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

Good morning or good afternoon all. Welcome to the Byggmax Group Q4 Report 2022. My name is Adam, and I'll be your operator for today. [Operator Instructions] I will now hand the floor to Mattias Ankarberg to begin. Mattias, please go ahead when you're ready.

Thank you so much. Welcome, everybody, to this Q4 conference call. I am here today with our CFO, Helena, and we will take turns walking you through the Q4 and taking questions. As usual, we will speak to a presentation that's available on our Investor Relations website. And I'll start with a summary, which is on Page 2 in the presentation. And overall, we continue in the fourth quarter to make good progress in what is or continues to be a tough consumer market. Top line financials, Q4 net sales decreased by 10% to almost SEK 1.2 billion, a like-for-like decrease of 15%, continued e-commerce share of around 20%. And as in the third quarter, we see continued very strong progress in what we call smaller project sales with all-time high sales in, for example, for in paying the storage, but much weaker on the larger investments, which we will come back to. We continue to take market share as we've done for, well, I think, several years and several quarters in a row. The other metrics look very strong. Overall, we have an all-time high gross margin for the fourth quarter in Q4 2022 and a very strong cost control. We further reduced inventory and are ending up where we would like to be at close to last year's level. EBITA decreased to minus SEK 28 million in the quarter compared to positive SEK 25 million last year. And for the full year sales decreased by 5% to SEK 7.3 billion. We decreased EBITA SEK 509 million compared to the very strong 2021 and we reached EBITA margin of exactly 7%, which means we reached the profitability target for the full year 2022. It's been quite eventful quarter for us, I would say, unusual eventful to be a low season quarter, which Q4 and Q1 is. We opened 4 new stores during Q4, 2 of which was the new concept Byggmax Studio, which is a new concept or decorative DIY, which we will come back to later. We have continued throughout the year to upgrade our store portfolio to what we call Store 3.0, and we are now approaching being done with 91% of our stores on the new concept. We reached a milestone in our climate agenda by having the first own circular timber beams in Byggmax stores during Q4. And we have also, in the quarter, signed a sustainability-linked credit facility of SEK 500 million with Handelsbanken. So quite a lot of things going on in the fourth quarter. And before I get into the details of the quarter on Page 4, I think this is perhaps even more important than usual to highlight the strength of our low-price position. We continue to see in this higher price consumer climate that low price takes a lot of share across retail categories, and we are really happy to see that we have such a strong price leadership in the Nordic market. We -- coming to the market on Page 5, we continue to do better than the market, but in what is a very tough market during the second half of 2022. The market declined by around 15%, 12% to 18% in the Nordics compared to the year before to a level which is now, as in Q3, a little bit below the level before the pandemic, so in 2019. I'm sure you are aware, but the consumer confidence numbers for the Nordics were at all-time low during summer and have decreased even further during autumn, actually plateauing in the Q4, and we'll come back to that later, perhaps some final improvement here in early 2023, but at all-time low levels during the autumn, particularly there is a low intent to make larger purchases in the market. We've seen a continued decline in housing market transactions during the autumn as well, and we see -- continue to see a consumer behavior, just like we did in Q3 where clearly consumers have less money to spend or less spending power, but also a lot of hesitation and postponing projects for a later period of time. We usually comment on weather effects, which were for the quarter in line with last year for some positives and negatives. Overall, market is, as mentioned, around 12% to 18% negative in Q4. Byggmax was minus 10%, as we commented on earlier. Summarizing the full year, the market is down by sort of 10% to 15% and Byggmax is down 5%, making this the third quarter -- sorry, third year in a row since we have the public consumer data statistics where we take significant amount of market share. We have continued to execute our long-term strategy, and we have four particular growth initiatives, but we are focused primarily on organic growth, and we outlined them on Page 6. I already commented quickly on that we have continued to do store upgrades at a high pace during the year. We continue to build out our e-commerce operation, and we have also done a few new stores. Although last few years, we have been more tilted toward upgrade and e-commerce. We also have done 3 add-on M&As in the last 2 years, which we will comment on shortly. The impact of this initiative continues