Axfood AB
STO:AXFO
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Axfood AB
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Good morning, everyone, and warm welcome to the presentation of Axfood's First Quarter 2018. The result will be presented by Axfood's President and CEO, Klas Balkow; together with the CFO, Anders Lexmon. And after the presentation, there will be time for questions either from the web, from our people in the conference call or from the audience here in the room, of course. And with that, I hand over to the first speaker, Klas Balkow.
Thank you, Cecilia, and of course, let me also say good morning and welcome you all to this presentation of our first quarter in 2018. And I think it's fair to say, as it says on the headline here, that we have noted a good start of this new year. But before we come into some of the numbers that I will obviously cover, let me just quickly go through our agenda. I will cover the key ratios for the first quarter, Anders Lexmon will go through the financial situation in the company, the position that we have. And then I'll come back and walk you through some of the elements in our strategic agenda and strategic plans, and then Cecilia will come back to lead the Q&A session.But before we start, let's take off by providing a quick overview of Axfood as it is today. And we have a clear house-of-brand strategy with several strong brands that supports the consumers in various needs and some of the consumer various platforms that we see out in the market.We create scale and efficiency through our common sourcing and logistic company, Dagab. We serve over 4 million customers today per week and we do that through -- we have over 300 group-owned stores. We have over 100 franchise stores in the Hemkop chain, but we also have a large cooperation with the convenience sector in Sweden. So in total, we are serving over 1,100 stores in the Swedish market.If I now go into the quarter, let me just give you my highlights of the quarter as I see it. Again, we've had a positive start. We have a strong sales growth in the quarter. Yes, it's supported by the Easter effect and -- in that a very good March which was also supported by that we had a salary weekend just -- salary payout day just before the Easter period started. We also have a very positive momentum in all our online channels that we provide today within Axfood. And finally, behind the strong growth, both online but also offline, we are reporting a record quarter 1 profit and an increased -- somewhat increased margin in terms of EBIT margin.In this quarter, I also would like to give you an update and remind you of that we now have our new structure in place. Tempo is now included into Hemkop. Snabbgross is now reported as an own channel -- own segment and our business-to-business with the convenience sector is now part of Dagab and Dagab's external customers. And these changes together with the internal cost structure changes we've done are all now reflected in the pro forma figures that we've now provided in the report for a fair analysis of our numbers and our performance.Let's now move into the quarter and our key ratios for the first quarter and I'll start with the sales numbers. Overall, sales is up 7.6% supported then again by the Easter effect, but also supported by Eurocash acquisition that we did 1st of April last year, so this is and the last quarter that we get this full effect of Eurocash and then it will be annualized. We have an Easter effect that is -- this year is in March that is positive for Axfood as a whole. We estimate the effect to be approximately between 1.5% to 2% on group level based on our sales performance. It was also then -- again Easter effect was somewhat larger than we expected due to the salary weekend that we had just prior to Easter.By segment, Willys stands out, not only due to the Eurocash acquisition, but also clearly behind a very strong underlying like-for-like sales. And Hemkop is also reporting a solid growth with a very strong like-for-like for our franchise operation or a positive like-for-like for our franchise operation. And Snabbgross is reporting somewhat weak numbers, which is related to a seasonally weak quarter but also very much relates to a soft market that I will come back to a little bit later on in the report.Now if we relate these numbers into the overall market and if you relate our store sales, i.e. our own