ITAB Shop Concept AB (publ)

Hello, everybody. This is Andreas Elgård speaking. We're happy to be able to present our interim report for the second quarter of 2024. And with me today, I have Ulrika Bergmanskjöld, our CFO, that will support me in the presentation. And we also have Mats Karlqvist, who is responsible for our investor relations, that will support with the Q&A in the end. so just very briefly we will give as always a very short introduction to who we are if there are any new listeners on the call and it's always good with repetition we are going to talk a little bit about what's going on in retail why um why it triggers us to change and the whole industry to change in order to support retailers in a better way and and then we'll go into some facts and figures around the report before we sum up with some main takeaways and then followed by Q&A. I hope that will be good for everyone. So short introduction to ETAB group. So these are 2023 numbers. So at a glance, we are having 15 production facilities across 12 countries. We have operational companies in 23 countries, and we are a little bit above 2,500 employees. We mainly work with retail. Sometimes we do things that is maybe adjacent to retail. Our main customer groups are grocery. That's more than half of our turnover due to self-home improvement. It's the second largest sector. Fashion comes in at number three. But the group, other customer groups or that segment, that's quite big. And things like consumer electronics, pharmacists, cafes or food on the go, service stations is part of that group. And basically we work with all parts of retail with a clear focus on grocery. We do that by providing retail interiors, technology solutions, lighting solutions and services And these services go all the way from designing things together with our customers into taking care of the aftermarket. So all across that spectrum. We are today one of the three largest companies in Europe. So we are a leader in Europe and we have a global reach. So we follow our customers where they go. We have our own activity in China. We have in US and in South America. we follow the customers where they go. And of course we have some really strong brands that we are working with and we have been doing that for a very long time. And we continue to expand our business with existing customers and also with new customers. We like to say that we are what we create together with our customers. So depending on if it is a fashion brand that wants to refresh their meeting with a customer, or it is an electric car company that wants us to help them to build the showrooms where they sell cars in a new way, or if it's a grocery store that is looking to reduce the problems of loss or shrinkage or improve the inspiration across the fresh food department, our effort and the outcome of what we do looks very different. And really, it is a collaboration with our customers, and that's kind of the spirit of what we mean with when we say that we are what we create together with our customers retail is truly going through transformation and that's why it is really important to work together because consumers are more demanding than ever and with all rights they have more information at their hands They seek for more, I would say, that we take better care of their time. So time is well spent. Sometimes they want to invest their time and then it needs to be well invested because they might seek inspiration or new knowledge or they really want to engage with a brand or with an experience. And the dilemma often for retailers is that these expectations don't always come from traditional retail. They come from online experiences, from social media or from online e-shopping. In any case, it means that consumers, they change their expectations. Retailers have a busy time keeping up to meet these expectations. So they are investing just as much as ever before, but they spend their investments across multiple different priorities. And this creates a dilemma for many retailers where we as an industry then and ETH have we need to be able to support them to figure out how to deal with the challenges that retail has today and with the opportunities that it presents. So it means for us that we need to be much more agile, much more consumer-oriented and much more solution-oriented than what we were in the past when the market was predominantly characterized by large-scale rollout programs. Today, it's much more dynamic, much more project-based and Smaller work, but much, much more work. And really, our job is to help retailers with the dilemma that they have to balance the cost versus experience expectation that consumers have for greater experiences. And then that comes with a cost. And our job is to help retailers to do that and to get a good return on capital so their business cases are strong. We do that through something that we call our value proposition. And we say that it's outcome based. So we focus on the value that we create for our customers. And if we create clear value there, we know it will be good for us. It will help us and our suppliers and our partners to also thrive. And we focus on four things. If we can deliver the desired consumer brand experience, each brand wants to let their values and their their brand identity to materialize in front of the customer. And that is what is important to them. And if we do that in a good way, it delivers a lot of value for them. If we at the same time can help them to increase sale and conversion through smart lighting, good displays, inspirational environments, or convenience that helps the sales to grow, then that further adds to the outcome that is positive. And if we, on top of that, also can provide improved efficiency and improved service, then that provides additional value. And can we at the same time then reduce the cost to operate the store or a fleet of stores? then we bring a lot of value to the table. And this is kind of how ATAB is transforming from being a product supplier into being more of a solution provider and delivering on these outcomes for the customers. So it's an integral part of our strategy. And you could say that today we support retailers already in two ways. We, of course, influence the customer meeting. We influence the work environment for the store staff, but we also influence how it is to operate a store or a fleet of stores. We do that with our solutions. So that's kind of the left side of this slide, what we do today. We believe that we'll continue to do that also in the future. That's kind of the core of our know-how and where our retail experience sits. But we need to do that with an addition of even more service. even more data, even more insight, even more actions that comes from insights, a more connected consumer experience where you leverage data collected in store, data collected on other channels and provide more convenience or provide more personalized inspirational experiences. So that's what we believe about in the future. And that's also why we think that in the future, It is important to grow as an organization in order to be able to invest in data capabilities, in new technology, in connected products. It's also important to grow in order to be able to offer more services in a scalable way across the geographies where we are active. Our one ETAB strategy really focuses on transforming ETAB from traditional producing product-oriented company into a service provider, a technology provider that gives solutions that sometimes comes out of our factories and sometimes comes out of our partners' factories, all geared up to deliver the greatest possible outcome for our customers. And we do that, of course, through a number of different strategic priorities. I will not go through them today. We talk a lot about this if you go to itabgroup.com and you can listen to that. But if you boil down our strategy, I need to remind you that when we set this strategy, we were in a situation where we had a high debt, we had profitability that was going downwards year over year, and we were struggling to understand what was going on in the market. So we set out the strategy where we had to simplify our business, we had to take out some costs, we had to take out some capital in order to strengthen our balance sheet and strengthen our financial situation so we could invest into our own future. And that means investing both in our own capabilities, our own competence, our own teams, but also to invest in building the capabilities that we need for the future and also invest in maybe growing ITAB. So all of this is kind of geared up to the simplify and amplify part is geared up to creating an ITAB that can expand through acquisitions, but also through organic growth. And to do that in a scalable way, so the cost base doesn't grow as fast as the sales grows. That's the whole ambition behind the one-eighth of strategy. And I would say that we have come more than halfway in. Maybe we're two-thirds in. We have done a lot of the heavy lifting. We're changing how we go to market. We're changing our competence and in our leadership. And we have started to invest quite heavily into our own capabilities. We are going to continue to invest and we will see that we will see expansion happening. Already now, you can see it in our organic growth, but you will start to see it also when it comes to acquisitions in the future. And just to kind of wrap up this part a little bit, the trends that we have in the current market, because I want to remind everybody, it's still kind of recession light, we have not seen yet great improvements in the economy compared to where we came from last year. Now we see clear signs that inflation is under control in most major markets, but we're not seeing yet the clear signs from financial institutions that interest rates are going down. And this is critical because the will to invest needs, people needs to feel confident that we're going in the right direction. So when the will to invest increases, It will also help us. But already now in this in the current market situation, we are well positioned to help retailers through strong business cases to improve their business by taking costs out, by improving their energy usage or simply improving their consumer experience and at the same time save money doing that. So that's something that we are super eager to continue to talk to customers about and drive growth and profitability. So basically, our whole strategy is geared up to embrace the changes that is happening in the consumer landscape that forces retail to change. And that's really that you have to rethink how you do things, and you have to do that together, together with customers, together across ITAB, and then, of course, together with our suppliers and our ecosystem and partners. So that's kind of the essence of our strategy is to rethink retail and do that together. And by that, I hand over to Ulrika to start the presentation of our interim report for the second quarter. And then I will wrap up with some of the main takeaways.

