BHG Group AB (publ) (BHG) Earnings Call Transcript & Summary

Thank you for joining us on our conference call today to review Bygghemma Group's fourth quarter 2019 results. This call is being recorded, and a replay of the conference will be available later today on our Investor Relations website. Together with me today are Martin Edblad, Acting President and CEO; and Adam Schatz, Group CFO. Both will be available for Q&A later in today's call. With that said, I'll now turn the call over to Martin.

Thank you, operator, and good morning, everyone. We're happy to present a strong finishing quarter of 2019 for Bygghemma Group, in which we continue to outgrow the market and accelerated our organic growth to 19.9%, while at the same time, recording our strongest fourth quarter EBIT to date at SEK 90 million. The agenda for this presentation is divided into 4 sections, and to the Q&A session. We'll start with the results highlights, followed by a business update. I will then hand over to our CFO, Adam Schatz, who will walk you through the financials in more detail. Finally, after summarizing the quarter, we will focus on your questions. So we reported our strongest fourth quarter to date by a wide margin. We accelerated our organic growth to 19.9% and reported a total growth in the quarter of 28.5%. Hence, we materially outgrew the market in the quarter and consequently further improved our dominant online market position, which now sums up to approximately 30% in the Nordics. Furthermore, we combined our strong top line delivery with an even stronger bottom line delivery, increasing adjusted EBIT by 50% versus last year to SEK 90 million, translating to an EBIT margin of 5.5%. Consequently, we once, again, underpinned our position as the #1 online retailer in the home improvement space. For the full year, the numbers were equally solid. We increased sales by 24.9% to SEK 6.2 billion. We grew adjusted EBIT by 58.7% to SEK 330 million. And we reached an EBIT margin of 5.3%, an uplift of 1.1 percentage points to last year. Both our divisions performed more or less equally strong in the period. The performance were driven by group market share gains as well as successful M&A during the year. The EBIT margin increase was driven mainly by improved unit economics from our systematic work to push higher ticket items as well as by increased sales from higher-margin private-label brands during the year. If we turn to Page 6, I want to highlight a few key operating achievements in 2019. During the year, we have increased organic growth quarter-on-quarter, reaching close to 20% in Q4, helped outperforming our 15% medium-term target. In addition to our strong organic growth, we have successfully added 6 new acquisitions during the year, and thus further substantially consolidating our dominant online market position in the Nordics. We have, at the same time, continuously improved our operating margins on the back of increased scale, higher share of private label sales and improved unit economics. Finally, we have heavily strengthened and expanded our total ecosystem through added services such as last-mile deliveries in Sweden and installation services, now covering most of our DIY categories. So turning to Page 8. Just a few short comments to this slide. We reported total sales in excess of SEK 6.2 billion for the full year, with an improved EBIT margin of 5.3%. This makes Bygghemma Group the largest listed consumer online retailer in the Nordics. Further, the composition of sales has, during the year, become more balanced, both between our 2 segments and between our core geographical markets, with a subsequent lower dependence on the Swedish market. Turning to Page 9. We can also see that our Eastern European operations are growing at an explosive rate, all based on moderate levels, hence gradually becoming an important part of both group turnover and profitability. At the same time, our core Nordic markets are becoming increasingly entrenched through our greatened focus on fortifying our ecosystem of products and expertise as well as physical and service infrastructure, resulting in higher market share, share return in customers and increased margins. Finally, on Page 10, before turning over to Adam. In order to better involve the -- our group's rapid international expansion and geographical footprint and to better reflect our mission, we make living easy as well as to the fact that we operate through 2 segments, Home Furnishing and DIY, that are of equal importance to our value proposition. We will, in the coming weeks, update our corporate identity, which will include an upgraded look and feel of our corporate website, our presence on social media and miscellaneous corporate communications, thus embodying our mission of providing a complete ecosystem of products and services for home improvement online, the outlines of which you can see on this slide. With that, I hand over to our CFO, Adam Schatz, who will walk you through the financials in more detail.

