Axfood AB
STO:AXFO
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Axfood AB
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So good morning, everyone, and welcome to this presentation of Axfood's report for the third quarter. My name is Klas Balkow. And with me today, I have our CFO, Mr. Anders Lexmon. We know it's a busy reporting day today. So -- but of course, Anders and I, we truly think this report is the most important one for you. But let's now move on to the report, and I ask you to turn to Page #2. And here we have our agenda. We will guide you through our key ratios for the quarter as well as our financial position. And I would also like to give you brief update on our progress on our strategic agenda, including also a progress update on our new logistics center in Bålsta outside Stockholm. After that, we will end this conference with a Q&A session as always. So let's now turn page to number 3. And here, you have an overview of Axfood. We have a clear House of Brand structure with common logistics and sourcing that create economy of scale. And I'm glad to share with you that we have in this report reached somewhat of a new milestone. For the first time, we can report over SEK 50 billion in net sales for the rolling 12 months. Please go to next Page #4. And before we get into the key ratios, I would like to highlight the essence of the report. First, we continue with our strong sales growth, particularly I would say, within Willys. We continue therefore, also, to gain market shares. And thanks to improved performance in all our operating segments, we report solid profit. Also excluding the IFRS 16 effect, we actually beat last year's record quarter. And I also want to address that the outcome of this report include efforts and investments made for continued profitable growth for the future. And I will obviously come back to all these parameters as we move on, but please now turn to Page #5. And let's now go into our key ratios, where I will guide you through our group and segment performance for the third quarter. So please, next Page #6. Now we will start with our sales numbers. And I am pleased to report the net sales growth for the group of 5.7% to a total of SEK 12.7 billion. And with the like-for-like sales growth of 7%, Willys continues to outperform the market. And it's also pleasing to see that all our segments have contributed to our sales growth in this quarter. Please turn to Page #7. And if we then look our comparison when we're coming into our store sales, our sales development on our stores and online showed a total growth of 6.7% compared to the market growth of 3.5%. And both these numbers are supported by higher food inflation. And the newly published preliminary number from SEB indicates that food price inflation for the period January to September was 2.9%. In this, we obviously note that the weak Swedish krona versus the euro has driven some price inflation, particularly in the fruit and vegetable category. Please turn to Page #8. And here, we can compare the online market with our performance in food online based on Svensk Dagligvaruhandel noted a 29.6% growth for the third quarter, while in Axfood, we report the 38% online growth. So also in this channel, we grow faster than the market. Please now go to Page #9. And here we go into the ratios for our profits. So our operating profit came in at SEK 715 million and totaled SEK 672 million, if I exclude the IFRS effect. Clearly, this is mainly driven by strong like-for-like growth and the fact that all our 4 operating segments has improved the operating profit. And this year's outcome includes cost related to the implementation of the centralized logistical solution for home deliveries in Stockholm. So we clearly have some burden on this, but on the other hand, it's fair to say that last year, we had higher logistical cost due to the warm and dry summer, something that we did not noted this year. And finally, I also would like to comment on why central costs, if you have looked into reports, has increased in this quarter. The major part is explained by an increased level behind the efforts that we are now putting into our business development. We are clearly implementing more tools, and we have improved our digital work tools and methods. All this is aimed to contribute to our profitable growth. And we also start to see several effects out of this already now. But let's now move into our segments, and I ask you to turn to Page #10. I will start with Willys. And as I stated earlier on, Willys shows really strong like-for-like growth. With more customers, higher average tickets and increased online sales, Willys noted a 7% like-for-like growth. And comparing this to versus last year, we have 5 more stores in Willys network, and we continue also to roll out our online offer to more stores. In the quarter, we've added 5 more stores to total 75 stores with our online offer. And including this, Willys grew, in total, 8.3% for the quarter. And with the positive like-for-like and a stable gross margin and maintained good cost control, Willys improved the operating profit to SEK 455 million. And operating profit, excluding