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

Hello, everyone, and welcome to the Byggmax Year-End Report. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Karl Sandlund, CEO, to begin. Karl, please go ahead.

Well, thank you. Thank you very much. Again, a warm welcome to this conference call where we will present Byggmax's Fourth Quarter and Year-End Report for 2024. As you heard, I'm Karl Sandlund, the CEO of Byggmax, and with me is Helena Nathhorst, our CFO. As usual, the presentation is available on our website, and we will guide you to the correct page during this call. I'll begin with a brief business update and also a little bit on our priorities and after that, Helena will walk you through the financials. Once the presentations are finished, we will, as usual, open up the floor for any questions from you. With that, let's start and go to Page #2 in the presentation. And well, as you have seen, we concluded 2024 with a fourth quarter where sales and profitability continued to improve compared to the year before. Our net sales in the quarter increased by 7.6%, and the increase is driven both by more customers, but also by a higher average transaction value. And sales in Sweden and in the rest of the Nordics developed quite similar during the quarter, both increasing by 7% to 8%. The fourth quarter is always one of our smallest due to season, but profitability continued to improve for the third consecutive quarter, and the improvement is driven by increased sales in combination with a strong gross margin and high operational efficiency. In addition to a better result, we continued to strengthen our balance sheet, which has been a priority for us during the year, and we reduced our net debt by 35% compared to the year before. As you saw with this performance of foundation, the Board has proposed a dividend of SEK 0.75 per share, an increase from last year's SEK 0.5 per share. Before we get into more details on the quarter and the priorities, on Slide 3, a short overview for those who may not know us that well. Byggmax was founded in 1993. Today, we have grown to 211 stores across 4 markets, establishing ourselves as the leading discount player for consumers in the Nordic region. Our foundation, our base is built on a strong selection of products for home renovation and maintenance, where we offer everything from building materials, paint, and tiles to flooring and more. Our in-store assortment is enhanced by smart online solutions, providing an even wider range, home delivery of heavy building materials, and more customized products. We are a true discount retailer and offering the best prices requires maintaining the lowest cost. And our store design not only keeps operational costs low, but also ensures an efficient shopping experience, something that is highly appreciated by our customers. A key part of our DNA is our culture and values. We have a very high employee engagement, which allows us to quickly drive change and make improvements, which is a true strength, of course, but it's also a key driver for our high customer satisfaction. On Page 4, we have some macro context because as you all know, we saw a steep decline in 2022. We saw a challenging 2023 and also 2024 which got off to a slow start. The consumer market remained cautious as high inflation and interest rates continued to squeeze household purchasing power and many consumers delayed larger renovation projects, while smaller projects, particularly maintenance and outdoor work continued to appeal to the customers. In addition to an overall lower demand, we observed this through a shift in product mix with relatively higher demand for items tailored to these smaller projects. During the year, we began to see a slight improvement in macro factors with inflation back to more normal levels and in some markets, reduced interest rates, and this resulted in a gradually improving consumer confidence. And it's, of course, always hard to estimate the future, and there are always risks related to macroeconomic factors and uncertainty. But it's encouraging to see that some of the factors that have historically been drivers for demand in our industry, such as house transactions and consumer confidence are developing in the right direction. On Page 5, you see that the sales for the full year of '24 ended at SEK 6 billion. Due to the weak market, this is a decrease of 2% compared to the year before. We had lower sales in Q1 and Q2, while the second part of the year was stronger, as Helena will come back to. Despite lower full-year sales, we managed to improve our profitability, and EBITDA of SEK 233 million or 3.9% is an improvement compared to 2023. And the improvement, as you will hear later on, is primarily driven by strategic actions and operational excellence. And despite inflation in more stores, we have lowered our costs. And in addition, we have through optimization and in our offering and successful purchasing managed to have a strong gross margin. And as you see, we have a business model, which is efficient with high cash generation seen in a strong cash flow of SEK 860 million from operating activities during the last year. On Page 6, we have an overview of some of the key focus areas that we mentioned during last year. Over the past year, we have focused on these 3 main areas, which is strengthening the balance sheet, operational excellence, and improving our customer offering. And this focus has really touched every part of the organization from the work in our stores to e-com to admin and business development. Through the hard work and dedication of our teams, we have now built a business that is both flexible and robust, making us very well-prepared for the future. To give some more flavor, please move to Page 7 because one of the focus areas, as you know and heard, has been to strengthen the balance sheet and optimize inventory has been one key to success with this. One factor is naturally to adapt the inventory levels to much lower sales. But another has been to optimize our assortment where we have both added products, but we have also decided to discontinue certain parts of the assortment. In addition, we have really analyzed the entire assortment in even more detail, ensuring the right inventory levels for each and every product at all times. A key area during the year was to secure smart inventory buildup and management throughout the high season where we achieved better results than before, resulting in good product availability in stores and optimized working capital. And this is something that, of course, will be important also going forward, not the least to secure product availability matching the demand. And you see some of the effects on this slide, right? The total inventory is substantially reduced. Combined with a lower investment level, this has also reduced our net debt, which is 35% lower than last year and almost 50% down compared to 2022 end of the year. On Page 8, you see the second focus area, operational excellence. Despite last year's inflation and more stores in our portfolio, we managed to reduce our costs for the second year in a row. And all parts of the group have contributed to this. We have introduced a new way of working in the stores, improved digital tools, and reduced external spending, to give some examples. And of course, a strong focus on costs could potentially impact the customer experience or operational performance. But this is something that we have managed carefully. And our stores are in great shape and the waste levels are lower than before, and it's truly encouraging to see that we continue to maintain a very high customer satisfaction in the stores. We move to Page 9 because while strengthening the balance sheet and achieving operational excellence, we have also made significant commercial improvements throughout the years. We opened 4 new stores during the year, 3 in Sweden, and 1 in Norway. At the same time, 2 stores were closed as the lease agreement expired. And as always, we continuously aim to improve the store experience. One example last year was implementing more self-service checkouts at more stores, something that makes it more efficient for our customers, and it also frees up time for our staff to, for example, focus on serving the customers to a larger extent. And we have also made improvements to our online channels. If you please turn to Page 10. One example is our made-to-order offering, where we both have increased the number of products such as stores, windows, sun blinds, et cetera. But we have also improved the customer experience and the back-office processes. When it comes to our modular houses, which we have talked about earlier, we have added more options. Customers can choose size and design and now also add garage stores or glass panels and so on. And finally, we have also expanded our private label range of greenhouses and conservatories with several new products ready for the 2025 season. Those improvements, combined with an overall adjustment to our online assortment where we have discontinued some categories as well as optimized freight options and so on have resulted in a stronger margin. Before handing it over to Helena, please turn to Page 11. This year's efforts, as you have heard, have established a strong foundation to build from. We have managed to reduce our cost and together with adapted inventory levels and reduced net debt, we are stronger than before. And from this solid foundation, we continue to work toward our long-term targets. We have a clear road map, and it's built on 3 main pillars: where first, we are a discount retailer and we always focus on efficiency to leverage our cost position. Second, our commercial investments over the past year have significantly amplified our revenue potential. And going forward, we will strive to fully capitalize on these investments. And finally, we will continue to enhance our product offering to meet and exceed the market demands. With that, over to Helena and some more financials.

