Clas Ohlson AB (publ)

Good morning everyone and welcome to the Klaus Olsson Q4 and year end report presentation. My name is Kristoffer Tonstrand and I'm the president and CEO and I'm here together with Pernilla Walfridsson, our CFO. So looking at the agenda for today, we will review a business update, go through the financial development from the quarter and the year, then cover the events after the reporting period, summarize and then move into Q&A. So highlighting the fourth quarter and the year, we can conclude that we are closing the year from a position of strength. Q4 is a strong finish to a strong year. We have seen very solid organic growth above our targets. We have reported record sales and record earnings, as well as strong cash generation and our balance sheet remains strong, which is also reflected in the proposed increased dividend that we will come back to. And we've also started the new year strongly with 9% organic growth in May. We will also come back to that. So moving into the business updates and looking at the strategy execution following Q4. The business continues to develop in line with our strategy. We see progress across all the strategic pillars and also growth across all the prioritized niches, as well as continued online growth and also a store network that continues to strengthen. We also see that club class and customer engagement is improving and during the quarter we also kicked off the building that relates to the logistics investment and it's progressing according to plan so far. Then looking at how we're performing versus our critical from a customer point of view when it comes back to our assortment, our brand and our customer meeting. We during the quarter have received 90,000 product reviews. It's a smaller quarter, so it's also slightly fewer reviews, but we can also see that the feedback from customers remain very strong. We also deliver on the affordability scoring that we're following every quarter. And also MPS remains strong and still industry leading. So all in all, we're progressing well from a customer point of view. Then turning to our consumer missions, growth continues to be broad-based. All our missions contribute to the overall growth. And I think one of the strengths in our business model is that we're not dependent on one category. We are broad-based and we do have many legs to stand on. And I think we've also been able to demonstrate relevance across many different customer needs during this quarter. So with that short introduction, I will then hand over to Pernilla for the financial development.

Thanks, Kristoffer. Good morning, everyone. Let's take a closer look at the financials of the fourth quarter and the full year 2025-2026. To begin with, net sales were up 11% in the quarter, up with 9% related organic sales increase, 2% related recently acquired subsidiaries, and new currency effect in the quarter. 7% of the increase relates to like-for-like growth, and 1% relates to expansion of the store network. Online sales grew by 25% in total, including the acquired phone life and a third of online businesses. For the full year, total sales amounted to 12.5 billion SEK, and organic sales increased by 9%. During the year, we increased the store network by eight stores. Looking at the home markets, we saw great performance throughout the quarter as well as for the financial year. Organic growth in Sweden was 8% in the quarter, 11% in Norway, and 9% in Finland. The macro environment is, as you know, very volatile. Currencies is, as always, a factor. And in the quarter, the NOC has picked up substantially versus the SEC, whereas the US dollar remained on somewhat lower levels. I would also like to mention that for the coming quarter, we anticipate negative hedging effects from the NOC if the significant uplift versus the SEC remains. Spot prices for shipping remain at reasonable levels, but with a sharp increase in oil prices, we anticipate higher freight costs going forward, as well as higher input costs in manufacturing, but still of course also impacted by the US dollar development. The gross margin increased by 2.2 percentage points in the quarter, up to 50.1%. Key explanation to the strong gross margin were favorable purchasing currencies, improved purchasing prices, lower freight costs, and positive mix effect from sales in the spares group, meaning lower business-to-business sales and higher gross margin in the recently acquired companies. Over to the income statement, we see good operating profit of 180 million SEK and a 6.9% operating margin. The increase in personal expenses relates to higher volumes in our logistic chain, weight increases, new stores and acquired businesses. Other external expenses also increased in the quarter, mainly due to increased investments in marketing and due to the addition of the acquired businesses. The EPS for the quarter was 2.18 sec and 18.40 sec for the full year. The inventory is marginally up compared with the same period last year. This level should be seen in the light of us also adding stores, adding assortment and adding acquired businesses since last year. On the other hand, we have also seen lower purchasing prices and currencies, so all in all a balanced and efficient inventory. Cash flow for the year improved versus cash flow from operating activities totaling 2.1 billion SEK, an improvement from 1.8 billion SEK last year, mainly thanks to improved profits. Free cash flow for the period amounted to 1.3 billion SEK. Net debt, EBITDA, excluding IFRS 16, was minus 1.1. So we maintained a strong net cash position. Turning to investments, I think we have been disciplined in how we have invest for the future and managed to come in at 313 million SEK for the year, which is above our initial forecast of 250 million SEK, but below forecast if we exclude the acquisitions of phone life and a share dealer online. For the year 26-27, we intend to continue investing in our store network, both in new stores and in refurbishment, and we will continue to update our IT landscape. As previously communicated, the vast majority of our automation investment at our distribution center will be accounted for in 26-27. In total, we intend to invest approximately 600 million SEK in 26-27. And with that, I'm handing back the presentation to you, Christoffer.

