ITAB Shop Concept AB (publ) (ITAB) Earnings Call Transcript & Summary

Welcome to ITAB Shop Concept Q4 Report 2025 presentation. [Operator Instructions] Now I will hand the conference over to Interim CEO and President, Glauco Frascaroli; and CFO, Andreas Helmersson. Please go ahead.

Good morning to everyone. I just want to give you some information about myself. I step in as Interim CEO on January 7 to replace Andreas Elgaard, and I will be Interim CEO until end of April when Bjorn Borgman will step in. Just few words by myself, I start in this industry in 1979. So I have a 47-year experience until I was CEO of La Fortezza when in 2016, we sold to ITAB, then I stay in ITAB. I start as a CBO, Chief Business Officer for South Europe. Then from 2019, I was Senior Vice President, South Europe and then from 2023, I was senior adviser and then from January, as I say, I am interim CEO and President. I just want to give some information about ITAB Group because I don't know if everybody knows about us. After the acquisition of HMY, now we have around -- we have 24 production facility in 17 countries. We have around 40 operation plus in different countries, and we have around 5,300 employees. Our net share -- our revenue is SEK 13 billion with SEK 847 million adjusted EBIT, that is around 6.4% million adjusted EBIT margin on our revenue. Our main customer groups are grocery, where is the major one where we have around 51% of our sales. Then we have DIY and the Home Improvement where we have around 10%, then we have Fashion/Apparel, 12% Health & Beauty it is around 6%. Then we have other customer groups that makes around 21%. Our solutions are in retail interior. That is our major brand. We have retail technology, retail lighting and retail services. In ITAB for sure, our -- what we say is that we try to rethink retail together with our customers. So we try to work with them. We try to understand they have to deliver what they want, what is their expectation. And I think today with our portfolio is so intensive, so why that we really can help them in many, many different solutions. So now I hand to Andreas Helmersson.

