Axfood AB (publ) (AXFO) Earnings Call Transcript & Summary

Good morning, everyone, and of course, welcome to our today's call. With me today, today, I have our CFO, Anders Lexmon. And we are here to present to you the year-end 2022 report for Axfood. In the Investors section on our website, you will find the presentation material for today's call, and a recording will also be made available after the presentation. So with that, I would like you to get started with turning to next page, Page #2. On this slide, you can see the agenda for today. First, a quick market overview and then I will go through the fourth quarter performance for Axfood. And after that, Anders will briefly summarize the full year and also take you through the financials. And following on this part, I will also go through some of our strategic focus areas that we are currently working on. And lastly, before we open up for questions, I will talk about the outlook for 2023 and also present to you the Board's dividend proposal that was disclosed today. Please now go to Page #3. So starting with our market update. Let me provide you with some comments on our current operating environment. And go to next page, Page #4. As you may know by now, the effects of the pandemic, higher energy and fuel cost, climate change and the ongoing war in Ukraine have caused product supply disruptions, resulting in drastic price increases by our suppliers and in that higher food prices. This trend accelerated during the course of 2022 and dominated also the end of the year as well. And according to Statistics Sweden, consumer prices on food increased slightly more than 18% in the fourth quarter compared to a year ago. However, inflation with respect to consumer prices was still lower than the food price inflation on the producer side as PPI increased a full 20% during the same period. In other words, continued price increases by suppliers has still not been entirely reflected in the consumer prices, although the gap between the 2 narrowed somewhat during the quarter compared to earlier. We continue to see changing consumer purchasing patterns, with elevated levels of price consciousness leading to more interest in low-priced products, discounts, campaigns and as well also private labels. While inflation is still the single most important factor behind changes in the market dynamics, at the same time, the post-pandemic normalization has continued during the year. With that, please go to next page, Page #5. Adjusted for calendar effect of minus 0.5%, market growth amounted to 8.1% during the fourth quarter, entirely then driven by higher prices. But on a sequential basis, therefore, growth was very similar to the level in the third quarter. And this is despite the accelerated inflation, implicating that the price-adjusted decline consisting of volume and mix effect has deteriorated. We believe there are several reasons behind this decline, including a continued volume shift to cafe and restaurants as well as then down-trading. Sales in physical stores increased by 8.4%, while e-commerce sales decreased by minus 7.4%. And I guess, as I just mentioned, consumers continue to return to physical stores at the expense of e-commerce. The share of e-commerce was 4.3% during the fourth quarter and 4.5% for the full year of 2022. So with that, that sums up the market overview, and please go to the next page, Page #6. And I would like now to move into our performance during the fourth quarter. So turn page again to Page #7. Looking here at the growth for Axfood's retail sales, it really accelerated further in the fourth quarter and amounted to an impressive 17.9%. The comparable market growth rate amounted to 7.6%, i.e., if you not adjust for the calendar effect. I must say it's without a doubt that the Swedish consumers increasingly appreciate our offers in this environment. In the online segment, Axfood sales declined minus 3.1%, which was less than the market, where the decline rate was minus 7.4%. However, if you exclude the divested Mat.se, our sales actually increased by almost 9%. Please now go to next page, Page #8. And consolidated net sales for Axfood grew by 15.7% during the fourth quarter and amounted to SEK 19.7 billion. The increase in the fourth quarter is attributable to high food price inflation and higher customer traffic in physical stores, especially then in Willys. The share of retail sales in e-commerce was 5.4%, which is clearly higher than the market. Now we'll go through the sales by segment in more detail shortly. But first, please move to the next page and that will be then Page #9. In total, our group operating profit amounted to SEK 502 million, and the operating margin was 2.5%. The reported operating profit includes significant items affecting comparability, totaling minus SEK 232 million. These structural costs were higher than we previously expected, which was mainly due to the upward rent indexation for the existing warehouses. Looking then at the adjusted operating profit, excluding the items affecting comparability, it amounted to SEK 734 million, an increase of 12.3%. The increase was mainly the result of strong growth in physical stores and the recovery of our cross-border shopping as well as effective cost control in the store chains. And overall, this compensated for increased purchasing prices, higher logistical costs and negative currency effect. Need to mention as well, the increase in our joint group cost is primarily attributable to a cost of SEK 20 million for discarded IT system. And the operating margin, excluding items affecting comparability, was almost flat at 3.7%. Let