to be positive as we can see on Page 7. And store upgrades, again, we're now at over 90% of the portfolio upgraded. We know that it adds 6% of sales to each store, which is, of course, very positive. What we do with this upgrade program is to both making more upgraded and modern consumer experience, a nicer store concept, but also we add several smaller project categories to the assortment, which has been really helpful for us. E-commerce continues to be an important part of the group with 20% of the total sales in Q4 as e-commerce. The Byggmax branded e-commerce declined by 13%, clearly negatively impacted also by a larger project, but the continued good growth in smaller projects also on e-commerce. And we continue quarter-by-quarter to extend the online exclusive product range that continues to add sales for us. And that has been the case also for 3 years now, we see a continued fastest growth coming from collect@store or buy online pick up store. Store expansion had 2% of sales. We opened 4 stores in the quarter and 13 new stores for the year. And add-on acquisitions is only 1 percentage point for the quarter as the larger acquisition done in 2021 is now incorporated for the full year already, but continue to see some positive effects of that. Turning to Page 8. We have now ended or closed 2022, and we reviewed the add-on acquisitions impact on our business, and we thought we would comment on that today. So we have made three acquisitions of smaller size, largely sort of Swedish currency around SEK 150 million to SEK 300 million sales. And we have seen good developments. So if we start by the first one, Næstved, that's our entry into Denmark, very big, much like business. 4 stores around Greater Copenhagen or in Zeeland and 30% of e-commerce. We have seen a profit increase of just over 50%, clearly driven by synergies in terms of supply chain, so purchasing and assortment synergies and also adding competence for us for continued Denmark expansion as we have continued to do. Secondly, the larger SEK 300 million Norwegian acquisition on August 2021, it's Right Price Tile. Low-price leader in tiles and bathroom project also increased by 50%, also some supply chain synergies and other more qualitative collaborations on developing the business and also a good addition for us in order to develop the tiles category going forward. And the latest one is only 1 year in an e-commerce company in Denmark has a solid development in what has been a tough e-commerce market, but also adding a lot of assortment relevance for the particularly Danish market. So overall for us, to summarize, we have done three acquisitions of founder-led, smaller sized businesses at good valuations, and we've seen good profit development, supported by particularly supply chain synergies with Byggmax and also we seen good effects on the group in terms of a more balanced sales footprint across geographies and categories and adding skills or competencies to further develop the group. So that is a short review of the add-on acquisitions. And on the note of adding competencies to develop the group, on Page 9, we have now just launched what we call Byggmax Studio, which is a concept to do what we call decorative DIY or indoor DIY, a concept largely focused on tiles, but also flooring and paint to do indoor renovation, which is developed in strong collaboration with the acquired Right price Tiles company from Norway. So I thought I would say a few words around that and how we think about that going forward. It is a new concept for the Swedish market to be a best price offer for, again, tiles also flooring, paint and accessories, and bathroom-related project. Currently, particularly in Sweden and the market is served largely by companies catering to B2B or craftsman, so very few pure-play consumer alternatives. And again, in Norway, the Right Price Tiles team has built a business of SEK 300 million and very solid profitability indicates that there is very good potential to do a low-priced consumer alternative if it's done in the right way. We have developed a concept in strong collaboration between -- with the Right Price Tiles team. Concept focused on best price, everyday low price and the price guarantee exactly, like Byggmax brand values. It is freestanding stores in retail parks to be closer to other retail and higher traffic areas. And they only consist of these decorative categories. It's a concept based on self-service, but also actually assisted advisory sales to help consumers through choices and planning of what is slightly more complicated projects. We keep the key products in the stock in the stores, but also have a large range, which is -- stay at the showroom in the stores and available for home and store deliveries. We opened 2 stores in Q4, one in Linköping in Tornby retail area and one in Västerås in Hälla. And it has -- both have been off to a good start. The plan is to tune the concept in during '23 -- 2023 and then be ready to roll out by 2024. So something to look forward to during the year. And with that business update, I'll turn to Helena to give some more financial details.

