Good morning. Welcome to the presentation of Komplett Group's third quarter results. My name is Kristin Hovland, and I'm Head of Communications. We will start today's presentation with our CEO, Lars Olav Olaussen, who will go through the highlights for the quarter. Our CFO, Krister A. Pedersen, will give you some more details about the financials. The presentation will take approximately 20 minutes. During the presentation, you are welcome to pose questions via web, and we will answer them at the end together with the questions from the audience. With that, the floor is yours, Lars.
Thank you. The third quarter represents yet another quarter with challenging consumer market. Consumers are negatively impacted by increased inflation rates and consumer confidence is at an all-time low, which negatively impacts the spending they have in our core categories. Despite the market decline in recent quarters, Komplett is in a positive long-term trend. On a pro forma basis, since 2019, we've had a 10% average growth rate every year. The negative market sentiment that we see now, we expect to be with us well into 2023, and we're taking several mitigating actions to secure that we maintain our competitiveness and that we create the necessary resilience in the face of a tougher market condition. Over the quarter, we've continued the journey of improving our inventory and have successfully reduced the level of slow-moving stock. This, of course, releases working capital.
It creates a more healthy stock composition that gives us more attractive products in store for our customers, but of course, also has a negative impact on our gross margin. We continue to display strong cost control and have implemented solid cost measures also in NetOnNet over the quarter. Further, we have solid net working capital improvements through our factoring agreement with the Resurs Bank. The integration with NetOnNet is also going according to plan. We have good progress on the negotiations with our suppliers, and we remain confident that we'll be able to deliver on our commitment of NOK 200 million of synergies within 24 months after closing. This all also in the face of a lower volume base than we originally had planned for.
If we look at our top line, on aggregate, the top line grows by 39% over the quarter, by and large driven by the inclusion of NetOnNet in the numbers. If we go on a pro forma basis, the organic growth is a disappointing -15%. The revenue decline is especially driven by the B2C channel, while we see a modest growth in the B2B channel and a stable development in the distribution channel, despite being faced with very strong comparables from the last couple of years when we added significant new distribution agreements. Our gross margin also remains under pressure. In a weaker market where retailers also have high inventory levels, and we saw a need to continue to sell out slow-moving stock, some of this puts our gross margin under pressure. We're succeeding with our other measures.
We have reduced our inventory levels by more than NOK 400 million year to date, and we have a much better stock composition as we've significantly reduced the level of slow-moving stock, which gives us the opportunity to take in fresh stock that gives us also a more attractive product offering as we move into peak season. As said, in the integration with NetOnNet, the supplier negotiations are progressing as we planned. We are confident that we will be able to realize the NOK 200 million of synergies within 24 months after closing. We think that we will reach a run rate of around NOK 100 million during 2023. It's of course a disappointing quarter on EBIT as we land on NOK -10 million.
The disappointing result is driven by the volume decline in B2C and the gross margin, the pressure we have on our gross margin. On a positive note in this presentation, we continue to display solid cost control, and we sustain our industry-leading cost position. Excluding the M&A of NetOnNet, our like for like OpEx declines by 6.1% in the quarter, and our OpEx as a share of revenue, including depreciation, lands at a solid 10.7%. In NetOnNet, we've also implemented significant cost initiatives that should yield between SEK 70 million and SEK 90 million on a gross level from 2023.
If we move into the channels, in the B2C channel, our revenue surpasses NOK 2.5 billion to a full extent, the growth fully driven by the inclusion of NetOnNet. Excluding NetOnNet, there are multiple factors driving the revenue decline. First of all, we come from a period with exceptional consumer spending in our categories during the pandemic and then directly move into a new period with very low consumer confidence, where we're also very early in the replacement cycle and the market is quite saturated after the sort of peak we saw during the pandemic. At the same time, the share of spend between online and offline is normalizing after the pandemic, both impacting us negatively. Thirdly, as you all know, during the couple of last quarters, we've been working very diligently to improve our stock composition and reduce our stock level.
I think it's fair to say that in doing this, we've become just in some categories, a bit well conservative in placing insufficient orders on new stock. This has put us in a position where we've had a few out-of-stock situation that also has impacted the sales somewhat negatively. We've taken care of it now. The products are back in stock, and we see normalized stock levels, and we're ready for peak season again. Further, the gross profit has, of course, been impacted by the pricing pressure in the market as we see, and also by our efforts to reduce inventory. In sum, our EBITA is negatively impacted and lands at NOK -24 million. In the B2B segment, we continue to see growth, but also modest growth of around 4%.
