BHG Group AB (publ)

Hi and welcome. My name is Gustav Orn, CEO of BAG. I'm here together with Jesper Flemme, CFO, to present our Q4 report. We will also be available after the presentation to do our best to answer your questions. Slide two please. We are proud to present what we regard as a strong quarter from BAG. After a long period of declining sales, with a gradually improving sales trend during the last year, we now in the final quarter of the year show growth. Sales is up 2% in total and 0.5% organically. We also continue our streak of improvements in earnings, now with a fifth consecutive quarter of profitability improvements. This quarter with a significant improvement in earnings with an adjusted EBIT of 107 million SEK, almost doubling last year's results. The improvement in earnings comes from top line growth, a reduction on direct selling cost and cost reductions on SG&A. This improving our profit margin to 3.7% adjusted EBIT margin. A cash flow of 337 million SEK and a cash conversion of 150% is to be regarded as super strong in the quarter, driven by a strong sales during the Black Friday campaign period. We unchanged continue to prioritize profit over cash flow. Slide three, please. A few words about market development. Market remains challenging, but we also see continued signs of market recovery, where improved macro indicators are turning into demand. The strongest recovery we see in our largest market, Sweden, where these data points also come from, and where we have approximately 50% of our total sales. Inflation is gone, interest levels are coming down or is projected to do so in most of our main markets, at what speed and rate can be debated. Housing transaction and the intention to renovate have improved through most of last year. And even if we saw a small setback at the end of the year, the tendency is unchanged, continued improvements. These improvements have a positive effect on demand in our categories but with some time lag. This means in summary that disposable income which we see as the main driver of demand is on the rise and these improvements also driving positive development in consumer confidence that has been seen a long and improving trend since it hit the bottom in 2022. We should, as mentioned, be mindful that we see differences in the initial stages of recovery between different markets, where Sweden is further ahead in the recovery versus markets as Finland, Norway and Germany. Slide four, please. If we take this to our categories, staying in Sweden, where we have the best data points, looking at the sales trend from Statistics Sweden, or Statistiska centralbyrån, we see a gradual improvement of sales in our categories all through last year. Our outlook is that the market is still challenging, but in recovery, and we believe in continued gradual improvements all through the coming year. Sweden leading the way but with the same tendency but from lower levels and with some time lag in most of our markets. With this said we are all painfully aware that there is significant geo uncertainty which makes it difficult to estimate the risk of setbacks and recovery speed. Slide five please. As I mentioned, we have since the extreme growth during the pandemic operated in a very challenging market, and we have not seen growth since the first quarter of 2022. Volumes versus previous year has gradually improved through all quarters of last year. And of course, we are super pleased to show organic growth in the last quarter of the year, even if it is by a slim margin. Slide six, please. So, super happy to report growth in the fourth quarter. Now trying to clarify where it comes from. From a category perspective, the main growth comes from continued recovery in capital intensive categories as windows, doors and floors. Categories that has been subdued in the last few years that we now see improving from low levels. We also see improvements in home interior, primarily in our private living segment with Nordic Nest and Svenssons as the main drivers. From a year perspective, the main growth comes from our key markets of Sweden and Finland, where we, as mentioned, see Sweden leading the market recovery. And more surprisingly, we also see growth in Finland, a market which we from our data points unchanged regard as challenging. also in germany we see growth primarily from from premium living driven by nordic nest but also from some of our home improvement entities that has recently launched in germany to be noted germany unchanged still a challenging market slide seven please We are currently in the final stages of the restructuring phase and we are pleased that we managed to do and at large achieve what we set out to do. We have from a structural view done a massive consolidation into fewer and larger platforms. We do however still have one platform left to finalize and this is the consolidation of the Nordic do-it-yourself powerhouse. A complex consolidation involving several entities in different geographies into one platform that enables localized offerings with consolidated support functions. This, we estimate, will take some additional approximately 15 months before we have fully finalized. But the main consolidation job is about to be finalized and we are approaching the platform structure of seven platforms that was our target state. We have significantly reduced our fixed cost levels and implemented scalable structures and solutions to enable leverage on cost with increased volumes. And we have dramatically reduced our inventory levels, thereby freeing up cash to reduce our net debts and strengthen our balance sheet. Slide eight, please. Looking forward, now leaving the restructuring phase and entering the next phase, we are doing so with a well-defined plan for profitable growth. In short, and as explained in our Capital Markets Day last year, we have initiated the plan to take us from the low post-pandemic profitability levels to the pre-pandemic levels of 5% and then with market normalization to the 7% EBIT margin that we have in our financial targets. The profitable growth plan is divided into three main components. Growth, driven by operational focus and growth initiatives in all three business units through continued category and geographic expansion. Creating the powerhouses from consolidation. As mentioned, finalizing the structure consolidation journey that has been a major focus for us the last two years. consolidating into fewer and larger platforms and thereby simplifying our business creating scalability and realizing synergies and continued focus on efficiency improvements both from focus on running operations and from new initiatives including focus on areas as group-wide agreements Leverage our size to get better terms. An area where we this year demonstrated the potential with substantial savings from a group wide agreement on last mile deliveries. Using automation and AI to improve efficiency in areas such as product content generation, AI powered customer service platforms and marketing. And automation and fulfillment. As an example from this year, I can mention the finalization of the third phase of our investment in NordicNest's warehouse in Kalmar, where we now in the fourth quarter can see the efficiency improvements with increased volumes in the Black Friday campaign period. And finally, to achieve the 7% EEG margin we have in our financial targets, we will need some help for market normalization. Slide nine, please. Before I leave it to Jasper, a few words about the 2025 tactical focus. To secure that we take our share of a gradually improving market, which means that we are back to focus on market share, we must secure that we grow faster than the market. To ensure that we maintain the cost levels that we have worked so hard to get down and thereby realize the cost leverage with growing volumes. In short, if the phase we are leaving has been about driving down costs in a declining market to secure profit, looking forward, it will be about securing cost levels in a gradually improving market and thereby driving improved profitability. And finally, secure that we don't lose focus on the customer in everything we do. Retail will unchanged be about product price and securing a positive customer experience through the complete customer journey. This will be the only way to secure customer retention and thereby over time a long-term successful business. And with that, I will hand it over to Jesper to take us through the numbers.

