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

Hello, and welcome, everyone, to the Byggmax Interim Report Q1 2025. My name is Becky, and I'll be your operator today. [Operator Instructions]. I'll now hand over to your host, Karl Sandlund, CEO of Byggmax to begin. Please go ahead.

Thank you. Thank you very much. And again, welcome to this conference call, where we will present Byggmax Group's report for the first quarter of 2025. As you heard, I'm Karl Sandlund, the CEO of Byggmax, and with me is also Helena Nathhorst, our CFO. And as usual, the presentation is available on our website, and we will try to guide you to the correct page during this call. And I will start with a brief business update. And after that, Helena will walk you through the Q1 financials. And as you heard, once the presentations are finished, we will open up the floor for any questions from you. But with that, I think we start. So let's go to Page #2 in the presentation. And as you see, we started the first quarter of 2025, like how we concluded '24 with increased sales compared to the year before and with a strong gross margin. And together, this meant that we continued to improve our profitability. Our net sales increased by 7.2% compared to the first quarter last year, and like-for-like sales is up 7.6%. We have more customers, and we see that categories related to larger indoor projects developed in a positive way during the quarter. The sales development was quite similar in Sweden and in the rest of Nordics. So quite similar sales in those 2 different areas. We have a high gross margin in the quarter and several reasons for this. One is that demand have been tilted towards products with high margin. Another fact is that our financial stability has enabled us to really optimize purchasing terms both when it comes to order placement and payment. And in addition, we see that improvements within our e-com, when it comes to freight and logistics impacts the margin positively. The first quarter of the year is part of our low season, and it's always one of our smallest of the year. However, profitability continued for the fourth consecutive quarter to improve and the EBITA is SEK 39 million better than the same quarter last year. And as you've seen also last year, in addition to improved result, we continued to strengthen the balance sheet. We reduced our net debt and leverage. Net debt over EBITDA was 1.8x at the end of the quarter, down from 3.2x at the same time a year ago. So overall, our efforts to build a strong platform pay off, which enable us to have full focus ahead, and we are well prepared for a new high season. Before getting into more details on Slide 3, we have an overview for those, who may not know us that well. We were founded back in 1993. And today, we have 211 stores across 4 Nordic markets. We have a strong selection of products for home renovation and maintenance, primarily for consumers. We offer everything from building materials, paint, tiles, flooring and more. And we have an in-store assortment, which is enhanced by smart online solutions, where we provide an even wider range, but also home delivery of heavy building materials and customized products. We are a true discount retailer and of course, offering the best prices requires maintaining the lowest possible cost, which is something really part of our DNA and also in our store design, which not only keeps operational costs low, but also ensures efficient shopping experience, which our customers highly appreciate. In addition to the Byggmax brand, we have Right Price Tiles in Norway, focusing on tiles and fashion and Skanska Byggvaror, which offers products and buildings for home and garden, such as conservatories and greenhouses. A key part of our DNA is our culture and values. We have a very high employee engagement, something that enables us to quickly drive change and make improvements, a true strength for our organization and also a key driver for our customer satisfaction. On Page 4, you see that we size-wise is a SEK 6 billion company. We delivered SEK 272 million in EBITA in the last 4 quarters and EBITA margin of 4.5%. We have a very efficient business model with high cash generation, and this is seen in a strong cash flow, SEK 751 million from operating activities in the last 4 quarters. And we really believe in the combination of online and stores, and we have a successful mix of the 2. And currently, we have about [ 19% ] of our total sales through our online sales channels. On Page 5, you have some macro context. And as you have heard us saying before, after a steep decline in 2022 and a challenging '23, we began to see improvement of macro factors during last year '24 with inflation back to more normal levels and also reduced interest rates, and this has resulted in gradually improving consumer sentiment. And it is encouraging to see that house transactions develop in the right direction and that real wages seem to show an upward momentum because those are historical drivers for renovation projects. And overall, I would say that customer behavior showed a more typical pattern in Q1. We have more customers than last year. They are returning to the physical stores, and we see the largest growth during late afternoon and weekends. And as mentioned in the beginning, we also experienced that the customers to a greater degree bought products in categories related to larger projects in the quarter. And we, of course, follow this development carefully and to position ourselves in the best possible way. Page 6, those of you who know us know that over the 2 past