Good morning and welcome to this presentation of the Q4 year-end report 2019/2020 for Clas Ohlson. My name is Lotta Lyrå. I'm the CEO, and I will do this presentation together with Pär Christiansen, our CFO. To start off with, this report in short. We see strong underlying growth, strong organic growth in our Nordic home markets, very much fueled by a very strong online development. We see strong underlying performance. We have, during the quarter, completed our Clas Ohlson 100+ action program. We deliver for the full year a margin of 5%-2.2% within the range of 4%-6% that we have promised. We have a very solid financial position with net debt to EBITDA being close to zero.
The agenda for this morning's presentation is that I will go through the business and the Clas Ohlson 100+ update. Pär will then take you through the financial development and the events after the reporting period. We will do a summary and have a Q&A. Starting off with commenting on the COVID-19 effects. For us during this very extraordinary spring, the safety of our coworkers and customers have been top priority. Within that frame, we have managed to keep all stores in the Nordics open throughout this quarter. We do see reduced traffic in city stores in larger cities and great variations between locations, with some stores increasing significantly while others losing traffic. We have also seen new groups shopping online, leading to online sales taking a new level.
Another important factor during this quarter has been to balance the high sick leave with short-term layoffs. During spring, approximately 300 Clas Ohlson coworkers in our stores have been short-term laid off and 200 white collar colleagues. We want to inform today that we do not aim to prolong the short-term layoffs of our white collar colleagues after mid-June. Short-term layoffs in stores are being wired down as traffic increases. During spring, we have only seen marginal disruptions in our supply chain. Another important development during spring is that new needs in life at home have emerged. This has led to a demand for certain part or increased demand for certain part of the Clas Ohlson assortment. That is an important reason why we in Q4 managed to keep organic sales in the Nordics flat.
If I look month by month in this special quarter, they have looked very different. In February, we saw good growth under normal conditions. In March, we saw a setback in sales driven by significant traffic reduction as the virus started to spread. In April, sales bounced back. Total sales in the quarter were down 6%, very much impacted by the weak Norwegian krone and also closure of some stores. During the quarter, we have seen an increase of online sales, and we deliver for the quarter a growth of 45%. This development also continues into May, where we see an increase of 68%. Gross margin was strengthened to 39.9% compared to 38.2% last year. An important factor behind this is the hard work we have put into improving our sourcing as part of the Clas Ohlson 100+ program.
The underlying EBIT for the quarter improves from SEK -52 last year to SEK -31 this year. This quarter ends the Clas Ohlson 100+ action program, I will come back to that in a minute. The EBIT margin for the total year lands at 5.2%. This is well in line with the range of 4%-6% that we set as a goal for ourselves two years ago. I think it's very important in these times to be humble for the development ahead. We need to continuously monitor, evaluate, and adapt to the COVID-19 situation. We expect a new normal when it comes to shopping behavior and consumer behavior, where online shopping will remain at a level or increase further.
We see big insecurity when it comes to the macroeconomic development and the currency situation. Due to this, the Clas Ohlson board has decided to recommend the shareholders meeting to not pay any dividend for the year 2020. I would like to emphasize that we came into this COVID-19 period having worked hard for 18 months with our cost position and new paths for growth. This was the final stage of the Clas Ohlson 100+ program. This is one of the main reasons why we come out relatively well of the Q4 that has been so special. I will now take you through an update of the Clas Ohlson 100+ program. We put together two years ago and launched a five-year strategy, a growth strategy for Clas Ohlson called 100 More Years.
We are now closing the two first years of this strategy. When launching the strategy, we saw a need for two years of transformation to put in place a platform to create profitable growth from going forward. This is the Clas Ohlson 100+ action program. The purpose of that program was to create preconditions to reach the financial goals of growing 5% organically during the five year period and delivering an operating margin of 6%-8% from 2021 and onwards. We have focused ourselves around a number of cost and growth initiatives to deliver this and invested 1%-2% of the underlying operating margin in these initiatives during the years 2018-2019 and 2019-2020. What have we delivered?
When we conclude this first phase of the strategy and the program today, I'm happy to let you know that the cost level has been reduced with SEK 225 million-SEK 250 million, in line with the goal we set out two years ago. This constitutes of three main parts. First one is a SEK 70 million-SEK 75 million reduction of goods not for resale. We have improved the cost of our sourcing with SEK 110 million-SEK 120 million. Finally, the work with putting together a more smart and simple organization and logistics had generated a saving of SEK 45 million-SEK 55 million. The other part of the program was to create new paths for growth.
