Byggmax Group AB (publ) (BMAX) Earnings Call Transcript & Summary

Hello, and welcome to the Byggmax conference call. [Operator Instructions]. And just to remind you, this conference call is being recorded. Today, I'm pleased to present Mattias Ankarberg, CEO. Please go ahead with your meeting.

Thank you so much, and welcome, everybody, to this Byggmax Q4 conference call. I am also joined by our CFO, Helena Nathhorst, who will help me to go through this presentation and the call. And as usual, we speak to a presentation that's available on our website. To start off, on Page 2, summary of the quarter. I think you can phrase it that as another great quarter during this record year. We had strong sales development of 29% in a strong market, and we continue to grow a bit faster than the market and particularly have really good momentum in e-commerce. Byggmax e-commerce grew 60% in quarter 4. We also continue to get very good leverage from the increased sales, i.e., converting additional sales into good profit growth. So with both a very good gross margin increase and solid cost control, EBITA in the quarter increased to SEK 65 million compared to minus SEK 6 million for last year. Summarizing the year, we could see clearly a record year for Byggmax Group, increasing sales by 29% to SEK 6.8 billion, increasing market share and doubling our EBITA margin to 10.4%. On key events, on Page 3, first and foremost, we do operate in a COVID-19 situations, and we have taken a lot of precautions to operate as responsibly as we possibly can. For those of you follow us, you know that we have a fortunate position compared to many others, both when it comes to the environment that we operate in, I mean, we have a -- much of our shopping is done outdoors. We have freestanding properties, and we have a concept based on self service. But even though we have taken a number of measures and continue to take measures to do the best we can to ensure health and safety of both employees and customers. Of course, financially, the whole DIY industry has been positively impacted as people have spent time in their homes and money on their homes. So net financial impact is still positive also in Q4. And the disruptions we have had due to COVID-19 are still manageable. Besides that, we have opened 1 new store in the quarter, and we have also, in Q4, announced our plans to expand into Denmark, which are of effect now as of January 2021. We'll come back to that in the few minutes. Market continued really strong also in quarter 4, and we have some data points to speak to on Page 4. There are several reasons, and I would like to point out 3, but the primary one is the continued stay-home effect, as we call it, during the COVID-19 pandemic. Again, people are staying home and spending money on their home. The effect is not as strong as it was during the peak in April and May, but still sustained and very significant. In addition, there was a very mild autumn in the Nordics during the quarter 4, which created a favorable weather effect for us specifically, which sell a lot of outdoor products. And then thirdly, a more long term, the housing market, the Swedish housing market, that turned positive 18 months ago continued to grow, and the transactions have increased during 2020. For those of you who follow us, you also know that we have historically lacked good public data on the sector that we are active in, i.e., the consumer part of DIY. We are not significant in B2B. But we are happy to see that at least in Norway, the Norwegian -- Federation of Norwegian Enterprise, so Virke, has started to publish B2C numbers for DIY. And they point the year at plus 18% growth, which is very much in line with our view of increase of 15% to 20%, both for quarter 4, but also for the year 2020. We have, on Page 5, also continued to execute a number of growth initiatives, which have added to the sales growth and helped us grow faster than the market during 2020. And we have continued to execute them, and I'll go through them in the same structure as we've done the previous quarters during the year. First of all, we've continued with the store upgrades. We are now having almost 40% of the store portfolio as what we call Store 3.0, which is the new Byggmax concept, store concept thinking. We've had really good success with The Garden department this year. There are very small share of Garden sales in the quarter 4, but for the year, it's been clearly significant. E-commerce is perhaps the area where we see the most sort of positive and increasing momentum. And the Byggmax segment online sales increased 60% in Q4 and 50% year-to-date. Store expansion continues. Opened 10 new stores during the year, and that adds about 4% sales for the year. Our second Skanska Byggvaror also continued positively, good effect from the initiatives that we are driving and again, continues to see good scale effect. So efficiency is clearly up. Gross margin increased 0.5 percentage point during 2020 compared to a clear all-time high during 2019, and we have good cost control. And when sales increased 29% in the year, we have OpEx growth of 10%, which is -- that implies minus 3 percentage point of sales. So all in all, about 10% of sales growth driven by the own sort of earmarked initiatives. I'll now spend a couple of stages, 2 or 3, detailing some of these initiatives a little bit more, and starting with online on Page 6, where we continue to see very strong growth. And we've made big changes to our e-commerce setup during the last 2 years and quite some investments that are now paying off. We have clearly increased the assortment. We have a new and improved site, and we have many more delivery options. And again, sales was up in e-commerce for Byggmax with 60% in Q4. We also now see some benefits of integrating e-com with the physical stores and also happy to see that, that enables us to grow faster. I'll give you 2 examples. First of all, we can see that the fastest-growing part within e-commerce is click and collect or order online, pickup in store. It's growing at about double the pace of home deliveries, which, of course, is a strength for us with 169 Byggmax stores. And also, we can see good cross-channel effects. So when we -- on sales. So when we open a new store, e-commerce sales in that geography typically increases around 15%. We are also very much focused on