Tokmanni Group Oyj (TOKMAN) Earnings Call Transcript & Summary

Good morning, and thank you for joining Tokmanni Group's Fourth Quarter 2024 Results Presentation. My name is Mika Rautiainen. And today, I will be telling about the highlights of the fourth quarter in the beginning. Then Mr. Tapio Arimo, Tokmanni Group's CFO, will come and talk about the numbers a little bit more. Afterwards, we will tell about the guidance for 2025 and a couple of words about SPAR collaboration as well. And of course, in the end, there is a possibility to ask questions. And for the questions, I will actually ask you to -- under the stream, there is the Teams link. So please join the Teams link to present the questions. And then we'll, of course, answer all the questions. So let's get started. During the fourth quarter, Tokmanni had strong growth. In customer visits, comparable EBIT growth was 2.7% during the fourth quarter. A couple of words about the store network in the Nordics. By the end of the year 2024, we had 380 stores altogether. And of course, especially in Sweden and in Denmark, we're looking very active expansion with the stores, but that's also happening in Finland with Tokmanni. A couple of examples from the store network. First of all, as you can see, there were 3 new Tokmanni stores or actually like the growth of Tokmanni store network was with 3 stores, Click Shoes with 4. And actually, with Miny, there is no stand-alone Miny stores anymore at the moment. We decided to continue with Miny as a shop-in-shop in Tokmanni stores. And actually, a couple of weeks ago, we just launched Miny also, the Miny range also in Sweden and Denmark with very successful sales figures. So there won't be like Miny stores, stand-alone stores anymore. So we're concentrating on Tokmanni, Click Shoes. And then in Sweden, 3 new Dollarstores. And in Denmark, 3 new Big Dollar stores. Altogether, 380 stores. And about the highlights for the fourth quarter. Tokmanni Group's like-for-like customer visits increased by 5.3%, which we consider ourselves a very good figure, very good growth. Of course, we had like very ambitious plans and also aggressive campaigns for the fourth quarter, both in Finland and in Sweden and of course, in Denmark as well. For the fourth quarter, starting with Halloween season, we had very successful product ranges and also marketing for the high season. Of course, the fourth quarter is always extremely important for discount, variety discount retailers like Tokmanni and Dollarstore and Big Dollar. So we really wanted to ensure the sales for the fourth quarter with very strong campaigns. However, the customer purchasing behavior, let's say, the consumer confidence was on a very, very low level, especially in Finland. And that's why the shopping was cautious, and discount driven. Actually, in Finland, there were almost like 1 product less in customers' shopping basket during the fourth quarter, which clearly showed that the confidence and also the buying power is still on a very low level. Shelf availability was very good during the whole quarter. And then in August 2023, we said that one of the targets with Dollarstore, Tokmanni joining together basically with all the synergies. The synergy savings target was EUR 15 million by the end of 2025. And the run rate basically in the end of 2024 was already EUR 13.3 million. So this was, of course, a very good success. And of course, we're continuing with this since we can see that there is a lot of potential as well. Then about the group's key figures. Revenue grew by 5.5%. Like-for-like revenue increased by 3.6%. The gross profit was on a clearly lower level, 35.7% compared with previous year's 36.5%. And that, of course, was due to the campaigns and also sales, especially in Finland, concentrating on the groceries. Maybe over here, a couple of words regarding the freight costs because they actually affected also Dollarstore's gross margin. Basically, in 2024, Tokmanni as a group, we had more than EUR 7 million additional freight costs due to Red Sea and also like the peak season surcharges. And basically, the biggest part was pointed to the fourth quarter that's especially with Dollarstore, a slightly difficult part because most of the products -- imported products are -- they are like attached with price tags already in the manufacturers' factories and so on. So there were no possibilities in changing the selling prices unfortunately. And of course, the fourth quarter for Dollarstore was the first time in this -- in a large-scale direct imports. But I'll come back to this a little bit later with the Dollarstore segment. Now the EBIT. Comparable EBIT amounted during the fourth quarter to EUR 47.5 million, representing almost the same level as last year, 9.3% (sic) [ 9.6% ] of revenue. Cash flow from operating activities amounted to EUR 76.5 million, and earnings per share diluted was EUR 0.50. And then about first, the Tokmanni segment. Tokmanni segment's like-for-like customer visits increased by 5%. We consider ourselves this as a very, very good results. The product ranges, the campaigns, the marketing, the store operations, everything was very, very successful. As said, the customer confidence in Finland was still on a very poor level in the end of last year. The like-for-like average basket actually decreased by 2.5%, which is actually quite a high figure for the average basket decrease. Revenue increased by 4% and like-for-like revenue was at 2.4% level. Gross margin was 34.6%, slightly lower compared with previous year, and this was mainly due to the campaigns, the