First of all, welcome. I am very happy to welcome you all to this presentation. I think that in addition to the obvious operational synergies and benefits of this partnership, I also think that we would like to highlight initially the strategic value of creating a Nordic stronghold together with Överskottsbolaget and our joint venture partner, Tokmanni. If you look at the two companies, Europris, we have 255 stores now. It is increasing every week. Överskottsbolaget have 94 stores, and together we have 349 stores at the moment, with a combined sales of NOK 9.5 billion. So a strong Norwegian-Swedish player in the discount variety retail sector. As mentioned previously, together with our joint venture partner, Tokmanni, we represent more than NOK 17 billion in retail sales in the Nordic.
That is the reason why my comment about the Nordic stronghold, I think that is a very important aspect of this partnership. In this sector, this is a sector that is growing quite strong in all countries. With this partnership, we will be among the top three players in our sector in Northern Europe. So I think it also gives us an opportunity with this Nordic stronghold. It makes us as one of the big players in the European sector. I think that that aspect is important and more important going forward than it has been historically. As you know from before, and we talked about it many times, we believe that this sector, discount variety retail sector, is the sector that has been growing more than the market, taking market share, not just in the Nordic, but in Europe and the U.S. over the last years.
We obviously believe that that trend is set to continue. The deal, as we are trying to explain in the package, is twofold. We take an initial 20% stake immediately, and we start working on achieving sourcing synergies immediately, very much the same as we have done together with Tokmanni historically. We have some initiatives that we are working on, and Överskottsbolaget obviously has some things they are working on. Then we have the potential to acquire the rest of the shares in 2020 when we know each other more, and we have been able to achieve some of the synergies in 2020, and we can take the remaining 80% then. Espen, I think you will take us through some of the highlights, and I will come back later.
Yes. Looking at the transaction as Tom Vidar said in the beginning, it is a little bit unusual, but I think it suits both companies well to do this transaction in two steps, also allowing the sourcing partnership to start immediately. The first step is an acquisition of 20% by Europris in Runsvengruppen, which will be at the following terms. We will price the company on enterprise value using a fixed multiple of 7.7 on actual 2018 EBITDA of Runsvengruppen. It is a share-for-share transaction, and the transaction is estimated at NOK 200 million using today's share price and also the current exchange rate from NOK to SEK. The transaction cost will be approximately NOK 2 million-NOK 3 million and occur in the second quarter of 2018.
After the initial transaction, Runsvengruppen AB or the family behind Runsvengruppen AB will have an ownership stake of 4.5% in Europris using the same calculation as for the purchase price. The option to require the remaining 80% in Runsvengruppen AB will be exercisable in 2020 , based on the average EBITDA times 7.7 of 2019 and 2018. 2019 and 2020. Right. The shares that will be issued to the sellers of ÖoB will be subject to lock-up until mid-2021 if the option is exercised. The ÖoB company is a household name in Sweden. They operate discount variety retail stores across Sweden. It was founded in 1948 by Rune Svensson and is still owned by the family. The history, it's longer than Europris, but has many of the same similarities.
Started off as a wholesale company, has then grew into retail by several acquisitions, and ÖoB, Överskottsbolaget, was acquired in 1992. Today, they operate 94 stores across Sweden. All stores are directly operated and all are branded Överskottsbolaget. They are headquartered in Skänninge, two and a half hours south of Stockholm, and has around 1,800 employees. The company is 100% owned by the Svensson family in second and third generation, and they have seven owners in total. ÖoB has started a strategic turnaround where we already see positive results coming through. Last year in 2017, they had a new management in place, and they have defined a clear strategy on how to improve profitability and also modernize stores and rebalancing the assortment in the stores. They have already implemented some measures. They have exited from unprofitable stores.
They have repositioned the cost base, and that includes a 30% headcount reduction at the head office. These measures are expected to drive growth in revenues and EBITDA in 2018, and we already see positive results year-to-date made from these measures. Pål?
