Welcome to BHG Q1 Report 2026. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Gustaf Öhrn and CFO Jesper Flemme. Please go ahead.
Welcome and good morning. My name is Gustaf Öhrn, CEO of BHG, and thank you for joining our Q1 earnings call. With me today is our CFO, Jesper Flemme. I'll begin with an overview of the quarter, followed by Jesper, who will take us through the financials in more detail. I will summarize the report, and then we will open up for questions. Next slide, please. Let me start with the key takeaways. We have in the first quarter of the year delivered a strong improvement to profitability while continuing to grow and significantly reduce leverage. Adjusted EBIT year-over-year more than doubled in the quarter, driven by improved gross margins, disciplined cost control, and continued organic growth. A clear indication that our strategy and focus on operational execution is driving tangible results.
The profit improvement in combination with a strong cash flow enabled us to end the quarter with a significantly lower leverage than last year. Next slide, please. Financial performance and looking at the key numbers. Net sales amounted to SEK 2.246 billion, corresponding to +4% organic growth in the quarter. Adjusted EBIT reached SEK 44 million, a doubling of profit and a significant improvement versus last year. Cash flow from operations was -SEK 50 million in the quarter. This follows the normal seasonal pattern for BHG, with a negative cash flow in the first quarter from the inventory build-up for the larger second quarter. Cash flow improved by more than SEK 50 million year-over-year, and this is to be regarded as a very strong cash flow for the quarter.
One of the key highlights in this quarter is the improvement in gross margin, where the team has done a great job. In an unchanged price challenging market, our focus on price matching and unique assortment has driven the improvement in gross margin. We are happy to conclude that we're not only growing, we are doing so with increased profitability and strong cash flow. Next slide, please. Commenting on sales development. This quarter had two different phases. A somewhat slower start in January, February, impacted by ROT deductions in the Swedish market and the unusually cold weather in February that had a dampening effect on demand. Finishing the quarter with a strong sales momentum in March, driven by a strong start of the spring and summer assortment, enabled by a strong offering on outdoor furniture and garden products. To us, this reinforces two things.
Seasonality remains important, but demand is there when the conditions normalize. In summary, a somewhat challenging quarter on top line, but where we exited the quarter with good sales momentum, giving us strong confidence going into the second quarter. Next slide, please. A few words about our view of the market outlook. We, unchanged, have a positive outlook for the market development and expect the market to continue to improve, primarily driven by improvements in disposable income. We, unchanged, also expect the online market to grow faster than offline in our categories. A shift further fueled by the current AI developments, making online shopping experience in areas such as product information clearly surpassing the offline experience. Our assessment is that the current geopolitical disturbances have so far had limited effect on consumer sentiment.
We have, as everybody, seen some smaller effects on certain commodity prices and on transportation, but the effects are still fairly limited. We monitor the situation closely, and the limited effects we have seen so far can, of course, change in both directions depending on how the situation develops. Next slide, please. Operational focus. In the current market environment, where recovery is gradual and consumer sentiment can shift rapidly, our approach remains consistent. A high operational focus and sharp attention to what we can control. Being excellent retailers, staying close to the consumer, offering the right assortment at competitive prices, strong campaigns and customer offering, and a positive experience all through the customer journey. This operational discipline and execution quality is central to drive sales and continue to improve our margins and to strengthen resilience for challenging times. Next slide, please. Strategic overview.
As we communicated on our Capital Markets Day, our growth strategy has three layers. One, operational excellence, the daily grind of being a retailer. As mentioned on the last slide, working assortment, offering, customer experience, et cetera. But also category, geo, and customer segment expansion. Two, strategic initiatives, securing competitive advantage and innovation, currently with a key focus on unique assortment, cost structure as a strategic advantage, new revenue streams, and data and AI. Three, M&A. Proactive discipline, bolt-on acquisitions. This built on the two external layers of structural market growth, where we, as mentioned, assess we are back in growth mode, and increasing online penetration, further driven by AI improvements in the customer journey online. The goal remains unchanged and clear. To grow faster than the market while improving profitability. Next slide, please.
