Good morning and warm welcome to Tochmann's Q3 Presentation. My name is Mikael Autyanen and together with me to do the presentation is Tochmann's CFO, Mr. Marco Periskanen.
So welcome from our side or my side also.
I will first go through the Q3 highlights and Marc will then dive deeper with the numbers and then we have time for questions. So this is basically the plan to go forward. And first of all, I'm very, very pleased to present good results of Tokamani's 3rd quarter. Obviously, it's only a 3 months period, but it's very important for the whole company, already the Q2 in draw to see that we're taking the right actions with the business. So we had about the highlights, we had strong growth in sales.
Sales developed favorably in all product categories, especially those which are very important for Tokamane in those destination categories. Sales were also supported by tax refunds and 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. And this is the 2019 is the 1st year with a little bit changed system. Basically the tax refunds are being paid in the beginning of August, September, October, November December.
And the biggest part of the tax refunds were being paid in the beginning of August September. So from our point of view, this has supported, for example, the non food business in Finland in total. And we also could see some support in TOKMANI figures. And then of course, strong growth with EBIT, The improvement basically the gross margin improvement was due to sales mix and higher sales of private labels and direct import products. And with the sales mix, I'm referring to especially good sales in the destination categories of Topmoney.
And we also could continue with the relative share of operating expenses or decreased and basically decreased the share of operating expenses. And that, of course, led to the growth with EBIT as well. I'm very happy to thank TOK Money people for good job basically done during also during the Q3. About the figures regarding the Q3, All as mentioned already, all product categories were performing well. Revenue grew by 9.9%, where last year was 7.8%.
Tools, Leisure and HomeGoods, Interior Decoration and Garden Products, they had very strong sales. And 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 last year was 4%. So last year already a strong growth with like for like revenue, this year even better on the Q3. And well, we have been targeting to improve gross margin.
And during this Q3, we already managed to improve it, make a clear improvement ending up with 35.4% gross margin during the Q3. And the comparable EBIT was €21,900,000 where last year it was 15.5 percent. So we reached 9.5 percent EBIT of revenue for the Q3. Earnings per share were €0.27 compared to last year's €0.17 And then when it comes to the year this far from January, September, business basically proceeding according to the plan. However, during the Q1, of course, there was an effect from these store conversations from the acquisitions.
And result wise, the Q1 was a little bit more difficult, but the second and the third quarter were already according to the plan. And this far after 9 months, we've had revenue growth of 9.5%, where last year was 9.9%, so very, very good growth for TOKMUNDY as well as with the like for like figures with revenue growth was 4.9% compared to last year's very high 5.9%. And the Q1 gross margin wise was a little bit more difficult, but already now we are with result after 9 months with improved gross margin level of 34.1% where last year was 33.7 percent. And clear improvement with EBIT of CHF 38 point €4,000,000 compared to last year's €26,600,000 Earnings per share were €0.41 compared to last year's €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.
Marco 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. And 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. But we still do have a lot to do with the supply chain management, which will be also in our focus for 2020. And 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.
And at the same time, we're launching new tools and also some methods, trying out some express deliveries to improve our customer experience with online business. And here's the figures from the Finnish Grocery Trade Association. This has been noticed that these figures they don't include the online retail sales at all. But with the red curve, you can see the TOKMANI market development, sales development and with the black one, it's all non grocery operators in Finland. And from our point of view, the Q3 development for or players in the Finnish market, we feel that this is supported by the tax refunds, at least partly.
But anyway, very good development with non grocery market in total. So then it's about time for Marco 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 and then but let's go forward. Starting from revenue.
Here is the graph, which includes a little bit history, basically 5 years' time backwards and we are seeing here 15 years 'fifteen, 'sixteen and 'seventeen where our growth has been quite modest and even negative when we are speaking about the like for like revenue. But the actions what we started to do at the end of 2017 and beginning of 2018 by emphasizing the customer confidence, putting some putting cheap prices as 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, very right decisions. And already in 2018, we achieved good growth figures. And now we have to be very, very satisfied that also the development has continued during 2018, 2019.
And when we are looking at the Q3 figures, 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 twenty nineteen. And now looking for 9 months figure, we are at the level of 9.5 percent as a total growth and in like for like revenue, growth was 4.9%. So the next slide, I always like to remind that Turkmen's business is very seasonal. And now looking at the graphs here, we are really seeing that the first quarter is the lowest when we are looking for revenue and also the profit point of view.
The 2nd and third quarter are always about the same level and the 4th quarter is clearly the most important for the company. As said, these forms are looking about the same when we are looking at different quarters. But of course, when looking for graphs during 2019, they are now a bit higher level compared to 2018. And EBIT for Q3, €21,900,000 compared to last year, €15,500,000 was very nice development. Next slide, our comparable gross profit.