the IFRS 16 effect, was SEK 430 million versus last year, SEK 385 million. And besides the obvious fact that our larger store format continues to attract customers, it is indeed pleasing that Willys smaller formats, Willys Hemma and also Eurocash shows really healthy growth. And another affirmation of Willys' progress is that Willys recently was awarded for being the fastest-growing brand in the word-of-mouth category for the young customer group made out of 18- to 34-year-old. Let's now turn to Page #11. And we'll go now into the Hemköp segment. The Hemköp came in with a store sales growth in line with the market. Store sales grew by 3.4% and 2.1% in like-for-like. Our franchise stores continue to outperform the market, now also including the Östenssons chain with 9 more stores as of September 1. And a somewhat softer like-for-like development is mainly explained by slow growth in our group-owned stores. But for me, it's clear that the positive performance of our franchise stores shows that Hemköp concept and brand are meeting customer needs and expectations. So we still have more to do. I reported -- I commented that last quarter. We still have more to do in our group-owned stores. And going forward, we put all those efforts to continue to focus on reutilizing our stores and furthering strengthening the Hemköp brand. The operating profit for Hemköp was SEK 67 million and SEK 57 million excluding the IFRS 16 effect versus last year's SEK 54 million. And the improvement in this quarter is mainly explained by an improved gross margin behind somewhat lower campaign activity. Please turn to next page, Page 12. I will now move into the Axfood Snabbgross segment. And Snabbgross, as you know, needs very high comps. So the growth rate for the quarter of 4.2% should be put in perspective out of the comparable numbers, but it's also in line with the growth in the market as we see right now. And growth is supported by strong online sales also in Axfood Snabbgross. The improved operating profit of SEK 58 million or SEK 56 million excluding IFRS 16 effect, versus last year, SEK 45 million is explained by good growth and somewhat lower campaign intensity. Please turn to Page #13. And the final segment, Dagab, it is pleasing to see yet another stable performance for Dagab. We have a sales growth of 6.3%, which is driven by increased store sales for all our concepts. And in this quarter, as I mentioned in Hemköp, we have the contribution of Östenssons 9 stores, who is now included in the Hemköp franchise as of September 1. And the improved operating profit of SEK 182 million or SEK 177 million, excluding the IFRS 16 effect versus last year SEK 170 million is mainly explained by our good growth. But also to the fact that we, last year, the higher logistical cost due to the warm and dry summer, which then has partly been offset by high cost due to implementation of the Stockholm dark store as well as we continue to develop Urban Deli and Apohem. And with this as a start, I please ask you to turn to Page #14, and I hand over to our CFO, Mr. Anders Lexmon.
Thank you, Klas. And then let's turn to Page 15. Let me first sum up the first 9 months. We see that net sales showed a growth of 5.6% compared to last year. And our like-for-like sales within the Axfood Group stores were up 5.2%. So we see that we -- even in the first 9 months, we gained market shares. The operating profit summed up to SEK 1.801 billion. IFRS '16 had a positive effect on operating profit with SEK 129 million and on the operating margin by 0.3 percentage points, which means we have an operating margin well above our long-term goal of 4%. Page 16. Our cash flow for the first 9 months was minus SEK 742 million compared to minus SEK 293 million last year. And as you can see on the slide, we have a quite big effect here in the working capital during Q3, and that's an effect of a negative calendar effect at the end of September. And as we had in the first and second quarters, we also, in the third quarter had an IFRS 16 effect, that affects both amortization of debt and the operating cash flow with the same amount, EUR 1.075 billion, and we have a 0 effect on the total cash flow in that sense. We also have lower impact on net investment this year, but that is explained by a divestment of an asset hold for sale with approximately SEK 100 million that we did in the first quarter this year. Share repurchase and dividend payout was in line with last year. And let's then turn to Page #17. Our CapEx amounted to SEK 688 million this year compared to SEK 599 million last year, and the increase was mainly attributable to higher investments in our retail operation. This year, we both have more establishments of new stores and higher refurbishment pace in existing stores, both in Willys and in Hemköp. We also had some higher IT investments this year, also due to store establishments but also infrastructure related to common IT systems. In the wholesale operation, Dagab had some lower investments, mainly due to the major investment in the warehouse in June show up in last year. So let's then turn to Page '18. The development of net working capital on a