ITAB Shop Concept AB (publ)

Hello everybody, this is Andreas speaking. Welcome to our presentation of the Q3 report. I will try to be consistent and repeat a little bit about who we are and where we're coming from and what we're doing. But I will try to be a little bit more brief than usual so we can get into talking a little bit about the intended acquisition we have and also some of the figures on Q3. So we can leave room for questions and answers. So that's basically the agenda that I just mentioned. So by keeping it consistent I will do a brief introduction to ETA group for potential new listeners or those listening to the recorded version of this afterwards. So we are, these are 2023 figures. So at a glance we are a truly international company with 15 production facilities in 12 countries. We have operations, fixed operations in 23 countries and we are more than 2500 employees. In 2023 we lost some turnover due to the recession across, mainly across Europe and ended up on 6.1 billion Swedish in sales with an operating profit of 7% or an operating margin of 7% which is just in line with our financial targets over a business cycle. Our main customer groups are grocery, -it-yourself, home improvement, fashion or other customer groups. In other customer groups it's quite a big chunk of our business. It's basically all fields of retail and also adjacent hospitality like cafes, some hotel business and service stations, petrol stations and so on. And we service our customers with a combination of course our know-how and then our solutions within retail interiors, technology, lighting and the services that we provide. We are truly one of the leaders in Europe and we have a truly global reach. The biggest segment, grocery, was approximately half of our, a little bit more than half of our sales in 2023 followed by home improvement and fashion. We like to say that we are what we create together with our customers. So depending on if it is an electric car manufacturer or a pharmacy or a fashion brand or it's a grocery store and depending on the engagement, the strategic operation or if it's just a spot buy or a spot effort from our side, who we are is really defined through the engagement and what we create together with our customers. So we look very different depending on the situation and the engagement model. Retail is truly going through transformation so our ambition is of course to transform at the speed of the market and not only play catch up but to be able to lead in our industry when retail is transforming. What is happening is really that changing consumer expectations is forcing retailers to rethink how they do their business because expectations are that they should provide a more guided experience, a more personalized experience. Consumers are also less loyal than they used to be and they have more option and more information than ever before. This puts a true dilemma to retailers where they have a cost versus experience dilemma where they need to invest in staying relevant in the consumer experience and at the same time the cost of operating existing stores and also invest in new technology and online, it's really creating a dilemma for many retailers. So they need to make sure that when they invest they get a proper and good return on capital. And for us and our industry it means that we need to become much more consumer driven when it comes to the insights because that decides how well we can help our customers, the retailers to solve their strategic dilemmas. So it means that we need to deliver value that the retailers recognize and that is delivering on their KPIs and that we become more of a solution provider than maybe a product provider. And it also means that we need to stay much more agile and much more flexible in our operations in order to be able to cater to the varying needs that retailers have. When it comes to being, I would say outcome based, that's something that we took at heart a couple of years ago and started changing how we go to market. So we talk about our value position as being outcome based. It means that we focus on the value that we create for the retailer. And if we can deliver on all these four things that you see on the right hand side of the screen, the desired consumer brand experience, that's the most important part for a brand. It's really to manifest the values that they build into the brand and the experience that they want the consumers to have. And it doesn't matter if you're a discount or a premium brand or somewhere in between, it's really what sets you apart is your brand and nothing creates the brand experience more than the built physical environment in the store. And then of course, if that environment can, it should lead to increased sales and higher conversion. If it does that, it's good. But if it can also improve the efficiencies and the service level that is being provided by the retailer, then it becomes really, really interesting. And if you can do that and you're on top, also reduce operational costs versus the present solution and then new solutions that is being implemented or developed, then it becomes truly, truly great. And such business cases, it's easy to get investments on. The dilemma for us is that in order to reach that position, you need to have really, really strong relationships and you need to get, I would say, in under the skin of the customers where the true questions lie. The true dilemmas are being discussed so we can deliver on the KPIs that the retailer seen or deemed important. This is a picture that might look a bit messy, but if you look on the left-hand side, it is the current situation and eight above today, how we help retailers because we are really helping them to execute their consumer experience and to operate their stores or their fleet of stores. We do that with our solutions, with the lighting, interiors and retail tech. And then in the future, we're going to continue to do that. But everything that is electrified will also be connected. So it will become a question of more about data, about data security, being able to act on insights that you get from data, being able to use data that comes from other pieces of technology or other channels and be able to deliver data from the store that can be analyzed and understood holistically by the brand. This means that questions like data, being