time? Is this something you could execute on already in 2020? Yes.

We have, as you know, Niklas, we have the Furniture One platform, which, based out of the Baltic states, Lithuania, has operations in 10 or so Eastern European countries. And we haven't entered any new geographies during the quarter, but we most definitely have plans of entering new geographies through that setup. So the two main avenues that we see for expanding on mainland Europe, in mainland Europe, is one, through Furniture One and the continued proven geographic expansion model that we have there, and or, I should say, two, complementing that approach with acquisitions.

Excellent. Thank you. Thank you very much for taking my questions.

Thank you.

Thank you. The next question we have Arthur Benedict. Can you begin your question?

Hi, Michael here from Bloomberg. Hopefully you can hear me okay. Firstly, on M&A, would you be willing to stretch the six to eight times target you've historically aimed for good valuations, particularly in DIY, not return to more normalized levels?

So I guess we... we're always willing to stretch that in a specific instance where the logic was overwhelming or the synergies were overwhelming, et cetera. So that's more of a framework that we operate under than a fixed rule. And so we haven't changed neither the framework or the fact that we give ourselves the license to be flexible around that framework But I guess I'll go back to what I said a little while ago on the discipline. When we do engage in M&A, we continue demanding of ourselves that we keep that discipline. But that discipline could absolutely go hand in hand with paying more in a specific case than the six to eight times.

That makes sense. Thank you very much. Secondly, we've seen very strong growth in the DIY gross margins before selling costs, I think around 440 basis points this quarter. I think that might be more than to be explained by the shift to private label. Are there any other key drivers that have driven that strong improvement?

Sorry, the question relates to the gross margin in the DIY segment.

Yeah, exactly. I think pre-selling costs have increased by over 4 percentage points which I think is more than can be explained by just the shift to private labels. Are there any other key drivers within that?

No, the main developments within DIY are, as you say, the mix shift as a result of increasing the share of private labels. And just to remind everyone on the call on the basic difference in, let's say, a standard, if you will, PML for the private label business compared to the external range, we do enjoy significantly better gross margins or product margins if we start with that. We have somewhat similar costs in handling down to gross margin too, although the product, the private label assortment typically is stock kept. So that can add some costs down to the reported gross margin level. And then we typically have higher online marketing expenses for the private label assortment because those products aren't as well-known as the well-known external brands are. And the net benefit is still substantial down on the EBIT line north of five percentage points, let's say, on average.

Great, thank you. And just one last one from me. The direct selling cost line, we've seen strong B leverage in DIY this quarter and leverage in home furnishings. The only reason for that is difference in performance. What's the underlying drivers of this movement?

So what you're saying is that the direct selling cost line was improved more in DIY than in home furnishing.

Yeah, I think it got worse in DIY and improved in home furnishing.

I'm not sure that I'm following there. And unless, yes, we can look into this, Michael, and get back to you.

Yeah, okay. Thank you.

Thank you. Next question. Next question, we have Marcus Heinberg from Kepler Chevrolet. You may begin your question.

Thank you. So, yeah, thank you for taking my question. The first I have is, with this rising share of private labels, this is, of course, a very long-term and structural question, is how do you ensure that brands find it attractive to list their products with BHT? Of course, you have to differentiate from other third-party distributors of BHT. of branded goods. So how do you ensure that you're kind of not cannibalizing your value proposition towards brands?

Sure. Hi, Markus. We have to look at that segment by segment, because within home furnishing, as I'm sure you know, the vast majority of what we sell is our private label assortment. So I guess your question primarily relates to the do-it-yourself segment. And I think exactly because of the reasons you mentioned, it was more difficult for us to drive the share of private label within the DIY segment in the past because we were smaller than we are today. And today we have four, let's say, country platforms in DIY. In addition to the country platforms, we have a number of niche destinations. Now, the niche destinations, some of those are overwhelmingly comprised of on-brand or private label products. So they don't really have any of the challenges that you're referring to because that's what they sell. And when it comes to the platforms, they overwhelmingly still sell external brands. But given the size and market power that we have achieved in those platforms, there is space to also introduce a higher share of our own brands. And we are not really hearing much grumbling from any of the external brands. who definitely want to continue to be visible in our platforms because we have such great traffic to those platforms. So it's much less of a problem for us than it would have been some years ago when we were smaller.