sales and including the Hemkop franchise, we are growing with almost 10% -- 9.7% growth and even if we're now lacking the total market number for the full quarter, I think we are clear and we can be confident to say that we continue to gain market shares even in this quarter.So moving then into the profit numbers. Our profit at SEK 435 million is up 9.6%, mainly then due to the strong like-for-like sales that we reported, but also supported by lower acquisition costs and somewhat lower project costs versus last year. And as we've seen in the previous quarters, online is still hampering our earnings in the quarter. Margins in this quarter is slightly up, and by segment we report healthy and stable margins in each of our segments.And let me now walk you through some of the numbers and comments segment by segment. And I'll start then with the largest segment and has to say the star in this period, Willys. We are reporting a very strong growth. We've already talked about the Easter effect, but still excluding that a very solid like-for-like, which is very much driven by more customers and an increased average ticket value. We also have noted a very positive online development. We continue to drive online in the Willys chains, where we now have added 3 more cities and we continue to roll-out. And currently, we now have 22 stores with the omnichannel offer -- within 22 cities with the omnichannel offers within Willys. And included -- including the positive online development, but obviously very much dependent on the positive like-for-like, we're able to maintain and report the margin in line with last year and the positive profit development.Moving then into Hemkop, also reporting a good growth, close to 4% for total Hemkop and a 3.2% like-for-like. Hemkop is little less impacted by Easter as not -- Willys has somewhat larger impact on these large weekends or holiday weekend. And compared to last year, if I look at our group-owned stores, that have a somewhat slower growth rate, has also been impacted by somewhat lower campaign levels or campaign activities in this period, something that we are now planning to adjust, that was -- is not something that is planned to be ongoing, but that is something we will adjust the coming quarter. We continue to refurbish the Hemkop chain and the refurbished stores. We have refurbished 5 stores in the period and we're also pleased to see that also in Hemkop the online development is very positive even if we are coming from low levels. And as said, Tempo is now included in the Hemkop numbers and is also integrated in the business. We have now 166 Tempo stores that is included in Tempo as a franchise store, but it's also now taking -- we're capitalizing or using the resources that we have for the franchising resources to drive the Tempo chain and we already added more stores within the Tempo and we'll continue to develop the brand -- Tempo brand. We are also Hemkop reporting stable earnings behind the positive like-for-like and also behind somewhat lower than campaign activities that we've.Moving then to Snabbgross. We are reporting a moderate growth and it's the first time we are reporting Snabbgross and, of course, one could have wished for a somewhat better start now when we are releasing the numbers. But again, seasonally it's a very small quarter and the moderate growth that we have is still, if I look at the perspective of the total market, we are outperforming the market, as the market is really seeing a soft period due to some of the cold weather; it's something that we expect this impact the cafe and restaurant business in this quarter. Earnings more or less in line with last year, which is as you can see the seasonal -- seasonally impacted and it's a small numbers for this quarter.Finally, Dagab reporting also a good growth at 3.8%, which is behind the positive growth from our retail chains in the group. And it's also somewhat supported by mat.se, which is having 1 month extra versus last year. But is hampered -- the growth is also hampered by the fact that Mathem is not the customer in Dagab any longer, which it was last year. We are reporting stable earnings in Dagab, even if it also currently reflects the losses from the mat.se business that we've -- that is included in the Dagab numbers.So with that, I've covered some of the key ratios and I will hand over to our CFO, Mr. Anders Lexmon, to cover our financial situation. Anders?