agnostic, data security, connected in real time becomes increasingly important. And on top of that, many retailers, they need help. They don't just need help to roll out or change things in their stores. They also need help increasingly with hardware, with data questions, with software questions. So there is a whole new market developing that is circulating around the data connectivity and also services, things like purchasing, fulfillment, consolidation and deployment execution. A couple of years ago, we set out to change both how we go to market, so how we better respond to the changing consumer needs and the dilemmas that retailers have when they want to improve and stay relevant. And we also then had to address our own internal performance, our own internal agenda and efficiency. So we launched something that we call the One ITAB Strategy, that we're really focusing on transforming ITAB into becoming the leading solution provider within our industry. And this is something that is easier said than done. But I think that we have shown in recent years how we've managed to both transform and deal with a very difficult outside market and at the same time improve our financials, both when it comes to financial standing, but also then our profitability. So that is what the whole strategy intended to do. And of course, stabilizing ITAB, we did a couple of, I would say one and a half years ago, we reached that point. We have, in parallel, we have really built and invested in our people, in our building capabilities. Next year, we will start the first launch of a new IT landscape in ITAB. It will take us three years before we are completely connected everywhere. But this is going to drive further efficiencies throughout the group. And it's not just about tools and IT, it's really about capability and how we go to market. And then with a communicated intended acquisition of HMY, I would like to put also a check mark on the expand piece of our strategy. Because the purpose of the strategy was not to stabilize the economy or to build new capabilities and invest in those. It was really about building a platform, a more scalable platform that could grow organically and also would bring ITAB back to growing through acquisitions. And that's really what we have been communicating. So we're looking forward to completing that process. All of this, I would say, this is our mantra that we use, that it's all about rethinking retail. And the most important part is to do that together. Because large global, well-known international consumer brands are struggling to understand how they need to behave. Our industry is coping with the changes that it had meant for physical retail. There is more work than ever out there. But it comes in a different shape of fashion than before. And the way to solve it is by working together, crowdsourcing, being open, being agnostic, and being really humble that you don't sit on all the answers yourself. But if you put your heads together, we can help each other to rethink retail. I will just say a few words on the intended acquisition of H&Y. I only have two slides, more for, and I refer to the presentation we made a month ago when we communicated this. And you can watch that if you want to have some more details. But really what it's all about, it is what our intention is, is to, together with H&Y, combine two of the market leaders and create a European leader that will help our industry to mature and that will help to start the process of consolidation in our market. The market that we are in is huge. And our own eight-up estimation is that the addressable market for us is more than 10 billion Euro. And even if the intended acquisition is completed, H&Y and eight-up together would be approximately 10, 11% of that addressable market. And we can still increase the size of the addressable market by adapting our offer. And there is still plenty of room to grow before we come even close to a position that would be considered dominant or anything like that. So it's a very, very fragmented market that is in front of a need to mature because the requests from retailers about data security, connectivity, environmental reporting, environmental, not just the CSRD directive reporting, but also the performance and the continuous improvement, those demands become increasingly difficult. And you need a critical mass or scale of economy in order to be able to do that, in order to keep up with all new technology through R&D. And of course, the intended acquisition is not just something that we think is necessary in order to reach scale, but it's really strategically and financially attractive to all our shareholders. H&Y and eight-up don't really have many clashes where we compete on the market in a way that would create problems for us. So it's really complementary geographically. H&Y are strong where we are not so strong and vice versa. So it's really a perfect match if you look at the map in, I would say in Europe, Middle East and South America. Also, the relevance towards our customers increases because we have some strengths on both ends that we can offer combined to our customers and bring more value to them. And of course, the increase in scale will lead to improved efficiency and synergies, both in cost and in capital. And also synergies will also come from the commercial side. And I think this is very, very important to keep in mind. And then even though we create a European leader, still we are small and still Europe offers plenty room for us to continue to grow both organically and through further acquisitions in the future. And I just want to repeat that it is an intended acquisition. It is conditional upon necessary regulatory approvals, other types of approvals, and as well other customer closing conditions. We estimate that closing will happen in December or January, so December 2024 or January 2025, unless something unexpected happens. But this is really what we believe is most relevant at this given moment. And if you look at the figures when you combine us and you also look at the potential of the synergies, I think most people will agree that this is financially attractive and it offers an improvement for all ITM shareholders. And by that, I will hand over to Ulrika that today will present the figures before we wrap this up with some main takeaways and questions and answers.

