Morning, everyone, and warm welcome to the presentation of Axfood's first quarter 2018. The result will be presented by Axfood's President and CEO, Klas Balkow, together with the CFO, Anders Lexmon. After the presentation, there will be time for questions, either from the web, from our people in the conference call, or from the audience here in the room, of course. With that, I hand over to the first speaker, Klas Balkow.
Thank you, Cecilia. Of course, let me also say good morning and welcome you all to this presentation of our first quarter in 2018. I think it's fair to say, as it says on the headline here, that we have noted a good start of this new year. Before we come into some of the numbers that I will obviously cover, let me just quickly go through our agenda. I will cover the key ratios for the first quarter. Anders Lexmon will go through the financial situation in the company, the position that we have. Then I will come back and walk you through some of the elements in our strategic agenda and strategic plans. Then Cecilia will come back to lead the Q&A session. Before we start, let's take off by providing a quick overview of Axfood as it is today.
We have a clear house of brand strategy with several strong brands that supports the consumers in various needs and some of the consumer various platforms that we see out in the market. We create scale and efficiency through our common sourcing and logistics company, Dagab. We serve over 4 million customers today per week. We do that through. We have over 300 group-owned stores. We have over 100 franchise stores in the Hemköp chain, but we also have a large cooperation with the convenience sector in Sweden. In total, we are serving over 1,100 stores in the Swedish market. If I now go into the quarter, let me just give you my highlights of the quarter as I see it. Again, we've had a positive start. We have a strong sales growth in the quarter.
Yes, it's supported by the Easter effect and in that, a very good March, which was also supported by that we had a salary weekend, just a salary payout day just before the Easter period started. We also have a very positive momentum in all our online channels that we provide today within Axfood. Finally, behind the strong growth, both online but also offline, we are reporting a record quarter 1 profit and an increased, somewhat increased margin in terms of EBIT margin. In this quarter, I also would like to give you an update and remind you of that we now have our new structure in place. Tempo is now included into Hemköp. Snabbgross is now reported as an owned channel, an owned segment, and our business to business with the convenience sector is now part of Dagab and Dagab's external customers.
These changes, together with the internal cost structure changes we have done are all now reflected in the pro forma figures that we now provide in the report for a fair analysis of our numbers and of our performance. Let's now move into the quarter and our key ratios for the first quarter, and I will start with the sales numbers. Overall sales is up 7.6%, supported then again by the Easter effect, but also supported by Eurocash acquisition that we did April 1st last year. So this is then the last quarter that we get this full effect of Eurocash, and then it will be annualized. We have an Easter effect that this year is in March that is positive for Axfood as a whole. We estimate the effect to be approximately between 1.5%-2% on group level based on our sales performance.
The Easter effect was also then again somewhat larger than we expected due to the salary weekend that we had just prior to Easter. By segment, Willys stands out not only due to the Eurocash acquisition, but also clearly behind a very strong underlying like-for-like sales. Hemköp is also reporting a solid growth with a very strong like-for-like for our franchise operation or a positive like-for-like for our franchise operation. Snabbgross is reporting somewhat weaker numbers, which is related to a seasonally weak quarter, but also very much relates to a soft market that I will come back to a little bit later on in the report. If we relate these numbers into the overall market, and if we relate our store sales, i.e., our own sales and including the Hemköp franchise, we are growing with almost 10%, 9.7% growth.
Even if we are now lacking the total market number for the full quarter, I think we are clear and we can be confident to say that we continue to gain market shares even in this quarter. Moving then into the profit numbers. Our profit at SEK 435 million is up 9.6%, mainly then due to the strong like-for-like sales that we have reported, but also supported by lower acquisition cost and somewhat lower project cost versus last year. As we have seen in the previous quarters, online is still hampering our earnings in the quarter. Margins in this quarter are slightly up, and by segment, we report healthy and stable margins in each of our segments. Let me now walk you through some of the numbers and comments segment by segment.
I will start then with the largest segment, and have to say the star in this period, Willys. We are reporting a very strong growth. We already talked about the Easter effect, but still excluding that, a very solid like-for-like, which is very much driven by more customers and an increased average ticket value. We also have noted a very positive online development, and we continue to drive online in the Willys chain, where we now have added three more cities, and we continue to roll out. Currently we now have 22 cities with the omni-channel offers within Willys. Including the positive online development, but obviously very much dependent on the positive like-for-like, we are able to maintain and report the margin in line with last year and a positive profit development.
