BHG Group AB (publ)

Hi, my name is Gustav Orn and I am the CEO of BHG. I'm here together with Jesper Flamme to present our Q1 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. Another challenging quarter from a market perspective and sales was down approximately 14% organic. Please note March being the largest month in the quarter and this year with a negative calendar effect from Easter. Earnings came in virtually flat in the quarter, which is the smallest quarter of the year for BSG. With a decreasing top line, we are pleased that we have improved our profitability versus last year's result with a significant 69 million SEK. The improvement in earnings, 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 as this was the second consecutive quarter improvements on earnings. Cash flow came in at minus 111 million sec as a result of a seasonal pattern where we in the first quarter stock up for the large second quarter. We reiterate the message from Q4 that we for 2024 will prioritize profit over cash flow. Slide three, please. As we mentioned in our Q4 report, we took forceful actions during 2023 to put us in a stronger position, both structurally and financially, entering 2024. These actions continue and include significant cost reductions. And as we now summarise the last 12 months after the first quarter, we have on a 12-month basis 280 million SEC lower cost levels than one year ago. We're off 129 million lower in the first quarter of this year. We also took forceful actions on inventory in 2023 and our inventory level in the first quarter is 959 million lower than last year. This also having a positive effect on cost as large inventory is a cost driver, both in warehouse space and as a consequence of lower efficiencies in handling. In summary, we are thanks to the actions we have taken in the last 12 months from a financial standpoint, now in significantly stronger position than we were one year ago. Slide four, please. A few words about the market. The market remains, as mentioned, challenging. We see positive indications in both inflation and in the prospect of interest rates coming down. However, demand is still a challenge in our categories as a result of primarily disposable income being down for most consumers and to some extent, maybe surprising, still some rebalancing effects after the pandemic. We have in the last quarter seen some small improvements in the number of transactions in the housing market, most likely as a result of improvement in consumer confidence. However, the increase still comes from low levels and is unchanged low. Also, the renovation index displaying the intention to renovate remains on low levels. And unchanged, we see the strongest effect on demand in capital intensive categories as doors, windows and floors and other categories associated with renovations. We are confident that the market environment will bounce back, but we unchanged believe and plan for a challenging 2024. Slide five, please. Our main focus is unchanged to improve on profitability. Doing so, we put our main focus on the three main levers of consolidation, growth initiatives and efficiency. I will in a minute describe more in detail what we are doing on each of the above. But we are confident that focusing on these three levers, we will be able to continue to improve our profitability, also in a challenging market, and in the process, continue to also take steps on customer value and customer satisfaction, being in a better position when the market bounces back. Slide six, please. Our first lever, consolidations. As you know, this has been a major focus for us in the last 18 months. the ambition to simplify our structure and realize synergies. Going into this quarter, we had already reduced the number of entities in the group from 25 to 15, primarily through consolidations. And with a high pace, we are moving towards the goal of consolidating the group into approximately seven platforms. This journey continues in 2024 on all three business units. The biggest project is the ongoing consolidation in home improvement, consolidating several entities in different geographies into what we call the Nordic do-it-yourself powerhouse, creating a platform that enables localized offerings, but with consolidated support functions, a journey that is expected to take approximately 18 months to finalize. In value home, we have in this quarter created a new private label-based platform that we call Hemfint Group. Consolidating our two entities of ARK and Hemfint and through the acquisition of Tendrum, we have consolidated three businesses with a similar business model into one entity with a combined turnover of approximately 800 million. All three front ends will remain unchanged. and with a slightly different customer proposition, but with consolidated and mutual management and support functions to realize synergies. And on premium living, it is exciting to see how the Nordic Nest Group continues to take shape. First, we acquired and added Svenssons as a category specialist in furniture. And now in this quarter, we acquired and launched Kitchen Time as a category specialist within cooking and dining. In the coming quarter, we have already decided and communicated that we will also consolidate the business of Lampgallerian into the Nordic Nest Group, taking the role of category specialist in lightning. Slide seven, please. Just a quick example, kitchen time. An example of what you can do when you have your tech platform and your operations in order. On the 11th of January this year, we acquired kitchen time. Less than three months later, it was launched, a fully integrated category specialist in six different languages on the Nordic Nest platform, adding sales, but with very limited resources and cost into Nordic Nest. Slide eight, please. Efficiency. The third lever, the second lever in our mission to improve profitability. A number of actions, including focusing on warehouse automation, as we're currently doing in Nordic Nest and a few other entities, and also leveraging our inventory reduction to create efficiencies in fulfillment. Also leveraging AI as a tool to create efficiencies in the areas of customer service, content and marketing. And also leveraging our size as a group to negotiate better deals on group-wide agreements in the fields as last mile deliveries and payment solutions. Slide nine, please. As we all know, turnover is the main driver of profitability. Therefore, the third lever to drive profit is our growth initiatives. We drive geographic expansion in all three business units, but in the largest scale and with the biggest potential in Nordic Nest, where now plus 50% of sales comes from markets outside of the Nordics. Category expansion has historically been the prime growth vehicle within the whole improvement business unit through the Big Hama business. both through acquisitions of category verticals and also through organically expanding into new categories. This journey continues in most businesses, but with a prime focus in the drop-bit, chip-based, do-it-yourself businesses of Sweden and Finland. In Value Home, with its private label-driven business and the high gross margins, we are already selling over marketplaces as a tool to drive sales and expand internationally. We see continued opportunities to continue to grow our business in value home over marketplaces. Thank you. And with that, I will leave it to Jesper.