Yes, hello everybody. I will present a little bit more around the Q3 figures, but also for the full reporting period. So looking at the full year development for the last 12 months, our EBIT margin shows an increase to .5% after a weaker third quarter compared to the strong first half of 2024. Sales increased despite delaying customer projects, but margins were lower, impacted by lower sales of technical solutions, mainly related to loss prevention compared to both last year's third quarter and also the strong beginning we had in 2024. We still experience a considerable interest in our loss prevention and self-service solutions, but the outcome of a quarter can be impacted by timing of delivery for individual projects. For the full year period and rolling 12 months trend, increased volumes and margins in total favorable product mix and higher capacity utilization in our production are main drivers for the result development. Our operating cash flow is positive with the cash conversion rolling 12 months of 87% and our underlying financial position is strong. Our net debt is in the quarter three impacted by the directed share issue of 544 million we had in September related to the intended acquisition of H and Y. And if excluding this, we are still on a very low level. In the second quarter, we had a growth of 2%, 4% if adjusting for currency, where several of ITAB solution areas and most geographic markets reported increased sales. This was mainly driven by grocery, increasing 17% in the quarter compared to last year and the fashion sector with 11%. If we look at the full year reporting period of nine months, we had a growth of 6%, 7% if adjusting for currency. Our sales growth in self-service solution continues while we have experienced a delay in some loss prevention projects impacting our product mix negatively in Q3, where our share of sales for technical solutions declined somewhat compared to the four quarters. As a result, the product mix did not have the same positive impact on the gross margin and earnings in the third quarter as we have seen in the previous quarters, where our margins have strengthened year on year. Our assessment is that we are not losing any customer orders, but that the project-based nature of our operations means that customer investments may be adjusted in time. This can be affected by external factors, but also customers may have specific reasons that we are not always able to influence. We are very focused on continuing our efforts to fill our order book for the quarters ahead and on underlying long-term earnings improvement as part of our strategic focus. We experienced that the uncertainty in the market development have somewhat decreased during the year, but some customers are remaining cautious on their investment decisions. So the surrounding macro effects are not yet significantly improved and customer spend is not completely normalized. Our margins, as I mentioned, weakened somewhat in the third quarter, mainly driven by the lower loss prevention solutions impacting our product mix negatively. Compared to the last four quarters, where we have seen a very positive development with strengthened margins and volumes year on year. Apart from this impact driven by project-based postponements, we generally see increased margins across both portfolio and market geographies, combined with a higher capacity utilization in our main factories. For the full reporting period of the first nine months in 24, we have in total an increased share of our technical solutions compared to last year and a positive contribution to sales and margins. And we also experience higher demand in shop fitting solutions, mainly driven by growth in the grocery sector. Our adjusted EBIT of 90 million in the third quarter, excluding non-recurring cost of 21 million connected to the planned acquisition of H and Y, is 39 million lower than last year and corresponding to an EBIT margin, adjusted EBIT margin of 5.8 percent, where we last year had 8.5. For the full reporting period in 24, our adjusted EBIT is 401 million, which is over 100 million higher than in 2023. And we have an adjusted EBIT margin for the full year of 8.3 percent compared to 6.4 last year. If we look at our cash flow from operating activities in the third quarter, we had a cash flow of 160 million. And the last 12 months cash flow of 667 million is continuously strong corresponding to a cash conversion of 87 percent. Strong profitability development during the year and balancing inventory levels at the lower level than last year, despite sales increase, contributes positively and it indicates also that our efforts to increase capital efficiency are materializing. And we will continue our focus, strong focus on capital and capital efficiency going forward. By that I thank you and hand over to Andreas to comment on the main takeaways.

