Good morning everyone, warm welcome to the presentation of Axfood's third quarter. The result will be presented by Axfood's President and CEO, Klas Balkow, together with the CFO, Anders Lexmon. As usual, there will be questions and answers after the presentation from the audience and also from the conference call. Those of you who are watching us on the webcast, you can write questions, we will then address the questions in the call. After these practicalities, I will hand over to the first speaker, Klas Balkow.
Thank you, Cecilia, of course, let me also then welcome you to our financial presentation of the third quarter for Axfood. The agenda for today, we will cover the ratios for the quarter, obviously. We'll also cover the financial position for the first nine months, as well as I would like to give you an update on some of our strategic initiatives we are now currently working on. Then I'm sure we will have a productive Q&A session.
Let me just start with reminding ourselves with what I think the great business model we have in Axfood, where we have unique, strong concepts that is meeting the various consumer needs out in the market, while at the same time we work with a common logistics, a common sourcing, common at the moment is about 47 billion SEK, we continue to see that it's growing as we move along. Moving into part of the presentation, before going into the numbers, I think today is a bit chilly outside, I just want to take ourselves back into what we noted this summer. It was a special summer. It was a summer that some of it was very warm. We had some weather conditions that was particularly fairly special versus what we're used to see.
Some of this had positive effects, some short-term effects that was positive in terms of sales mix for us, it also had some short-term negative effects in terms of our logistics, I will come back to that obviously later on. We also look at it a bit from a more of a longer perspective where we see some long-term effects in terms of how we would be able to have sourcing from Swedish food production in general, we see some lack of supply in certain areas. Of course, we need to work and address this accordingly. I'll also address this later on in my presentation. Going into the presentation of today the highlights that I view profit for a quarter in Axfood's history. In this time, it's especially driven by the very strong performance that we've seen in Willys.
I'm also going to address some of the challenges that we've seen in the logistics due to what I just addressed, the summer weather that we see in large part in terms of this quarter. I have to say we'll come into that we're also starting to build our future logistic operation, and we're starting to see that those plans come into reality for us in terms of Dagab, which is, for us, very exciting. We are early on, but we want to share this with you, and I'll come back to that as well. These are the three areas that I would like to address as highlights in the presentation. Moving into the key ratios for the quarter.
Looking at sales, we have a positive net sales growth of over 4%, 4.1% in the quarter, where we have a like-for-like growth of over 3% in total for the group. As you can see on the slide behind me, all segments are conscious when we are supporting from a same growth perspective. As you can see, we have almost a double-digit growth from a like-for-like perspective, and it's growing over 11% in the quarter. How are we performing in the market? In terms of performance versus what we see as the overall market development, it's clear for us that we continue to gain market share with a 4% store sales growth in the quarter.
Even if we only have data for July and August, that is official data, but even looking at that and what we believe from the market point of view, even for September, we are fairly confident that we continue to gain market share with our 4% growth. Going into our profit. We came in, as I stated initially in the highlights, with a record profit. It's the highest profit we've seen in the quarter in our history. Also seeing a positive sales mix in the quarter, and it's included these numbers, of course, the negative effects that we've seen in our logistics. Despite the drop that we have seen in the margins for Dagab, our logistical company, you can note and see that we're almost maintaining our operating margin in the quarter at 5.1%.
Let me now go through segment by segment in terms of how we're performing for Willys. We are clearly gaining more customers. We are growing our online business with Willys, and we have a very solid operation. It's fair to say that in this quarter, our profit margin has been supported by the positive sales mix effect that we've noted integrated into Willys. Eurocash has a positive season for this quarter due to the structure that we have with the border. In line with the market in this quarter. We also have positive sales development in certain areas, but we've also seen that the summer weather has also been slightly negative as many of our larger Hemköp stores are city-located. With the summer. Continuing our refurbishment program. At this moment, we are refurbishing our largest store in Gothenburg, in Nordstan. We've just refurbished Länna.
We also closed one store in the quarter, Mariaallen, just south here in Stockholm, that we've closed due to, as we have now reallocated or moved that into a Willys store that actually just opened last week. Our profit is in line with last year, affected then by customers and with our staff, obviously. That has hampered a little bit. We are taking also further steps within Hemköp to drive our commercial agenda, where we're now also strengthening our commercial team with a new operational manager as well as a new marketing manager within Hemköp.