Thank you, Gustav. And slide 10, please. I will start the financial part of the presentation by taking a step back and summarize what has been achieved from a financial perspective over the past couple of years. Firstly, we have reduced SG&A by over 400 million SEK over the past 12 months. Secondly, we have reduced our inventory by 2.1 billion SEK compared to the peak level at the end of Q2 2022. and thereby managed to generate a cash flow from operating activities of 2.1 billion SEK over the past two and a half years. Lastly, we have reduced our interest-bearing liabilities by 2.2 billion SEK during the same period. To summarize, we have delivered on our promise. Turning now to page 11 and sales development. We are very happy to report growth after more than two years with a contracting market. Net sales increased 2% reaching 2.9 billion SEK and organic growth was 0.5%. All three segments developed in the right direction during the quarter. Home improvement grew by 2%. Value home contracted during the quarter but improved by seven percentage points compared to Q3. Freeing living grew by 5%, although facing tough comps with 8% organic growth in Q4 of last year. Market-wise, we achieved growth in our three largest markets, Sweden, Finland and Germany. Turning now to page 12 and profitability. Adjusted EBIT almost doubled year-on-year and amounted to 106.7 million SEK in the quarter, corresponding to an EBIT margin of 3.7%. Segment-wise, Premium Living had a very strong quarter with an adjusted EBIT of 62 million SEK, corresponding to an EBIT margin of 7.1%. The greatest improvement was seen in the home improvement segment, improving adjusted EBIT by 42 million SEK compared to last year and reporting a solid EBIT margin of 4.0%. Moving on to slide 13 and the EBIT bridge. The EBIT margin improved by 1.8 percentage points compared to last year. As in the previous quarter, the reduced fixed cost base in combination with efficiency improvements in our last mile operations drives improved profitability and more than compensates for the somewhat lower product margin. The slightly weaker product margin for the quarter compared to the same period last year was primarily driven by a long Black Friday campaign period and negative currency effects. Organizational costs have decreased 20 million SEK compared to Q4 2023, one third of which relates to divestments. All in all, our EBIT margin amounted to 3.7% in the quarter. Slide 14 and cash flow, please. Cash flow from operating activities amounted to 337 million SEK driven by EBITDA and a positive working capital development in turn driven by reduced inventory levels in line with our seasonal profile. The right hand graph showing the development in liquidity walks us through the starting pivot position of 370 million SEK adding the cash flow from operations and the impact of investing activities. And finally, deducting the financing activities, which are primarily related to utilization of a revolving credit facility and amortization of both term loan and leasing liabilities, but also include interest payments. Bringing us to the period end, 473 million SEK of equity at hand. Slide 15, please. The group's net debt amounted to 1.0 billion SEK at the end of the quarter, and net debt in relation to LTM adjusted EBITDA ended at 3.3 times, supported by a favorable working capital position at the end of the year following the normal seasonal pattern. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of 800 million SEK. Acquisition related liabilities amount to 479 million SEK at the end of the quarter. Cash flow wise, 280 million SEK will be paid out this year and another 100 million SEK in 2026. With that, I will hand it back over to you, Gustav, to summarize and conclude.