Yeah, so to just to wrap it up before we go into questions and answers, of course Q3 is historical because of the communication of our intention to acquire H&Y that we believe will be closed. And when closed it means a doubling in size and a lot of opportunity for us to build a base for the future that will be I think very important, not only for us but also for the industry. I would say that so far this nine months we have managed, despite no improvement in the macroeconomic climate, we've managed to grow sales and improve our profitability, which is something we're really proud of. Of course we were not able to continue the strong start with the first two quarters and I think that maybe some deals landed in the second quarter and maybe some deals have gone into the next quarter. All in all we believe that it's going to be a good year for us, that's what we, 2024, especially considering the historic importance of what we have communicated and hopefully we'll be able to close soon regarding H&Y. So just to mention, currency adjusted sales have increased by 7%. We are on an adjusted margin on .3% which is really good. So we really think that so far this year we should be proud over the work that all our teams have done and to deliver value to our customers. We continue to focus on working on becoming even more capital efficient and also adjusting costs when needed in order to make sure that we stay on a positive trajectory. Yeah and I think that's the wrap up for today and that will lead us into the Q&A.

If you have any questions, please dial pound key 6 on your telephone keypad. The next question comes from Carl Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning Andreas and Ulrika. A couple of questions from me if I may. First looking at the gross margin headwind in the quarter, would you say that that is just related to say the mix effect you elaborated on or is there something else happening that we should be aware of?

I would say no. I would say that in general it's the mix effect but also things like customer mix and so on has a play on this. Yeah so I would say that the majority is that and also that Europe is quite well and I would say that the main deviation versus last year is outside Europe or in UK. So yeah outside the European Union so to say.

Excellent and because I guess that over time is going to be quite neutral for you. I can appreciate the quarterly volatility in the numbers you alluded to. Looking at the HNY acquisition, you had a timeline for a lot of meetings with say French Union representatives filing to the competitive authorities. Could you just update us how you feel that that timeline has progressed for you?

Yeah the timeline so far is progressing according to what we assumed when we announced the deal. So all filing has been done to the appropriate authorities and the works council process is also in motion and the only thing I can say so far is that we are in waiting mode when it comes to getting the replies. We don't foresee any major risks or hiccups so we're anxiously looking forward to getting the green light to be able to finalize the

deal. Sounds very promising and then if you turn to I guess even if it's not completed deal yet I guess you must have got a lot of customer feedback. What kind of reception did you get from your clients on the deal?

Yeah I mean we have been really clear to co-workers, suppliers and also our customers that what we have communicated is our intention and of course it's a very strong intention with a lot of commitments and so far it has been an overwhelming positive reaction from our people. It has also been a positive reaction from most of our customers and we had maybe one or two customers where we expected that maybe there would be some I would say some cautiousness or some but we have actually heard the opposite from those customers that we believed that there are some really important customers of ours. So all in all the reception from customers and co-workers have been really positive. Of course there are some question marks in I mean if you look if you put our two companies next to each other in geographies or parts of 8-Dub where maybe H&Y are very dominant of course we have co-workers that are worried about what might this mean for me and for us and which is a very normal reaction but we really see that it's very very complementary and many of these parts of the world we have different varying strengths that would help to enhance the combined entity. And then what we've heard from H&Y is similar types of reactions that customers have been positive and that co-workers have also been positive. I mean today they are owned by a private equity and we are of course industry partner or colleague and so that's different and I think also with them it has been similar type of reactions that we have seen or at least what we have heard.

Sounds very encouraging and when you look at the just trying to combine with my original question about the product mix and the customer mix do you see that that impact will ease so to say when you double in size getting to get into the new structure when the deal is finalized and it might create bigger opportunities to say also get the margins out of the interior operation to close maybe to what you're already getting out of the technology side.