As a consequence of this, we have seen sales per customer increase, sales per square meter increase, and online reaching a new level, increasing with 87% during these two years. All in all, the platform for profitable growth for Clas Ohlson going forward has been put in place. I will now take you through some examples, some more concrete examples of what we have done within the action program. One of the cornerstones of our strategy is to give our customer a very unique offer. We work with three components to put that offer together. The base is the product we offers. On top of that, we give good guidance for the customer to get what he or she needs to solve the problem they came for.
Finally, for the people who don't have the skill or the will to do the job themselves, we also have a service offer. Looking at these three parts, we have during the past 24 months on the product side, systematically worked through product category by product category, all the way from offer to price ladder to how it's presented in a store to make sure that we get a good sales per square meter and that the customer is satisfied. On top of that, we have through improving the pedagogics in our stores and giving our coworkers even better preconditions to serve our customers, as well as improving information online, improve the guidance we give our customers. On top of that, we have launched Clas Fixare, a service offer to solve everyday problems at home.
Another important part of the action program has been to develop how the customer can shop with Clas Ohlson. Naturally, strengthening the digital shopping experience has been a key part of this, both by improving ClasOhlson.se, no, and fi, also to give access to Clas Ohlson on other platforms. During these these two years, we have started up important collaborations with MatHem, Kolonial , Amazon, and lately Wolt in Finland. Part of this has also been to strengthen the role of the store. We firmly believe that the store has an important role to play in tomorrow's customer journey, but frankly different than the role it used to play. Not the least, the store today plays an important role in being a place to pick up Clas Ohlson goods through Click and Collect, and is thereby part of our logistic network.
To give some background to this journey more in detail, we have developed the digital experience during these two years. We know that the mobile usage is increasing, we are focused on satisfying the mobile customer Okay. Even better. All development we have done has been done to create a responsive site that makes it possible for both desktop and mobile users to find what they need. Also, speed of the site has increased by 50%, the number of clicks to complete a purchase on ClasOhlson.se or no or fi has gone from 14 to four. Both the speed and the number of clicks are critical parameters that drives conversion, these are important factors behind the growth we have seen. We have also implemented more sophisticated search engine and improved the navigation.
Lastly, the rework of the code behind the scenes has also enabled us to become faster in releasing new features. One example is that we just a couple of days ago released a new product recommendation engine driven by AI, which means that when you have put the product in your basket, you get relevant recommendations. We already see very good results from this implementation and more features to come. Moving from the front end to the back end. We have also during these 24 months made important investments in our D.C. These have aimed at creating more flexibility, increasing capacity, but also reducing handling cost.
Some examples of this is the investment in robotic trucks, a new packing machine, but also changes in ways of working and scheduling to better match when a customer places his or her order with our working hours. This journey continues, we're now working on to further automate e-com picking. Actions like this, we will continue to take all with the purpose of improving the profitability of our different channels. The final example from the program is about our organization. Under the headline of Smart and Simple Organization, we have reduced the number of white collar FTEs with 20% during the last two years. At the same time, we have built important new capabilities that serve as a platform both today, here and now, but also going forward in the journey we're now embarking on.
To mention some examples, customer insights, AI, global sourcing, and a new digital organization is some examples of new capabilities and competences that we have built and welcomed into Clas Ohlson during the last 24 months. That concludes the update on the Clas Ohlson 100+ program, and I will now hand over to Per for the financial development.
Thank you, Lotta. Good morning. Starting off with the fourth quarter, total sales was down 6%. Organic sales was down 2%. Like-for-like sales was unchanged. In the quarter, online sales grew 45% and now corresponds to 8% of total sales. Moving on to the full year numbers, total sales was flat. Also organic sales was flat, like-for-like sales was up 1%. During the year, we also saw online sales up 25%. Looking at the fourth quarter gross margin, we saw a positive development of the gross margin up 1.7%, mainly driven by positive currency hedges of the NOK. We had better product mix and also lower campaign activity, and also saw the effects of the Clas Ohlson 100+ program on lowering sourcing costs.
On the negative side, it was mainly the currency situation of sales currency in NOK and also purchasing currency in US dollar. We will continue to review the purchasing prices as we said, but also see the effects from the Clas Ohlson program already implemented going forward. Looking at the share of selling expenses in the fourth quarter. The share of selling expenses was down. Even if the sales was dropping little bit, we managed to put down the share of selling expenses. This is mainly impacted, you know, as I said, with lower sales, but also the costs related to Clas Ohlson program, but also compensated by lower costs from the program and also the closure of U.K. and Germany previously. The administrative expenses in the fourth quarter was in line with last year.