aggressive campaigns for Tokmanni. Tokmanni actually was able to take to consideration with the pricing, also the higher freight costs. So the effect on gross margin wasn't as big as it was for Dollarstore. Operating expenses were well in control. It was 19.2% compared with previous year's 19.3%. And comparable EBIT, 10.1%, ending with EUR 37 million compared with previous year's EUR 36.1 million. Inventories were on a clearly higher level compared with previous year, EUR 298.9 million, and this was well planned ahead. First of all, we had the Chinese New Year stopping basically all the manufacturing production and also like the shipping of products. So this was already earlier this year, meaning in the end of January, and we wanted to make sure that we get the products already on the way before the beginning of the Chinese New Year. So this was one of the main reasons. And I have to say that we also wanted to make sure that we have the spring season products in Finland early enough before the possible strikes in the port, ports of Finland. But luckily enough, there has been agreements with the unions. So there won't be any strikes. And at the moment, I have to say that it's also pretty good. At the moment, I guess, in Finland, it's today, plus -- it's going to be plus 10 degrees. So for example, with barbecue season, all the Tokmanni stores in Finland are ready to start selling barbecue products, which is, of course, a very good thing since the spring seems to be a little bit early. And then about Dollarstore segment. Like-for-like customer visits increased by 6% and the like-for-like average basket also increased in Sweden by 1.2%. It's very clear that the economic situation in Sweden is -- yes, it's clearly better compared with Finland, which is, of course, good. Revenue increased by -- Dollarstore by 11%, a very high number where also, of course, the new stores are affecting the figures. And the like-for-like revenue increased also by 7.3% in local currencies. Now Dollarstore had its 25th anniversary campaigns, extremely strong campaigns during the fourth quarter, which, of course, was affecting the comparable gross margin, which was clearly lower. It was like 38.9% compared with 41.3% previous year. So the 25th anniversary campaigns and all the other campaigns, which are not that familiar for Dollarstore in previous years. And of course, as already mentioned, the freight -- additional freight costs coming from the new large-scale direct imports was affecting the gross margin since the products were already like priced in the origin. Operating expenses also well in control during the fourth quarter in Dollarstore, 22.3% of revenue compared with previous year's 23.3%. And comparable EBIT was EUR 11.4 million, slightly higher compared with last year or year '23, but relative EBIT level was a bit lower, 8.6%. And inventories were EUR 129.5 million, also clearly higher compared with previous year. And here, of course, there are actually like several things which are also explaining the higher inventory level. First of all, Dollarstore is moving from wholesalers to direct imports. And this has, of course, an effect on the inventories last year -- in the end of last year. And of course, during the whole of this year because the change from wholesalers to direct imports will, of course, affect the inventory level of Dollarstore. At the same time, we are growing the Dollarstore assortment. So that's, of course, bringing also like more value to inventories. And we are increasing Dollarstore assortment with slightly more valuable products, for example, with Tokmanni best value private labels. So that's, of course, increasing the inventory value as well. And new stores, 6 new stores, that's, of course, increasing the inventory value as well. A couple of words about Tokmanni and Dollarstore. Its continuous growth according to the original strategy. In 2024, the focus was on synergy savings. And as already said, we were very successful with this. The run rate is up to EUR 13.3 million by the end of last year, and it's continuing. And of course, we're all the time seeing a lot of potential with -- especially with joint buying and sourcing. And of course, this year, the focus will be heavily on one company model. Obviously, the customer surface is being managed by the local business, Tokmanni, obviously, in Finland, Dollarstore in Sweden, Big Dollar in Denmark. But the back-office functions, it's very good to move together to achieve even more synergy savings and efficiencies. And for example, basically, the common supply chain function has already started. And at the moment, we are, for example, negotiating the sea freight agreement, actually starting -- and I hope that we will be able to finalize the negotiations by the end of this month. And then starting from the beginning of April, we're able to then hopefully have clearly better terms with the sea freights, for example. And of course, we also will benefit from the capabilities and competencies with the Nordic buying organizations. Obviously, there are like fantastic things both in Sweden and in Finland regarding the buying and sourcing. So we will put these things together and get more benefits out of it. And the target is to have 360 stores in Nordics by the end of 2025. And if we add the Click Shoes stores, the figure will be almost like 400 stores in the Nordics for Tokmanni and Dollarstore segments. So that's it. And then I'll invite Tapio to join me and to start telling more about the key figures for Tokmanni Group on the fourth quarter. Tapio, please go ahead.