We're mainly exposed to the SME segment with B2B, and the growth comes from the upper end of the segment with more the medium-sized enterprises continuing to display strong growth. In the lower end of the segment, we find our smallest customers, where you see a shopping pattern that more resembles the one we see in B2C, and we see a softer demand there. We also had some further upside that we couldn't capitalize on sales over the quarter as we saw some supply chain issues that restricted our availability of Apple products over the quarter. Our gross margin declines primarily driven by a mix effect as we've sold quite a lot of products into the educational sector. This is a sector where we normally see products with lower margin being preferred.
Further, the gross margin was reduced by our efforts to reduce our inventory and reduce slow-moving goods, as well as a negative currency impact, especially hitting us in the Swedish market. In sum, we deliver an EBIT margin of 6%, and that is including Ironstone, our managed service provider. Excluding Ironstone, our EBIT would jump to 7.4%. This is a deliberate investment we've made as we're putting our investments behind building a solid technology stack that we can commercialize and sell in the SME segment. In the distribution segment, our revenue base holds up well.
If we'll take a bit longer view on the distribution segment, we've had fantastic growth for several years as we've adopted and taken on new major distribution agreements. Faced with those comparables and at the same time with a softer market, we think it's a strong performance to sustain our top line also in quarter three. The gross margin is negatively impacted also here by mix, as we again see that it's the larger accounts and Apple that's driving our sales, while the smaller accounts that typically have a more preferable mix has a softer development.
Again, the product mix we're selling is also a product mix which we can handle with extraordinary efficiency, and our EBIT margin is sustained at 1.6%. I'm now gonna hand the word to our CFO, Krister A. Pedersen, to take you through the financial performance.
Thank you, Lars. Yes. On reported figures, we have a revenue growth of almost NOK 1.1 million, but driven by the combination with NetOnNet. Excluding NetOnNet, we have a revenue decline of NOK 400 million and is related to the softer consumer market. On the positive side, we have good cost control, as Lars has mentioned, and we're also taking necessary actions on inventory and net working capital, as I will come back to. Altogether, we have a EBIT decline from NOK 79 million last year to NOK -14 million this year, including one-offs. The main deviation is the decline in the B2C market and the pressure on gross margin. On net financials, we have NOK -19 million, NOK 11 million is related to the bridge facility, NOK 5 million is related to leasing, and the rest on interest on the other facilities.
In the third quarter, we had an effect on operations or discontinued operations, profit and loss on discontinued operations, and that is a refund or dividend on the closure of a subsidiary back from 2019. The effect from this is NOK 6 million after tax. The profit for the period is NOK -29 million in the quarter and NOK -91 million year to date. From this, the board of directors expects no dividend to be paid based on the 2022 figures. On cash flow and working capital, we have improved the cash flow from operations by NOK 227 million, even with softer figures on the P&L. The biggest single event is the implementation of factoring, announced as we have announced in the last quarter presentation.
The effect so far is NOK 200 million, and we expect to have NOK 300-NOK 400 million by year-end, and additional effect next year. Further, we continue to improve the composition of the inventory, where we are reducing the level of slow-moving stock. Cash flow from investing activities was NOK 29 million in the quarter, compared to NOK 77 million in the third quarter last year, where last year we had the acquisition of Ironstone. The net interest-bearing debt, including leasing, was NOK 2.9 billion, whereof the bridge facility equals NOK 1.5 billion, and leasing NOK 0.6 billion. Net interest-bearing debt, excluding leasing and bridge facility, was NOK 760 million, compared to NOK 667 million last year.
Further, as earlier announced, the bridge facility is without covenants, giving us a leverage ratio of 2.8, compared to 1.7 last year. At the end, liquidity reserve has improved from NOK 521 million at the end of third quarter last year to NOK 969 million this year. Back to you, Lars.
Thank you, Krister. If we do some key takeaways from the quarter, it's been a quarter with a challenging market, especially in the B2C segment, and we do believe that the challenging market will be with us well into 2023. In order to sustain our competitiveness and create the necessary resilience, we've taken several mitigating actions to make sure we're ready for a period of softer market conditions as well. We're maintaining our cost leadership position, and we're taking significant steps to reduce our cost level in NetOnNet with a program yielding between SEK 70 million and SEK 90 million gross. We're continuously working on improving our stock composition and having a healthy stock level. We think we're well prepared for the peak season coming up.