me now walk you through our segment and how it looks in each of them. And we'll start -- we'll go into the next page, Page #10, and we'll start then with Willys. As you may have seen, Willys is seeing an exceptionally strong growth and the outperformance versus the market has accelerated compared to prior quarters. In the fourth quarter and almost also for the full year, Willys grew 3x as fast as the overall market, which is, of course, a really extraordinary achievement. Willys modern stores, a strong e-commerce offering, a broad assortment and low prices, Willys is attracting now more and more customers, and the growth rate of Willys Plus loyalty program member was more than -- has more than doubled during the year. And with a stronger position and an expanded customer base, Willys has an excellent platform for continued to grow and gain market shares also in the long run. We're now on Page 11. And net sales growth for Willys amounted to a full 23.2%, while like-for-like retail sales increased by 20.4%. The Willys chains, strong development during the quarter was attributable to pricing, but also volume growth in contrast to the market as a whole from particularly increased in-store customer traffic. The positive trend in our cross-border shopping continued and Eurocash sales increased considerably. However, I would like to emphasize that Eurocash contribution this quarter was not as significant as before, as the comparison figures for sales and profit in the fourth quarter 2021 was significantly better due to the less pandemic-related travel restrictions than during the third quarter 2021. Also to remind you, there are seasonality effects related to Eurocash and the cross-border segment in general. So generally, the fourth quarter each year and also the first quarter is seasonally weaker than the second and third quarter for Eurocash. Operating profit for Willys segment increased to SEK 425 million, and the margin was similar to the prior year at 4.1%. Continued price increases by our suppliers were not fully reflected in consumer prices and, obviously, this had a negative effect on our gross margin. But also a reminder that our minority share in City Gross is included in the Willys segment, and costs related to the City Gross integration negatively impacted the operating profit during the quarter. But I must say I'm really pleased that the integration is now finalized, and I will then come back to this a bit later on in the presentation. The negative effects on the operating profit were clearly offset by the growth in like-for-like sales. Moving now to next page, and we are now on Page 12. Net sales growth for Hemköp amounted to 9.6%, and like-for-like sales for the group-owned stores increased by 10.1%. Retail sales for Hemköp segment, which then includes Tempo, increased by 7.9% in total, which is slightly more than the market and higher than the rate of growth in the traditional grocery segment. Like-for-like sales growth amounted to 6.6%. And Hemköp continuously develops its concept. It's strengthening its sustainability profile and invests to increase its presence and modernizing existing stores. Hemköp is also seeing a strong growth in its loyalty program, Klubb Hemköp. The operating profit for Hemköp amounted to SEK 76 million, and the operating margin was 4.2%. Now continued price increases by suppliers, as well as with Willys, were not fully reflected in prices for the consumers, which had a negative effect on our gross margin. The effects on -- of this on the profit were clearly offset also here by the growth in our like-for-like sales. Let me now comment on Snabbgross segment. So please move to the next page, Page #13. Snabbgross once again had a very good performance with record sales for the fourth quarter and a strong profitability. On relatively high comps, sales increased 18.7% in total and 15.9% on a like-for-like basis. Snabbgros strong sales growth was mainly due to the recovery of the cafe and restaurant market after the pandemic, as well as food price inflation. Developments in the newly established stores and sales to consumers through the member based Snabbgross Club store concept also contributed. Our operating profit amounted to SEK 51 million, corresponding to operating margin of 4.4%. The higher operating profit was primarily attributable to strong growth in like-for-like sales. Now some costs related to the new stores and marketing for Snabbgross Club impacted the profit negatively. We are now on Page 14 of the presentation. And net sales for Dagab increased 15.9% in the quarter, mainly attributable to the sharp increase in sales to the store chain. The Dagab's result was impacted by significant costs affecting comparability of minus SEK 232 million, and the operating profit amounted to SEK 63 million. Items affecting comparability related to integration costs for Bergendahls Food as well as structural cost connecting to the restructuring of the logistics operation is part of this. The adjusted operating profit amounted to SEK 294 million and the adjusted operating margin was 1.6%. The higher adjusted operating profit was primarily attributed to the strong growth. We also had a one-off cost of SEK 23 million, which was charged during the quarter related to discarded IT platform in Middagsfrid and adjustments to the e-commerce warehouses due to now lower volumes. The operating profit was also negatively impacted by a weaker Swedish krona as well as higher fuel and logistical costs. So with that, I'd like you to turn to the next page, Page #15. And I would like to welcome Anders, so he can take this further. Welcome, Anders.