Yes, good day, everybody. I will go a little bit more into the financials of Q2 and year to date. And looking at zooming out and looking a little bit at the rolling 12 months, our EBIT margin increases to 9.1%. After the latest quarter with continued strong profitability and the sales growth of 12%. After historically very strong first quarter followed by a good second quarter, the EBIT margin year to date 24 of 9.5% is our highest margin for the first half of any year so far. Increased volumes and margins, favorable product mix and higher capacity utilization in our production are main drivers. Our operating cash flow is positive. We have a cash conversion rolling 12 months of 91% and our financial position is still strong. Net debt is still on a very low level, however, with a slight increase since year end related to increased capital need due to sales growth in 24 and also dividend payment in the second quarter. In the second quarter, we have a growth, sales growth of 12% with several of ETA solution areas and most geographic markets reported increased sales. mainly in the quarter driven by grocery that increased 13% and do-it-yourself sector increasing by 28%. Customers have continued focus on loss prevention and smart gates. And in the second quarter, we see also growth in all retail tech areas, mainly in self-service solutions, but also an increased interest in conventional checkouts. The agreement we announced in the first quarter for 7,200 self-checkout has been increased by 25%, which strengthens our market position. Sales growth is also driven by higher demand of shop fitting solutions and we maintain our positive margin trend. Increased share of our technical solutions continues to make a positive contribution to sales and margins. And also higher demand in shopfitting solution had a positive effect mainly in the second quarter. We experienced that the uncertainty in the market trends have somewhat decreased during the year, even though the surrounding macroeconomic effects not yet are significantly improved. However, we see that customer spend is still not normalized and the political landscape in Europe brings some uncertainty. But our gross margin continues to be very strong, driven by a high share of technical solutions, but also generally increased margins across both portfolio and market geographies, combined with a higher production utilization. Although we continue to be successful in loss prevention, we can see margin impact from growth in self-service solutions as well as demands of interior solutions and conventional checkouts. The balance in product mix combined with the increased volumes and sales and improved margins across portfolio and geography and the capacity utilization in our larger factories And also together with the impact we see from the cost reduction we did in 23 is the foundation of our performance improvement during the start of 2024. EBIT of 150 million in the second quarter is 59 million higher than last year and corresponding to an EBIT margin of 8.9% in the quarter compared to 6% last year. And as I mentioned, following the historical strong first quarter, we now year to date have an EBIT margin of 9.5% compared to 5.3% during the first six months last year. And this is our highest reported result for the first half of any year so far. Cash flow from operating activities in the second quarter was 77 million and last 12 months cash flow of 746 million is still strong. However, we have been impacted by increased working capital during the first six months in 24, mainly driven by sales growth and account receivables, where we during the same period last year experienced declining sales. Strong profitability and balancing inventory at the lower level actually than June last year, despite the sales increase, contributes positively. And that indicates also that our efforts to increase capital efficiency are materializing. And by that, I hand over back to you, Andreas, to make a few comments regarding the main takeaways of 24.

