BHG Group AB

STO:BHG

Earnings Call Transcript 2022-Q1

[Operator]

Hello, and welcome to the BHG Audiocast with Teleconference Q1 2022. This call is being recorded, and a replay of the conference will be available later today on our Investor Relations website.

Together with me are Adam Schatz, President and CEO; and Jesper Flemme, Group CFO. Both will be available for Q&A later in today's call.

So with that said, I will now turn the call over to the speakers.

[Adam Schatz, executive]

Thank you, operator, and good morning, everyone. Moving to Slide 2, please. We further strengthened our position, growing considerably faster than the market and so continuing to gain market share during the quarter.

Our model, combining organic initiatives with M&A and unlocking synergies, is a strength in all markets, and perhaps especially so in more challenging market conditions.

Slide 3, please. I'll start this morning's presentation by reviewing the Q1 highlights and providing a business update. Jesper will then cover the financial section before I conclude and we launch into the Q&A session.

On Slide 4, please. On to Slide 5 for the Q1 highlights. Our markets have stabilized on a new and higher level than before the outbreak of the pandemic. Furthermore, our focus on price leadership throughout our portfolio from the value to the premium range puts us in good stead as consumers' disposable incomes are likely to be under pressure for some time to come, and post-pandemic service consumption has normalized.

In a temporarily contracting overall market, and despite tough comparative figures, net sales in the quarter reached SEK 3.1 billion, up 21%, corresponding to pro forma organic growth of 3% and organic growth of just under 1%.

Adjusted EBIT amounted to SEK 134 million, corresponding to an adjusted EBIT margin of 4.3%, the delivery, which should be viewed in light of a complicated supply situation and a temporarily weaker market in which consumer prices do not yet fully reflect cost increases. Nevertheless, profitability improved gradually during the quarter as a result of the measures we took to respond to the complications.

Cash flow from operating activities at SEK 122 million was unusually strong for the first quarter as a result of improvements to working capital. Importantly, our product availability is good, we've secured the inventory we need to counteract the risks of continued supply chain disruptions as we've now entered the important outdoor season.

Our performance in the quarter as well as over the longer term provide confirmation that we continue strengthening our competitive position and gaining market share, more on which shortly.

Slide 6, please. Zooming in on organic and pro forma organic growth, we did well in the quarter given our high comparative figures and the decline in the overall market. Note that we grew organically by 37% in the corresponding quarter last year. Against this base, organic growth amounted to 1% on like-for-like, on a pro forma basis our units grew by 3%.

Slide 7, please. Taking a broader perspective on growth. To the left, the group's net sales has increased by 155% over the past 3 years, a period in which pro forma organic growth amounted to 22% per annum. Our 3-year pure organic CAGR, i.e., fully normalizing for the pandemic, stands at 15%.

Turning to the middle of the slide. The group's share of net sales from outside of the Nordics has increased by 11 percentage points since early 2019, and Germany cemented its position as our third largest geography in the quarter.

And over to the right, our growth in the quarter, just as our longer term growth trajectory, confirms that we continue to strengthen our position. The total home improvement market is larger than in pre-pandemic times, although it did contract somewhat in the quarter from its pandemic peak of last year. However, the growth trajectory of our underlying markets remains intact.

Slide 8, please, for a quick reminder on our total addressable market opportunity. Although, pandemic effects have temporarily made year-over-year comparisons more difficult, the underlying pre-pandemic direction remains intact, if not actually accentuated, because of the pandemic's lasting impact on consumers focused on their homes.

We estimate the total Nordic market, offline and online, to be worth some SEK 300 billion per annum, so large market indeed. However, eclipsed by the orders of magnitude, large European market. This is the backdrop against which we revised our medium-term financial targets last year, including that we're going for SEK 20 billion in net sales on the next leg of our journey. A temporarily weaker market offers a leader like BHG opportunities to further extend our lead, including by continuing our still nascent foray into Mainland Europe.

