December 1, 2021

Earn Money

Business Life

Edited Transcript of EPR.OL earnings conference call or presentation 23-Apr-20 6:30am GMT

FREDRIKSTAD Apr 25, 2020 (Thomson StreetEvents) — Edited Transcript of Europris ASA earnings conference call or presentation Thursday, April 23, 2020 at 6:30:00am GMT

Good morning and welcome to this webcast. We will present the first quarter results for Europris. I’m Espen Eldal. And together with me today, I have Trine Engløkken that will facilitate the questions that come in from the web audience.

Europris is the #1 discount variety retailer in Norway. We have said that for quite some time. But in the first quarter, it really became a truth. Europris has proven the important role the company plays for both our customers and the Norwegian community. At the critical time, we have provided Norway with necessary goods to keep the everyday life going for most people. With our wide range of products at low prices and the unique store network across the country, we have been able to play an important role in the society. That makes us proud in Europris, and I’m very pleased with the efforts our employees have done to make this possible.

Europris is also a growth story. And since the opening of the first store back in 1992, the company has grown every single year in both financially good times and in more challenging periods. 2019 was a relative soft year for Norwegian retail, but Europris delivered solid growth, and we see that, that trend continued into the first quarter of 2020.

In the first quarter, Europris had a growth of 11.8% and with a like-for-like growth of 10.4%, partly driven by increased sales following COVID-19. The gross margin was reduced by 1% point owing to sales mix change towards groceries and other necessities.

Adjusted EBITDA rose by 21.3%, and profits were also positively impacted by unrealized currency gains, more or less a reversal of the negative effect you saw at year-end.

In connection with the refinancing, we booked one-off costs of NOK 8 million in the finance. And at the end of the quarter, we have a solid financial position with cash and available credit of nearly NOK 1 billion. Inventory, which was an issue last year, has been reduced by NOK 145 million since the first quarter last year.

During COVID-19, safeguarding employees and operations has remained our top priority. We initiated crisis management plans already in January, firstly, to secure our employees at the Shanghai purchasing office and also to secure delivery and production of goods from the Far East.

As the pandemic spread globally, we strengthened the crisis management and implemented a number of measures locally. First of all, Europris adheres to the guidelines issued by the Norwegian Institute of Public Health at all times. We have initiated several measures in the stores to comply with these guidelines and done a lot of work to improve our routines and also improve frequency of cleaning of all stores and also at head office and warehouses. We have initiated store strict procedures in case of outbreaks to ensure quick and safe reopening of stores. So far, we’ve had virus outbreaks in 2 of our stores. Both are reopened.

We maintain a close dialogue with suppliers to safeguard flow of goods. And so far, the minor delays has been recorded.

On the sales side, we saw early indications to lower customer traffic, but larger baskets. The first week after the national measures were introduced was marked by hoarding. The hoarding basically took place for a small week, and that ended soon. And after that, I’ve actually never seen such a clear change in customer buying patterns in such a short period of time. We see less traffic in city center stores and also at shopping centers while suburban stores and retail park stores and of course, especially those close to the Swedish borders, are experiencing a very positive development, both in basket size, but also in customer traffic. We have one border store that is actually performing below normal, and that is the store in Kirkenes, where the Russians now are not coming into Norway to do their shopping.

We’ve seen very big deviations. Of course, the mountain stores has been struggling, but the suburban stores and especially in the Southern part of Norway has performed very well. The geographical area where we see less changes in sales is actually in the Northern part of Norway.

Also, in the wake of COVID-19 and the oil price fall, we’ve seen large currency fluctuations. Europris followed the currency hedging strategy and secure all place purchase orders in dollars and euros for 6 months. Historically, this has provided sufficient time to adjust retail sales prices. In addition, we renegotiate prices wherever possible, especially for those suppliers that do not have their cost base in U.S. dollars or euros. And that also applies to purchase orders we have already placed.