Thank you, Glauco, and good morning, everybody. Looking at the highlights from the Q4 report, I would like to put some focus on stable sales, some growth in Q4 and also stable earnings trend in relation to last year. We see an extraordinary strong cash flow in Q4, which is also something worth indicating, especially driven by accounts receivables release in Q4. We have a continued focus on synergy execution with year-on-year operating expenses being reduced as well as procurement synergies becoming more visible to us. We also have a clear plan for the future and the next steps on the synergy plan are being planned and will be launched starting this year with full impact of the synergies in 2027. As always, to give a representative view of the development of the group, we have mainly focused on the pro forma development in this presentation. In the interim report, of course, published now, you will also see all the details, including reported figures with HMY consolidated from first of February. If we zoom out and look at historical pro forma performance, we can see that 2025 has been a stable year with regards to sales growth. Despite significant currency headwind we have 5% growth, excluding currency. And focus has been on business continuity for us to this very significant acquisition. And we're also executing on the low-hanging fruit with regards to the synergies and we've laid the foundation for future synergies as we work together. Profitability in '25 has been stable, slightly behind '24 when we had some extraordinary projects, especially in Spain, but also Middle East. In Q4, EBIT adjusted for nonrecurring costs and amortization of acquisition-related intangible assets amounted to SEK 199 million, in line with last year pro forma. Looking at the financial highlights for Q4. We can see that net sales is down 6%, but significant currency effect from the euro to SEK. And if excluding that, it's actually up 3%. At the same time, adjusted EBIT is stable, impacted positively by product mix, our loss prevention rollouts in both Europe and Australia has helped us as well as early synergies on productivity and procurement gains. It's worth mentioning also that Q4 is normally somewhat weaker than Q3 with regards to volumes. We have the December month with the Christmas where it's difficult for us to be in the stores. So given the slightly lower volume, that's always sort of part of our seasonality effect on gross margin. Focus onwards is to continue to execute on synergies. Majority of the synergy realization is expected for '26 and '27, improving our cost efficiency where we have several initiatives planned for the first half of and '26 and to continue with the turnaround activities in France and Turkey, which is a real driver for EBIT, but also to become more tax efficient across the group. In 2025, we have set the foundation for synergies as well as executing on some within a special organizational efficiency and procurement. And for '26, the execution will continue, of course, to both those initiatives. But at the same time, we will increase focus on cross-selling. 2025, the cross-selling initiative, built the foundation where we train each other on our portfolios and also built joint showrooms across the group. We will also plan for the next steps of the synergy execution, which is soon launched with focus on select markets such as France and Turkey where potential is high. If we look at our net sales by customer groups, we can see that our largest sector, grocery showed slight growth, excluding currency effect, and that home improvement duty sales continues to grow double digit with excluding currency effect. This is especially driven by our clients in Southern Europe. Fashion was stable in Q4, if excluding currency effects while we had a decline in the Health segment, Where we had exceptionally strong Q4 last year with some one-off projects. The other segment showed a larger decline as we had exclusivity on a few large international rollouts last year due to design and development work. Looking at our geographies, we see that Q4, we had strong development in both Central Europe, Southern Europe and also U.K. and Ireland. It's good to see the U.K. and Ireland really being back on track and showing growth again. Eastern Europe and Northern Europe declined partially due to strong comparisons but also lower activity in specific key accounts and especially Eastern Europe. Rest of the World declined due to large one-off projects in Q4, especially in Middle East. Our operating cash flow for Q4 came in at SEK 821 million and rolling 12 at SEK 785 million. Obviously, we have not pro forma. We're not showing pro forma numbers here for cash flow, but just showing it to you. And it was impacted positively by net working capital development, as we also indicated in the last earnings call, we saw a release of accounts receivables, driven by, of course, the strong increase we saw in Q1 and Q3. And then normal seasonality, where we do see a peak in September, October, and those payments normally come in around Christmas. And then December is a weaker month, since that's not really allowed in the store due to the Christmas shopping. So that's the normal seasonality. And we've also had select initiatives focusing on both factoring and improving payment terms. Now we're twice the size and we're becoming larger and improving our purchasing power and also power with our customers. During 2026, we will continue to leverage pockets of best practice across the organization with regards to capital efficiency, where we see that the strength of our new group will help us through the procurement power, financial market attractiveness and consolidation of both inventory and supply chains. Zooming out a bit from the Q4 results, returning to what we have previously said about our plans and merger with HMY. During 2023, legacy ITAB had adjusted EBIT margin of around 7% and legacy HMY around 5%. And this was then leading us to a combined margin of around 6%. We are now at 6.4%. This is around EUR 11 million up versus the 2023 base line. And as we have said and guided for the synergies, we expect that full effect starting from 2027. There is a strong strategic rationale for this acquisition as well as it being financially attractive. With the synergies identified at EUR 30 million, increasing our net income with 90%, only 16% share dilution all other equal, it indicate significant earnings per share growth. And with that, I hand the word back to Glauco Frascaroli.

Yes. Thank you. Priority, I want to talk a little about priority for the future, but I want also to underline that as Andreas mentioned before that for us, the acquisition of HMY has been very strategic. And I think that we have a lot of opportunities in the future together because they can bring to us a lot of confidence and we can bring to them the same. So we can be really very strong together. And I think we have a very strong team to take care about this integration. So what we want to do for sure is to sustain the existing business with customers, as I said but also improving our portfolio, our possibility to be more attractive for our customers. And also establishing common financial reporting and securing the legal contents. We want also to establish a common organization. So we want to establish organizing structure, exploring want leadership and cultural behaviors. Also, I want to underline here that for us, people are the most important things because we give a lot of attention to them. And I think only thanks to the people you can grow in the business. Deliver, we want to start to deliver -- continue to deliver the synergies starting to realize procurement, commercial and SG&A synergies, developing also common strategic priorities. Our main priorities also is anyways to as we say better together, better together means to be together, to work together and also have a common way of working and try to be performed as much as possible. So this is our strategy for the future. As I say also, we want to continue to be focused on the integration because we have to realize, as Andreas Helmersson said before, SEK 30 million expected in 2027 to finalize these synergies. We want to measure to improve our profitability continually assessing implemented if needed in all parts of the group, efforts also to reduce our tied-up capital and debt and also launch of shared values and cultures way of working and strategic teams and priorities for ITAB Group in 2026. Presentation of the group joint expertise and solution to the retail market on EuroShop on 2026 from 22nd of 2026 of February, that for us will be very important because it's a very important exhibition and the first time that we will be together with HMY. So we end our presentation if there are any questions.