Slide 9, please. Moving to the business update. Slide 10, please. Our recipe combines organic initiatives and M&A with the synergy possibilities created between the 2. The organic strategy remains focused on our 4 cornerstones of assortment, scale and own brands, and unrivaled digital experience and supporting infrastructure. In addition to benefiting from the secular trend of rising online penetration, we keep adding product categories and we keep adding geographies.

In the quarter, we continued to invest in our technology platform, both to further improve our ability to effortlessly maximize the breadths of our assortment to all our sales channels and to drive customer centricity.

We also continued simplifying our tech footprint by leveraging the bigger setup for additional group units. Further, customer satisfaction continued on its path to higher levels. And we took steps towards consolidating warehousing for key suppliers and also finalize the consolidation of the majority of our own DIY brands.

Turning to the middle section of the slide. We're also further industrializing our approach to M&A. We've got the organizational capabilities. We have the proven track record and the deal flow and our markets are still fragmented.

In the quarter, we evaluated a large number of targets. We completed the bolt-on acquisition of Hemmy, and we initiated an in-depth snapping of the German M&A landscape, which will be completed shortly.

And over to the right, we continue refining our post-merger integration playbook. At the end of the quarter, we strengthened our integration team further and gathered it under our program management office. Our PMO organization works closely with our M&A organization even before an acquisition is completed in order to ensure a successful integration of the acquired operations. And we took decisive steps to fully integrate Hemmy into our white goods unit Vitvaruexperten.

Moving to Slide 11, please. Deep diving into M&A and integration, a brief update on our premium home furnishings and furniture platform. Nordic Nest has now been part of BHG for 5 quarters and continues to develop well. The acquisition of the Nordic Nest platform, in turn, unlocked the bolt-on opportunity of Svenssons, which was acquired in late March of last year.

The acquisition of Svenssons strengthened Nordic Nest's position as a destination with a complete premium range for Scandinavian Home. Equal parts of the success of Nordic Nest Group comes from a relentless focus on the customer experience as well as ensuring scalable and efficient operating model.

The full integration of Svenssons is in its final stage of completion. And for the premium platform as a whole, key next steps include: one, driving further profitable growth, including through geographic expansion. Nordic Nest today delivers to a host of geographies around the world with Germany its second largest. The past quarter saw the launch of dedicated Polish and Japanese language webshops and further geographic expansion efforts are underway.

Two, unlocking additional efficiencies, including through consolidating the Svenssons warehouse into the Nordic Nest one to enable extensive assortment sharing and automating the Nordic Nest warehouse to provide for an even more scalable delivery apparatus.

Turning to Slide 12 for an update on ESG. The process of setting clear ESG targets for the group began in earnest last year. As a starting point, we used our own materiality analysis, pinpointing the ESG areas in which we could have the greatest impact, as well as the UN Sustainable Development Goals.

By deconstructing our business model and matching this against the materiality, and the UN SDGs, we arrived at a tightly defined set of targets. These fall under the broad areas of how we can maximize our climate impact, how we ensure that our supply and distribution chains are sustainable, and finally, how we best ensure that our financial performance and profitable growth is truly sustainable, meaning including from a societal point of view.

We now have ambitious yardsticks in place, both relatively near-term ones out to 2025 and somewhat longer term ones out to 2030. We have included a selection of targets in the far right-hand column on this slide, and they include CO2 reductions and more actively promoting the most sustainable parts of our product offering, ensuring that we have the processes in place to work with our sourcing and logistics partners so that we can help push and develop our partners in a more sustainable direction, and securing a sound basis for driving profitable and cash-generating growth, including by being best-in-class in terms of data protection and consumer prices.

Turning to key customer metrics, Slide 13, please. Traffic generation conditions resembled what we saw in the second half of last year and were more challenging than in the preceding period. Despite this, and despite meeting the demand peaks from the first year of the pandemic, we maintained our active customer base.

As you can see to the left on this slide, our active customer base is 88% higher than where it stood after the first quarter of 2020, the time not yet significantly affected by the pandemic.

