Europris ASA
OSE:EPR
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Europris ASA
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Good morning, everyone. A special welcome to the audience here in the room and especially thank you for Pareto for hosting today's event, which is the presentation of the fourth quarter and full year results of Europris. Joining me on stage today, I will have CFO, Stina Byre, who will give you the financial details. And at the end of the presentation, there will be a Q&A, which will be managed by our IR Officer, Trine Englokken.
Okay. Let's start with the highlights. Europris is very satisfied with the development in the fourth quarter, where we see strong sales development in a tougher retail environment. We had strong comparable figures from last year, which was positively affected by COVID restrictions. Well, this year was impacted more by a cautious consumer environment due to in the high inflation we have seen recently.
Total sales increased by 6.8% and adjusted for acquisitions, the growth was 4.8%. Like-for-like sales for the Europris chain was 3.3%. As expected, the gross margin declined from last year's record high 50%, mainly due to less positive effects from the freight agreement and unrealized loss on currency hedging contracts. We had good cost control with OpEx-to-sales ratio of 20.4% and EBITDA was NOK 760 million and net profit was NOK 422 million. Stina will give you more details on the financials in just a few minutes.
With strong sales in the fourth quarter, 2022 ended up as another solid year for Europris. We increased sales on top of the record high sales in 2021, dominated by COVID restrictions, which was positive for the sales development of Europris. The gross margin remained strong, even though that the tailwind we had from the freight agreement eased out throughout the year. EBITDA for the year was NOK 2.05 billion, and net profit was just about NOK 1 billion for the total year. And the reduction in net profit was 5.5% from the record year 2021.
We maintain our strong financial position, and cash and liquidity reserve was NOK 1.9 billion at the year-end. All in all, we are very satisfied with the development in 2022. And the strong performance was also reflected in the dividend and the Board of Directors proposed a total dividend of NOK 3.75 per share. The ordinary dividend has increased by 10% to NOK 2.75 per share and due to the extraordinary good results in another year positively impacted by COVID, the Board proposes an additional dividend of NOK 1 per share.
I think over the past 3 years, we've seen a very solid development within Norwegian retail, but the effect has been very mixed among the different sectors. And the impacts of the different years has also been different for the various sectors in the market. So I'm sure that you're tired to see me talking about this 3-year spec numbers looking back to 2019. And I think I can promise that today will be the last time I show a 3-year slide looking back to 2019. But in order to evaluate the performance we've had over the past years, it is important to look at the longer perspective.
And the structural year sales development shows that the total market has increased by 17.2% over the 3-year period. And historically, that is actually a quite strong performance of the market. The shopping centers has a growth of 12%, groceries by 12.7%. Variety retail, which is the winning sector in retail, has grown by 19.7%. And Europris has a growth of 30.2%. And the COVID effects are beginning to wane. And within the fourth quarter, the figures are more comparable, even though we saw positive COVID effects in December 2021.
In the fourth quarter, Europris chain had a growth of 5.1%, and that compares to 0.1% growth for the shopping centers. And the stores in the shopping centers, they had a decline in sales of 1.3%. So overall, I think that coming out of the pandemic, washing out the COVID effects, the performance of Europris actually remains very strong in the current markets. The consumers have lifted their focus on low price, and that is, of course, beneficial for a low-price retailer like Europris.
If you thought that the 3 per year perspective was long, I will actually take you through an even longer perspective and looking even 30 years back. And Europris celebrated 30 years -- in last year. And since we opened the first store in 1992, we have had sales growth every year. And 2022 was not an exception. It was not the year with sales growth. And it's -- looking at the past few years, it's obvious that Europris has benefited from the sales boost throughout COVID pandemic. And even though it was hard to handle that high growth in such a short period, the growth itself actually came quite easy. We didn't have to work that hard for it.
