Hello and welcome to the Byggmax Group Q3 2022 interim report. My name is Alex. I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. I'll now hand over to our host, Mattias Ankarberg, CEO, to begin. Over to you, Mattias.
Thank you very much and welcome everybody to this Q3 conference call. I am here with Helena, our CFO, and as usual, we'll be talking through a presentation that's available on our IR website. I will cover business aspects, and then Helena will go through a bit more deeper on the financials before we sum up and open up for Q&A. Starting off on page two, overall Q3 2022 is a good quarter, sorry, for us, despite what is a reality, a very tough consumer market at the moment, which we will come back to. Headline numbers, our Q3 net sales decreased about 5% to almost SEK 2.3 billion . We have a like-for-like negative of 11% in the quarter, an e-commerce share of 21%.
Just as in Q2, we continue to see a decline in larger tickets or larger projects, but a very strong performance in smaller projects. We continue to take market share for yet another quarter. Moving down the P&L, we continue to see a strong gross margin, almost in line with last year's exceptional level, and also a continued very strong cost control. We have now for three quarters a good supply situation overall and been able to manage inventory in a controlled way, which means in the quarter, reducing inventory levels of just over SEK 200 million in the quarter. All in all, an EBITA which is clearly below last year's pandemic levels of SEK 406, this year SEK 288.
Still, has been the case now for many quarters, an operating profit, which is well above the pre-pandemic levels. On key events on page three, this is a high season for us, Q2, Q3. The big point is a large operational focus and less sort of major news in terms of disturbing the operations. We have opened three new stores during the quarter. One, which is the first of its format kind. It's a format for retail park, which is opened in one of Sweden's biggest retail park outside Örebro. We've also opened the first Byggmax branded store in Denmark at the end of July.
We have continued during the year to upgrade our store portfolio to what we call Store 3.0, and we are now at almost 90%, 89% of the portfolio upgraded the year so far, which is just over 50 a year ago. I'd like to underline, particularly in this consumer environment on page four, that Byggmax discount position is really a core strength of the company, and we have never seen that be more relevant than during these times. We always bring this up. Of course, in these times where prices are high and costs are high for consumers turn sort of every corner to try to find best value for their money. We clearly see this is benefiting us and other discounters, I should say, in this retail climate.
Moving therefore into the market situation on page five, we continue to see that we outperform the market. I have gotten some questions this morning and recently around the market situation. I thought I'd expand on that a little bit more than maybe usual. Overall, we can see as we stand now in Q3, that consumer confidence is at an all-time low in all Nordic countries, actually most European countries, and particularly low in sort of intent to purchase capital goods or larger purchases, which we saw indications of already in Q2, but clearly decreased confidence levels in Q3. We also see naturally that housing market transactions are decreasing versus last year. Although last year's Q3 was very high in historical context, it is still a bit down compared to historical levels.
As we have seen during the Q2 also, we see a more hesitant and more price-conscious consumer. Weather effects were not material in the quarter in line with last year. Overall, these above effects means that we have a B2C market or a consumer market for building materials, a DIY market, which is down by between 10% and 15%, in the quarter in Q3. Slightly less down than in Q2, but different comparable levels. For the first time in almost three years, we now have a market which is just slightly below the level, in 2019, i.e., the pre-pandemic level.
If we look a little bit closer into the market, which is not on the chart, but trying to answer some questions we got earlier today, we can see that we continue to see a decline in larger tickets or big ticket items, larger projects. We can see continued strong demand in the market or good to strong demand, I would say. Solid maybe is the better word for smaller projects. Again, a clear share gain for discounters across retail sectors. In this market, we have continued on page six to execute our growth initiatives, and we have been doing this now since 2019 or so for all these growth initiatives. We have three main organic growth initiatives, which is our main focus, and then we do some add-on M&A.
We've continued to upgrade stores to our concept 3.0. We've continued to improve our e-commerce, both extend the online range and improve the customer experience, and we have added stores, three in the quarter, as we talked about. We also continue to see impact of the acquisitions done last year, which Helena will come back to. I'd like to particularly point out on page seven this quarter, sort of the impact that our growth initiatives have on our sales mix. Given the market situation with sort of different behaviors and different segments, this is kind of an important note.
I think for those who have followed Byggmax for a long time, our legacy comes from larger projects or larger renovation projects, whereas the growth initiatives we've been driving now for a few years, which I explained on the previous page, have both, have done two things for us, both improve the customer experience in stores and online, but also broaden the category footprint quite a bit, particularly into smaller projects or other categories. What we see in the quarter is, when this is looking at our sales, that sales for large projects, for example, decking, conservatories, pool-related greenhouses, et cetera, is clearly down. For Byggmax's, a lot of Byggmax's sort of heavy building material legacy is still at a good level compared to history, but clearly, down in the quarter versus last year.