Great stuff. Thank you very much, Laika. So just to wrap up this part, I mean, we are proud over the second quarter. We are proud over the way that we have started this year. So that's kind of the overarching main takeaway. And then, of course, we see now that we have increased sales across most of our, I would say, geographies and solution and product areas. Loss prevention is still in high demand. And of course, this is cyclical, so it goes a bit up and down, but we think this trend will sustain for some more time. It's also very interesting to see that we've seen a growth in conventional checkouts because overarching that trend is going down, which is natural with the technology development that is going and also the growth of self-service solutions. But we see this still as a positive development for us because it is in areas where we are really market leader. Our gross margin has continued, and I think it's also a combination of the general sentiment on the market that it's important to protect the margins when sales outlook is sometimes a bit uncertain. We are under heavy competition in our market, so we are proud that we managed to defend our margins. And it's not happening because we have the highest prices out always to our customers. It's really because we are driving efficiency continuously, which is something that we will have to continue to do, I would say, forever. But we have some clear priorities that we're working on that we have communicated before. We have a number of new customer agreements signed, and so we're really positive about the future, and we have a favorable and maybe a little bit more balanced mix, both on product side and customer side, that is contributing to our profitability in a good way. So, and I mentioned that we continue to focus on becoming more efficient on the cost side, and this also... is valid on the capital side. So we are really proud of how we continue to have the right focus here. We think that there's still more to be done in order to further improve us going forward. Yeah, all of this is kind of all good, but it really, I want to remind everybody that we are still working on improving ITAB and modernizing ITAB further. We are investing in modern IT tools. We are investing in common ways of working. All of this is helping us to become even more efficient, but also then able to scale up and to consolidate the market, both organically and through acquisitions. So these are the main takeaways from ITAB's Q2 report in 2024. And by that, I hand over to Mads Kalkqvist.

Yes, I think we can open up for any questions on the conference call.

If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Karl-Johan Bonnevir from DNB Markets. Please go ahead.

Good morning, Andreas, Ulrika and Mats. Congratulations to a very solid report and good to see that you are back to solid organic growth rates again. I like your comment, Andreas, about the strategic rationale and investing in your own operation. and getting back to that being a driver of organic growth. How much do you see that being the reason and how much do you see it being, say, the comments you also had about the normalizing and maybe your customers becoming a little more willing to invest again?

