Good morning and a warm welcome to Tokmanni's Q3 presentation. My name is Mika Rautiainen, and together with me to do the presentation is Tokmanni's CFO, Mr. Markku Pirskanen.
Welcome from our side or my side also.
I will first go through the Q3 highlights. Markku will then dive deeper with the numbers. Then we have time for questions. This is basically the plan to go forward. First of all, I'm very pleased to present good results of Tokmanni Group's third quarter. Obviously, it's only a 3-month period, but it's very important for the whole company, already the second quarter in a row to see that we're taking the right actions with the business. About the highlights, we had strong growth in sales. Sales developed favorably in all product categories, especially those which are very important for Tokmanni in those destination categories. Sales were also supported by tax refunds. Maybe I should explain a couple of words about this Finnish taxation system. Already tens of years, the government paid the tax refunds from the previous year in the beginning of December.
2019 is the first year with a little bit changed system. The tax refunds are being paid in the beginning of August, September, October, November, and December. The biggest part of the tax refunds were being paid in the beginning of August and September. From our point of view this has supported for example, the non-food business in Finland in total. We also could see some support in Tokmanni figures. Of course, strong growth with EBIT. The gross margin improvement was due to sales mix and higher sales of private labels and direct import products. With the sales mix, I'm referring to especially good sales in the destination categories of Tokmanni. We also could continue with the relative share of operating expenses, basically decreased the share of operating expenses.
That, of course, led to the growth with the EBIT as well. I'm very happy to thank Tokmanni people for good job basically done also during the third quarter. About the figures regarding the third quarter. As mentioned already, all product categories were performing well. Revenue grew by 9.9%, where last year was 7.8%. Tools, leisure and home goods, interior decoration and garden products, they had very strong sales. For example, when compared with food products, these were much stronger growth and that also showed with the gross profit. Of course, very happy about the result for like-for-like revenue increase, which was 4.9% when it last year was 4%. Last year, already strong growth with like-for-like revenue. This year even better on the third quarter. We have been targeting to improve gross margin.
During this third quarter, we already managed to improve it or make a clear improvement ending up with 35.4% gross margin during the third quarter. The comparable EBIT was EUR 21.9 million, where last year it was EUR 15.5. We reached 9.5% EBIT of revenue for the third quarter. Earnings per share were EUR 0.27 compared to last year's EUR 0.17. When it comes to the year this far from January to September, business basically proceeding according to the plan. However, during the first quarter, of course, there was an effect from these store conversations from the acquisitions and result-wise, the first quarter was a little bit more difficult, but the second and the third quarter were already according to the plan. This far after nine months, we've had revenue growth of 9.5% where last year was 9.9%.
Very good growth for Tokmanni as well as with the like-for-like figures with revenue growth was 4.9% and compared to last year's very high 5.9%. The first quarter gross margin was a little bit more difficult, but already now we result after nine months with improved gross margin level of 34.1% where last year was 33.7%. Clear improvement with EBIT of EUR 38.4 million compared to last year's EUR 26.6 million. Earnings per share were EUR 0.41 compared to last year's EUR 0.27. Basically, the driver for 2019 has been improving profitability, and we'll continue that of course, during the last quarter as well, meaning improving gross margin. We are working a lot at the moment with private labels and direct imports.
Markku will show a little bit more about the figures regarding private labels and direct imports, but we are proceeding with this part and we're happy about it. Reducing the share of operating expenses it's proceeding according to the plan, especially when it comes to real estate and maintenance costs and store personnel costs. We still do have a lot to do with the supply chain management, which will be also in our focus for 2020. Of course, developing online business is a crucial part for our business as well. At the moment, all preparations has almost been finalized for Black Friday, which is of course the highlight of the year. At the same time, we're launching new tools and also some methods, trying out some express deliveries to improve our customer experience with the online business.
Here's the figures from the Finnish Grocery Trade Association. It has to be noticed that these figures, they don't include the online retail sales at all. With the red curve, you can see the Tokmanni market development, sales development, and with the black one, it's all non-grocery operators in Finland. From our point of view, the Q3 development for all players in the Finnish market, we feel that this is supported by the tax refunds at least partly. Anyway, very good development with non-grocery market in total. It's about time for Markku to dive deeper with the figures. Please.
Okay. Thank you. Let's look a little bit deeper the figures and then taking some graphs there. Mika already of course mentioned the main figures. Let's go forward. Starting from revenue, here is the graph, which includes a little bit history, basically 5 years time backwards. We are seeing here years 2015, 2016 and 2017 where our growth has been quite modest and even negative when we are speaking about the like-for-like revenue. The actions, what we started to do at the end of 2017 and beginning of 2018 by emphasizing the customer confidence, putting cheap prices has a very important role and also making some wider product assortment or actions to make it wider. It seems to be that they have been very right decisions.