Thank you, Klas. Let me first give you a picture of the pro forma effect of the reorganization of Narlivs and the price adjustment in Dagab from the 1st of January. The business Tempo have been transferred to Hemkop and the other businesses in Narlivs have been transferred to Dagab. And in connection with that Dagab carried out internal price adjustment based on its updated cost structure. So both these effects is from the 1st of January this year. And in the left chart, you can see the effects in Q1, and please note that we have a small seasonal effect in Narlivs and Dagab. So we have a smaller pro forma effect in Q1 if you compare to the full year.The cash flow in the quarter is better than the last quarter, and that is mainly explained over the acquisitions that we made last year. We acquired both mat.se and Eurocash in the first quarter that impacted our investing activities and also the working capital last year. And this year, we have a calendar effect in the working capital, a minor effect, due to that Easter eve, close March, so we have a little effect. We have also -- according to the AGM decision, a higher dividend this year from SEK 6 to SEK 7 per share. And we have also used our credit facilities with approximately SEK 170 million this quarter compared to SEK 500 million last year.Looking at our investments in the quarter. If we exclude acquisitions, we have a little bit higher investment this quarter. It ended up with SEK 189 million compared to SEK 166 million last quarter, and we have increased our investments in IT, both in the projects and in infrastructure. And we can also see higher investments in our wholesale operation and that is mainly due to our new store in [ Hemkop ]. And also we have a little bit less investment in Hemkop this quarter compared to last year.If we then take a look at the development on our net working capital on a rolling 12-month base, you can see that we have improved our net working capital both in krona and if you compare it to sales. And as I mentioned before, we have a calendar effect in Q1 but as you maybe remember, we also had a calendar effect in December last year, so this -- both these calendar effects boost our net working capital on a rolling base. And we can see improvements both in accounts payable and accounts receivable actually. Our net debt position is back to a little bit lower levels compared especially to last year and that is also explained by our acquisitions. We have a solid equity ratio even in the payout quarter -- the first quarter. We have about 35% in equity ratio. And if we take a look finally at our capital employed, we have a solid level of capital employed even though we grow our businesses. And that compared with our growing earnings, we have ROCE of approximately 50%. And with that Klas, I hand over to you again.
Thank you. Thank you, Anders. And let me now remind you of our strategic agenda to take leadership in good and sustainable food at great value. You see in the slide before, and I will not go through all our plans and all our elements in this. But let me just cover some of the progress we have done in the quarter and some of the progress we are working on at the moment. And if I start with the customer offer, we continue to strengthening our private labels. We've added more -- larger range in this area and we are now at the share at 28.7%, an improvement versus last year. We've also started to move more into strategic relationship and strategic work with a few suppliers to take cost out of the system and to increase customer value. And we are also driving and continue to drive what we call a range of good and sustainable food. One small example of this is the launch of Bread Beer, which is where we are using old bread and provide -- and -- or using that to brew beer. Obviously, it's a very positive effect as we are using -- we are reducing bread waste and at the same time providing a very tasty beer. But good and sustainable food also includes packaging and we are working with this alone, but also we are working this with the industry. One example of that is to work to reduce plastic. A small example of what we've done recently is to use the cleaning and skin care range that we have under the name Saklart and we use the container there with bioplastic, so we are reducing the plastic waste in the environment.Moving on then to the customer meeting, which for us is a very much a constant development. And we -- as I've reported in the report, we continue to refurbish our stores. We have adjusted our loyalty programs now into the new GDPR system or the new GDPR regulation. And as of the coming quarter, we will now offer our customers in Willys and Hemkop, a digital receipt, and will continue to roll out to the digital opportunities with self-checkout and self-scanning and in Hemkop and Willys where we are now up at 40% of the stores has that in Hemkop and almost 60% of the stores in Willys. And we continue to develop our omnichannel experience for our customers in Willys and Hemkop, but we are now up at 40 stores for Willys and 18 for Hemkop. And as you know, 18 in Hemkop is reflecting almost 1/3 of all the group-owned stores in Hemkop, so it's a higher share than in Willys and we will continue to ramp up the Willys now to lead in to -- by the end of the year, we plan to have a 1/3 of our stores in Willys also including an omnichannel experience. And when it comes to expansion, we've just opened up the fifth Urban Deli store here in Stockholm at [indiscernible]. But I have to also