Byggmax Group AB (publ)

Welcome to the Big Macs Interim Report Q1. My name is Carla, and I will be the coordinator of your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host, Carl Sandlin, to begin. Carl, please go ahead.

Thank you. Thank you very much. And again, welcome to this conference call where we will present Big Mac Group's report for the first quarter of 2024. And as you heard, I'm Carl Sandlund, and with me I have our CFO, Lena Northorst. And as usual, we will be speaking to a presentation that you find available on our website, and we make sure to guide you to the right page during the call. As usual, I start with a short business update and focus areas. And Helena will cover the financials. And after that, we open up for questions from you. But let's start and head into the presentation. On page two, you have a short intro. As many of you know, the first quarter of the year is part of our low season. and it's the smallest quarter of the year. We say that the cohort developed in line with our expectations. We knew that the weak macro environment would continue to impact consumers' behaviors with hesitant customers, especially when it comes to larger projects and investments, so nothing unexpected in the quarters. We have a slight decrease in number of customers compared to the same quarter last year, but in line with what we have seen during the last couple of quarters, the decline in sales is primarily driven by a lower volume due to fewer large projects. And at the same time, we continue to have stronger sales and development of products related to smaller projects, such as paint or gardens. We also see some customer behaviors more similar to those before the pandemic, with more customers making their purchases in the stores, and especially during nights and weekends. And this is partly on the expense of e-commerce in the quarter. Overall, the decline in sales is slightly lower than the last quarters, and there are some differences between the markets. The Swedish markets, which started to decline at first, show a stronger development. For example, we worked in London and Denmark in the quarter. And then I will come back to this and cover the finances. But we see significant effects from the measures we have implemented. We have a very strong operational excellence, leading to lower costs. And our focus on balance sheet has effect. Our net debt is 430 million Swedish lower than the same period last year, corresponding to a 30% decrease year over year. So we have continued our efforts to further improve Big Macs, everything to be ready and fit for growth when the market returns again. If we move to page three, for those who don't know us that well, this is Big Max. We were founded in 1993 as a challenger in a business-to-business focused industry. And with 211 stores on four markets, we are now the leading player on the consumer market, offering high-quality products to the lowest possible prices. The Nordic region has a long DIY tradition. Buildings made from timber, a relatively large share of the population with access to multiple houses, and the home as the pivot point of people's social life make this a large and attractive market. And on this market, our foundation is a strong assortment for renovating and taking care of people's homes. We sell building materials, product for bathrooms, storage, paint, and floor, but also garden houses and conservatories. And carefully selected store assortment is complemented by a wider online range of products, both to ensure attractive options, but also to enable our customers to personalize products to their needs. We are the low price leader in this market, which is an attractive position as we experience a general consumer trend towards discount and low price. And offering the best prices, of course, also requires the lowest possible cost. And our unique store design enables both low operation costs but also a very efficient shopping experience for our customers, something that we see as highly appreciated. We care. We care about people, society, and the environment. And the commitment and the strong values within the Big Max groups are seen both in high customer satisfaction scores, but also in a very high engagement index among our employees. And we also have strong sustainability ambitions. both for our own business, but also when it comes to the entire value chain. And we think it should be easy for our customers to make sustainable choices. So overall, we think we want that everybody should have the right to have a fantastic home, and we work very hard to make this happen. Size-wise, on page number four, we are a 6 billion company. We delivered 156 million Swedish in EBITDA. We're a margin of 2.6% last 12 months. And this is the result negatively impacted by the weak Nordic consumer market that we have experienced the last two years or so. We have a strong operating cash flow, and as mentioned, we managed to reduce our net last year. On page five, in the current weak consumer market, price becomes even more important for the customers. And in these times, the Big Mac's business model, based on low prices, is perhaps more relevant than ever. We see in Byggrapporten, which is a survey made among 2,000 people in Sweden and Norway during Q1, that best price and price guarantee is the most important and growing aspect when choosing where to buy building materials. And therefore, it's, of course, really satisfying to see that we maintain our leading position, especially in Sweden. and that before the fifth consecutive year have the lowest prices in Norway when it comes to impregnated timber for a terrasse. So really good and strong results, which is appreciated by the customers. If we move to page six, as mentioned, to be able to have the best prices, cost is key. And we continuously secure the industry's lowest cost level And compared to the same quarter last year, we have five more stores in our portfolio, and we have experienced quite high inflation. And despite this, more stores, high inflation, we have managed to reduce our operating costs by 9%. And this means that we are on a pre-pandemic level when it comes to cost per store. Even though we have experienced some 