[Operator Instructions] The next question comes from Erik Sandstedt from Kepler Cheuvreux.

Yes. Erik Sandstedt here with Kepler. A few questions. Firstly, I'm trying to better understand your comments in the report about France and Turkey. What is the problem more specifically? Is it the same in France that you have been alluding to in the last couple of quarters? Or is there something new here?

Thanks for your questions. No, I think it's the same situation as we've seen. We have -- we've had a situation with some change in management and a lack of focus in the last sort of a 1.5 years. And we can see that we have taken a lot of actions in the first 6 months and we've seen some early results from those actions just to improve the whole performance management around customer contracts and costs. So I think it's been a lack of focus for a while. So we see the benefits from that. So now we're sort of looking at the overall market position and we can see that we have a significant market position. I mean we are for sure the #1 in that market, which is always a strong base to start off. So we will come back with more details around sort of the final activities that we need to happen to make that sort of in line with financial targets that we have as a group more 7% to 9% yield.

But has the problems -- have they worsened during this quarter? Or is it the same as in Q3 and Q2? Or are you -- how are you seeing it develop?

It's not worse, no. The situation, I would say. But we still need to take more actions in order to create profitability in line with the rest of the group.

Yes. But you also mentioned Turkey, specifically. Is that the same problems that you see in France?

Maybe I can answer about Turkey. I think we are starting to develop also the internal market that is very important for us because before Turkey was more export, was more intercompany when we acquired HMY, now we are trying to transform. We are transforming the company to become more direct sales to direct customers, especially to develop also the Turkish market that there is a big potential. So this is what we are doing in Turkey to increase -- to improve the results. So this is what -- and we have a lot of expectation because the market is really interesting.

Yes. Then on a separate topic, can you share some more details about your progress in retail tech and smart gates and so forth? And more specifically, whether you already now are seeing any cross-selling synergies and opportunities with regards to HMY and if you are selling to their customers, where you were not present before.

We have a lot of opportunities with HMY because they haven't sold that up to -- before the acquisition of many of our retail tech products because they don't have the retail tech products in their portfolio. So the expectation is really high. We start already to market our products in different countries like France, like Spain, where there are the biggest customers for the group. So really, the expectation on cross-selling is quite high. And I'm sure that this year, the results will start to come for sure. So we are really confident and positive on this.

And in terms of synergies that you may already have realized, not specifically looking at smart gates, but the synergies so far, are they on cross-selling? Or is it purchasing -- lower purchasing cost or on the OpEx side, just maybe share some details on that.

I can shed some more light on that. I think obviously, the easiest thing to do early on is where we have organizational overlap. So we have taken the sort of low-hanging fruit for that and we have next steps, sort of ongoing from that perspective. Procurement, we've done a lot during this year. We have set an organization that is sort of working across the new business units combined ITAB and HMY. And we've done sort of the biggest contracts with the biggest impact, but some of these contracts are realized later in the year and full annualization will happen for those contracts now in '26, Then that's the first wave of the procurement program. Then we have 2 more waves that we'll execute on during this year. Then obviously, there's more -- you mentioned cross-selling. In cross-selling some of the products are pretty easy because they've been selling some lighting products and some gates and it's easy to just replace with ITAB products and that will grow our margin. But then to train another organization into selling solutions, such as loss prevention solutions. That takes more time and you need to build a foundation for that competence in the new organization. And I think we've done that and we've invested in time together. We've also invested in showrooms because customers needs to touch and see the products and the solutions. So it's not something that is easily done in a year but we have laid the foundation. I would say. And what's also sort of waiting as a next step for this year. That's the more tricky parts where we -- sort of we had our operational footprint. And HMY had their operational footprint. And then obviously, we, in some places need to optimize that network of supply and to some extent, consolidate operational footprint and make sure our cost base is optimized for the new group.

Yes. And then just finally from me, in terms of the nonrecurring costs in the quarter, what cost lines are they impacting? And specifically, I'm talking about provision for the customer reclaim. Is that impacting COGS? And if so, is that partly explaining the lower gross margin in the quarter?

