Rusta AB (publ)

Good morning and welcome to the presentation of Rustas third quarter. My name is Göran Westerberg. I am the CEO of Rusta and I will together with Sofie Malmunger, CFO of Rusta, present the results and the financial results of the latest quarter. As many of you know, we have a financial year that stretches from 1st of May until end of April, which means that our third quarter contains the very important Christmas quarters from November to January. The agenda for today will be a business update that I will take you through and we'll fly over the results and the status of Rusta. Then we'll go deeper into the financial results and Sophie will take that part. And then towards the end I will come back and we will have a summary and we will open up for Q&A. So... First, a business update and just to set the scene a little bit where we are today. We have today or at the end of the third quarter, 208 stores. We have during the quarter opened up three new stores, two in Norway and one in Germany, which then became the 10th store in the German market. Today, we have 110 stores in Sweden. We have 41 in Finland, 47 in Norway, and then, as I said, 10 in Germany. We still have, I think, prioritized locations of about 150 that we are constantly guarding and looking for. And as of today, we have 25 signed approved locations that are already in the pipeline. So since last time then we have opened three of them and then we have added on another couple of ones. So the total now in the pipeline is 25. Moving on to the quarter itself, we have had what I would call an eventful quarter, of course. It's always like that with Christmas, but we've also had the IT incident. The numbers that I'm presenting now includes the effects of the Tieto Every IT attack. So what you see is basically the full results. And the strong sales growth was still 7%. We had the like-for-like growth of 2.5%. And if we just stop there and we look at these numbers, we can say that this is really, as I say, a very quality-driven company. sales number it was the main driver again like last quarter was volume so this is not price driven increases it's really more items which is so important for our business model since that creates scalability and it creates a negotiation power from our side towards our many suppliers. On a total level from Q1 to Q3, we had a growth of 10.6% and a like for like of plus 6.2%, which I would deem as very, very strong. Now, the really good part of this is the continuation of stronger margins. We had a strengthened gross margin during the quarter. And the adjusted EBITDA growth grew by 22.6% during the quarter. And the only adjustments was for IPO costs during this quarter. That takes us to a total of plus 41.8% improved EBITDA during the year so far. We can also comment on one of the big drivers here for EBITDA improvement was purchase prices but also logistic prices but also a much better mix and also that we had a successful Christmas season that meant less sellouts. Some of the key events of course Christmas that we already talked about during the last quarter we discussed the early start you can say towards the end of October in last quarter you can kind of see the patterns the trading patterns of Christmas and that indicated that the reluctance or the slow start that we saw in the previous year was not there. People started to shop Christmas items and usually that's a very good sign. And we can say that that momentum continued. It went into November and it continued through December. And that's good because one, you get a good top line during the Christmas sales, but you also have a reduced need for sales towards the end of the Christmas season. So that all in all was very successful. You can also say that last year during the Christmas season there was a lot of discussions regarding electricity cost, very high bills for electricity. So people were not very interested in buying electrical items and you have a lot of those in the Christmas assortment. Light chains, Christmas stars and so on. But this year we didn't have that situation. Electricity was cheaper and therefore the reluctance to buy a more profitable basket of items at Rusta was more successful. Also, having said that Christmas sales is not only about Christmas items, it's also about adjacent business areas such as home furnishing and consumables and so on. And all of those areas went well. So we got a good mix in the basket. Regarding the IT incident, we woke up in the morning of the 20th of January to basically blank screens. Our homepage was down. We couldn't sell online. Luckily, we could open up our stores, but we also had difficulties replenishing our stores and also receiving containers that are DC. So, we had major disruption in our system. That has had certain effects that we have communicated all in all. Once reviewed now we've seen that those are slightly less as compared to what we previously communicated. But I think the important thing right now is that the effects of the incident is now over. All our systems are up and running. We don't see any structural effects of that and we don't see any financial effects beyond quarter four. as a consequence of the IT incident. On a more positive note, you can say that we have continued to see the same pattern as we have in previous quarters, that our relative price position is really paying off, but also the environment, the whole sentiment on the market, where many consumers are looking for ways to save money. They're looking for low-price concepts. And it seems that Rusta is really one of the winners in this. We now have more than 5.5 million fully registered Club Rusta members, our loyalty program. That's an increase during the quarter of 200,000 new members. And mind you, the IT incident made it impossible for us to recruit during the second half of January. And all in all, over the last 12 months, we've had an increase of 700,000 new members, which is an increase of 15%. This is much stronger than last year. And I think it's testament to the fact that we are really recruiting customers now. And I think that also lays the ground for more efficient marketing but also a good top line development in the coming year and years. Another thing that I would like to point out is of course that we managed to strengthen our margins. We didn't do so by raising prices. I know that that could have been a worry for some of you. We're not losing our price position. We're really protecting that. We do see that we still have headroom. Instead this was a mix effect and it was purchase price and logistic costs. that contributed to the strengthening of our margins. And one of the areas where we really wanted to take a big step forward was other markets. That's our newest markets, our most immature markets, but also our fastest growing markets. Here we have taken a significant step towards profitability and I think this is really important both now but also for the future as a milestone towards our financial goals. So I'm really happy about that. All right, let's hand over to Sofie to take us through more of the financial details.