We've taken significant steps to secure a healthy balance sheet. Among others, we've secured NOK 200 million of working capital from the factoring agreement we've recently gone into. The integration with NetOnNet is progressing also as according to plan. The supplier in the supplier negotiation, we're seeing results that makes us confident that we'll deliver on the NOK 200 million synergy target within 24 months of closing. We do believe we will be able to realize a run rate of 100 million during 2023. Despite it's been a quarter and a couple of quarters of very challenging growth, we're still on a long-term solid growth trend, with 10% organic growth since 2019.
If we look at our priorities going forward, a key priority for us is of course to continue executing the integration of NetOnNet and delivering on our commitments on the NOK 200 million of synergies. Further, a key priority is to secure a long-term refinancing of the bridge loan. We have a very flexible bridge loan facility and will continue to use that flexibility as we find a solid capital structure that creates the best value for all our shareholders. Maintaining our cost leadership position will always be a key priority for Komplett. In the coming quarters we'll have a special focus on realizing the effects from the very solid cost program now that we've now implemented in NetOnNet.
We continue to be committed to keeping a solid inventory level and also a stock composition that allows for an attractive consumer offering and a good working capital management as well. We're taking several steps to secure a healthy balance sheet. Of course, we remain committed to investing in having an updated and automated IT stack and supply chain solution. In order also to create financial flexibility, we've taken several measures to postpone and to have the option to reduce investments in CapEx as we see fit going forward, and have created solid flexibility so through that in our CapEx plans.
Through the factoring deal with the Resurs Bank, we have yielded NOK 200 million over the third quarter, and we expect a further NOK 100 million-NOK 200 million effect in quarter four, and potentially even further effects moving into 2023. Over time, we're confident that the consumer electronics market will return to a normalized growth. Everything we see in the consumer research we do gives us confidence that consumers also over time will continue shifting their spend from offline to the online channel, and we're well-positioned to capitalize on those trends with solid brands, with, also with strong price positions. There's significant value creation potential that we will realize with a, with a combination of NetOnNet, and we have a leading cost position.
In sum, we have a very attractive and robust position, and we think we're well-positioned for creating profitable growth in the mid to long term as markets normalize again. Thank you.
Thank you, Lars and Krister. I will now hand it over to Carina for the Q&A session.
All right. Thank you. We'll start by checking if there are any questions in the audience first. Yeah. Could you please say your name and where you're from, please?
Petter Nyström from ABG. Three or four questions from me. I take one at a time. Can you give some details on the cost cut in NetOnNet between NOK 70 million and NOK 90 million? When should we expect that in the numbers, and when do you expect it to have full effect?
I think you should expect to start seeing effect early 2023, and gradually moving up to full effect during the first half year most likely.
Perfect. Thanks. Looking at the working capital going into the fourth quarter, if we were to exclude the factoring agreement, how should we view the working capital effect on cash flow in Q4?
We should expect inventory to be reduced by year-end, as it should after the peak season.
Thank you. I'll continue with a couple of more. Within the B2C, Lars, you have talked about price pressure now for several quarters. Are you seeing that the price pressure is accelerating, or is it let's say, more stable? How should you think about that also in the fourth quarter?
Yes. I think we've seen from the bigger retailers a bit of easing in their pricing pressure. Basically, as expected, as inventories turn more normal. I think we also seen that we see an indication that we're moving towards a more normalized level, but still, the smaller incumbents seem still to be relieving themselves of inventory and being a bit pushy on price. The larger ones seems to be moving towards a more normalized state of pricing towards the end of the quarter and at the start of quarter four. You know, then again, how the peak season will play out, I think it's very hard to give any predictions on.
On sort of a going basis, things seems to be slowly moving towards normalization.
Perfect. Last question from me. You talk about postponing CapEx. What should we expect on CapEx for 2023?
We have announced that the central warehouse in Sweden will come at a later stage. We have, of course, maintenance CapEx of between NOK 80 million and NOK 100 million. In addition to that, we have IT investments in upgrading the ERP platforms. I think in the level between NOK 100 million and NOK 200 million should be. I would look at those figures.
Thank you.
Any other questions from the audience? No? Okay. We will move on to the online questions. You've already touched on this, but the first question is, last quarter, you announced a significant reduction in inventory and that this reduction would continue in the third quarter. We can see that it has increased by NOK 70 million. Can you explain the increase?