Moving into Hemköp, also reporting a good growth, close to 4% for total Hemköp and a 3.2% like-for-like. Hemköp is a little bit less impacted by Easter. Willys is somewhat larger impact on these large weekends or holiday weekends. Compared to last year, if I look at our group-owned stores that have a somewhat slower growth rate, has also been impacted by somewhat lower campaign levels or campaign activities in this period. Something that we are now planning to adjust. It is not something that is planned to be ongoing, but that is something we will adjust the coming quarter. We continue to refurbish the Hemköp chain and refurbish the stores. We have refurbished five stores in the period, and we are also pleased to see that also in Hemköp the online development is very positive, even if we are coming from low levels.
As said, Tempo is now included in the Hemköp numbers and is also integrated in the business. We have now 166 Tempo stores that is included in Tempo as a franchise store, but it is also now taking where we are capitalizing or using the resources that we have for the franchising resources to drive the Tempo chain. We already added more stores within the Tempo and we continue to develop the brand, the Tempo brand. We are also in Hemköp reporting stable earnings behind the positive like-for-like, and also behind somewhat lower than campaign activities that we have. Moving to Snabbgross. We are reporting a moderate growth, it is the first time we are reporting Snabbgross, of course, one could have wished for a somewhat better start now when we are releasing the numbers.
Again, seasonally it is a very small quarter and the moderate growth that we have is still, if I look at the perspective of the total market, we are outperforming the market as the market is really seeing a soft period due to some of the cold weather is something that we expect has impacted the café and restaurant business in this quarter. Earnings more or less in line with last year, which is, as you can see, seasonally impacted and it is small numbers for this quarter. Finally, Dagab reporting also good growth at 3.8%, which is behind the positive growth from our retail chains in the group. It is also somewhat supported by Mat.se, which is having one month extra versus last year. The growth is also hampered by the fact that Mat.se is not a customer in Dagab any longer, which it was last year.
We are reporting stable earnings in Dagab, even if it also currently reflects the losses from the Mat.se business that we have that is included in the Dagab numbers. With that, I have covered some of the key ratios, I will hand over to our CFO, Mr. Anders Lexmon, to cover our financial situation in the company. Anders?
Thank you, Klas. Let me first give you a picture of the pro forma effects of the reorganization of Närlivs and the price adjustments in Dagab from the 1st of January. The business Tempo have been transferred to Hemköp, the other businesses in Närlivs have been transferred to Dagab. In connection with that, Dagab carried out an internal price adjustment based on its updated cost structure. Both these effects is from the 1st of January this year. In the left chart, you can see the effects in Q1. Please note that we have a small seasonal effect in Närlivs and Dagab, so we have a smaller pro forma effect in Q1 if you compare to the full year. The cash flow in the quarter is better than the last quarter, and that is mainly explained of the acquisitions that we made last year.
We acquired both Mat.se and Eurocash in the first quarter that impacted our investing activities and also the working capital last year. This year we have a calendar effect in the working capital, a minor effect due to that Easter eve closed March. Here we have a little effect. We have also, according to the AGM decision, a higher dividend this year from SEK 6 to SEK 7 per share. We have also used our credit facilities with approximately SEK 170 million this quarter, compared to SEK 500 million last year. Looking at our investments in the quarter, if we exclude acquisitions, we have a little bit higher investment this quarter. It ended up with SEK 189 million compared to SEK 166 last quarter. We have increased our investments in IT, both in projects and in infrastructure.
We can also see higher investments in our wholesale operation, and that is mainly due to our new store in Jönköping. Also we have a little bit less investment in Hemköp this quarter compared to last year. If we take a look at the development of our net working capital on a rolling 12-month base, you can see that we have improved our net working capital both in SEK and if you compare to sales. As I mentioned before, we have a calendar effect in Q1. As you maybe remember, we also had a calendar effect in December last year. Both these calendar effects boost our net working capital on a rolling base. We can see improvements both in accounts payable and accounts receivable, actually.
Our net debt position is back to a little bit lower levels compared especially to last year, and that is also explained by our acquisitions. We have a solid equity ratio, even in the payout quarter, the first quarter. We have about 35% in equity ratio. If we take a look finally at our capital employed, we have a solid level of capital employed even though we grow our businesses. That compared with our growing earnings, we have a ROCE of approximately 50%. With that, Klas, I hand over to you again.
Thank you. Thank you, Anders. Let me now remind you of our strategic agenda to take leadership in good and sustainable food at great value. You've seen this slide before. I will not go through all our plans and all our elements in this, but let me just cover some of the progress we've done in the quarter and some of the progress we are working on at the moment. If I start with the customer offer, we continue to strengthening our private labels. We've added a larger range in this area, and we are now up at the share at 28.7%, an improvement versus last year. We've also started to move more into strategic relationship and strategic work with a few suppliers to take cost out of the system and to increase customer value.