Already in 2018, we achieved good growth figures, we have to be very satisfied that also the development has continued during 2019. When we are looking the Q3 figures the total growth was 9.9% and the organic growth or like-for-like growth was 4.9%. Basically, it continues the same development what we had during the first half of 2019. Now looking the nine months figure, we are at the level of 9.5% as a total growth and in like-for-like revenue growth was 4.9%. The next slide, I always like to remind that Tokmanni's business is very seasonal. Now looking the graphs here, we are really seeing that the first quarter is the lowest when we are looking the revenue and also the profit point of view.
The second and third quarter are always about the same level. The fourth quarter is clearly the most important for the company. As said, these forms are looking about the same when we are looking different quarters. Of course, when looking the graphs during 2019, they are now a bit higher level compared to 2018. The EBIT for Q3, EUR 21.9 compared to last year's EUR 15.5 million, was very nice development. Next slide, our comparable gross profit. We have said and we have set the target to improve percentage-wise our gross profit. Now during Q3, we achieved good growth in our percentage. 1.2% is quite a big jump. Why it came, it really is coming from our sales mix, and we were basically able to sell the products with the product groups with a better margin percentage.
Of course, at the same time, we have to remember that when we are looking our sales mix, that it is also in relation how well we are able to sell the private labels or how well is our direct imports developing. Now these all parts were developing well, and that's why we ended up to the good development in our gross profit percentage. Happily have to say that also now we are also cumulatively on higher level compared to 2018. After nine months, the gross profit margin is 34.1% compared to last year's 33.7%. One or two important drivers for developing our gross profit margin is, as earlier said, private labels and direct import. Here you find the numbers for that issue.
Looking this left side circle, we see the Q3 development, and we are able to see that our private label share was 31.8% compared to last year's 30.9%. Below the circle, you can find this development during the first nine months. We have to say that here we are still a bit lower level compared last year. The cumulative figure is 30.9 compared to last year's 31.1%. Looking the direct import share, we can find which is this right picture here or right graph. We can find that the jump was also quite a big one, ending during Q3 to 25.7% compared to last year's 23.6%. Cumulatively, we are now over last year's figures ending up 24.2 compared to 23.4%. As said, we have to remember that this is in relation to what kind of products we are able to sell.
Of course, at the same time, we have to remember that we have made different kind of actions to achieve higher percentages here. Somewhat when we are looking these results, I have to say that at least in some actions, we have managed quite well. Other target for us is to improve operating expense ratio. Here you can find that during Q3, we managed well. We ended up to the ratio, which is 19.7% compared to last year's 20.6%. Looking the cumulative figure, we are also on lower level, which is 21.8% compared to last year's 22.6%. I have to say that we are now on the right track, but still we are doing different kind of actions to improve this one. We are on the way, but still work to be done. Next slide about our EBIT.
This is basically, of course, the result about the revenue growth, improving margin, and better OpEx ratio. Looking at Q3, as already said, ending up EUR 21.9 million compared to EUR 15.5 million last year. Especially looking the percentages here, now we achieved 9.5% compared to last year's 7.4%. Of course, when looking the cumulative figures here, we achieved after nine months 5.8%, and last year was 4.4%. Of course, we still have to remember, as I mentioned during when looking the seasonality, that Q4 is the most important quarter for us. As said, still work to be done for this year. Balance sheet and financial position here. You can see here that our inventories has increased, now at the level of EUR 237 million compared to last year's EUR 202 million.
Basically, there are two quite natural explanations or the explanations what I have told also earlier, the growth in store network and also this, that we have made a wider selection of our products. That's the two issues which affected. Now during Q3, we made also a decision that we take the products earlier to our store to guarantee that we are able to have products also in our stores when we are starting to make the Christmas season sales. That should make us in a better position to make the better Christmas sales. This was the decision what we made. Now you can see here that we have a bit higher inventory compared to revenue, what we had last year. Other thing which I can pick up here is that our interest-bearing debts, which total at the end of period, EUR 424 million.
As a reminder, this IFRS 16 standard, which increased our debts very much when we put our rental agreements to a balance sheet. At the same time, picking up what is our so-called real interest-bearing debts to banks, it's at the level EUR 118 million, which is roughly one-third out of our total net debt figure. Ratio of net debt to comparable EBITDA is now at level 3.4, and our long-term target for this figure is 3.2. We were already now quite near on that figure. About our net CapEx. After nine months, we are at the level of 11.9 compared to last year's 10.9, and as said here, that we are expecting to be around at the level of EUR 50 million during 2019. Now I transfer speech to Mika.
