We're going to start the clock at the back is wrong. Of course, we'll start with a short day, too. And as you all know, we have a kitchen effort going on now. We are actually remodeling our kitchen section of the stores in February. So we have obviously, we thought that you guys also to see a little bit of it.
So we bought some goodie bags for you to bring. Unfortunately, it's not enough for everybody. So after the show, we have to run up here. The first 15 will get something and the rest unfortunately can't. We have onion cutter, in the assortment, one of my favorites, which is a Spanish.
This is a top model in the new section. It's a frying pan. It's a 10 year guarantee, not the usual 5 years, and it's at the bargain price, of course. And then, Trina, I don't know if it's she tries to be nice to me, but she is she asked me to demonstrate the cutter here. It's a razor sharp, very high quality cutter that you can use at your home, also in a new section.
So if you use it, don't cut your fingers, but we have enough of products up here, so you can try upwards. We also have a plate which is 98% cleaner Z of biodegradable material. So it's sort of sustainable products. Everything in the assortment, it will be in the next few weeks in the stores. So it will be in the new kitchen section.
We also have some sweets for you, the Madonna biscuit at DKK10. It's a bargain. That's and this one is DKK26, but at an offer special offer price of DKK20. So everything in the goody bag, so please bring along afterwards when we're finished. Okay.
And we also have, of course, all the all the things you need for the kitchen, but I'm not going
to wear this today.
To get to the presentation, I think for the quarter four result, this is the Champions League final of retail. And obviously, we are very, very pleased that also in 2019, we won what we call the Champions League final of the year for the 6th time in a row. We beat the market. I'm particularly pleased with the growth in gross margin because it demonstrates a kind of discipline in the team, managing the campaigns and managing the sellouts. That was very, very good.
And we also had an 8.6% increase in operating results, which is very, very good, obviously, in a very, very tough market. So very, very happy with the team and the efforts and the Christmas season. Yeah, you've seen this before. This is now year number 27 of consecutive year of growth in Europe. It's something we're very proud of.
The highlights, 3.3% growth in total revenue, 1.1% like for like, obviously slightly below the last year, which was 7.0% above the market. And as I said, gross profit increased by 7.4%. This is always a balancing act between sales growth and gross margin growth. In this quarter, we prioritized definitely the gross margin, and it increased by 7.4%. 8.6% increase in operating results.
Net profit was slightly lower, but this is mainly due to unrealized hedging gains losses. And this is because the kroner actually unexpectedly increased in value towards the end of the year, which is today is back again to the normal weak level. So if I close the books today, it will have been a different picture. But at the end of the year, that was the situation. We also refinanced our term loan in December.
So that's sort of completed now. And we also completed in the Q4 the transaction for the first 20% of the Runswen Group. If you look at the full year, 7.2% growth in revenue, 4.4% like for like. Again, very, very proud of it. I mean, we are doing well, but also the market is not doing so well.
So in a very, very tough market with a lot of headwind, we are doing well. I think that in uncertain times, people flock to discount variety retail, which gives you value for money. We see that not just for us but also for the entire sector. Gross margin was slightly up for the full year. Of course, the results for the full year was influenced by situation in the first half of the year, where we had extra cost of $51,000,000 most of it in the first half of the year, but we rebounded in the second half and did well.
Yes, the board has proposed a dividend of SEK1.95 million, which is up from 1.85 the year before. And as we have said before, most important is to try and have a steady sort of increase in dividend per share. Yes. The retail market, you all read about. We got the SSP figures this morning.
So there was a poor December and market was poor. We still beat the market on top of very, very tough comparables last year. Very, very good category work. The big categories did very well. Some of the grocery categories also did very well in the Q4, but also the key seasonal categories did very well.
So that's the main reason for the good growth. Very solid execution of campaigns. And as I said, this disciplined sell down, so we didn't rebate too hard, even though the market was very tough towards the end of the quarter, and that resulted in a very good improvement in gross margin. We should always beat the market. This is our long term target.
