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

Hello, everyone, and thank you for joining the Byggmax Group Interim Report Q2. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to Karl Sandlund, CEO, to begin. Please go ahead when you're ready.

Thank you. Thank you very much, and a warm welcome to today's conference call where we will present Byggmax Group's interim report for the second quarter of 2026. And as you heard, I'm Karl Sandlund, CEO; and with me is Helena Nathhorst, our CFO. As usual, the presentation is available on our website, and we will refer to the relevant pages during this call. I will start with a short business update, and then Helena will review the financials. And after the presentations, there will be a Q&A session as usual. So let's start and move into the presentation, and please go to Slide #2. Well, the second quarter marks the beginning of our high season. Our sales follow a clear seasonal patterns, as you know. And this means that sales in the second and third quarters are significantly higher than in the first and fourth. And after spring preparations across the entire Byggmax Group, the transition from low to high season was well executed and our operational performance during the quarter has been strong. We improved our profitability compared to last year with an EBITA margin in the quarter of 12%, up from 10.8% last year, and we continue to have a very strong financial position. It continues to be a market with large variations, high demand for categories related to smaller projects, while larger projects and renovations are still more challenging. And all in all, our sales increased by 2.9% compared to last year, including positive effects from currency exchange rates. And Helena will come back to the financials and give more details in a minute. So again, a quarter with strong operational performance, improved profitability and a solid financial position, and this makes us fully prepared for the rest of the high season. And at the same time, we are continuing to develop Byggmax to enhance customer value and to further support long-term growth. Before we continue with the business update and the financials, please, on Slide 3, a brief overview for those who might be less familiar with us. We were founded back in 1993 and has now grown to 211 stores across 4 Nordic markets. We serve primarily consumers with a clear focus on building materials for home maintenance. We have high product availability in our stores. In addition to the Byggmax brand, we operate Right Price Tiles in Norway focused on tiles and bathroom and Skanska Byggvaror offering products such as conservatories and greenhouses. We are built for fast and easy shopping and our driving concept makes it convenient to purchase heavy building materials, while our efficient e-comm enables customers to order large volumes for click and collect or home delivery. And at the core of our model is the commitment to the best price, and this is enabled by large-scale purchasing and a highly efficient operating model across the entire organization. On Slide #4, we have a brief update on the macro environment. Well, the overall Nordic consumer market has been in a cautious recovery with some retail indicators pointed to a more active consumer. But at the same time, consumer confidence remained well below normal. Households remain cautious about personal finances and major purchases, suggesting still a subdued market environment. For building materials, the market showed large variations underneath. Customers are doing projects, but they are selective and more focused on smaller projects. Some categories are performing well, such as garden and outdoor, while timber and heavy building materials remained weaker. So this leads to mix effect. Our exposure to heavy building materials given a lower overall growth a year ago in Q2 last year, the effect was the opposite. Turning to our priorities for the quarter, starting on Slide #5. Well, as mentioned in the beginning, at this time of the year, operational execution becomes one of our most important priorities. Summer is significantly larger than the winter season. We have more customers in our stores, more deliveries and very large volumes of material moving through the whole chain. And in this period, even small operational issues can quickly have large impact on the customer experience, and that is why availability, replenishment and staffing are so important. As mentioned, our operational performance has been strong in the quarter. We have recruited and trained many new employees for our stores. And at the same time, we have built up inventory in an efficient way, which supports strong product availability. In total, our inventory value is slightly higher than last year. So overall, we are pleased with how operations have been carried out during the quarter. Good product availability and stable supply have given us a good position to meet demand. At the same time, as we focus on operations, we are building further on our commercial capabilities. If you move to Slide #6. We have a very strong customer position. Brand awareness is at 93% in Sweden, and our store Net Promoter Score reached 58 in Q2. So customers not only know Byggmax, they also appreciate the experience when they need us. And during the quarter, we have continued to build on that foundation. And one example is our new customer program, which will be developed step-by-step together with our customers with a clear ambition to further simplify the customer journey and increase relevance and build a stronger customer base over time. We have also strengthened our marketing function by moving into a more data-driven setup with clear channel priorities and a more systematic follow-up. And at the same time, we are enhancing our commercial activation and have more sales focus. And in selected seasonal categories, we have seen an example of how adjustment in rate mix and exposure can steer sales toward products with higher customer value. This work is still in early progress, but the direction is important. We are also enhancing our sales channels. Slide #7. In stores, we continue to raise the baseline through clearer seasonal areas and better product placement, and this is an effect that will come over time. But the ambition is to make it easier for customers to find the right products and to complete their projects. We are also continue to develop our store footprint in Stenungsund, Sweden. We reopened after almost 3 years with an updated store with a new flooring department and our signature drive-in yard. We also opened a new Skanska Byggvaror showroom in Gothenburg. And in Trondheim, Norway, we relocated our Right Price Tiles store to a better location with an upgraded store experience. Online, well, last year's work to simplify and sharpen the assortment is now completed. We have a stronger digital offer, especially in building materials and garden buildings. And during the quarter, e-commerce has shown good performance. So with enhanced stores, sharper online and stronger CRM, the ambition is to drive more traffic and increase conversion and to capture more of our customers' projects over time. If we move to Slide #8, we are also using AI to strengthen both customer experience and to improve efficiency. In customer service, AI is already acting as first line of support, and it resolves more than 80% of the incoming cases without manual handling. In addition, we have taken a clear step forward in AI-driven sales during the quarter, and we are now live with Agentic Commerce, where AI moves beyond only customer service and become also an active part of the buying journey. And instead of asking the customers to search through product lists or websites, they can describe what they want to build and get help with material choices, quantity calculations, product recommendations all the way to the checkout and everything is in the same flow. And this is, of course, an early version and a very small channel so far, but conversion is around 40%, which shows that AI can make the customer journey simpler while also over time, maybe contributing to sales. In addition, we are taking step in store support by launching an AI system for our store employees. and this will give our teams better support in the customer meeting, but also enable faster service and help create a more consistent customer experience. And the point is not that we are trying to become an AI company. The point is that we are using AI where it makes Byggmax better in sales and service, but also in productivity and the customer experience. With that business update, I hand over to Helena and our financials.