rolling-12-months base continue to improve despite the negative calendar effect we had in the third quarter this year. The decrease is significant both in SEK and as a percent of sales. This mainly improvements in accounts payable that you can see at the right -- in the right side of the picture that is contributing. And we see that we continue to have a positive effect from our supply chain financing program even in the third quarter. And then let's change page to Page 19. The development of net debt show a very similar picture compared to recent years' third quarters. We -- if we exclude the effect from IFRS 16, we had a net receivable position slightly below last year and also the receivable position was affected by the calendar effect in the working capital that I mentioned before. If we include IFRS '16, we increased our net debt with approximately SEK 5.4 billion at the end of September, and the equity ratio dropped to approximately 24%. And if we exclude the IFRS 16 effect, the debt -- the ratio was in line with last year. But even though that ratio decreased due to IFRS 16, we are well in line with our long-term goal of 20% at year-end. And then we change to page 20. The development of our capital employed is also very stable. If we exclude IFRS 16 effect, we had a capital employed level of SEK 4.7 billion and the ROCE above last year with 44.6%. So we continue to have a high capital efficiency with increased earnings, but although a big effect of IFRS 16. And with that, Klas, turn on to you again.
Thank you, Anders. So let me now end up this part of the presentation by providing a brief update on our strategic agenda. So let's move to Page #22. As you're all familiar with, Axfood's strategic progress consists of a range of 6 strategic areas, and that each of the area consist of a number of well-defined priorities. And today, I will take the opportunity to make some comments on our progress within 3 of our strategic areas. We'll talk about our customer meeting, expansion, and finally, but not least important, our supply chain. So please turn to Page #23. Now first, let me address some progress within our customer meeting. I'll have to say that we are progressing well in line with our plan within our priorities to strengthening our digital customer meeting. We're also rolling out our concepts to our store, our new concepts and clearly developing our customer program for increased relevance. And also, we see positive results from our accelerated efforts in our introduction of more -- the data-driven analysis and work methods within our customer meeting. So let me give you some more information in just one, but important part in this work. So let's turn to Page #24. And I have to say our journey of changing towards a more data-driven way of working and within greater automation, we have focused on -- that we have focused on for some time, is beginning to yield some concrete results. One example can be seen in the activities that we have carried out to increase the share of more relevant and personalized customer offer experience for the more than 4 million members of our customer programs. This is driving sales at low contact costs. And as we move forward, we will continue to intensify our efforts and invest in system support to increase internal efficiencies as well as the perceived quality and impact of our customer meeting, regardless of when, where and how our customers used to shop. Please turn to Page #25, and heading in then to our priorities within expansion. For 2019, our priorities is set out to open up 5 to 10 new stores. We plan to expand our online and establish online in the pharmacy market. As you know, we have launched Apohem earlier this year. And I have to say, even if it's early days, we see really good progress from all these efforts. But let me also give you an overview of our store and online presence as of end of Q3. So please turn to next page, Page 26. And on this slide, you can see that in the numbers that we are concluding that we are well in line with our expansion ambitions for this year. New stores are being opened according to our plans. And Willys has expanded its online offer with another 19 stores as of the year -- starting of the year as of September 30. And in addition to new group-owned stores within Hemköp., we have now, as I commented earlier, welcomed the retailer Östenssons with 9 more stores as new franchise members in the Hemköp chain. And beside this, the level of conversion from group-owned stores to franchise stores is in line with last year. Please turn to Page #27. And let me end up the comments on our strategic agenda to talk about our supply chain. As I would like to address our progress for developing a modern, highly automized and sustainable logistics center for store and online logistics, which will be strategically located in Bålsta just outside Stockholm. So please turn to Page 28. And let me first give you a brief overall recap of this large investment and program. The logistics center of more than 100,000 square meter will be environmentally certified and one of the largest and most modern facilities in Europe for distribution of both groceries