Thank you, Martin. So turning to Slide 12. We are pleased with our performance in the quarter and not least the fact that we saw a fourth consecutive quarter of accelerating growth. As Martin mentioned, the net sales grew by 28.5% to reach SEK 1.645 billion, and organic growth reached 19.9%. Performance was even across the quarter, which means that we came into the new year at a good pace. And the strong quarter capped a record year in which the group added SEK 1.3 billion of sales for the full year, reaching SEK 6.2 billion, which corresponded to a full year sales growth of 24.9%. The top line development, coupled with a continued discipline on the gross margin and SG&A lines, adjusted EBIT, which grew by 49.4% in the quarter to reach SEK 90 million and by 58.7% on a full year basis to reach SEK 330 million. Key factors contributing to the strong EBIT included the mix shift encompassed from the fast growth of the Home Furnishing segment, the private label share of sales in the DIY segment and a strong operational focus in both segments on curation fundamentals and purchasing to optimize unit economics. Both segments grew rapidly and so strengthened their respective market positions. And both segments also contributed significantly to the bottom line. Finally, just as in the third quarter, we did not treat any items that's affecting comparability in the fourth quarter. Moving to Slide 13. Again, net sales grew by 28.5%, and the right-hand side shows select key metrics, which further explain the top line developments in the quarter. The number of visits to the group's web stores increased by 79% to SEK 58 million. In other words, a run rate indicating that we should comfortably surpass 200 million visits in 2020. Orders rose by 18%. And just as in the previous quarter of the year -- quarters of the year, we succeeded in increasing the average order value, which stood 11% higher. The decrease in conversion rates was a direct result of the strong traffic growth and the average order value increase, and these more than compensated for the lower conversion. As we have discussed previously, average order values are key to maintaining favorable unit economics when shipping bulky items. This mechanism is an important driver of the structural uptick in margins, especially within the Home Furnishing segment. And we've now reached average order values that we feel are appropriate and structurally sustainable. The primary initiatives in place to drive margin expansion from this point on include executing on the mix shift mentioned earlier, meaning expanding the Home Furnishing segment rapidly as well as adding to the private label share of sales in the DIY segment. Next slide, Slide 14, please. The left-hand side of this slide provides some further insights into our private label presence within the do-it-yourself segment. Well-known external brands will always constitute the majority of our business in the DIY segment. However, with the group now having reached a critical mass, both in terms of visits as well as organizational maturity, we are in a good position to selectively supplement our product portfolio with our own brands. And 2019 was a strong year for our own brands, a selection of which is listed below. Our own brands differ in a few important ways from external brands and not least through the fact that our own brands typically generate significantly higher gross as well as fully loaded bottom line margins. Our single biggest brand throughout the segment and the company is the Bathlife brand within the bathroom category. And Bathlife itself continued on a strong trajectory through 2019, growing by 40%. The graph on the right-hand side illustrates the group's international -- that the group's internationalization continues. The quarter as well as the year saw strong growth across geographies, but our reliance on the Swedish market continued to decrease as a result of very strong developments in Finland, Denmark and our Eastern European markets. On a full year basis, Sweden represents 56% of net-net sales, a significantly lower percentage than a few years back. Turning to the next slide. As mentioned, the fourth quarter saw a nicely leveraged P&L. The top line growth at 28.5% translated into a gross margin increase of 39% and EBIT growth of 49%. The strong performance in both segments contributed to lifting the gross margin by 1.9 percentage points to reach 25.2%, our highest gross margin to date. The pure product margin, which is the measure most commonly used by our listed peers, amounted to 36.4% in the quarter. On the right-hand side of the slide, we've shown the fully loaded gross margin quarter-by-quarter comparing 2019 to 2018. As you can see, the margin during each quarter of 2019 outperformed that of 2018. The main drivers for the gross margin improvement in the quarter included roughly equal contributions from 2 developments: firstly, within the DIY segment, a higher share of sales from our own brands; and secondly, within the Home Furnishing segment, the combination, on the one hand, from the measures instigated in the second half of 2018, which