continuing to improving our e-commerce and invest in a better offer. And during this quarter, quarter 1 2021, we will be the first in Nordic DIY to launch what we call proactive track and trace. And what that means is that we have a view that deliveries are a really important part of the e-commerce customer offer. We would like to be a company that takes full responsibility for the deliveries and not outsource that to transportation partner. So we will, starting in Q1 2021, give customers full visibility on the status of their e-commerce orders, but we will also and largely through technology, monitor all the deliveries and proactively communicate any deviations to what we have communicated earlier to the customer, that is if the customer will receive it perhaps a bit earlier or perhaps a bit late. So that was some details on the online part. Turning to the store side, another good priority for us, a key priority is upgrading the store portfolio, where we have what we call Store 3.0, which is the latest generation of the Byggmax format. We do what we call Store 3.0 across 3 formats: we have formats for small towns; for cities, which we call regular format; and for larger sites, which we call large format. That also includes a full-size Garden department. Store 3.0 is an initiative which basically does 2 things, it increases the assortment compared to the previous format and adds things in relevant categories such as tools, flooring, garden and, et cetera, bathroom. And we've also ended the second thing with the Store 3.0 concept is that we changed the layout, the customer track and communications, so an improved customer experience. And we have continued to see that upgrading an existing store to 3.0 generates 6% sales increase per store. On Page 7, we will -- we have further information on how the portfolio develops. So as is evident from the graph, we now have 66 stores on 3.0, about 39% of the store portfolio. We focus on opening stores during a good season, high season in Q2 and Q3 and upgrading existing stores in Q4 and Q1. So continue to do that in Q1. We also opened 1 new store in Q4 in Sweden, the south of Sweden, and we closed 1 store in Norway. No changes to small format shares or Garden shares in the quarter. We could, however, say that we have now announced to open the first store for Byggmax that is connected to a shopping center that will be opened in the western parts of Sweden during spring. That was some comments on the store portfolio and particularly online. Two further points regarding development before shifting to financials. So on Page 9, we will provide some information regarding our expansion plan to Denmark, which we announced before Christmas. So starting off, why Denmark? But for us, Denmark is an interesting market. It increases the potential for organic growth, and we see scale effects with the business we already have. So it's, first of all, a good-sized DIY market. It is a good fit with Byggmax. It's a price-driven market, in general, in Danish retail, but also in DIY, and that typically suits as well. There's a good product overlap with Sweden, and there are competitors that are similar to the other Nordic countries and competitors that we know. It is also possible for us to serve Denmark through the existing supplier and supply chain structure that we have and warehouse structure. So should be good to possibilities for capturing some synergies, and many suppliers and products are very similar. There are, of course, some local differences and, for example, less timber-based construction in Denmark, more like Skane in the southern part of Sweden to that respect. But overall, it's an interesting market with good potential for organic growth with similar business concept that Byggmax operates in other Nordic countries. And then on the next page, a couple of words on the approach we take to the Denmark entry, and we have chosen to do this through e-commerce and through acquisition of an existing profitable business. And as per communicated earlier, we have acquired a company called Naestved Lavpristrae. It is a founder-led DIY discount concept, very similar to Byggmax, and selling also very similar products in sort of hard DIY with building materials and other accessories as the core offer. It operates 4 stores in Zeeland, so the greater Copenhagen area, so to speak. Has come pretty far with e-commerce and almost 30% of sales is today from e-commerce, and the total sales last year was about DKK 125 million. Founder-led, good track record of organic growth, good profitability, and they're much similar to Byggmax. And enterprise value is maximum DKK 40 million, DKK 20 million initially and then up to DKK 20 million additionally based on future performance. So we start off by acquiring something which is fairly small, similar to us, and that we have -- and has very hands-on and strong local knowledge of the Danish market. And in parallel to that, we will open a Byggmax-branded e-commerce site for Denmark during Q1 2021. And although we believe that Naestved Lavpristrae has a good offer, there are many more product categories for Byggmax in other countries are relevant. So we will supply that to the Danish market through the Byggmax' e-commerce site in 2021. And this is a good step into the market, but, of course, not the last step. This creates, in our view, a good starting point or a foothold to further grow organically in the coming years. Our second segment, Skanska Byggvaror, also continued very well in Q4. Just a few words on that. Very good effect from the initiatives we've been driving for 2 years with an increasingly digital sales and marketing model and increasingly sharper digitally, I should say. And also good effect from product development and also benefiting from the sort of niche leadership related to gardens, conservatories -- very strong with conservatories and greenhouses and benefited from that trend in 2020 as well. So a very good effect from the market like the Byggmax segment, but also very good effect from all initiatives like the Byggmax segment. Good order increase or even strong order increase in Q4 and continued very good sales development and very good profit development, actually also reaching all-time high, both in terms of profit in absolute numbers and in percentage points. And with that, I turn to Helena Nathhorst for some financials.