to stores as well as e-commerce customers. We will have -- approximately 60% of our volumes will be coordinated as the logistical center will replace 6 of our existing warehouses. And the investment will give us also the flexibility to meet future needs and is adaptive to expansion plans with higher delivery and reliability, better delivery quality and also the opportunity to expand our assortment. And one is on the status, the status regarding our building. To remind you, we made a letter of intent that we signed with the logistics property developer NREP Logicenters to locate the logistics center in Bålsta, Northwest of Stockholm. In July, we signed a long-term lease with NREP in accordance with the letter of intent. And we are pleased to share with you that the building permit was approved on September 3, and also glad, if you will be out there that you can see that the land preparations has already started. If I then should sum up the financial impact on this investment. A year ago, in October 2018, we estimated the investment in automation to be in the range of SEK 400 million to SEK 600 million over a 4-year period. In March this year, we communicated that we have selected automation solution within WITRON and tailing an estimated annual investment need in the higher range of SEK 400 million to SEK 600 million during the 4-year period. But I would like to share with you also that the final agreement are to be denominated in euros. So the investments will be affected by the movements in the Swedish krona versus the euro. Hence, with the current krona development, we expect the investment to be somewhat higher during the 4-year period than earlier communicated. The most important though, there are no change in the overall assessment going forward. The cost level for the new automized logistical center, including the new lease and higher depreciation, will be in line with its current -- with our current cost level at full operation. Thereafter, it is estimated that the cost level will decrease as Axfood continue to grow. And final comment on this. We are -- basically, as we speak, in final negotiations with WITRON, and we will provide more information once all agreements and details are in place. Let's now turn to Page #29. And we are now moving into the outlook for 2019. So I please ask you to turn to Page #30. And if we look at our outlook for our planned CapEx 2019, we will be in the lower range of SEK 1.5 billion to SEK 1.6 billion, which includes SEK 600 million for the automation of the new logistics center. Please now turn to page #31, and we are now coming to the end part of our presentation. And before we go into the Q&A session, let me just summarize our quarter with the following. We reported strong sales, with all segments contributing. And based on this morning's market data, it's clear that we continue to gain market shares. We also import -- report an improved performance within all our operating segments. And we are clearly seeing proof of -- that our investments for future profitable growth are paying off. Let's now go into the Q&A session. So I ask you to turn to the next page. And with this, I hand over to the operator to moderate this session. Please, moderator.
[Operator Instructions] The first question is from Gustav Sandström at SEB.
If I might start with the CapEx question. Could you please give us the number in euros that you have signed commitment to? Or if you prefer what exchange rate you used when you referenced to SEK 600 million per year.
That's a very good relevant question. And just so you know, and I'll share with you that we have not signed it on yet, which will be -- that's the part that will be in euro. We, as we guided, we'll be in the upper range of SEK 600 million, while we will do the signage in the euro. And we are in final discussions. As soon as we have signed, we will come back to you and give you the numbers in euros. So you will have that clearly, and we'll come back with the details about all of this when we are there. So the only thing that I wanted to send out today is that we are in good progress. We are in this range but we will also be signing in euro. And as we all have noted, the Swedish krona has been weakening, which affects the final investment.
So but is it a fair assumption then that the date that you communicated SEK 600 million is the date where you should -- where we should look at the euro/SEK exchange? Or -- just, we need to put something in our model
That's the -- that's what are saying. Yes, that's the -- when we first went out with this a year ago, we had our direction and then the euro has been strengthening significantly since that.
Okay. And then turning to Willys, if I recall correctly, previous management used to talk about 4% margin as sort of a ceiling for Willys. Obviously, if Willys has flown by that number quite extensively. Do you see a stage where you start to see, sort of, your branding asset, the most price-competitive basket for Willys being challenged if margins continue to expand? I noticed that online excluding private label sales, Willys does not strike me as particularly cheap at the moment versus peers?