On the top right-hand side, you can see that our key customer-related metrics remain healthy with both orders per active customer and repeat orders somewhat higher than last year and a healthy marketing ROI, ensuring a continued sound first order profitability.

Investments into gaining further insights from customer-related data across the group continue. We have now launched our customer data platform in Finland and 3 of our key Swedish businesses are slated for launches during the year. More generally, driving BHG towards a higher level of customer centricity remains a key focus area for us. And in addition to investing in technology to optimize our marketing and sales approaches, we continue to make progress throughout the group in terms of customer satisfaction levels.

Slide 14, please, for a further flavor on our customer centricity and customer data platform investments. Our customer data platform mission statement is to put the customer first through personalized and data-driven communication and so making our key brands the preferred customer choice, delivering cross-brand experiences and added value beyond price and assortment.

Our investments are allowing us to invite customers through intelligent conversations, creating trust and a more personalized experience. They enable us to communicate proactively on the back of data insights, creating relevance across the whole customer journey. They will make our key brands the go-to place, creating brand loyalty. And through these investments, we're creating cross-brand customer journeys between our brands by leveraging data and insights.

So turning to Slide 15 for a snapshot of BHG today. So this is BHG today at a glance. On the left-hand side, our CAGR since 2014 exceeds 40%. In this period, EBIT has grown by more than 100% per annum. Our EBIT margin on an LTM basis stands at 5.8% and is generated by our over 100 customer-facing web properties.

And now moving over to the right-hand side, these webshops have been visited over 400 million times in the past 12 months, generating north of 5 million orders from customers in 24 countries. And finally, our leading product portfolio comprises some 1.7 million SKUs.

Slide 16, please, handing it over to Jesper, who will walk us through the financial update, Slide 17, please.

[Jesper Flemme, executive]

Thank you, Adam. The first quarter of the year was characterized by growth, strong cash flow generation and gradually improved, while still unsatisfactory profitability.

Net sales increased 21% to SEK 3.1 billion. Pro forma organic growth reached 3% and organic growth reached 0.6%. Organic growth for the group was impacted by high comparative figures and an overall market contracted during the quarter.

Adjusted EBIT amounted to SEK 134 million, corresponding to an EBIT margin of 4.3%. The EBIT margin improved sequentially during the quarter as a result of the measures that were continually taken to respond to the complicated market situation. I will get back to the EBIT margin compared to last year in a while.

Slide 18 and the segments view. Both our segments grew in the quarter despite the overall market declining. Net sales in the Do-It-Yourself segment grew by 20% to reach SEK 1.7 billion, while the Home Furnishing segment grew by 22.8% and net sales amounted to SEK 1.5 billion. Adjusted EBIT amounted to SEK 66 million in the Do-It-Yourself segment, corresponding to an EBIT margin of 4.0%. And to SEK 80 million in the Home Furnishing segment corresponding to an EBIT margin of 5.5%.

Price increases completely compensated for high shipping and inventory costs in the Home Furnishing segment, while that was not the case within the Do-It-Yourself segment. However, the price scenario in the Do-It-Yourself market improved gradually during the quarter, a development that we believe will continue as a consequence of higher cost levels.

Let's now turn to Slide 19 and a closer look at the EBIT margin compared to last year. Comparing our EBIT margin in the quarter to last year, we can conclude that the Q1 2021 EBIT margin of 7.2% is a tough comparison as it was favorably affected by COVID-related market factors.

As the last few quarters, the profitability this quarter was impacted by supply side disruption and despite significant price rises for large parts of the range, the EBIT margin was negatively impacted by higher shipping, product, fulfillment and traffic generation costs. Fulfillment costs are expected to decrease in the beginning of the second half of the year.

The increase in organizational cost is partly explained by the date on which AH-Trading was consolidated as the company is focused on outdoor furniture, and therefore highly seasonal, and partly by continued long-term investments to drive customer centricity as well as a higher share of our own brands.

Finally, increase in depreciation and amortization was primarily driven by continued tech investments. All-in-all, our EBIT margin amounted to 4.3% in the first quarter.