The summer has been favorable for the cafe and restaurant business, also been favorable for us as we've been good to capture that business opportunity. We are not seeing the full profit development from that positive like-for-like sales due to slightly negative sales mix, actually, for Kjell & Company, that's also very much driven to a somewhat lower gross margin due to the higher promotion effects, as well as we have one more store that is not fully ramped up, and we've had to close one store temporarily that is now open again due to some construction issues. Obviously, a positive development, while margin then is down to 1.6% versus last year, too. Growth is very much driven by the positive performance from Axfood stores. That we have a very positive drive in the online business, as well as our convenience sector that Dagab is supporting.
Clear that last year's comparable number included the business we had for Mathem that we don't have any longer. Actually, this is the last quarter that we now have that as comparable number. Again, we are somewhat down and very much relates that to that we have worked hard in the summer with large variations between the product segment, we worked hard to maintain our service levels to our customers. That has had an impact on particularly that we needed to have more transports, we needed to have more trucks, particularly trucks with chilled items. That has driven up our cost also somewhat driven down our profit.
Final comment, which is on the lower side, also profit has been somewhat impacted by that we have invested in this quarter. Hand over to our CEO, CFO, Mr. Anders Lexmon, to go through our financials.
4%. Looking into our cash flow for the third quarter, isolated figures for last year. We also last year paid back a short-term loan of SEK 124 million, and that we did. The fourth quarter this year will be more intensive when it comes to investments if you compare to previous quarter. There are investments both in our wholesale operation and in IT. Coming back to as a percent of net sales. We had a little dip last year, and that was due to our acquisitions. Now we are back on track, and we have accounts payable and accounts receivable. This chart shows our financial position is strong and last year also affected of some short-term loans. That means that we had a little bit lower goal of 25%. Finally, capital employed.
We have a return on capital employed of just over 40%, which is very stable. That, Klas, was my last bit.
Update on our strategic priorities very much relates to our ambition to be a leader in good and sustainable food. You've seen this slide, and of course, we have one key area for our people. I will not go through all of them, but give you a few highlights or a few comments on some of them. The value proposition for Axfood's retailer, and we're also working with our meal solutions to offer more prepared meal to our. Look at it from a little bit what's going on and happening as we move along from that. We are clear that we see some effects out of the summer due to some stress in terms of some of the assortment that we need to bring in that is also not only impacting Sweden but also northern part of Europe.
There's also an inflation pressure in general, even if I have to state and say that I think it's too early to say where this will end up. At this stage, we are around 2% food inflation to our best adjustment or understanding. While we see obviously some categories that we take responsibility for this as we'll try to work as much as we can with the industry and with the farmers to secure that we will have Swedish food and food production from the Swedish food production in our shelves even the coming period. We need to work very closely with this to secure that we handle it from the right perspective in terms of promotion campaigns and so on to make sure that we have a steady flow of these products also the coming period. Going into the customer meeting where we have three clear priorities.
We work on refurbishing our stores. We're also working on developing channel experience with the new e-com that is growing in the market. I'm not going to go through what we've done so far in terms of very much on the online, but it is focused on the refurbishing in the stores. We have talked and mentioned a lot in terms of what we're doing with Hemköp, that we are rebuilding the stores and taking the next step. This time, I just want to make a comment on Willys, as we have, as you see, in a very positive momentum in Willys, and we want to continue that momentum, but we're also taking the next step in terms of how we look at Willys stores. We've already improved the communication that you've seen, I think, out in the market.
We also resolve pre-made meals, ready-made salads, and an improved general merchandising. Exciting times where we're now evaluating and seeing how this is received out in the market. Going then into expansion, we had three areas also here in terms of acquisition, but also expanding our store network, as well as expanding our offer to the online consumer. Clear that we are, will be really on the low side. We have two completely new stores, but we then have converted a Tempo into Hemköp, as well as some franchising stores. We have made some conversion within the group. It's clear that we are on the low end of new stores in 2018.