Thank you very much, Pernilla. And then we will move into the events after the reporting period, starting with the May sales development that we also reported this morning. And overall, we've had a very strong start to the new financial year with an organic growth of in total 9% for the total company. And we see again broad-based growth, with Sweden growing 11%, Norway 5%, and Finland encouragingly 11% organic growth. Other markets grew 22%. So all in all, the momentum continues as we kick off the new financial year. And again, it's also, as I said, broad-based across countries, but we can also confirm that it's broad-based across the five consumer missions. Then turning to the proposed dividend that the board is proposing today. Here, the proposed dividend is amounting to 9.25 kronas per share, up from seven last year, and it's to be distributed as two separate payments of 4.625. The board also proposes an extra dividend of 4.75 kronas per share to be also distributed into separate payments of 2.375. And this is a reflection of the strong earnings growth and the strong EPS development. And our dividend policy moving forward remains unchanged. And the extra dividend reflects the strong balance sheet and the position that we are in from a business model point of view. So moving into the summary and looking at the way forward. We do have a very large market opportunity. We have a strong position. We have a strong brand position. We have high customer satisfaction. We have a strong omnichannel platform. And we also have a strong financial profile. So we see continued opportunities for profitable growth, also supported by our business model that we believe has become significantly stronger now over the last few years. So this morning we also updated and announced updated financial targets. And these targets are valid for the next three years. So starting us of the new year on 1st of May. And here the targets are balancing three important areas. First, an organic sales growth of 5% per year. An operating margin of around 12% per year. And a return on capital employed of around 30% per year. Apart from the financial targets, the dividend policy, as I previously mentioned, remains unchanged. The dividends are to comprise at least 50% of earnings per share after tax with consideration to the financial position. So I believe these targets reflect the company we have become. It's a balance between growth, profitability, but also we did the introduction of return on capital employed, capital efficiency. I believe these targets are supported by the strength of the core business and they're really designed to ensure that we support disciplined and profitable growth over time. So not only for one year, but really over the next three years. And I believe that the targets are supported by the strength of the business model. So with that, I also want to highlight that this afternoon, so starting at 1 a.m. CT, we will have our Capital Markets Day. Here we will have an opportunity to go deeper, opportunity to explain more about the growth drivers moving forward, but also an opportunity to talk a bit more about the updated targets. So I hope to see many of you this afternoon. And with that, we will move into Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Nicholas Ekman from DNB Carnegie. Please go ahead.

Thank you. Can I start by asking about the new financial targets because I note that all three operating performance targets here are below your current level and in the case of growth significantly below and not least in light of the continued strong sales you're delivering here in May. And I'm also noting that if you look in the past, the last two years, you have consistently been above your margin target. The past three years, you've consistently been above your previous sales guidance. So I'm just curious if there's any reason why you're setting a target that is below where you currently are. Are you seeing any imminent threats here in terms of slowdown of sales or margin pressure in the quarters ahead?

So good morning, Niklas. So to answer the last question first, so no, we do not see any imminent threats to our business model. I would rather say that the business model and the company is in a much more stronger structure than we have been in the past. Looking at the targets, they are clearly also outlined for the next three years. So it's not only for the first financial year, but for the next three years. And they should also be seen as in combination. So the 5% organic growth together with around 12% and around 30% return on capital employed. And we believe that that balance is really to ensure that we drive continued disciplined execution. I believe looking back, we have delivered and we have executed and the plan is to continue to deliver and execute forward. And the targets are designed as a combination to ensure that we continue that disciplined execution moving forward. But there are no threats at the horizon and we will continue full steam ahead as we have in the past few years.

Okay very good and continuing on the same topic because you mentioned here in the call input costs now significant tailwinds and you're seeing some some headwinds ahead related to oil prices, freight costs, and then some hedging effects as well. Is there any way to quantify or at least say when these effects are going to hit? I assume that the knock hedging, that's a kind of a Q1 issue, whereas the freight and oil price, that's more for kind of coming quarters. Can you elaborate a little bit on that?

Yeah, you're absolutely right. So relating to the no catching, that's a Q1 effect. And we don't want to go into detailed exact numbers yet. But obviously, that's a Q1. And that's, of course, driven by the strong fluctuation of the Norwegian krona. When it comes to the other parts, transportation and pricing, etc., that's obviously more with the lagging effect, given the... six to eight months time from purchase to selling. At the same time, I also want to be clear that obviously what we are seeing right now with the macro environment is something that is same for everybody. I believe that we are in a stronger position today than we have been in the past, given that we now have more global sourcing markets to operate from. We also have flexibility in terms of the five consumer missions. We're not dependent on one single area. We have a broader structure today. So I believe we are in a good position to manage these things. But obviously, some of these effects are inevitable. But we believe that... Despite those, we will deliver around the target levels that we talked about.