Yes, sure. So, as Göran has showed you, Rusta has a strong third quarter with increased sales, improved profit and improved margins. We have a total sales growth of 7% and a like-for-like growth of 2.5%. And this is an effect of a successful Christmas season where sales started early. Volume, just as Göran said, is once again the single largest driver to the overall growth, where Rustas low prices and efficient campaigning continues to drive increased customer traffic to the stores. We are meeting two years of strong third quarters, but we still managed to continue our increase, both in total and in like-for-like numbers. As for the like-for-like growth, we would like to emphasize that we have a conservative and 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 2.8 percentage points, which is then an increase with 14.2%. We also have an adjusted EBITDA of 14.4, which is then 1.5 percentage points stronger and is an increase of 22.6%. Adjustments are only made for IPO costs, nothing else. The IT incident has not been adjusted for. So a short summary of the third quarter is that Drusta continues to do very well and takes clear steps towards the financial targets with improved margins and profitability. The financial effects by the IT incident in January amounts to around 60 million loss in sales with a negative EBITDA effect of around 25 million SEK. This is slightly better than previously communicated. Looking to the right, you can see that our third quarter excluding the IT incident would have been 1.9 percentage point higher in sales. That means that we would have had net sales growth of 8.9 instead of 7. We would have had a like-for-like growth of 4.4 instead of 2.5 and our EBITDA margin would have been 11.9 instead of 11.4. The negative effect during Q4 in sales and on EBITDA is estimated to be on par with Q3. And in addition to that, we will have extra costs for system restoration and similar of approximately 20 million SEK. We expect that the operational disruptions will not have any material financial impact beyond the fourth quarter for this financial year, just as Göran said. We are evaluating the incident and have an ongoing external audit of Tieto Every and of our own operations to ensure a higher level of security going forward. We have also initiated a discussion with Tieto Every regarding claims for damages. Looking at our markets, we see a strong performance and growth in all our markets with increased sales, improved gross margins and increased profit. The numbers you see here for sales are excluding currency effects. Our largest market Sweden and second largest market Norway has a sales growth of 5.8% for Sweden and 10.3% for Norway. The profitability in these markets are as you can see to the right high. It's 20.3% for Sweden which is an increase of 2.3 percentage points. For Norway, it's 17.1, which is a decrease of 0.3 percentage points in EBITDA margin, but it's still a profit increase in Norwegian crowns. The decrease is mainly due to currency effects, and it's also due to one more store opening compared to last year, which drives more startup costs in Q3 this year. Our third segment, other markets, consists of Finland, Germany and online. Here we have a strong sales increase of 8.7% and as you can see to the right, we have improved our EBITDA margin significantly with 3.2 percentage points. And this is an important step and sign that our efforts in these new markets are going well. As you have seen, our profitability continues to increase and looking at our adjusted EBITDA and breaking it down a bit for Q3, we can see some clear profit drivers during the quarter. We have higher sales where volume and not increased customer prices are the main factor to the increase. Our gross margin increases with 2.8 percentage points, which is due to lower purchase prices from Asia in particular. It's also due to more efficient campaigns, less sellouts and lower shipping costs. We have slightly higher operating expenses, which is due to the inflation. The increase is lower than the increase in total sales, which is important, of course. And this is made possible thanks to the scalability in our business model, where increased sales does not generate increased costs in the same pace. We also have some negative impact of exchange rate differences. So to summarize the EBITDA development, we can see that despite inflation and costs for 30 new stores compared to last year, we have managed to increase the adjusted EBITDA margin with 1.5 percentage points, which is an increase of our EBITDA with 22.6%. And that's 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 15%, 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. This is following the same trend as previous quarters this year, and we have a good and well-balanced inventory. Thanks to the improved profit and positive change in working capital, we've had very limited use of our overdraft facility during the quarter. We have a positive cash balance of SEK 381 million at the end of this quarter, compared to a debt last year of SEK 242 million. This is an increase of SEK 623 million. So cash flow for the quarter is positive of 321 million SEK compared to negative with 13 million SEK last year. So very strong cash flow for the quarter. So all in all we have a solid balance sheet, we have a positive cash development and a very stable financial position. And then some words on our financial targets. We are committed and feel confident to deliver on our financial targets. Our accumulated numbers for this financial year shows that we have a total and like-for-like sales growth well above the 8% and the 3%. And we have an EBITDA margin moving towards the 8% in the medium term. Our intention is to stick to the dividend policy where there will be a more exact recommendation in our next quarterly report. And with that, I hand over to Göran.

Thank you very much. Right, so I'll try to summarize this and then open up for Q&A. And first, I think it's good that we kind of take a step back and look a little bit at Rustas development. This is one slide that basically shows the growth of Rustas since the inception back in 1986. And for a very, very long time, we have continued to grow. And in spite of many different external challenges over the years, we have still managed to continue to grow. And I think now that maybe the IT attack as such has become yet another example that shows the resilience of the business concept, but also the strength in the culture at Rusta. So we will continue on that path. Looking at the strategy, as I said, there is nothing in what has happened in the quarter that has changed our outlook or changed our financial goals. And it hasn't changed the strategy that we are pursuing. Last year, we had heavy inflation. that put us back a bit on gross margin, which we did to protect our low price position, but also to keep the wheel spinning, meaning that the volume growth had to be there. That's something that we have succeeded well with, and the challenge for this year has been to recover and get back to our normalized gross margins, which we are now well on our way to do. What we want to return to now in the coming quarters and years is basically the normal way of working for Rusta. To continue to grow our business, grow the volume, let the economy of scale work to our advantage and then to protect both our price position but also to drive growth. That means that maintaining a low price position is really important for us. We do it today and we're going to do it in the future. We're also going to have a very wide differentiated assortment both to address new possibilities on the market but also to spread risks. We will continue to grow primarily with organic growth and we will have a special focus on like-for-like growth. It's also about further increasing the efficiency across the value chain utilizing this growth and especially the volume growth and of course also continue to open up new stores in markets and of course more importantly so outside of Sweden over time. With that I land on this page which summarizes the results of the third quarter and I would like to open up for questions.