Thank you, Karl, and good morning, everyone. As mentioned, I will comment on our fourth quarter and the financial year results with a focus on our improvements in profitability, cash flow generation, and debt reduction. I start with an overview of our sales performance in the fourth quarter. Please turn to Slide 12. Sales in the fourth quarter increased by 7.6%, reaching SEK 1.073 billion. We saw, as mentioned, growth across our markets, both in Sweden and the Nordics. And the same is mainly a like-for-like increase. At the end of 2024, we had 211 stores, net of additional 2 new stores contributing with 0.3% increase to the total revenue. Our gross margin remains strong, supported by 3 factors: purchasing achievements, granting to improve margins, and optimized e-commerce offer, improving margin through freight pricing and delivery efficiencies. Lastly, product mix impact. Due to the mild weather, demand for energy-related products was lower and offset by growth in other categories. Overall, this was a strong quarter with sales growth across all markets and sustained high gross margin. Moving to profitability on Slide 13. Our EBITDA for the quarter increased by SEK 22 million compared to last year. It is important to note that the fourth quarter is not a peak season for do-it-yourself projects, and it is typically one of our smaller quarters in terms of revenue. However, despite this, we delivered strong results. The gross profit improvement in this quarter was driven equally by higher sales and improved gross margin. In total, a gross profit increase of SEK 30 million in the quarter. At the same time, we continue to focus on cost efficiency. Although after 2 years of cost-cutting, our operating expenses are slightly up versus the same period last year. Our cost focus will remain. We have created a cost structure for lean and efficient processes that allows us to scale when volume grows. On the next page, 14, looking at the bigger picture, sales gradually improved quarter-by-quarter in the second half of the year, as shown on this slide. Third-quarter sales grew by 1.3% like-for-like and the fourth-quarter sales grew by 7.6% like-for-like. The growth trend was largely driven by our Swedish market, which showed stronger performance compared to the Nordics. Overall, Sweden, which is the largest and most important market, maintained stable sales levels with only a small decrease of 0.2% in 2024. Group sales decreased by 2.1%. While pending a volatile market, some momentum is seen in the second half of the year. Now please move on to Slide 15, presenting our full-year profitability performance. For 2024, EBITDA increased by SEK 54 million to SEK 233 million. Our EBITDA margin improved by 1 percentage point, reaching 3.9%. This improvement is still a cautious market, and the improvement is driven by a stronger gross margin supported by better purchasing, pricing strategies, and e-commerce improvements. It is driven by cost discipline, where we maintained a lean organization, and as mentioned, efficient operations achieved an OpEx reduction of 4% in 2024 on already a reduced level. Depreciation effects from IFRS 16 increased due to inflation and an increased number of leased stores. Largely, we improved profitability despite market challenges as a result of higher product margins and further efficiency gains in both stores and administration. I will now move on to Slide 16 and cash. Cash generation remains the key strength of our business. For the last 12 months, Cash flow from operating activities increased to SEK 860 million compared to SEK 781 million last year. Our strong cash flow performance was driven by higher profitability, disciplined working capital management, and carefully prioritized investments. Investment levels remained low in 2024, focused on selected store openings and store upgrades. By maintaining strong cash generation, we continue to strengthen our financial position and maintain flexibility for future growth. Finally, on Slide 17, we have achieved successful debt reduction in 2024. We reduced net debt by SEK 350 million, bringing it down to SEK 618 million from SEK 948 million last year. Our net debt-to-EBITDA ratio improved significantly, dropped from 2.8x to 1.6x. Additionally, our 12-month average net debt-to-EBITDA ratio is now well below our financial target of 2.5x. We continue to have strong relationships with our banks and our long-term credit facility of SEK 1.5 billion, of which SEK 882 million available provides us with operational flexibility. And by that, thank you. I hand it over back to Karl before we open up for questions.