years, we have focused on a couple of areas, primarily to strengthen the balance sheet, to secure operational excellence and to continue to improve our customer offering, and this focus has really established a strong foundation to build for. We have managed to reduce our cost from an already low level, and we have strengthened our balance sheet significantly. And this enables us to have full focus ahead in all parts of the organization. We have operational flexibility needed to meet the high season and growing demand. And from this foundation, we continue to work toward our long-term targets. And we have a clear road map, where we will secure a strong customer focus with continuous improvement and enhancement of our offering. We will make sure to capitalize on the commercial investments made. More and upgraded stores have significantly amplified our revenue potential. And finally, we are a discount retailer, and efficiency is an important part of us and our DNA. And we will continue to leverage our cost position and secure scale in stores and logistics. And during Q1, all our employees have made their utmost to really prepare for the coming high season. And on the next couple of slides, we will show you some examples of the efforts made in Q1 to be prepared for the future. And start with Page 7, inventory and availability of products. Well, you know that optimizing inventory has been a key focus area for us for a long time. And later, we have analyzed the entire assortment to ensure even more detailed than before, the right inventory level for each and every product. And this has resulted that we have been able to increase the levels for the most important products, while we have reduced products with lower demand. And we have put a lot of effort into securing a smart buildup of inventory for the season, resulting in good product availability and well-stocked stores, actually better than before. So even though our total inventory level is lower than last year, our active assortment is at a higher level than it was a year ago. Page 8 illustrates how we have prepared our stores for the season because as always, we aim to improve our store experience. And one example is the checkout. The last couple of years, we have implemented more self-service stations. This makes the experience more efficient and frees up time for our staff to focus on the customers instead. And those checkout areas have been further enhanced with improved functionality and visualization to make things even easier for our customers. In addition, ahead of this season, almost half of the stores have been rearranged to better visualize our assortment, and the store layout and customer flow have been changed, and we work with lower store shelves to make it easier for the customers to navigate and find products. Again, everything to secure a smooth and easy shopping experience for the customers. And also, during this time of the year, we welcome many new employees to our stores, to our company and to further improve that introduction and also make sure that we can assist our customers even better. We have implemented a new training program or app. And going forward, all employees, both new and existing, will use this app to continuously stay up to date with assortment and offer. So a lot of efforts to secure that our stores are in best possible shape and it's truly encouraging to see that we continue to maintain a very high customer satisfaction in the stores. Ahead of the coming season, we also have a range of new products that will be introduced, see Page 9 for some examples. We continue to develop our modular houses offer. We have added more options, and the customers can choose both size and design, but they can also add lots, foundation, isolated metal [ sandwich roofing ]. And together with possibilities for garage doors and glass panels, this really widens the intended use of the houses. We have also expanded our private label range of greenhouses and conservatories with several new products ready for this season. And finally, branding and visual identity of some of the private label products have been updated to modernize both the look and feel. And overall, the aim is to create an attractive offering, of course, and also to further reinforcing price perception. Before handing over to Helena and the financials, just a few words on e-com on Page #10. Well, we continue to widen our made-to-order offering online. The latest addition is a new subsite for garden buildings. And the made-to-order offering now covers paints, doors, windows, sun canopies and more. And it's an example of how to use strength in different parts of the group in a good way. Another example of utilizing group synergies is Denmark, where we have merged some of our sites, and by doing so, we increased efficiency, while being able to provide strong customer support. And finally, we have also made changes to the logistics or last mile delivery. We have a new setup to secure better control of transportation flows. And the aim is to improve our planning capabilities and also to increase efficiency, and this has resulted in improved freight result. And with better control over resource utilization, we also strengthened our ability to efficiently handle increased volumes going forward. To sum up, our efforts during the quarter have really focused on laying the groundwork for the upcoming peak season from continuing to strengthen our customer offering to ensuring well-stocked stores, while leveraging our cost position and economies of scale. And with that, over to Helena and more Q1 financials.