20% inflation the last couple of years, we have managed to mitigate this cost increase by substantially improved efficiency both in the stores but also in other parts of the company. And I would say that the development is driven by a very strong cost focus always and in all parts of the entire organization. but also from the infrastructure, how we design our stores. If we look at the quarter, we see effects from more efficient scheduling of personnel in the stores, adapting both opening hours, but also the number of employees in the stores to when the customers want to do their shopping. but also from general operational excellence. Within all parts of the business, we focus on how we can further improve way of working and lower external costs while maintaining a very high level of quality in the stores. In addition to this improved efficiency in the stores, the lower costs come also from reduction of overhead and administration, which we made during the end of 2023. And these costs have been reduced by approximately 20% compared to last year. Overall, the cost reduction is slightly, but only slightly lower than the one that we saw in 2023. And that is mainly driven by the fact that Q1 is a low season, a smaller quarter. And also due to the fact that comparables is getting tougher as we started the cost reduction already in the beginning of 2023. But all in all, substantial reduction, and that is from a very low starting point, which I think really proves how deeply rooted cost focus is in the Big Mac's DNA. On page seven, you find another dimension of operational excellence, which is optimizing the assortment and the inventory levels. This involves everything from carefully decide which products to offer, source them to the right price, secure efficient logistics bills, and also to adapt the stores to be able to sell the product to our customers. And during the quarter, during the winter, we have made thorough analysis product by product to secure the right inventory levels for every part of the assortment. including which products to discontinue and where to further improve service level and logistic close. And this has resulted in a significantly lower inventory level than last year, down 15% compared to the same period in 2023, but also at the same time, we put a lot of effort in securing a good and smooth ramp-up to prepare for high season. So despite the lower inventory levels, we have a higher service level, and that is product availability in the stores than last year. And we have managed to take deliveries to the stores without increasing man-hours. So this is an important area for us to ramp up volumes, to make sure that our stores are ready for increased demand, and at the same time secure that we have high capital efficiency and optimized inventory levels. And we are satisfied with how we managed this during Q1. And the focus on optimizing both assortment and inventory levels is something that we'll continue In addition to offer the lowest prices, we're constantly also working on improving our customer offerings, as you see on page number eight in the presentation. During the quarter, we opened two new stores in Sweden, one in Klippan, Skåne, and one in Umeå under the Big Mac Studio concepts. We have announced two additional store openings during the spring. Later this week, we will open a new store in Bergen, Norway. And this will be our fifth store in the Bergen area. And a couple of weeks later, we will welcome a new store in Meldestrand to our portfolio. But it's not only about more stores. It's also about better stores. And as earlier communicated, we have completed our store upgrade program. And all stores, with some very, very few exceptions, are now what we call the Concept 3.0, which includes an updated store design and improved product display in the stores. We're also continuously improving the overall customer experience in the stores. And then one example is a new and enhanced checkout area. which will further improve customer interaction and increase efficiency in the stores going forward. In addition to improving the physical store experience, we have continued to enhance our online channels. We see potential in offering customized products online. A couple of examples are the possibility to buy tinted paint on our site or to configure windows and doors online. which is now available on more markets. Another feature is the possibility to design customized complementary buildings online, as we have presented before. The customers can design a personalized building, which is based on readily available modular options to very attractive prices. We have now added more features to this, which makes it even easier for the customers to design the houses that they want. So these are some examples of how we continue to strengthen our offering, and we see results of these improvements, and from the high engagement among our colleagues around the Big Max Group in very high customer satisfaction in the stores. So overall, we have delivered on our prioritized areas to continue to develop the customer offering with more stores and a better customer experience. to further increase efficiency and to adapt inventory levels. And as you saw, also to strengthen our balance sheet and reduce our net. Before handing over to Helena on the financial, I just want to give a very, very short update on sustainability, page nine. This is an important area to Big Max. And as mentioned in the beginning, we have high ambitions. both for our own business but also for the entire value chain. Last year, our own emissions were down 52% compared to 2010. And we have also reduced the volume of timber going to recycling substantially. But we also want it to be easy for our customers to make sustainable choices. And therefore, we are happy to have introduced a new building board product in the store assortment. It's made from recycled packaging waste and has substantially lower climate footprint than similar traditional products. And we offer that product to a very attractive price. So this is just one small example of what we do to promote good and sustainable products and to reduce overall use of resources. And with that, over to Helena and the financials.