Thanks for the question. I just had to unmute. That's why it took some time. I think it's a mix. As always, you know, I answer in this way, that it is a mix of different things that we're doing. Of course, we see that our, I mean, previously, I would say our margin improvements were driven by that our technical solutions took a bigger and bigger part of our total sales mix. they continue to grow and continue to grow in a really positive way. Right now, I would say it's all parts of ITA that are contributing to the positive development. And everything is not fantastic. We see that the market is a bit more sluggish in Southern Europe than maybe in the Nordic. Last year, the same period, it was the other way around. So I think also this with us being broader and being more balanced across the group is helping. Of course, we have taken out, we've done some quite big things. We have closed factories, we have optimized capacity utilization. We have taken a lot of costs out in ITAB when that was necessary. And we have found ways to work in this more agile market that is more efficient than what we did before. I think if we had not done that, we would not have seen this improvement. Because the market is fierce. It's really competitive. It's more competitive than ever. So I would say that a huge part of our improvement really comes from the ability to take cost and capital out. And if you remember what we said a couple of years ago, we said that that would have a If I remember correctly, we talked about approximately 270 million impact on EBITDA level. And I think that's also what we see. If we look at rolling 12 months, that is the effect that we have seen. And of course, we also closed companies. We took sales out because we closed businesses that were not part of our strategic future and also, or they were underperforming in a way that we, and then we filled up with some acquisitions, but I would say overall, it is the efficiency that is driving our good results and the changed way to go to market and sell more value add products than what we did before. And the value add is, of course, for us, but mainly it's for our customers. That's the reason.

And when you look at the growth from the perspective of the market, I guess you are most likely taking market share as it looks for the moment. And is that mainly driven then by what you alluded to, that you are maybe getting a bigger share of the wallets of your main customers?

I would say that, yeah, I think it's share a wallet. I think that some of, we also have sales to some new customers that is affecting the sales growth. So it's a mix of existing customers and new customers, which is really nice to see. But the majority of sales is, of course, coming from traditional customers.

And one more for me, and then I'll jump back in the queue. Looking at the next phase you alluded to being maybe complementing the organic growth also with M&A, you certainly have the financial resources for it, no doubt. And And you highlighted services and insight, data-driven management kind of verticals as being interesting. Are there any, say, good opportunities for you to, say, deploy cash, your financial power into those kind of segments?

I think that we are, I mean, we need to remember who we are. And we have a strategy. And we have said that we will invest in traditional companies similar to ourselves. That's one part in order to cover Europe in a better way. And I think that what people should expect is that we make investments maybe in those parts of Europe where we are not as strong as we would want to. We also want to invest in more technology companies and in service companies, like we've said before. But at the same time, we still remember where we are coming from with having high debt and having problems with profitability. So we are being really, really picky when we discuss. What I've seen is that some of the companies that maybe could be of interest is that the valuations have kind of been adjusted in the right way. So when you work with M&A, it's always long processes and we are being really, really picky. We want each acquisition that we do to really accelerate our strategy. We don't want to just grow the sake of growing there needs to be a plan with with the things that we do and and we have we have a good plan that we believe in and then when that materializes and we can communicate it to the market stepwise but that i'm looking forward to but it's um for now this is all i can say um but but i do think that if we have just made an investment into um A startup that is head office in Berlin. It's called Signatrix. We made a press release about that not too long ago. It's a super exciting company. We're already working with them. We've already built their solutions into our self-checkouts. We see that we can build this AI. It's visual AI where you recognize behaviors and things that maybe deviate from what you would like to see as a retailer. And then it triggers immediate actions, either for the retailer or for the consumer, for them to have a chance to correct their behavior. This is something we believe a lot in. And I also think that's what you should expect from us, that we invest maybe not always in owning the complete company, but doing strategic investments in partnerships in order to tie them closer to us and also to evaluate if we should step in and take a bigger responsibility. And it's kind of cool that a shop fitting company like ITAB is already selling AI solutions over several use cases.

and it's not like a fantasy it's happening and it's being deployed in retail that's excellent it shows you the value of a traditional operation that can that can maybe make these kind of solutions uh accessible also for for the retailers in a more practical way than a technology company would be able to do so

Exactly. It builds on, it's kind of adjacent to what we are already good at in our core. And then it adds on versus it's hard for startups to go out and be credible when they meet the large retailer. So I think this type of work is how we should continue to do it when it comes to more advanced tech solutions. Then there's also a lot of tech out there that I would say are starting to become or already are commodities. We are also working on some of those and are looking forward to tell the market when the time is right, what our plans are there.

Sounds excellent. And I know this question is probably going to be a little too early, but obviously with the RTM margin trend now at 9.1% or margin target being 7 to 9%, all the good work you have been doing on the growth smart and getting that up, Is it logical for you to maybe strive for a slightly higher margin target in the next phase?