Yes. I think it's we have increased the inventory somewhat as we prepare for the peak season. It's only natural that we have somewhat increase in inventory as we've come down quite solidly. What we've focused on over the quarter is not the absolute level of inventory but more the composition of inventory. We've relieved ourselves of slow-moving goods, and that is often goods that has been in our warehouse for quite some time and has been paid to suppliers. When we're getting fresh good, that also releases working capital. It gives us a more attractive product offering to our customers, and it relieves a bit of working capital.
Can we expect the same year-on-year reduction in OpEx going forward as we saw in Q3?
Is that for Q4 question? Yeah.
Yeah. If we can see. Yeah.
Yeah.
It's probably going to be Q4. Yeah.
I think that we can say that we will continue to work on OpEx, as we need to compare the cost against the revenue. We will always look at OpEx.
To add on that, I think we've displayed quite clearly now, that during the pandemic, I think we showed very well we can scale the business with increased volumes. I think if you look at our cost percentage, which is in the material, that we're scaling well also in the face of softer volumes, and we'll continue to make the necessary steps to make sure we have an industry-leading cost position. We see it as a key competitive advantage, and we think there is more to be done if needed.
Thank you. You are guiding for flat revenues in 2023 relative to 2022. Where do you see 2024 revenues? What is the implicit assumption for B2B and B2C revenue growth on your guidance for 2023?
I think first of all, we expect the first quarter in the B2C market to be colored by high energy prices. That is what we aim that 2023 will start with. We of course have a revenue decline this year and related to the market. We are not sure when the market will turn back again. That's we really don't know.
On gross margins, what is the negative impact in 2022 of a higher than normal discount level? Do you expect this to normalize in 2023?
For our inventory, we have done the job in reducing the slow-moving stock. For our stock we are ready for higher gross margin going into the next year. What's the composition of the inventory from the competitor side? We cannot tell, but that is on our side we have done the necessary actions.
How do you see the industry inventory levels? When do you expect these to bottom?
I think it's very hard to get an overview harder than to get a real-time overview of the inventory levels in the industry as there is no real data available on that. We do expect. It seems to me like the pricing pressure is coming somewhat down, indicating that stock levels might be normalizing again. What we've seen other companies say is that they expect a more normalized level going into 2023. I think that would be my sort of best assumption.
How do you see your performance versus the competition in Q3?
Well, I think if you look at categories like gaming, there is not many very solid data sources. I think given the fact that we are hampered by the shift back to more offline, the normalization of the channel mix there, and, as said, we have had some out of stock situations that are somewhat self-inflicted. It's fixed now, but it's self-inflicted. I would say that we are somewhat behind competition over the quarter.
You're stating that you expect NOK 100 million in run rate synergies from 2023 and NOK 200 million by April 2024. Can you comment on what we should expect in the phasing of these synergies? Will there be a gradual ramp up, and is the NOK 100 million from January 1st, 2023?
Yes. You should expect a ramp up. The exact ramp up is hard to state clearly because it's related to when we start buying new products. Where we're in a position to take in fresh inventory, we'll take in new inventory on new prices. There's a gradual build up there, and it takes some time to negotiate through all the categories as well. We've negotiated quite a lot of our turnover already, but still quite a few categories also remain to be negotiated. Those two things need to come in place, and then effect should come in.
The target is cost initiatives for NetOnNet. Can you please elaborate on the timing for when we should expect these to crystallize? What does the cost initiatives relate to?
Yes. You should expect to start seeing effects from quarter one, basically. It's broad-based, but we have conducted some personnel reductions. That is completed, that initiative. Then we're looking at all other parts of the OpEx as well.
Can you remind us how big Black Friday week is for Q4 in terms of sales? What are your expectations this year, and how do you consider your performance in 2021?
In 2021?
Yeah. I think that's a comparison question.
Yeah. I think we saw that 2021, the Black Week had lower effect than the year before, and I think also for this year, that will also happen. How much it equals of the quarter, we haven't disclosed. Of course, this week is important for us.
Yeah.
Could you break down the increase in net finance costs and provide some guidance for how this develops in Q4 with higher interest rates and higher factoring volume?
Yeah. The factoring agreement have somewhat higher interest rate than the other facilities. I think you should look at the Q3 figures and add that effect on NIBOR in addition.
Okay.
Mm-hmm.
That concludes the questions online. Are there any other questions from the audience? Nope. That concludes the Q&A session.
Thank you.
Thank you.
Thank you. We will be back presenting our fourth quarter results on the ninth of February. Thank you all for watching, and we wish you all a great day.