Let's turn to cash flow, Slide 20, please. Cash flow from operating activities amounted to SEK 122 million, mainly driven by the Group's EBITDA, but also thanks to improved working capital.

The right-hand graph showing the development in liquidity walks us through the starting period position of SEK 274 million, adding the cash flow from operations, deducting the impact of investing activities -- a majority of which is M&A related, and finally, the financing activities, which are primarily related to the utilization of our revolving credit facility, but also include amortization of leasing liabilities, bringing us to the period end, SEK 504 million of liquidity at hand.

Slide 21, please. The Group's net debt amounted to SEK 2.3 billion at the end of the quarter, and net debt in relation to LTM adjusted EBITDA ended at 2.6x just outside the medium-term financial target range.

Our possibility to restore leverage within our target range are good, given the fact that our inventory position is fully secured for the outdoor season and the seasonally high business volumes we typically see in the current and coming quarters, both these can help the near-term cash generation prospects. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of SEK 500 million.

Handing it back over to you, Adam, to summarize and conclude.

[Adam Schatz, executive]

Thank you, Jesper. Turning to Slide 23, please. As we reviewed, our trajectory from pre-pandemic times to today has been strong. Although the environment in which we currently operate is complex, we continue to advance our position. Furthermore, our size and approach of combining organic initiatives with acquisitions and leveraging synergies provides us with a major advantage in prevailing markets.

We don't hedge currencies. However, our ability to dynamically change pricing frequently and a high degree of natural currency matching as a result of our geographic expansion, leave us less exposed to currency fluctuations than in the past. Our inventory is well supplied as we've now entered the outdoor season with products procured at lower cost than those prevailing in the market today.

Thanks to our focus on price leadership and the breadth of our range, we can always target our customers with relevant offers. We also have a lower fixed cost base than many of our competitors.

Finally, thanks to our ability to continuously consolidate our markets through acquisitions, we can continue to strengthen our business under all market conditions.

Turning to Slide 24 to summarize and to conclude. So summarizing the quarter. On the back of combining organic initiatives with M&A, our growth journey continued and LTM net sales amounts to SEK 13.2 billion. While facing tough comparative figures, we continue to strengthen our Nordic position, and we took further steps on the European continent.

Supply disruptions and demand complications were similar to what we saw in the second half of 2021. Although the environment will continue to be complicated in the short-term, we see that our mitigating actions are having desired effect and believe that peak complications are behind us.

The host of organic initiatives, which are sort under the headings, assortment, delivery and data/automation, are an advanced motion. 2021 was a record M&A year for us. We're currently focused on integrating the acquired businesses and stand ready to act as new relevant opportunities as attractive deal terms materialize.

We updated our financial targets last year, and we're progressing well towards reaching these with LTM pro forma sales now exceeding SEK 14 billion. And finally, we continue on our quest to create the undisputed European online home improvement platform.

Moving to Slide 25. This concludes our presentation. Operator, we're now ready to take questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Niklas Ekman from Carnegie.

[Niklas Ekman, analyst]

I have a couple of questions. Firstly, I'm curious when you talk about strengthening your market share, I assume you're talking about organic growth. And I'm curious what markets are you comparing to? I think we've seen some fairly strong figures on the B2B side in DIY and then bulky building supplies. That seems to be a fairly strong market. So which are the most struggling market that you see right now where you are seeing clear signs of gaining share?

[Adam Schatz, executive]

So firstly, our almost exclusive focus today is on the B2C market, so that's the first delineation. Secondly, as you also know, we have today established not only a strong position in the 4 Nordic countries, but we're also present in a number of geographies on the European continent. And so when we talk about market share, we primarily talk about online B2C in the markets that we are in today.

And as you probably also know, there isn't like one definitive market development figure out there or database that everyone can agree to representing the truth. But from our very many data points, we estimate that our market, including online and offline to begin with, contracted by perhaps 4% versus the pandemic peak from a year ago.

