BHG Group AB (publ)

Thank you all for joining, and can you please take me to slide two? My name is Gustav Vorn, and I'm the CEO of BSG since November last year. I'm here together with Jesper Flemme, our CFO, to do a short presentation of the Q4 report and do our very best to also answer your questions. Please take me to slide three. Today's agenda, in short, we will first take you to the financial highlights of the quarter, and then a few words about the market, Then we will do an update on the actions we are taking to act upon the challenging market environment. Then Jesper will do a financial update, and I will then, in the end, do my very best to summarize. And we will both be available for the Q&A. Slide five, please. Short about the financial highlights. Q4 was another tough quarter. Sales came in at 3.3 billion, a decline of 5.1 percentage points in a weak market. We see that as decent considering the market circumstances, and we estimate that we still did better than the overall market and that we continued to take market share. Both of our segments, do-it-yourself and home furnishing, had a similar development with a decline of about 5% in the last quarter. Profitability was weak in the quarter. Jesper will talk more about that. But the main reason is weak demand in combination with too much inventory in the market.

This in combination leading to price pressure in the market. Highlighting the positives in the quarter. We are very pleased that cash flow improved. We're also very pleased that the inventory reduction was successful and that we over-delivered against our set and communicated targets.

Also, of course, happy that we strengthened our balance sheet with the directed share issue. And we also start to see results of our cost-saving efforts. We will come back and cover all these points in a minute. Slide five, please. A slide highlighting the extremely turbulent market conditions of the last three years. Here you can see our organic growth development from 2019. Hitting the pandemic in the first quarter of 2020, with a massive growth in demand, plus 30 and at times above plus 40% of organic growth, and as you all know, the supply chain disruptions following. and then straight from the pandemic to the outbreak of the war in the first quarter of 2022. Rent increases, inflation, energy crisis, and as a consequence, softening demand. As a consequence of this, and as you all know, we are now in a contracting market after the massive changes to the market conditions of last year. It is challenging times, and we expect a challenging 2023, especially in the first half of the year.

The beginning of 2023 has been tough, with the consumers now really feeling the effects of inflation, rent levels, and now in January we're also being hit by the electricity bills for December. is especially weak in capital intensive product categories, such as windows, doors, baths and floors. Further, we should mention that the comparable numbers for January 2022, before the war in Ukraine started, is challenging. Please stay tuned to slide 6. Given the challenging market and the outlook for 2023, we have taken several actions to respond to the situation. We are convinced that our efforts are gaining traction and we are starting to see the results. In Q3, we communicated our revised strategy and the structural changes to the OEM that we are making. We are focusing on simplified BSG. We want to remain as a decentralized structure, but also realize the potential synergies. standardization we have implemented the new structure with three business units that we communicated in Q3. These are based on similar target groups and similar business models because this is that we believe whether standardization are primarily to be made. Going forward Right now in Q1, we also report on these free business units instead of the two that we report on today. We have, during this last quarter, also initiated the actions to consolidate both at the company level. For example, we have consolidated Nordic Nest and Svenssons into the Nordic Nest Group. And we have also consolidated Nordisk Effens, together with Halfa Group. But we're also doing consolidations on a functional level, for example, consolidating warehouses into each other. We have also initiated actions to close businesses that are not performing. And of course, we are doing our best to transfer that turnover to other entities, as we have done in the quarter with the closure of Stone Factory, and transferring their turnover into Big Hammers, Sweden, and Golan. Our structural actions have generated some items affecting comparability in the portfolio.

We have also set an ambitious cost-saving plan with a target of 150 to 200 million crowns, primarily related to organizational and warehousing cost, and we can see the positive effects. For example, on inventory handling, where we see that the cost has come down in the quarter. Reducing our inventory is key to improve cash flow, but also cost, as inventory is a cost driver. I'm pleased to say that we have reduced our inventory by a further 238 million in the fourth quarter, thereby exceeding the communicated target of 100 to 200 million. The reduction in Q4 is on top of the 98 million we reduced in the third quarter.

With that said, our inventory stood too high and we will continue the work in 2023 with the ambition to significantly reduce our inventory. We have also increased our flexibility with a temporary relief on our covenants, with the covenants from our banks that we announced in the third quarter. And in December, we also strengthened our balance sheet with the $800 million from the directed share issue. With our actions taken and our plan for the future, we are ready to take on what looks to be a challenging coming year. But as always, there will be opportunities. Slide seven, please. Let's have a look at our potential sources of growth in a tough market. International expansion. Many of our businesses are already expanding into new markets with a focus primarily on the Nordics and Northern Europe. And it's surprising how this can be done with very limited cost and cash flow in some categories and niches. In some of our businesses, we see this as a strong growth vehicle in these challenging times. We also see opportunities to grow through external marketplaces, making our products available in new markets, through international marketplaces, and we have examples where this is done very successfully within the group. There's also opportunities to drive more sales between our different businesses. This can be done without driving costs, and we are exploring what we call our own internal marketplace. And in a tough market, there will always be opportunities. We are confident that there will be white spots available to growing when competitors go out of business or lead categories. And finally, Currently, our focus on M&A, for obvious reasons, is limited. But with the market recouped, there will be opportunities for those who are financially strong. Thank you. And with that, I'll hand it over to Jasper. Thank you, Gustav. And go to slide nine, please. As Gustav said, the market conditions continued to be difficult in the fourth quarter. Our sales remained relatively strong, but profitability was weak. Net sales decreased 5.1%, reaching 3.3 billion SEK. Organic growth was minus 3.7%, and pro-form organic growth was minus 5.5%. Our two segments had a similar development in the quarter. Among our many businesses, I would like to highlight two of them.