Thank you, Markku, for the analysis. As we both already mentioned, the fourth quarter is the most important quarter for Tokmanni, both sales and result-wise. We are confident to update the outlook for 2019 revenue, and the update is basically we updated the good revenue growth to strong revenue growth in total for 2019. The like-for-like revenue growth we update to good instead of slight growth for 2019. This is the change. Of course, the guidance for the profitability has been for the whole year. Group profitability is expected to improve on the previous year, so we're sticking to this guidance for the rest of the year. We've been talking about already in the end of last year, we mentioned that we will be launching two new private label series. After summer, we launched Pisara, a new personal hygiene private label range.
It has been very successful during the first months. Right now, actually, it was last week when we launched a new Perfekt+ Private label range for everyday products, laundry, dishwashing, and cleaning. Price and quality-wise, both Pisara and Perfekt+ are, from my opinion, the best price quality, basically value proposal in Finland. Anyway, this Perfekt+ is still very new, so we don't really have the actual results. Regarding the Pisara, we're very happy about the sales of Pisara. Basically the financial statement review for 2019 will be published on the 7th of February 2020, and here's just a picture. We started, beginning of September, cooperation with Finnish Red Cross, and it's according to Tokmanni's sustainability strategy. We're very happy about it because we have 189 stores at the moment. By the way, there will be two more store openings this year.
By the end of the year, we will have 191 stores in all over Finland. In all these stores, we're able to work together with the local Red Cross and right now it shows that it fits in with Tokmanni very well. Thank you very much. Operator, now it's time for questions, please.
If you would like to ask a question, please press 01 on your telephone keypad. If you wish to withdraw a question, you may do so by pressing 02 to cancel. That is 01 if you would like to ask a question. Our first question is from Tushar Jain from Goldman Sachs. Please go ahead. Your line is open.
Yeah. Hi, good morning.
Good morning.
This is Tushar from Goldman Sachs.
Hi, Tushar.
I have three questions. Hey, I hope all good with you. There's three questions on my side. I'm going to put one by one, if that's fine.
Okay.
The first one is, I just want to understand what's the impact of tax refund earlier, and primarily, can it be a sort of a headwind when you talk about Christmas trading given the importance of fourth quarter?
Sorry, I need to ask one more time. You were referring to tax refunds, yes?
That's correct. Can it have a material negative impact over Christmas trading given pull forward of demand?
Yes. Of course, as mentioned earlier, it has been a tradition for tens of years that there is this tax refund in the beginning of December. I think that it has boosted the Christmas sales every year basically. Right now we're basically missing the peak of this few days. Let's put it this way, we think that we are going to miss the peak in the beginning of those two, three days or in the beginning of December. On the other hand, the economic situation in Finland it's actually good. Christmas still has a big meaning, I think that there will be an effect. Of course, we don't know yet how big it will be. We think that we're going to survive with losing this peak anyway.
Got it. That's very helpful. My second question is on private label and direct import. We clearly have seen pickup, as you mentioned as well. Just trying to understand, is there some one-off benefits kicking in or this is more structural that now you will get this kind of uplifts for next few years?
Well, of course, I know Tokmanni history from close to two years' time, but I think that it has always been about private labels and direct imports. I think that during the last two years, we have been working quite systematically with both areas. The new private label ranges are, for the moment it looks as they're successful. Next year we will take a lot more systematic approach developing the private label ranges, especially in Tokmanni destination categories. At the moment, of course we're working quite hard with improving the direct in or growing the direct imports. I just came back from China last weekend myself. We were there with the Canton Fair together with Europris and ÖoB from Sweden. At the moment, the Nordic market, Finland, Sweden, Norway.
Due to trade war, the Nordic market as a stable and a good market, it seems very good from the Chinese supplier's point of view. We will be, of course, working very closely with our suppliers to grow with the direct imports.
Yeah, one comment.
Sure
as Mika already mentioned, for private labels, it's clearly the systematic work what we have to do and then going forward step by step because basically, of course, always it's customer's choice. We have to make it so that customers will choose a bit more often our private labels compared to the brand product. That's work what will happen step by step. As you said or make a question, is it for the next three years? Of course, it's coming for the future, but we are going forward, as said, step by step.
Got it. Makes sense. My final question, in terms of your improvement in supply chain, just wanted to check, is there a risk of disruption there? I'm just trying to understand what kind of improvements you're making in supply chain, and can it lead to some sort of disruption? That's all.