And we also saw some tendencies in this past quarter of the -- online penetration actually not increasing, which, of course, is unusual, and it's to be seen against the backdrop of the comparison to the pandemic -- the first year of the pandemic.

So we're absolutely convinced that the total market as well as the online market shrunk in the quarter, and we can debate exactly the order of magnitude of that contraction. But that's the basis for our conclusions. Does that answer your question?

[Niklas Ekman, analyst]

Absolutely. That's very clear. And the second question is regarding the consumer behavior. If you've seen any changes since the war in Ukraine started. I assume that many consumers saw a lot of initial hesitation and then volumes have gradually come back. But where would you say that the consumption is now compared to before? And are you worried about lower disposable income impacting demand going forward?

[Adam Schatz, executive]

Yes. So basically, the impact of Russia's invasion of Ukraine it doesn't introduce any real new elements into the equation, but it does add fuel to some of the complications that were already in place, both on the supply side, which perhaps we can come back to, but also on the demand side.

So the demand side is affected both by the high comps still from the peak of the pandemic quarters, but also from consumers feeling less confident about what the future may hold for them. So definitely, the general environment is less benign than it was in the past period. That was a swing, as you know Niklas, also that we already saw moving into really the second half of 2021. And through 2021 and into now, consumer spending is not as buoyant as it was in the preceding period.

Now the most -- the more direct impact of Russia's invasion in terms of -- on demand, at least, was felt in our Eastern European furniture business, where we have been on an extremely strong growth trajectory for a good while now, and we saw a direct impact on growth, which came down to much lower levels really already in the days leading up to the actual invasion on the 24th of February.

And our market data, more generally across Europe shows that -- so this is not BHG, this is the market as a whole, but the Eastern European markets and actually also the U.K. seemingly have been the markets that have been the most affected. But generally, it's, I would say, more difficult than ever to have a strong view on where demand will go from here, because I think in the -- on the other side of the scale, the lasting impact from the pandemic, we're convinced on consumers' focus on their homes is a factor and will be a factor. And also the fact that online penetration has gone up over the past 18 months also means that there is less of a hesitation even in our categories to shop online moving forward.

And thirdly, as I also mentioned briefly in my remarks, we feel good about our position in terms of the breadth of our portfolio, but also the fact that our focus has always been -- even in the premium part of our range, to be very price competitive. But with all that said, there is uncertainty as to where demand will go from here, and we're taking measures in terms of pricing and cost containment and online marketing strategies so that we can be effective in any market development -- any direction that the market develops from here.

[Niklas Ekman, analyst]

That's a very clear question, I think, to a tough question. Can I ask about supply chain exposure to China? You mentioned here that you have very high inventory and you are stocked up here for the peak season -- the peak outdoor season. But do you see any tangible risk of disruptions impacting you going forward? Or would you say that this is very well contained for you?

[Adam Schatz, executive]

Well, ordinarily, we wouldn't be so pleased with the inventory levels that we have today. But in these markets, we think that it's not a bad thing. And much of the inventory position that we have today that is resulting from our active decision to allow higher inventory levels given what we believe is a scenario with continued supply side disruptions.

So I would be very surprised if we are materially affected by such disruptions in Q2 and Q3 given our inventory levels, other than perhaps in very specific subcategories. But the general supply side picture is also quite similar to what we saw through March of 2021 with still very elevated container freight rates, still longer lead times and still a larger degree of uncertainty as to what those lead times will actually be.

And as we all have read recently, the renewed lockdowns in China, of course, mean that the gradual normalization that is underway will not happen in a smooth way, it will happen in fits and starts, but it will come.

[Operator]

The next question comes from the line of Daniel Schmidt from Danske Bank.

[Daniel Schmidt, analyst]

Just a couple of questions from me. You touched upon it when it came to -- that you were happy with the inventory levels, although they're quite high and that was an active decision. And you also write that your inventory was procured at costs, again, significantly below the cost prevailing in the market today. So this will carry you through Q2 and Q3. And how do you view sort of entering the autumn? And what kind of price increases would you need then in the autumn to neutralize the input cost inflation that you're seeing in purchase prices as of now.