Yeah. The new management team, or the management team at Överskottsbolaget is a combination of people who have been there for some years and then new people. Fredrik Söderberg is obviously head of the team. He has an extensive experience at ICA and the pharmacy business, a long experience in the retail sector, together with Mikael, who has an experience from IKEA and Plantasjen, both in Sweden but also in Asia, so a wealth of experience in the sourcing and the logistics area. Meta was previously working at IKEA and Rusta, and was one of the masterminds behind the turnaround of Rusta some years ago. She has a very interesting background and experience in the concept development, assortment development part.
Kent is a seasoned executive and CFO who's been with the company for three years, and Eva, who has been in the HR function for eight to nine years now, and they represent the continuity in the management team. Of course, we have met and talked, and one of the benefits of this is that we really share the same strategic agenda. We have the same perspectives on how to develop both Europris and Överskottsbolaget, and we see some obvious synergies I will come back to in comparing notes between the two different formats that are quite equal in terms of concept. We will start working on the joint sourcing immediately and share best practice experience, but the companies will obviously be run separately with two independent management teams.
We own 20% initially, so that's obvious. We will get a board representation as soon as practically possible in each other's companies. The sourcing will start immediately. We will give you more details, you'll see later in the package, but Överskottsbolaget is very similar to Europris. They're having a little bit more grocery than Europris, so in the sourcing area, we can obviously benefit from groceries broadly defined, benefiting on their scale in this area, and the fact that price levels in Sweden are a little bit lower than in Norway. We have more purchasing from Far East and Överskottsbolaget obviously can benefit from sharing those volumes together with Tokmanni and us. We've worked through all the many different categories to estimate the potential. The potential is sort of bottom-up, made of looking at some of the major products and categories and estimating a potential per category.
It's a detailed analysis that has been made. These are the concepts. To the left, you have the Europris version 5.1, and to the right, you have Överskottsbolaget version 2.0. Many similarities, also, fortunately, some differences, and we believe that we can benefit a lot from comparing notes, not just on category development, concept development, seasonal development, and campaign development. We think that in a broad range of areas, we have a benefit of working together and learning from each other's experience. The formats are also very much similar. That's why this is a happy and good marriage. In the digital area, as you might have noticed, we are at the moment of launching our digital eCRM solution. We launched our e-commerce operation a couple of weeks ago.
ÖoB does not have that yet, obviously, there are benefits of sharing costs, but not just costs, but actually also best practice experiences between the different countries. We think that in the future, there's an exciting potential in the digital area, but we think that we can obviously benefit from having two markets to learn from and sharing experiences across the market. Also on the automation, next year, we open our new central warehouse, and in that area, there's a lot of things happening. Of course, any investment and experience in automation will also benefit both parties, and that will be more important in the future than it's been historically. Just to summarize, why does it make commercial sense? Obviously, there's some sourcing synergies.
They will start coming in late 2019, based on our experience from the Tokmanni joint venture, we see that they will gradually come in over time. As important as the direct synergies is, of course, the fact that we are starting working together and we get a much broader base of products in our categories that they can look at. I think this is an important action in order to make sure that we can get a supply of new products at very competitive prices in a market that is a little bit tougher competition than in Norway. On the concept, we think that the two concepts next to each other are very similar, and we can learn from comparing notes. We are strong in certain categories. Överskottsbolaget are strong in other categories, and there's obvious benefit of looking at each other's experiences.
We also think in certain deals like this, it's important that we have the same kind of perspective on where we want to take the two companies and the concepts, and we do. We think that Fredrik and his team and us are very much aligned on the strategic agenda for the two formats. They are doing what we would have done if we were there. It's an experienced team and the same strategic agenda. I think that's important. There's economies of scale, as I said, in the digital area, automation, artificial intelligence, going into the future. We think that, Tom Vidar alluded to, that it's a low risk way of starting on an international expansion that gives us access to the new products at better prices with a limited financial exposure.