In the do-it-yourself segment, Pima had a strong finish to the year, driven by its offering of energy-saving products. In home furnishing, our Eastern European furniture business, Furniture One, had a strong development. Adjusted EBIT amounted to 31 million SEK, corresponding to an EBIT margin of 0.9%. The EBIT margin was negatively impacted by price pressure in the market due to weak demand. Turning now to page 10 and the EBIT bridge. The product margin in the quarter was 1.9 percentage points lower than in Q4 last year and was negatively impacted by price pressure in the market as a result of weak demand. Fulfillment cost was overall negative, driven by elevated fuel prices for last mile delivery.

But this was partly offset by lower inventory handling costs. This is an encouraging sign as we are starting to see results from our cost saving initiatives. Marketing cost was a positive in the quarter. We had lower marketing costs and costs per click reduced further, a trend that started in the second quarter. The increase in organizational costs from the same period last year is mainly due to increases in personnel-related costs. We are executing on substantial cost reduction initiatives to adjust our fixed cost base to lower demand. Finally, the increase in depreciation and amortization in relation to sales was primarily driven by weak sales and costs related to lease agreements. All in all, our EBIT margin amounted to a disappointing 0.9% in the fourth quarter. The return to cash flow slid in the 11th place. Cash flow was a positive in the quarter. Our cash flow from operating activities improved significantly compared to last year and amounted to 67 million SEK, negatively impacted by changes in working capital as a result of supplier payments during the period. continues to be key to improving our cash flow, we're happy to say that our inventory was reduced by a full 238 million SEK during the fourth quarter, exceeding the analysis target of 100 to 200 million SEK. The work to reduce inventory continues, and in 2023, we target to reduce inventory significantly. The right-hand graph showing the development and liquidity walks us through the starting period position of 274 million SEK, deducting the cash flow from operations and the impact of investing activities, a majority of which is M&A related.

And finally, adding the financing activities which are primarily related to the new share issues completed in the second and fourth quarter, but also include

amortization of leasing liabilities, bringing us to a period of 478 million SEK of liquidity at hand. Slide 12, please. The group's net debt amounted to 1.5 billion SEK at the end of the quarter, and net debt in relation to LATM-adjusted EBITDA ended at 3.14 times.

As you know, we have previously renegotiated and been granted a temporary relief on covenants by our banks. This relief will remain in force up to and including Q4 next year. In addition, acquisition related liabilities have decreased and amounts to 1.25 billion SEK at the end of the quarter, compared to 1.4 billion at the end of the third quarter. Cash flow wise, we assess that roughly 440 million SEK will be paid out next year and another 50 million SEK in 2024. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of 1.3 billion SEK.

With that, I will hand it back over to you, Gustav, to summarize and conclude. Thank you, Jesper. summarize this. It is a challenging market and we expect it to remain challenging in 2023, especially in the first half of the year. We continue to prioritize cash flow and profitability. We have revised our strategy to better facilitate strategies We are making structural changes including consolidations and closings to continue to simplify the group structure. We have taken actions to reduce our cost levels and our inventory levels. We have strengthened the balance sheet and a further inventory reduction will free up more liquidity. And also to remember, the structural trends that have built HG to what it is remains intact. I'm talking about primarily the migration from physical to the digital channel and the continued interest in our home and our home environments. Thank you very much for listening and looking forward to your questions. If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Benjamin Wolstedt from ABGST. Please go ahead. Hello and good morning, guys. So my first question pertains to earn after valuations. There's quite a significant negative effect in net financials. which leads me to an increase in our net worth. However, in the balance sheet, I have this amount of reduction of, or a sequential reduction of some 100 million crowns. How do we understand this? Good morning, Benjamin. So the amount of our balance sheet is... a combination of earnouts and put option liabilities, and the earnouts are revalued through the P&L, and the put option liabilities are revalued in equity. So that's why we have a total but we have a negative effect in the PML.

All right, the support option liabilities then. Could you also perhaps comment a bit on the overall conversion rate for BHD? It's up significantly sequentially, even after an all-time high in Q3. 22, please.

I would say it's primarily a combination effect. We actually see very different effects within different entities. Some are improving their conversion while traffic is down and others are doing the opposite. So it's hard to do a structural safety that is the main issue. But in quite a few entities, we see the traffic being the challenge and conversion as a consequence is up.

And sort of following on that as well, could you perhaps talk a bit about the combination of flat year-on-year growth in home furnishings in a market that, I mean, the estimates are like low single digits declined. higher conversion and a lower gross margin as well in the home furnishings segment. Could you talk about how that relates to your target of protecting the margin in these times? And sort of to elaborate, when I see higher conversion and lower gross margins, I think about campaigning. Could you just give any comment whatsoever on that statement? I think we should keep