BHG Group AB (publ)

Hi, my name is Gustav Orn. I'm the CEO of BSG, and I'm here together with our CFO Jesper Flemme. I'll give you a few highlights of the report, some future outlook, and our focus on the current actions. Jesper will try to further clarify the financial details, and we will both be available for the Q&A, doing our very best to try to answer all your questions. Slide three, please. I thought I would start this with a very short introduction of BSD, what we are and what we do. The group with Big Hama as its starting point was founded in 2012. Since then, we have grown organically and through some 25 acquisitions to the group we are today, approximately 13 million in turnover and some approximately 20 businesses. We are and we aim to remain a highly decentralized group based on entrepreneurial accountability. offering a high degree of freedom for the entrepreneur, also keeping the entrepreneur highly accountable for the results. The head office is very limited to keep central costs low and has in the last six months become even smaller. On group level, we are basically a small group function, a finance function, and complemented by a few very limited center of excellences. The business, since last fall, divided into three business units. Home Improvement, a do-it-yourself-based business making up some 50% of sales and based primarily on a dropship model with a Nordic focus with Big Hama as its lead brand. Value Home, a home interior business in the value segment, built primarily on a private label-based business model, making up approximately 34% of sales and with TradeMax as one of its lead brands. And Premium Living, the latest addition to the group, making up approximately 70% of sales, a highly international business in the premium segment based primarily on a wholesale model complemented with private label. Slide four, please. A few words about the highlights of the second quarter. Sales was down approximately 10% to 11% in the quarter compared to Q2 last year. an improvement from the historically weak first quarter, and we are confident that we with that have continued to take market share in a challenging market. Earnings improved significantly in the second quarter to an EBIT of 98 million Swedish crowns, driven by improving gross margin and cost control. We are also very pleased with a very strong cash flow in the quarter, a cash flow of plus 767 million Swedish crowns, driven by a significant reduction of inventory, being down with more than 400 million in the quarter and plus 500 million year to date. All in all, summarizing an improved cash flow effect of more than 900 million versus the second quarter last year. Slide five, please. A few words about the market development and the future outlook as we view it. Q2 was significantly stronger than Q1, partly driven by more favorable weather conditions. Spring came late, which you all know really affected the first quarter with a weak March. Demand in some of the spring categories was strong during the second quarter, but for some of the more capital-intensive categories, as doors, windows, etc., the market is still weak, partly driven by low activity in the housing market, and as a consequence, less renovations, this putting a dent in the demand in these categories. Looking forward, we expect the remaining part of 2023 and also into 2024 to remain weak in demand, driven primarily by lower disposable income as a consequence of rent increases and inflation. Even if rent levels most likely will continue to increase and even more fixed rent levels will convert to variable rent or fixed rents at considerably higher rent levels, we also need to take into account that we are most likely close to what we call peak rent. And with that, a significant part of the uncertainty of the future rent levels is decreasing. This reduction in uncertainty will most likely have a positive effect on consumer confidence. The price pressure in the market as a result of high inventory levels is still present and has been so for the second quarter, but we believe that it will decrease as inventory levels normalize towards the second half of the third quarter. Slide six, please. Our key focus areas are unchanged to improve profitability, strengthen cash flow, and to strengthen our financial position. To improve profitability, our focus is to drive sales and margin, and also to implement the earlier communicated cost-saving program of 150 to 200 million Swedish crowns. This program is on track, and the main focus is on organizational and warehousing costs. We are also, as part of our focus on profitability, investing in tech platforms in some of our main businesses, both to reduce cost and to enable future corporations to realize synergies. Cash flow was strong in the second quarter with 767 million Swedish crowns. To strengthen cash flow, the most important action is to reduce our inventory levels. We are very pleased with the progress in the second quarter and we are with a reduction of plus 500 million Swedish crowns year to date, currently ahead of our early communicated ambition to lower inventory with 600 million during 2023. We track this reduction weekly by entity and have well-defined goals on entity level to follow our progress against. Last but not least, our focus to strengthen our financial position. During the quarter, we have, in addition to the inventory reduction, sold 20.1% of our