Looking at sales performance. In the first quarter, that was strong. Total retail sales growth of 12%, and we saw good merchandising in the early months and a positive impact from the effects of COVID-19 in the end of the quarter. We continue the strong focus we’ve had on implementation of campaigns throughout the value chain. This is high on the agenda both in supply chain and in the stores.

As we said in late January, when we presented the first — the fourth quarter of last year, we had a negative start to the year. This was caused by an exceptionally mild winter and required swift actions. Europris operates a seasonal concept, and we use the seasonal products to attract customer traffic to our stores, and that meant we had to make a significant change in product selection and marketing to turn the negative trend. We shifted the focus from seasonal products and concepts to groceries and necessities. This was a successful change, and we regained customer traffic and sales growth. This underpins the value of having a wide range of products and an organization that is used to quick transitions from one season to another. With the COVID-19 outbreak, our employees have shown formidable commitment. They quickly adapted to new guidelines and changes in customer behavior.

When we look at the market figures, the market was down by 4% in the quarter and with a like-for-like of minus 4.4%. Our growth exceeds the market by far, but the comparison is not really fair. We have kept all our stores open, but the market data is based on shopping center data, where many stores have closed, and they have experienced significant reduction in traffic. So for the moment, the market benchmark is not really telling the exact story. But we believe that overall, we have been far above market in the first quarter.

Gross margin in the quarter was 40.4%. That was a reduction of 1% point from last year, and that was due to the change in product mix towards groceries. Gross profit on the other side increased by 8.9% from the higher sales.

Operating expenses was NOK 406 million, up by 5% from last year, which corresponds to the increase we had in directly operated stores. Last year was negatively affected by NOK 11 million, owing to the high fill rate at the central warehouse. In percent of sales, the OpEx was reduced from 31.3% to 29.4%. That means that we have been able to tackle the increase in sales in our stores without adding additional costs.

Adjusted EBITDA was NOK 152 million, an increase of 21.3% from last year. Remember that the first quarter is our smallest quarter both in terms of sales and profits, but we are pleased to see the increase in EBITDA margin to 11% in the quarter.

Net change in working capital was negative in the period following a normal buildup of inventory ahead of the summer season. Overall, inventory has been significantly reduced from last year as we have improved the flow of income and goods where we had some issues last year.

The refinancing was completed in January, and we now have a term loan of NOK 1 billion, an RCF of NOK 1.2 billion and an overdraft facility of NOK 200 million. Cash and liquidity reserves at the end of the quarter was close to NOK 1 billion.

Europris’ key strategic initiatives are to strengthen the price and cost position, to improve the customer experience and to drive customer growth. Let’s have a look at the progress we made in the first quarter this year. Starting with the price and cost position. We are in progress with the new warehouse as planned. Operation was started in the high-bay area in February. And at the end of the quarter, lease expires at the 2 smaller warehouses and the second largest warehouse in Fredrikstad. There are no changes to other milestones, and we maintain our savings target for the project that come after the period of transition we are in.

When we look at the automatic high-bay warehouse that will increase the capacity significantly at the new central warehouse. It became operational in February, and the storage capacity at the new central warehouse increased from 34,000 to 99,000 pallet places. Operations will be scaled up gradually, and full operation is expected before the summer.

The relocation process of 2 existing warehouses accelerate — was accelerated as a result of the increased capacity. We have one issue on the automated picking solution in the low-bay area that has been delayed due to COVID-19. The testing was scheduled to start in late June but has now been postponed. But the delay is so far within the overall time frame for the project.

The sourcing partnership with Tokmanni and ÖoB continue to make progress, and the key activity in the first quarter has been joint purchasing of Christmas goods for the season 2020. And we continue to work on joint private-label products. We also given operational sales update on ÖoB. The new CEO of ÖoB, Magnus Carlsson, joined the company on the 1st of March. Magnus come from the position as CEO of Reitan Convenience in Sweden, a very experienced retailer and a great operational focus. Like Europris, ÖoB saw a positive sales development in the quarter. They had a 10% like-for-like growth. And like us, they also saw a slow start to the quarter and a significant sales increase in the wake of COVID-19 outbreak.