Thank you very much, Jesper. Let me do my best to summarize this. The macro trend remains positive and is improving in most of our main markets. We are unchanged positive and plan for a gradually strengthened demand in 2025. For the first time since the first quarter of 2022, which was basically when we came out of the pandemic, we see growth in the fourth quarter. We saw a steady improvement in earnings through all of last year and in the fourth quarter we see a significantly improved result versus last year with an almost double profit. We are in the final stages of the restructuring phase when we have at large done and achieved what we set out to do. Now entering the next phase, the implementation of the defined strategy continues. We are humble, but we feel confident and well prepared to capitalize on the coming market rebound. Thank you very much for listening and now happy to do our best to try to answer your questions. Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Nicholas Ekman from Carnegie. Please go ahead.

Thank you very much and congratulations on finally achieving a return to growth. And I'd like to, on that topic, ask you if you could maybe quantify the sequential trend here. You talk about strong Black Friday sales. Was that the main driver here, or did you see continued good growth in December and now also continuing into January?

Hi, Niklas, and thank you. This is Gustav. We are happy with how our sort of black month period developed, but on a general level, I would say it was fairly even through the quarter. Anything you would like to add to that, Jesper? No.

Okay, fair enough. And can you tell us a little bit about value home? Because that seems to be an area that is still struggling. Why is that? And is that the market? Are you underperforming? Did that in any way trigger the management change that we saw recently? And then what are your views on turnaround here for the coming quarters?

value home has been the toughest one and we must admit and we've taken a lot of actions as you know we've really taken aggressive actions on cost we've taken aggressive actions on on on inventory we we've done quite massive consolidations in the end of last year we've also as you mentioned done that done some some management changes so we have taken actions and we're happy to see the positive development in some of the units within in value home but we have other ones where we're still a little bit struggling and we should also mention that we must admit that we in all through most of last year actually had availability problems in the value segment as you all know that's where we had the biggest inventory and that's where we made the biggest inventory reduction and as a consequence of those inventory reductions we actually lost a little bit on availability And it did hurt us for most of last year, also in the fourth quarter. But we're confident with the actions we have taken. But just as you mentioned, we still have entities within the segment where we need to continue the hard work, but should also say that we have other entities in the segments doing really well.

On that topic, if we do see turnaround now, because you've been very aggressive in cutting costs and reducing inventory, what do you think your potential to continue on that if the market recovers? Or is there lots of pent up demand here where you have to increase your investments, where you have to significantly increase your inventory and then reversing the strong cash flow journey that you've done here in the past few years? What do you see that the risk of that happening, a big OPEX increase or inventory increase in 2025?

I think the risk we see for that is fairly low. I think that one of the challenges and one of the efforts that will be very important now coming into 2025 will be to maintain the cost levels that we worked so hard to achieve. And we have not only focused on driving down costs, we've also tried to drive down costs and implement what we call scalable solutions so we can keep costs in control even if volumes go up, which has been important for us. But I think if the last two years has been about driving down costs, I would say that 2025 will be about securing that we don't increase costs So we get the leverage from the cost reductions we have done. With that said, there's always a certain level of cost that comes with increased volumes. So we have to be humble to that. But it's a big focus on maintaining the cost levels that we have achieved.

And from an inventory perspective, I think the answer is roughly the same. At the end of next year or this year, I think we will be able to keep the inventory levels, but they will go up and down during the year with the seasonal profile we have. But we will not see a big inventory increase.

No, and not a big inventory decrease either. So we'll be fairly at the levels where we are by optimizing the content of the inventory.

Very clear. And you mentioned here your margin target of 5% short term. If we see a continued gradual improvement here with consistent positive organic growth in 2025, what do you think your likelihood is that you can reach 5% margin already in 2025?

Well, that we see as a stretch, to be honest. We think it's going to take longer. We have said before that we can believe we can achieve the 5% within a reasonable timeframe, but we have not defined that timeframe. I would say from a general level, that would be a stretch to believe in for 2025.

Okay. Okay. Very clear. Thank you so much for taking my questions. Thank you.

The next question comes from Johan Fred from SEB. Please go ahead.