I think my memory is still good, so I still remember where we're coming from. So I would say, I think it's a valid discussion, but let's have this when we conclude 2024. If we're still there in 2024, then I think we need to put a different set of expectations on ITAB. But right now, I think we need to remember a couple of things. First of all, where we're coming from. Secondly, the fierce competition that we have in our marketplace and also the seasonality that we have in our industry and the nature of working in a project business where where a deal easily can go from one quarter to the next or so on. But of course, when you look back, our trend is very positive. And if this trend continues, you're spot on in your observation. But I think that let's give it, let's see if we have a trend or if that is sustainable, then I think you and others will be in your right to demand that we adjust some of our targets.

Thanks for all the color, Andreas, and all the best out there.

Thanks.

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.

Okay, Mats, do we have any web questions?

Yes, we have a couple of web questions. A couple from Anders Rudolfsson at D&B. Margins continue to improve in a good way. Where do you see the margin to be in, say, 18 months?

um good question um we we don't give forecasts like that so i i cannot answer that um i and i think the the discussion i just had with uh call you one is on that same topic we need to remember where we're coming from of course we're still working on improving ourselves and the underlying uh business. I mean, we are actively engaged in in launching, we've already launched, I mean, a group wide CRM systems, we did that one and a half years ago, in order to keep track of our major accounts and build on our experiences. We are we are investing also in our engineering tools and in our ERP environment. So and all to improve efficiency, improve transparency, improve decision-making, but also reduce complexity. So I think that we are working on improving margins also going forward, but we don't project where it will go because the market is so dynamic and things happen and the political environment is also quite So there are good reasons for why we don't give forecasts on future profitability.

Okay. And the second question from Anders was, if we see any interesting business case on IEA, I guess, yeah, you might have answered that as well. Interesting business cases? On artificial intelligence.

Yeah, I mean, what we do, what we have already done and what we are doing, we are building these solutions into our checkouts, mainly self-checkouts, in order to track behavior that is maybe with bad intent or through mistakes. Because sometimes consumers, I mean, we are people, we all make mistakes. Sometimes mistakes happen. So we build AI solutions into and giving prompts. So with Signatrix, for instance, it can prompt a customer to correct their behavior before it triggers an activity from the retailer. We also have these type of capabilities built into our smart gates. Another use case that we've had is a customer in the UK that have quite a large restaurant business, and we've helped them historically to build kiosks and kitchen management systems and so on to reduce waste and improve the consumer experience and efficiency. But there we also built AI to help to analyze the customer profiles and the buying behaviors in the general grocery store. and which customers were more likely to buy something from the restaurants and how would they buy and what would they like to buy? And by using that and dynamically recommend products to customers when they face these kiosks than in restaurants, we were able to drive higher sales and increase conversion. So that's the cases that we are doing, but we don't have a lot of competence in these areas that is kind of spread evenly across the group. So we do that in pockets where we have customers that are willing, that have a dilemma and where we invest in our know-how. But we are gradually building some of these capabilities. So in the future, that will be an increasing part of our... And there will be many more use cases and many more business cases that we will present. We see several of them and we try to cluster everything that we do in the connected, in terms of connecting our products and connecting different solutions on our on-red platform. So the retailer can get a full overview, take actions based on the data. So that's, I hope that answers the question.

Okay, thank you very much Andreas. Then we have a couple of questions from Mark. A reminder of the breakdown of sales per country. suggest that we refer to the report where you can find the sales breakdown per region. And he also asks if we might start to present our accounts in euros rather than SEC, since we announced the contract sizes for our customer deals in euros. I don't know if you have any thoughts on that, maybe Ulrika.

Yeah, I think that we haven't completely discussed that, but maybe that's something we can evaluate going forward. So it's not in the plans right now to change currency.

And I can, of course, the vast majority of our fails are in Euro. So, I mean, there could be reasons for us. It is something that we're discussing, but it's not something that we have taken a decision on. We're still head office in Sweden and so on. We're listed in Sweden. But it's something that we are, of course, it's our everyday reality that we work mainly in euros. But the first part of that question, Matt, I'm not sure if I understood, if it was a reminder to break, down maybe that is in the in the verbal presentation that we should also present how we how sales are developing across different geographies or was that the question to improve yeah I think it might be a good idea to evaluate it for the future but the information can be found in our report

And that was the last question that we have received through the web. So I hand over to you, Andreas, again to wrap up the meeting.

Okay, cool. Then I just wrap up by saying I hope those of you that already started summer, summer vacation, that you continue to have an amazing summer. And for those of us who are about to get some time off, We're really looking forward to it, and it's well deserved for everybody across the team. So thanks for listening, guys. Bye-bye.

Thank you. Bye-bye.