And in 2021 and the beginning of '22, you've heard me talking about what we have done during the pandemic in order to maintain these high sales levels as we come out of the pandemic. And I truly believe that Europris has come out of the pandemic as a stronger company. We've spent the time wisely during the pandemic. We have worked extremely hard and dedicated on maintaining the good position we have taken in the market.
Since 2019, we have added more than 1 million members to our customer club, and we use the data we get to drive traffic and increase shopping frequency. We have upgraded several important product categories in order to improve the customer experience and also to drive growth. We've strengthened our online presence by acquisitions of market-leading online retailers in selected categories. And we have prepared a new strategy plan, which we presented to the market on the capital markets update in December. All these actions have contributed that we have now -- we are prepared for continued success, and we have actually established on a much higher level on sales wise than where we were before the pandemic.
And with that, I will leave the floor to Stina for more of the financial details.
Thank you, Espen. I'll then take you through the financial performance in the fourth quarter. We are very pleased with the sales development. Group sales were north of NOK 3 billion, an increase of 6.8%. If we exclude the structural growth from the acquisition of Strikkemekka, the growth was 4.8%. And for the Europris chain, the like-for-like growth was 3.3%.
Many companies started hard Christmas discounting as early as in the beginning of October. And many customers front-loaded their purchases, and this affected the sales development of October and November positively. But despite of this and the fact that we were following a strong December in 2021 after COVID restrictions were again reimplemented, the chain still managed to have total sales growth also in December.
We have made a deliberate shift in our direct marketing leaflet to focus on low-priced consumables needed in everyday life. And this proved very successful, driving sales -- driving traffic to stores and affecting the sales development positively.
When it comes to higher-value seasonal items, they had a sales decline, but they only constituted a very small amount of total sales and had very limited impact on the total sales development.
E-commerce sales were NOK 425 million, constituting 14% of group sales. The fourth quarter is the main quarter for Lekekassen. They had strong growth in both Sweden and Denmark. While in Norway, sales did not reach up to the record level set in 2021. Strikkemekka is the main revenue contributor in the Strikkemekka Group, and they had sales growth for the fourth quarter.
When it comes to online sales from Europris, the fourth quarter is rather small and the development here was also affected by lower sales of higher-value seasonal items. The gross margin came in at 45.5%, a decline of 4.5 percentage points. A lower gross margin was expected, and this is mainly due to higher costs for inbound freight. Negative effect on unrealized currency hedging impacted with minus 1.3 percentage points. And higher share of campaign sales and higher share of low-priced consumables also had a slight negative impact.
OpEx was NOK 619 million, an increase of 4.1%. The main driver behind this is the structural growth and also 7 more directly operated stores. The OpEx-to-sales ratio was 20.4%, a decline of 0.5 percentage points.
For the fourth quarter, the EBITDA was NOK 760 million, a decline of 8% compared to the record level set in the fourth quarter of 2021. For the full year, EBITDA was almost on par with the record year 2021. If we exclude structural growth, it was 3% lower.
Net change in cash was negative with NOK 106 million compared to positive with NOK 30 million in 2021. The explanation behind this is mainly from higher inventory value, and this is from higher purchase prices and also from a higher volume of seasonal summer items. In addition, there was timing differences for accounts payable and other accrued expenses.
Net debt was north of NOK 2.6 billion, an increase of NOK 200 million. And if we exclude lease liabilities, it was NOK 626 million, an increase of NOK 100 million. We have a solid financial position with cash and liquidity reserves of NOK 1.9 billion.
And with that, I hand it back to Espen.
Thank you, Stina. And I ended my introduction today by talking about the Capital Market updates we had back in December last year. And I think it's fair to pick up that point again. At that event, which we called from good to great, we presented our strategy plan. And given the success we've had, it will be more of the same, but it will be better. And we have also added the fourth element to our strategic initiatives.