It makes sense. But are you afraid of competition in that perspective? If you grow too fast, then it could become a problem in the future? Or what's your reasoning or strategy with that regard?

We're always paranoid and we're always looking to the risks we see and think about things that we don't see but might happen, etc. But I don't think that this is one that is of a particular worry to us from a competition point of view. And we're not seeing, we don't believe, we don't want to wholesale and move towards private label on our DIY platforms. We see that having the broadest assortment, which then necessitates having all those well-known external brands, is a huge competitive advantage for us. And as you know, one of our strategic pillars is to continue expanding that assortment And although we keep adding our own brands to that, just by way of the flow of numbers, we will be adding many more external brands, and we'll be adding our own brands also going forward. And having that broad assortment gives us so many advantages that are key to our business model today, at least, including the traffic generation advantages that they offer. give us. So we continue cherishing our external suppliers and certainly see within the DIY platforms that it is those external brands that will continue being the vast majority of the business we transact.

I understand. So my last question is on the average order values, which I think is a very interesting topic because you have managed that very well now in the last quarters. And I understand that a lot of new customers now actually drive the average order values down because new customers naturally want to order less the first time. But that, of course, could increase going forward. And do we have any analysis that you can give us on sort of the underlying POV on recurring customers in the quarter?

So firstly, if we just say a few words about the progression of the customer base, we've looked hard at what those developments have broken down into. And in fact, we've seen this exceptional demand from existing and new customers alike. So it's really not only new customers. that are driving the exceptional demand. It's really, in terms of customer mix, similar to what we've seen in previous periods, just at a higher level throughout the customer cohort. And then when it comes to the AOV development, it's certainly been a mix that has driven some of the big shifts. For instance, in home furnishings, It's been a category mix where the decoration items have grown much quicker than the furniture items, much lower price points, which isn't really a concern because the logistics are just fundamentally different for those. And you can also see that in the way the gross margins are holding up. But there's also been a geographic mix shift in home furnishing and in DIY. But in home furnishing, not least where we have seen this great growth in Eastern Europe, where average order values are somewhat lower structurally than in the Nordics. But also, of course, that goes hand in hand with an overall P&L that is able to handle those those average order values with excellent margins still. So what we're really focused on is ensuring, like for like, that we don't see a structural slip in the average order values for the bulky items that are shipped on pallets. And we haven't seen that. And if we had seen that, that would have been noticeable in A gross margin that didn't look as good as ours does this quarter.

Yeah, that's reassuring. Thank you. That's all for me.

Thank you. Thank you. Next, we have Joss Benstrom from SCB. Can we begin your question?

Hi, guys. Gustav from SCB. Just to mitigate this, if I may. Firstly, could you please let us know what the marketing spend in relation to sales was in the quarter?

Sure. So it was north of 5%, and the marketing spend in relation to net sales has increased in tandem with the increase in the share of sales that comes from the private label range. for the reasons that I mentioned earlier. So it's a total progression in the P&L, which goes hand-in-hand with the share of net sales from private data.

Would you say that it's closer to 5% or 6%? You said north of 5%.

I'd say it's in between those points.

Okay, great. And depreciations quarter on quarter were down quite significantly, 14 million. What's the dynamic behind the depreciation levels?

It's really related to the IFRS 16. And, you know, it's some kind of a judgment sport where you combine new contracts and terminated ones and also try to estimate for how long you're going to stay in the current ones. So it's totally related to IFRS 16 and leasing them.

And what do you think is a good estimate for going forward? Is 42 million intangible depreciation a good estimate going forward?

I think it's a fair one.

Yeah, okay. Great. Great. Thank you guys for taking my thoughts.

Thank you. Thank you. As we have no further questions right now, I will hand the session back to you, Adam, for closing remarks.

Thank you, operator. Thank you, everyone, for your interest today. And we look forward to speaking to you soon again. Wishing you a good day. Bye.