We're continuously looking at this cost and try to improve it and manage it over time. The re-reported and underlying profit in the quarter improved. The operating profit improved to SEK 41 million, and the underlying EBIT was SEK 31 million. For the full year, the reported and underlying profit was improved. The operating profit improved to SEK 549 million, and the underlying profit increased by 17% to SEK 581 million. Earnings per share was for the year SEK 5.94. The investments was a little bit higher than previous year, SEK 231 million, and was mainly into IT systems.
I think we have said that before that going forward, the IT systems and the channel, the platforms, the e-com will be driving a lot of the investments and the store investments will be a little bit lower. Cash flow for the year and the financial position, we saw a very positive cash flow, excluding IFRS 16, it was SEK 817 compared to SEK 312 the previous year. Our inventory level improved almost SEK 200 million to SEK 1,811 million at the end of the period. As Lotta said previously, we are almost net debt-free in the quarter. Moving on to events after reporting period. We just released the May sales numbers. The total sales was down 2%.
Looking at organic sales, it was up 4% and like-for-like sales up 5%. As Lotta said before, online sales was up 68%, a really nice number. Also, a little bit looking forward, at the current situation that affect us quite a lot right now, mainly the NOK/SEK and the US dollar SEK. We saw a drop in the NOK/SEK, couple of weeks ago, this will affect Clas Ohlson of course. Looking at it, the sales in NOK will have an instant effect and the purchase effect of goods, mainly in US dollar, will have a little bit of a time lag. To offset this, of course, we have our hedges, but also price effects.
To counteract a little bit of this measure, we of course look at the pricing and over time, we expect the currency effect to reflect the market prices and also consumer pricing. Sourcing, we continuously look at the sourcing cost, also sourcing countries to offset a little bit of the currency situation. Regarding sales, we look at improving private label and product and category mix to continuously improve our gross margins. Handing over to Lotta.
We are coming to the summary of this presentation to the last quarter of the year 2019/2020, and also to the end of the first two years of our five year strategy period. Summarizing where we are and the road ahead, I think we have now a platform for future profitable growth, and we will capitalize on the transformation we have gone through during the last two years. We also see big opportunities in further improving both our channels and our offer to our customers. Not least in times of big changes in society, being close to people and being relevant with what we offer and our commercial agenda is key. That is one of the reasons why we have managed to keep sales at a good level. We will continue to do that.
We will also continue to strive for best-in-class efficiency. We have improved the cost position of Clas Ohlson, but we will continue to seek new opportunities to remain best in class. We have a strong financial position to build from and a financial preparedness for the uncertainty in the macroeconomic development. Finally, during these two years, we have also implemented a simpler management structure where speed to market and speedy decisions have been enabled. I would like to extend a thank you to all my dedicated Clas Ohlson colleagues for the work they do every day that brings us to these results.
Finally then, in the spirit of our founder, Clas Ohlson, we continue to turn every stone, seek any opportunity, and we'll lean forward to deliver the financial goal of 6% to 8% profitability for the year ahead. Thank you.
Thank you for the presentation. We now open up for questions. Operator, are there any questions from the teleconference?
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw that question, you would do so by pressing zero two to cancel. Our first question comes from line of Niklas Ekman from Carnegie. Please go ahead. Your line is now open.
Thank you. Yes, I have a couple of questions. Maybe I can start with the cost reductions. You talk about the cost being reduced SEK 225 million-SEK 250 million. I was wondering if that includes the closures in the U.K. and Germany and, or if not, if there are any more savings that have yet to be fully realized? That's my first question.
For the first question, the U.K closure cost is on top of the SEK 225 to SEK 250. Secondly, as Lotta Lyrå said, we will continuously to work on improving our cost levels.
Second question, also on savings here, you talk about SEK 150 million-SEK 160 million of savings to be realized, and I was wondering if you could comment a bit on how that could play out during the year? 'Cause I assume you've already realized some savings towards the end of the last financial year. The future savings here might be more front-loaded rather than backend loaded, or how should we view that?
The cost savings, as we show here, comes from purchasing, goods not for resale and also COGS, but also administrative and logistic costs. For everything connected to the product sales and volume, it will probably follow a path, with our sales levels, kicking in, probably stronger than during Christmas and Black Friday than, a normal summer, if I say so. The administrative costs will come and kick in, quarter by quarter on a more linear level.
Okay, excellent. You talked about hedges here in Q4 being a positive boost. I mean, first of all, is it possible to quantify that effect? Is that something that will reverse now immediately from Q1 and onwards with the negative currency effects, will that reverse and be negative?