Yes. We are on Page 12. This page is a breakdown of our total sales as well as the development in our 2 reported segments. Q1 (sic) [ Q4 ] is one of our smaller quarters, still, of course, with strong sales growth of plus 28.7% versus the same period last year. Our like-to-like sales increased by 27.8%. We have about 23% of our sales in other Nordic countries. So we have a negative currency effect in the quarter of 3.1%. This is mainly due to the Norwegian krone. If we look into the 2 segments, we report 2 segments, Byggmax and Skanska Byggvaror. And from 1st of January, as mentioned, we will have our Danish acquisition included in the Byggmax segment. Byggmax stands for, yes, over 90% of our sales and Skanska Byggvaror, 9.4% of our sales. The proportion between the segments is quite in line with the full year proportion. If we look at sales development in Byggmax, 29%, and the new stores contributed 4%. Skanska Byggvaror has a strong increase of 25.6% in the quarter. the continuous strong sales increase is driven by the good market growth with the continued stay-home COVID-19 effect. But we also see a stronger market position for ourselves through our own initiatives, adding approximately 10% of the growth initiative, as mentioned by Mattias, from new stores and upgrades, much stronger income and strong new stores sales in the year. If we go to next page for the comment on the P&L. As mentioned, a small quarter for us, but still a strong growth amounting to in total SEK 1.2 billion in the quarter. If we look on the gross margin, it strengthened to a strong position of 34.7%. It is effects from scale and suppliers and logistics. But also, it has been possibility to increase market -- increased prices in Norway to compensate for currency movements. And we have a positive product mix effect in Skanska Byggvaror that we did see in this small quarter. And comparable costs, meaning personnel and other external costs, excluding new stores, increased by SEK 22 million in the quarter. This is driven by higher personnel and volume-driven costs from COVID-19, volume and store upgrades. Other costs had been in continuous control and economic of scale. So in total, a good quarter where EBITA increased from minus SEK 6 million to SEK 65 million, and EBITA margin improved to 5.3%. The leverage and development from sales converted to improved EBITA is seen in both segments in proportion to its -- proportion to our size. Also, looking into the full year, we have the growth, as mentioned, amounting now to SEK 6.8 billion for the total year, a growth of 28.9%, close to 29%. The gross margin, again, improved, strong scale effects, but some product mix effects also from both Byggmax and Skanska Byggvaror. Very strong cost control throughout the year. Costs increased mainly from volume-driven cost. So in total, we have EBITA margin improvement of double EBITA margin from 5.1% to 10.4%. And the EBITA improved from SEK 270 million to SEK 705 million. Again, this is seen in both our segments. Continue to Page 15. We have cash flow and net debt. Very strong cash flow in the year and in the quarter. Cash flow in the quarter amounted to SEK 34 million, an increase of SEK 342 million versus the same period last year. Cash flow improvement primarily driven by significant improvement in net sales and earnings development. And this, in combination with increased accounts payable, following the high-volume and improved inventory turnover. The cash flow and the performance strengthened our balance sheet, and we have now a net debt at year-end of SEK 467 million to be compared with the position of SEK 1.210 billion at year-end 2019. So a very strong year and a strong position for 2021.

