Rusta AB (publ)

Good morning and warm welcome to Rustas first quarterly report as a listed company and also of course a very special welcome to all of you new shareholders big and small that have now invested in this company and of course all other interested parties. Today, we will present the second quarter in our fiscal year that runs from May until April. So that means that it's the August to October numbers that we will be presenting. And my name is Göran Westerberg. I am the CEO of Rusta and I've been with the company since 2011 and the CEO since 2012. And I will present the numbers together with Sofie Malmunger, our CFO, who's been with the company since 2014. All right. The agenda today will be first a business update that will also include a little bit of the background of the company, just since we're new at the market and we want to reiterate a little bit how we're functioning. Then we will have a deep dive into the financial performance, which Sofie will take us through. And then we will have a very short summary and then open up for the Q&A. So jumping into the business update. First of all, Rusta is a non-food Nordic discount champion. The vision is to make Rusta the leading and most trusted low price retailer in Europe. So there's a clear growth ambition. We do believe that this concept has a place in Europe. So there's really a growth is really at the core of the company. To our help to achieve this, we have an integrated and really efficient value chain. So we don't produce anything, but all the way from sourcing all the way out to our stores, we control the value chain. We have no franchisees since we don't have any strategic depth. We have no covenants. We're basically free and strong to implement whatever strategy that we see fit. We have a very well invested platform. We have a state of the art distribution central. We have really well invested stores. We have a single concept that we rolled out in our different markets because we believe simplicity and conformity in that way is the way to profitability, to really do it simple and do it the same way. By the end of second quarter, we had 205 stores across our four markets, Sweden, Norway, Finland and Germany. But we still believe there's significant white space to grow. On the right hand side of the slide, you can see that we have about 150 identified locations, which we deem to be tier one locations, things that we have as priority one locations in those current markets where we would like to open stores. We expect the store rollout to continue at approximately the same pace that we've had in the past years. So somewhere around 40 to 60 stores for the coming three years. By the end of last quarter, we had 22 signed approved stores that are to be opened during that time period, which is, I would say, quite normal. Three of those stores have already been open since the end of the quarter as well. So this is, I would say, a very normal mix. We have 110 stores in Sweden, 45 in Norway, and 50 in total in Finland and Germany. Taking, if we zoom out a little bit and look at the history of Rusta, which was incepted in 1986, we have enjoyed, I would say, a very, very long stretch of profitable growth. And as you can see, we have lived through all sorts of different challenges during these years. Here are some of them. But I'm, I would say, really, really happy about the concept, the way that we're working. It seems that even if the markets are very different from time to time, the low prices, the wide range, the single concept seems to be very strong almost no matter what happens in the market. The strategy to continue to grow with this profitability is, I would say, quite simple. Not easy to do, but it is a simple strategy and it contains basically, let's say, four important legs, if you like. One, of course, and that's the most important thing, to really maintain the low price position. And here we're not talking about perception, we're not talking about just general value for money. It's about actual price leadership, actually making the customer saving money on comparable items. That's super important for us and we really try to deliver that. That's the job that we do on the market to actually save money for the customers. And we do that with a very wide range. So we try to fulfill as many different functions for the customer as possible. And that is, of course, taking down the risk because there's always something that the customers need. So even if one product category is maybe having a little bit more of a headwind, we have strong development in other areas. This is very much also an organic case. This is not primarily about acquisitions, even though we don't rule that out. But the main strategy for us is to continue to open up our own stores under our own brand with the same concept, but more importantly, so drive traffic to our old stores. So like for like is really the key to retailing. That's where you build profitability. That's where you get the economy of scale. So that's really at the core of what we're trying to do. What we do with