We will continue to strengthen the price and cost position. We will continue to improve the customer experience, and we will continue to work on driving customer growth. The fourth element we have added is about acting responsibly. And the main ingredient in this strategic initiative is about taking a much more committed step towards sustainability for Europris, and it's also about how Europris can work together with the local communities around our stores, becoming the local hero in the retail sector.
On the following slides, I will give a little bit update on what we have made progress on during the fourth quarter on the strategic plan. We have upgraded the toys category. And after the acquisition of Lekekassen, we got access to better brands and products within this category. And together with the experts in Lekekassen, we have developed a full new range for Europris, in combination with the private labels we already had. In addition, we have redesigned and improved the layout of the store. And all in all, these results are very positive. We see sales growth well above the chain average for this category in the fourth quarter after we opened the new shopping shop for toys. And that is the exact same effect as we have seen over the last couple of years with all the categories we have upgraded. We see this initiative with doing category and concept upgrades that drive sales and also drives profitability in the stores.
And the current financial environment is also quite challenging and has made a shift campaign focus from seasonal items and also higher value nonfood items towards consumables with low price points. As Stina explained, this has driven sales mix towards more consumables, groceries and it has been a key traffic driver to our stores in this period. And we have done this to drive sales growth in a quite difficult market. But we have adapted, and we have seen the positive effects we've gained from shifting the campaign focus.
Another important traffic driver is, of course, the digital communication with the growing membership base we have in the Mer customer club. We're starting to use the data and more personalized content. And we see that the customers that are exposed to personalized content, they get a higher engagement rate and we also see a higher basket value with these customers. We also see that personalized communication, directly from the local store of the consumers, drives more traffic and brings more loyal customers. And the marketing is also getting more digital, and that's important for driving traffic. I'm not saying that the physical leaflet is dead, but we are preparing and becoming less dependent of the physical leaflet as a marketing tool.
And of course, on the customer traffic, new stores will continue to be an important traffic driver for Europris also in the years ahead. And in November, we opened a new store in Nittedal just outside of Oslo. And the sales results has been actually beyond our expectations, extremely good results, and it's a good proof that we still have room for more Europris stores in the Greater Oslo area.
In 2022, we opened a total of 6 new stores, and we have a pipeline of 9 new stores for 2023 and the years beyond, which 2 are subject to planning permissions and 1 store was actually successfully opened this week in [ Froland ] outside of [indiscernible].
On the sustainability side, Europris has decided to commit to reach net 0 emissions by 2050, in line with the Paris Agreement and science-based targets. For Europris, the biggest footprint for carbon is in the indirect emissions, which is called the Scope 3. And to solve this issue, we need the whole industry to work together. And Europris, we believe not only we have to, but we really want to participate and take part in this important project for the society.
We have -- we are starting up mapping up a lot of initiatives in order to make a good action plan to reach these targets. And we have already started quite a few projects. Our private label for cleaning effect has been certified as eco-friendly with Swan Nordic. In close collaboration with NorgesGruppen, we are using electric ferries to transport goods across the Oslo Fjord. In addition to that, we are also using electric trucks for distribution goods to the stores in the Oslo area.
We're also exploring solar panels at the roof on our head office and also going to install that at roof on the central warehouse in Moss. And we have lost several initiatives in order to reduce waste and increase our recycling ratio. So it's a lot of things going on, and we are moving in the right direction.
Our application to the science-based target has been improved, and we are currently in the mapping phase, which will last at least until the end of last -- next year. Over the past year, we have increased the focus on sustainability in the chain by putting a lot of focus on management training. If we want to make a change, we need our managers to learn how to do it and why they should do it. So we put a lot of efforts into training managers, and we have also introduced a sustainability week with training for all employees across the chain. I think it's important to raise awareness, give more confidence to people, so they are able to take the right decision. So this is really lifting our discussions on sustainability within Europris and moving us in the right direction.