[Adam Schatz, executive]

So we've made significant price increases already, and as we write in the report, more is very likely to come. We have a certain degree of pricing power within parts of the private label assortment and where we've had the best effects so far as -- I think, is also quite clear in our numbers is on the Home Furnishing side, where one reason that we've been able to make these adjustments slightly more aggressively is that it's a somewhat less fragmented market than on the private label DIY side where there are quite a lot of smaller competitors.

And I think the battle really stands around this outdoor season where the competition for a lower level of demand is putting somewhat of a dampener on our ability to raise prices on that private label DIY assortment for now. But I'm also convinced that our size is a key advantage, because our competitors will struggle -- these smaller competitors will struggle to a much higher degree than we will in terms of restocking. And so, I think competitive pressures going into the outdoor season of 2023 will be entirely different than they are today. So that's not perhaps a perfectly direct answer to your question, but it touches on some of the aspects that you're asking about.

[Daniel Schmidt, analyst]

But it's fair to assume, given what you're writing in terms of your current cost given today's inventory that will help you in sort of improving the profitability sequentially like you saw during the quarter. Is that a fair assumption that given that you're writing that you saw a sequential improved margins in Q1 helped by the actions that you took to sort of neutralize input cost inflation. Is that carrying into Q2?

And on top of that, you're coming into the high season with significantly sort of lower cost for sourcing than what would have been the case today. Is that implicitly translating into -- that we should sort of read in that margins will be higher sequentially in Q2 versus Q1.

[Adam Schatz, executive]

So our belief is that they should. We don't make forecast, as you know, Daniel. And I would say that the supply side of the equation is under control today. We have some elements that are affecting our cost base, which are to do with the relatively high inventory levels that we have today. And we've also mentioned in the report as we did in the Q4 report as well that our fulfillment cost levels are higher than they are ordinarily because of our high inventory levels. And those will continue to be quite high to Q2 as we gradually reduce that inventory level.

But the supply side situation is, I would say, like as much under control as it ever can be through the outdoor season and the uncertainties are on the demand side. And that we unfortunately don't -- we're not in a position of any perfect crystal balls. And I think that's the uncertainty.

But having said that, as you know, Q2 and Q3 are our strongest quarters traditionally. And with the business mix changes that we've seen that we've executed on in the past 18 to 24 months, Q4 is actually also typically nowadays a decent quarter for us. So Q1 is still as historically our smallest quarter, both top line and bottom line from a seasonality point of view.

[Daniel Schmidt, analyst]

Yes. And you also write that conditions for improved profitability are good not -- as you alluded to, not least during the second half of this year. And my understanding of that sentence is that you're then referring to a year-on-year comparison when we look into the second half. Is it the sort of right way to interpret that sentence?

[Adam Schatz, executive]

Yes. And with the addition -- coming back to what I just mentioned with -- we're not happy with the fulfillment cost levels that we're at today. They should also be coming down a bit.

[Daniel Schmidt, analyst]

And then sort of another big sort of impacting factors, of course, been cost-per-click or marketing costs. When do we -- do we see sort of that becoming sort of hitting flow circle as we enter the autumn? Is that when you started to see marketing cost or cost-per-click coming up a lot from previous year?

[Adam Schatz, executive]

Yes. So there are really 3 factors behind the levels that we're seeing today as we see things at least. One is the normalization compared to the unusually benign traffic generation conditions from the first year of the pandemic, and that was always expected.

The second factor is a demand situation, as we just discussed with a temporary contracting market, which have heightened competitive pressures, not least in the categories where competition is the most fragmented. So those 2 factors are there. And I would say that the temporarily heightened competitive pressures, that's not a structural factor. That will also dissipate over time.