I would like to highlight the fact that I think the strategic aspect of it, not just the direct synergies and the obvious kind of short-term, medium-term benefits, I would like to highlight the strategic value of creating a Nordic player that is really, we create a Nordic stronghold and a dominant player in the Nordic markets. That's a very important aspect, in our opinion, on this deal. With that, I think we will open up for questions if you have anyone. We have some further material in the package, but that obviously, it's especially for the analysts to digest into. Yes. Just a second, you'll get a microphone.
Okay. Yes, thanks. Petter, ABG. Europris has acquired concrete strategy when it comes to store roll-out in Norway. Does Överskottsbolaget has a strategy of rolling out stores in Sweden?
I think that we only acquire now a 20% stake in Överskottsbolaget. Historically, as Espen said, they closed a couple of stores. They are in the process of testing a city format, then they're going to conclude later on whether to roll that format out to the rest of Sweden. That's a little bit into the future. They also are in the process of looking at this version 2.0, which is a modernized kind of Överskottsbolaget that they have tested out with good results, and that is part of the strategic plan to roll that out to the remaining store portfolio. That's the key elements of it.
Perfect. Another question from me. Pål, you said that size is probably more important now versus historically. Can you elaborate a little bit regarding that?
Well, I think-
The timing of the deal?
Yeah. I think that not necessarily just at the moment, but I think if you have a long-term perspective on Europris like we have, I think that, if you look in the long-term perspective, if you see internationally, discount sector is growing. I think size matters in order to have the best prices. If you're in the discount sector, you need to have access to the best products at the best possible prices. I think that in that respect, size matters, and I think this deal enables us to have a Nordic stronghold where we can get the best possible prices for the Nordic consumers. I think that's why it's important. More important in the long-term perspective going forward than it has been historically.
Martin Svensson, Danske Bank. A few more comments on the comment you made about this is the start of an international expansion. Obviously, this is an exciting step, but it sounded like you might have views of expanding outside Sweden also. Would it be a thought to also join with Tokmanni or maybe into Denmark over time?
I think that our key focus in the next few years is to make sure that this partnership is successful and take that, and realize the synergies and the potential in this deal. We already have a very good partnership with Tokmanni. I think our focus in the short-term, medium-term, will be to make this a very huge success.
A question on Överskottsbolaget. I believe there was a negative growth from 2016 to 2017. I assume that's partly due to store closures. Do you have the like-for-like figure for Överskottsbolaget over the past few years?
The like-for-like performance has been negative historically for a couple of years, but turned into the black last year, they show positive development this year. We believe that the measures they're taking is bringing them in the right direction, we are sure that they will manage to make this turnaround work.
Maybe a comment on the estimated or budgeted EBITDA for Överskottsbolaget of NOK 164. It seems like a rather big jump from 2017, I understand that there's already year-to-date an improvement. What could actually make up for the remaining part?
That is basically what we said. They take out some unprofitable stores historically. They made the head staff the reduction at the head office, that also included some one-off costs. We believe that, going forward, they will have a new cost base and they also get rid of the unprofitable stores. That's what's going to drive the improvements from 2017 to 2018, and they are on the way.
Okay. About the sourcing synergy potential. You have had the joint venture with Tokmanni for some time, and as I understand, there's been some positive synergies out of that. You have done this bottom-up estimate of what you can make with Överskottsbolaget now. How would you reflect over let's say, the synergy potential you have talked about now? Is it maybe in the mid-range of what you think you can achieve relating to what you maybe have achieved with Tokmanni so far?
I think it's our best guess of what we can achieve based on our experience with Tokmanni. Obviously, the guys that have estimated this is the same guys that have estimated and implemented the synergies with Tokmanni. As I said, the one thing is the medium term, I would call it medium-term synergies. As important is the fact that we are creating a bigger base, and going into the future, we can actually also get access to even better prices and better products in the long term. I'm as excited about that as I am about the direct synergies.