Thank you very much, Klas, and good morning to you all. Let's then turn to Page #16 in the presentation. And let me start with the sum up of the net sales and operating profit development for the full year. Net sales for the group increased with 26.9% to SEK 73.5 billion. Store sales increased by 11.9%, which was clearly higher than the food retail market in total, where growth amounted to 5.7%. The operating profit, excluding items affecting comparability of minus SEK 129 million increased by SEK 539 million to SEK 3.2 billion. The increase is mainly explained by the strong growth in physical stores and the recovery from the Norway-Swedish border trade. The operating margin, excluding items affecting comparability, decreased with 0.2 percentage points from 4.6% to 4.4%. Items affecting comparability consists of a capital gain from the divestment of Mat.se, costs relating to the ongoing integration of Bergendahls Food, structural costs attributable to the establishment of the group's new logistics platform in Bålsta, and lastly, payments received food of employer liability insurance based on earlier premium payments. And let's then turn to Page #17. Looking at the cash flow for the year. We continue to have a higher operating profit despite the items affecting comparability, reduced the profit. We have a positive deviation of SEK 1.1 billion in net working capital compared to last year, which is mainly explained by an increase in accounts payable and other current liabilities. Although there is a strong underlying performance, part of the positive working capital performance is related to the high investment level at year-end, and part of this will be reversed in 2023. We have no calendar effects during the period. The investing activities decreased with SEK 2.1 billion compared to last year, mainly due to the Bergendahls Food acquisition last year. And during the second quarter, Axfood carried out a fully subscribed rights issue of just below SEK 1.5 billion to finance the acquisition of Bergendahls Food and the minority interest in City Gross, and also to enable subsequent investments in our different operations. With this rights issue, we are further strengthened our financial position and create a greater financial flexibility for the future. And in connection with the rights issue, we made a net debt amortization of SEK 1.1 billion of the revolving credit facility during the second quarter 2022. In September, a dividend of SEK 3.75 per share was paid out to the shareholders. The second part of this year's total shareholder dividend of SEK 7.75 per share, which was higher than the SEK 7.50 per share last year. And to summarize, total cash flow for 2022 amounted to minus SEK 175 million compared to minus SEK 800 million last year. And then let's turn to Page #18. Total investments for the full year amounted to SEK 2.6 billion, and that's a SEK 600 million lower than the prior year. The decrease is mainly explained by the acquisition of Bergendahls Food last year. And adjusting for the acquisition, the investments in 2022 was higher than 2021, mainly due to the higher investments in supply chain automation, which was well in line with our plan. And during 2022, SEK 1.1 billion was invested in automation compared to SEK 700 million invested last year. Investments in our retail operations increased with SEK 119 million compared to last year due to a higher pace in both establishments and refurbishments. Investments in our joint operations, mainly consisting of IT, was in line with last year. And if we take a look into 2023 and as you can see in the slide, we are now through our heaviest period of investments connected to the new logistics center in Bålsta. Even though we also in 2023, we'll have some higher investments compared to under -- to our underlying level going forward. We estimate the total investments for 2023 will amount to somewhere between SEK 1.8 billion and SEK 1.9 billion, of which SEK 570 million is attributable to automation investments in Bålsta and in the new automated fruit and vegetable warehouse in Landskrona. And thereby, let's turn to Page #19. During 2022, net working capital as a percentage of sales on a rolling 12-month basis was minus 3.5%, higher than the minus 3.9% level at the year-end of last year. And net working capital was negatively impacted by the UTP regulation and was also diluted somewhat with the Bergendahls Food acquisition. And to sum up the year, we have now captured the Bergendahls dilution effect and most of the negative UTP effect from the fourth quarter 2021. And we continue to work to mitigate these effects by first and foremost, improving payment terms on accounts payable and developing our supply chain financing program. And let's then turn to Page #20. Net debt, excluding IFRS 16, decreased by SEK 1.3 billion during 2022, to a net receivable position of SEK 68 million, mainly as a positive result of the rights issue, however, also negatively impacted by automation investments. The net debt-to-EBITDA ratio increased to 1.6%, and the equity ratio increased by 2.3 percentage points to 24.1% compared to the same period last year. The rights issue contributed positively to the development, while the recognition of the lease of debt of the new Bålsta distribution center contributed negatively. And then let's turn page to Page #21. Capital employed increased by approximately SEK 2.9 billion compared to last year, and the change is primarily attributable to the new logistics center in Bålsta, being recognized as a lease liability with SEK 2.3 billion from the 1st of November. And return on capital employed was 20.9%, lower than the prior year and also that mainly as a result of the increased lease of debts. And with that, Klas, ends my part of the presentation.