We're also driving and continue to drive what we call a range of good and sustainable food. One small example of this is the launch of bread beer which is where we are using old bread and using that to brew beer. Obviously, it's a very positive effect as we are reducing bread waste and at the same time providing a very tasty beer. Good and sustainable food also includes packaging. We are working with this alone, but also we are working this with the industry. One example of that is to work to reduce plastic. A small example of what we've done recently is to use the cleaning and skincare range that we have under the name Så klart, and we've used the container there with bioplastic, so we are reducing the plastic waste in the environment.
Moving on to the customer meeting which for us is very much a constant development. We, as I've reported in the report, we continue to refurbish our stores. We have adjusted our loyalty programs now into the new GDPR system or the new GDPR regulation. As of the coming quarter, we will now offer our customers in Willys and Hemköp a digital receipt. We'll continue to roll out the digital opportunities with self-checkout and self-scanning in Hemköp and Willys, where we are now up at 40% of the stores have that in Hemköp and almost 60% of the stores in Willys. We continue to develop our omni-channel experience for our customers in Willys and Hemköp, where we're now up at 40 stores for Willys and 18 for Hemköp.
As you know, 18 in Hemköp is reflecting almost one-third of all the group-owned stores in Hemköp. It's a higher share than in Willys, and we'll continue to ramp up the Willys now to lead into, by the end of the year, we plan to have a third of our stores in Willys also including an omni-channel experience. When it comes to expansion, we've just opened up the fifth Urban Deli store here in Stockholm at Centralen. I have to also report that we've seen some of the planned stores for 2018 being moved into 2019. At the current best estimate is that we'll be at the lower range of the 4 to 8 stores this coming year. It'll be a lower number of new stores in 2018 versus what we've seen last year, and we expect that to ramp up somewhat in 2019.
Our startup, the online pharmacy Apohem, as announced earlier, we plan to open up this channel for our customers soon. We plan to do this before the summer, as we have already announced. Finally, we put a lot of energy into how we can work and capitalize on all of the new possibilities that the digital world is now providing. Few example of this is that we are now working more with the data-based analytics to provide more relevant offers in our customer program. We are looking into how we are building a program on how we can use data analytics to be better and relevant in terms of how we are developing our range, but also how we are developing our campaigns. Another area which is important for a retailer is staff planning.
Looking at analytics, more big data in terms of how we can be better at planning for the staff into when they're going to be in the store so we can become more efficient, but also, of course, provide even better customer value when we're meeting the customer. We are in an early phase on this, but we see a very great potential, I would say, in this program, as we have a very strong base and foundation due to we have a solid ERP system, that we believe that we can capitalize on in terms of data gathering. Finally, with the positive start of the year, we are well in line with our long-term financial targets. We also repeat our previous guidance in terms of investing SEK 900 million to SEK 1 billion into CapEx this year behind some of the programs that I've just presented.
If I sum up my part of the presentation, it's a positive start of the year. Positive sales start supported by Easter, while still a strong underlying like-for-like sales. We are improving our profit, and actually also improving somewhat our EBIT margin. I would say that we have a clear agenda for future profitable growth. With that.
Thank you.
Cecilia, over to you to handle the Q&A.
Yeah, thanks for the summary. Now we open up for questions. We'll start here with Niklas Ekman for Carnegie.
Niklas here from Carnegie. Couple of questions. First, you talked about Easter several times. Is it possible to quantify the effect on EBIT as well? I think on gross profit, if I calculate correctly, it's about SEK 30 million boost if you talk about 1.5%-2% on sales. I assume you've also had slightly higher costs. Is it fair to assume at least SEK 20 million in positive EBIT effect?
I think you're a little bit on the high end, it's not that far. You're right that when we are going into Easter, we also have somewhat lower margin and also somewhat higher cost.
Okay. You talk about a positive online development. Is it possible to quantify either the online share of sales or what kind of growth rates you're seeing? I know that ICA, for instance, are giving some numbers, talking about 50% growth and roughly 1% of their store sales. I assume that you would have a slightly higher number than that, boosted by your acquisition of Mat.se.
We have a very positive growth. I think I was trying to express that without providing the number to you. If the market is reporting a 20% growth 2017, we'll see where it. I think we are very clear to say that we are significantly outperforming the market growth at this stage. Obviously, I think I said that a few times, we started a bit later, so we're coming from somewhat lower levels, but we're now really catching up in a good way.
Okay. You mentioned that Dagab, you have changed the internal pricing.
From what to what? What kind of impact?
