Europris ASA
OSE:EPR
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Europris ASA
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Good morning, everyone, and welcome to Europris' third quarter results presentation. I have to admit it's a pleasure to finally see some people in the room again. But obviously, COVID pandemic has changed us. It's not fully crowded here. And for those of you who still prefer to work from home or sitting in your office, grab a coffee and enjoy today's presentation.I'm CFO -- CEO, Espen Eldal. I knew that would come some time. And joining me today is CFO, Stina Byre, who will give you the financial details and IR Officer, Trine Englokken, who will manage the Q&A session at the end of the presentation.This week, Europris started officially the Christmas season in our stores. We are well prepared, fully stocked, and we are really looking forward to the peak season of the year. And we are starting this peak season on the back of another record quarter.In the third quarter, we increased revenues. We grew the gross margin, and we delivered a record high EBITDA for the quarter. Our financial position is solid. And we have completed the Lekekassen transaction. Our customer club, Mer, is approaching 1 million members. And as I said, we are ready for Christmas.During this quarter, we have seen solid campaign and seasonal execution. Europris is the seasonal store in Norway, during this summer season, we are on top of mind of the consumers. We performed well, had good inventories and managed to drive sales throughout the summer season. But what makes me really proud about this quarter is how we manage to shift from the peak season where we are really relevant to the consumers to the low season.Historically, August and September, that is tough months for retailers, and you really have to fight for the customers. And especially this year, when we see that the border is open again, it gets more competition. And the way that we managed to shift the focus gradually scaling the summer season down and then building the focus on consumables at low prices to drive traffic was really impressive. And we are actually handling this low season as a season to really utilize the sales space and make it efficient in the stores. And it might sound very easy, but you need a good plan and you need good employees that execute on that plan. It really makes me proud the way we did that during this season.And in the quarter, we've also seen strong growth in the categories that we have upgraded lately. The kitchen category was upgraded last year, continued to show very strong figures and contributing to the growth we had in the third quarter, and we see the same for the home and interior category that we upgraded earlier this year. And I will come back to more category upgrades because we are continuing to focus on this.I think when you look at the pandemic, the Norwegian retail market has performed very strong. And you have to look back to 2019. So looking at these numbers, a stacked 2 years growth makes sense. And the overall retail market has grown by 14.7%. So it's an extremely strong market, of course, driven by the closure of borders, people stay more at home, not traveling, so you have increased the consumption in private households. And in this market, there are many market winners. The groceries has done well, of course, do it yourself. And of course, the state monopoly has done great sales figures, but discount variety retailer has also thrived in this market, growing by 17.4%. And in this sweet spot of the market, Europris has had a growth of 30.2%. So we are outperforming the market and taking market shares.One-stop shopping has, of course, been favored in such a market, make it easier for the consumers and reducing social distancing. So it's been a very good period, not only for Europris but also for the whole retail sector in Norway.In the quarter, we have made a change to the management team, and we have actually sharpened the focus on strategy and sustainability. Renate Brattested Spernes has been appointed Vice President for Strategy and Sustainability. Renate comes from [ other class ]. She's been with Europris for a couple of years, so internally recruited and following Kristine Frøberg who has left for another Vice President within HR in another company. And this HR responsibility in Europris has been placed under CFO Stina Byre. All these changes effectively from 1st of October.We have also completed the share program for our employees, and we are really happy to see that many employees are now shareholders of Europris. And I hope certainly that this will be a tradition that every year we'll offer shares to the employees going forward because having your employees also as shareholders, I think, is a big value and asset for the company.With that, I leave the word to Stina to give you the financial details.