And the third one, which is quite difficult to quantify in any proper sense is the indirect effect on us of the privacy changes that have been instituted by the likes of Google and in terms of the Apple iOS update, et cetera, which have closed down avenues for some of our competitors on their old marketing practices, leveraging third-party cookies, et cetera, which is not a traditional avenue that we've pursued. But that has forced some of these peers to also start competing on our arena basically. And the long term answer there is our investments into data and more specifically, as we also had a slide on in the presentation on our customer centricity and customer data platform investments.

[Daniel Schmidt, analyst]

Just coming back also to demand, and I appreciate that it's very hard to predict where the market is going to go. But since the sort of the lifting of restrictions in the Nordics and other parts of Europe where you're present by sort of mid-February, it's my impression that the shift towards -- back towards offline has been quite strong. Could you shed some light on that? How you view that sort of -- how you view that trend for you guys in the recent weeks?

[Adam Schatz, executive]

Well, we -- again, there's not a perfect data source out there. But I would say that I agree with your assessment that there's been a certain measure of offline comeback in the quarter that just went by. It doesn't really change anything in terms of direction that these markets will develop in, we are convinced. But yes, there's been a certain degree of offline come back in the quarter that just went by.

[Daniel Schmidt, analyst]

And then just final. The reassessment of the earnout that you did in the quarter, could you tell us what acquisition that relates to?

[Adam Schatz, executive]

I would rather not comment on the specific acquisition. I think you will be able to see that a year from now in the annual report for the 2022 year.

[Operator]

The next question comes from the line of Magnus Raman from Kepler Cheuvreux.

[Magnus Råman, analyst]

And already a lot of good answers to questions here, but I'd like to follow-up on the fulfillment cost reduction. You mentioned the upcoming integration Vitvaruexperten and Svenssons warehouses and then also automation investments. Could you provide any lead here to what cost savings you budget from this, if not an absolute figure, perhaps percentage wise on cost per [ handle ] unit also?

[Adam Schatz, executive]

So we're never that granular in addressing where we see the future developing. So the directional answer, we're comfortable giving. But again, we don't provide forecast and we'd be really fail to go down to that sort of detail. But I would just reiterate that our current fulfillment cost levels are higher than the ordinary structural level that they have been at and will again resume towards.

[Magnus Råman, analyst]

But is it also fair to assume that over time, you would be able to have lower fulfillment cost levels relative to sales provided that you are now doing this integration and automation measures.

[Adam Schatz, executive]

Absolutely.

[Magnus Råman, analyst]

And could you also perhaps provide a lead to -- you mentioned this as an example, but is this the wide-ranging opportunity across sort of acquired businesses and so on, that there is a lot more to do on the backend integration?

[Adam Schatz, executive]

Short answer is, yes, definitely. And we will be coming back to you, analysts and the investor community some time later this year. We are hoping that we will be arranging the Capital Markets Day in which we will be shedding more light on some of those operational aspects. But the general answer is, yes, definitely, over time, there is more opportunity to gain upsides from structural synergies.

[Magnus Råman, analyst]

And then in the presentation, you also mentioned that you have been examining several potential acquisition targets and putting that in light of your current debt levels. Is it fair to assume that -- as you also write in the report that you expect from this season strong Q2 and Q3, a clear reduction in debt levels from the cash flow you will generate? So that sort of potential additional acquisitions would be possible already in the coming quarters. Is that a fair assumption?

[Adam Schatz, executive]

So Jesper, a few comments on the balance sheet. I can talk a bit about the M&A.

[Jesper Flemme, executive]

So the liquidity stands at roughly SEK 1 billion, consisting of equal parts of cash and unutilized facilities. And as you say, we are moving into high season where it all happens from a cash flow perspective. And as I said in the presentation, given our -- that we have -- the inventory fully secured, we believe that we will see a strong cash flow going forward.

[Adam Schatz, executive]

And so then from an M&A opportunity point of view, we're a bit frustrated with sellers' expectations not having aligned with realities as fast as in our view they should have, but they are getting there. And from a deal volume or deal flow volume point of view, we are reviewing a very large number of opportunities every month. And there are definitely relevant and interesting targets out there in terms of number of targets -- the bolt-on types, of course, are more numerous, but there are also some larger ones that from a strategic point of view could make sense. But we are always headset on ensuring that we're disciplined and focused, and we will act when we see an alignment of the right target from a strategic point of view at terms that we feel are sound and attractive.