Thank you, Helena. We will wrap up with some forward-looking comments. We are now on Page 16. And looking forward, we are quite excited and positive about 2021. Obviously, there is many uncertainties around us during the COVID-19 pandemic and things related to that. And we of course, as everybody hope that we will soon be in a more normal situation and through the pandemic. And the one effect, which, of course, will impact everybody, including us, is the duration of the pandemic. But if we look post-pandemic to a more new normal, we believe that there are several reasons to be quite positive for the coming year and perhaps beyond, and we will go through them quickly on Page 16. But first of all, we expect a more attractive market going forward. All data internationally and recently also just last week in the Nordics, consumers expect that the home will play a larger role in their lives than before the pandemic. Many people would like to continue to work, at least, a bit from home and how moten into hobbies and pets and boats and summer houses to make their leisure life also more centered around their home. So we expect for the next year a market size, which is below the exceptional 2020 but above 2019. So a market post-pandemic, which is lower than during pandemic, but higher than before the pandemic, so to speak. Secondly, we -- Byggmax have clearly a stronger market position and the best ever market position than we ever have had. I mean low price continues to take share across all retail and same consumer research, I believe, with Swedbank, just a couple of days ago that said that consumers were expecting to spend money on DIY in coming year. Also said that overall, they were looking for ways to reduce their spend, which I think speaks well for the low-price position. We have been working really hard during the last couple of years to create what we call a modern low-price concepts. And right now, we have many more up-to-date stores and much more relevant e-commerce, and we have a Byggmax brand that has never been appreciated by as many consumers and never had so many new customers as before. So we clearly have a stronger market position than we've had in any time before. Thirdly, we have our own growth initiatives that we continue to execute, and they have more to give. We will continue to invest in e-commerce or upgrade the new stores. And now we also continue -- we will build out Denmark Naestved Lavpristrae. Fourthly, I believe that's probably evident from these last couple of pages Helena went through, but we have demonstrated a very strong ability to convert extra sales into extra profit. This year, we had a sales increase of 29% and EBITA of 260%. And we continue to work really hard to be efficient. We get good effects from scale. We have continued to do technology and tools for our -- and automation for our employees to be more data-driven and make things more automated. And we also have a very cost-conscious culture, which all speaks for our ability to continue to drive efficiency. And then lastly, we now also have a very strong balance sheet, which enables us to both invest in growth and also to pay dividend. And as already communicated in Q3, the Board has proposed a dividend of SEK 2.75 per share for 2021. So with those observations, we are ready and positive for 2021. And I'd just like to mention on Page 17, a little bit more detail on that comment about point 3, our own initiatives, to give some more specifics on our own agenda for 2021. And it looks very similar to 2020 because we believe that these initiatives are more to give. So store upgrades, we will continue to upgrade our portfolio. We are now at 39% of the portfolio at Store 3.0. We expect to reach 60% by the end of '21. We will continue to invest in e-commerce and both in larger assortment, continue to improve the site, but also to improve deliveries, which we believe is important. And the example we just gave earlier about proactive track and trace launched here in Q1 is a good example of that. We will also launch a Byggmax-branded e-commerce site for Denmark here during the first quarter. We do continue to expand with more stores also. We now have 3 formats for small towns, cities and large cities, and the larger one includes Garden. And we plan 12 new stores for 2021. Skanska Byggvaror is on a growth path, but also with more to give. And we'll continue to invest in product development and extend the range of garden buildings coming this spring and further initiatives within digital sales and marketing. So we have several growth initiatives and more to give in addition to the efficiency agenda that we are driving. On Page 18, before we open up for questions, just lastly, we are very excited to share about the Byggmax journey, but we have more information to share. So please save the date. We will hold Capital Markets event digitally on March 23 and -- to share more about where we are, but perhaps more interestingly, our initiatives and our growth journey ahead, and the details will be communicated later separately. So with that, we turn to operator to take questions.