In the quarter, we continued to execute our strategy and made good progress in areas such as product range development with strong development in entry-level indoor and outdoor furniture, and continued range expansion on the new generation of wire-free robotic lawn mowers, improved customer satisfaction, increased share of unique assortment, crucial to support our margin expansion, and the introduction of new AI agents to drive both growth and efficiency. Next slide, please. AI is a key focus for us, and let me take a short deep dive on some of our current key AI initiatives and AI agents.
We are currently actively building and BHG Group co-funding AI initiatives with focus on areas such as improving customer service, both quality, speed, and efficiency, streamlining upload and securing data quality in product content, efficiency in decision support, and growth initiatives in product information, helping customers find, understand, and choose the right products both easier and faster. We utilize the advantage of being a group and using best practice to scale the best-performing initiatives. We do this through our model, which we call Build, Pilot and Scale, where what works, we scale across our businesses. Over time, we are confident that AI-driven initiatives will be an important contributor to customer experience, growth, as well as efficiency. Next slide, please. At our Capital Markets Day, we presented the next phase of BHG's strategic plan.
In conjunction with this, we also updated our financial targets to reflect the next phase, the profitable growth phase, and our raised ambitions. The new targets include 10%-15% annual growth over a business cycle through a combination of organic growth and acquisitions, 5% EBIT margin in the short term and 7% in the medium term, keeping leverage below 2x, measured at the end of each financial year, and dividend policy left unchanged. Dividend to be paid if cash flow exceeds investments in profitable growth, provided that the capital structure target is met. Next slide, please. Before I hand the word over to Jesper, I would like to take one step back and put our financial improvements into perspective. This quarter marks the 10th consecutive quarter of year-on-year profit improvements and the sixth consecutive quarter of profitability improvements.
With that, I will leave it to Jesper to deep dive into the numbers.
Thank you, Gustaf, and please turn to slide 12. As Gustaf already mentioned, the first quarter developed in two phases, a weaker start followed by a strong finish. Net sales increased by 1.9%, reaching SEK 2.2 billion, with organic growth at 4.2%. From a market perspective, performance in the Nordics was solid despite the slow start. Finland delivered the strongest growth, although we still view the market as challenging. Across our segments, Premium Living stands out on the negative side. However, we did see a clear improvement during the second half of the quarter. Finally, the outdoor season is off to a good start with strong sales in the garden category. Turning now to page 13 and profitability. As already mentioned, profitability has improved year-over-year for 10 consecutive quarters. In the first quarter, earnings improved by SEK 23 million and more than doubled compared to last year.
Adjusted EBIT amounted to SEK 44 million in the quarter, corresponding to an EBIT margin of 2.0%. Importantly, all three segments improved both earnings and margins year-over-year. Moving on to slide 14 and the EBIT bridge. The EBIT margin improved by 1.0 percentage point year-over-year, and overall, we're satisfied with both the development and the underlying margin structure in the quarter. The improvement is primarily driven by two factors, product margin and direct selling costs. Starting with product margin, the improvement is mainly explained by strong sales of our new entry-level furniture assortment within the Value Home segment. Looking at direct selling costs, we see continued positive development driven by efficiency improvements in both inventory handling and last-mile delivery. We're also pleased with the development of our fixed costs reflecting continued cost discipline. All in all, our EBIT margin amounted to 2.0% in the quarter.
Slide 15 and cash flow, please. Cash flow from operating activities amounted to -SEK 50 million, an improvement of SEK 53 million compared to last year. However, the underlying improvement was more than SEK 100 million as Q1 last year included liquidated damages of EUR 4 million related to the IP-Agency dispute. In line with our seasonal pattern, inventory build-up ahead of the outdoor season results in a negative working capital development in the quarter. The right-hand graph showing the development in liquidity walks us through the starting period position of SEK 301 million, deducting cash flow from operations and the impact of investing activities, and finally adding the financing activities, which are primarily related to utilization of our revolving credit facility and amortization of leasing liabilities, but also include interest payments, bringing us to the period end of SEK 349 million of liquidity at hand. Slide 16, please.