At the end of March, all stores were kept open, but ÖoB will consider to close stores experiencing significantly lower customer traffic. And ÖoB has seen the same thing as us when it comes to the basket size. It seem that the growth is mainly driven by the increase in the basket, and they also see an increase in the grocery part of the categories. And the latter has a negative effect on gross margin. But overall, the gross profit has increased as a result of the increase in sales. After the quarter in April, ÖoB has closed one store that is in Charlottenberg in — close to the Norwegian border. And ÖoB is actually experiencing the exact opposite effect of what we saw — see towards the Swedish border. We see huge sales growth, and they see, of course, the totally opposite.

On improving the customer experience, concept and category development is the key for Europris. And continuous improvement of concept and category is the backbone and will be a very important driver for sales growth going forward.

In the first quarter, we have introduced the price-conscious chef in all our stores. I think the timing couldn’t be better now as everyone has more time at home in their own kitchen as a result of COVID-19. That’s also reflected in the first sales figures we have seen from the new upgrade. We have introduced a more distinct shop-in-shop solution, where display of kitchen products has been significantly improved. In addition, we have introduced a clear Good-Better-Best strategy for pots and pans using both well-known brands and private-label products. And there will be more category initiatives in the coming quarters.

On the e-commerce, we continue to make progress, and the focus in the first quarter has been to recruit more members to our customer club, MER. Since year-end, we have increased the membership base by 65%, and we’re getting very close to our target of 0.5 million members before the summer. Most of the new members, they registered their credit cards and gave us permission to use the purchase history for analytics and personal marketing. Since COVID-19, we have used digital marketing and e-crm to regain customer traffic for stores that experienced a negative trend. For most of these stores, we were successful, and the stores performed above-average in the following weeks. I think this underline the value of continuously developing good e-crm solutions and to use targeted digital marketing.

The new e-commerce solution, which was scheduled for launch in the first quarter, was delayed for technical issues, but we enjoyed a successful launch on Tuesday this week. E-commerce will serve as a complementary source for revenue growth. And combined with e-crm, we may attract new customers, both online and drive traffic to the physical stores.

An important driver for customer growth is to utilize the opportunities we have in the existing store base as well as the opening of new stores. The potential of improving existing stores is considerable, and we see that we are constantly being offered better locations to attractive rental levels. During the first quarter, we have opened one new store, we have relocated one store, and we have completed 2 store expansions. We have 4 new stores in the pipeline for 2020 and beyond but see a potential for several new stores in Norway. We still believe that rent levels are high and that landlords will have to change their terms in the time to come.

The potential closing of the store at Grini has been postponed due to COVID-19. The hearing in the District Court was scheduled for April and is now rescheduled to October 2020.

I think it’s time to summarize. The strong sales trend we experienced in the wake of COVID-19 has continued in the beginning of April. We see an increase in the shopping basket, while the number of customers has normalized after the week of hoarding. It’s too early to draw conclusions about the long-term financial effects of the current situation. Like I already commented, the new e-commerce platform has now been launched, and we have a pipeline of 4 new stores for 2020 and beyond. One franchise store was taken over on 1st of April, and we expect another 1 to 2 takeovers for 2020.

On ÖoB transaction, we expect to receive ÖoB’s 2019 financials at the start of May. And with that, we will start our due diligence process. Assuming that we agree on the 2019 EBITDA within the 30-day deadline, the 6-month option period will start in June and end in December.

Europris is well positioned as Norway’s #1 in the sector with ample opportunities and the financial position to continue our profitable growth journey. The important summer season that’s now ahead of us, and we are well prepared for a summer season where many Norwegians will spend their summer holiday at home in their own gardens, by the sea, in their cabins or in the mountains.