Thank you, Espen. We're very pleased with the sales development in the third quarter, and the chain had sales growth of 1.5% and this is on top of the growth of 26.5% we had last year. As Espen said, seasonal items and upgraded categories has performed well. The sales growth was driven by both -- by the basket and both from a higher number of articles in the basket and also from high-value seasonal items.It has been a fantastic journey for our Mer customer club. And we're very proud of the job that our store employees has done when it comes to recruiting. The club was founded in 2019. And over the course of just a couple of years, we're now approaching 1 million members. And more and more people are therefore experiencing the benefits of being a member of our customer club, where they get access to exclusive campaign offers and also fixed multi-buy offers.Total e-commerce sales for the group was NOK 91 million in the third quarter, which NOK 30 million was from Europris.no, and this represents a growth of 77%. Customers mainly bought higher-value seasonal items and prefer to buy them as click-and-collect.Lekekassen was consolidated as of August. And year-to-date, we've had growth in both sales and profit. Their main quarter is the fourth quarter where they have around 60% of annual sales. And they are now fully stocked and ready for the important season ahead. Lekekassen also launched in Denmark in the middle of September, and the start has been promising.The gross margin was 45.7% in the third quarter, and this is an increase of 1.8 percentage points. We benefited from a fixed agreement for inbound freight, and we also had positive effects from the product mix, with a higher share of seasonal items this year compared to more groceries last year. It has been a delay in stocktaking, and we only counted 18% of the stores this year compared to 55% of the stores last year. We had positive effects from the stocktaking of NOK 4 million this quarter compared to NOK 22 million last year.The operating expenses increased by 13.1%, and part of this was due to the consolidation of partly owned subsidiaries. We also had higher distribution costs from the product mix with larger and more costly products to handle and distribute. We're very happy to have delivered yet another quarter with growth in EBITDA. And year-to-date, the growth has been 17.9%, and this is on top of strong results last year. And we also had up to 93 of our stores closed during the first half this year, and we have had 2 fewer sales days this year.The change in net working capital was negative with NOK 339 million, and this was from timing of accounts payables and also from higher inventory, where we also then have consolidated Lekekassen that affect the numbers.Cash from investing activities was affected by the closing of the Lekekassen acquisition. Net debt was NOK 3.1 billion. And excluding lease liabilities, it was NOK 1.2 billion, and we exit the quarter with a solid cash and liquidity position of more than NOK 1.2 billion.Then I hand it back to you.
Thank you, Stina. The strategy of Europris remains the same. Over the past years, we have focused on 3 items. It's to strengthen the price and cost position, improve the customer experience and to drive customer growth. Of course, as a retailer, my important -- most important job is to secure traffic to the physical stores, but all these areas are important. And when you look at strengthening price and cost position, we exist due to low prices. So we have to focus on the value chain. We have to focus on the purchase price we have. In order to have the lowest prices, you must have the lowest costs.We worked with the new warehouse, which is progressing and coming to an end when it comes to the construction. And we have experienced very high growth lately. And we see that we need more capacity in order to handle the future selling seasons. As we reported last quarter, we would investigate where we should and how we should handle that for the coming seasons, and we have decided to expand the facilities in Moss. That will take some time. And in order to secure the capacity that we need for the coming summer seasons, we have prolonged the rent at the old central warehouse in Fredrikstad but at a lower price for the coming seasons. We will come back with more details on both the CapEx and the operating expenses with this project at a later stage.On the shuttle system, we see a slower ramp-up of the system. We were planning to do parts of the Christmas seasons in the system, but we had some software issues, which has delayed the ramp up. As we speak, we get some positive news on this issue. But as Christmas is extremely important for Europris, we have decided to postpone the ramp-up and restart it after Christmas. The cost savings will be from the efficiency. Gains will be delayed due to this, but the overall savings, they remain intact.On ÖoB, we have not been able to reach an agreement on the 2019 EBITDA and an arbitration process has been initiated by Europris. We also have an arbitration process on a disagreement on the 2020 numbers and how Europris are allowed to challenge those numbers. And that arbitration is scheduled for the first quarter of next year.When it comes to the financial performance, ÖoB had a decline in sales and also a decline in EBITDA in the quarter and for the first 9 months this year. They have an improvement in gross margin. But despite that, we see that overall financial performance is still soft.Improving customer experience that is extremely important and category upgrades is a central part of this, and this is what we do to drive the like-for-like growth in the stores. And as I said, we have done some successful projects when it comes to home and interior, the kitchen upgrade. And this quarter, we launched an upgrade in the chocolate and snack category. We are adding more color, more fun, making this shop-in-shop more attractive, being a little bit more playful and introducing also some new brands. I think this is well fit with the reopening of the borders because this category is, of course, subject to cross-border competition and trade. So the timing is good, and we are really looking forward to welcome you all to a really nice and fresh chocolate and snack category in the coming years.We have also started 2 other projects, which might seem very small, but it's -- in retail, it's everything, it's the small things you do. And project one is to improve the store readiness ahead of campaigns. And we have been doing these campaigns for more than 30 years -- or close to 30 years, we are -- this is what we do as a