The market might go up and down. We should always beat the market. You see it more easily here over several years. It is going to go up and down, but we should always beat the market. That is the main target of the Europies.
If you look at our strategy that we presented at the Capital Markets Day a little bit more than a year ago, it's 3 main elements that we were focusing on. The first is to strengthen the price and the cost position. We are a discount retailer, so you need to have costs down so you can actually sell at a low price with a good margin. We want to improve the customer experience and then we want to drive customer traffic, not just in the physical world, but also in the digital world. On the price and cost position, we talked a lot about the partnership with TUKMANI and with OBE.
Together, we represent close to NOK 18,000,000,000 in sales. So we are by far the biggest discount variety retailer in the Nordics, obviously. And that gives us a power to get the best possible prices. We are working a lot on achieving those synergies. They are backlogged because it takes a full year to get Christmas is only once a year, so you need a couple of seasons before you get all the Christmas products.
We have defined into 3 different approaches. One is where we call it gold, where we actually have the same factory, the same product and exactly the same brand and packaging. This is obviously the best because then we get the optimal price. Then we have silver, where we have the same factory and the same product, but not the same brand or packaging. It might be different packaging from for different markets.
And then we also have the Bronx where it's just the same sort of supplier. And in many categories, even Bronx is actually significant savings because the factories are used to producing for different type of suppliers and don't have a big cost in changing production lines. So all these elements, we're working on it. And of course, it takes time. As we have provided in the package a little bit more information about the savings, We are still confident on the total savings, but we have only seen a few of them so far.
We have said that total, we should have by 2022, we should have SEK 80,000,000 in savings distributed evenly between the two companies. So that's the full effect in 2022. And so far, we have realized savings of SEK16 1,000,000 and approximately 1 third of it is accrued to Europrize. So it's still early days, but of course, we see the pipeline and we already negotiated the prices for the Christmas products for 2020. So this is we feel very confident about this.
On the new warehouse, someone asked me about that. We had a board meeting yesterday, of course, at the New Central warehouse, I could actually see the pack pallets test pallets coming out of the big automatic fully automatic warehouse. So we're now in the final testing phase of that. And on the mid February, it's going to go live and then we're going to ramp it up step by step until June. But at least from my perspective, the pilots were coming in and out and we are testing, it's going okay.
So there's only green flag so far. And then in the second half of twenty twenty, we will start testing and fine tuning the shuttle system, which is a semi automatic picking where the products comes to the packer and not the packer goes with a truck to the products. And that will be fully operational from the first half of twenty twenty one. So exciting times. Look at the customer experience, as I said, we won best in test of this one of our Christmas lighting range.
That was 1 and 2 days before Black Friday. So it was a good timing. 2 days afterwards, it was like sold out in all stores, of course, because we hadn't expected it to win the test. But I think it just demonstrates the quality of the category work in some of our key Christmas categories. And the guy who's buying Christmas lightning is a Christmas lightning nerd.
He knows everything about Christmas lightning. And you have to do that in order to get the best prices and the best assortment. This is also something we are sourcing now more and more. Next year, we will also be doing all of the sourcing together with TUKMANI and OBE. So that will provide further savings.
On the customer growth, obviously, that our e commerce revenues are small at the moment, not just for us, but the entire kind of discount variety retail sector is roughly 0.6% of sales, so it's not a lot. But keep in mind that the online offering we have today is a very, very rough and rude kind of crude page and service. And we are launching a remodeled version in a few weeks where we also would move the operations of the e commerce to the central warehouse mesa 9. So we will have a much larger selection and the service level will be much higher because the entire assortment of the central warehouse will be available for online sales. So we expect at least the offering to the customers to improve dramatically this year.
More important than e commerce is actually this digital traffic and digital marketing and communication because what we are seeing is even though our customers predominantly buy offline, they actually get their information online. And we see the traffic to our web page and the kind of our Me! Customer club membership is increasing. So people are getting their information online and then they're coming to the store. So we do a lot of work on search word optimization, on improving our web page and improving our customer club.