Our ambition remains the same, be the best discount variety retailer in Norway. And with that, Trine, I think we will open up for questions from the web audience.


Questions and Answers


Trine Engløkken, Europris ASA – Business Controller [1]


Yes, there are some questions on the web. The first one is from Gard Aarvik, Pareto.

Can you comment on the sales mix so far in April? You say that basket size is still high. Is this still driven by groceries? Or do you have more normalizing buying patterns?


Espen Eldal, Europris ASA – Acting CEO & CFO [2]


It’s still driven by more groceries. So the — we see the same trend, but not to the same extreme extent as we saw during the hoarding. The hoarding was 1 week, a short period, extreme share of groceries. Now it’s still a higher share, but it’s not that significant.


Trine Engløkken, Europris ASA – Business Controller [3]


The next question is Øyvind Mossige, Sparebank 1 Markets. You went out of Q2 2019 with higher-than-normal inventories and now refers to normal inventory buildup ahead of the summer season. Does this mean that you predict higher-than-normal demand through Q2 and Q3?


Espen Eldal, Europris ASA – Acting CEO & CFO [4]


No, it doesn’t. We have increased the inventory from year-end. So that’s the normal buildup we have. But we have — of course, when we placed the purchase orders for the summer season 2020, we have taken into consideration that we bought too much last year, and we already have that on stock. So we have planned for a normal season, and that might mean that we will be sold out of some products.


Trine Engløkken, Europris ASA – Business Controller [5]


And here’s a question from Ole Martin Westgaard, DNB Markets. One, when you look at your customer traffic, do you need customers — do you see new customers? Or is this existing customers that have increased basket? And the second one, how was like-for-like in March relative to February and January? And how should we think about the March like-for-like relative to what you’re seeing in April?


Espen Eldal, Europris ASA – Acting CEO & CFO [6]


That was extremely long questions.


Trine Engløkken, Europris ASA – Business Controller [7]


You can take the first one first. When you look at your customer traffic, do you see new customers? Or is this existing customers that have increased basket?


Espen Eldal, Europris ASA – Acting CEO & CFO [8]


It’s — we don’t have good data to see if it’s new customers. We see that we get some new members in our customer club, but we don’t know if they have been customers before. So it’s not that easy to say. But we believe that overall, we don’t get that many new customers, but we — the existing customers are buying more. But of course, some new as well.


Trine Engløkken, Europris ASA – Business Controller [9]


And number two was how was like-for-like in March relative to February and January? And how should we think about the March like-for-like relative to what you’re seeing in April?


Espen Eldal, Europris ASA – Acting CEO & CFO [10]


As we said back in January, we had a negative start to the year. So that means January was very low. We made some significant changes to our product mix and offering and how we operate the stores in February, and we saw a very positive result from that with the increased customer traffic and also increasing sales. So February was very positive. And also then after the national measures was implemented on the 12th of March, we saw a significant increase in sales. So in terms of if you split the quarter, February — January was low, February was good and of course, March was a little bit extreme. And if you try to see how that will develop going forward, it’s very early days. We’ve completed some 20 days into April, and we had Easter in there, so it’s not a lot of normal activities that makes it impossible really to say how we should measure it. But it’s — we see overall increase in sales in April so far, and that is driven by the higher basket.


Trine Engløkken, Europris ASA – Business Controller [11]


Then comes one more question. It’s from Carl Frederick Bjerke. Is it possible to provide some detail on e-commerce sales in Q1 2020?


Espen Eldal, Europris ASA – Acting CEO & CFO [12]


E-commerce sales is still from a very low base. So we don’t think it’s really valuable to comment on those figures. Let’s have the new e-commerce platform starting up and see some time operation. And then we’ll come back with figures.


Trine Engløkken, Europris ASA – Business Controller [13]


No more questions on the web.


Espen Eldal, Europris ASA – Acting CEO & CFO [14]


Okay. Thank you.

Source Article