Looking at a short summary and an outlook. Well, I said a couple of slides to go that I shouldn't show this 3-year stacked slides anymore, but we're actually showing one more. It will be the last time. But it's worth looking at the journey we've been through over the past 3 years. And -- since 2019, the CAGR growth -- sales growth for Europris has been 13%, and it has been profitable growth all the way. The CAGR growth for our net profit has been 39% in that period. And of course, that proves that scale makes a difference in our kind of business. We have taken several actions in order to improve our gross margin, making us confident that we will see a higher gross margin now than what we saw in the years before the pandemic.
On the outlook itself, I believe that Europris is well positioned with a relevant product offering in what I would call the tougher economic environment. We saw more challenging economics for the consumers. And I think at least for the Norwegian audience, you cannot avoid to see the price focus that are in the press and among the politicians and the consumers these days. And in such an environment, it helps to be in the low-price sector of the market. It helps to be expected to be the price leader in the market. And we have a well-recognized concept to low price with a footprint across Norway. We have strong campaigns and a broad range of everyday products that everybody needs. And in the current market environment, we are confident that Europris will play an important role, and we offer value for money for the consumers and that we are well positioned to continue to take market shares.
I think with that, we will open up for questions, and Stina will join me on stage for the questions. We will start with the audience here in the room. Trine will hand out the mics. And then we will continue with the questions from the web.
Joachim Huse from Pareto Securities. Congrats on a fantastic quarter. So I was wondering if you could elaborate a bit on your expectations for both OpEx and IFRS depreciation in terms of CPI adjustments of rent and other inflation impacting OpEx? And also your sort of plans or whether you are taking any specific actions to mitigate this cost inflation?
Yes. We have rent -- most of our rents are CPI-adjusted with effect from the November rate in 2022. So that will, of course, impact. And sorry, you had a very long question. But the start of the question again was?
Just in terms of regular OpEx and what sort of inflation you expect there?
Yes. So we have that CPI adjustment hitting us. And then most of our employees, our own collective agreements that will have an effect from the second quarter. We don't, of course, know the outcome of that one yet. We haven't initiated any major cost improvements. As you can see, we have good sales and -- and so we haven't launched an extraordinary things. But of course, we always have attention to our OpEx and have a focus on keeping them as low as possible.
And we monitor the situation, of course, continuously if we need to do any kind of larger things than what we already are doing then we will look into that. But hopefully, we will stay relevant and consumers will understand that it's a good place to go, and hopefully, we'll not have a need for that as we have seen many other companies in the media lately.
[indiscernible], SEB. Looking at your like-for-like growth of roughly 3% for Q4, I'm assuming that you're seeing some volume declines. How are you working on mitigating those in the future? And how will that impact also to gross margins?
Obviously, you see the growth you have these days that is price driven. That is for a whole retail. And it not necessarily has a big impact on the margins. But we see that the price -- the consumers are becoming more price conscious, and they are looking more for low prices. And with the campaign machine that Europris are with these offers, this attracts attention. And of course, we sell a little bit more on the goods we see on the campaigns. That will have a negative impact on the margin. And then you just have to work smarter on the rest of your assortment.
So it's -- this is about how you do your product place, but this is a lot of the retail detail you do in the stores. And I think we are very well positioned on the sales side. But of course, I do not expect volumes to boost this year. It will be a tough year. We have to fight for your share of the consumer's wallet, but we are very relevant in terms of the low price position. And if we maintain that share or even increase that share, it will be on lower volumes, but it will be a great achievement for Europris.
And I also have a follow-up there in terms of sort of the product mix because you're talking about larger share of consumables than you previously seen. How will that affect margins?
Well, it hasn't been an enormous shift. It's some percentage points difference. So it has a slight impact, but it's not the main driver behind the development now. So if it kind of stays within a certain range, it will not hurt the margins significantly. But of course, if the picture were to change dramatically, then it could have a larger impact, of course.