has led to sustainably higher average order value. And on the other hand of our growing scale, in terms of freight through an improved negotiation position with external forwarders as well as our having reached critical mass in our own last-mile delivery setup. Before turning to the segments, a note on currency effects. We had continued margin headwinds from the depreciating SEK in the year as well as in quarter. However, we've been able to essentially fully compensate these adverse effects via price increases. Let us now turn to the DIY segment. So Slide 16, please. Net sales in the DIY segment, at just above SEK 960 million, grew by 25.5% in the quarter, and organic growth increased to 13.8%. Preliminary market data indicates that overall market conditions were on the soft side, and that the total market for DIY, online and offline combined, declined somewhat. The segment's performance again validates not only that the offline to online migration continues, but also that we're well placed to continue taking market share online. Our leading portfolio of external brands as well as our private label share of net sales continued to grow. And by rolling out installation services across a wide range of our product portfolio in Sweden, we further expanded the reach of what we call the BHG Ecosystem, combining the broadest portfolio of products with corresponding expertise and physical infrastructure, such as our network of showrooms and our services offering. As a result of these developments, adjusted EBIT increased by more than 60% and reached SEK 49.2 million in the quarter, corresponding to an EBIT margin of 5.1%. Turning to the Home Furnishing segment. Next slide, please. Net sales in Home Furnishing grew by 32.7% in the quarter, reaching SEK 685.3 million, of which organic growth accelerated to 28.9%. All geographies did well in the period, but growth was the briskest in Norway as well as our Eastern European business. We've seen the effects of the margin improvement measures from 2018 throughout 2019. And from the second quarter of 2019, we've seen it combine very nicely with the accelerating growth. Just as within DIY, assortment expansion is an important growth driver. And the segment's range now extends to over 150,000 SKUs. The rollout of the last-mile logistics operations in Sweden is progressing according to plan. The Stockholm and greater Gothenburg operations continue to gain scale and the launch in the Öresund region is at an advanced planning stage. The P&L in the Home Furnishing segment was also nicely leveraged with the top line growth of 33%, translating to an EBIT increase of 55%, reaching SEK 50.7 million, which corresponded to an EBIT margin of 7.4%. Turning to cash flow. Next slide, please. Operating cash flow for the year, excluding IFRS effects, amounted to SEK 233.6 million. This corresponds to cash conversion in relation to adjusted EBITDA of 64%. Cash generation does continue to be sound, although the increase in the private label share of net sales affected cash conversion adversely in the quarter, including through the late July timing of the Arc E-commerce acquisition as Arc E-commerce sees the seasonal buildup of inventory at the tail end of the third quarter and through all of the fourth quarter. The right-hand graph shows the development and liquidity and walks us through the starting period position of SEK 226.9 million, adding the strong cash flow from operations, deducting the impact of investing activities, the majority of which is M&A related. And finally, the financing activities, which consists of a mix of our decision to amortize the revolving credit facility by funding the ongoing M&A agenda through an acquisition facility, bringing us to the period-end SEK 270.3 million of liquidity [ at the time ]. Next slide, please. The group's net debt amounted to SEK 547.6 million at the end of the quarter. A strong operating performance meant that net debt in relation to LTM adjusted EBITDA ended at 1.5x, at the lower end of our target range. Our financial position does remain solid. The operating cash flow reflects our strong business model, on top of which we had unutilized credit facilities at the end of the quarter of SEK 577 million after having announced the doubling of our M&A facility at the beginning of the quarter. This increase reflects the group's continued active M&A agenda. And speaking of acquisitions, if we please turn to the next slide, Slide 20. Bygghemma Group has completed 26 acquisitions since 2012 and last year was a particularly active one. The right-hand side of the slide shows the 6 businesses that we acquired during the year, 5 of which significantly strengthened specific categories, what we called category catalysts, and one of which, the Norwegian one, had elements of a platform acquisition as it combines with our preexisting Norwegian operations to significantly increase our critical mass. Finally, 3 of the category catalysts are primarily private label based, further adding to our private label share of net sales within the DIY segment. Handing it back over to you, Martin, to summarize and conclude.