Thank you, Mika, and good morning on my behalf as well. So looking a little more at the figures. First, revenue. So as Mika said, we had a very successful Q4 in terms of sales growth. Total sales growth of the group about 5.5%. And the total number was almost EUR 500 million at EUR 496.9 million. And also our like-for-like revenue growth increased very nicely, so a total of 3.6% during the fourth quarter. And if you look at the sales mix a little bit, Tokmanni segment's revenue increased by 4% and Dollarstore's revenue increased by 11%. And from the Tokmanni segment, our B2B sales were 3.2% of total sales and our online sales were 2%. So in total, those 2 represent just over 5% of the Tokmanni segment's net sales. And of course, on an annual basis, our revenue grew very strongly due to Dollarstore being in our books for the whole year this year versus 5 months last year, and our revenue growth was 20.3% during 2024. When you look at the sales mix, it's a little bit mixed. So for Tokmanni segment, as Mika pointed out, the consumer is still very cautious in Finland, and that results in the sort of a necessity buying being more in focus. And for us, that means mostly the grocery products. And the grocery product sales continued to increase as a percent of total sales in the Tokmanni segment, and they resulted in 49.8% in the fourth quarter. Dollarstore, the trend as such is also visible there. But for Dollarstore specifically, due to the fact that we had now more Tokmanni private labels on sale there compared to last quarter, which are more in the non-grocery side of the business, in Dollarstore, actually, the sales mix was a little bit more favorable towards the non-grocery business during the fourth quarter. So the percentage of non-grocery increased slightly to 49.3% compared to 49% a year earlier. Then when you look at the group's comparable gross profit, we had, of course, a record year in the absolute gross profit. And also the fourth quarter, we had record gross profit despite the slightly lower gross profit margins. And for Tokmanni, the gross profit margin decreased slightly to 34.6%. And as Mika pointed out, that is mainly due to the campaigning and then the mix being slightly more favorable for the grocery business, which has, on average, a lower gross margin. For Dollarstore, the margin dropped, I would say, significantly. And as Mika pointed out, there were a number of reasons, the biggest one being the 25th anniversary sales and also other sales campaigns, which Dollarstore started to do just last year. So the comparison period in 2023, the Dollarstore didn't actually have any campaigning in the fourth quarter. And also, we had slightly more turnover in the assortment during the fourth quarter, and that resulted in slightly higher write-downs in the products compared to a year ago. In terms of the whole year, of course, the comparable gross profit grew significantly. So it grew by more than EUR 100 million. And also on a full year basis, the comparable gross margin percent grew slightly to 35.6%. And that, again, was driven by Dollarstore being in the figures for the whole year this year compared to 5 months last year. When you look at our operating expenses -- so there, we started to see a good trend during the fourth quarter this year. So for basically both segments and also for the whole group, the operating expenses as a percent of revenue decreased, and that was driven partly by, of course, the sales growth, but also good control of the expenses. So the expenses were growing pretty much in line with the inflationary adjustments in the cost levels. Then when you look at our comparable EBIT, there again, we reached record levels during the fourth quarter. So our total comparable EBIT for the fourth quarter was EUR 47.5 million and the relative comparable EBIT was 9.6%. And also for the full year, we reached a number that we haven't seen since the COVID times in the group. So the total comparable EBIT was EUR 99.7 million, and the comparable EBIT margin was 6%. And again, for the full year, obviously, the comparable EBIT margin especially was impacted by the acquisition being in the books for -- or the Dollarstore acquisition being in the books for the full year. And also, what I'm really happy about is that both segments managed to increase their EBIT during the fourth quarter. So for Tokmanni, it was EUR 37 million compared to EUR 36.1 million last year. And for Dollarstore, it was EUR 11.4 million compared to EUR 10.7 million last year. Then looking at our inventory levels. So as Mika said, we had a fairly high growth of inventories during last year. And also like Mika pointed out, they were mainly due to actions we decided to take during the year. So if you remember, at the end of last year, we ran our inventories to very low levels because we wanted to have a high focus on cash flow during the 2023, which we were still sort of impacted by the challenges in the inventory management post-COVID. So we cleaned that inventory. And now this year, we turned our focus to growth again. And one of the levers of growth, obviously, is having high shelf availability and having the products in the stores at the right time. So we made decisions to increase the inventory in the stores and also ensure that all the products are at our warehouse and in the stores in due time. So normally, in the end of the year, we do not ship the spring assortment. But this year, we made a deliberate choice to do that before the end of the year, and that was mainly due to the challenges in the global logistics at the late fall last year and also the timing of the Chinese New Year, which was a little bit earlier than usually. So we basically shipped all of the spring selection out from China before the end of last year, and that obviously resulted also in the increase in the inventory at year-end. And the segment value. So Tokmanni, EUR 299 million and Dollarstore, EUR 129 million. And also, as Mika pointed out, especially for Dollarstore, the increase is also driven by the change in the business model moving from this wholesale model to direct import through Asia and through the Tokmanni Europris Shanghai joint office. Then looking at our financing. Our net debt -- total interest-bearing net debt declined last year. So at the end of the year, it was EUR 832.2 million compared to EUR 864.1 million. And also, our debt and loans from financial institutions declined compared to last year, so from EUR 299 million to EUR 271.2 million. And we also -- at the end of last year, we refinanced our loan portfolio with the banks. So we have a new EUR 325 million financing agreement with 2 1-year extension options. And then looking at our net debt to comparable EBITDA. So that number, if you remember, we have a target at the end of each year to have the net debt to EBITDA without lease liabilities at 2.25 or less. And due to the actions, we took at the end of last year, this number is now a little bit more than our target at 2.39, but it's actually only EUR 15 million of less inventory or other actions. So it's a very small miss, and we're not concerned about that. But of course, we still target to be below this number next year. And then looking at our cash flow. So our cash flow, again, is without the inventory movements, it's quite steady. But here, you can see both on the quarter level and also on a full year level, you can clearly see the impact of the levels of inventory. So end of last year, we drove our inventory, as mentioned, very low levels, and that resulted in extremely high cash flow in 2023 compared to 2022 when we were still suffering a little bit from the post-COVID inventory challenges. And now then this year, it's, I would say, very different the reasons for the high inventory. So it's really actions that we have taken rather than having order too much stuff or having a significant sales drop compared to forecast like we had post-COVID. So the inventory is well in control, and the inventory health is very good despite it being on a quite high level. And of course, that is a totally different situation than what we had 2 years ago. So all in all, our full year cash flow last year was EUR 89.1 million. And as you can see, most of that cash flow came from Q4. So Q4, we had a total cash flow of EUR 76.5 million. And with that, we look a little bit at the capital structure. So our -- or capital expenditure. So I would say that this year, we had a fairly normal capital expenditure after 2 years of quite heavy investments, both in, of course, acquisitions and then also our new logistics center in Mantsala. So our total capital expenditure was slightly less than EUR 40 million. And I would say that's a fairly normal level for us, excluding any sort of a one-off investments. So of course, as we continue to grow, we expect that to increase slightly. And then, of course, it's depending on what kind of major investments we do, whether those have an impact. But 2024 CapEx is, I would say, mostly sort of -- I wouldn't call it only maintenance, but maintenance and normal development expenditure. So with that, I invite Mika back to talk about our outlook and dividend.