Whereas we see a very strong performance on smaller projects such as garden-related flooring, paint, storage, different types of insulation, electricals and bathroom, for example, where several of these categories actually perform all-time high for us in the quarter. That means above the pandemic levels, which we're very pleased about, of course. Then particularly on the right-hand side, projects, smaller projects related to energy savings are really strong performing in this climate, probably for obvious reasons with the energy costs around us. Heat pumps, stoves, sealing tapes, windows, insulation, et cetera, is doing really, really well. Our journey or strategic shift initiated a few years ago of moving from building materials to home improvement, as we've called it in previous presentations, have benefited us in the quarter and provide for the more resilient sales mix for us in this climate.
That was a bit of expansion on the impact of our growth initiatives for the sales specifically in this market environment. Now summing up the great growth initiatives that we are working on page eight and the impact of those initiatives. I'll walk you through these four. Store upgrades, as mentioned, we're almost at 90% of the portfolio at the moment. Continue to see good sales effect of the store upgrades. As mentioned on the previous page, you also see all-time high performance of several of these smaller projects that we are strengthening with this new store concept. e-commerce is still a strength for us as a company with an e-commerce share of just over 20%, 21% in the quarter.
You see a decline in the Byggmax's brand of e-commerce of 9% in the quarter, and similarly to the general sales mix, a decline in products related to larger projects, whereas we see growth and all-time high numbers for e-commerce in smaller projects, despite very strong comparables. We've also added quite a bit of assortment in our online exclusive range during the year and also specifically in the quarter, and that also contributes to growth for us. As for the last two, almost three years, we continue to see the fastest growth coming from click and collect store, buy online, pick up in store. We've opened three new stores in the quarter and already talked about that. We opened nine in the year so far.
We expect four more here in the Q4 and to end the year with 13 store openings. In terms of acquisitions, we acquired two companies a year ago. Again, I will come back to the details, but uncertain is about 3% of sales for us. With that, I'll hand over to Helena to cover some financial aspects in the quarter.
Yes. Page nine, the sales development in the Q3 . This is considered a good quarter, with the tough market and compared to pre-pandemic. We have a sales decrease of 5.3%. Looking into the like-for-like part of the sales, we have a decrease of 11.4%. This is also considering the market, a comparable figure. As Mattias mentioned, we have managed to flip the bigger investments and increase sales on the smaller categories. New stores contributed with 2.3%. We opened three stores in this quarter, and we have 10 new stores in the last 12 months.
Also looking at the acquisitions, we have in the last 12 months the acquisition of the Norwegian Right Price Tiles and the smaller e-com business in Denmark. Together, they add 3% to the sales in the quarter. They also contribute to the growth outside the Nordics. We have from Euro and NOK a positive currency impact in this quarter. If we move on to next page and look at the P&L, we have a strong gross margin. Because margin in the period is positively improved by product mix. Comparing to last year, we need to remember the exceptional situation, and we had consumer market prices increasing ahead of raw material prices.
On the cost side, we continue with our strong focus on cost control, and we have mainly cost increase related to the new and acquired stores. The like-for-like increase is mainly driven by electricity costs and foreign exchange rate effects. The EBITDA for the period is SEK 288 million, and the EBITDA margin is 12.7%. A good result in a tough market and a stronger performance than pre-pandemic. Moving on to page 11, we have the net debt and the cash flow. A little bit different movement in this quarter versus our normal seasonality pattern. We have a positive cash flow from operating activities and a strong increase versus the same period last year. This is despite of the slightly lower performance.
The positive change in the cash flow is attributable to the strategic decision to decrease the inventory, remembering that we had all-time high inventory levels at the end of June. We also continue to have a strong balance sheet, where we had net debt at SEK 904 million at the end of the period. The movement versus last year is driven by lower EBIT and a generous shareholder return and continuous M&A activity.
Thank you, Helena. I will summarize on two last pages before handing over to the operator for questions. On page 12, we see a continued solid performance versus our longer term financial targets. Moving through them, sales we talked about, obviously a bit negatively impacted by the pandemic comparables and the tougher markets versus that. Still, we stand now at SEK 7.4 billion rolling 12, aiming for SEK 10 billion in 2025. We have an EBITA margin rolling twelve of 7.6%, which is pretty spot on where we target this, despite operating in a quite tough consumer market for a significant part of those twelve months.