report that we’ve seen some of the planned stores for 2018 did move into 2019. So current best estimate is that we'll be at the lower range of the 4 to 8 stores this coming year -- so we will be lower number of new stores in 2018 versus what we've seen last year and we expect that to ramp up somewhat in 2019. And our start-up, the online pharmacy, Apohem, as announced earlier, we plan to open up this channel for our customers soon and we plan to do this before the summer as we've already announced.And finally, we put a lot of energy into how we can work and capitalize on all of the new possibilities that the digital world is now providing. Few example of this is that we are now working more with the data-based analytics to provide more relevant offers in our customer program. We are looking into how we can -- we're building a program on how we can use data analytics to be better and relevant in terms of how we are developing our range, but also how we are developing our campaigns. And another area, which is an important for a retailer, is staff planning. And looking at analytics and more big data in terms of how we can be better at planning for the staff into when they're going to be in the stores, so we can become more efficient, but also, of course, provide even better customer value when we're meeting the customer. So we are in early phase on this, but we see a very much of a -- or receive very great potential, I would say, in this program, as we have a very strong base and foundation due to we have a solid ERP system that we believe that we can capitalize on in terms of data gathering. Finally, with the positive start of the year, we are well in line with our long-term financial targets and we also repeat our previous guidance in terms of investing SEK 900 million to SEK 1 billion into CapEx this year behind some of the programs that I've just presented.So if I sum up my part of the presentation, it's a positive start of the year -- positive sales start supported by Easter while still a strong underlying like-for-like sales. We are improving our profit and actually also improving somewhat our EBIT margin. And I would say that we have a clear agenda for future profitable growth. With that, Cecilia over to you to hand over to Q&A.
Thank you, Klas. Yes, thanks for the summary and now we open up for questions. And we start here with Niklas Ekman from Carnegie.
Niklas here from Carnegie. Couple of questions. First, you talked about the Easter several times. Is it possible to quantify the effect on EBIT as well, as I think on gross profit, if I calculate correctly, it's about SEK 30 million boost, if you talk about 1.5% to 2% on sales, but I assume you've also had slight higher cost, but is it fair to assume at least SEK 20 million in positive EBIT effect?
I think you're a little bit on the high end. That is not that far. You're right then [ when we're ] going to Easter, we also have somewhat lower margin and also somewhat higher cost.
And you talk about a positive online development. Is it possible to quantify either the online share of sales or what kind of growth rates you're seeing? And I know that ICA for instance are giving some numbers talking of about 50% growth and roughly 1% of their store sales and I assume that you would have a slightly higher number than that boosted by your acquisition of mat.se.
We have a very positive growth. I think I'm trying to express that without providing the number to you. Yes, the market is reporting a 20% growth 2017, we will see where -- I think we are very clear to say that we are significantly outperforming the market growth at this stage. Now obviously, Willys -- and I think I've said that few times, we're also coming from somewhat -- we started a bit later, so we are coming from some sort of lower level, we are now really catching up in a good way.
And you mentioned that Dagab, you have changed the internal price from what to what. So also what kind of impact…
It's not that complicated or complicated -- it's complicated, but it's not that big of a drama. We -- last time, we made a price adjustment was I think 2008 or 2009 -- 2009. And we're doing an ABC cost structure within Dagab and we're looking into how we are driving cost and as you've seen the impact has been somewhat more positive to Willys, which relates to that they are buying more efficiently in terms of larger packaging and so forth. So we're just reflecting more of the cost system that we have.
And can you say a little bit about the competition. I mean, you are clearly here gaining market share, you guys also doing quite well. Are you seeing any changes, I mean, we heard -- Coop seems to have lost quite a bit in 2017, but seemed to have indicated a better momentum at the start of 2018. Are you seeing anything of that? Same thing in [indiscernible] seemed to be ramping up their store rollout, are you seeing anything of that?
Well, the only thing we can say is that, it's a very competitive market and as I said also we don't have the full market view yet. So we have not seen the effects of full market yet, so I think it's somewhat difficult to say where it ends up. I think it's fair to say, with the almost 10% growth, I don't expect the market to grow that. So we are gaining. Who is not gaining, is difficult to predict at this stage in my view.
But you're not seeing any dramatic changes in the current environment?
No. Not more than as you're -- what you're pointing out as well. We see some competitor that is a little more aggressive in terms of rolling out stores.