Thank you, Adam. So to summarize on Slide 22, we further increased our market share in the period, spearheaded by our accelerated organic growth, once again underpinning our position as the European online champion within home improvement. We reported our highest gross margin level ever, driven by improved unit economics as a result of structurally higher AOVs as well as strong growth of our private label portfolio sales. We further posted our strongest fourth quarter results to date, both in terms of sales and EBIT, and also in terms of operating module. In parallel with carrying out 6 acquisitions in 2019, we also reported a robust financial position at the lower end of our net debt-to-EBITDA target of 1.5x to 2.5x, leaving us with ample room for further M&A. We also took another important step in further strengthening our DIY private label portfolio in the quarter with the acquisition of Lindström & Sondén, with a leading online assortment within culinary appliances. Finally, we significantly strengthened our value proposition, the BHG Ecosystem, by further expanding on the broadest product assortment in our market by improving our physical infrastructure and by further rolling out installation services. So that concludes the presentation. Time for your questions. Ma'am, please go ahead.

[Operator Instructions] The first question is from Niklas Ekman of Carnegie.

A couple of questions from my end. Firstly, the organic growth acceleration that you've seen during the year, can you elaborate a bit about the key drivers that you see behind it? How much of this is due to easy comparisons from the year prior? And furniture box now delivering -- having been negative, I think, in 2018, how much general own improvements? And can you say anything about the underlying market, if you've seen any major changes in the underlying market?

Yes. Certainly, the underlying markets have been somewhat mixed with what we see as -- it's been a higher growth within the -- within home improvement -- sorry, within Home Furnishing and [ further cost ] to -- within DIY. We've, obviously, outgrown the market both -- within both segments. And in terms of what's driving -- what's driven the growth, I think it's been underlying improvement. Most importantly, rapid assortment expansion, but also adding private label that's been appreciated by the customers at, obviously, very good price levels. So a combination of that. And general improvements when it comes to presentation and the curation and so on and so forth, as we said in the report as well. We had some easier comps within DIY, in particular, after -- in Q2 due to the heatwave that we saw in 2018. Following that, however, we've not had -- we haven't had easy comps in that sense. We also see a better development, obviously, in our Eastern European markets within home improvement as we said earlier in the presentation as well. But I think a very good outcome of improvements that we launched basically at the later half of 2018, I think we've basically reaped the benefits of that during this year. When it comes to organic growth, as Adam said, we've had a nice, good development throughout the quarter. So we've been on a nice cruising altitude, so to speak, when it comes to organic growth throughout the quarter.

Excellent. And average order value, you've indicated here that you're quite pleased with the current level. Does that mean that there's still some upside compared to where your level was in Q1, Q2 of 2019? Or should this be a very limited driver in 2020?

I think we've seen a structurally higher level, and we're happy about the level we're at right now, so I'd say a limited driver -- I mean a limited upside in continued high average order values. Having said that, as you can see, I mean, the level that we're at is a good, nice level, where, I think, we penetrate the big kind of value for money part of the market in a good way. Hence, we're happy about this -- about the level we're at right now. We -- yes, hopefully, that answers your question.

Yes, yes, perfect. And in general, on margins, obviously, a very strong 2019 behind now with very strong margin progression. You have a target of 7%. What -- can you say anything about what you think about this development in 2020 in terms of further progression? Is there anything -- are there any negatives, any positives, that you see that should make 2020 exceptionally, in any way, on that path towards the 7% margin?

Not really. I think we're on a good trajectory. And I mean, we -- hopefully, we'll see that continuing into and throughout 2020.