We have a strong balance sheet with a leverage of 1.3 net debt/EBITA at the Q3, and we've paid out almost 40% of net income in terms of dividend during the year. We also earlier this year launched a new climate agenda with new targets, but in all we are still on track. On page 13, summing up and looking a little bit ahead, we can see that in this market environment we have probably the strongest position we have ever had. We have continued to perform financially well above the pre-pandemic levels. There is now a more price-conscious consumer which favors discount players and price leaders like ourselves, and we continue to gain market share for yet another quarter.
We also are in a lucky situation or a favorable spot that we can have a strong financial position enabling us to work towards our long-term strategy. As you may remember, that strategy is made up of a set of proven growth initiatives that we can allocate capital towards continued efficiency gains and also efforts to create a positive climate impact. In this market, we also use our very strong experience of scaling up and down throughout seasons and quarters. We're a very seasonal company, and we will now increase our flexibility in the short term in terms of both costs, investments and inventory in order also to be able to invest our resources in the most important areas when the market demand comes up.
We will work towards our long-term strategy, but we'll have a bit more focus on short-term flexibility in the coming quarters. We also think it's important and positive to note that in these times we see new and perhaps more opportunities than we've seen in a very long time. We have a higher interest in Byggmax than probably ever from, in terms of being offered new store locations, acquisition opportunities and new suppliers and brands that would like to operate with Byggmax. We have a mindset of using these tougher times to become even stronger and fully ready when the market returns to growth. That is the update from our side and we turn over to our operator to manage questions.
Thank you. As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Benjamin Wahlstedt from ABG. Benjamin, your line is now open.
Hello, guys. A couple questions. First of all, what do you expect in terms of inventory sell-through for the rest of the year? I believe in the Q2 report you-
Stated goal of approaching last year's level, and I was just wondering, like, given the tougher macro outlook, is this still attainable? Is this still the plan?
Hi, Benjamin. Yes, that is still the case. As you may be aware, we built up the inventory levels slightly different this year given last two years disturbances in the supply chain. We're now on plan for what we wanted to achieve in Q3. You are right, target we said last we confirmed also last quarter was that we would like to approach last year's level by year-end. Probably not get there fully, but close. That is still a target, and we still see that as very feasible.
Thank you very much. Another question. You touched upon this briefly, Helena. Last year, consumer prices for wood-related products were sort of ahead of the curve in terms of raw material cost inflation. What do you see now when the price trend is the opposite? Are competitors trying to sort of make a bet on a continuing trend into the winter and accepting a lower gross margin for now? Or how should we think about that?
We've seen a fairly sort of stable price environment overall in the quarter. I mean, in terms of, I guess two factors to narrow that down a little bit or to be more specific maybe. First of all, this industry has over several years sort of passed on raw material increases into consumer prices, and that has been the case during this quarter also. Some product categories actually do not see any price increases anymore and even small decreases versus other category C price increases. That is sort of passed on in a fairly steady impact with sort of one to two quarters lag or so.
The other one is the effect, which is maybe more on the pricing side, as the market has become softer, we saw quite a lot of promotional activity, particularly during the beginning of the quarter. While that stabilized into a more normal and maybe even less promotional intensity than normal from sort of August and forward. That first effect is sort of fairly neutral on the gross margin, where the second is somewhat positive.
If we sort of look forward into the winter, I mean, inventory levels are rather high in the market overall. What do you expect in terms of campaigning for Q4 and Q1?
You know, I think where we are right now, we have a fairly stable price situation in our categories, and then there's always competitors in specific markets that maybe have a little bit too much inventory and run campaigns now and then. We don't see any sort of major change in terms of this type of price environment at the moment. I think it's also maybe important to note that we don't have a big presence in heavily promoted categories in that sense. We are more in a durable business in that sense, which probably makes us less impacted by this effect.
Sure. I agree. Final question. We see quite a big sequential improvement in external costs as part of sales. Could you sort of elaborate on why that is the case, please?
Helena, would you like to cover that?
In terms of the areas where we control, we have had a lot of focus and effects or impact on them. Obviously, we have a part that is impacted by the, as I said, currency and electricity costs, although we do a lot on those areas as well, where we have initiatives to decrease the use of electricity in our stores, which is the main area where we have the increased costs.
All right. The net effect of your energy efficiency initiatives is positive, like despite a higher electricity bill?
No, it's not entirely positive, but we are compensating and also so our focus on sort of our cost efficiency isn't stopped just because it's external factors impacting it. We are working on those areas as well. We are monitoring it and controlling it and decreasing it as much as possible through activities in the stores and actions.