And finally, food inflation, prediction or comment on what you're seeing?
Prediction is -- I mean what [ OE ] has stated is somewhat in line what we see as well, is around 2%, and will see where it ends up, it is difficult to say. Of course, as you know, but -- of course, the currency impact will be there. So we don't have any other point of view than [ OE ] at this stage.
And let us take a question from the telephone conference. Operator, do you have a question?
Our next question comes from Stellan Hellström, Nordea.
Was coming -- I wanted to come back to the question on Dagab here and the margin contraction there. To what extent was that due to lower internal pricing and online and also to the extent that online is pressuring how and why is that given that you had mat.se consolidated for most of the part or Q1 last year?
Maybe you have to repeat your question. But let me just take the first part where at least I think I understood in terms of the Dagab, how much that is related to the margin decline. As we are reporting pro forma numbers, we are related very much to the online part of the business as well as we have the calendar effect is positive for the retail chains but it is somewhat negative for Dagab.
But I was -- on that note and I think mat.se was in your numbers already last year. So I'm just wondering to why you are seeing margins down?
It was partly part of the last year. It was not fully part of last year.
So that is the reason?
Yes, and mat.se's development
And could you give any quantification on how EBIT is affected by your online initiatives and also if you can also share how much of your sales is online?
No. We are not sharing that at this stage. In terms of share of online, we keep this is a whole at this stage. And in terms of how much is impacted is also not something we are disclosing at this stage.
Can you just say anything on how you expect that to develop going forward? What do you see, similar…
No, but -- if I -- I mean, if I elaborate a little bit on it, I think we pointed that out that when we started online, we also had a fairly high investments in the beginning with systems that we started to depreciate and so forth and we're now getting more and more volume, of course, that is supporting. So it's a the volume based -- the more volume we get, it will help and it will support. And going forward, we are working on to see how we can work with the backend to become even more efficient where we're today having our own dark stores with mat.se. We started to work together with the transports across the chain, so we can provide the last miles together. We started to work with the same transport, but obviously, the next step is to see how we can work with a common dark store for all the chains and that will improve the profitability for the online segment. And I would like to remind as well, for us, particularly in Willys but also Hemkop the omnichannel structure is where the channel works together as I think -- I know, we talked and discussed that when we had some of the other session in terms of how online with Willys having a fairly high clicking [ collecture ] that is supporting the store and as well that the customer that becomes online is also becoming even a larger share of customer for us as a whole. So from a total perspective, we also see this is positive.
Just being a bit on the negativity side here maybe, but how to understand this really because I think you said that with increased volumes, you will see better profits in online, on the other hand, you said that margins are down in Dagab due to the mat.se's development and I would think that mat.se had a positive sales and volume development -- that should improve profits in.
When we get in these together, it's right that we're also investing and we've -- if you have seen some of the investments we've done in mat.se, in the market, we've also increased market spend, et cetera, during the first quarter in mat.se that has impacted the investments so to speak in mat.se.
We can take another question from the telephone conference.
Our next question comes from Gustav Sand, SEB.
Yes, I guess that's me, Gustav Sandström, SEB. Coming back to online sales, is this still true that no Hemkop franchise [ is still ] online as of yet?
That's correct.
And in the light of that, you mentioned strong growth online still your own Hemkop stores which comprise all of their online sales within that category have now reported extended period of sub-par or sub-market growth and despite recent refurbishments. Should we interpret this as the development and it is in your fully owned physical stores in Hemkop finding it increasingly tough to grow top line?
I must admit that I've somewhat difficult to hear your question. But if I think what I heard you’ve asked about is, in terms of how Hemkop is developing and compared to that Hemkop is doing good online. Well, the group-owned stores which are the one that has online is reporting somewhat softer like-for-like than the franchise, which very much also relates to some of the phases we are in. When we've refurbished some of the stores that has impacted when we are refurbishing them, we have 5 stores of refurbishing and that has an impact on the like-for-like. We obviously expect and hope to get a better push for getting an effect of these refurbishments as we are coming through the refurbishment program. We start to see that in a few stores. I think I’ve mentioned -- we talked last year about Hemkop City that had a fairly large impact on like-for-like last year. We now, in this quarter, has seen a very positive development. We're now back on track and even better than last year on Hemkop City. So we are taking steps.
