BHG Group AB (publ)

Hi, my name is Gustav Öhrn, and I am the CEO of BHG. I'm here together with Jesper Flemme, our CFO, to present the BHG fourth quarter report. We will also be available after the presentation to do our best to answer your questions. Slide two, please. The financial highlights of the report. It was another challenging quarter from a market perspective, and sales was down approximately 10% per four months. However, given the data points we have, we are confident that we have continued to take market share. Earnings came in at 55 million SEC, still not where we want to be, but with a decreasing top line, we have improved our profitability versus last year's Q4 results. The improvements in earnings are a result of our focus on gross margin improvements and cost reductions. And we can happily conclude that our hard work is starting to pay off. This was the first quarterly improvement year over year on earnings since mid-2021. Continued very strong cash flow with plus 350 million and significantly stronger than last year. We reiterate the message from Q3 that we for 2024 will prioritize profit over cash flow. Slide three, please. Summarizing the year from a financial perspective, the team has reason to be proud of what we have achieved on inventory reduction, cash flow, balance sheet and cost reductions. We set out for 2023 with a communicated ambition to reduce our inventory with 600 million. Summarizing the year, we have reduced our inventory with more than 900 million. We have, as a consequence of primarily the inventory reduction, had a cash flow improvement of more than 1.5 billion SEC during the year. In the beginning of the year, we set and communicated a target to reduce our SG&A with between 100 and 150 million net, and we have delivered on that target with a cost reduction of 125 million net during 2023. On balance sheet, we have as a consequence of our strong cash flow and in combination with the structural work we have done during the year, reduced our interest bearing liabilities with 1.6 billion during the year. In summary, we are from a financial standpoint entering 2024 with a significantly stronger financial position than last year. Slide four, please. A few words about the market in the last quarter and market outlook. This slide is based on the Swedish market, but we see a similar development with smaller variances in most of the markets where we are active. The market was challenging also in the last quarter, as it has been for the last two years with a detracting market and negative sales development following the pandemic. The drivers we all know too well, inflation, interest rate levels, low transaction volume on the housing market, and still some rebalancing effect on category levels following the pandemic. The strongest effect of demand we unchanged seeing capital intense categories as doors, windows, and floors, and other categories associated with renovation. As we all know, the number of renovations is closely connected to the number of transactions in the housing market. Trying to look forward, I think most of us believe that we now most likely have passed peak rent and that the interest levels will come down during the coming year. Our view is, however, that the effect on disposable income for most of the consumers will be fairly limited for the majority of the year, and we are planning for a challenging market for most of 2024. Also on the positive side, we believe that we will see increased activity in the housing market from pent-up demand and improvements in consumer confidence as a result of interest rate levels coming down. And the above-mentioned corona rebalancing effects starting to level off. The fundamental drivers of our business, the migration from physical retail to the online channel, will continue, and the penetration in our categories is still low, both from a categories perspective, but maybe more importantly, also from a geographic perspective. Slide five, please. Leaving the financials and saying a few words about where we are in our main strategic ambition on business unit level. As you know, we are a highly decentralized group of online businesses within do-it-yourself and home improvement. The business is based on what we call entrepreneurial accountability, and we have a very limited group function defining core strategies, working financials, and supporting our businesses through a few center of excellences and utilizing best practice and benchmarking from within the group to support the entrepreneurs. The business is divided into three business units based on category, target group, and business model. The reasoning behind the business unit is that it is primarily on this level that we can realize synergies. Starting with home improvement, a do-it-yourself business primarily in the Nordics and primarily based on a dropship business model. The main strategic ambition of home improvement in the short to medium term is focused on continued consolidation to achieve economies of scale and realize synergies in creating what we call the Nordic do-it-yourself powerhouse. Value home, our home interior business in the value segment, a primarily European business based on a private label-based business model. As a consequence of the supply chain disruptions and the long lead times towards the end of the pandemic, this is where we had the biggest challenges related to inventory buildup and profitability following the pandemic. It was in this business unit we did a major restructuring program in Q3, including two divestments of loss-making businesses. However, we still have our work cut out for us to improve on operational execution and restore profitability in some of the entities in this business unit. However, and with that said, this is where we saw the biggest profitability improvements in the fourth quarter. And finally, premium living, our home interior business in the premium segment and based primarily on a wholesale-based business model. This is a very international business with the majority of the sales from outside of the Nordics. A strong European business with a significant contribution also from Asia. Here, the prime focus is to continue the international expansion and strengthening the Nordic Nest Group. Two weeks ago, we also announced a smaller acquisition to Nordic Nest with the asset acquisition of Kitchen Time. Kitchentime is a segment specialist within dining and cooking, and just as we acquired Svenssons as a segment specialist in furniture in 2021 and integrated into Nordic Nest Group, we will now integrate Kitchentime into Nordic Nest Group. In conjunction with the acquisition of Kitchentime, we also announced that we, during spring 24, will consolidate our lightning business of Lampgallerian into the same group. Basically, reinforcing the Nordic Nest platform, now consisting of Nordic Nest, with a supporting category specialist of Svensson's in furniture, kitchen time in cooking and dining, and Lamp Gallerina in the lightning category. Slide six, please. In our tactical plan for the coming year, we have identified the following key focus areas. After 18 months of focus on cash flow and balance sheet, we will reinforce our focus on profitability, and I will expand how we are to do this in a minute. Continued consolidations. We have done a significant number of consolidations in the last 18 months, and we will continue this focus and work, going from a large number of smaller businesses to fewer and larger platforms. Efficiency. Already a focus for last year with our focus on cost reductions, but planning for a challenging market also in 24, we will need to continue this focus to improve efficiency and reduce cost. Growth initiatives, also with profitability as a main focus and also in a challenging market, we must as retailers continue to take steps to grow our business. This we do through growth initiatives as internationalization, expanding into marketplaces and category expansions. And finally, customer centricity. Focusing on presenting relevant offer for the consumer, delivering a strong user experience and a positive experience in deliveries, both from speed and a quality perspective, is key for customer retention. Buying the same customer over and over again is just too expensive. We need to ensure a positive experience through the complete customer journey to secure repeat customers. Slide seven, please. Coming back to profitability, our key focus for the coming year. This is where we'll put our focus to deliver profitability also in a challenging market. Gross margin improvements will be crucial, and it's a huge focus for us, working on optimizing both supply chain and pricing. Direct selling costs as fulfillment, postage, and online marketing is significant cost drivers within our business models. We need to continue leveraging our reduced inventory to reduce warehousing costs and leverage our size to reduce last mile cost, as well as optimizing our traffic acquisition to reduce online marketing spend. SG&A efficiency. As mentioned, we did a good job last year in reducing costs. We also created some AI powered efficiency, primarily in product and content creation. With a challenging market, we need to continue to build efficiencies, both through consolidations and all other available tools, including AI, where we see a number of opportunities. Slide eight, please. As mentioned, we have taken huge steps in the last 18 months to simplify our structure, creating economies of scale and realizing synergies in the process. We have in these 18 months reduced our number of operational entities from 25 to 15 business units. This has been done through two closings, two divestments, but primarily through a larger number of consolidations. Too many to go through today. We aim to continue this consolidation journey, aiming at a target state of approximately seven to eight platforms. And with that, I will leave it to Jesper.