I think what you were also after, Benjamin, is that the relation between external costs and sales is sort of improving, sort of over time. I think part of that is also a little bit of the acquisitions we have done have a slightly different P&L profile than all the traditional Byggmax business. We can maybe get into that separately if you like, yeah, to explain those effects.
Perfect. Thank you very much. Those were all my questions.
Thank you. As a reminder, if you'd like to ask a question, that's star one on your telephone keypad. Our next question comes from Carl Dahlberg from Carnegie. Carl, your line is now open.
Thank you. Two questions from my side. First, on the you shared a bit of your plans on the store expansions here in coming up in Q4. I'm just wondering if you could say anything what you're planning for 2023 or give us a ballpark on that number. Is that a similar magnitude as in 2022 or?
Yeah, happy to answer that. We have done nine gross openings seven years so far. We will do four more store openings in Q4. Two, let's see. Now all four in Sweden, actually. Two are the sort of regular Byggmax format in Åtvidberg and Köping. We will also do two stores of a new format, which is. We've talked about this in previous quarters, that we acquired Right Price Tiles concept in Norway. It's a very strong concept in Norway, and we would like to do a similar concept in Sweden. This will be called Byggmax Studio, and we'll open two stores in Q4 focused on particularly tiles but also a couple of other decorative categories. Those will open in Linköping and Västerås during the quarter.
That will put the total to 13 for the year. For next year, we expect around those levels, maybe 10-15, I would say. Why I'm slightly vague on that is that, on the one hand, we are, you know, continuing to see good opportunities to open stores and are getting probably a bit more and better quality of locations offered to us than maybe ever before. But on the other hand, some of the real estate owners have a little bit slower processes or maybe less appetite to close deals given the environment around us. We are also very much focused at the moment on taking, of course, the very best deals given the market opportunities.
We will end the year on 13 openings, and you should probably expect 10-15 for next year.
Okay. Thank you very much. My second question is if you could share any assumption of what you're yourself expecting on the underlying market growth here for 2022. I know that has been a bit volatile here, in line with the comparisons that you've been facing throughout the year. If you could say anything, what you're expecting here in Q4. Is that a number of similar decline as you saw in Q3, or what are yourself or your expectations for that?
Yeah. Yeah, that's a good question, Carl Dahlberg, and a tricky one. You know, we do have perspective on it actually. As you're completely right about, when thinking about the market, one needs to take into account all the comparables. One way to describe it is versus last year, but the other one is sort of describe it versus historical levels. If you look at the market right now, it declined less versus last year in Q3 than in Q2. Actually, versus underlying or pre-pandemic, this is the first quarter in quite a while where we have a market price which is slightly lower than in 2019. We expect that to continue to sort of operate with a market which is slightly lower than in 2019 for the coming quarter as well.
I'll have to relook at the numbers in terms of comparables for all those years specifically for Q4. Off the top of my head, I would say that the current trend of 10%-15% in Q4, negative 10%-15%, would convert to a market size in Q4, which is somewhat below 19. A long answer to say, best guess right now is around the same development for the coming quarter as well.
Okay. That's very helpful. I think that was all for me right now. Thank you very much.
Thank you. Our next question comes from Julien Desayes from Pareto Securities. Julien, your line is now open.
Yes. Hello, Helena and Mattias. Just two quick ones for me. One, was the reduction in inventory achieved through some promotional activities which could have had an impact on the gross margin? That would be my first question. Second question is, could you break down a little bit the like-for-like into traffic, pricing, basket size? Do you see a reduced basket size, increased traffic, with what you describe as small projects? Thanks a lot.
Hi, Julien. You were breaking up a little bit, but we think we got the main part. We'll try to answer and then please, you know, recheck with us if we didn't get everything. On number one, no, there is no promotional activity. We are, as you know, we don't have sort of a. We have very durable products in our portfolio to a large extent, and this was a planned inventory decrease already from start of the year actually to operate with higher inventory in Q2 and then reduce during Q3. There is no negative effect other than the usual end of summer for some garden products, et cetera, but that was the same last year. No promotional effect that is meaningful on the gross margin in Q3, all controlled inventory reduction.
Let's see. Your second question was a breakdown of like-for-like. We have a price effect in the quarter which is positive. It is less positive in total than the consumer price index at the moment as we are strong in some categories that actually start to see a little bit of a decline in price. That obviously means that traffic or number of receipts is down more than the sales, in that respect. I think the most interesting trend, to be honest with you, Julien, in the quarter, is to look at where the market demand is and not. Eric can just sort of underline that there is clearly now a decline in demand for larger projects.