We disclose in every quarter report, Q3 and also now in Q4, I'm just looking for the page to give you the right guidance. In this Q4 report, we have on page 13 all the current hedging contracts. You can look at them. And in this report, we have amount of almost SEK 48 million positive effect going forward.
Okay, excellent. That will remain supportive in the coming quarters, meaning that you're not expecting any significant negative impact to the gross margin?
Exactly. Of course this, is for the, mainly for the first half year, and then it depends on the currency development on the second half of the year, so.
Okay, excellent. Could you say something about your store plans going forward? Net openings, net closures in the next financial year?
Yes, of course. We have for the last two years worked in a very dynamic way with the store network, where we have on a case-by-case basis, basically, assessed is this store to continue with, relocate, change the size, and so on. We will continue in that manner. It works very well based on the fact that Clas Ohlson's profitability is just the sum of the store profitability, each store's profitability and e-com. We will continue to work that way. We when it comes to where to expand and so on, we are of course exploring white spots that we see. That will definitely come, but there will also be examples of stores that will be closed.
We are moving from only looking at the store network in isolation, but actually now we look at more of a capture area around each store, including e-com purchases. Of course, in some cases where this balance is where e-com is increasing, it might lead to that sort of the store gets a different role or a different size and so on. A long answer to your question, Niklas, but I think there is no specific numbers apart from the contracts that have been signed that you see in this report. We will continue to seek profitable growth and look at different cities, different markets, what is the right setup there in terms of store and e-com delivery options and so on.
In light of this, the fact that your store expansion pace is now much lower than before, I realize your online sales are growing quite strongly, what do you think the likelihood of you reaching your medium-term sales growth target of 5%, given that you have probably much less support from store expansion going forward?
5% remains our goal.
Okay. Excellent. I think I'll pause there. I might come back with more questions.
Thank you. Our next question comes from the line of Andreas Lindberg from SEB. Please go ahead. Your line is now open.
Good morning, everyone. If I start with the very strong growth you're seeing in Norway at the moment, April and May, I know, I guess there are some COVID-19 effects. Could you describe more in detail what's the difference between Sweden and Norway at the moment? Thank you.
Yeah. If I start with Sweden, the big impact on growth in Sweden comes from a significantly lower traffic in central Stockholm, partly Gothenburg, then lower traffic in stores which are normally sort of benefiting from visitation from other countries. Just to give you a sense, if we would have had a sort of the average corona traffic effect on our Stockholm stores, growth in Sweden would have been 2% higher. What we are presenting today for May. The impact of people not going to work in central Stockholm is heavily impacting the Swedish numbers. I think that is an important factor to take into account.
Depending on what happens now in terms of government instructions and how people start to potentially go back to work, this situation might change. I think that is one factor. Secondly, the strong sales in Norway. Well, I think it's a combination, of course, of the fact that there have been certain lockdowns in Norway where certain retailers have decided to close stores which have of course benefited us who have been open. At the same time, Clas Ohlson has a very strong brand and position in Norway, and we have seen that that has been appreciated in these times.
I think it's a combination of, you can say, external factors and, internal strength, that has led to this, development.
You don't see these negative store traffic things in the bit bigger Norwegian cities?
We see, definitely examples of that, but, they weigh less heavy, in Norway. Also we see, increases in some stores up to 20%, 30%, in traffic and sales in Norway, which then, helps sort of, the situation in total. I should also say that online development in Norway is very strong.
Then on your margin, is it an ambition, is it a target, or is it a guidance when you talk about 6%-8% for this fiscal year?
It's a financial goal. It's the same goal that we set out two years ago, and we have not changed that.
You cannot be more precise? I mean, I think you did, was it 6.6% underlying margin in 2019-2020? Now you're talking about SEK 150 million-plus cost savings remaining from CO 100+. I know the U.K. closure is still affecting your pretty decent sales momentum and so forth. Could you give some more flavor?
I echo all the factors you mentioned, Andreas, then I would add that of course, the insecurity when it comes to the macroeconomic development and the currency situation Pär talked about and of course, the evolvement of the pandemic itself. We remain very humble for what might come. The goal is 6%-8% for the year 2021.
Thank you.
Thank you, as another reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. We have a follow-up question from Niklas Ekman from Carnegie. Please go ahead. Your line is now open.
Thank you. Yes, a few follow-ups. Maybe first, you talked about private label sales and the goal to increase private label sales as a way of defending your operate or your gross margin. Can you tell us just an update on where you are today and then where you see this progressing going forward?