Thank you, Karl, and good morning, everyone. We are now on Slide 11, where I will start with an overview of sales and profitability development over recent quarters. We delivered another quarter of top line growth with sales increasing by 7.2% compared to Q1 last year. The growth was driven by both Sweden and our other Nordic markets. At the end of Q1, we operated 211 stores, the same number as last year, meaning nearly all of the growth was organic. It is also worth noting that we faced a negative currency effect of 0.7%, primarily due to the weaker NOK. This marks our second consecutive quarter of sales growth and our fourth consecutive quarter of improved profitability, clear signs that our strategy is delivering results in a demanding market environment. On next slide, as mentioned, we continue to improve the availability in stores through a strict inventory management with prioritized volume on key products. This has helped us to better meet customer demand and contributed to the increase in sales in this quarter, one of our smaller quarters. Gross margin continued to strengthen, supported by efficient sourcing, a favorable product mix and well-executed e-commerce logistics. Altogether, we have delivered profitable growth through increased sales, while also improving gross margin. On Slide 13, EBITA improved by SEK 39 million in the quarter, as illustrated on this slide. The improvement was driven by a mix of higher sales volumes and gross margin improvements supported by continued cost discipline. Volume growth contributed [ SEK 25 million ] (sic) [ SEK 21 million ], gross margin improvement, SEK 10 million, and other revenues contributed with SEK 9 million, mainly from fixed assets disposals and currency effects related to inventory ordering. On the cost side, we have remained disciplined. Our cost structure is designed to support scalability. Efficiency improvements in both stores and administration have allowed us to scale, as volume grow. On the store portfolio inflation, the store portfolio rent is accounted for as depreciation under IFRS 16. And the inflation has been offset by moderate investment levels and depreciation is lower by SEK 2 million versus the same period last year. EBITA improved to minus SEK 109 million, a margin of -- negative margin of 11.7%, a margin improvement of 5.4 percentage points. And as I said, this is our fourth consecutive quarter of profitability improvement, underlying that we are delivering not just growth, but profitable growth even in this challenging environment. We have, in addition, continued to generate a strong cash flow that is presented on Page 14. Cash flow from operating activities over the last 12 months amounted to SEK 751 million, reflecting an improved profitability, effective working capital management and disciplined investments. In this quarter, we increased inventory levels in preparation for peak season, while maintaining efficient use of supplier payment terms. This resulted in a controlled impact on working capital movements. We continue to invest prudently, while ensuring operational readiness. Our strong cash generation supports our financial position and provides us with the flexibility to act when opportunities arise. The sustained strong cash generation remains a key strength. And finally, on Slide 15, we have the net debt position. We have sustained decrease in net debt. Our net debt-to-EBITDA ratio improved significantly to 1.8x, down from 3.2x last year, well below our financial target of 2.5x. This marks a substantial improvement and reflects the impact of focused execution and disciplined capital allocation. We also maintain strong long-term relations with our banks. We are well within our leverage target. And as of Q1, we had SEK 700 million in available committed credit facilities, providing us with flexibility going forward. With that, I hand it back to Karl before we move on to our questions.

Thank you, Helena. And please move to Slide 16, our key messages again. We continue to increase both sales and profitability in the first quarter of 2025. Sales was up more than 7% in the quarter. And as you heard, in addition, we strengthened our balance sheet and leverage ratio is now down to 1.8x from 3.2x last year. And last year's strategic efforts have really secured a strong platform, which enables us to have full focus ahead. We have the operational flexibility to meet a growing demand, and this is exemplified by well-stocked stores and the ability to optimize purchasing and replenishment. And 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. During this -- the first quarter of the year, we have put a lot of effort throughout the entire organization to make sure that we are ready for the peak season, and we are well prepared and our highly motivated employees, they are ready to welcome more customers to the busy months ahead. And with that, thank you for your attention, and we are now happy to take your questions. So let's open up the floor.

[Operator Instructions] Our first question is from Benjamin Wahlstedt from ABG.