Thank you, Anders. Let's now continue, and we are now on Page 22. But we will right away go to actually Page 23 and looking into our focus areas. We have a full agenda for 2023. And here, you can see the strategic focus areas as well as our key priorities of each of these. And I will not go through them all. But I would like to say that we are full of energy as we take on the new year, a year that will be both eventful and meaningful for our continued development. The market has surely been turbulent during the past year, and we'll continue to navigate in a changing operating environment. But we're also well positioned, and we'll continue to invest for the future. So I wish though to highlight some of our key initiatives to drive growth and efficiency for many years to come. So go to, please, next page, Page #24. The activity level is high in our group, and we continue to develop the customer meeting and expanding our presence with new stores and a continuously improved digital offering. This year, 2023, we will accelerate the pace of new establishment, and the guidance that we have issued today is for 10 to 15 new stores, which is the most aggressive guidance range ever for Axfood. We see room for us to expand our presence in many areas in Sweden with our appreciated and competitive concepts. I must also say, of course, in particular with Willys, which will represent the majority of the new stores. The work on upgrading existing stores is also continuously ongoing to ensure customers are getting the best possible in-store experience. And we also invest in energy-efficient solutions with, for example, lighting, heating and cooling. And to expand the amount of renewable energy, we also put into operation new solar panel systems on our store rooftops. And Axfood has a strong presence in the e-commerce channel with the intuitive digital platforms and flexible delivery alternatives, and we'll continue to work on strengthening these offerings. But also, we'll continue to focus on the in-store shopping experience with more digital tools. Let's now go to next page, Page #25. We continue the development of our new logistical platforms as well during the year in order to create a more sustainable, efficient and competitive product supply. The establishment of the new highly automated logistical center in Bålsta reached actually a new milestone during the fourth quarter when the first deliveries from suppliers were received. We will pass the next milestone already in the coming weeks when it's time for the first deliveries of the dry assortment to go to the stores after some troughing testing of all our flows. And Dagab is working intensively to ensure a stable transition from its existing warehouse structure to the new logistical center in Bålsta. To handle this, it will incur some extra cost in 2023 of approximately SEK 250 million. However, and I think it's important to emphasize, most important here is to remember that all these investments will yield major efficiency improvements and cost savings beginning as early as next year. The investments are expected to result in a SEK 200 million to SEK 300 million in annual efficiency improvements beginning in the second half of 2024, which will then increase to SEK 300 million to SEK 400 million when we are at full capacity. And I can't emphasize enough how important these initiatives are for Axfood. And we are really at the forefront here of developing a best-in-class logistical platform. We also continued to convert our delivery fleet by increasing the share of electrical vehicles in order