Thank you, Helena. Please move to Page #18. As you've seen, we have a very strong discount position, the part within retail growing the most. In combination with high customer satisfaction and the relevant assortment, this enables growth. We have a sound combination of store and e-commerce, 2 channels really complementing each other, especially in our industry. And the last year, we have made significant investments in our store network, something that's enabling increased volume. As you heard from Helena, we have a strong cash flow allowing both dividends to shareholders and investment in profitable growth. Finally, to summarize our presentation on Page #19, you find our key messages again. As you have heard, as you've seen, we continue to increase sales and profitability in the last quarter of '24. Sales were up 7.6% in the quarter. Looking at the full year of 2024, we had SEK 6 billion in sales, down 2% from the year before, driven by a weak market, especially during the first part of the year. But despite lower sales, we managed to improve profitability through our strategic actions. In addition, we delivered on our priority to strengthen our balance sheet. At year-end, the net debt is 35% lower than the year before. So we have used the time wisely. We have a better position to build from and our employees, are really ready to welcome more customers in the future. Going forward, we will continue to improve our customer offering. We will strive to capitalize on our commercial investments and drive volume in our store network, and we will leverage our cost position and logistics efficiency. So Byggmax is really ready for 2025. With that, we thank you for your attention, and we are now happy to take your questions.

[Operator Instructions] And the first question goes to Benjamin Wahlstedt of ABG.

Two questions from me. First off, 7.5% like-for-like growth in Q4. I was wondering if you could give an indication of whether this is driven by larger or smaller projects primarily.

Thank you, Benjamin. Well, the growth in the fourth quarter of 7.6% is driven both by more customers. So we have more customers returning to us than we had the quarter before, but also from an average order value. So it's a combination of customers returning to a larger extent, but also from the fact that the customers are on average, buying for a larger amount than the same quarter last year.

And do you dare put a figure on the AOV improvement?

No, but it's a 50-50 split of it. So it's something like that. So it's a combination of the 2.

I was also wondering if you could expand a bit on gross margins. The increase in Q4 is lower than in Q3. I'm thinking how much of the improvement in Q3 was attributable to both good weather driving high-margin garden product sales and also still cautious consumers, less wood, which are lower gross margin on average. How much of the improvement in Q3 would you say was temporary? And how much should we extrapolate basically?