This is really, really important for us, but the customers eventually mainly come to the store. We also opened new stores. In this quarter, we had 2 relocations and 3 store expansions with very good results. This is a picture from Nulfuraid, which relocated and had more than 20% growth there afterwards. So very, very sort of obviously in the retail market we are now, when we get the opportunity to relocate, we always relocate to a better location and don't necessarily pay more.
So that's very, very attractive for us. And it's a value driver. We have 5 stores in the pipeline, but this is still early days, so this might change. Yes. Stated on OBE, Espen, I think you're going to take us through a little bit more details on this is the deep dive and the Christmas gifts for the analysts this year.
Yes. Thank you. Yes. Today, we will give some more details on the partnership with OBE. Paul talked about the sourcing partnership.
I will give some more details on the equity transaction and also on the operational and financial performance of OBE in 2019. First, I'll start with a recap of what we announced back in June 2018. It's a low risk partnership, but with a potential for a true European scale on time. The joint sourcing is the very back bone of the collaboration. And as Paul explained earlier, we are starting to see the savings coming through, and the initial savings potential has been confirmed.
The structure of the transaction allows both companies to focus on their own strategy and also work on the strategic initiatives to improve their own operations. Before our office sometime during late 2020 needs to make a decision on whether or not to exercise the option to make a full acquisition of OBE. The transaction of the first 20% stake in OBE was completed in December last year. It's a share for share transactions, and the sellers of got an ownership stake of 2.6% in Auropris. The purchase price was settled at SEK115 1,000,000 and Auropis settled the transaction with treasury shares that was acquired in the market at SEK98 1,000,000.
The option we have to acquire the remaining 80% of the shares in Obe may be exercised within 6 months after agreement on the 2019 EBITDA for OBE. The pricing model is the same as for the first 20%, and this time, the multiple is based on the average EBITDA of 2019 2020. Werner started a strategic turnaround back in 2017 with a clear strategy of modernizing the store base and rebalancing the product assortment with aim to get the more sales of non food products and get a clear seasonal profile to drive operating margins. This turnaround has taken longer than expected, and results are so far not meeting expectations. During 2019, there has been a change in the management of.
A new CEO has been recruited. Magnus Carlsson will join the company on 1st March this year. Magnus is a very experienced retailer, and he comes now from the position as CEO for Reitam Convenience in Sweden. In 2019, the focus in has been to strengthen the company's seasonal profile and also to change the product mix towards high margin categories within non food. While the results from these initiatives actually have been quite positive, the EBITDA has remained below expectations and also last year.
Over the past few years, OBE has refurbished 8 stores into a new concept, more in line with the strategic direction of getting more non food sales and also a clear seasonal profile. These stores have, in 2019, delivered above average growth. And in late 2019, we opened a new concept store outside Stockholm. This store has a much more clearer shop in shop layout and is more comparable with the latest Aerofis concept. It's still very early days, but this store has delivered a favorable sales mix and both gross margin and basket value well above the rest of the chain.
So it's promising results, but it's early days. The focus for Abe going forward will be to update the strategic plan and to create a new master layout for the stores based on the experiences from the refurbished stores and from the new concept store. This will be rolled out to several stores during 2020. In addition, we will also continue to develop the seasonal concept by sharing best practice between Aerofis and OBE. 20 19 and especially the Q4 with the gross margin.
Looking at the gross margin that came in at 45.1% in the 4th quarter, up from 43.1% last year, representing an increase in gross profit of 7.4%. We have talked a lot about the campaign execution over the last couple of quarters, and we have continued to improve that during the Q4. And we have also deliberately adjusted the campaign pressure in order to drive the gross margin. Towards the end of the Christmas season, we had the more controlled realization of seasonal goods. That had a somewhat negative effect on sales but contributed overall
to the increase in
gross profits. As Paul mentioned earlier, we're starting to see the positive contribution from the sourcing partnership with the TOKMANN and OBE coming through. But still, it's small amount, but it's good that we see that the long term savings are confirmed. Operating expenses in percent of sales was 21.4% in the quarter compared to 26.9% last year. When we adjust for the IFRS 16 effects, the OpEx ratio was 27.8%.