Yes, you're right. It's impacting COGS. It's impacting materials. So yes.

And the other nonrecurring costs relating more specifically to HMY.

There's -- obviously, it's related to, I mean, some of the non-recurring costs related to organizational consolidation, that's more sales cost, personnel and salary costs. Procurement initiative and sort of that's impacting COGS more. And as I say, the customer recall, it's more of a COGS as well. So I think on gross margin, I think we still see gross margin as strong if we adjust for this. And normally, we see an impact of December results because December is for us a very weak month and it happens every year. So it's more or less 0 or loss-making because it's very difficult to test to sort of keep the business up and running as normal because customers don't want us in the store. So Q4 is a bit weaker moment.

The next question comes from Karl-Johan Bonnevier from DNB Carnegie.

And looking at Q4, I need to come back to your comments and here about the gross margin. And I'd like to compare you obviously with the pro forma numbers, which is -- makes things more difficult as it wasn't real numbers if you put it like that. But when you look at the gross margin down SEK 100 million, and then you regain that with a SEK 100 million improvement on the OpEx side. Could you just tell us about the dynamics here and what that tells us with the number going into 2026. What will follow you in there and what will be gone, so to say.

I think I can -- I mean let's see if I understand your question correct. But if I look at pro forma numbers and the discussions we have internally when we look at our business, now we see that we are still significantly. We have positive impact from loss prevention. We've been on a high level for a while. We have some success in Europe, but also in Australia. And it's -- no, it's not 1 or 2 projects, but it's been on a quite strong level for a while, and that's positively impacting our product mix. Then we see Q4 with a weak December, it's quite normal for us. That's impacting. So the lower volume leads to lower utilization of fixed cost in our factory. So it impacts our COGS. So we do see this year also to some extent, November, sometimes November can be really strong, but December, for sure is always a bit on the downside with regards to gross margin. And then we've had some one-off cost effects from write-downs, which also are part of December. So it's now when we go through inventories and go through projects. I think there are a few but apart from that, we do see, as you say, the OpEx is year-on-year down pro forma numbers. So we can see that the synergies are having effect on sort of organizational costs, fixed costs and yes. Did that answer your question or did you have any more?

Yes. It sounds like what you're discussing on the OpEx line is more sustainable. And then what's happening on the COGS line in Q4 is the intra-quarter kind of variations that we have to live with, basically. So is that the way you have a good way to interpret it.

You're right.

Excellent. And then looking at the exceptional strong cash flow, obviously, a good working capital release. You mentioned that you now are using factoring. Is that a big number in this in a year-on-year comparison?

No, it's just that we -- I mean, one of the things we've seen when we started to really collaborate in details across the new organization is that we do have some potential with really strong customers with very little credit risk and that we can achieve very favorable and attractive factoring deals with financial partners. So I think that's been some success from the collaboration during the fall. So I would say around EUR 10 million can be adjusted back to that.

Excellent. And just looking at the -- back to the pro forma numbers and top line it still suggests to me that underlying the HMY part of the operation seems to be down 5%, 6% organically, whereas ITAB is -- the old ITAB legacy operation seems to be up a couple of percent. If that's the kind of right interpretation? And then is there anything in that more than -- now we have finally say, real numbers for HMY on the quarterly numbers, so looking at the full year.

I think the way we see -- I mean, obviously, it's getting more and more difficult to separate the two legacies. But the way we see both the legacy HMY, looking back 3 years and looking at legacy ITAB, from a growth and sales perspective, we've been very much correlated. We can definitely see that we market leader in with a focus on Europe and that's been very much sort of correlating to the underlying market. So we can see when they are going up, we are going up in the same way. So then obviously, legacy HMY has been really strong on sort of gaining market share. So this is something we're trying to sort of really learn from and prove best practice out of. But zooming in also in '25, we see that from a sales perspective, we've been quite equal hasn't been much. We continue to develop the same sort of it's more from a profitability perspective, where we really see the largest sort of potential also to learn from each other and to really create the performance culture around profitability but it takes a while.

Excellent. And on the highlighted nonrecurring charges in this whole process of getting the organizations together with SEK 21 million how much of that has been with this quarter now been charged ? And how do you see the profile of the remaining?