Okay, great. Eastern Europe. Can you elaborate a bit on the level of profitability? I know you don't break out the EBIT number here, but does the margin in Eastern Europe differ materially from the rest of the group?

No. That's right, basically, your answer.

Yes. And on the issue of the balance sheet, it's strong now. It's in the low end of your financial target. You recently doubled your debt facility. What does that say about your plans for acquisitions compared to 2019? You've been very active in 2019. Are you seeing a further acceleration in that M&A activity?

We continue to leverage the M&A opportunity as part of our strategy, and we continue to do so. It's very difficult to predict the timing of acquisitions, as you know, Niklas. And we had a very, very strong start, acquisition-wise, to 2019. And then we also managed to close an acquisition just before year-end. So the high level of 6 acquisitions in 2019, we could have seen another one in '18 and one on -- say, the latest one into 2020. So we won't predict that we will be able to close out many acquisitions in 2020, but we definitely continue to actively pursue opportunities. And as we have gained further scale, we've confirmed our position as the natural platform within home improvement, certainly in the Nordics, if not beyond. We have a very good deal flow, and we have a very good position from which to execute on our M&A agenda.

Excellent. And any thoughts there on key areas for M&A?

At the high level, we definitely see continued so-called category catalyst opportunities within DIY. And across -- in the DIY still, we also look at opportunities in all of the Nordic countries. And not least, in the 2 countries where our position is not as dominant as in Sweden and Finland online, that is Denmark and Norway. When it comes to Home Furnishing, there are also potential category catalyst opportunities, such as the one we did in 2019, which strengthened our presence in the lighting category, through the acquisition of Lampgallerian. But we're also looking at significantly strengthening our geographic presence in select countries.

And I think targets with a nice private label portfolio will continue to be a focus area moving forward as well, as it's been during 2019.

Excellent. And finally, just a question for you, Martin. Your title still says acting CEO. Can you elaborate a bit on your thoughts behind this title? Why not permanent CEO?

I think this is -- I mean, it's worked out well, I think, throughout the year. And at some point, obviously, that's to be a permanent position. And I mean, let's wait and see how and when that will -- how that turns out.

But are you looking to leave the company at some stage? Or are you looking at taking a different position in the group?

No, I'm definitely not looking to leave. I'm definitely focused on continue building the group in some capacity maybe as CEO, maybe in some other capacity, but definitely part of building the group moving forward.

The next question is from Gustav Sandström of SEB.

Congrats to another solid quarter. So maybe start with the organic growth. If I recall correctly, you have stated your pro forma organic growth in prior reports and I didn't find it in this report, i.e. what the acquired companies have grown organically. Could you do provide us with that for Q4, please?

Yes. It's part of the presentation and maybe it wasn't part of the actual report. So pro forma organic growth was 20.4% in the quarter.

Great. And AOV, you obviously elaborated a little bit on this, that you reached a [ cross ] in the road in expanding AOV, which had transformed into gross margins and that's seemingly the upside from here, the life on your shared private label. But could you please elaborate a little bit more on the discrepancy in margins? Currently, gross margins when selling agency sales versus your own private label assortment and perhaps what you believe might be a reasonable evolution of the share of private label going forward compared to today.