A number of directly operated stores, which is the key cost driver, increased by 4.5% in the quarter compared to last year. In the quarter, we have some extra costs associated with operating both the old and the new central warehouse, and we will continue to have some costs throughout the transition period due to operating out of several warehouses. When we look at adjusted EBITDA, that was €450,000,000 a significant increase from last year. Even when you adjust for the IFRS 16 effects, EBITDA was SEK330 1,000,000, an increase of 8.6% from last year. The high increase in EBITDA is caused by the sales growth and the improvement in gross margin.
For the cash flow, I'll comment on the full year figures. We see a very positive development in working capital as last year was affected last year, that's 2018, was affected by an increase in inventories. We saw lower inventories at year end 2019, but the inventory level will remain on a relative high level until the end of summer season 2020, as we have communicated earlier. Investments are increasing as we're making progress on the new central warehouse and getting closer to the start up of the automated solutions. And by year end, we had cash and liquidity reserves of SEK1 1,000,000,000, which was a significant increase from the year before.
As Paul said, we have refinanced the group. The agreements were signed by year end, and the transaction was completed this week. Paul, as normal, I'll leave it to you to summarize.
Yes. So the outlook, I mean, we still think that we are positioned as the obviously as the leading player in our sector and in a sector that is doing well in a market that on a European scale is doing well. It's exciting times. We are realizing the synergies in the sourcing relationship with EOB and TUKMANI. We're also in the middle of implementing the new central warehouse and all the improvements there.
And as I said earlier, everything is sort of so far on time and kind of cost. Have a healthy pipeline of new stores. We will only open new stores if they are profitable and if the annual audit show that they keep on surpassing our expectations. So there's no specific target to open new stores just to do it. We do it because it's profitable for us.
And we are not alone in our sector to do it. And we have completed a couple of franchise takeovers at the year end, and we expect a few more to come in the natural course of the business. So that's with that, I think we will we are on the quest to be the best in Europe in our industry. We are getting closer now to being the best in terms of warehouse operations, but we still have some room to go in many of the other aspects. So with that, I think we will open up for questions.
I have a question about the city stores. As this is the first Q4 with the Citi store in operation. Do you have any have you made any experiences from this going forward?
I think the experience from it's only one city store, which is Gineres, which is at least the purest city store and that was doing is doing very well. So it's still doing very well. We are looking to open more city stores. So if you have a landlord that can give us something at the bargain price, we will close the deal any moment.
And one more question. I saw you have a pipeline of 4 5 expected store openings in 2020. Previously, you have spoken about at least Grine in risk of being shut down.
Are there
any other stores which may be shut down against your sort of strategy?
I think Grine is, as you said, it will be decided later this year. We also have a store in Kongsberg where we or actually we will open a store in the center of Kongsberg. And we have a store outside KongSpaig that is in an area that is on, what do you call it, exception from the municipality regulations. So we might actually just change that
this year.
Oliver Pizanen, Nordea. Does this work? Regarding these temporary costs of operating the new and the old warehouse, you don't say anything about the size of those. What were they in this quarter? And what do you expect for those going forward?
We have not set the fixed amount on that. It's there are some costs in the quarter. It's something that we will look into if we can give an exact figure. But just operating 2 large warehouses, more than 30,000 square meters will be the electricity, cleaning and operation, that drives some costs. So there will be some costs over the next transition period.
So until 2021, we will have some cost related to this.
All right.
And could you remind me, I just saw the distribution of these savings that you realized with the OVE agreement.
I think you harvested onethree of that. Was that according to expectations, the expectations you set out?