Thank you, Karl, and good morning, everyone. Before we move into the quarter in more detail, I'd like to put the results into a broader perspective. We are on Slide 9. This slide illustrates the sales and margin progress we've made over the past 3 years. And despite a prolonged period of soft and volatile market demand, we have delivered a significant improvement in profitability. Our rolling 12-month EBITA margin has now increased to 6.2% compared with 5.3% a year ago and 2.9% 2 years ago. This improvement has been achieved with broadly similar sales levels, reflecting structural improvements in the business rather than a recovery in market demand. That momentum continued in this quarter, where EBITA margin increased by more than 1 percentage point to 12%. With that longer perspective, I'll move into the quarter in more detail, starting with the income statement on Slide 10. Operating profit increased by SEK 44 million to SEK 267 million in the quarter. If we look at the year-on-year bridge, you can see that the key drivers of gross profit combined with continued cost control and disciplined investments. Sales increased by 2.9% or 1.7% excluding currency effects. Demand remains mixed. Lower volumes in timber and heavy building materials were balanced by continuing strength in garden products and smaller renovation projects and also good in-store product availability throughout the quarter supported sales. In the quarter, gross margin continued to improve, contributing with SEK 20 million to earnings. The improvement reflects stronger commercial execution together with underlying improvements in sourcing, logistics and our e-commerce offering. In the quarter, product mix and early supplier payments supported margins and some announced supplier price increases have yet to be fully reflected in the market and may put some pressure on margins in the coming quarters. We continue to demonstrate disciplined cost management. Operating expenses increased by 3% compared with last year. This reflects annual wage increase across the Nordics, continued investment in our digital capabilities as well as store opening activities during the quarter. This means that the organization is now leaner and more flexible, allowing us to absorb these investments while maintaining a disciplined cost base. In the quarter, depreciation and amortization also contributed to the impact on operating profit. The lower investment levels over the past 2 years have reduced depreciation expenses. In addition, amortization related to Skanska Byggvaror acquisition is completed. These positive effects of SEK 60 million were partly offset by higher depreciation related to IFRS 16 lease agreements. So operating profit and margin improved, turning us to the cash flow on Slide 11. Strong profitability, combined with disciplined capital allocation, continues to generate healthy cash flow. Over the last 12 months, cash flow from operating activities amounted to SEK 808 million. We continue to invest to strengthen the business over long term. While CapEx increased compared with last year, investment levels remain below historical levels. During the quarter, investments included continued ERP upgrade and store projects with customer-facing improvements such as store layout and checkouts. The working capital remains well managed. Inventory levels have increased to support product availability and customer demand while we continue to balance the level of capital. So overall, strong earnings, combined with disciplined investments and effective working capital management continues to support strong cash flow. This strong cash flow generation continues to strengthen our balance sheet, which brings me to the final slide on net debt. Net debt, excluding IFRS 16, has been reduced to SEK 186 million at the end of the quarter, and our net debt-to-EBITDA ratio has improved to 0.4x. Combined with committed credit facilities, we have substantial financial flexibility to support both continued investment in business and future growth opportunities. Overall, the financial development this quarter demonstrates that the operational improvements implemented over the past 2 years continue to translate into stronger earnings, stronger cash generation and significantly stronger balance sheet. And with that, I hand back to Karl to conclude before we open up for questions.