Well, we're not sure what you're referring to there. But for us, it's the most important data we're looking at, that is our price position in the market, and we keep that very, very tight. So that is the -- to make sure that we are keeping our promise to have the best price for a food bag in the market. So that is clear, and we continue to drive that. And then of course, we -- with the growth that we are seeing right now, and as you know, when we are having this kind of like-for-like numbers within the stores, we get a good economy of scale that made the numbers looks better. So that is included for the whole segment, I should comment, which also includes Willys formats but also Willys Hemma and Eurocash.
Okay. And looking at Hemköp, it seems like you recall in the quarter of negative volumes in the stores. Are you at all looking at some type of plan for optimizing floor space within the Hemköp brand at the moment?
Well, for us, it's -- as I -- as it's kind of a mixed picture. If you look at our franchise stores, we are really performing well. We still have what we talked about in Q2 as well the group-owned stores is not where I want them to be, and we're working on that. We have some clear -- there are some stores that is not performing where we want them to be, and that is -- somewhat is also related to traffic in that area. So of course, part of looking at the store concept is also to look at locations, obviously. But overall, our focus right now is to continue. And we see positive progress on that where we are investing in our stores. We're also investing in our brands and in the concept in Hemköp, and that will take some time. But I think we are on a good path there.
Okay. A final one for me then on the supply chain financing program. Are you seeing a continuation of that positive impact you've had for past few years also going forward? Or are we approaching a stage where most of that effect is taken?
We still -- we work hard with it, of course, and it's a little bit hard to say how the future will develop in that case. But I think we will see a little bit slower pace here than we have seen earlier.
But still a positive...
Still a positive.
Improvement.
Yes.
Our next question is from Niklas Ekman from Carnegie.
First, a question on Willys. Could you elaborate a little bit on your thoughts on why Willys is performing so strongly at the moment? Any particular measures that you've done, do you think that you have benefited significantly from, for instance, immigration, maybe more than other players? Do you think that inflation being quite high right now is playing in your favor? Or what are your thoughts on the quite exceptional performance by Willys at the moment?
Niklas. I -- for me, I think we are making good progress within Willys in several parameters. We have looked into the range within Willys and made slight -- some, as you always do, the slight -- some improvement there. But clearly, also, we have an upgraded -- program to upgrade our stores, and we are seeing very positive effects out of that, where we continue with our low prices. But also improving the store appearance, but also our -- the Willys is very, very good in operations. So it's well-operated stores in general. And then in addition, obviously, the rollout of online has -- strengthening the brand, then also reaching out to more customers, who is now seeing or experience Willys as well as you've seen that we've increased somewhat our communication as well for Willys. We've increased our marketing investments, and we're getting a good payoff on that.
Okay, excellent. And the adverse question, I guess, for Hemköp and wholly owned stores. Do you think that there is any kind of problem there with the price positioning? Anything that you think needs to be addressed? Or why are the wholly owned stores underperforming?
No. I mean I think -- well, just to be -- I mean, obviously, we have changed some stores where we have moved to franchise. So we made some changes in the mix. If you look at the total sales numbers, but also, it's clearly Hemköp and Hemköp's brand and Hemköp's perception in the market. If you look at our total number and also, particularly our franchise stores, they are really doing good. So we have a good concept, but there are clearly some stores within group owned that we want to see a better improvement. Some of that is related to new competition open up, but also some of that is related to some locations, and some of that is also internal that we need to improve. So it's a work in progress to strengthen also our group owned. But from a concept or from a brand and from a position point of view, we have a strong position with Hemköp. We are meeting the customers in a different way. And the price position is there. So it's clear on that.
Okay. And also, if you could provide a comment in general here about the competitive environment? Are you seeing any changes? Have you seen coop there getting it back together? Any initial thoughts on Netto being acquired by Coop, on the one hand, could be maybe positive for you, while on the other hand, Lidl expanding its rollout pace, might be negative? And any thoughts in general here about the competitive environment and any changes you've seen there?