We what we communicated was that we should have savings in the range $60,000,000 to $80,000,000 evenly distributed between the two companies. The initial savings are based mainly on Nordic sourcing agreements. And on those agreements, we see a larger share of savings going to Erbe and onethree accrued to Aurope. But as Paul said, on the long term, the total potential we have identified is €80,000,000
and
that is evenly distributed. So I think it's absolutely fully in line with the expectations we have. Fair enough.
Okay. Good morning.
First,
I would like to touch upon your option to exercise the 80% in Ove. Obviously, the turnaround process has been slow or to some extent, not successful over the past 18 months. Basically, you're seeing the EBITDA actually going down. So my question is really what makes you confident that it will be a good idea to exercise the 80%? And then the second part relating to OBE, this concept, too, with the store in OBE OBE that might seem to be interesting.
What is the CapEx of actually lifting an OBE store from, let's say, version 1 to version 2? And is that actually an idea that you're pursuing if you were to exercise the remaining 80%?
That was a lot of very long question, Martin. To start off with your first question, the decision on exercising the option has not been taken. That will be taken by the Board of Directors later this year. So we will not comment on that specifically. But of course, if they decide to exercise the option, that is based on the potential and not the historic performance.
Looking at the rollout of new master layouts, I don't do not have the figures exactly for what that will cost, but I would assume it's less than $500,000 per store based on the preliminary figures that we have heard. But those are not fully confirmed. And as you remember, going back to 2014, 2015, Aeropics did their own upgrade of the store base. That was actually a little bit more expensive. We did a larger modernization program than what is needed for Obert to come to the new master layout.
But that has proved to be very successful and also helped to lift the image of the company and to add more value to the customers. So definitely, we believe it's the correct thing to improve the shopping environment.
And then regarding sourcing, what are your considerations about the coronavirus? Does that have you seen any indications that, that affects sourcing from Asia right now? What do you believe if it continues? Would you have problems actually sourcing the goods that you need?
I don't think I mean, we had the SARS epidemic a few years back. Of course, it might be this is evolving anytime, but it might influence the travel to and from China. Obviously, we have people in China, our own staff there. We are, of course, concerned that they are in good health and everything is good with them. Last time, from a product perspective, the product flow was normal.
It was just a movement of people that was sort of restricted in that period. So you could argue that a player like us who has people on the ground there is more sort of resistant.
And then January, would you be able to give any trading comment for January so far? I mean, we have seen a very mild start of January.
Yes. Of course, the red route side is not favorable for sales of seasonal products. So you sell less of those. That's for sure. And also as a seasonal concept, that takes away one of the reasons that you go to store at the moment.
So obviously, the weather had a negative impact on sales, but it's 1 month in, still to go in the quarter. And Q1 is the smallest quarter of INR 5. But of course, this has a negative impact on sales. Thank you.
Yes. Peter from ABG. Just a follow-up on the gross margin there. Your estimated gross margin savings of roughly SEK40 1,000,000 in 2020. I assume you then will get
SEK 2022. By 2022. Yes. It's SEK40 1,000,000 in 2020, and that is shared between the two companies.
Exactly.
I'm not giving the split between the companies.
No, but should we expect those savings to be back end loaded on the gross margin?
It will be back loaded because it says in the presentation that it's on the Christmas goods. So it will be back loaded.
So you mentioned 5 new stores in the pipeline. Are you able to comment on where those stores might come? And are there any city stores included in those 5?
There are no city stores in those 5, and we will announce the locations later.
And then years back, we got an overview of the performance per vintage. Are you planning to provide some update on that vintage performance?
No, actually not because what we said before is that we will come with an update. We do these analyses every year. We have completed those for 2019, and we will make an update if we see a change in the pattern we've seen before. So basically, what we've seen on the 2019 analysis is that it confirms what we have sold the market before.
On your like for like growth for 2019 and for Q4, can you comment on what the mix was between price, volume and traffic? And secondly, how was private label performing relative to the other categories? And what's the current private label share?