this is also we try to create this growth by volume growth, selling more items because this creates economy of scale and that's the thing that we try to use to further increase efficiency across the value chain. Buying more makes us basically stronger on the purchase market. We are more attractive as a buyer in the sourcing market, but it also improves the scale effect throughout our value chain. We also intend to continue our low risk network expansion. We're not aiming to inflate the number of stores without control, rather we're trying to open stores with quality where we know that there's a very high likelihood of getting to profitability quickly. So rather fewer with quality than many without control. That's how we have built the success so far and that's how we intend to continue. Now having said that, if we move into the quarterly numbers, I'm really happy of course to see that this strategy continues to provide us with the results we like to see and also sets the stage I think for continued success. In Q2 we had a total growth of 14.4% and I think one of the most important things that's maybe not visible immediately is that this growth is primarily volume driven. It means this is not primarily price effects which I've seen a lot of in the market. But like in Q1, in Q2 we also see that volume is a significant driver, actually so much so that the single biggest driver for growth is volume. We also have a very solid like-for-like number, plus 10.8%. We'll come back to the exact definition of like-for-like, but I would say that we have a very conservative way of measuring like-for-like. This does not include online, it doesn't include stores that haven't been open for at least one full financial year, and so on. But Sofie will take us through the details of that. We have an adjusted EBITDA that have been growing plus 119.1%. And so, yeah, in short, it means that we have more than doubled our EBITDA since last quarter. Now, taking all of this down to the first half of the year, we have a growth of 12.9%. A like for like of plus 8.5%, which I also think is a strong number, especially in this market. And a total EBITDA growth that is adjusted plus 62.1%. And the only adjustments is for IPO costs during the quarter. Right. Couple of things that I would like to highlight during the quarter. One is the continued store expansions to basically to connect back to our strategy. During the quarter we opened three stores, one in Sweden, one in Norway and one in Finland. And after the quarter, we have also opened three more stores, two of those in Norway and one in Germany, reaching a total of 10 stores now in Germany. And I think this is also quite normal. We usually have two windows during the year when we open up stores and not to disturb the peak sales during Christmas and summer. This tends to be during early spring and during autumn before Christmas sales. The like-for-like volume growth, again that volume was the major contributor to our sales growth in Q2 and also on a comparable level it was like-for-like growth that really drove that increase. I think that's significant because it basically provides the ground for continued profitable growth. That will give us the tools that we need on the purchase market, on the sourcing market, but also throughout our value chain to further improve efficiency and set the scene for continued profitability. Another thing that I would like to highlight is, I think as you've probably seen in the retail arena overall, that low price concepts have generally been winners, that people are moving into this segment and the whole segment is growing. We've seen that, we've seen that we have had more customers coming into our stores. And one very clear receipt, if we zoom out a bit and look at the bigger picture, is our loyalty program. We had at the end of quarter two, 5.3 million fully registered Club Rustam members. That's an increase of 700,000 new members in the loyalty program so that's a significant shift and I think that says something about the stickiness and it also provides I would say a good ground for continued growth that people are are entering the loyalty program it also provides the possibility for us to to further improve our marketing efficiency because we now have contact we have the you know the email addresses and we can reach them we get customer data and so on so that's also I think a very good sign for the future. And then of course the IPO during the last quarter that's something that you're very well aware of but my point is that I'm really happy about achieving such a good result that we've done during Q2 when so much energy has been spent on the IPO. That's not something that one should forget. You're all aware of the IPO, but you're also very well aware of how much energy that tends to take from a company. But I'm really proud of the company and all our co-workers that have achieved these results while we have spent so much energy on the IPO. All right. I will hand over to Sofie, who will tell us a little bit more about the financial performance of Rustam.