Very good. Thank you. And a last question just on Finland. We've seen a strong performance now, both in the quarter and in May sales here. Can you tell us a little bit about what's going on in Finland, what efforts you've made and what you expect from this going forward? Are you more confident now on an accelerated rollout in Finland, for instance?

Yes, so Finland is clearly an attractive opportunity for us moving forward, and I think our confidence has increased over the last year. We started the Finnish transformation a couple of years back with taking out cost. making the store network more efficient, closing non-profitable stores. Then we have also adjusted the assortment to be better equipped for the Finnish customers. And then we have also rebuilt all our stores. So since last fall, we have started to activate the brand more. than in the past, both via marketing, promotion and campaigns. And at the same time, we have also started a little bit more of an ambitious store expansion. So we have opened a couple of stores last year and we do have a couple of stores also in the plan moving forward. We are confident in Finland. As I've said before, it's not going to be a quick fix, but for us, it's an attractive opportunity for the future. And the key thing is to continue driving the local relevance, continue driving and playing off our strengths also in the Finnish market. And of course, it's encouraging to see the organic growth for the year and also for May going in the right direction.

Very clear. Thanks for taking my questions.

Thank you. As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. The next question comes from Andreas Lundberg from SEB. Please go ahead.

Yeah, good morning. I have a couple of questions, starting with merchandising, how we work with store offering and so forth. Is that on a store-level point of view, deciding on products to have, or who decides that? Thank you.

So when it comes to merchandising, we have centralized most of the decisions in terms of merchandising to central functions and also relying on systems to do that in an efficient way. The benefit with the business model is that we do see there are not huge differences between countries and geographies. There are slight differences north and south, etc. But we have centralized as many of those decisions as possible. While we are also giving a little bit of flexibility to the store managers to top up here and there. But most of the merchandising decisions are centralized.

Okay. I've obviously done a good job there. Then on the dividend payout here, I mean, sure, it will use a special dividend here, but I assume you will soon be overcapitalized again. Is the dividend the tool you will prioritize when it comes to capital allocation and when overcapitalized business? Thank you.

So looking at our capital allocation framework, it's very much to ensure we drive discipline, but of course also returns. So the number one priority is investing in the core business, so assortment, customer meeting, but also infrastructure, for example, what we do now with logistics. Then we also have opportunities to do selective growth investments. And here we're obviously investing in new stores, but also a more ambitious or rebuild agenda that we'll talk a bit more about this afternoon. And then third, obviously, when we have ensured those buckets are fulfilled, there is also then a distribution to shareholders as the third part. As I said, this year we're increasing investment and we're increasing the dividend. And for us, it's important to maintain a strong balance sheet, have the resources to ensure that we are in a position to invest, while we also want to be efficient. And obviously with the return on capital employed target, that is also, of course, a way to drive efficiency in terms of managing cash in a prudent way.

Yes. And lastly on the return on capital employed question or target, does that also imply that you basically assume capital efficiency should be closed on changed from here? Thank you.

So obviously looking back at our return on capital employed development over the years, obviously we closed this last financial year now on the last of April. with the return on capital employed of 34 which is a high level versus historical levels and what we're guiding for is around 30 percent also in the next three years so it's really looking at these three targets in as a balance but around 30. cool thank you so much thank you

There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

We do have one question from the webcast. It's from SP1 markets. He wants to know whether we would be able to elaborate on the magnitude of the gross margin drivers mentioned in your report.

Yeah, so looking at the gross margin drivers, obviously we indicate that currencies is one of the key drivers, but then we also have the purchasing prices, the positive effects from transportation, and then also the positive effect from business to business being slightly below from a mix point of view. So those are the four drivers. I think one comment is that if I look back at the last year, we've had from a currency point of view, it's been slightly negative to neutral. Now, obviously, we start seeing the positive effect from the dollar, but we've also had a positive effect now from the Norwegian krona that has appreciated recently. So we don't want to quantify this more in detail. These are the drivers, and I think the priority order indicates a little bit the magnitude, but we don't want to give specific details on each of the drivers.

And we have no further questions from the webcast, so over to you, Kristoffer, for some closing remarks.

Okay, thank you very much for great questions. And we look forward to seeing all of you at one o'clock CET today, where we will have an opportunity to go much deeper into the business model and the way forward. So thank you so much.