Well, it's a question that is really hard to answer. And I think that the difference between Q4 and Q3 margins is maybe not that large. As you mentioned and as we said in Q3, overall, the gross margin growth is driven by several factors. We have made adjustments to our assortment, both in stores and e-com, where we are adding and removing products. We have successful procurement processes, both when it comes to price, but also logistics. And as you said, right, we had a quarter where we have had the demand weighted towards more higher-margin products than usual. So it's multiple factors contributing to the same outcome. I would say that our own underlying performance improvements are the same during the quarters. And then we have 2 quarters with a little bit of difference in demand and so that also impacts the overall margin. But I wouldn't say that the margin differences between the 2 quarters are that significant.

[Operator Instructions]. And the next question goes to Niklas Ekman of Carnegie.

Can I ask, you set a target earlier in '24, you set a new target for a margin of over 7%. If we assume that growth was to continue at the same pace as we saw here in Q4, how long do you estimate roughly that it would take for you to get there?

Well, we don't provide a guidance on when we will reach our financial target. But of course, that is a priority for us to reach all our financial targets, the growth, the profitability, the leverage and dividend. So we will do our utmost to ensure that we reach the target as soon as possible and to always strive to improve Byggmax. But unfortunately, we don't give an exact guidance on when that will happen. As mentioned, the focus will be based on the thing that we made last year will be to continue to improve the customer offering to secure or strive to fully utilize and get leverage on our commercial investments, volume, and sales in the store network. And then also, of course, to capitalize and get leverage on our cost position and efficient logistics.

I guess at a different angle, we've now seen quite a few quarters with cost reductions and inventory reductions. How sustainable do you see this to be? I mean, this quarter, for instance, we saw OpEx increasing for the first time. Do you see that, that will have to increase as sales start to normalize again? The same thing on inventory. Are the current inventory levels sustainable? Or would you need to invest in inventory if demand picks up considerably?

Well, starting with the OpEx. So, as we have mentioned before, right, despite high inflation and an increased number of stores, we managed to reduce our costs for 2 consecutive years, and that was from an already very efficient start. And naturally, it becomes increasingly challenging to achieve further cost reduction, something, as you say is also seen in our last quarter where the cost quite naturally increased by slightly less than 2%. That said, we are a discounter. Cost focus is deeply embedded in our DNA. The most important thing is to continue to strive for high efficiency and make sure that we are ready when the customers return and to get leverage on our very good cost position and efficient logistics. But of course, we also need to be ready when the customers return to be there for them and not stopping sales that way. And when it comes to the inventory, it's a similar answer, I guess. Over the past year, we have focused heavily on this inventory optimization, not only adjusting stock levels to sales but also making changes to assortment. If we compare the inventory we are reporting now with the same time 2 years ago, I think it's nearly 30% lower. Naturally, inventory optimization remains a key priority for us to ensure strong sales while avoiding excessive capital tie-ups. But the inventory value factor is based on seasonality and sales development. And we should not hinder sales by the inventory levels.

The next question goes to [indiscernible] of AAT Invest.

Just one question regarding the investment or investing activities or the CapEx, which you reduced heavily from SEK 146 million in 2023 down to SEK 80 million last year. What should we expect in your CapEx in 2025 because I think you would like to start to invest again in new stores and upgrade your concepts further.

Yes. We think as you mentioned, it has been a strong focus, although we have 4 new stores in this CapEx level. So I think to remain slightly maybe higher investment levels, but we can do some expansion also on the lower investment levels for the coming year. It's 2 closings and 4 openings this year, and we don't foresee that much increase in investments in 2025.

So around SEK 100 million, is that a good estimate?

As good as anyone ever, no. But I mean, it's not totally unbalanced with the level we have reached this year. We have IT investments to increase efficiency. We have maintenance, and we still have our tracks. So we have done investments also in this year. So, there will be a small increase, but it's not a huge thing coming up.

The next question goes to Magnus Råman of Kepler Cheuvreux.

Yes. We've seen improving macro signs here such as consumer confidence during 2025, maybe particularly in Sweden, but any material discretionary demand recovery has yet to be seen. And I mean, you showed here in your presentation a slight improvement from trailing 12 months over the past 2 quarters. But we are now, I mean, 1 or 2 months from entering your high season, which would last for about 2 quarters. So in that backdrop, how certain do you feel reassured of the recent sales development that there will be a significant recovery in your high season this year? Yes, how are you thinking here?