Thank you, Gustav. And slide nine, please. Net sales decreased 14.5%, reaching 2.8 billion SEK, and organic growth was minus 10.6%. The net sales trend in the fourth quarter was impacted by a continued challenging market. At the same time, our initiatives to achieve geographic expansion outside our home markets progressed well. Segment-wise, the premium living segment had a strong quarter with total growth of 7.8%, driven by very strong growth in the markets outside the Nordic region of 24%. Turn now to page 10 and profitability. Adjusted EBIT amounted to 54.8 milliseconds, corresponding to an EBIT margin of 1.9%, one percentage point higher than the corresponding period last year. From a segment perspective, Premium Living performed best with an EBIT of 45.3 million, corresponding to an EBIT margin of 5.8%. However, The biggest improvement was seen in the value home segment, improving EBIT with 60 million SEC compared to last year. Moving on to slide 11 and the EBIT bridge. The EBIT margin improvement compared to last year was mainly driven by a significant improvement in product margin. In turn, thanks to, firstly, an active effort to normalize the margin structure, and secondly, somewhat more balanced inventory levels in the market. Another positive driver in the quarter was inventory handling costs, as we start to see the effect both from cost initiatives and investments in automation. On the contrary, last mile and other direct selling cost was negative, mainly driven by inflation-related cost increases for last mile delivery. All in all, our EBIT margin amounts to 1.9% in the quarter. Slide 12 and cash flow, please. Our successful inventory reduction continued also in the last quarter of the year and generated a strong cash flow. Cash flow from operating activities amounted to 349 million SEK. For the full year, cash flow from operating activities amounts to a fantastic 1.6 billion SEK. The right-hand graph showing the development in liquidity walks us through the starting period position of 478 million SEK, adding the cash flow from operations and the impact of investing activities, a majority of which is M&A related. And finally, deducting the financing activities, which are primarily related to amortizations of our revolving credit facility and leasing liabilities, but also include interest payments. bring us to the period end, 370 million SEK of liquidity at hand. Slide 13, please. The group's net debt amounted to 1.1 billion SEK at the end of the year, and net debt in relation to LTM adjusted EBITDA ended at 4.01 times. On top of our liquidity at hand, we had unutilized credit facilities at the end of the year of 1.8 billion SEK. Acquisition-related liabilities have been reduced with close to 900 million SEK since the beginning of the year and amounts to 374 million SEK at the end of the year. Cash flow-wise, Roughly 50 million SEK will be paid out in 2024, and another 250 million in 2025. With that, I will hand back over to you, Gustav, to summarize and conclude.

Thank you very much, Jesper. I will do my best to summarize this. Slide 14, please. Market has been challenging since mid-21, and if we now see positive signs, we plan for a challenging market for the majority of 2024. We are very pleased with the result of the work we have done the last year in strengthening our financial positioning, reducing inventory, super strong cash flow, reducing costs, and strengthening our balance sheet. We have delivered on our plan to simplify our business and realize synergies, taking it from 25 entities to 15 operating units, and with continued consolidation, aiming for a target structure of approximately seven to eight platforms. With the work we did last year, we are entering this year with a significantly stronger financial position than where we were last year. And the last quarter of the year, we improved our profitability year on year for the first time since 2021. We have done and are doing the work to be in good shape and well positioned when the market bounces back. And our focus for 2024 is continued focus on profitability. Thank you very much for listening and happy to do our very best to answer all your questions. Please fire away.