Good morning, guys, and thank you for taking my questions. A first one on growth and market share. You reported, I calculated, 3% year-on-year growth in your largest market, Sweden. Is this in line with the underlying market, or do you believe that you've taken market share in Sweden as well during the quarter?

As we've said before, it's always difficult for us to estimate the market since we're active in so many categories. But based on the data points we have today, and we've really tried to study that, both on the market and category level, we believe that we have taken market share in the fourth quarter on a total level.

And sort of building on that intel that you've gathered from your market studies, what do you think was the growth rate in Sweden during the quarter? Do you have any sort of guesstimates?

I wouldn't try to do that, no. Again, we're sort of in so many categories, so it's hard, and it will always be a mix effect. So I wouldn't try to guess on that, sorry.

Fair enough, fair enough. I appreciate the answer. Another one, if I may, I went through your annual report or last year's annual report. And as far as I understand it, you have no remaining earnouts to be paid, but approximately 375 million in outstanding seller options. The majority of these are set to expire in one to five years based on 2023 then. Could you provide any more details on the exact expiration dates and or in rough numbers, how would you think about timing of these seller options? And are there any conditions attached to these?

So firstly, the total amount of acquisition related liabilities on our balance sheet is 479 million. Out of those, 280 million will be paid out during 2025 in case that we lose the arbitration with IP Agency. Another 100 million roughly will be paid out in 26 and the remainder of the amount will be paid out in 2027. And the condition is of course underlying performance in most of the businesses, not for the amounts being paid out in

25 but for the amount being being paid in in 26 and 27. okay got it got it um and and sort of uh if you i guess it will be if if everything goes to plan you and you return to to your or a return to five percent margin in 2026 we i guess it's fair to assume that uh that the conditions then will have been met. Is that a fair interpretation?

The 480 million on our balance sheet is based on our internal forecasts. And of course, we will not disclose those. But to give you something, of course, they include an improvement from current levels of profitability.

Okay, crystal clear. Thank you so much, guys, for taking my questions. I'll get back in the queue.

Thank you.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

Okay.

The next question comes from Benjamin Wallstead from ABG. Please go ahead.

Good morning guys and congratulations on getting back to growth. Two questions from me and one is sort of following on Johan's question. You state the goal of increasing your market share in 2025 and sort of taking a bit of a longer perspective here. What is your view of your market share development since say 2022? That's the first one. And the second, what are some measures taken right now that you believe will make the customer favor you over the competition in 2025, basically?

Oh, that was a big one. But I'll do my best, Benjamin. Market share since 2022. Again, you know, it's hard for us on the total level to sort of estimate the market. We're in a lot of different market. We're in a lot of different categories. But I think we have in some of our quarterly reports tried to quantify and we have said that in some of them we believe we have taken market share and I think there's been a few where we believe that we have taken market shares. I would generally say that on home improvement and on premium living, I'm fairly confident that we have taken market shares since 2022. I'm not entirely sure that we have done that in the value home segment, which has been the toughest development for us. I think that is probably, on market share, the best answer I can give you. And if I try to answer... which is a huge question, and I could probably linger on this one for the rest of the day. But on a general level, again, we have to not forget what this is about. This is about retail. And I know I'm coming back to the basics again. It's about product, it's about price, and it's about customer experience. And it's hard to say that it's one thing that's going to make the difference. It's about the details, again, working on the details all the time. But we're trying to drive the operational business through the focus on our assortment, our product, our price, our customer experience. And on top of that, we're adding what we call the growth initiatives. And much of the growth initiatives revolves around either category expansion or geographical expansion, which we also drive. I know that was a fairly general question, but that's probably the best I can give you. Thank you.

Yeah, fair enough. It is a big question, just interested to hear your thoughts. One more question from me, if I may. You note in the report that you have one platform left to consolidate within home improvement. You also state that this is expected to lead to significant savings, and I was wondering if you could put a number on that as well, please.

Not for now, Benjamin.

All right, fair enough. Still work to do before we can quantify those savings. As we mentioned, we also believe it will take another 15 months before it's fully finalized. And I think as I mentioned before, we needed to get the sort of the basic IT structures and platforms in place before we can do the consolidation. And that's why this consolidation is taking longer than most of the other consolidations that we have actually by now finalized.

Perfect. Thank you very much. Okay, let's throw in one more. I was wondering about the rationale of opening a NordicNet store in Hamburg instead of doing or sort of demoing the concept in Sweden when, as you yourself point out, the German market is more challenging than the Swedish currently.