The group's net debt amounted to SEK 1.2 billion at the end of the quarter, and net debt in relation to LTM adjusted EBITDA ended at 2.6 times. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of SEK 800 million. As communicated on April 21st, we have, in close collaboration with SEB and Danske Bank, refinanced our credit facilities, securing long-term financing at lower costs and providing a solid foundation to continue executing on our strategy. The agreement has a three-year term with an option to extend for an additional two years at a total facility of SEK 2 billion. Finally, acquisition-related liabilities amounted to SEK 249 million at the end of the quarter, of which we assess SEK 85 million to be paid this year.
With that, I will hand back over to you, Gustaf, to summarize and conclude.
Thank you very much, Jesper. Next slide, please. Let me do my best to summarize. We are financially stronger. Growth is stable, profitability is significantly improving, cash flow is strong, and leverage is down. We continue to execute our strategy with full focus on operational excellence, strategic initiatives, including a number of co-funded initiatives in AI, and selective proactive bolt-on M&A. We unchanged strive to be a super efficient online retailer with focus on assortment and pricing, strong campaigns and customer offering, and a strong and seamless customer journey. With this, we are well-positioned going forward, and our ambition remains unchanged to be the leading consumer e-commerce company in Northern Europe. Thank you for listening, and now happy to do our best to answer your questions.
The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Please go ahead.
Good morning. I have a couple of questions today. First of all, you note improved demand towards the end of the quarter, and I was wondering if we could have a more quantitative comment, say on March growth, for example, to better capture the underlying growth rate with less ROT impact, let's call it that.
Hi, Benjamin. Gustaf here. I think I sort of repeat what we said in the report. January was probably a bit challenging because of the ROT deductions, but that sort of leveled off early in the quarter. I would say the majority of the effect came in January. February, as we said, cold weather impacted demand. We do not wish to quantify the growth in March, but it was a strong end of the quarter. As we mentioned, it came from our spring and summer assortment where we saw a good start, and that's why we're optimistic going into Q2. We do not wish to quantify our March growth.
Fair enough. If I can tell you what I see in ROT figures, and then you can just say whether you agree or disagree with my conclusions then. When I'm looking at ROT application figures for building, which I imagine is the most relevant category for you, what I see is growth in ROT applications in January. February, these figures sort of dropped off, but it's not a drastic difference year-on-year. In March, we actually see ROT applications growing again. If I claim that the negative ROT impact was very much a January, potentially February thing, and that there's no significant difference year-on-year in March, would you say that's a fair assumption?
Yes, I would. Maybe even more emphasizing that the majority of the effect we saw in January and in February was probably more impacted by weather than ROT. Yes, it's a fair assumption.
Perfect. Thank you very much. I would like to ask you about the gross margin as well. The improvement looks driven by last mile savings as opposed to product margins, and I was wondering how sustainably you believe those better last mile terms to be?
I would say it comes from both actually. We saw improvements in product margins. They come from a number of activities we've done. One is an increased share of sales of a unique assortment, but there's also other ones. We see also an effect on postage. I would say that the effect from product margin, I would say is sustainable. I would say that part, at least of the effect on postage is also sustainable because it comes partly from postage revenues. I think it's more harder to tell what will happen with cost on postage, because that's one of the areas where we see small, and I would say limited price increases due to the geopolitical situation. That would be my answer. I would say the majority of it is sustainable.
Perfect. Thank you. A bit of a detailed question, and then I'll get back in the queue. When comparing your net sales figures and your total order value figures, I note that your total order value was some 5% higher, and this is the largest difference between these figures ever reported, well, since 2023, at least with the new segment structure. Should we interpret this as a positive signal for Q2? Or how should we understand the difference between total order value and net sales, please?
Your assumption is perfectly right. We assume that we will invoice those orders in Q2. That's the easy answer. Yes. I think we can say that, I think it's good that you point out that our order intake was actually stronger than indicated in Q1 from what net sales invoiced. Some of it comes from some of our businesses we've had a little bit of shortage of product where we have taken the order, but it will be delivered in Q2.
Perfect. That's all I had for now. I'll get back in the queue. Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.
I'll just say thank you very much. Thank you for listening in. Thank you for your questions, Benjamin, and if you have any other further questions, please don't hesitate to contact us. Thank you very much for listening. Bye.