Sure. So just before addressing that directly. So the path that we see going forward to further EBIT margin expansion is comprised of 3 broad themes. One, as you say, is the private label share of sales within DIY. And the other is the segment mix shift where, as you know, we enjoy a higher gross EBIT margin within the Home Furnishing segment, which is also growing more rapidly, and we believe will continue growing more rapidly at least over a cycle than the DIY segment for a few reasons, but including the fact that the underlying market is actually slightly bigger in the Home Furnishing side than the DIY side, whereas, as you know, we have sort of a 60-40 split in the other direction. And the final element of the margin improvement is that we should see continued scale effect as we move towards our midterm target of reaching SEK 10 billion in net sales. So those 3 components and very round numbers should in equal thirds take us step-by-step towards the 7%. And when it comes to the private label aspect of this, so if we disregard Home Furnishing, which is primarily a private label base, to some 90%, the initiatives that we talked a lot about today revolve around driving the share within the DIY segment up from its current level of roughly 10% to twice that level. And we're taking steps to do that quite quickly. So we see that, that is the feasible journey here to reach that sort of level. So a doubling of private label. Where we go from there is another question because the way we view the business today is the well-known external brands would continue to constitute the bulk of the DIY business for a long time to come for many reasons, including the importance of driving the visits and traffic to our destinations through that product breadth. And when it comes to the margin and discrepancy between our own brands and, let's say, the average external brand, on a gross margin level, it's somewhere between, let's say, 10% and 15%. And on a fully loaded bottom line level, because our own brands also carry some higher SG&A with them. It's, let's say, between 5% and 10%, something like that. Yes. So I hope that answers...

Yes, it certainly does. And then services, it seems that this has grown quite quickly for you versus when you IPO-ed. Could you please explain to us a little bit how material this is for earnings, perhaps, as you see 2020 and elaborate a bit on your share of wallet today within these installation services, the competition, profitability, your accessibility to labor and what's now -- whatever is important right now in order to drive this share?

Sure. So just taking a step back again. The key driver of this behind our services initiatives is strategic. Our vision is we make living easy. And as part of that vision, we want to provide our customers with a complete ecosystem of products and services expertise for the home. So it really is the strategic imperative that is behind this initiative. And it's also the realization that being the biggest platform within home improvement, to some extent, we hold in our own hands the speed of the online penetration of these still relatively underpenetrated online markets compared to many other consumer categories. And of course, expanding the total market online is another key potential growth driver for us. So to the extent that we can push the offline to online migration through making it easier for a wider set of consumers to buy products for the home online and have helped with everything from the expertise prepurchase to the delivery through delivery services and then installation services to actually get, let's say, the bathtub and placed in the bathroom. That, we think, will significantly help drive online penetration. And so it should also contribute to overall growth and product growth in itself. So it's -- this strategic deliberation that lies behind our focus on services. And when it comes to services in isolation, they typically -- installation services typically are interesting from a financial point of view, in their own right, with higher margins than the average product transaction has. And we also have excellent customer feedback and their scores on services. But when it comes to the share of sales from installation today, it's a small number. And we -- we're not making any forecast on that in isolation, but see it as an integral part of the total group's development into 2020.

All right. And then another question on M&A. You have mentioned the -- so you have a long list of companies. But could you please let us know whether or not you have -- what share of those names are now non-Nordics perhaps now versus the time with IPO? And if you could elaborate a bit on what you think the possibility is if you land sort of more of a platform-like acquisition outside the Nordics in 2020.

The majority of the targets are still within the Nordics. Having said that, we have an increasing -- a growing number outside of the Nordics as well. So that mix has shifted somewhat. In terms of platform acquisitions, I mean, there are, obviously, some, as you know, some potential targets out there. So I mean, we also have the, I think, financial capabilities to go forward should an opportunity arise. Yes, that's basically the safest for now.

Okay. And lastly for me, just looking into Q1, could you clear whether or not your -- you felt that the growth slowed down towards the end of the quarter in Q4? And is there anything in terms of weather or year-over-year comparison that one should note when modeling Q1?

So to your first question on the distribution of performance across the fourth quarter, it was -- it was even. So we felt that we came into the quarter at a good clip, and we came out of the quarter likewise. Of course, we had the Black Week event last week of November, which is sort of an event in its own right and a very big one now also for us. But disregarding the effect of Black Week, we haven't even paced through the quarter. And when it comes to potential external effect from, let's say, the weather, for instance, we certainly feel the effects of the mild winter for some product categories, and that's affecting the obvious ones negatively. But then we have such a broad portfolio today that, that is compensated for by other categories that typically perform better when the climate is mild. So at least from what we've seen to date with the somewhat unusually mild winter, I'd say, overall, the effect is nonexistent.