That we will see be ramped up in 2019 as some of the planned stores that we've seen, that we thought were going to open up in 2018. Report, I think, or comment is, I think we're coming with some interesting news here. We've already stated, the clear priorities for us and a large of our opportunities lies in optimization. We have taken steps in our optimization process. We've developed a new warehouse, also a link in the optimization part out of that warehouse. We're also working with Dark Store. We are about to launch the common Dark Store for Willys, Hemköp, and Mat.se as of early next year. For us within the online, we need to develop the last mile, which is, as you know, a costly part, where we now start to coordinate our transport within our various brands.
A year ago, we addressed at the Capital Market Day our vision in terms of how we see the future logistics. We worked on this for over a year, and therefore, even if we are early days, we have not made the final contract, but we are getting closer and closer, and we also now are more clear about the timeline, as well as we're also clear about the CapEx need for these investments, and we thought it is a good time to go out and share our plans with you here today. Building that will not only handle the store's picking, it will also handle the e-com. This is a warehouse that combine them both, which of course creates a lot of opportunities for us.
Plan is to start to make some of the investments out of this in next year, 2019, then this will be fully up and running by 2023. Why are we doing this? Well, logistics for us is one of our core strengths and one of our core competence, at least now when we see the new technology available out there in the market, we see, of course, some large opportunities. We will be able to improve our service levels, we will be able to improve our impact on sustainability, we will be able to improve our processes, and of course, we see this that it will have some significant improvement on our productivity. As said, we have a timeline, we also have a clear indication of our CapEx need for this optimization process or the optimization building part of that.
That will be between four to SEK 600 million in a four-year period starting early 2019. Where are we right now? Well, we are in the final discussions with our suppliers and landlords, obviously, we will come back with more details as we do that. That sums up our numbers for the third quarter, both in terms of the quarter three as well as the financial position we have in the company. I hope you also see an update now in terms of some of the areas we're working on in our strategic agenda, where we have a lot of energy for. We are leaving behind us a strong quarter, a record quarter, actually, with particularly Willys and a lot of energy for the future. Thanks a lot.
Thank you, Klas. With that, we open up for questions, we start here in the audience. Before I hand over to Niklas Ekman på Carnegie, I just want to give the voice over to the operator so you can state how the conference caller participant can ask their questions. Please, operator.
Thank you very much. Ladies and gentlemen on the telephones, if you have a question for the speakers, please press 01 on your telephone keypads.
Okay, then Niklas, please go ahead.
Thank you. Niklas Ekman here from Carnegie. I want to start with a couple of questions on this automated fulfillment center. Firstly, this will be launched in Stockholm. What kind of range are you looking at? How far can this distribution center service? How big range in Sweden? Do you need additional fulfillment centers going forward?
We need more warehouses or fulfillment centers to serve the whole country, but it will cover a large part of it. We have today Stockholm, the full program out of it, and then we'll outline it then.
SEK 400 million-SEK 600 million, you say that's on top of your normal CapEx, and I'm wondering what is your normal CapEx?
We had it somewhat higher this year. Anders commented on that as well. What we are addressing now is what we see as extra additional for the optimization part and so forth. That will be on a yearly year guiding when we come closer to year by year.
This still means that your total cash flow is likely to be lower than the dividend payments that you've done in the past, at the same time, you have a very strong balance sheet. I was curious when you've had discussions about this with the board, if there's any change in the view on the dividend. Will there be a likely dividend cut in the short term, or do you think you can sustain the dividend?
No. I think we don't think that. Obviously, dividend can influence by many areas and many things going forward, for this isolated, we have a strong, as you pointed out, financial position. I don't know if you want to comment on it in terms of discussions we have for the financials.
No, it's like Klas said. What we see now is that it will not have any impact on the dividend. As you mentioned, at the end of the day, it's a call for the board and for the owners.
Okay. I also have a question on the drought, which you point out as a big challenge. In the past, when you see inflation, normally you're very good at passing that on, and it can actually end up being positive. Is this different? Is this severe enough to impact volumes, do you think? Or are you confident that you will be able to manage this without having a severe impact on profitability?
Obviously, we believe that we'll be able to manage this. Also as I'm stating, I think we're a bit early to see how this will sort out. We thought that we're going to have some more meat issues in issue than we actually had. We need to follow this closely and need to work closely with the industry. We see some large fluctuations today in certain with a lot of the products we used to see due to the shortage. We want to make sure that we handle that. I think we're able to do that. We need to follow it and work closely with it.