Well, the improvements with the supply chain management in total, it's like a huge area. As a discounter, that's something that we really have to make a lot of efforts to make sure that we're working in a very fluent and fast and lean supply chain management. Of course, for example, when it comes to Far East imports, we're working with amount of harbors so we're reducing the How do you call it? Unfortunately, my English is not that good with the logistics part or logistics wording. Anyway, I think at the moment, we're using too many harbors, for example, in China, which means that we're not getting full enough containers, and we're going to reduce the amount of harbors to make sure that we have full containers and we're being more efficient with that part.
Of course, Markku mentioned about our warehouse and amount of goods at the moment, that we're on basically very high level of inventories and because we wanted to start the Christmas earlier.
Yeah.
Next year, I think that we should start it even earlier, especially these big seasons like Christmas and springtime. We should just start it earlier to make sure that things also with our stores and store replenishment works even better. These are just parts of the supply chain management. Of course, the warehouse efficiencies, that's one part as well. There are several parts or sections or how would you call it, that we need to improve. Unfortunately, it's not a fast thing to do, but I feel that we're on the right track right now.
Sounds good. Thank you very much.
Thank you.
Thank you.
Just as a reminder, if you do want to ask a question, please press zero one on your telephone keypad. Our next question is from Niklas Gudmunds from Handelsbanken. Please go ahead, your line is.
Yes. Hi, guys.
Hi.
Hi, Niklas.
I have two questions. The first one is on the inventory side. Do you expect to see the traditional sort of sequencing of ending the year on a lower inventory than you had in Q3?
Yes, clearly. If you look from euro point of view, it will come downwards because Christmas sale starts and we are selling normally more stuff during Q4. Yes, that should be the direction.
If I can add just that at the moment, we have all the Christmas goods either in our warehouse or in the stores. From now on, we're basically in the peak with the inventories level. From now on it's going to start going lower.
Perfect. Thank you. I'm looking at your other operating expenses. They were down 2% in Q2 year-on-year. Now they're up 2.5%, which is sort of below what it was a couple of quarters ago. Is it this sort of 3% growth level we should be expecting or is there anything extraordinary also in Q3, because I think in Q3 you said you had some services contracts that you had renegotiated that helped you on the cost side.
Yeah, of course, as I said earlier also that we have basically taken the easy parts of decreasing the savings or decreasing the costs and going forward, of course, we have to be as a discounter, we have to be very careful with the costs and keep them in very good control. That of course means that we are in every place negotiating, but it's always very difficult to get it at lower level in Euro point of view. At the same time, when you are keeping them in a good control and your revenue is growing, it of course means that your ratio will improve. That's of course what we are targeting to do. As said, at the same time, the easy part has been taken.
Okay, thanks. One last one perhaps on the What sort of average price difference between a private label good versus a branded one? I'm just trying to think about the potential impact on like-for-like sales from people moving to private label instead of the branded ones. Of course, it's going to help your gross profit and gross margin, I'm just interested in the top-line effect.
First of all, you're obviously on the right track. This might of course affect in very near future, these private label ranges that we've just been launching for personal hygiene and then these cleaning, Perfekt+ cleaning products and things like this. I think it's very important for us to have these private label ranges because we are in Finland with these products we are on a very competitive price level to start with. Yes, it might of course affect on a unit price because it is clearly lower than with the A brands. At the same time, I think that we are much more price competitive with our competitors. We also feel that we will increase with the satisfied customers with our new product ranges.
This, of course, with Pisara, the personal hygiene range, that's also something that we've seen already that our customers are They've noticed this price quality value, basically, that it's very good compared to our competitors. Yes, you're absolutely right. We have to take this to consideration that private labels are with the lower price level. It's very difficult to give you a percentage because it differs in different product groups. There is no one clear percentage difference between private labels and A brands.
The difference is clear, that's for sure.
Yeah, for sure. Yes, that's true.
Okay. Your home and personal care, is that still around 16% of revenue or?
Sorry.
The home and personal care category, is that still 16% of, or maybe that was 16% of SKUs actually.
We have not published this figure, unfortunately, I can't comment on that figure.
Okay. Okay. Thank you very much.
Thank you.
Thank you, Niklas.
As there are no further questions, I will hand the word back to the speakers for any final comments.
Okay. Thank you very much. I can just say that if you have a chance visiting Finland during this Christmas season, please come and visit Tokmanni stores and see how we're doing with the Christmas sales. Thank you. Thank you very much.
Thank you.