Okay. Thank you.
Marius. Marius. Yes.
Hans Marius Ludvigsen, Pareto. How does your gross margin compare with the Överskottsbolaget historically?
The gross margin on Europris is higher. That is basically due to the product mix, which is in the Överskottsbolaget more directed towards groceries than with Europris. The mix effect also impacts the margins.
How much? Do you have a figure for it?
It's in the range seven to eight percent points.
Okay. Could you also comment on why you are paying with shares and not cash? Your rationale.
That's the agreement we reached. We believe that the Svensson family, they have been in the retail business for many years. They are long-term investors and still want to be in the retail business. We believe that they can contribute as owners, and they do as well.
Can you comment on whether there were any other potential buyers or interested parties in Överskottsbolaget?
I guess that's not for us to comment on. I think we have a long-term dialogue with the Svensson family. We saw that they have the same agenda. It's a benefit from both parties. It's an obvious match. It's obviously a very good match for Överskottsbolaget, but it's also a good match for Europris. I think that made the deal come through.
Yeah. One follow-up question from me. What needs to happen for you not to exercise your option in 2019, 2020 to buy the remaining 80%? What kind of, let's say, key risks and key opportunities will you look for?
I think our key focus, that is for us to decide at that some point in time. I think our key focus now is to make this successful and make this happen. I mean, we're doing this obviously because we think that it's going to happen. It's as in a 2-stage process that is good for both parties. I don't want to speculate on what could potentially happen for us to go away from the deal, but I think we're going with the hypothesis that we are going to make this deal successful. I think we are going to make it in 2020.
Just one brief follow-up. Överskottsbolaget with 94 stores, and you mentioned that there's been some store closures that hasn't been profitable. What about the development, let's say, over the past five years, and then the strategy going forward? Could we expect then Överskottsbolaget also to open new stores going forward in addition to close non-profitable ones?
I think as I mentioned before, I think they closed sort of their unprofitable stores, so they have a sort of stable base there, and then they have a few more stores planned for this year. I think, as I said, they have tested out some city stores. That is like a new concept that we are also testing out or going to test out, and that could lead to more stores. As I said before, it's not a target in itself to open more stores. It's only if they are profitable and have a good business case. I think that's something they are evaluating and testing at the moment.
Thank you.
Very good. Okay. Any questions from the-
Yeah
web?
Karl Johan Molnes. How will Europris be involved with the restructuring and profit improvement of ÖoB? What is the hurdle margin ÖoB has to reach for Europris to exercise the last 80% of the stocks?
I think as I said, we will take a board seat with Överskottsbolaget. I mean, then we will also commence on a purchasing project, conjoint purchasing project for the benefit of both companies. That's it. We haven't defined a hurdle rate for exercising the option, no comment on that.
Ole Martin Westgaard, DNB. If I understand you correctly, you expect to exploit synergies of NOK 40 million-NOK 80 million, primarily from sourcing. How should we think about the remaining synergy potential if you were to exercise the option for the remaining 80%?
Yeah. 60 to 80 was the joint sort of sourcing synergies, roughly equally distributed between the companies. That's the sort of medium-term synergies. There are obviously more, but that's part of the process that we're going to work on in the next few years, is to look at also other synergies and opportunities going forward.
The last one, Tushar Jain, Goldman Sachs. Incremental cost of implementing this joint venture. Just to be clear, you intend to benefit in grocery purchase, which you can source incrementally more from Sweden, and ÖoB benefits in general merchandising?
Yeah. That's a very simplified version of it, is obviously we have multiple different categories. We are going to benefit from Far East sourcing, and they're going to benefit from grocery purchases. The main, if you look at the big figures, we have a little bit more skewed towards the groceries, not the food, but the grocery in total. They have a little bit more skewed towards Far East products. We are also going to benefit from Far East products and having joint volumes. I think it's in all different categories.
No further questions.
Okay. Thank you for coming, and we are available for follow-up questions later.