holding in Furniture One, this subject to an EGM decision in late July. thereby eliminating a put option and as a consequence, reducing both a potential cash flow effect and our acquisition related liabilities with some 470 million. During the quarter, we have also renegotiated our financing agreement and its covenants, allowing us more financial flexibility looking forward. Slide seven, please. As mentioned, we are very pleased with our inventory reduction in the second quarter. Reducing inventory is crucial, both to free up cash and also because high inventory levels is a cost driver, both from the extra warehouse space it requires and also from decreased efficiency in fulfillment. The focus has been to reduce our inventory of spring and summer products. And we have, as mentioned, reduced inventory by 410 million in the second quarter and with 510 million year to date. and is with that currently ahead of our plan to reduce the inventory with 600 million during the year. We have now reduced our inventory level the last four quarters in a row, and inventory is now down more than 400 million since the peak inventory level one year ago when we closed Q2 last year. With this said, also after reducing inventory with 600 million this year, we see room for further improvements and further inventory reductions in 2024. Slide eight, please. A few words about our strategic priorities on group level to take us back to the pre-pandemic levels on profit and cash flow generation that is our current short-term priority. Customer centricity. We have parts of the group who are super strong on this, and we have others where there's room for improvement. We are now measuring MPS in most entities and we're working hard to improve and we are utilizing both analytics and AI capabilities to improve this both from customer satisfaction and efficiency. As an example, we are already now using ChatGPT to improve both quality and efficiency in our product related content. Competitiveness needs to be a super focus in this challenging market and we are focusing on everything from supply chain efficiencies, warehouse consolidations, to online marketing to stay competitive. Sustainability is one of our defined key strategic focuses and we're trying to break it down into a few tangible focus areas when we can make a difference. On a business opportunity, within ESG, there is an increased focus on selling energy-efficient appliances, and another focus is to improve ourselves on sustainable packaging. Assortment expansion is an area that built this group to what it is, and we remain committed to offer a wide and relevant assortment, and now also looking forward to do this to an increasing extent, enabled by analytics and AI. And last but not least, simplification and consolidation. After 35 acquisitions and 10 years of focus on growth in a strong market, we need to simplify our structure and reduce complexity. As part of this, we are working hard to consolidate our business into fewer entities and thereby realize synergies. The ambition is to remain decentralized but gravitate from many smaller entities to fewer larger platforms. I spoke at great length about this and what we have done and are doing in the Q1 report, and will today settle with mentioning the fact that we, in the last six to nine months, have done a significant number of consolidation and also closed down a few businesses. And we have the ambition to continue on this journey. Slide nine, please. On business unit level, where we believe most of the synergies are to be realized, we have the following key strategic and operational priorities. On home improvement. Consolidation of our entities into fewer and larger platforms to increase competitiveness and simplify our structure and realize synergies. In order to do so, we need to invest in our tech platform to enable this consolidation. And one example of this is Big Hama Sweden, where we're currently investing. Reduce inventory is some of the non-dropship based businesses and reduce cost levels to reflect current tough market demand situation. And focus on growing sales through assortment expansion, through driving into company sales and in some entities expanding internationally. On value home, our focus is, as this is a primarily private label based business model, This is where we have the biggest overstock and we need to continue to reduce inventory levels. And we have also initiated the process to reduce retail footprint in some of the entities where we have physical stores. Upgrade tech platform and in value home more to improve customer experience and to reduce cost levels from older non-efficient platforms. Currently, we are investing in HFN or the TradeMax platform. and also here to consolidate into fewer and larger platforms to improve competitiveness. On premium living, the main entity in this group is Nordic Nest, a highly international business based on selling Scandinavian design in international markets with a main focus on Europe and a few selected markets in Asia. It is clear that internationalization is working and our focus is to continue executing on this strategy. Last year, we also initiated a work to improve efficiency in handling and fulfillment with an investment in auto store for automated picking. Here, we continue this work and with follow-on investments to improve efficiency. Thank you. And with this, I will leave the word to Jesper.