Thank you, Gustav. And slide 10, please. Net sales decreased 23.3%, reaching 2.0 billion SEK, and organic growth was minus 13.9%. The year began with a continued cautious market as sales in the first quarter was negatively affected by calendar effects as Easter fell in March. Our premium range performed well in international markets during the quarter. However, our performance was weaker in renovation related and capital intensive categories such as floors, doors, windows, bathrooms and furniture. Turning now to page 11 and profitability. Adjusted EBIT improved 69 million SEK compared to the corresponding period last year and amounted to minus 0.6 million SEK. The strong improvement was mainly driven by reduced fixed cost base as a result of the forceful actions we took last year and maintaining a good gross margin during the quarter. From a segment perspective, value home performed best with an EBIT of 15.4 million SEK, corresponding to an EBIT margin of 3.0%. The biggest improvement was seen in the home improvement segment, improving EBIT with 35 million SEK compared to last year. Moving on to slide 12 and the EBIT bridge. The EBIT margin improved by 2.6 percentage points compared to last year, mainly driven by a significant improvement in product margin. In turn, thanks to firstly favorable mixed effects, less campaign pressure in the market and strategic pricing in the home improvement segment. Secondly, our efforts to normalize the model structure at healthy levels within the value home segment. Both inventory handling and organizational costs positive in the quarter as we see the effects from the extensive savings and structural measures we took in 2023 marketing costs were negative mainly driven by the weak market all in all our ebit margin amounted to zero percent in the quarter slide 13 and cash flow please Cash flow from operating activities amounted to minus 111 million SEK driven by a negative working capital development as a result of inventory buildup ahead of the outdoor season and supplier payments. A development that is in line with our normal seasonal pattern. The right hand graph showing the development in liquidity walks us through the starting period position of 370 million SEK deducting the cash flow from operations and the impact of investing activities. And finally, adding the financing activities, which are primarily related to utilization of our revolving credit facility and amortization on leasing liabilities, but also include interest payments. Bringing us to the period end, 323 million SEK of liquidity at hand. Slide 14, please. During the quarter, we extended our financing agreement with SEB and Danske Bank until May 2026 with an option for a further one year extension by agreement. Total facilities will be reduced with 1 billion SEK to 2.3 billion SEK and financing costs will be improved. The group's net debt amounted to 1.4 billion SEK at the end of the quarter and net debt in relation to LTM adjusted EBITDA ended at 4.7 times. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of 600 million SEK, taking into account the reduction mentioned above entering into force tomorrow. Acquisition-related liabilities amounted to 407 million SEK at the end of the quarter, and no further payment is assessed for 2024. With that, I will hand it back over to you, Gustav, to summarize and conclude.

Thank you, Jasper. Slide 15, please. Then I'll do my best to summarize. The market remains tough on demand. Several macro indicators are developing in the right direction, but we foresee and plan for a challenging 2024. Be mindful that the fundamental drivers of our business, the migration from physical retail to the online channel, will continue and the online penetration in our categories is still low. Our key focus remains on improving our profitability, focusing on one, The consolidation journey to simplify our business and realize synergies continues in all three business units. Two, focusing hard to execute a number of initiatives to improve our efficiency in everything from fulfillment to using AI in customer service, content and marketing, and to negotiating better deals on group-wide agreements. And three, growth initiatives. including both geographical expansion, marketplace expansion, and category expansion. We are pleased to see that the actions we have taken on cost, cash flow, and balance sheet is working, and we are both operationally and financially stronger now than one year ago, and we have improved our quarter results for the second consecutive quarter. Sixteen, please. Then I will just round this off with a last slide before we try to answer your questions. And with this, I would like to invite you all to our first ever Capital Markets Day on the 14th of May at Nordic Nest in Kalmar. Thank you very much for listening and happy to do our best to answer your questions. Please go ahead.