[Magnus Råman, analyst]

And just a detailed follow-up on the unutilized credit facilities value. They were down from SEK 800 million year-end to SEK 500 million here exiting Q1. Is that -- are you looking -- are you planning to add new facilities? Or how should we think about that decline?

[Adam Schatz, executive]

I mean the short answer right now is that we have the facilities that we have, and we're not planning to add any new.

[Magnus Råman, analyst]

All right. I think maybe I should let further questions on, but I could just end with one final here. I mean there was quite a cold weather at the end of Q1, I believe, compared to last year. And perhaps you didn't get that spring start at the end of Q1. But then, of course, temperatures heated up in the Nordics quite substantially at the beginning of this month of April. So could you give any commentary what sort of a good start of the spring season at the beginning of April, would you say?

[Adam Schatz, executive]

It was actually unseasonably cold well into April. And speaking to our Finnish colleagues just last week, there was actually still snow on the ground in the outskirts of Helsinki. So the start to the outdoor season has been later than what it was last year, which was much, much warmer than this year.

[Operator]

And the next question comes from the line of Gustav Hageus from SEB.

[Gustav Sandström, analyst]

A lot of questions on the fulfillment, and I have one too. So deducting gross margin from product margin, the gap is about 12.5%, 12.6 percentage points. And if you can confirm that if there's anything else there than the fulfillment cost that we talk about.

And secondly, at the IPO, as far as I remember, I think we talked about the fulfillment cost to sales of about 11%, of which 9% was direct to postal costs. Now much has changed, obviously, new structure since then. But could you give us an updated figure? Is that still a relevant number to keep in mind when thinking about the potential in the fulfillment to sales going forward?

[Adam Schatz, executive]

Jesper, do you want to cover that?

[Jesper Flemme, executive]

I would. If I start with the split that you say Gustav, and maybe firstly good morning. You have also the postage costs, so its fulfillment and postage as direct selling costs. And I think, maybe Adam should answer, but it's hard to give you an exact number. And as you say the mix has changed, so we have more companies keeping inventory right now which is driving fulfillment costs up compared to the numbers that you mentioned. But also as we had discussed in the call, the potential for improving is there. So I don't think that answers the question.

[Gustav Sandström, analyst]

That helps. And finally for me, you referenced temporarily weaker markets, Adam. Is it -- should we interpret that as you already see Q2 as a better market? Or is that more of a longer term view of yours?

[Adam Schatz, executive]

No, we don't really provide any guidance in terms of demand short term. So bulk of talk of that anything else than directionally what we are convinced will continue to happen in our markets, which is there will be a growth in the total market more or less in line with GDP over a business cycle, and there will continue to be an increase in online penetration for many years to come. So that's the way it should be interrupted.

[Gustav Sandström, analyst]

And in terms of the competitive landscape, though, and that how you competitors choose to price, is that something that you feel better about already in Q2? Because you're right that your -- it was increasingly improving.

[Adam Schatz, executive]

Yes. We feel better about and we -- as we've seen and also demonstrated within the Home Furnishing segment from a very poor performance in Q3 of last year to an okay performance, Q4 and Q1 -- okay, given circumstances. So yes, we do. But again, in the private label DIY part, that's where it's been the most difficult to make necessary price adjustments. We have made some, and there will be more to come, I am convinced. It's difficult to have a very, very clear view on how competition will act in the coming 2 or 3 months here. But the direction is very clear. The timing is less clear.

[Operator]

And I'll now hand it back to the speakers.

[Adam Schatz, executive]

All right. So if there are no further questions, thank you everyone for calling in, and thanks especially to those of you who also asking excellent questions. We look forward to speaking to all of you before too long again. Thank you. Have a great day.

[Operator]

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.