And in terms of comparisons versus Q1 last year, do you think that it's a -- I mean, it's certainly a more challenging comp for Home Furnishing versus Q4 and so forth. How do you think one should think about that comparison when modeling Q1?

I think one of the slides in the presentation showed the gross margin development quarter-by-quarter. And although we had significantly stronger gross margins throughout 2019 than 2018, as you may have noticed, it also quite clearly showed that, that outperformance was smaller in the fourth quarter because the measures that we put in place, as you're referring to in Home Furnishing, sometime mid-2018, actually already had a pretty significant effect in the fourth quarter of 2018. And I would say, on a gross margin line, a full effect in the first of 2019. So from a margin expansion point of view, we will continue along in the strategies that we've talked about. But we are definitely sort of with tougher comps in 2019 than 2018 because of those initiatives.

Well, I mean, essentially, I don't see that you have to take any special considerations when it comes to especially high or low comps than in last year.

The next question is from Michael Benedict of Berenberg.

Just had a few, we can go one at a time. Firstly, just on the warehouse expansion, can you give us an idea of the costs we should be modeling in, whether they will be underlying costs or exceptional costs?

We're embarking on this expansion through -- in partnership with an external company who is actually incurring the CapEx. So this is the lease agreement, and we're not envisaging any special costs or onetime costs associated with it.

And then just on Black Friday, I think you mentioned the sort of growth was level throughout the quarter, excluding Black Friday. Could you give us an inkling or an idea of how significant the uplift of the Black Friday week was on your Q4 organic growth?

We don't comment on that in detail, as I think you're aware of, we had a very nice Black Week. As we've stated in that communication regarding Black Week as such, it's important but it's still just 1 week out of a whole quarter. So it does affect the quarter, but it's 1 week, it was a good week. We had -- as we said before, in answering Niklas' and Gustav's questions, we've had a nice and even development throughout the quarter in terms of organic growth.

Okay. And then just one last one. Home Furnishing's gross margin, if we're saying the average order value has sort of flattened off or will flatten off and the drivers will be the mix effect between segments and own brand in private label, would it be a fair assumption to say that Home Furnishings' gross margin will be broadly flattish going forward? Or is there anything I'm missing there?

We continue to be focused on the operational fundamentals with everything we can do there in terms of negotiations on the supply side and through the direct selling cost elements. And so with scale, all else equal, we should be able to step-by-step ramp that further up. That's -- there's nothing sort of extraordinary in our outlook for the margin development other than our continued expectation of growing quite rapidly with the opportunities that will allow for us.

So basically, we're happy about the gross margin level and now we're focusing on growth. That has been the case, basically, during the last 2 quarters and that will continue in the coming quarters then onwards.

The next question is from [ John Huttner ] of [ Interfunder ].

So firstly, I'd like to ask you about how you get your customers. And more specifically, if there's been any changes in the way you get your customers from additional Google Shopping, PriceRunner, social media, et cetera?

I mean basically, no. Social media is becoming, however, increasingly important. We've had a very nice development in terms of that during this year, not least during Black Week. We've also seen a nice development in terms of the share of repeat customers during the year, which is obviously very important. Having said that, Google is obviously the main driver in terms of traffic generation. And as you know, we are very -- we are -- I mean, we are very dominant within our space and that obviously helps since if it's -- when it comes to Google and traffic generation, you basically -- you're in a virtuous cycle with increasing scale and so on and so forth. So yes.

And does your increasing scale also mean that the cost of getting the customers to your websites go down per customers, so to speak?

We're happy about our share of our online marketing spend as share of sales basically. And it's been on a stable level for some years now. And we -- basically, we see that continuing throughout -- I mean, moving into 2020 and onwards as well at about 5% of sales.

Okay. And looking at retail in general, it seems like more and more actors are getting more professional and -- or more good at using these algorithms, et cetera, to get on top of Google Search list. Are you seeing increased competition in this field? And also on the same topic, is it harder or easier to make sure that you have the most attractive price per item that people search for?