to further reduce the climate impact of transportation. As an example, in November, a 64-tonne electrical truck and trailer, the first of its type in Sweden, was put into our operation. So moving on, I will now go to next page, Page 26. Another step in improving our logistical setup is our new larger fruit and vegetal warehouse in Landskrona that we opened up during the quarter. This new facility will further develop and streamline our operations and accommodate future volume growth and is replacing the previously entirely manual warehouse in Helsingborg. And I previously talked about solar panels on store rooftops, and we're also adding solar panels to our warehouses, including Landskrona, and of course, also in our new logistical center in Bålsta. Please turn page to Page #27. After the wholesale conversion last spring due to the integration of the acquired company, Bergendahls Food, that was completed during the fourth quarter in connection with the conversion of the City Gross cash register system, we are now moving into the next phase with our partnership to further strengthening City Gross competitiveness, and as an example, we are also improving the fruit and vegetables and private label offering to City Gross. We expect now to achieve the previously announced synergies of at least SEK 200 million on an annual basis earlier than planned during 2024 at latest. That concludes the update on our strategic agenda. So let's now turn page to the outlook for 2023, and we are now on Page 28. As Anders said, Axfood's investments in 2023 are expected to amount to SEK 1.8 billion to SEK 1.9 billion, excluding acquisitions and right-of-use assets. In additional to annual recurring investments in our operation and the higher rate of expansion through new stores, we will complete the automation for stores at the Bålsta logistics center and begin the semi-automation of the fruit and vegetable warehouse in Landskrona. As mentioned, we will also have some extra costs as we transition to Bålsta of approximately SEK 250 million. They will be relatively evenly spread out during the year and will be reported as items affecting comparability. Here on the slide, you'll also have the guidance range of 10 to 15 new stores establishments that I talked about earlier. Moving then on to dividend for 2022 and go to Page 29. The Board of Directors will propose to the AGM an increased dividend of SEK 8.15 per share. The dividend will be split into 2 payments as last year at SEK 4.15 per share in March and SEK 4 per share in September. The dividend proposal corresponds to 74% of profit after tax well in line with our dividend policy. So now turn to the final page of our presentation. 2022 was a turbulent year, to say the least. In a challenging time for households, we see more and more of our customers have come to appreciate our offering and all of our concept strengthening their market positions. We accelerated our retail sales and increased our market share significantly in this exceptional time. At the same time, we continue to promote sustainable development and investment to strengthening our competitiveness in the long term as well. We have completed the integration of Bergendahls Food and the City Gross stores, as well as we have taken continued step towards an optimized and automated logistical platform. We are clearly excited to take on the new year with a strong financial position and a solid agenda for future growth and future development. With that summary, I would like to hand over to the operator to open up the line for questions. Thank you.