Yes. We included in note in the interim report this time. We didn't split it on OpEx or COGS. We think about doing that onwards. But the integration costs have been around EUR 9 million. And as you say, we've indicated around EUR 21 million. So some of these initiatives have been a bit below what was expected. But it's also -- I mean, we haven't concluded on all the activities that will take place during '26 yet. So we'll need to get back to that. But so far, there's no signals that we will not use the full or that to be above. So I think we are quite on track with what has been guided for..

Excellent. And I heard you commenting about the review of the operational footprint being, say, the next phase of the integration. When do you think you can have that strategies for that being detailed?

Yes. We are internally planning for completing this reviews and assessments during the first half of '26.

Excellent. And just one final for me. Obviously, you highlighted going into the EuroShop, which is a big moment for you. Going into that cloud, do you feel that clients are out there looking for RFPs for new projects? And how does your pipeline of good project discussions look to date maybe compare to a year ago?

For sure, I mean EuroShop is the best time for our customers to come to see new things, new products that we are going to present, but also -- what is very important for us this time is that we are together with HMY, so we can really show our trend, our capability, our competence that are really important because we have different competence, but we have also -- we are strong in different countries. But for sure, the customers look like at Dusseldorf like the occasion to spend time together and also to understand what can be the future solution. So we will present for sure, new products. And I think will be -- our trend will be quite attractive. So I'm really excited, and I'm really positive on what will be the results on our standing Dusseldorf in EuroShop. So we crossed the finger.

The next question comes from Anton Lund from SB1 Markets.

Can you hear me?

Yes.

Very good. Many good questions have already been asked. I noticed that the tax rate accelerates this quarter again. Just wondering what's your view ahead? What do you consider a normalized level? And when do you think you will get there?

Thank you. No. This is obviously one of the key projects, and it has been for a couple of quarters. And I think the main reason, this is obviously the accounting tax and it's not what we actually pay. But still, I understand where the questions are coming from. I think there's 3 large reasons for that being quite high in the accounting, partially because we have a debt situation where we're taking on debt in Sweden then, and we have debt in France, which is where the sort of headquarters and other companies are originating from. And then we're now in a position or we now in the project where we push this debt out to sort of the shared across the group. So I think that's one of the reasons to make really the interest payments deductible possible improving our tax position. We also have a year in '25 where we have significant acquisition costs, which are also non deductible. And one of the top reasons also is that we do have some sort of low profit or in loss-making units that we need to turn around to improve our tax position. And we're also -- we're operating in Latin America and some countries where you pay tax on a quarterly basis. So if you have one quarter with profit, you pay tax and then it's another quarter is loss-making, you don't pay any tax. So it can create a bit of disturbances. I think we are definitely aiming to come closer to where we've been historically at ITAB Group, which is, of course, around 30% or even below. So I think -- but it will take us a few more quarters to achieve that. And the turnaround of some of these units that we've indicated is also key initiatives in order to reach that.

Very good. And then actually two more questions, if I may. You talked about EuroShop that's coming up. Do you have any idea of how much cost you will incur related to that?

EuroShop is normally costs. Some of those costs are from an accounting perspective. Of course, it's cash out now, but it's cost that we can we can take over the coming 3 years, it's every third year. So -- but it will be some costs, let's say EUR 1.5 million that will belong to Q1 which is something we take in Q1 and not something we capitalize on.

Got it. And then one final for me. You mentioned competition I believe, in your report. Can you shed some insights on how you view the market overall house price pressure and so on.

For sure, I mean, the competition is still -- is always very tough. So it's not new that we have competition all over. But what we are trying to do, we are not try to compete with, let's say, commodity products where we can find products coming from China, from other countries. We are trying to offer solutions. So if we work as a solution provider, I think we can also avoid to enter in competition with products, but we are entering competition with companies like us that are really solution provider. I don't think there are many. So in this case, we can really increase our margins and be more attractive for sure for the customers, but also for our result looks much better. So we have to skip any way to stay in competition with only commodity products. This is my advice.

There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

Okay. Thank you for that. We have a few written questions. And the first one is, would you say that the integration costs are in line with what you have assumed at the acquisition of HMY? Or are you running a bit over? I think maybe, Andreas, you answered that one already. Do you have any other comments on that?