Thank you. We are now on Page 10, looking into the details of the sales development in the fall. Quarter sales decreased by 10%. It is a tough quarter, and the base trend is in line with what has been communicated in the second and primarily in the third quarter, where we have products related to smaller projects in flooring and storage, and to some extent, energy has continued well while the stable decline of products related to larger projects continues. We have 4 new stores in the quarter, and they have contributed with 2.2% of the sales. And we have opened 30 new stores in the last 12 months. The upgrading of stores continues, and we are close to having all stores with stable long-term lease agreements upgraded to high since we are at 91% of stores upgraded at year-end. The acquired BygMax adds 1.3% to sales in the quarter, and we have a positive add from foreign exchange of 1.1%. Full P&L on next slide. Net sales in the quarter, close to SEK 1.2 billion. Good gross margin at 35.2%. The gross margin has a positive impact by product mix from smaller projects, upgraded store. And this low season quarter, the impact from the high-margin Right Price Tile contributes. As always, strong focus on cost, but even more this quarter, costs related to new and acquired stores amounts to SEK 16 million, while the comparable cost has decreased by SEK 14 million. We have compensated inflation and electricity and foreign exchange rate effects by balancing and adjusting our cost base and the tempo of the development projects. In all, the quarter has the lower sales, but good gross margin and very strong cost control. EBITA decreases to minus SEK 28 million versus plus SEK 25 million last year. Next page is the cash flow and net debt. The quarter cash flow amounted to minus SEK 127 million, close to SEK 9 million last year. We have seasonality in inventory and as mentioned previously, we had a sort of inventory buildup a little bit earlier this year, and we have plan to decrease the levels to year-end to be more in line with last year, and inventory is close to last year's level at year-end with the store portfolio of more upgraded stores and a net of 12 new stores. Net debt amounts to SEK 1,183 million.

Thank you, Helena. I will summarize year a little bit and then provide a forward-looking -- just comment on the forward-looking outlook. On Page 13, summarizing where we are versus our targets. We still are still sort of a solid performance. We are at SEK 7.3 billion in sales. Again, that's down 5% from last year towards the target of SEK 10 billion in 2025. We managed to deliver the profitability target at 7.0% EBITA for the full year 2022. We have a leverage or net debt to EBITA, excluding the lease effects or excluding IFRS 16 of 1.8x, which versus target to be below 2.5. And for the payout in 2022, we much paid out the dividend of SEK 4 per share, which is 39%. We have set quite ambitious sustainability targets, which we revised and announced during March of 2022, and they continue to be on track. So overall, that is the performance versus the financial targets. Looking a little bit ahead, as you may have noticed on Page 14, the Board of Directors has recommended not to pay out any dividend in 2023 for two reasons: First of all, the current environment means that there is low visibility on the future demand for larger renovation projects. And secondly, the current environment also means many opportunities for add-on acquisitions that we've had very good outcome of. Overall, the Board has decided to prioritize strategic flexibility and deviate from the dividend policy and recommend not to pay dividends for 2023. If we summarize the year 2022 and the current situation and also look a little bit ahead, we can start by summarizing the year on Page 15. And 2022 is a year where Byggmax has clearly made progress and is stronger, but also is in a tougher market. We have several things that are green, but one main thing that is not going our way. So we are clearly continuing to gain market share very much helped by our price leadership. We are clearly getting more competitive. We set new sales records for small projects or new product categories. We have a gross margin that is almost an all-time high for the year as it was for the Q4. We have very strong cost control, and we have a very strong inventory management and continue to generate cash. The add-on acquisitions that we've done fit in well and performed very well and help our sales footprint both currently and for the future. And we reached our profitability target for the year, so all very positive points. However, we see a very low market demand for larger projects, which is a significant share of our sales. And we see that, that is the case both because there is less spending power, but also hesitant consumer behavior in these uncertain macro times. So market is currently ending up for the full year, as I said, 10% to 15% for the last year, and that is slightly above the level before the pandemic. So in 2019, 0% to 5%. While we, during these 3 years have taken a lot of market share and increased our group sales by 38% at the same time. So a stronger Byggmax in a tougher market or particularly larger projects. And moving to the forward-looking comments on Page 16, I'll separate that into our priorities for the future and our view of the market for the future. And for our priorities, we have three clear priorities for 2023 to continue to develop the company in the absolutely maximum ready when market demand picks up. The first one is to continue to take market share and increase our competitiveness. We move into 2023 as the low-price leader in the market with over 90% of store portfolio upgraded. We plan to do 8 to 10 new stores in the year to continue to extend the online range and to continue to drive efficiency gains. Secondly, we will use the year to tune in some new growth initiatives that could be substantial and meaningful for us for the coming period. The first one is Byggmax Studio, which I commented on earlier. And then there will be a second new e-com-focused initiative in the new category that we will launch during spring, and we will comment on in the next quarterly report. The two new material growth initiatives to be tuned in during 2023. And then thirdly, a new environment also means new opportunities. And I think we have never seen as much interest for Byggmax in terms of good store locations, new suppliers and particularly add-on acquisitions as we have at the moment. This is also a priority for us to -- in the best possible way try to capture these opportunities in a new way. So those are the three priorities for us. Our view of the market is that it's going to be a tough Q1 and then things look quite -- look more positive. And I can elaborate a little bit on that. As commented on several times already, there's been very low activity for large projects in H2 '22. We expect that this will continue largely during Q1 2023, as we think business behavior is driven both by less spending power, but also uncertainties related to higher inflation, interest rates, energy prices and general uncertainty. We believe that the consumer will evaluate situation when there is a little bit more visibility. So we expect to continue reach market in 2023. And in addition, we should remember the comps are tough for Q1 2022 easier thereafter. We also see both in terms of macro and our own business, some changing consumer behavior at the moment and clearly increased interest for spring and summer projects, which suggests that there is a positive trend shift that happens after Q1 by Q2 or maybe Q3. And we can comment more on why we believe this is the positive indications that we see if that is of interest, please feel free to ask questions. So our plan for 2023 to summarize is to be -- get even more ready when the market picks up and our outlook for the market is a continued tough situation in Q1, as has been the case during H2 and then an improved situation following Q1. With that, we conclude the presentation part of this conference call and turn to operator to manage questions.