[Operator Instructions] Our first question comes from the line of Niklas Ekman from Carnegie.

A couple of questions, if I may. Firstly, I'm going to start with life post-COVID, as you talked about. And you had a fairly positive view there about a sustained strong market. I was just wondering, do you see any risk of a backlash, given that the market was so strong in 2020, that maybe a lot of refurbishments that have been planned for the next few years or so have all been kind of done in 2020. Is there a risk that the demand for refurbishment products will go down? Or is it the other way around that one refurbishment triggers another? Just your view there on kind of consumer behavior, what your take is.

Thank you, Niklas. Well, our view is that, of course, there's been a bit of a, what you call it, bump in the curve in 2020 in sort of a positive side on the demand curve for us that there's been more time at home and more opportunities to do things that were needed to be done or maybe on the to-do list for the home for a while. But we also think that post-pandemic that the home will play a larger role in people's lives and therefore, also create sort of both new needs and continued needs to upgrade the home to a larger extent. For example, Swedbank, the Swedish retail bank, had a consumer survey out the other day where they surveyed Swedes about expectations for 2021. And the biggest point where people expect to spend money and more money according to Swedbank was to renovate, but also to build out the existing homes for homeowners. So I guess people expect to work a bit more from home, maybe need an office or some extra space, but also have orientated to sort of some more leisure activities around their homes with, again, pets and boats and summer houses, et cetera. So I think an extra demand boost in 2020, but still, the home has a bigger role in people's lives, and therefore, they need to sort of renovate and extend the home will be bigger than pre-pandemic. Long answer, but that's the view from us.

Very good. That's very clear. And secondly, your plans for this Danish acquisition, is that going to be run under the current brand name? Will it be relabeled the Byggmax? And also these 4 stores, how are you looking at that going forward? Are you looking at a significant expansion of that? Do you have kind of a target for where you want to be, 3 to 5 years from now in Denmark in terms of store footprint?

Well, Denmark, a very good topic. So we have taken an approach, which is that we do e-com first, but we also acquire a company to learn about the Danish market. And now we happen to be very fortunate we acquired somebody who is very similar to us. So basically, a Byggmax copy, if you like, maybe less upgraded so, but still. During 2021, things will remain as they are. So the current brands will be as they are. And to give you full transparency, I mean, after that, we will, of course, evaluate, but we are a company that likes simplicity. So preferred option for us would be to go with the Byggmax brand also in Denmark. We have a clear hypothesis around that. And then we do see clear growth potential, definitely for both for stores and e-commerce around Denmark. And that I mean a quick observation, this business that we acquired is doing fairly well, growing well organically, like-for-like and good profitability, but they are just still on the island of Zeeland. So I think that speaks for the potential of the similar kind of concept throughout Denmark.

Good. And on the topic of investments, you talked about investing in growth, and you have a very strong balance sheet, yet the -- and you didn't pay a dividend last year. The dividend payout this year was about 35%. What are you saving up for? Are you looking at continued investments in growth? Do you think you're going to make more M&A activity going forward?

Well, first of all, we will step up the investments in the agenda that we have already. So we expect to increase CapEx, if you like, a little bit in -- well, a bit in '21 compared to last year. We will do a bit more stores, a bit more upgrades, but also in e-commerce and some relocations. So we now have sort of room to maneuver a little bit more optimistically or positively on the sort of organic initiatives. And then secondly, as you say, we have a strong balance sheet, which creates new opportunities. And we expect to share a little bit more about that when we have the Capital Markets Day on March 23. But of course, there are areas that we believe are interesting for both the Byggmax brand and both the Byggmax Group that could be done through acquisitions going forward.

Very good. And on the topic of store expansion in 2021 here, you talk about 12 new stores. Is that a net number? Or are you looking at the closing stores as well?

That's a net number. We may -- we try to be active with our store portfolio. And you know this, but trade patterns shift, so there could be 1 or 2 closures depending on opportunities, but 12 is a net goal.

[Operator Instructions] And as there seems to be no further questions, I'll hand it back to the speakers for closing remarks.

Well, thank you, everybody, for joining the call. Wish you a good day, and hope to hear from you again at the Q1 call.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.