Thank you, Helena. Please move to Slide #13. Well, Byggmax has a clear position, and it's to offer building materials easily and at a good price. Our drive-in model makes shopping really efficient. And together with a low cost base and an expensive store network, this provides us with a scalable business model. We delivered a solid Q2 with strong operational performance, further improved profitability, as you heard, 12% EBITA margin in the quarter and a very robust financial position. Our priorities going forward are clear. It's about combining a continued very strong operational performance with enhanced commercial capabilities to unlock further potential. And we aim to deepen our understanding of customer needs and improved customer insights will provide a strong foundation for how we develop our offering, both in categories where we are already strong and in related areas. Another dimension is how we activate across the offer across our sales channels. And at the same time, improved customer communication will help driving traffic and sales. And the ambition is to gradually enhance the entire commercial loop from customer insight and relevance to execution and value creation. Finally, all our employees, they work hard to ensure that we are fully ready during the summer season, and we are really looking forward to meeting all our customers during the rest of this peak season. So this concludes our presentation. And so thank you for your attention, and we now welcome your questions.

[Operator Instructions] The first question today comes from Benjamin Wahlstedt of ABG Sundal Collier.

A couple of questions from me. So first of all, I was wondering if you could discuss a bit more the growth deviation from the DIY growth reported by Sweden statistics. For April, May, SEB reports DIY growth of roughly 9% year-on-year for context.

Thank you, Benjamin. Well, as mentioned, we see a market with significant variations where some categories are developing well, while others have yet to gain momentum, which makes, I guess, comparison based on aggregated sales figures quite challenging. Our exposure to heavy building materials has an effect and gives lower overall growth, while our assessment is that we remain strong in our major categories. Looking at last year, Q2, as mentioned, the effect was the opposite where the more like heavy building materials grow a little bit more, having a higher total sales growth. But at the same time, we're not complacent and we see further potential. As mentioned in the presentation, we have a high brand awareness, a high customer satisfaction and by improving insights and converting these customer insights and offer relevant for more customer needs, we have the potential to secure further growth.

I was wondering as well if you could elaborate on the comment regarding cash discounts lifting gross margins in the quarter. I seem to remember you using cash discounts extensively in the comparable quarter as well.