Yeah I mean I think that your question is interesting because I think I don't think I've received this yet but what really happens when we put the two companies together I mean of course there are synergies that will help to drive the margin in a positive direction and these synergies are quite significant and we have only kind of accounted for or promised a fraction of the true synergies. I believe that especially the upside and the commercial strength is quite large but we have been cautious in what we have promised but also what it gives I mean if you talk about shareholders and how to expect I mean the larger scale of course we will follow the macroeconomics as any other company but it also gives us more volume that will also give more stability because today 8W maybe stands firm on a couple of legs but if we get more legs to stand on over time if a region or a part of the group is going through a more difficult time it will even out and I think that it will be easier to predict if you're somebody that's on the outside trying to understand what to expect from 8W I think it will be easier in the future if this intended acquisition is completed and once we're well integrated I think it will help to mature us and it will become more predictable and also the whole industry I think will benefit from us being more mature. I don't know if I'm doing

it right. And yeah that is a good way of yeah it's a far reaching question but it clearly shows the potential and obviously Andreas looking back to when you joined Etab since then basically the underlying market has been in headwinds and now you're indicating that we are yeah maybe coming into a more of a neutral situation it's not the headwind anymore what is the big difference going to be if you think when you're getting into a market where you have tailwind so an increasing kind of because I guess you have done so much structural thing to the companies over the last two or three years as well in this kind of headwind market so when you really then come into a situation where you basically then get into say getting the fruits of all those efforts where do you think this company will end up?

I mean I know for a fact that we have more capacity than what we can I mean we have quite a lot of capacity to grow and of course all those costs are already paid so I think the marginal effect is going to be very interesting of course when the market grows it also becomes maybe it's important to stay focused and continue to fight for every deal I mean it is a project business that we're in every deal needs to be won there are no free lunches in our industry so I only see that coming in a more tailwind situation will only benefit us and I think it will help to speed up some of the development that I think that we see in the competitive landscape but retailers will be more confident they will be willing to invest in more technology they will be willing to invest in partners that are capable of supplying that and then they will be willing to invest in those that can deploy and roll out at scale across their key markets and there I think the combined ETAV-HOY is going to be somebody that always be at least will have a seat at the table before each customer makes their decision because we're going to become very relevant for them in order to for them to fulfill their plans and to do that with speed and precision so yeah I can I'm only optimistic about the future if we have managed these tough years in in this way that I think we've done in a in a good way I'm really looking forward to us having some tailwind but I'm not so sure if that tailwind is really going to come I mean we know that we have presidential elections in US we have polarization politically we have war in Europe but if we get this war resolved so Russia goes back and leaves Ukraine alone I think we can go into you know almost like a hundred years ago the roaring 20s type of situation that there will be a lot of optimism but it can also turn in the other direction and that we become more more polarized and so on but I think that will affect a lot so I'm really looking forward to that tailwind happening but I cannot plan for it I need to see it happening in my numbers

excellent sounds very credible and thank you very much for all the color and all the best out there

thanks okay so we have no further questions on the telephone but we have received one question on the web could you comment on the order book going into q4 and 2025 was booked bill about one in q3

yeah we can comment on the order book so we don't usually give I mean forecasts about that but we have communicated as you have seen in q3 we have communicated a couple of deals that we have made that are new deals and new volumes so that is very positive I would say we have seen a year where we're not seeing a clear trend if the market is recovering because we have seen months where the order book is going down then we've seen coming months where the order book is going up quite significantly overall right now we are in a positive situation where we see that orders are coming in but then when they will be delivered is another topic but all in all I would say that we don't see a huge risk of reduced sales in the near future we see signs of the opposite but we are always very careful when it comes to giving forecasts because we are in this project-based business where each deal has to be won and it's a very competitive landscape that we're in so but we are optimistic about the future we are very optimistic about the future we especially the the intended acquisition is something we're excited about and to deliver value to our shareholders and most importantly to our customers

okay so we have no further questions on the telephone line or the webcast so I'll hand over to you and there's some final remarks then

we just say a big thank you for listening to us sorry if I became a bit philosophical