No change, really, to be honest.

Okay, good. And then a completely different question. Could you please explain the difference in cash flow, IFRS adjusted and not?

Certainly. So we have started to showing the numbers, excluding the IFRS adjustment, through this year since we want to be able to compare apples-to-apples to prior year. We're also looking at how our peers are going about this, and we see that not everyone is doing it, we think, as consistently as we are. But the main effect from -- excluding compared to including point of view as to the quite significant impact on EBITDA from the 2 accounting treatments. And in our case, round numbers, that difference is roughly SEK 100 million.

So SEK 100 million in improvement in EBITDA?

So including IFRS, EBITDA is SEK 100 million higher than excluding.

And what line is that SEK 100 million then appearing on? Then it's below cash -- below your free cash flow, I guess?

So in the presentation, when we talked about cash conversion, the left-hand side of that cash flow side -- slide, the left-hand side excluded the impact of IFRS 16 and the right-hand side included the effects of IFRS 16. And in the cash flow statement in the report, we showed the numbers, including IFRS 16.

The next question is a follow-up from Michael Benedict of Berenberg.

Yes, just a couple of quick ones. One on the IFRS 16 cash flow. Which line exactly is that coming out of in your cash flow statement? Because it does not look obvious where, I guess, we typically expect to see in financing activities. Can't see which lines...

In the report itself, you actually cannot complete the bridge between excluding and including IFRS 16. The report itself mentioned the number, excluding IFRS 16, in the comment section. But the actual cash flow statement has -- only has the now official numbers, meaning including IFRS 16. The presentation that we just walked through on slide -- I'll just have to look and check which slide number that is. On Slide #18 have -- the left-hand side, excluding IFRS 16, and the right-hand side, including IFRS 16. So the right-hand side reconciles with the cash flow statement in the report. The left-hand side, reconciles with some of the comments under cash flow before the financial statements of the report.

Great. I guess my point is, if we're looking at your reported cash flow statement, where is the IFRS 16 leasing costs coming out as a cash outflow?

So since the IFRS 16, as you know, about the adjusts leasing costs, which previously then were included as either in fulfillment rent or in SG&A rent, they are now instead treated as if they were a capitalized asset that is financed. So there is an interest expense associated with it. And there is an amortization of that asset associated with it.

Okay. And then just one follow-up, check I heard correctly. Did you say 20% private label is your aim for this year? Do you expect to get to that goal this year?

Yes. For the DIY segment, yes. For the group, as a whole, now depending on the relative growth of the segments, et cetera, but it should mean that we should be somewhere about half of net sales coming from private labels for the group as a whole.

The next question is a follow-up from [ John Huttner ] of [ Interfunder ].

I'd like to hear more about your plans for last-mile delivery. You started in the Home Furnishing segment. What's the rollout plan through all of that business? And also if you're considering to do this in the DIY segment as well eventually.

So now we're rolling out throughout Sweden, [indiscernible] region, with [indiscernible], the Öresund region being next in line shortly. And as for the -- it's been appreciated by -- very much appreciated by the consumers. And we have good results with the rollout. And now we'll evaluate and look into the other Nordic countries and basically take it from there.

I think you work more with the drop shipment model in DIY. So given that, is it possible that eventually it could, within that model, still have last-mile delivery and give that better service to your customers in that segment as well? Or will that be difficult?

The model is somewhat different, as you state. It's definitely possible. You need to cross-dock on your own, but that's basically done by the forwarding companies today. So it is possible. And yes, it's a slightly different model, but definitely possible. So we'll evaluate the outcome and the customer reactions and so on and so forth within home improvement. And as I said, then we'll take it from there. But it is possible.

As there are no further questions, I hand back to the speakers for the closing remarks.

So this concludes the call from our side. Thank you for dialing in, and thank you for your questions.

Thank you. Bye.

Thank you all for attending. You may now disconnect your lines.