[Operator Instructions] And our first question today comes from Philip Ekengren from ABG.

So first, you guys were 8 to 10 new stores in 2023. How many of these will be regular or conventional stores? And how many would be the new Byggmax Studio concept?

We will do a few at the best Byggmax Studio, maybe 1 or 2. The plan is not to expand it until we have sort of fully tuned it in. So most of them will be regular stores. It is a -- as you probably noticed Philip, a decrease in total expansion pace versus previous years, partly because we're seeing good progress in e-commerce sale, but also because we see a real estate situation where some opportunities emerge, but also some hesitance around landlords.

Yes, sounds very reasonable. And regarding the commentary on possible add-on acquisitions, would you like to give some color on what type of targets you're looking for? And what size and where?

Yes, absolutely. So our strategy is as a starting point or there's a foundation focused on organic growth, which we have been happy to see a good success, but we also see that within our space, there are some smaller players who are very good at what they do. So we have had most success in smaller sort of sales, SEK 150 million to SEK 300 million sales in low-priced DIY in the Nordics. And this is sort of the target or sweet spot. It could be maybe a little bit lower, maybe a little bit bigger also, but we are not looking for any large or transformational acquisitions, but add-on acquisitions that add to either our geographic footprint or our category footprint.

[Operator Instructions] We have a question from Carl Deijenberg from Carnegie.

Yes, actually only one question that is with regards to the comments on the outlook going into Q1 here. I am aware that the comparisons are tougher Q1, maybe incrementally tougher than in Q4. But would you say that the sort of underlying demand in the market, has that deteriorate could further going into Q1 versus Q4 sort of excluding comparisons?

Thank you, Carl. No, I would say the situation has been largely stable and mildly positive during H2. So what I mean with that has been a clear shift, I think, by summer or so last year when consumers realize that they better hold on to some money because they don't know what's going on. And then Q4, we saw a less negative or better, if you like, sales development towards the end of the year. So that was positive. And I would say underlying trend is moving in the same direction here in January. So no, definitely not a weaker trend, the opposite, I would say. But comparable figures are what they are.

[Operator Instructions] As we have no further questions, I'll hand back to the management team for any closing remarks.

Thank you very much, everybody, for joining this call. Wish you a good day, and look forward to speaking to you again at the time of the Q1 report.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.