I was wondering what are your thoughts on market growth in Q1? We know January and February grew by an average of 9% according to Sweden statistics. Is that a likely level for March as well, do you think?

Good morning, Benjamin. Well, when it comes to the market growth, we haven't seen the statistics for March so far. I guess, it will be ready in a couple of weeks. We have an Easter last year that might impact some of the categories, I'm not sure. But it's a small quarter, and I wouldn't say that the different months of the quarter differs too much when it comes to the underlying market.

Perfect. I was also wondering about your other income -- other operating income, which grew by almost SEK 10 million year-on-year. I was wondering if you could give some additional color on what drove this change, please?

Yes. This is some fixed asset disposals that are accounted for as other revenues. And then we have the currency impact in this quarter, where this quarter is -- well, we are not that exposed to purchasing from euro and dollar. But this quarter before high season, we have quite a material volumes coming in, and that is the revaluation of those invoices.

Perfect. Your gross margin improved year-on-year again. Could you give us a rough idea of what part of the improvement is operational? What part is early purchasing and what part is cash discounts, please?

Well, as I said, the gross margin is driven by several factors. One, just to repeat them. But one is that our financial stability has enabled us to really optimize purchasing terms, both when it comes to order placement and payment. We have ordered and paid early, and we have built stock on important products. Furthermore, demand in the quarter have been more weighted towards the high margin products than usual. And then finally, in addition, we have made improvements to e-com freight, where we have in-sourced the control tower and thereby better -- have a better optimization of the last mile transport. So multiple factors contributing to that outcome. The exact -- it's hard to say the exact allocation between those 3, but those 3 are the main drivers behind the higher margin.

Perfect. And that was actually quite a good segue to my final question. In the CEO statement, you mentioned a better consumer demand or -- better mix driven by consumer demand. And I was wondering what products are you referring to here, please, that fared better in this quarter than previously.

We saw during the quarter, as we mentioned, that we have a positive development of the indoor renovation projects. So that's one part of it. We also saw that the rather warm and mild weather also resulted in a lower sales of energy products. So I guess those 2 are the main when it comes to demand tilted towards higher-margin products.

Our next question comes from Niklas Ekman from Carnegie.

Yes. Just 2 questions from my end. Firstly, on expansion. You have no store openings now. What do you see in terms of future potential? And I'm thinking more when the market kind of normalizes, when you see consumption resuming, are you expecting to resume store openings? And to what magnitude? Are you looking at coming back to where you were in terms of expansion kind of pre-COVID levels? Or are you pretty pleased with the portfolio that you have today?

Thank you, Niklas. Well, our overarching strategy remains unchanged. We will continue to drive profitable growth and aim to outpace the market, and store probably is one of the levers to secure this. And then the pace of numbers of new stores varies with -- both with market conditions, but also where we are in our cycle when it comes to the store portfolio. And as I said, right now, at the moment, we see a slower rate of store openings. And we see also a significant potential to increase volume and sales within our existing store network, which is a priority right now. But our ambition is to make sure that even more customers have convenient access to an affordable low discount retailer when it comes to building materials, i.e., more Byggmax stores. We actually will open, I guess, we will send out more information within short, a new store in Stockholm during Q2. And in Q1, we've also opened a new showroom, co-located showroom, Byggmax in -- sorry, Skanska Byggvaror showroom in Byggmax store in [indiscernible]. So it's not that it's completely still, but we continue to strengthen our store network.

Very clear. Second question is on M&A. You have done a few acquisitions in the past decade. And first of all, which of these would you argue in hindsight has been the most successful? And secondly, what do you see in terms of further M&A potential? Is that a key strategy for you as well?

Well, thank you. I think the M&A, the acquisitions we made during 2020 to '22 followed a clear strategy. They should either add geography markets or category say, product category. So those were well thought through strategic investments that strengthen our overall customer offering. So we are pleased with them. When it comes to future growth, I mean, we should -- we will secure to maintain continued profitable growth. And we have some different levers for this, where one is, of course, to have a high customer focus and develop our assortment. Another is to continue to enhance our sales channels, making sales both in stores and in our e-com channels very smooth and efficient. And 3, we have expansion and optimization of the store portfolio. And then number 4 is also to make selective add-on acquisitions. So this is 4 levers we have to secure future growth. So M&A is not a separate growth strategy, but an integrated part of tools that we can use if we find it attractive for securing profitable growth going forward.