Thank you very much, Tapio. Please don't go too far because we'll start talking about the -- we'll start answering the questions later on. But a couple of words about the outlook and dividend. In '25, Tokmanni expects the revenue to be in the range of EUR 1.72 million to EUR 1.82 million (sic) [ EUR 1.72 billion to EUR 1.82 billion ] and comparable EBIT, we expect to be in the range of EUR 100 million to EUR 130 million. And also, about the dividend of last year, Tokmanni Group's Board of Directors proposes to the Annual General Meeting to pay a maximum dividend of EUR 0.68 per share in 2 installments. That's it. And some of you might remember that Tokmanni strategy period is ending this year. We are having the strategy period from 2021 to 2025. So let's quickly check how the figures from the strategy period looks like. With revenue, we have been quite successful. The original target that we set was EUR 1.5 billion. And of course, due to the Dollarstore acquisition, we were able to reach that and exceed that as well and of course, lift the target as well. So this, of course, looks very good. On the EBIT side, the original target for 2025 EBIT level was EUR 150 million. And most probably, we won't be reaching the EUR 150 million target for the strategy period. I have to say that, well, the situation in the beginning of 2021 was completely different compared with today with inflation, with the war. And that time, it was also like pandemic. I'd say that especially for Tokmanni segment, only from the real estate costs, they increased during the inflation, I would say, more than EUR 25 million per year. So it's been quite difficult in that sense to reach the profitability. But anyway, of course, as said, we most probably won't reach the EUR 150 million level, but we will be working extremely hard to get as close as possible with that target. And yes, a couple of words about the license agreement with SPAR. The main target with the SPAR collaboration is to increase the competitiveness of Tokmanni in Finland. I just spoke about the inflation. During the inflation after the Ukraine war broke up, the nonfood sales that's been clearly lower, the groceries sales has been increasing and the importance of groceries has been getting stronger in -- for Tokmanni in Finland. And that's why we want to improve the competitiveness for the groceries business. And of course, if you -- yes, the non-groceries, it's been extremely volatile. Tokmanni, for example, in Finland, we've been very successful, actually very strong with, for example, with winter products. And as most of you know that we haven't really had a decent winter this time. So obviously, the focus is even stronger on the groceries. And of course, the cooperation with other SPAR retailers are bringing some very good things for Tokmanni. First of all, it's -- well, it's all about the products, the SPAR products. The joint buying with other SPAR retailers is extremely important. And I'd say that we are able to bring into all Tokmanni stores the first SPAR products, I'd say, latest in May, but hopefully already in the end of April. And that's, of course, a very, very, very big thing for us. It's a little bit like a slow start because the products, they don't have like Finnish and Swedish product descriptions in the packaging, but we're working on it. And then, of course, the first SPAR branded fresh food department will be opening in summer -- the coming summer. And then, of course, all the 20 fresh food stores that Tokmanni has will be also like converted to SPAR food departments. And already at the moment, we have new store locations and stand-alone SPAR stores on the planning table. So we'll see. Luckily enough, we've had extremely positive feedback from our customers regarding the SPAR cooperation. And of course, we're so very convinced that the SPAR cooperation will also bring synergies in -- especially in procurement and other functions as well. Yes, here are the product ranges for SPAR International own brand. They're growing strong, and that's why we're also interested. The fighting brand is #1 by SPAR. Then, of course, the best value private label is SPAR products, then the special products are called SPAR Natural, and then there is the Taste The World/Premium product range. And we will be probably introducing products from all these categories in Finland in the coming years. But as I said, we will start slowly due to the packaging issues, but I'm sure that already by the end of this year, we'll have some interesting results out of this. So that's it. And then it's time for questions. And as mentioned, please join the Teams link under the stream and then we can start answering the questions. And if I see correct, it's Miika, Miika Ihamaki first on the line.