There's basically two main reasons. One is that we see a few retail stores as a way of building brand name and thereby getting a better price on traffic acquisition also online. But the other reason, which is not to be neglected, is that there is an important part of our work towards the suppliers, where many of our suppliers wants to see a physical location. in order to expand into that market. So this is partly to build brand name and partly to secure more brands to that market.

Perfect. Thank you very much. That's all for me.

Thank you. The next question comes from Nicholas Ekman from Carnegie. Please go ahead.

Thank you. Just a few additional questions here, if I may. If I go back to the home improvement platform consolidation, Do you expect any material one-off costs related to this consolidation?

No, I don't foresee any major one-off costs, no.

Okay, fair enough. And the IP agency dispute here, can you update us on where you are on this? When do you think this can be finalized? Do you see IP Agency as your final divestment or do you see that there are other areas that don't really fit into your profile and that might be up for sale either now or in the coming quarters?

If I start with IP Agency, we have sort of finalized the arbitration process and we're now waiting for the final outcome, which we should get good during the first quarter. So that is the status on that, and we don't have any other updates on IP Agency. And if I try to approach your other question, is there any other divestments? We have, as we have said previously, we believe that we have done the majority of the divestments that we plan to do. That doesn't mean that it's entirely impossible that something could come, but the majority of the divestments that we plan to do, that we strategically not fit, we believe that we have done.

Fair enough. Thank you. And just a final question, a nitty-gritty one. But in your statement of net debt, there's a new item here that includes adjustment for taxes and fees related to the corona pandemic, some 257 million. Can you just walk us through what that is? And I assume this was booked elsewhere before. It's now stated as a new item. But can you just tell us what this is?

Yes. It's the support given in Sweden to be able to defer payments of taxes and social fees, which was utilized by us. What is new is that we now know that those liabilities will be paid over 36 months, starting with the first payment in Q1 2025.

Okay, so this is a fee that will gradually be paid for the next three years, basically. Yes.

And it was a support given by the Swedish authorities post the pandemic.

Very clear. Thank you so much.

There are no more questions at this time. So I hand the conference back to the speakers for any written questions.

Okay, we have a few written questions. The first one is about competitors and which are your key competitors in Sweden and how is your cost level

Okay, again, always difficult to define competitors since we're in so many different platforms and also targeting different target groups. But I'll try to break it down on sort of business unit level. And if I start with home improvement, I would say that our main competitors comes from this sort of the legacy players, most of them being more physical than online, basically the Hornbush and the Bauhaus. Those we see as our main competitors in this segment. I think we, through our huge difference in business model, where they are primarily sort of physical and we are primarily online and also based on the dropship model to a large extent, I think I can say that what we do have is a significantly wider assortment. And I would also say that we have a significantly lower fixed cost base because of our different business model. So cost position there, positive. If I take our other business unit of value home, you know, It all comes down to your question, so I would say that's super relevant. If you're going to be successful in value, you have to secure that you have the lowest or low cost base. We have worked super hard on this, as I mentioned. I think we have lowered our cost base significantly in the last two years, both through sort of cost cuts, but also through the consolidation that we have done. And I would say that today, we have compared to our competitors, which is primarily the other value players, a strong cost base. And the last segment to comment on is premium living, where our prime competitors would be the other online home interior players. And there's a bunch of them. And there, I think I can say with confidence that we're basically the only one showing profit. And I think that comes from

efficiency especially and that efficiency and that is efficiency in fulfillment that is efficiency in customer service etc and here i'm fairly confident that we have a strong cost position thank you the next question is is about impairment and do you see any need for impairment of goodwill given today's uh profitability levels and to that question uh when Do you see that EBTA will be the same as adjusted EBTA?

So starting with impairment tests performed and no indication for impairment. And if we move over to the adjusted EBTA, that is reported to be able to follow the underlying performance. And we do not foresee any items affecting comparability going forward as we have finalized most of our structural changes. With that said, If we have something that we feel we need to adjust for, to be able to deliver a fair view of the underlying performance, we will do so in line with our definitions.

Thank you. Okay, and the last question. How many employees does BHG have at the end of 2024? I wish I had an exact answer.

I have to admit that I don't. But I know that we in the past have said that we have close to 3,000 people working in the group. I'm fairly confident that since then we have become less because of the efficiencies we have done, the cost cuttings we have done, and also some of the divestments. So I think the best answer I can give today is somewhere in the region of 2,000 to 3,000 employees.

Okay, thank you.

That was all. Thank you very much for listening. And if you have any questions, please don't hesitate. Just reach out and we will do our very best to answer your questions. Thank you very much.