Thank you, Magnus. Well, I think we need to again start looking at the '24 and development during that year. It started very weak with a very cautious consumer market where many households really held off the larger renovation projects. And during the year, we saw several macroeconomic factors, as you say, begin to move in the right direction. And that also made us and others observe a gradual improvement in the market conditions. We don't have this kind of large order book and so on. So, it's always difficult to predict the future, and there are always macroeconomic risks and uncertainty. However, it is encouraging to see that several underlying drivers such as the housing transaction, interest rates, and disposable income, all are moving in the right direction. For us, the most important thing is to remain adaptable to the prevailing market conditions. And we are really ready for an improved market, and we are ready for the market. I think that is something that really demonstrated last year when we improved our profitability. So, we follow this very closely, of course, and we are really ready with short lead times.

Just to follow up, what I'm trying to get at is that if you see that there might be a risk that a meaningful recovery will have to wait until your high season in 2026? And if that would be the case, do you feel that you have made any bets currently on sort of preseason on a strong recovery? Or do you see that you have a very good flexibility here regardless of how it plays out?

Yes. I would say that we, during the last year or years, have really built a robust and flexible operations business, which really makes us ready for the future. And so, no, I wouldn't say that we have put any bets, but at the same time that we really are ready for a positive market development as well.

The next question goes to Peter Heminrod of SCA Holdings.

You mentioned that there was low demand in the quarter for energy-related products due to low power prices. Am I right in interpreting that your kind of winter products have been weak, but the year-round assortment is actually growing more than 7.5%?

Peter, I'm not really sure that I got your question. Was your question that if our year-round assortment is developing better than the seasonal winter products?

Yes. Some products are winter related, that's the energy products. I'm trying to see how is the sales development for products that we sell both winter and summer. And if all the products you sell in the winter are weaker than 7.5%, then maybe I was thinking that the products you sell for summer-winter would be better than 7.5%?

Thank you. Well, we have naturally strong seasonal differences between the different quarters where the demand for outdoor projects, that kind of stuff is naturally lower during the winter period. So this kind of material, building material products and so on is lower during the winter season. So it's a little bit hard to say what is the standard product between different orders or seasons. What we can say is, well, during the year, as mentioned, we saw especially during the first part of the year, slower demand, and more hesitant customers when it comes to the larger renovation projects, while the smaller ones, painting, outdoor garden and so on maintained a higher demand during the year. During the last quarter, as we mentioned, we saw both more customers, but also higher average order value or transaction value, which indicates that there also some of the customers from low volumes are also increasingly buying the larger projects. So there's a little bit of difference between the categories between different seasons.

[Operator Instructions] And the next question goes to Espen Langstrom of Sberbank.

I see that you expand the private label range within some categories. I was kind of hoping that you might share some insights into how large the private label share of total sales is today and how the gross margin on private labels compares to the branded labels.

Thank you for your question. Well, we don't disclose the total share of private labels across our sales. From an overall view, one can say that in our main categories, timber products and so on, there are maybe less private labels in general than in many other retail and discounter sectors. What we have made during the year, we have, in certain categories, increased the private label assortment. From a general perspective when it comes to private labels, you have a higher gross margin, but also you need to build inventory to a larger extent. So that is from a very overall perspective. What we've tried to do here is to increase in certain categories where we see potential. For example, when it comes to greenhouses and conservatories, we have seen the potential to increase the number of private labels, which we now put into the market and see how they work during the season to come.

Also one final question just on the like-for-like growth in Other Nordics. And I guess, which was close to 8.5%, if I'm seeing numbers right here, which compared to my kind of channel checks of more of a flat market. Can you give me some more insights of kind of if there was a market share gain in the quarter and what drove sales in Other Nordics?

Yes. Well, if we look at the year again, we see that from a macro perspective, it seems like the Swedish market picked up a little bit earlier than the Other Nordic markets. I guess it's interest rate cuts and so on supporting this. So, as Helena mentioned, if we look at the full year, we were more or less flat in Sweden sales-wise, and minus, I think it's 6% in the other Nordic countries. But as you mentioned so during the fourth quarter, we saw that also the other Nordic markets picked up. And this is, of course, a combination of different factors. It's also from a low baseline. But hopefully, also seeing that macro in the other countries is improving. When it comes to market share, we see that low prices are increasingly important to customers, especially during those times. We have a strong offering when it comes to this. We feel confident that we strengthen our position, especially in our core categories or our prioritized categories.

We have no further questions. I'll hand the call back over to Karl for any closing comments.

Well, I only want to say thank you a lot for your participation and thank you a lot for your questions. And if not before, we are looking forward to meeting you again after our first quarter of 2025. Thank you.

Thank you. This concludes today's call. Thank you for joining, you may now disconnect your lines.