Thank you. On the coming slides, I will comment on some breakdowns on the financials, and I start with sales development on slide 10. We consider marketing sales in line with expectations in the first quarter of the year. things decreased by nine percent during this quarter and as mentioned it is still in low season although it is a lower rate of decline than we have seen in recent quarters. Still Also in line with previous quarter, larger projects continue to have a weaker development and some positive signs on a smaller development, a smaller project still remains. Looking into gross margin, we have a strong gross margin at 33.9%. There is a solid underlying product margin in this period. We have some negative impact from a product mix that has a bigger impact, even a small quarter, and some negative impact from scales, from logistics, where we have lower volumes. In this quarter, currency has a minus 0.5 impact on sales. We have two new stores open in this quarter, and in the last 12 months, we have another five new stores. And new stores contributed with 1.2% on sales in the period. We move on to the next slide. We can see that our strong focus remains, and we have in having further impact from continuous efficient operations in the quarter. The slide illustrates the effect from Big Mac's strong actions to mitigate negative gross profit development from declining sales. If we look into the like-for-like OPEX, we have succeeded in savings of 32 million, almost compensating for the material part of the gross profit decrease. The store contribution from cost savings is driven by both stores and admin, but the reduced administration and overhead is the main driver in this small quarter. We have increased costs of $5 million from the store portfolio, where we have net five new stores in a rolling flow period. Depreciation increased by 11 million due to high investment activities in the last year, in combination with decreased number of leased stores. In summary, a very successful cost reduction. Costs are 9% lower compared to the first quarter of 23, and this is in a high inflation environment and with five more stores in the portfolio. Slide 12 shows the focus we have had on improving cash flow and its results. We have reduced our investing activities in the last 12 months, combined with operational working capital improvements, mainly inventory, and this has strongly contributed to our cash flow from operating activities. Over the 12 months, Cash flow is almost five times as strong as the same rolling 12 months last year, and it must be $964 million. Investing activities is focused on... smaller investments in-store and five new stores in the period, and it's decreased by 45%. Inventory is, as Callum mentioned, optimized to be more in line with season and has decreased by 15%. Finally, on the next page, the work to optimize cash flow and reducing the net debt has yielded results. Net debt, excluding lease liabilities, has decreased by $430 million, comparing with the corresponding quarter last year. It is significantly reduced net debt position. It's driven by decreasing cost levels to meet combined with optimized inventory and low investment activity. It's a strong improved net debt position. Average net debt leverage in the last 12 months is below our target of 2.5, although we have the seasonality within the year. We have committed credit facilities of 1.5 billion and unutilized facilities of 487 million at the end of the quarter. Ambitions and actions to further reduce net debt leverage remain. And action five.

Thank you, Helena. Just to summarize before we open up for questions, on page 14, a couple of points. Well, as everyone knows, it has been two tough years for the Nordic consumers with high inflation and increased interest rates. There are some more positive macro signs that have spread lately with improved inflation customer confidence and improved activity or increased activity on the housing market, even if from low levels. And this will have effect on demand. However, it's still hard to predict exactly when. We see that our prioritized activities may have effect. Strong operational excellence leading to stores in good shape with lower cost and optimized inventory levels and a substantially reduced reduce net debt. Going forward, we will continue to focus on operations, optimization of assortment, and to continue to reduce net debt. We see that Big Mac's position as the low-price alternative with many stores close to customers is strong. The customers appreciate our concept, and we have developed stronger vendor markets And as you have seen, we have a very attractive cost base. In combination with short and efficient supply chains, we can manage substantially more volume in our stores, resulting in both revenue and profitability potential. So we are in very good shape, and we are ready for when the market returns. And with that, we conclude the presentation part of this conference call, and I turn to the operator to open up for questions.