Then we take the questions from the web. The first question is from Fred Anderson. The sales growth is described in the report as in homogenous as consumers buy more cheap items. At the same time, there's an inventory buildup of just under 20% compared to December 31 last year. One would assume that the product categories have built up differently over the period. How much of the current inventory is unfit for this market environment?
It's a good question regarding the inventory. And inventory in our stores is very healthy. Actually, we have less items on stock in the like-for-like stores this year by the end of 2022 that we had a year ago. So the volumes are managed perfectly. But we have a little bit too many Christmas trees on stock and we have a little bit too much garden furniture. And we are a seasonal retailer. And it's on the Christmas once year and it's only December once a year. So it takes time to clear out this inventory, but we have got rid of all the inventory that we have on products that are not going to continue in the next season. So it's good inventory, it's sellable, and that's -- we are very satisfied with that.
On the central warehouse, we also see a good development in the base assortment, in the inventory, but of course, too much summer seasonal items. So that is what drives the higher inventory in combination with the higher prices we've seen. So it's a price increase that is the big issue for the inventory. It's a healthy inventory, and we have enough of goods to sell on the consumables.
The next question comes from Ole Martin Westgaard. Actually, 6 questions. I'll start with the first one. How was the consumables share in Q4?
It was a little more than 50%.
And number two, how has the trading been so far in Q1?
We're not going to give any figures for the start of the year, but I can say that we are satisfied with the start of the New Year. And basically, I think we gave a good outlook saying that we are fit for the current environment, and we see no change in that. We have not seen any significant change in the start of this year compared to what we saw towards the end of 2022. So it's -- we are satisfied with the start and we will come back with the numbers when we present the first quarter.
And number three, how should we think about the impact of freight cost on margin in the coming quarters?
Well, it obviously takes the inventory turn to come around before it starts to have effect. And as we have a higher number of seasonal items still left, you should also expect that also for the second quarter, you will have effect from the old agreement, but then it will gradually wash in.
Can you comment on how the like-for-like growth in 2022 was split in terms of volume, price and basket?
For the full year, the basket was slightly below. We had price increase, but that was a little bit more than offset by volume decline.
And how would you view the competitive landscape for consumables?
I think it's just about reading the papers this day. It's a tough environment, and it's a great attention to the market by the media and also the politicians and consumers are hunting for low prices. I think it's an environment where you have to offer an edge. You have to be on the low-price sector or you have to be in the more winning service sector.
So I think it's a tough environment going out there. And I think many retailers will have a very troubled year in 2023. But if you are focused, if you have a clear position on price, I think you will be among the winners.
And the last one from [ Una Martinis ]. Can you provide an update on the latest development for ÖoB?
There has basically been no development on ÖoB since the last time we reported. So the status is that we have not agreed on the option period and the option strike price. And that will be settled by an arbitration which is scheduled for the later part of the third quarter this year.
And then there is 3 questions from Petter Nyström. The first one, interest costs were NOK 49 million in Q4 and NOK 40 million excluding unrealized loss. Is the NOK 40 million representative for coming quarter? Or does it include any special effects?
Doesn't include any special effects. And going forward, of course, it depends on how much is drawn on RCF and things, but no special effects. So it's important when you look at the interest rate costs in estimates that you kind of take out the effect from the interest rate swap and look at that as a starting point.
Seems like you are planning to open 8 stores in 2023, that is higher than the guidance, any special reason for this good store availability?
We don't see any increased store availability actually, but we're taking the opportunities we get. We have a strong pipeline. And some of the stores are still subject to planning permission. So let's see what will be the total number when we are in the year, but we are satisfied with the pipeline and let's see if it's going to be 6 or it's going to be 8, let's wait and see.
And the last one, how do you see Easter seasonality effect Q1 sales this year versus last year?
I believe Easter comes a little bit earlier this year. So I'm not sure you will have the full effect that we guide on as Easter effect, but some of it will likely go into the first quarter this year as opposed to the second quarter last year.
That was the last question.
Well, thank you.