I also have a question on online sales. Can you say something about the share of online sales for the group right now? You have 65 stores and you have Mat.se. I assume that's at least SEK 500 million in sales or around at least 1%.
As you know, we are not sharing that, but I can confirm so far that we have a very positive growth. To our knowledge, in terms of what we see versus the market, we are growing far faster than the market, so we have a positive development.
Okay. You're not quantifying the growth either?
We're not doing that yet.
Okay. Thanks. I'll pause there.
Thank you, Niklas.
On the telephone lines comes from the line of Gustav Sandström of SEB. Please go ahead. Your line is open.
Thank you, operator. Good morning, everyone. Thanks for taking my questions. If I can revert back to the investment in the warehouse, could you please specify a little bit about the SEK 400 million to SEK 600 million? What are the main costs associated with this project? Is it robots or truck fleet or the actual building? Or what is the input costs in this calculation that you have? Secondly, is there an element to this investment that is more of a centralized function that can be used cross-country, or is it more of a distribution network that has its limits in terms of geography? Thank you.
Hi, Gustaf. If I start and see if Anders, if you want to fill up or fill in with something. Majority of this investment very much relates, as I stated, it's a high-tech building. It's a high-tech fulfillment center, which majority of this is due to the optimization process or the optimization within the building. You may have seen, there is nothing similar to this in Sweden, but you may have seen some of it you find in other countries. It's very much linked into how we are building an optimization that is very efficient to handle this kind of structure, this kind of operation that we have. What is also fair or important to point out that this will also include both to the stores as well as e-com.
That gives us a more efficient operation, but also flexibility in terms of how far or how large the e-com business will be since we handle this in the same building, so to speak. Gustaf, remind me again, your second question was?
In terms of the actual investment, does this mainly refer to the actual distribution capabilities in the surrounding area, or are there elements to this that are
When we are outlining this, as we had the earlier question here, we will come back with in terms of how far and how big this will reach out. Obviously, we are aiming for a large center that will have a large coverage. It will not be the only one for Sweden, I can say so much.
Okay. When you talk about the investments being high tech, is it fair to assume that the depreciation for this investment will be lower than perhaps the normal 10 years?
What we see is that we will have a longer depreciation time on this type of investment, compared to what is normal for us.
Even though you refer to this as being a high-tech investment, I would assume that the technology would move forward quite quickly and is it reasonable to depreciate such an investment over longer than 10 years?
We believe so. When we say high technology, obviously, it's a lot of software in it, obviously, but it's a significant amount of hard construction as well.
Okay. Thanks for taking my question.
Thank you, Gustaf. We go over to Danske Bank and Daniel Schmidt, please.
Thank you. Could I just ask you a different question on the operations during Q3 and weakness in Dagab's EBIT being down SEK 38 million, I think it was, year-on-year. Is there any chance that you can shed some more light on how much of that was related to increased fuel costs? How much of that was related to volatility in deliveries and so on, and how much of that-
Of that was the fuel prices. It also relates to that we had to have increased our transports, as I pointed out, that we had to increase transport due to the capacity for the trucks due to the heat. We couldn't ship as much as we normally do in one truck. We needed to add trucks. It's a combination of more trucks and higher fuel costs impacted this part.
Coming back to the topic of today, it seems like. Could you, in any way, try to compare what you announced today in terms of the automation investment with what ICA did in terms of the Ocado deal, you're spending almost twice as much, I assume that includes the entire group, what you write about in terms of digitization-
No, I'm actually glad you're addressing that question because of, again, I'm going in with a lot of energy out of this investment because it's a fantastic opportunity. It's not to compare with an online optimization process. We are taking an optimization for the current business that we have that is still the majority of our business today to fulfill the stores. As you know, when you look at the structure today, it's fairly manual warehouses that we have, even if we have some techniques in it, this will create a great opportunity for us, which of course creates also great opportunities. This is for the whole business for us. It's not only part of the online. The beauty is that we can combine this. We're not building a separate optimized online.