[Operator Instructions] The next question comes from Fredrik Ivarsson from ABG Sundal Collier.

Klas and Anders, a few questions from me. First, you mentioned that some of the price increases from the suppliers aren't fully reflected in consumer prices just yet, and I'm curious to hear whether you think that you will be able to fully transfer these price increases during the year given what you see in terms of consumer behavior at the moment.

Well, I think we asked the same questions -- similar to the same question like 6 months ago when -- and also 9 months ago when the inflation started. And as I show you on some of the slides there, we've seen that we gradually are increasing pricing and actually narrowing the gap from the producers or suppliers increases. So I think the market is responding to this even if there is a time lag. And I have no other thought at this time at least that, as it has done before, I think we will see this is matching up. Again, it's a low-margin business, and there are very little room to take -- that this will not be reflected to the market.

And then maybe a follow-up on that, because I believe that many of the suppliers will try to raise prices further during the first quarter of this year. So what's your expectation on this side when this -- the supplier previous prices increase even more during the price window?

Well, we've seen, and I think I've been clear around that, we will continue to see price pressure from our suppliers, particularly in the early part of this year. So that I can confirm. So we're not seeing that inflation is holding up in this part then. And I think we need to reflect now on -- we start to see some of the raw materials, not in every area, but in some areas, it's coming down. However, they are still on a significantly higher level than it was prior to the pandemic. And in addition to that, as we all know, we have energy costs, fuel costs and all of that, that comes into play. Now how this will sort out over time, it's difficult to say. But I think that if we're getting some of the hikes that we've seen now on energy and currencies in other area, most likely and hopefully, I would say, we will start to see that the strong inflation is starting to be more balanced.

Yes. Sounds good. And then a question on rent levels, because I suppose many landlords intend to increase the rent in accordance with the inflation rates, is it fair to assume rent levels up in line with inflation? Or will you be able to negotiate to some extent?

Well, as you know, the rent levels for next year, the majority of retail -- in the retail landscape is connected to the KPI on that, and that was approximately 10%, slightly above. So I think we can -- you can assume that we will have that cost structure that comes in. We are obviously negotiating and trying to see to minimize the effect of it. But majority is fixed contracts, so success rate is also not to have too high expectations, if I say it like that.

Yes. Super clear. And then one last quick one from me before I jump back into the line. A question on the SEK 250 million one-offs for this year, what do you include in this figure exactly? And what I'm getting at is, obviously, should we fear any like additional inefficiency burdens or whatever during -- in Dagab that is during 2023? Or is SEK 250 million is sort of maximum?

The SEK 250 million is the best guess that we have now, and we don't see any reason to part from that right now.

It's very -- yes. Thank you, Fredrik. We will calculate obviously on this, and is very clearly how we have done it, that we are taking the old structure. So obviously, now it's depending on how we are ramping up Bålsta, and we are positive around that, obviously.

The next question comes from Niklas Ekman from Carnegie.

Yes, a few follow-ups there. On this lag that you talked about from producer prices to consumer prices, can you, in any way, quantify what kind of lag we're talking about? Are we talking about months or weeks? Or are we rather talking quarters?

It obviously varies by segment, and also there is a competitive landscape there as well, Niklas, as you may -- I'm sure you know. So -- but I think the graph in a way could also give you some indications in terms of how we are responding -- the market, I would say, how that is responding into it. And then you'll see. So obviously, to answer your question, it depends on how large the increase will be now and then how we are stepping up after that. But obviously, it takes some time. And I think we've seen that over the years, fairly how it goes, by month by month, it gradually goes up.

That's very clear. And second on the same theme, when we talk about rents and wages, that's something that impacts all players but not as directly as producer price. So if the reason to suspect that the lag of forwarding those costs might be longer than it takes to forward producer prices. Is that a risk that you see now given that these costs might increase a lot here from year-end?

Well, wages, you know there is discussions that has already started. So that is obviously -- when that happens, it's a direct impact. Rents is a direct impact when we're getting the cost for the rent. So obviously, that is more of a direct impact when it happens.

Yes. And then my question was rather that these are costs that I assume that you will aim to forward as will everyone in the industry. But do you think that it will take longer to forward that?

No, I don't think -- I think in general terms now and if you see at what -- now we are coming out of this year and then particularly in the last quarter with fantastic growth and fantastic drive in our business. If you look at the overall market, you saw the market growth, which was less than that. Then -- so, of course, this puts pressure on everyone right now to handle -- and also to handle the cost structure. So that is an expectation.

Okay. That's very clear. And on the store expansion, the 10 to 15 stores you're talking about, is that a gross or a net number? And do you expect there will be any big difference in gross to net, i.e., will there be a lot of store closures? And you mentioned Willys there, is that -- can you even give a number for -- the number of stores in Willys?