Yes. As Jaran has showed you, Rusta has a strong second quarter with increased sales and improved profit. We have a total sales growth of 14.4% and a like-for-like growth of 10.8%. And this is an effect of both more customers and a higher average receipt. The strong growth shows that customers are turning to the segment that we operate in and that Rusta has a good position. Regarding the like-for-like growth, just as Göran said, we would like to highlight that we have a conservative and quite strict way of measuring. It's only for our stores, so no online sales are included, and each store has to have been open a full financial year to be classified as like-for-like. In addition to the strong sales, we have a gross margin that has increased with 2.9 percentage points, which is then 211 million SEK higher compared to last year. We have also an adjusted EBITDA that is 2.7 percentage points stronger, and this is an increase with 119.1%. A short summary of the Q2 is that Rusta continues to do very well and for the half year we see an adjusted EBITDA of 468 million SEK compared to 289 million SEK last year. Rusta's operations are affected by seasonal variations, and since this is our first public report, we would like to guide you a bit on those. To start with, Rusta has a financial year that stretches from May till April, which then gives us a slightly different split when we talk about quarters. So Q1 and Q3, which is then May till July and November to January, are generally our strongest quarters in terms of sales and profit. And this is mainly driven by the summer and Christmas seasons. Q2 and Q4 are generally our smaller quarters. And today we are presenting Q2. We see a strong performance across all our markets, both in net sales growth and in profit. The numbers you see here for sales are excluding currency effects. So our largest market, Sweden, and second largest market, Norway, has a sales growth of 11.2 and 13.8%, and the like-for-like growth in Sweden of 10% and 8.6 in Norway. Our third segment are the markets that consist of Finland, Germany and online. These markets are still relatively new for Usta but it increases with 18.1% in sales and has a like-for-like growth of 7.7%. This is of course a very positive development and a sign that our efforts in these markets are going well. All segments are profitable with an increased EBITDA margin and I would like to extra highlight the 5.5 percentage points increase for other markets. Our profitability continues to increase, and looking at our adjusted EBITDA and breaking it down a bit for Q2, we can see some clear profit drivers during the quarter. It's a clear volume growth or volume increase, both in total and like-for-like sales, just as Göran has described. We have continued to optimize our prices, but the price optimization has been done carefully and in a way not to jeopardize our price position. The share of volume increase is higher than the share of price optimization. in the total sales increase. In the gross profit we also see positive effects of lower shipping costs. This was a positive effect already in Q1 and it has continued during the second quarter. We also see positive campaign effects where we continue to drive traffic to our stores but with a lower margin dilution effect compared to last year. So our gross margin, we can see that in our gross margin, we are on our way back to a normalised gross margin, which for Rusta historically has been somewhere between 44 and 45%. The operating expenses, OPEX, are decreasing as a share of net sales, which is made possible by the scalability in our business model, where increased sales does not generate the same amount of increased costs. So to summarize the EBITDA development, we can see that despite inflation and the cost for 12 new stores compared to last year, we have managed to increase the adjusted EBITDA margin with 2.7 percentage points, which is a great achievement. And then some comments on our balance sheet and cash flow. We have continued to work actively with the working capital. Our inventory has decreased with 11%, which is a mixed effect of lower value and less pieces. Lower shipping costs is one of the drivers, but it's also lower purchase prices. We see price improvements from Asia in particular, and this is further margin improvement to come and has not yet been realized in the margin. Thanks to the improved profit and positive change in working capital, we have a very limited use of our overdraft facility, and the net debt excluding IFRS 16 is 91% lower compared to last year. All this gives us a positive effect and a positive development in the cash flow, and the cash flow from operating activities increases with 99% compared to last year. Just as we have some seasonal variations in our sales and profit, we also see it in the balance sheet and in the cash flow. So the inventory buildup is generally somewhat larger in Q2, which together with the fact that sales are lower in the second quarter means that we use the overdraft facility to a greater extent during Q2. And this goes for the fourth quarter as well. But as you can see, this year in Q2, we have a very positive development compared to last year. And then regarding our financial targets, we are committed and feel confident to deliver on our financial targets, both when it comes to net sales growth, to profitability and to stick to our dividend policy. And with that, I hand back to Göran.

Right, so just to summarize then, another quarter of profitable growth, double digit sales growth and also an accelerating like for like growth, primarily volume driven, which I believe is a really good sign for the future. Also a good increase in profitability. And now on the first half year, we are at adjusted EBITDA of 468 million crowns, which I think is a good solid number going forward. So I think this is, I think it's been a good quarter. And as Sophie said, I think we feel comfortable with reaching our goals. So with that, I think we're opening up for Q&A.