It's not that complicated. It's complicated, but it's not that big of a drama. Last time we made a price adjustment was, I think, 2008 or 2009.
Nine.
2009. We are doing an ABC cost structure within Dagab, where we're looking into how we are driving cost. As you're seeing, the impact has been somewhat more positive to Willys, which relates to that they are buying more efficiently in terms of larger packaging and so forth. We're just reflecting more of the cost system that we have.
Okay. Can you say a little bit about competition? You are clearly here gaining market share. ICA is also doing quite well. Are you seeing any changes? We've heard Coop seems to have lost quite a bit in 2017, but seem to have indicated a better momentum at the start of 2018. Are you seeing anything of that? Same thing, Lidl seem to be ramping up their store rollout. Are you seeing anything of that?
Well, the only thing we can say is that there's a very competitive market. As I said, also, we don't have the full market view yet, we have not seen the effects of the full market yet. I think it's somewhat difficult to say where it ends up. I think it's fair to say with the almost 10% growth that I don't expect the market to grow that, we are gaining. Who is not gaining is difficult to predict at this stage, in my view.
You're not seeing any dramatic changes in the competitive environment?
No. Not more than what you are pointing out as well. We see some competitor that is a little bit more aggressive in terms of rolling out stores.
Mm-hmm. Okay. Finally, food inflation, a prediction or comment on what you're seeing?
Prediction is, what Hui has stated is somewhat in line. What we see as well is around 2%, and we'll see where it ends up. It's difficult to say, of course, as you know, but the currency impact will be there. We don't have any other point of view than Hui at this stage.
Okay. Thank you very much.
Thank you, Niklas. Let us take a question from the telephone conference. Operator, do you have a question?
Our next question comes from Stellan from Nordea. Please go ahead.
Yes, hi. I wanted to come back to the question on Dagab here and the margin contraction there. To what extent was that due to lower internal pricing and online? Also, to the extent that online is pressuring, why is that, given that you had Mat.se consolidated for most of the part of Q1 last year?
Hi, Stellan. Maybe you have to repeat your question. Let me just take the first part, at least I think I understood in terms of the Dagab, how much that is related to the margin decline as we are reporting pro forma numbers. We are related very much to the online part of the business as well as we have the calendar effect is positive for the retail chains, but it's somewhat negative for Dagab.
Very well. On that note, I think Mat.se was in your numbers already last year, I'm just wondering too.
Okay
Why you're seeing margins down?
Okay. It was partly part of last year, was not fully part of last year.
That is the reason?
Yeah, Mat.se's development.
Okay. Could you give any quantification how EBIT is affected by your online initiatives? Also if you can also share how much of your sales is online?
No, we are not sharing that at this stage. In terms of share of online, we keep this as a whole at this stage. In terms of how much is impacted is also not something we are disclosing at this stage.
Okay. Can you say anything on how you expect that to develop going forward?
No, if I elaborate a little bit on it, I think we pointed that out that when we started online, we also had fairly high investments in the beginning with systems that we started to depreciate and so forth, we're now getting more and more volume. Of course, that is supporting. It's volume-based. The more volume we get it will help, and it will support. Going forward, we are working on to see how we can work with the back end to become even more efficient, where we are today having our own dark stores with Mat.se. We started to work together with the transports across the chain so we can provide the last miles together.
We started to work with the same transport, obviously, the next step is to see how we can work with a common dark store for all the chains, that will improve the profitability for the online segment. I would like to remind as well, for us, particularly in Willys but also Hemköp, the omni-channel structure is where the channel works together. I know we talked and discussed that when we had some of the other session in terms of how online with Willys having a fairly high click-and-collect share that is supporting the store, as well that the customer that becomes online is also becoming even a larger share of customer for us as a whole. From a total perspective, we also see it as positive.
Just being a bit on the nitty-gritty side here maybe, how to understand this really? I think you said that with increased volumes you will see better profits in online. On the other hand, you said that margins are down in Dagab due to Mat.se's development, I would think that Mat.se has had a positive sales volume development.
Well-
Shouldn't that improve profits then?
When we're getting these together, it's right that we're also investing and if you have seen some of the investment we've done in Mat.se in the market, we also increased market spend, et cetera, during the first quarter in Mat.se that has impacted the investment, so to speak, in Mat.se.
Right. Okay, good. Thanks.
Yeah, we can take another question from the telephone conference.
Our next question comes from Gustaf Sandström, SEB. Please go ahead.
I guess that's me, Gustaf Sandström, SEB. Morning, everyone. Coming back to online sales, is it still true that no Hemköp franchisee sell online as of yet?