Yes. Should I? Yes, yes, yes. On the sales side, for the total year of 2019, it's mainly driven by traffic, the growth we see in like for like. The as we said in the report, the traffic is up.
Basket value is also up, but and the number of items per customer is increasing, while the average price per item is slightly down. That is also due to a mix change. But we are very satisfied with the development. We don't give those comments to the quarter because that's a very short period. So you need to see that a little bit longer term.
On the private label, I think we have around 33% private label share, 32%, 33%. It's increasingly a bit more than the average. So that's sort of good development. Most of the seasonal assortment is private label obviously, so that's a good driver. And we expect it to sort of slightly above the average.
And then on OVERSKUsporage. In 2018, there was a dispute about how to count the inventory. And now you present an EBITDA figure. Have you now agreed on common principles of how to count the inventory in that figure? Or is that also something that will have to be discussed upon?
Yes. Just we have never on the way they do the actual stock taking. We believe that they do the stock taking in a very good way. It was more about how to allocate for the wastage in the stock that was not counted by year end. So we have agreed on principles on how to discuss that, and we will use those principles going forward when we go to EBITDA settlement for 2019 2020.
So we should not expect any reservations to the 2019 figure as such?
We should yes, it's like we said, it's preliminary and unaudited figures. So it's too early for me to say that those figures will not change, but this is the best estimate that we have got from Oerlikotlsberg at the moment.
And based upon transaction in 2018, the net debt figure wasn't that significant in Overschotzplag, but how has this developed in 2019? And also if you can give the figure on how much net debt is if you include operational leases in Oksutfoyn.
Yes.
I have not received the full accounts for 2019 for Oksutfoyn. I do not have those figures. So I'm sorry, I can't comment.
Okay. So the SEK 75,000,000 EBITDA last year, that's including or pre IFRS?
That is on comparable basis with previous year, so excluding IFRS 16.
Okay. So okay, but you don't have gross margins or any opinion about what's working and what does not work?
No, it's the good thing is that they have sales growth, and we have an aggressive competitor that is opening more stores and suites. So having growth in that period is actually quite positive when you get a lot of new competitors around you. So that's a positive sign that they are growing. But it's the gross margin and has been difficult. The cost side is more under control.
So it's the gross margin that has been difficult.
And separately, on the you have previously shown contribution per store where you have some top performers and a few or quite
a few. Quite a few.
Okay. So now it's few. So if you just compare 'nineteen with 'eighteen or 'seventeen, is the big contribution from the weaker ones doing better? Or are the best ones excelling even further?
It's not the same ones that are the low performance this year as the last year. We see some high performance that always performed well and continue to deliver good results. But in the tail, we work a lot on those stores, and we see it's a few of those that were red in 2018 that turned into the greens in 2019. Most of the stores in the tail actually improved from 2018 to 2019. And whenever we have an issue with stores like that, it's mainly related to sales performance.
So relocation is very often what solves the issue because the traffic pattern has changed and the shopping pattern has changed. So you need to be in the right location. And of course, you also sometimes have to work with management issues. Keep in mind that it's
I think it's like 6% or something, quite stable the number of stores that is sort of red. And compared to other retailers, also in this kind of variety retail sector, actually, it is a very, very positive figure actually.
So that's why. Thank you.
There is one question from the web from Tushar Jain. Can you please provide more color on categories that performed well over Christmas and which were below expectations?
Yes. As we said I mentioned in the beginning, I think the grocery categories actually did quite well. And then of course some categories like clothing and shoes and like this the PIPE assortment, the wild bird assortment is not doing too well. Many of you don't have snow. So that's not doing so well, but the big grocery category still very well.
Current inventory level is still slightly high. Does it impact your ability to buy new products in 2020?
No. No, not at all. But we have, of course, reduced the orders we have placed for summer seasonal goods because we have some.
Okay. That's it? Yes. Okay. So thank you for coming.