Well, the difficult part Niklas, is -- of course, is that I don't see any of these numbers that you relate to, but I can relate to the overall market. And then from that perspective, I think the numbers speaks by itself in terms of that we are performing good in terms of the overall market. Now regarding the Coop and the Netto operation, it's well out there in terms of they have now converted, I think, 3 or 4 stores, and we'll follow that and see how that goes. But right now, if I look at the overall market development, we are making healthy progress.
Excellent. And then finally, just a quick one on CapEx. Just to be clear, you are talking about SEK 1.5 billion to SEK 1.6 billion in CapEx for this year, you had SEK 688 million in the first 9 months. So are you looking at a massive uptake here in Q4? And what is this related to?
I think as I mentioned, I hope you heard that we'll be in the lower range of that SEK 1.5 billion to SEK 1.6 billion. As always, we tend to have some higher investment levels in the end of the year and also to point out that around SEK 600 million of these investments is related to the optimization project. So we still plan on that, that will happen in this year.
The next question is from Fredrik Ivarsson at ABG.
Few questions from me as well. First, if I got you correctly, rollout online to 19 new stores in Willys, but no one in Hemköp, and I'm a bit curious on that. Is that because profitability in Hemköp has been under pressure lately, and you have to be more cautious on cost here in contrast to Willys? And maybe if you can start talking a bit on that.
It's a good question. And we stated that fairly early when we went into this calendar year that focus moving forward in terms of online rollout will be -- we focus on Willys. That has nothing to do with that we don't want to roll out more in Hemköp. But in Hemköp, we have had seen some other priorities in terms of how we want to roll out. And we've had 18 stores rolled out fairly early. We were earlier with that, and we are now working with these 18 stores to drive the model. We also are now moving into the dark store and getting that positioned, which is very much related also to the Hemköp operation in the Stockholm area. Also, Willys, of course, but it's now more Hemköp stores impacted on that. So it is more related to our internal priorities. We're also looking into to work with our franchise stores to see how this model will work out for them. So it is more been of a slowdown in terms of rolling out more until we have sorted out the overall plan and also the other priorities we have.
That's clear. And a follow-up on that because you mentioned, obviously, the dark store and how that's sort of pressuring cost, but you also mentioned lower distribution costs. And I wonder, are the high costs related to the dark stores sort of offset by the lower distribution cost?
Yes, some -- partly. I mean last year, we had some higher logistical cost due to, as you know, the dry and warm summer last year. We had some impact for -- I think, for all of us in this market in terms of higher logistical cost. We haven't seen that this year. On the other hand, we're clear with that. We -- before the summer, we opened up our common dark store with Willys, Hemköp and the Mat.se. And that is an area that we want to do to make sure that we reduce environmental impacts and so forth. But it's also when we are combining all these 3 brands, it has been -- there's been some investment into it. And also, it's also takes time to get it up in full efficiency. So it's clearly that is -- also is increasing our cost at this stage.
And a short last one from me, if I may. On private label, I see the level of private label sales hasn't really increased in Hemköp over the last few years, have you sort of reached a level where, you think, you will stand going forward? Or do you guys feeling to increase that share?
No, I think we still -- I mean, we are making some -- over the years, some progress, but we are still see opportunities on that. There are more. Obviously, we have a little bit different profile in Hemköp versus Willys. So therefore, we have somewhat lower private label share in Hemköp at this stage. But there are still opportunities or -- where -- but again, it really comes back also to how we are -- we have more fresh foods and more other products that is related, that is not private label brands in the same aspect as we have in Willys. So therefore, somewhat lower share.
Next question is from Daniel Schmidt at Danske Bank.
Just a couple of questions, starting with Hemköp. You're right that the gross margin improved in the quarter, partly due to less campaign intensity. Could you give us any guidance on how that's going to sort of develop in Q4? Or put it this way, was there a very high campaign intensity in Q4 last year?
One thing that we had last year. I don't know -- you probably don't remember, but we do -- we had -- we celebrated 60 years. Hemköp was 60, celebrated 60-year anniversary last year. And so with that, we invested in to celebrate that with our customers as well. So a major part of that is related to this.