And we have said and we have set the target to improve percentage wise our gross profit. And now during Q3, we achieved good growth in our percentage. And 1.2% is quite a big jump. But 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. And of course, at the same time, we have to remember that when we are looking our sales mix, but it is also in relation how well we are able to sell the private labels or how well is our direct imports developing. And now with all parts were developing well and that's why we ended up to the good development in our gross profit percentage. And happily have to say that also now we are also cumulatively on a higher level compared to 2018. So after 9 months, the gross profit margin is 34.1% compared to last year's 33.7%.
1 or 2 important drivers for developing our gross profit margin is, as earlier said, private labels and direct import. And here you find the numbers for that issue. And 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%. And below the circle, you can find this development during the 1st 9 months. And we have to say that here, we are still a bit lower level compared last year.
The cumulative figure is 30.9% compared last year's 31.1%. And looking for direct import share, we can find which is this right picture here or right graph, we can find that the Jampos was also quite a big one ending during Q3 to 25.7% compared to last year's 23.6%. And cumulatively, we are now over last year's figures ending up 24.2% compared to 23 point 4%. And as said, we have to remember that this is in relation to what kind of products we are able to sell. And of course, at the same time, we have to remember that we have made different kind of actions to achieve higher percentages here and 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. And here you can find that during Q3, we managed well. We ended up to the ratio which is 19.7% compared last year 20.6%. So looking at the cumulative figure, we are also on lower level, which is 21.8% compared to last year's 22 0.6%. And 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.
So we are on the way, but still work to be done. And next slide, about our EBIT. This is basically, of course, the result about revenue growth, improving margin and better OpEx ratio. And looking at Q3, as already said, ending up €21,900,000 compared to 15.5 percent sorry, €15,500,000 last year. And especially looking at percentages here, now we achieved 9.5% compared to last year's 7.4%.
But of course, when looking at the cumulative figures here, we are still or we achieved after 9 months, 5.8% and last year was 4 point 4%. But of course, we still have to remember, as I mentioned during when looking for seasonality, that Q4 is the most important quarter for us. So 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 2 €37,000,000 compared to last year's €202,000,000 And basically, there are 2 quite natural explanations or 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 2 issues which affected. But 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 Christmas season sales. And that should make us in a better position to make a better Christmas sales. And this was the decision what we made.
And 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 totaled at the end of period, SEK424,000,000. And as a reminder, this is IFRS 16 standard, which increased our debt very much when we put our rental agreements to the balance sheet, but at the same time picking up what is our so called real interest bearing debts to banks, it's at the level SEK 100 80,000,000, which is roughly 1 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. So we were already now quite near on that figure.
And about our net capital expenditures, after 9 months, we are at the level of 11.9% compared to last year's 10.9%. And as said here, what we are expecting percent. And as said here, what we are expecting to be around at the level of €50,000,000 during 2019. And now I transfer speeds to Mikael.
Thank you, Marco for the analysis. So as already as we both already mentioned, the Q4 is the most important quarter for Toquemande both sales and result wise. But 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. And like for like revenue growth, we update to good instead of slight growth for 2019.
So 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 are sticking to this guidance for the rest of the year. We've been talking about already by the end in the end of last year, we mentioned that we will be launching 2 new private label series.
After summer, we launched PISARRA, a new personal hygiene private label range. It has been very successful during the 1st months. And right now actually it was last week when we launched a new Perfect Plus private label range for everyday products, laundry, dishwashing and cleaning. Price and quality wise, both PIZZARA and Perfect Plus are from my opinion, the best price quality basically value proposal in Finland. Anyway but anyway, this Perfect Plus is still very new.
So we don't really have like the actual results. But regarding the PISARRA, we're very happy about the sales of Pizarro. And basically the financial statement for statement review for 2019 will be published on the 7th February 2020. And here's just a picture. We started in the beginning of September, cooperation with Finnish Red Cross.
And it's according to TOKMANI's sustainability strategy. We're very happy about it because we have 189 stores at the moment. By the way, there will be 2 more store openings this year. So by the end of the year, we will have 191 stores in all over Finland. And we are in all these stores, we are able to work together with the local Red Cross and it's already right now it's already it shows that it fits in with Tochmani very well.
So thank you very much. And operator, now it's time for questions, please.
Our first question is from Vishal Jain from Goldman Sachs. Please go ahead. Your line is open.
Yes. Hi, good morning. This is Tushar from Goldman Sachs.
Hi, Tushar. I
have 3 questions. Hi, I hope all good with you. There's 3 questions on my side. I'm going to put 1 by 1, if that's fine.