To expand a bit on that, when we see that both as being very rational, consumers have less to spend, but also quite emotional. We can see in our numbers that there is still a large interest to do activities in some of these categories, but the consumers have low visibility to when they will do it. It's probably a timing factor which could come back, that could pick up soon or in a very long time, nobody knows. The clear decline in larger projects, but pretty strong demand, for us, very strong demand in smaller projects there.
Do you hear me well now?
Better, yes.
Yeah. On the first question, so that means that you have sort of stopped the reassortment ordering at your suppliers, right? You have been cautious into reordering to-
Yes and no. Yes, of course, we have ordered less than we have sold, so to speak, because sales went down. It's also a fact that we operated with a higher inventory than we usually do in Q2. This is part of a plan for the year and sort of an agreement with suppliers for how to operate the inventory during the year.
Right. Okay. That's quite positive, I think, because I see a lot of companies having a hard time to reduce some part of the inventory. Thanks a lot.
Yeah. Maybe a personal reflection on that, but I think, you know, in these times, of course, we talk about P&L alone, but cash flow is also really important, and inventory is a really big part of that. I completely agree with you that, you know, managing that is really key. We are, in some ways, fortunate that we operate in certain categories which have maybe less volatile market dynamics around them. We've also, I think the supply team has done a really, really good job of building up well and reducing well and getting our suppliers on board with all that with that maneuver, which is quite different from last year. We are very pleased with the development in our inventory situation.
Great. Thanks. Thanks a lot.
Thank you. As a reminder, if you'd like to ask a question, that's star one on your telephone keypad. Our next question comes from Magnus Råman from Kepler Cheuvreux. Magnus, your line is now open.
Thank you. I have two questions. The first one is, yet again, related to inventory. I mean, you have elaborated here on that you are reducing inventory according to plans that were set previously. What is your view on inventory levels among your key competitors, and how do you think that could affect pricing in the market ahead?
Thank you, Magnus. I think some of our biggest competitors are private, so it's kind of hard to have a de facto view. I think in general, if we have two observations or maybe three, we could say that the publicly listed companies, I think, have higher inventory levels than previous years, and some have publicly said that they think that they have a little bit too much inventory. I think that is an indication of the market having or the players in the market having bought more than what is needed, so to speak, for the current environment. Then secondly, we have seen some price activity, as I mentioned earlier, in the beginning of the summer, but that slowed down in terms of promotional intensity since sort of August and forward.
We don't see a big excess, inventory sort of being pushed out into the market in our core categories at the moment. That is maybe the second answer. I think in general, if I were to speculate, in the broad spectrum of sort of home improvement, there is excessive inventory in the market, but we are fortunate not to see big promotional intensity in our core categories at the moment.
Great. Then the second question relates to the housing market, where we've seen quite sharp decline in turnover, recently, especially for leisure homes. Do you have a view on sort of the lag of which that might be visible to you? I mean, I appreciate you have already mentioned that you see sort of high ticket type of projects down, perhaps on consumers becoming more hesitant. In terms of the connection to turnover rates in the housing market, do you have any opinion there?
Yes, it's a good observation, Magnus. There's been a sort of historical correlation, but this is now sort of pre-pandemic when Byggmax was more focused on the sort of larger projects and maybe more renovation projects accounted for a higher share of sales. We saw a correlation between sort of Byggmax like-for-like and housing transactions with about one year lag. I think that sort of makes logical sense. You do renovations sometimes when you're about to sell your home, but particularly after you've bought something, and then you know start doing projects sort of from the time you move in and a year or two or so forward. I think that made sense. Now I think we will probably see that effect again going forward.
I think there's also a lot of other effects that maybe have bigger impact at the moment. Our sort of shift in category position is one, pricing effect is another, going forward. Then I think you are also right, just to comment on that housing transactions have declined, particularly for leisure homes, particularly now in Q3. Now we're gonna be a little bit specific, maybe nerdy level here, but specifically Q3 last year was also very strong in transactions. Looking at a bit sort of longer history, I think the decline is sort of 10% or so versus both 2020 and 2021.
All right, thank you. If one should be evil, one should say that you are enjoying now the fruits of last year's boom in volumes, and then we'll see the effect forward. If I understood you correctly, you think that your sensitivity is lower now due to a shift in your mix?
Correct on both points.
Thank you.
Thank you. We have no further questions for today, so I'll hand back to Mattias Ankarberg for any further remarks.
Thank you very much, everybody, for joining this Q3 call. Wish you a great day, and hope to speak to you again at the Q4 call.
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