Not more than a clear majority. We have announced also a few Hemköp and Snabbgross. Now we will see how this -- but we -- the line that we have is a clear majority of Willys. So that is what we're looking forward as we go. Now it is a gross number in terms of number of stores, but I don't see any large deviation from gross and net.

The next question comes from Daniel Schmidt from Danske Bank Markets.

A couple of questions from me. On the gross margin, clearly, sort of producer prices are hurting you in terms of the lead time and the lag to move up your prices. But is that half of the sort of discrepancy versus last year? And is the other half more campaign-related sales as a percentage of the total, you think?

Without giving you a number, I think it's a very relevant question, Daniel. Because we haven't talked much about it, I think. But if you're looking at the fourth quarter, in general, you know that it's a seasonally more weaker quarter due to higher activities and campaigns in the market in general up for Christmas. And obviously, when campaigns is more attractive, you've seen a somewhat higher impact from the campaigns than normally in the fourth quarter.

Yes. Okay. Good. And on that topic then maybe, private label versus share of sustainability-labeled products have sort of shifted places a bit during the year. Is that also impacting the gross margin, you think? Or is that sort of neutral? Or is that again even in terms of losing on the one -- on sustainability and winning on the private label? But it was sure?

I think -- yes. But it's not -- I would say it's not a major impact. But then, if you look at our private label development during the year and also during the fourth quarter, I think we are seeing a significantly higher interest in low price and private label products. But it's not like you're jumping up, it's kind of a 1 percentage point difference. So it's gradually more slowly going up, so it doesn't give you that much of an impact on the gross margin in this period. Sustainability products, it varies very much. I won't say that, that makes a difference either.

Okay. So it's not sort of the gains that used to have higher profitability on organic food rather than sort of a normal assortment?

No. We're also putting a lot of effort in -- and it's kind of our core to drive sustainability and to drive sustainable label products. So of course, it's an important factor for us where we try to drive that as much as we can. Unfortunately, as you see, there are still price points on these areas -- on these products that it's -- that they are higher and consumers are today, moving away slightly from that, which we think is worrisome, particularly for both health and the environment.

The next question comes from Simen Aas from DNB.

So first, a quick one for me. Could you just give us some indications on how Q1 has started, so I think in both terms of revenue and margin market dynamics? Or is the trend similar to Q4? Or has anything changed?

Well, I understand you asked the question, but as we have decided not to report monthly numbers, you'll have to wait until April before I comment on that.

Yes. Okay. Okay. That's fair. But just to get some flavor on the Q4 gross margin. So could you just give us some flavor on kind of how the gross margin developed in the various segments? Was there any major differences between, for instance, Willys and Hemköp? And how should we think about this going forward as well?

I think that one of our, obviously, most important KPI is to track how we are performing on our pricing position versus the market. And we are keeping that and we are driving that agenda. So to a direct answer to your question, it's more -- it's fairly in par with this concept regarding impact on gross margin.

Yes. Okay. So you don't see any major differences then. So for instance, is broad-based -- that's what I'm looking at, Willys is not keeping the margin better than Hemköp private label or something like that?

No, that's -- it goes hand-in-hand. I mean, obviously, this reflects on how the market is moving up based from the suppliers' price inflation. So we are following that.

The next question comes from Magnus Råman from Kepler Cheuvreux.

That should be Kepler Cheuvreux. So my first question relates to what you started to indicate when talking about passing on inflation. I mean, I think you mentioned a few times here that also there is a competitive situation that you take into account. And could you comment then on ICA's move to save SEK 1 billion to invest in customer prices, implies roughly 1% cut to total pricing? And how -- well, how are you responding to this? And also, do you expect more of this type of initiatives to come in the coming times?

I think -- no, I will not comment on ICA. But I think in general terms, it is a competitive market, and it has been a very competitive market during 2022. I think we are pleased with what we are doing. We're also pleased in terms of how we are meeting our customers. And I think the numbers clearly says it all in terms of how the consumer is also appreciating our offer. With that said, I am sure, as we've said earlier on, that price value will be even more important in this market. And of course, we are in that part of the segment. Please to have Willys.