We're combining this in one fulfillment center, which, as I pointed out, gives us flexibility in terms of where online, how big that market will be. It also gives us the productivity benefits we also see it needed for the online part.
Should we assume that you already have singled out a supplier for this?
To our plans, we still have not made the final selection or contracts. We're in these discussions. We are getting so clear about the timeline and also getting so clear about in terms of investment needs. Therefore, we thought it's a valid time to go out and inform the market. We're also keeping the structure right in terms of the need for information.
Is this also in any way boosting your internal cost base? Is part of this project going to be developed in-house, or is it a mix where you need to staff up as well?
Obviously part of it is a mix, but of course, we are working with partners with this since it's not our core business to build optimized fulfillment centers. It will not be for the future either. Of course, we're also building up our own competence to handle this. Yeah.
Thank you.
Thank you, Daniel. I have.
Nordea. Please go ahead. Your line is now open.
Yes, thank you. Just a question on the optimization and logistics front then, and if you can say anything about what type of savings you expect from this big investment and also if there will be any costs apart from the investments that you put in the benefit of doing this.
We confirmed all the plans for it. What we'll do is we'll come back later on when we have this confirmed fully on. Right now, it's very clear in terms of timeline, and it's clear in terms of CapEx need. We see some great potential in terms of productivity related to this as we are starting it by 2023. We'll come back to some of that later on when we have a firm plan.
This will be a meaningful additional return on investment you think? Is it more of being able to cope with maybe a higher cost level in the online setup?
I think it's a clear, meaningful-
Maybe adverse weather conditions in this quarter, but relative to your franchise stores, the owned Hemköp stores have been showing quite weak like-for-like somehow.
I think you're right in that, and we've seen somewhat slower performance on our group-owned stores over a few quarters. Some of that is related to the refurbishment program that we have worked intensively with. As you know, even if you're refurbishing a store, you're not getting fully up in speed, it takes some time. Versus when we're looking at the stores we have refurbished, we are seeing that it's a very positive effect on a going basis, particularly year two. We are working with the whole group now and particularly with the group you have.
Okay. Just finally also, you mentioned here that you have better results from online contributing to both Willys and Hemköp, just wondering how you see that development going forward. Should we expect this also in the coming quarters?
I think it relates very much in terms of how we'll be able to grow for us as we move along as of 2019. A clear area for this as well, is that we are able to drive the click and collect solution, and the click and collect offer that is particularly positive within Willys, that has over 50% click and collect rate at this stage.
Tom?
Yes. Thank you. Our next question comes from the line of Andreas Lundberg of ABG. Please go ahead. Your line is open for a question.
Sorry, can you take that again?
What's your maintenance CapEx for 2018?
Maintenance.
Maintenance. It's for maintenance.
Okay. Yeah. The remaining CapEx for this year, what do you include in that? Is it normal growth?
Yeah, it's normal growth.
Yes. With anything that is shorter?
Well, as we see it now, it will look into that, in more details, when we come closer to the investment.
Okay. Will you still take these from then? How much would you say is weather-related when it comes to profitability improvements?
I think in general, as the growth of customers, we have a positive sales development, so slightly on the mix effect, so slightly which is positive then on the gross margin. Sales mix as you've seen, we've had a positive sales mix from this summer. We've also been able to be a bit more productive specifically.
Eurocash did improve a lot versus last year, correct?
Eurocash had a very strong performance in this quarter.
Fredrik Ivarsson of Kepler Cheuvreux. Please go ahead. Your line is now open.
Thank you. Morning, guys. Thanks for taking the question. Potentially one last on the back-end loaded, when it comes to CapEx. Can you give some color on that fact, please?
Well, when I said in the range between-
Going into Q4 when it comes to CapEx.
Yeah.
Just curious on why that is.
That is somewhat to the other quarters for the year. Also in wholesale, we will increase a little bit.
On a 12-month trailing basis, you're at 4.4%, which is slightly above your 4% target for Willys. Expect to reinvest this increased margin in the offering or should we expect it to stay at these sort of higher levels?
Our value proposition to the consumers, and keep track on that. That is the most important part. Obviously we're getting positive effects in terms of scale.
No. That's very clear.
Yeah.
Thank you. That's all for me. Thanks.
Well, thank you.
Thank you.
Thank you.