Okay, good. So we should expect positive like-for-like over the physical stores which you own yourself and Hemkop going forward all else equal?
That's at least my expectation.
And given that 1/3 of the year has now come to an end, I guess you're starting to get an idea of the investments for next year. Obviously, this year, a very high CapEx here of some SEK 900 million guided for. Should we expect CapEx to come down materially going forward or what's your feeling here?
Well, regarding to next year '19 and forward, we are coming back to that. We are not there yet to…
Great. But perhaps you could give us some sense on how much is sort of one-off related and how much is maintenance out of these SEK 900 million guided?
For this year?
For this year.
Yes.
No. I mean, this is an increase this year and it's in all our segments and in line with our activities, so…
And Gustav, I remind you also that we are continuous to work with the warehouse investment that we have in [ Hemkop ], that will plan to be rolled out and fully in operation in early 2019, but to be started in end of this year.
Okay. Finally from me, your biggest competitor is arguably accelerating their online efforts as of a few months now -- within a few months now with their combined logistics center in Stockholm area. Do you foresee increase competitive environment within online sales from this or can you give some color on this?
As we said in terms of -- it's a very competitive market and my expectation is that every one of us who’s working with online and food is working on the backend in terms of becoming more efficient and a natural step in that is to work with dark stores. We have one for mat.se. Our plan is, as I said, is to work where we're combining all our retailer or chains in the same dark store. So from a competitive reason, ICA is out there, which relates to their -- offering online, they are now providing or working internally to improve their backend system.
Okay. We have some further questions here in the audience. Daniel, please go ahead.
Daniel Schmidt from Danske Bank. Just wanted to ask you on one of the smaller, smallest segments, Snabbgross and which of course was impacted by unfavorable weather conditions and so on, but do you see any risk at all that there is a chance that the Swedish restaurant and cafe market is getting saturated or is this just a blip or is it sort of…
Well, we don't -- I don't -- at this stage, don't see that at least and in terms of saturation of the market, we’re a warehouse to them. So of course, it depends on how the total market is developing. We've seen a weak total market in the first quarter. We expect and hope that, that will bounce back in the coming quarters now, so, no.
Do you see a change to that in sort of the start of this quarter or is it too earlier?
I will let you know in July.
So we have more questions here, but before that maybe, operator, you can repeat how to ask questions from the conference call.
[Operator Instructions]
Fredrik Ivarsson from Kepler Cheuvreux.
Question on private label in Willys, in particular, I think the level -- and correct me if I'm wrong, I think it was level versus last year at 30% or so. Do you see this as a good level or will you try to strive that further -- increase that level?
I think we have a positive -- a good level across the group. I've been very clear on that. We need the mix of own labels as well as other labels and I think, the better we are developing and innovating own labels, if a customer reward us for that, that's very positive. So that's the kind of work we are working on and that will gradually move over time and I think we still have a program for that. So we are at the positive level. Can it be increased? Yes, I think it can, but it very much depends on how successful we are in terms of developing our range.
And one maybe more detailed question, can you quantify the effect are not having Mathem in the numbers with Dagab?
I can, but since Mathem is another actor in the market there, I don't see any reason why we should release their numbers.
We have no questions from those of you who are participating over the web. You know that you can also ask pending questions there. Operator, do we have any questions from the conference call?
No, we don't. Would you like another reminder?
No. I think if we don't have any more question here, then we will thank you all for coming here today and listening in and wish you the day.
Thank you very much.
This concludes today's conference call. Thank you for your participation. You may now disconnect.