And then you saw that sort of normalize in Q4 last year then. So that was an entirely a Q3 event?
The 60 year was entirely a Q3 event.
Yes, I don't know what month it was.
No. It was the August, September, so yes.
Yes. Okay, good. And then, sort of, a follow-on on Hemköp. And you've been seeing this trend for a long time now between wholly owned stores and franchise stores. Is there any, sort of, discussion within the management team that you would, sort of, be a little bit more radical and accelerate, sort of, the conversion of wholly owned stores to franchise stores looking into next year and year after?
No. I think I mean, we have the benefit of having a mix of good franchisers as well as a good group-owned stores. Now these, if you look some year back, we'll see that we -- sometimes, we had group-owned stores performing better versus the franchise. At this stage and over now some time, we see the franchise stores developing better. And it's clearly, and I've been clear about this that we need to work more and improve our performance in our group-owned stores. Some of that is also clearly related to some stores that has impacted by some lower traffic in that area, where they are located in. We need to work on that, obviously. But overall, we also need to work on some -- to strengthening the Hemköp brand and to make sure Hemköp has its position that we want to have. And we are there in several areas, but we are also not there in all the areas. And we have a clear plan to change this. But some of that takes time, and we are working on it, clearly with Hemköp management team.
Yes. Okay. Okay, so it's going to be a continuous case-by-case evaluation.
Yes.
Then just finally, a nitty-gritty question on the -- sort of on the WITRON signing and the Bålsta and warehouse erection, would you -- at the stage when you sign, are you going to hedge that amount? Or are we going to live with a situation where the euro is going to have an impact on CapEx every quarter in the guidance and so on, how should we view that?
Look, no. Maybe, Anders, you can fill in. But I mean, the overall part here, which I think I understand your question, and we are now in the final phase. And as soon as we have set the contracts, and we are clear about that we are contracting it in euros. Obviously, we will hedge. We will then give you further details and more details around how the hedging will look like. I don't know if you want to fill in something.
No, I think it's good.
[Operator Instructions] Our next question is from Nicklas Guzman (sic) [ Nicklas Skogman ] at Handelsbanken.
I was wondering about the group costs. And you mentioned that they're higher because of a bigger effort into business development, should we expect a higher cost level on the group cost going forward as well?
Yes, we -- I mean, we are doing some clearly investments, in particularly, our business development and driving that. And obviously, it will change by quarter by quarter somewhat due to -- depending on some of the projects. But overall, it will be a higher level going forward.
Okay. And then on the -- this combined dark store. Are you, in any way, shifting costs from the retail divisions, i.e., Willys and Hemköp to Dagab when you're doing this combination of the brands?
Overall, that's not the plan. Obviously, the brands are taking their fair share cost out of this. So it is not a shift, but obviously, remind you of that Mat.se is in the Dagab segment. Obviously, they are having their costs in Dagab.
Yes. But you're not, sort of, portioning out the increased costs, the total increase in costs for Dagab from this combined dark store to the different divisions fully?
No, they're taking their -- I mean, today, if you look at it, when you are picking it in the store, you're having the costs in the stores. So they have their costs today, and we are moving that. So they are obviously reducing their costs from the store, but they are also then being charged internally then from Dagab for the dark store costs that they have related to their brand.
Next question comes from Gustav Sandström at SEB.
Just a quick follow-up. I was wondering if you have started to look at a -- into the second leg in your automation investment program. If I recall correctly, you will cover about 60% of your market with this new investment, so that would leave, I guess, 40% to the future where you have to do the setup or...
Right now, that's where we -- it's enough chunk to take, if I may express myself a bit open or -- so right now, the focus now is to make this big program for 60% of the volume. And then we'll take it from there in terms of moving forward. But right now, we're only focused on this.
[Operator Instructions] There are no further questions at this time. Please go ahead, speakers.
Well, then I'll just sum up with saying thank you for listening, and thanks for the questions, and see you. So bye-bye.