Let's see, we have some technical difficulties here. Bear with us.

Okay. Miika, we'll take you a little bit later if you're not there right now. But we can continue with the next one. So the next one is Arttu Heikura from Inderes. Arttu, go ahead please.

Maybe a question relating to your guidance. So could you describe the assumptions behind your guidance? And what should happen in order to your result to fall at the lower part of the guidance?

Yes. This is, of course, a difficult question. Last year, 2024 was full of surprises in several areas. One of them, as I mentioned, was the additional more than EUR 7 million freight costs, but also like the whole geopolitical situation is affecting, in weird ways, the business at the moment. And of course, it's difficult to know like, okay, well, let's say, that, for example, we were expecting the customer -- the consumer confidence and also the buying behavior or the buying power to improve during 2024, but it didn't happen. And of course, the same expectations we have now, especially in Finland, but definitely in Sweden. But nowadays, you cannot be so sure about it, even though all the expectations are pretty good. So we're being quite careful with that part due to many issues. Tapio, would you like to add something, please?

Yes. I mean, as Mika said, we live pretty uncertain times at the moment. So hence, the fairly wide guidance. And as you know, a large majority of our result is coming from the second half. So it's really critical for us what the second half will look like. And of course, for the high end, then we expect the sort of confidence to improve and the consumers to spend a bit more, especially on the sort of a non-grocery business. If things continue in the current setup where we have much uncertainty and the consumer confidence is still very low in Finland and Sweden has been improving somewhat, but even in Sweden, and it's still on quite low levels historically. So if things don't improve or worse go even lower in the sort of spending behavior, then of course, we will end up in the sort of lower end of the range. So -- and hopefully, we can, of course, then specify the guidance after the summer, maybe during the Q2 earnings announcement when we know a little bit more what the world looks like. But right now, it's very difficult to say what the world looks like even 3 months down the line, much less 8, 9 months.

Yes. And if I can add on that. There's always like surprises like, yes, okay, we kind of -- we were able to expect, for example, strikes come in February. But of course, they all have effect. So there are like things which are -- we cannot do anything ourselves with that. So that's why being a little bit careful with the guidance. Hopefully, this was a good enough answer for you, Arttu.

Yes, yes, yes, it made sense. But I was asking this because the guidance seems to me a bit of cautious. So I'm thinking about if new Dollarstore stores, which are this year coming quite heavily and thinking about the SPAR expansion. So could this also affect to your margin kind of diluting way?

No, this is something that we're not really like expecting. With SPAR, actually, we are -- the purpose is to get lower purchasing prices with the SPAR products compared with our current assortment. So it's not like a lower margin issue with the SPAR products. And obviously, in 2025, we're not able to really -- or we won't be like launch SPAR fresh food stores like big time. It will be like we're planning for 2 to 3 stores this year. So that doesn't have an effect and neither will the new Dollarstore openings. They're not affecting -- they're not...

Dilutively. No, it's business as usual. I mean Dollarstore is opening many stores per year. That's what they do. And especially the SPAR, the potential dilution will come only after several years when we have if the grocery part of the business then continues to grow. When we have multiple SPAR stores, then it might affect slightly dilutively because obviously, the grocery business has a lower margin. But for the first couple of years, we're mainly focused on converting the existing Tokmanni fresh food stores into SPAR. So that should, like Mika said, actually be helpful to our margins because we expect to get lower input prices.

Okay. Yes. And then about the private labels, which decreased in share despite the Dollarstore had a first full scale month with -- I mean Tokmanni's private labels. So could you elaborate why the share of private labels decreased?

Do you want to take that or should I?

You can start. I'll add on that.