Thank you, Carl. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. So that is star followed by 1 on your telephone keypad to ask a question. Our first question comes from Benjamin Wallister from ADG. Hi, can you hear me? Your line is now open.

Hi, guys. So I have a few questions. I have one on the sales growth bridge. So minus 9.1% like for like. Minus 50 basis points from currency and plus 1.2 from new stores. Could you tell me what we are missing here to make it sum to minus 9%, please?

Yes, there will be a little difference on the basis, on the like-for-like portfolio, since that is moving. There is a little gap in between those. Right. So it will be in the like-for-like base.

Okay. And if you could also tell us a bit about the market growth in the quarter. Based on figures I've been able to see, a market growth of 10% to 15%, or a decline, rather, of 10% to 15% seems reasonable. So I was wondering, what is your view on the market growth in general for the quarter, please? And if you could also give us your thoughts on the impact of the early Easter, that would be helpful as well.

Thank you, Benjamin. Well, starting with overall market growth, we will get better figures, market figures, in the next couple of days or maybe if it's weeks. But the minus 10% to C-scheme, as you mentioned, seems reasonable. We saw the Swedish E-Hundes indicator, EECOM indicator, at minus 20% for Q1 in Sweden when it comes to EECOM building materials. Some differences maybe between the markets, but your estimate seems reasonable, I think. When it comes to Easter, and early Easter has limited impact to us when it comes to sales if you look at the quarter as a whole. We have countries where we operate where we are actually closed during Easter, and that some other markets, you know, people away from work can maybe make a little bit more purchases in the stores. But I would say that on an overall basis, Easter had very limited effect on the quarters.

Perfect. I'm sorry for repeating myself a bit here. Can you give any more flavor on what you've done in concrete terms to once again cut Alpex, please?

Yeah, of course. I think, you know, maybe the number one part is that cost focus is really deeply rooted into Big Macs always. We want to be able to provide the best possible prices for our customers and to be able to do that and to be able to have been able to do that the last 30 years. We have had a lot of cost focus trying to improve ourselves all the time. During the quarter, we see effects from improved scheduling in the stores, both when it comes to man hours, but also some opening hours, actually, in some parts of the store portfolio. We have worked a lot with energy-saving activities, but also when it comes to waste management. In addition to that, we have also reduced our overall administration and overhead during the last year, which we see effect in the quarter. So it's a combination of further improved efficiency in the stores, but also when it comes to reduced and more efficient overhead costs. Perfect.

Thank you very much.

Our next question comes from Nicholas Eckerman from Carnegie.

Thank you. Maybe I can follow up on the last question here. The cost reductions, we note that the costs were reduced significantly from Q2 of last year, so this is kind of the last quarter maybe where you see that effect being analyzed. Is that the right way to look at it, that there will be less cost savings going forward, or is there still a lagging effect that you will see in the coming quarters as well? And As a follow-up to that also, if sales continue lower now in the spring and summer, are there additional costs that you could easily cut?

Thank you. Well, I think we have some remaining effects from reduced administration that we did during the year. So we'll have some effects following the next quarter or maybe a couple of quarters as well. In addition to that, we have this. This was not the one-timer in the cost focus, but something that we always focus on and continue to do also going forward. That said, as you mentioned, you're totally right. Comparables is getting tougher and tougher. We started from an already very, very low cost level and trying to improve efficiency from that. So this is a strong focus area for us and something that we will continue to focus on, but that comparison is getting harder.

Okay, very good. Anything you can say on the outlook as well? Because you mentioned here positive macro signs. We have a housing market that is slowly starting to improve again. Q2 now is the first quarter where you face two years of very easy comparisons, where you've seen basically eight quarters with a like-for-like decline of 10% to 15%. What are the odds or what are the chances that you could see a return to growth, even a modest growth in Q2? Do you think that's likely, or are we more seeing just that the decline is narrowing the same way we saw here in Q1?