Okay.
So the first one is, I just want to understand what's the impact of tax referred earlier. And primarily, can it be a sort of a headwind when you talk about Christmas trading given the importance of 4th 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, we as mentioned earlier, it has been a tradition for tens of years that there is like this tax refund in the beginning of December. And I think that it has boosted Christmas sales every year basically. So right now, we're basically missing the peak of this few days. But let's say let's put it this way that the so we think that we are going to miss the peak in the beginning of those 2, 3 days or in the beginning of December.
But on the other hand, the economic situation in Finland, it's actually good. So and Christmas still has a big meaning. So I think that there will be an effect. Of course, we don't know yet how big it will be, but we think that we're going to survive with this losing this peak anyway.
Got it. That's very helpful. My second question is on private label and direct import. I mean, we clearly have seen pickup as you mentioned as well. Is this 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 uplift for next few years?
Well, of course, I know TOKMANI history from close to 2 years' time, but I think that it has always been about private labels and direct imports. And I think that during the last two years, we have been working quite systematically with both areas. The private labels 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 tokmani destination categories. At the moment, we're of course, we're working quite hard with improving the direct or growing the direct imports.
And I just came back from China last weekend myself. We were there with the Canton Fair together with Europrize and Oogbe from Sweden. And at the moment, the Nordic market, Finland, Sweden, Norway, due to trade war with the Nordic market as a stable and a good market. It seems very good from the Chinese suppliers' point of view. So we will be, of course, working very closely with our suppliers to grow with the direct imports.
Yes. One comment for as Mika already mentioned, it's for private labels. It's clearly the systematic work what we have to do because basically and going forward step by step because basically, of course, always it's customer's choice. And we have to make it so that customers will choose a bit more often our private labels compared to a brand product. But that's where work will happen step by step.
So as you said, our question make a question, is it for the next 3 years? Of course, it's coming for the future, but we are going forward, as I said, step by step.
Got it. Makes sense. And 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. But 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, we're 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.
Anyway, I think we have at the moment, we have too many harbors. 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. And of course, when it comes to Marco already mentioned that we Marco mentioned about our warehouse and amount of goods at the moment that we're on a very basically very high level of inventories and because we wanted to start the Christmas earlier. But next year, I think that we should start it even earlier, especially these big seasons like Christmas and springtime. We should just start earlier to make sure that things with also with our stores and store replenishment works even better.
So these are just parts of the supply chain management. And of course, the warehouse efficiencies that's one part as well. So there are like several parts or sections or how would you call it that we need to improve. Unfortunately, it's not like a fast thing to do, but I think I feel that we're on the right track right now.
Sounds good. Thank you very much.
Thank you.
Our next question is from Nicholas Gugmann from Handelsbanken. Please go ahead. Your line is
Yes. Hi, guys.
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, from or if you look from Europe point of view, it will come downwards because Christmas sales starts and we are selling normally more stuff during the Q4, yes, that should be the direction.
If I can add just that you know like at the moment, we have all the Christmas goods either in our warehouse or in the stores. And from now on, we're basically in the PICO with the inventories level. So from now on, it's going to start going lower.
Okay, perfect. Thank you. And then 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.
So are we 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.
Yes. 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, very good control. And that, of course, means that we are in every place negotiating, but it's always very difficult to get it at a lower level in Europe point of view. But 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.
And that's of course what we are targeting to do. But as said, at the same time, the easy part has been taken.
Okay. And then 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, but I'm just interested in the top line effect.
Yes. First of all, you're obviously on the right track. This might, of course, affect in very near future, but these private label ranges that we've just been launching for personal hygiene and then these cleaning Perfect Plus cleaning products and things like this. I think it's very important for us to have these private label ranges because then we are in Finland with these products. We are on a very, very, very competitive price level to start with.
So yes, it might of course affect like on the unit price because it is clearly lower than with the A brands. But at the same time, I think that we are like price more much more price competitive with our competitors. So we also feel that we will increase with satisfied customers with our new product ranges. And this, of course, with PISARRA, 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, very good compared to our competitors. But yes, you're absolutely right.
We have to take this to consideration that private labels are with a lower price level. It's very difficult to give you a percentage because it differs with in different product groups. So there is no one clear percentage difference between private labels and A brands.
But the difference is clear, that's true.
Yes. For sure, yes, that's true.
Okay. And your home and personal care, is that still around 16% of revenue? Sorry? The Home and Personal Care category, is that still 16% Or maybe that was 16% of SKUs actually.
We have not published this figure. So unfortunately, I can't comment on that figure.
And 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 TOKmoney stores and see how we're doing with the Christmas sales. Thank you. Thank you very much.
Thank you.