That's correct.
In the light of that, you mentioned strong growth online. Your own Hemköp stores, which comprise all of their online sales within that category, have now reported extended period of sub-par or sub-market growth, despite recent refurbishments. Should we interpret this as the development in your fully owned physical stores in Hemköp finding it increasingly tough to grow top line?
I must admit I have somewhat difficult to hear your question. If I think what you asked about is in terms of how Hemköp is developing and compared to that Hemköp is doing good online, while the group-owned stores, which are the one that has online, is reporting somewhat softer like-for-like than the franchise. Very much also relates to some of the phases we are in when we refurbished some of the stores. That has impacted when we are refurbishing them. We have five stores that we're refurbishing, and that has an impact on the like-for-like. We obviously expect and hope to get a better push and getting better effect of these refurbishment as we are coming through the refurbishment program. We start to see that in a few stores.
I think I've mentioned we talked last year about Hemköp City that had a fairly large impact on like-for-like last year. We now in this quarter have seen a very positive development. We are now back on track and even better than last year on Hemköp City. We are taking steps.
Okay, great. We should expect positive like-for-like for the physical stores which you own yourself in Hemköp going forward, all is equal?
That's at least my expectation.
Thank you. Given that one third of the year has now come to an end, I guess you're starting to get an idea of the investments for next year. Obviously this year, a very high CapEx year of some SEK 900 million guided for. Should we expect CapEx to come down materially going forward, or what's your feeling here? Thanks.
Well, regarding to next year, 2019 and forward, we are coming back to that. We're not there yet.
Great. Perhaps you could give us some sense on how much is sort of one-off related and how much is maintenance out of these SEK 900 million guided?
For this year?
For this year.
This is an increase this year, and it's in all our segments and in line with our activities. Gustaf remind you also that we are continual to work with the warehouse investment that we have in Jönköping that will plan to be rolled out fully in operation early 2019, but to be started in the end of this year.
Okay. Finally from me, your biggest competitor is arguably accelerating their online efforts within a few months now with their combined logistics center in Stockholm area. Do you foresee increased competitive environment within online sales from this, or can you get some color on this?
As we said, in terms of it's a very competitive market, and my expectation is that every one of us who's working with online and food is working on the back end, in terms of becoming more efficient, and a natural step in that is to work with dark stores. We have one for Mat.se. Our plan is, as I said, is to work where we're combining all our retailer or chains in the same dark store. From a competitive reason, ICA is out there, which relates to they're out there offering online. They are now providing or working internally to improve their back-end system.
Okay. Thank you.
Okay. We have some further questions here in the audience. Daniel, please go ahead.
Thank you. Daniel Schmidt from Danske Bank. Just wanted to ask you on one of the smaller segments, Snabbgross, and which of course was impacted by unfavorable weather conditions and so on, but do you see any risk at all that there is a chance that the Swedish restaurant and cafe market is getting saturated or is this just a blip or is it sort of going back up again, as we speak?
At this stage, I don't see that at least. In terms of saturation of the market, we are a warehouse to them. Of course, it depends on how the total market is developing. We've seen a weak total market in the first quarter. We expect and hope that that will bounce back in the coming quarters. No.
Do you see a change to that in the start of this quarter, or is it too early?
I will let you know in July.
All right. Thank you.
We have more questions here, but before that, maybe operator, you can repeat how to ask questions from the conference call.
Thank you. Ladies and gentlemen, I would like to remind you, if you have any questions, please press 01 on your telephone keypad. Thank you.
Okay. Fredrik Ivarsson from Kepler Cheuvreux.
Thank you. Question on private label in Willys in particular, I think the level, and correct me if I'm wrong, I think it was level versus last year at 30% or so. Do you see this as a good level, or will you try to strive that further, increase that level?
I think we have a positive, a good level across the group. I've been very clear on that we need the mix of own labels as well as other labels. I think the better we are at developing and innovating own labels, if the customer reward us for that's very positive. That's the kind of work we are working on. That will gradually move over time, and I think we still have a program for that. We are at a positive level. Can it be increased? Yes, I think it can, but it very much depends on how successful we are in terms of developing our range.
Thanks. One maybe more detailed question. Can you quantify the effect of not having Mat.se in the numbers for Dagab?
I can, but since Mat.se is another actor in the market, I don't see any reason why we should release their numbers.
Thanks.
Okay, we have no questions from those of you who are participating over the web. You know that you can also send in questions there. Operator, do we have any questions from the conference call?
No, we don't. Would you like another reminder?
No. I think if we don't have any more questions here, we will thank you all for coming here today and listening in, and wish you a good day. Thank you.