All right. Good answer. And then just a bit but more technical question here. You write to the Board structural costs were higher than expected mainly due to upward rent indexation for your existing warehouses, which are then being replaced now by Bålsta. But I'm just a little bit surprised that you explained the higher IACs in Q4 with this because I thought that these indexations were due at year-end. Could you explain that?

Should I go for it? Should I try or -- if I understood you right, I mean, I think we have -- when we are saying it's higher, it's just because we had a guidance on the number. And then when we reviewed it in the end of the year and looking at the cost that we're getting now due to the high indexation that came in actually was decided in, I think, early of November or end of October. So that is just a technical reason for it when we saw what -- because these are the warehouses that we are closing down. But obviously, we have some rents there that we are taking into this number. So that's the reason. Did that make sense? If we understood you right?

Yes. So you are then talking about the upcoming IACs, because I thought you were then explaining why the IACs in Q4 was higher.

No, it was the higher cost -- one-off costs that...

Some of the structural costs that we have now in Q4 is corresponding to rental cost in 2023. So we take that cost now. And obviously, the higher rental level is affecting these figures as well.

All right. Then it makes more sense, so you are doing upfront booking of these costs that? That I was talking about.

We are doing upfront because of the closing logistic centers we have.

Yes. And would it be fair then to understand it at the SEK 250 million, if your sort of budgeted or deemed operational cost for the owned structure that is start to be wound down?

Will you say that again, Magnus, please?

Yes. So should I then understand it as this SEK 250 million expected for '23 IACs is essentially what you budget in type of operational costs for the owned warehouse structure that you aim to shut down?

Yes, that's correct.

Excellent. And then I just had -- just following on to previous questions of sourcing inflation. I mean the FAO index that is looking at the food commodities has been falling now sequentially for 9 months in a row, and I believe it also turns slight -- to slight minus on year-on-year metrics in December. And as you alluded to before, it's still higher than the pandemic level, of course. But do you see any forward signs of sort of an easy sourcing inflation situation or easing price pressure from new suppliers on the back of these actual clear indications in the raw material markets?

As I said that's what I hope for. But again, in the early part of this year, we don't see it, but I think you're pointing out that trend is shifting a bit. But then obviously, I think we all need to remind ourselves that when you're looking at some of these numbers, you need also to calculate into other effects, like currency that we are now facing with a very weak Swedish krona, still high energy and fuel costs, et cetera. So there are many things that is impacting, obviously. But positively, if it starts to turn down, and we also start to see a more balanced cost for energy, fuels, et cetera, we should start to see a more balanced inflation.

All right. Great. Just a final one then if you -- I think I maybe have been asking this before, but you now mentioned you expect to have the best-in-class logistical platform. I assume that means that you expect to have a higher efficiency, i.e., lower cost per head of unit in this fulfillment center than any of your competitors. So could you elaborate a little bit? Not maybe that compared to competitors, you said you don't want to do that, but you have some kind of lead on how you budget sort of cost per handle unit or whatever KPI you run compared to your old structure or, for example, more interestingly, compared to the cost per unit you might have observed in the Bergendahls logistics at the point of acquisition, please?

I understand your interest, and that's also kind of the negative of being -- because my interest is also to not give too much of information to my competitors in terms of all the KPIs we have. But fair to say that we think with the step we are now taking, with an automized warehouse handling 3 temperature zones in one area, including also an omnichannel structure with e-com, we'll get the flexibility depending on how e-com is developing. Obviously, that we think believe give us a competitive edge. And we have, as you've seen, also sent out the numbers that we think from a cost base, this will gain in terms of efficiency. So we are clearly more efficient than in the old structure. Thank you. And with that, if I understood you right, we have no further questions. So let me then just say thank you for listening in, and I hope you have a good day. Thanks a lot.

Thank you.