[Operator Instructions] Our next question comes from Egil Dahl from Vevlen Gard.

My question is about new products and mix and also customer demand. In your presentation, you have -- you are mentioning modular buildings, [ private label ] and greenhouses. And of course, these are expensive products. And what are your expectations for Q1 -- Q2 and Q3 for these products? How is that affecting margins? And also, do you see in general, how the development of the basket -- customer basket? Thank you.

Thank you, Egil. Well, as you mentioned, we have a couple of interesting product news in the portfolio. And of course, when looking at the total sales, those won't have a large effect on sales during this high season. But it shows that we, all the time, try to improve the assortment to find new things to make sure that we have news in the product portfolio and also making sure to have attractive also private label things. So I would say it's more to make sure that we always stay relevant when it comes to customer demand and so on rather than having a huge effect during the quarters to come. When it comes to customer demand, well, as we mentioned, right, that we saw during Q1 that we saw a positive effect when it comes to demand for a little bit larger renovation projects indoor, which was good to see. And I guess that more house transactions and lower inflation, also reduced interest rates in Sweden, maybe not in Norway so far, is also traditional drivers for demand going forward. And then, of course, it's always hard to predict the future, right? So we need to really stay on top of things and make adjustments to the market conditions.

Thank you, Karl. And also, your expectations for the general basket going forward.

The general basket, meaning size of basket or...

Yes, exactly, the customer basket size.

But I think it's hard to tell. It's hard to predict the future. So I won't give you an exact answer on that or any forecast. But I think the important thing for us is to always adjust and adapt to the existing market. And I think that is something that we have shown that we have really been able to do during the last 2 years or so, right? The market has changed a lot, and we have been able to adjust and adapt and see the fourth consecutive quarter of increased profitability.

Our next question is from [ Espen Langrusten ] from SB 1 Markets.

Just wanted to ask a question about your strategic inventory buildup. And is this something that you [indiscernible] earlier now this year compared to the previous years? And is that -- I was wondering if that's driven by expectations that the high season in Q2 is earlier in the quarter given a relative mild weather?

Thank you, Espen. Well, we always build up inventory for the high season. Q2 and Q3 is where we have the highest demand for our core products. So during the first month of the year, it's always about building up the inventory to the right level. What we've been able to do this year is due to the financial stability that we have secured is that we have been able to build up earlier. We have also paid earlier, which have good effects when it comes to our purchasing terms. So I would say that we always build up this time of the year. But due to the -- or thanks to the strong stability -- financial stability that we have, we can do it in a more optimal way. We have put a lot of attention in -- throughout the entire organization to make sure that we order the right products at the right time and also make sure that we have the best purchasing terms for this. So that's one thing. And the other thing is that we have even more detailed than before looking at the inventory, the stock level of each and every product to make sure that we have a lot of product so that we are well stocked with a lot of product in our stores when it comes to the product that we foresee a high demand now during the -- when we see the high season coming and the more outdoor project season. So I would say it's not about total demand necessarily, but rather an optimization to the strong financial position that we have. We can always adjust [Technical Difficulty] going forward because we place order every day.

Yes. Yes, that makes sense. We do hear though from competitors of yours in Norway that sales have started very strong in second quarter and accelerated from March. So it's good to have a nice inventory ahead of this season. Just on that as well, have your suppliers announced any price increases now from April 1st? Is that something that you've communicated?

No, we haven't communicated anything about that. I guess, as you know, prices go up and down when it comes to building materials all the time. So it's totally normal. We haven't communicated anything especially around this year.

Thank you. We currently have no further questions. So I'll hand back to Karl for closing remarks.

Well, thank you a lot for participation and also for your questions. And with that, we wish you a Happy Easter and a wonderful spring. And if not before, we are looking forward to meeting you again after our second quarter of 2025. Thank you.

This concludes today's call. You may now disconnect your lines.