retail, we are campaign-driven low price. And I think this is the essence of Europris. Even though we have been doing this for 30 years, we still think we can do it better. And we are really trying to do it better.So what we are working on is to how we display the goods, all the merchandising, the volumes we do. And you might see some retailers giving out leaflets, promoting offers. They are hard to find in the stores. But when you come to Europris, I want this -- the best offers we have on this front page. This is what you should meet when you come to the stores. And it should be plenty full of stock. And we get really upset if we're sold out. Even if you come late in the campaign period, you should find your goods. But then you need good routines to make sure that you do the sourcing right, that you do the handling and the store right. And that will make the whole process also more efficient because we end one campaign with goods still on stock on Saturday and then Monday morning, it's a new campaign, and you should be ready. So making these processes more efficient will help also the -- not only drive sales but also make it easier for the store staff to handle the campaigns and doing all this work.And Project 2 is about improving the process of restocking stores. A majority of the time in the stores by the employees are spent on handling goods. And if we can make this more efficient, we can save a lot of time that we can reinvest into more customer service and more sales for the staff. And we have done a lot of studies now. And the first results are very positive. We see that we can free up time and make it more efficient to work with handling of goods in the stores.It's been tested in several stores, and we started a slow rollout, and we continue to roll out to all the stores over the next 6 to 9 months. So I'm really -- this is a detailed project, but I'm sure that it will also drive sales but also make it more efficient for the store staff to work.On driving customer growth, of course, Stina talked about the customer club Mer, which is, of course, a very important tool to drive customer traffic using the online tools we have. But still, the physical stores is very important. We opened 1 new store in the quarter that was at Jåttå in Rogaland and we relocated 1 store that was at Kilen in Tønsberg, both very successful. We have 10 stores in the pipeline for 2021 and beyond, of which 4 are subject to planning permissions.I think I talked about before that when we open stores, we prefer to locate next to a grocery store or other retailers. I think having some competition nearby is positive because it will help both concepts to drive traffic. And a recent study by Norges Handelshøyskole actually show that the grocery stores also benefit when Europris stores open next by. When Europris opens a new store or relocate to be neighbor with the grocery store, the grocery stores actually see a 10% uplift in sales on average. So these stores, even if we compete on some of the products, we are making each other stronger. And that confirms what we have seen for many years, and we have now close to 100 stores located next to grocery stores.To summarize and look at the outlook. I also start with that. We are fully stocked and prepared for the Christmas season. I think we have not been affected by the global distribution challenges that has been seen in the market, but of course, to secure flow of goods, we will ship some goods earlier that will also drive inventory in the periods to come.We have benefited from the favorable freight agreement we have during this year, and a large part of the improvement we have seen in the gross margin this year is due to this. And the current freight agreement expires at the end of the year, and we will negotiate a new agreement for next year, and that is still pending.I think Europris is well positioned to exploit the market opportunities. We have been through the pandemic, but I think we are coming out as a stronger company. We have used and spent the time very well. We have positioned ourselves better in e-commerce with the Lekekassen acquisition. We have upgraded important categories, and we have also built on the momentum and expanded our customer club. So I think we are well prepared, and we are ready for the Christmas season.And with that, I think we will open up for questions.
Yes, there's some questions coming in here. The first one is Ole Martin Westgaard, DNB. Actually, it's 4 questions. I take one at a time. How has the trading been in October relative to last year? And what is your expectations with regards to a normalization of the sales trend? Do you expect this to play out in Q4?
We will not comment on the sales in the fourth quarter. We will report that later, but we are well prepared for the Christmas season. We are fully stocked. And I think normalization, it's far too early to say. The Norwegian government lifted the COVID restrictions at very late in September. The borders to Sweden was opened fully in the start of October. And of course, there will be some kind of normalization. But looking at the daily infections reports we get when it will be normal? I'm not sure. It will be slower than we expect, I think.
How do you see a competitive environment? Are your inventory position an advantage relative to competition?
I think it is. Having good strong stock at this time, that is an asset.
What can you tell us about the new members in the customer club, how do they compare to the members pre-pandemic?
We have not done any big analysis on that.
And how should we think about the renegotiation of the freight agreement? How much margin drag will this be on current rates for 2022?
It's hard to give an exact number on that. But as we have said, a large part of the improvement this year is from this agreement. We also have some other positive effects, but a large part of the improvement is from that.
And the next question is from Petter Nyström, ABG. I did not catch what you said on ÖoB. Why are you not able to conclude on this matter?
We have not agreed. An external accountant made -- tried to settle on the numbers, but we are not in agreement and Europris has initiated an arbitration because we think still that the conclusion is not correct.
And regarding the gross margin in 2022, should we expect the gross margin more in line with the historical average, around 43%? Or do you expect freight raw material costs to have a more negative effect?
No, I think you should look more to the historic numbers.
That's all from the questions side, no one in the here in physical, that want to -- No. Then I think it's...
Thank you.