I think that we all are very much longing for growth and improved market conditions. And as we said, as you mentioned, we see some positive signs in macro markets. when it comes to interest rates, when it comes to inflation, when it comes to consumer confidence index, housing markets, and so on. At some point, this will increase demand in our markets. It's hard to predict exactly when, and also we don't really give those kind of prognoses. But the important thing for us is to very much be prepared. to make sure that we have a business that is ready for when the demand picks up again. And we do that by both making sure that we have very, very efficient store operations, but also how we work with logistics, inventory levels, suppliers, and so on, to be able to quickly react and adapt to whatever market we see out there. So exactly when the market picks up, it's hard to predict. So I think I leave it there.

Yeah, fair enough, fair enough. And last question, just timber prices. Just looking at the index, it looks like timber prices have been rising a bit in recent months. Is this a challenge at all, or is the increase... too small to have a measurable impact on your gross margin in coming quarters.

No, but as you said, the timber prices have been increasing and decreasing over the years and changing. Our ambition is always to be able to offer the best prices to our customers. And we do that by both our overall OPEX focus, but also, of course, how we work with purchasing, making sure that we get the possible conditions when it comes to purchasing. We still see that the prices for timber products out to consumer is lower than we have seen the last couple of years. But it will vary and it varies going forward. And something that we work closely with to both make sure that we have the best possible on the purchasing side, but also be able to offer good prices to our customers.

Very clear. Thank you very much.

As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Magnus Rahman from Kepler Shiver.

Thank you. I'd start to get back to the cost cuts. Could you perhaps give any indication of the effect of lower electricity prices here and here in Q1? What type of

effects on cost savings you've had from that Yes it is more a question for the previous year where we have some cost savings this year from being more sort of having electricity cost savings programs but the material savings are in the years previously

Right, maybe not on the consumption of electricity. I was thinking the quite substantial decline year-on-year in actual prices, electricity prices.

Yes, also in actual electricity prices. I don't remember the movements in the quarter, but in total it has not been a decrease versus previous years. In the nominal value, those won't be the big deviations from electricity.

All right. And then on store rents, perhaps you can give us an idea here. I mean, you should have been meeting the indexation effect on store rents, but at the same time, perhaps renegotiations have... played out here. So could you give us some indications here of, firstly, maybe the average lease duration you have and what you've seen as relates to renegotiations and the opportunity here?

Thank you, Magnus. Yeah, we have in our contracts, which is usually on the market, we have indexation clauses. So we have a negative for us effect of indexation when it comes to the leases. Of course, this has been not only now, but the last couple of years, a strong focus area for us to try to improve leases when we are able to renegotiate. So this is a focus area to try to mitigate increases, but also to lower leases where possible. It's not always easy, quite opposite, but something that we work hard on.

Right, so the October inflation rate, also the indexation of this year, I guess renegotiations have not been offsetting this. So net, I guess you've had an increase in installments. Is that correct?

That is correct. That is correct. So we haven't been able to mitigate a full increase. You're totally right.

Right. Then just a final one on your gearing here. You mentioned here that being below your target on the sort of average annual figures or the figures on an annual trailing rate, but in the actual Q1 range, You were at 3.2 and it was up from 2.6 Q1 last year. So just putting it this way, if the important sort of now highly anticipated Q2, Q3 high season would continue to be clearly subdued, do you see then that there would be any risk that the leverage going out of 2024 on a sort of one-year average basis could land above your target?

As we continue working on mitigating on the cost side, in nominal values, the NEP debt is going down and hopefully reaching less. or on the probability to balance it. But we are definitely working, and that's the reason why this is still one of our main focuses to continue to work on cash flow.

Right, but it's fair at least to assume that you have a rather wide margin between your own target and your covenants.

Yes, that's reasonable to assume.

All right. Thank you very much. No more questions from my side.

We currently have no further questions. I will hand back over to Carl Sandlin to conclude.

Thank you, and thanks a lot for your participation and for your questions. And if not before, we are really looking forward to meeting you again after our second quarter of 2024. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect your lines.