Yes, I mean, there's of course, some natural fluctuation there. So I mean, some percent points, it's natural fluctuation and obviously, also the sales mix. So some of the product groups in the non-grocery are very heavily private label driven while then some groups in the grocery business there's more branded goods and less private label. So as the grocery business grows, especially on the Tokmanni segment, then you can expect the share of private label sales also to decline slightly.

All right. Then about Dollarstores and the increased freight costs. So you said that Dollarstore wasn't able to offset the impact of increased freight costs this quarter. So is Dollarstore now ready to adjust the prices or increase the prices going forward?

Like Mika said -- yes, so like Mika said, the current Dollarstore business model is that most of the stuff that they themselves import, the prices are labeled at the manufacturing plant. And then from manufacturing plant to when the product is sold, it typically can take easily 6 to 9 months from Asia. So in that time, you can't adjust. But of course, the new products that are being manufactured today, there, we, of course, set the price based on today's conditions. So there is some natural fluctuation if the Swedish krone, for example, appreciates as it's been doing now, then that will -- obviously, all other things being constant will help the pricing.

But without the currency changes, you mean that -- you meant that -- or do you mean that the prices are matched to increased freight cost levels in 6 to 10 months, so there wouldn't be a positive impact in that.

Yes, it's on average -- exactly. So basically, on average, of course, when you purchase the product, and you decide the price that you base your -- you have a set of assumptions there. And then if things change, like the freight cost increased significantly, then the products that have been priced and the tags are there, you cannot change. But like Tokmanni doesn't do that except for some clothing items.

Exactly. And...

So we can adjust the price much later in the process.

Yes. And of course, it will be like in future, more like a joint buying with joint private labels with no price tags on. So obviously, it will help us a little bit with that part, also to take into consideration if there are like new costs coming in, for example, freight.

Okay. So my conclusion from that is that in H1, there wouldn't be a major increase in your gross profit or gross margin level in Dollarstore. Am I correct?

From the freight costs and the pricing?

Yes. Yes. Yes.

No, I don't see any additional costs from that part, no.

Hopefully not. Yes. We are right now concluding a new freight agreement that will be hopefully in effect from Q2. So we are trying to negotiate very heavily so that we wouldn't get these negative surprises.

All right. Then the next one comes from Maria Wikstrom.

Yes. This is Maria from SEB. I had a few questions. First, I wanted a little bit touch about how the year has started, given there is 2 months done already for '25 that is there any changes in the consumer behavior if you compare the trends now that what was reported for Q4?

Well, no major trends or no major changes in trends. Obviously, now there has been like an agreement with salary increases. First of all, it's -- from our perspective, it's fantastic that the unions have been able to make an agreement on the salary increases because always like strikes. Even though we were able to keep most of our stores open, it effects on customers. Customers kind of feel that, okay, it's no need -- no use to start going to the stores because all the media is saying that the stores are closed, even though we're keeping them open. So this kind of -- the effect that comes from the striking is always very, very negative. And luckily enough, now the situation actually looks much better when there are the agreements. Another thing regarding that -- so yes, we do expect also the buying power to improve -- to clearly improve, of course, the salary increases, for example, in trade. They will start from the 1st of May and things like this. So they -- we expect them to have like a positive effect. But of course, I have to be very honest with that. The 1 week was really difficult when it was the strikes and of course, it affects the sales.

Then I had a follow-up question. I mean given I think we talked a lot about the impact on gross margins on campaigning during the Q4 and given that you ended the year with, I mean, what looks to me a quite high inventory level. Has there been unusual campaigning now in the first quarter?

I wouldn't say unusual. I think we obviously have clearance sales always after Christmas that go into January. So it's not unusual as such, I would say. I think for Dollarstore, it was maybe, I think they are being more aggressive in their inventory management now than maybe in the past. They have been slow to renew their offering in the past. So now we are working with them to have a fresher selection overall so that they clear out the old inventory more aggressively. So I think for Dollarstore, that is -- might have a slightly negative impact on Q1 compared to a year ago. But then on the other hand, we hope that, that also is visible in the customer visits and higher sales.

And then my final question, I think you announced today that you have a new incentive program extending to 2027. And their part of the compensation was based on Tokmanni performance compared to a certain defined peer group. And I would be interested to hear that, I mean, what is your definition of the peer group.

Well, we don't disclose that, but I would say it's stock-listed companies, there's about a dozen stock-listed companies that are mostly discount retail from Europe and a few outside Europe.

Yes, but mostly from the Nordics actually and -- but also some European retailers.

And do you look top line or the margin performance?

No, we -- that's actually that we look at the total shareholder return for the peer group. So that's -- there's 3 components. So the component with the peer group, it's the total shareholder return, meaning the change in share price plus paid dividends during that 3-year period.

Perfect. I don't have further questions.

Thank you, Maria. Then the next one is Joonas Häyhä.

Yes. Maybe a short follow-up on the strikes. Could you give any quantification on the strike impact from this 1-week strike in Finland?

No. Well, we're not going to the...