No, I think, we're good.

And then the second question is, could you give us an estimate of effective tax rate for 2026 ? Again this Is something you've already talked about Andreas, any more comments on that.

No. I don't think we're in a position to guide for that specifically on a quarterly basis. But it's a top priority, but it will take a while to come all the way down to where we expect to be long term.

Yes. And then we have another question on the transaction and integration costs. We already touched upon that. And also the illustrative calculation on 2027 with full synergy realization, we show that slide in this presentation as well. So I'll jump to the next question. Will you adjust the financial targets? Or are they still in effect?

They are still in effect still in effect and we, of course, will come back if we come to a conclusion that we will -- I think what we have guided for, everything else equal, is to go to the sort of far end of the interval of 7% to 9% from a sort of profitability perspective, but we will take us with the synergies to more 8.5%, I think. So that's what -- that's the type of targets we put in ourselves at least for the coming 2 years.

A question concerning the Q4 gross margins. They are weak versus earlier quarters. And I think you've we've touched upon that as well earlier, are there any more comments on the gross margin? Andreas?

No, I don't think so. No.

One of the questions is how much factoring have you used? And you said EUR 10 million in...

Yes. And that's to clarify, that's the increase in factoring that we've seen and sort of been part of the release cash flow now in Q4. So we obviously have used factoring before as well. And this is since the long-term financing we have at ITAB is sort of deal financing, it can be quite attractive to use factoring as a way to lower the long-term financing.

And the follow-up on that is, why have you decided to use factoring during quarter, but I interpreted that there's nothing new for us and we've used factoring before.

Yes. Obviously we have some really stable strong customers, which financial partners deem to be very credit worthy. And so it's quite attractive for us. And it's difficult for us to almost finance ourselves to same terms.

Yes. And then a follow-up on the integration and acquisition costs or the -- primarily the integration cost of SEK 21 million. Is there any changes to that estimate? And you said earlier that it's no changes to that estimate.

Yes, that's correct. We are assessing the final phases of the sort of synergies, and we will get back to you when those plans are set if we need to update anything.

Can you share the run rate savings reached for fiscal year 2025. Can you share what your target in terms of run rate savings for fiscal year 2026?

I think what we said is that we expect EUR 30 million to be fully in the P&L for '27, and we're on track to deliver on that and can reiterate that target.

Yes. Can you say something about financial costs in 2026?

Yes. Financial costs are with the operations we have in both Argentina and Turkey, which are hyperinflation territories. There's always a bit of a sort of up and down and but we do see always some hyperinflation impact as a currency impact. And then, of course, it's not just interest cost that goes into here. It's also costs for taking on this debt and the long-term loan that we have to acquire HMY, those costs are being accounted for during the full period of the loans coming in. So now we also extended the loan another year and that was a cost that landed in Q4 now.

The question on France being almost a year in, what the integration challenges have appeared that you didn't expect?

I mean it's difficult to fully assess a company in an acquisition process. We've done some very detailed due deligence, but now we're getting into the Excel sheets and we're going to know each other, and we're trying to collaborate. And so I wouldn't say it's any large surprise to some extent, we have reiterated the real strength of this acquisition, and that's on significant capabilities that we didn't have effective that we think we can leverage. And it's especially conceptualized in the business in Spain and it's something we can build on and expand across France but also in Turkey.

Follow-up on that. And do you expect improvements in France and Turkey to start coming through year-on-year in Q2 2026 as you meet tougher comps and drive efficiencies? Or will it take longer for these initiatives to translate into results?

I think I started to explain sort of what's in Wave 1 and Wave 2 and where we see more complex activities taking place. And I thing France and Turkey are more on the complex side and will come late in this guidance that we've said.

Okay. That was the last of the written questions. So I'll hand the word over to Glauco and Andreas for any final remarks. And please a reminder to everybody, if you have any further questions, please do not hesitate to reach out to me at [email protected] or yes.

Okay. No, I just want to thank everybody for this presentation and for the questions. I want just to remark I want to underline that we are really on top of the integration with HMY, we feel very positive on that. So thanks to everybody. But thanks also to our people because every day they are passing this integration. So thanks to all. Thank you.