Thank you, Gustav. And slide 10, please. The second quarter of the year saw a clear improvement from a historically weak first quarter, despite underlying demand being weak. Net sales decreased 10.9%, reaching 3.5 billion SEK. Category-wise, the garden and outdoor furniture categories performed better than the group as a whole. Meanwhile, capital-intensive categories performed worse. From a geographical perspective, demand in the Nordic region was weaker than in other geographies, primarily driven by Sweden. Adjusted EBIT amounted to 98 million SEC, corresponding to an EBIT margin of 2.8%. Turning now to page 11 and the EBIT bridge. The product margin improved by 0.8 percentage points compared to Q2 last year, mainly due to strong performance over assortment of own brands, which generally has a higher product margin. Inventory handling costs was lower as we continue to see results from our cost-saving initiatives. Last mile and other direct selling costs was negative, mainly driven by inflation-related cost increases for last mile delivery. Marketing costs increased slightly because of mixed effects. The increase in organizational costs from same period last year is mainly due to investments in tech platforms. Personal-related costs are starting to come down, although cost savings have not yet had full effect. 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 2.8% in the quarter. Moving on to cash flow, slide 12, please. Successful inventory reduction generated very strong cash flow in the quarter. Cash flow from operating activities amount to 767 million SEK. Our assessment is that we will be able to further reduce our inventory this year, but not as fast as during the second quarter. The right-hand graph showing the development in liquidity walks us through the starting period position of 478 million SEK adding the cash flow for operations and the impact of investing activities, a majority of which is M&A related, and finally deducting the financing activities, which includes proceeds from the share ratio in December, amortization of leasing liabilities and interest payments. Bring us to the period end, 1.1 billion SEC of liquidity at hand. Slide 13, please. The group's net debt amounted to 969 million SEK at the end of the quarter, and net debt in relation to LTM adjusted EBITDA ended at 4.1 times. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of 1.3 billion SEK. Acquisition-related liabilities amounted to 1.2 billion SEK at the end of the quarter. Excluding the liability related to Funture One, the liabilities would have amounted to 711 million SEK. Cash flow-wise, we assess that roughly 350 million SEK will be paid out during the rest of the year and another 50 million SEK in 2024. During the quarter, we also amended our existing financing agreement in order to provide additional flexibility from a covenant perspective. With that, I will hand it back over to you, Gustav, to summarize and conclude.

Thank you, Jasper. Will you please take me to slide 14? And I will do my best to summarize this. From a historically weak first quarter, we rebounded with a second quarter that is much stronger on both profitability and cash flow. We expect the market to remain challenging for the remainder of 2023 and also into 2024. We are unchanged prioritizing cash flow and profitability and the strengthening of our financial position. Also in challenging times, we need to continue to drive growth with initiatives as internationalization, in the company sales, marketplace, etc. Our cost reduction program of 150 to 200 million SEC is on plan. Simplifying our structure, including consolidations to realize synergies and also closing of non-performing businesses and reducing retail footprint is high on our agenda. In order to enable this consolidation and also to improve customer satisfaction and reduce cost, we are investing in tech in some of our main platforms. We are very pleased with our inventory reduction in Q2, and we are currently ahead of our plan to reduce inventory by 600 million SEC during the year. Selling 20.1% of our holding in F1 reduces our acquisition rate and liabilities and the potential cash flow effect with some 470 million SEC. Our renegotiated covenants gives us increased financial flexibility looking forward. The main trends that has built BHG to what it is, the migration to the online channel and the interest in home and home environment remains unchanged. And we see no reason why we should not be able to take BHG back to pre-pandemic levels on profitability and cash flow generation. And this is our short-term main focus. Thank you very much for listening. And now me and Jesper will be able to answer all your questions to our best of our abilities. Thank you.