Exact figures, but you could say 1 week was quite negatively impacted for the stores. And of course, we had also a few days of strike in our logistics centers. So that always causes a little bit of hassle with the deliveries and so on. But...

Even though we were able to -- with office personnel, we were able to work in both in the warehouses and the stores. So we were able to keep most of the stores open. But unfortunately, it was the mindset for our customers that the stores are closed due to the strikes. And that's why there was like, from my perspective, a dramatic drop with the customer visits.

Okay. That's clear. Then maybe a question related to the guidance. I'll come back to this, the freight cost. You said that these were up EUR 7 million in '24. So how much of -- I think you have some kind of assumption of what this will be for this year. So how much of this have been baked into your guidance?

Well, we expect several million lower cost this year with if we had the same amount of containers. Of course, if the container number changes, that affects it, but with a similar cost level. It's going to be several million lower, not the EUR 7 million, but maybe somewhere between around half of that maybe.

In the end of last year, for example, there was like surcharges because of lack of containers and lack of vessel space. I think that nowadays, especially this year will be much easier when it comes to the containers and vessel space. So there is like a lot more availability. So no, we don't expect any surcharges from here. And hopefully, we can also skip, as soon as possible, the additional costs going around Africa, which is still happening. But we expect that the vessels will start going through the Suez Canal, hopefully, as soon as possible.

Okay. Then maybe a question on higher price point products in Dollarstore. How these have been taken from customer point of view? It's not long history, but how the sales of this has started?

Very positive. Very positive. First of all, I probably told a couple of times before that I had a little bit doubts myself, like, for example, how Kotikulta, private label of Tokmanni will perform in Sweden, and it looks very good. At least, the slight surprise for me is that the Finnish brands, private labels. Of course, Finnish brands like Fiskars and Iittala are very, very, very well performing in Sweden, but also, we've been positively surprised how well the Finnish Tokmanni private labels are performing in Dollarstore. Obviously, there is like a transfer period. There is still like the old stock with the old private labels or like -- they are like unbranded products or something like this, and then we're changing it with Tokmanni private labels, but that's happening all the time. And luckily enough, they are also performing well, the Finnish private labels in Sweden and in Denmark.

And also, I mean, think about the like very expensive products, so the spring will be very interesting because now we are bringing the sort of garden offering. So we'll have like garden furniture and barbecue grills for the first time in Dollarstore. So it will be very exciting to see how they sell.

Yes.

Okay. And lastly, maybe to Tapio about the inventories and the working capital level. You are now still increasing the direct imports in Dollarstore. What is the reasonable working capital level when you are complete with this shift? And when should we expect these levels to be completed?

Obviously, it -- yes. So in a normal -- of course, it fluctuates over the year quite a lot. So I would say that this year, we had a little bit higher inventory than normal. I would say maybe EUR 30 million, EUR 40 million, we could have taken out quite easily if we wanted to. But as I said, we had business reasons to do the way -- do it the way we did it, and that varies by year-end. So it's market-driven in a way, especially the freight situation that some years, we might have to take things a little bit earlier. And if things are more stable, then we can time it better so that we have less free or less free time so that this just in time, inventory management is more effective in a sort of a calm market situation. Then when there is a lot of uncertainty and volatility, then you want to play it a bit more safe so that you don't miss the selling season or even part of it. So it's hard to say what is normal. But I would say this year, everything being calm, we probably would have had EUR 30 million to EUR 40 million less inventory at the end of the year. But of course, as we grow, also the inventory grows, hopefully, less than the sales growth, of course, but still grows as we add more stores. So every store needs its inventory, of course.

Thank you, Joonas. And the next one is Calle Loikkanen.

Yes. This is Calle from Danske Bank. Just a couple of questions left for me. First of all, the synergies from the acquisition of Dollarstore, I think it was now at EUR 13.3 million at the end of the year. And originally, I guess, you targeted some EUR 15 million. So I was just wondering that have you along the way found any additional savings that has come kind of as a surprise. So could we see that EUR 15 million actually be a bit higher in 1 or 2 years?

Well, of course, we continue to hunt for the combined savings. So of course, we won't stop at EUR 15 million once we reach those. So definitely, we will continue to look for them over the years. Then it's a question of when do you sort of stop saying that they are synergies of the acquisition and when does it become business as usual synergies. So is that 2 or 3 years down the line? That's a very good question. I would say once our sort of organization is, in a way, fully complete and all the processes are working, then I would say the integration is in a way complete and then you can sort of -- you move to business as usual in that sense. But the synergies, I mean, you always look for synergies. More volume means cheaper average price.