Of course. That direction is still valid. We have several plans in place, both to sharpen the private labels themselves, what offer we put under it and many more things. The trend goes in the right direction. We don't have a final number yet for the year 2019-2020. That will be part of the annual report that will come in a month's time or so. This plan is still very much valid. Maybe to give a little bit more flavor to it, I think if you look at, for example, what we put on the platforms, external platforms online, MatHem, Kolonial, but also Amazon, it's very dominated by our own private labels.
So it's both improving the products and the private labeling itself, but also the mix between different, yeah, external and our own brands or in our different channels. I think there also to mention, it's also about how we present the range. What do you meet when you enter the store in terms of mix? What product recommendations do you get online? We will use all of these levers to make sure that we increase this share further.
Great. Thank you. Can you just give an approximate number for private labels? If you don't want to give an exact number, where are you roughly today?
Sorry. I try to Niklas here who...
it's approximately 30 plus.
Yeah. 30 plus then, and that excludes then the no-name product. I think it's better if we, if you allow us to come back, once the yearly report has been launched.
30+ , that's good enough. That's a good enough answer. Thanks. Transformational costs, are those entirely behind now? Was this the last quarter with transformational costs?
As part of the reporting, they're totally behind us, and we will not talk about the underlying profit anymore. Of course, there will be transformational costs going forward, but that will not be reported separately, and it will be part of the 6%-8% goal. It will be included, not on top of or anything like that. It will be back to normal business. And that's what we have promised all along. So we close the books now or the program delivering the result, and we put the investment of 1%-2% behind us to deliver 6%-8% profitability.
Excellent. Finally, if you could elaborate a little bit more around the dividend. I realize that with furloughs and the subsidies received, it's a very sensitive issue to distribute dividends. At the same time, you had a strong financial year, you had a strong ending year in Q4. The COVID-19 impact appears to have been fairly limited. It was basically a couple of weeks in March with a negative impact. Your view on the dividend here, I mean, are you looking at raising the dividend for next year as a way of compensating for the absence of a dividend this year? How do you reason around that or how the board reasons around that?
The reasoning behind the board's proposal on this topic is the insecurity around the macroeconomic development and how that will impact retail in general and Clas Ohlson specifically. That is the reason, basically. The short-term layoffs have not really impacted this decision. We believe sort of in terms of size of numbers, if you compare the possible impact of the macroeconomic insecurity with the short-term layoff support, it's out of proportion, so to say. Behind the board's proposal is the insecurity macroeconomic-wise. That's the reason for the decision.
Technically, you could have kept the dividend. There was nothing legally to prevent you from sticking to the dividend.
Yeah. I will not comment on, more specifically on the discussion, but I can just say that comparing, sort of the impact on numbers of the insecurity we sit with for going forward in terms of how the pandemic itself will evolve and the macroeconomic consequences to that, if I compare that to the money at stake when it comes to the short-term layoff support as it is right now, it's out of proportion. The main reason or the reason is the macroeconomic insecurity.
Okay. Okay. Thanks for clarifying. That's all my questions.
Thank you. Our next question comes from Stefan Stjernholm from Nordea. Please go ahead. Your line is now open.
Hi, this is Stefan at Nordea. Can you hear me?
Yes.
Can you hear me?
Yeah. Hi, Stefan.
Yeah. Good. You expect cost savings of SEK 150 million-SEK 160 million this year. I guess that is a gross figure. What kind of underlying gross cost inflation do you see?
Look, looking at these cost savings, it's you should see it as a like-for-like number. Of course, it's the lowering the cost of certain functions or certain products or certain purchases. Of course, in a normal business, we have some sort of a price inflation and salary inflation that affects the company as such. Of course, that is not included in this, but that also affects the pricing towards the market as such. That is a factor that we have put outside this.
I guess the kind of inflation is quite low.
Correct.
I think it's a bad line. Can you hear me again?
Yes, we can hear you.
Yeah. Another question on your service offering, Clas Fixare. I do understand that this is a very small part of your business, but can you give some figures on how it's developed in terms of growth and if it's profitable or not?
We had a plan to scale Clas Fixare further during spring. The pandemic hit society, and we decided to hold back for natural reasons. We have seen also reduced demand during this period where people, of course, don't want necessarily others into their home. We have paused the expansion. With that, I also at this point don't want to comment more on the business itself, but come back when we have more clarity on the road ahead.
Okay, thanks. Those are my questions.
Okay, thank you. As there appear to be no further questions, I'll return the conference to you.
Thank you. We don't have any further questions from the webcast viewers, so I would like to hand back to you, Lotta.
Thank you. I say thank you for everyone who dialed in and was with us during this presentation, and I wish you a nice summer. Goodbye.