Exactly. Basically, the biggest potential is with, of course, with joint buying. And we've started with very, very obvious products like joint private labels. And of course, we go further all the time. Actually, next week, we're spending a couple of days in Sweden, the buying departments going through the plan for even making the joint private label setup even wider. So it's also a little bit like learning. I think that from the Dollarstore perspective, they are -- of course, they are trying with these more valuable products. As Tapio mentioned, it's extremely interesting to see how the BBQ King, which is the barbecue private label for Tokmanni, now it's going to be launched in Sweden in Dollarstores, and it's clearly more valuable products, better quality products. So it's -- of course, it's a learning curve as like -- to see like how the Dollarstore customers are taking these new products and how they're like -- how successful they are. The more we learn about the customers' behavior in Sweden and how we can draw new customers to Dollarstores, then, of course, that's -- that brings the potential for joint buying as well.

Okay. That makes a lot of sense. And then lastly, regarding the SPAR cooperation, I was wondering that -- are you mainly looking to add growth or to add profitability from this cooperation? Kind of which one is it or probably it's both, but which is the #1 here?

Yes, I'd say that in the beginning, personally, I was thinking about maybe the profitability part and the -- to make Tokmanni -- to be able to make Tokmanni more competitive with our competitors, especially in the grocery's product categories. But I have to say that based on the positive feedback that we've got from our customers, I could imagine that it will be also a matter of growth. And also when getting to know the SPAR products a little bit more, we will be launching also some new products, which are not available in Finland at the moment. So obviously, we're looking for growth as well. When we -- and that's the product part. When we move towards the food departments, even the current food departments, the 20 stores that we had -- that we have at the moment and converting them to -- under SPAR brand, there, we definitely expect to get some growth as well. All right. Thank you, Calle. And then it's Joonas Häyhä still on the line. Joonas.

Yes. It's Joonas from OP. Just maybe one question left regarding the SPAR arrangement. I think you've said earlier that the financial impacts in 2025 will be limited. So I'm just looking for an update perhaps on the OpEx and CapEx impacts. Have those changed? And does the SPAR -- the start of the SPAR conversions have any kind of role in your earnings guidance perhaps due to upfront or licensing costs that are coming this year?

Yes. First of all, the license costs are, I'd say, limited.

Yes.

Limited. So we don't see there any major effects on the results. Yes, of course, with the first food departments -- and then the first action point is the SPAR products. That's, of course, not causing any additional costs in that sense. Then when it comes to converting the current stores, as I said, we're only talking about 2 to 3 stores this year. They are existing food stores. So we don't need to like add new -- or let's say, the equipment that we will add over there is still limited. So we don't see that many new costs at least for this year. Of course, the planning and the working will be over there, but with the whole scale, I would say, that the effect will be very limited. But Tapio will, of course, direct me if I'm...

No, it's -- Mika is absolutely right. It's mainly work that we do in the planning phases and those teams, then they are doing less something else. So of course, it's a cost in a way that they would be doing maybe converting existing Tokmanni stores or doing something else, but it's -- in terms of extra cost, it's, in a way, just diverting your existing cost base into something new a little bit. And the CapEx investments into equipment are, I would say, very moderate this year. So we haven't decided finally exactly what we will renew. But even if we would renew every single machine there, it would be still for 2 to 3 stores this year. We're talking a few hundred thousands of CapEx, not millions.

Yes. Okay. And if we think about the longer-term picture regarding the SPAR arrangement, are you planning to communicate any targets for that during the fiscal year 2025?

No, no. I think we will give more guidance on that in our new strategy launch then at the end of the year.

Yes, at the end of this year. Thank you, Joonas. And then I guess we have an additional question, and please, Maarit.

Yes, we have a couple of additional questions. And the first one goes, I think for Tapio. With aspects to the recent weakening of the U.S. dollar to euro and even more to SEK, how exposed are you to the U.S. dollar in your purchases?

Of course, we purchased a large number that we purchased from Asia in U.S. dollars. So we are exposed. Then of course, we hedge that. We have a hedging strategy that we hedge some part of that. We have, of course, some flexibility, but we try to limit the exposure to some extent. And of course, a weaker U.S. dollar is in a way good for us because we purchased it, then the goods cheaper in euro terms or SEK terms.

And then the second question related to Tokmanni and Dollarstore synergies. How confident we are that we achieve the EUR 15 million synergies, especially now the pace of realized synergies slowed down meaningfully in the last quarter? And what are the areas you will think to harvest more synergies?

We are very confident that we will achieve the EUR 15 million target and exceed that as well. And as already mentioned with the earlier questions that we see that there are potential with joint buying, but we just need to learn a little bit more about the Dollarstore customer behavior, how well do they accept the Finnish private labels and so on. But definitely, we are very confident that we'll exceed the run rate target, and then, of course, we also see the potential with joint buying.

Thank you. That was all from our side.

All right. Thank you very much.

Thank you.

Well, the springtime has started in the Nordics. So it's time to start doing some barbecues outside and the most perfect and best priced products you will obviously find in Tokmanni and Dollarstores. Thank you very much.