Welcome to the Axfood Conference Call. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing hash five on their telephone keypad. Now, I will hand the conference over to speakers CEO Klas Balkow and CFO Anders Lexmon. Please go ahead. Thank you, and, good morning, everyone. As you've heard, I'm Klas Balkow, CEO of Axfood, and with me this morning, we have Anders Lexmon, CFO. I just want to say a warm welcome and thank you for joining us, today with such a short notice. We think it's a truly exciting day. Following the presentation, there will be an opportunity for those of you listening to ask questions, as always. But before I start the presentation, just a reminder for you all to read the disclaimer on page 10. But let's now get started and go to page two in the presentation. As you have seen this morning, we have announced that we have reached an agreement to acquire an additional 90.1% of the shares in the food retail chain, City Gross, taking then our shareholding to 100%. We believe this is a compelling deal that... City Gross market position and give Axfood growth opportunities and full presence in the hypermarket segment of the food retail market. The consideration amounts to SEK 2.0 billion on a cash and debt-free basis, and this will be financed through a combination of existing cash and credit facilities. While the transaction is subject to approval by the Swedish Competition Authority and the European Commission, it has been agreed that closing can take place on September first this year at earliest. We'll now move on to page three. So, let me provide you with some details on City Gross, for those of you who are not that familiar with the concept. City Gross, established in 1993, Swedish food retail store chain with an estimated market share of 3%. They're operating in the hypermarket segment, and City Gross has approximately 2,800 employees, and they have 42 stores. The stores are mostly found in the southern parts of Sweden. During the twelve-month period to April this year, net sales for City Gross amounted to approximately SEK 9.1 billion. After a long period of stable, profitable growth, City Gross had, has had a somewhat weaker development during the recent years in the high inflationary environment that we have been in. To be fair, this has also been the case for many other players in the market in these conditions. But in addition, the business also implemented large and structural changes to its operation recently. As a result, adjusted operating profit for the period amounted to -SEK 100 million. Getting City Gross back to profitability will obviously be a key focus for us, and we have a plan for that. Using our knowledge and experience, we are confident that we can create the necessary conditions to further develop and strengthen City Gross concept and implement more efficient operations. With that background, let me talk more about the rationale of today's announcement. To begin, slide four provides a good overview of the food retail market in Sweden. Today, Axfood has a strong number two position in the market, and we estimate our market shares to be approximately 22%. The market can be divided into different segments, and, as you may aware, we operate in the soft discount segment with Willys and Eurocash. In the traditional grocery, the largest segment of the market, we are present with Hemköp and our fully franchised smaller store concept Tempo. Handlar'n, Matöppet also operates there. However, one segment in which we have not had a true presence in, other than the minority stake in City Gross, is a hypermarket segment. And the hypermarket segment is attractive, you see that on page five. You see some more details on this segment. It is a relatively large segment, and we estimate that it constitutes approximately to 27% of the Swedish food retail market. Second, it is a segment that is displaying a healthy growth with an estimated CAGR of approximately 4% during 2020 to 2023. This rate is obviously lower than the growth in the discount segment, but better than the overall growth in traditional grocery. Hypermarkets are typically located in external locations, carry large assortment of both groceries and non-food items at competitive prices. The largest concept is ICA Maxi, with almost 2/3 of the segment, followed by large Coop or Stora Coop, with a quarter, and lastly, City Gross, with an estimated 12% segment share. With that, please turn to page six, and here I just want to give you some background to today's announcement. As a little less than three years ago, we acquired the current minority stake that we have in City Gross. So we worked with City Gross for some time. In addition, we also acquired the purchasing and logistical company behind City Gross, Bergendahls Food. During the course of 2022, we integrated Bergendahl s Food with our own purchasing and logistical company, Dagab. As part of the deal, we entered a long-term delivery and cooperation agreement with City Gross to strengthen their position in the market, and we also entered into a call option agreement to acquire additional shares up to total shareholding of 30% in City Gross, gradually during a five-year period.... So in other words, we have had the opportunity to increase our stake in City Gross. However, as announced today, we have come to an agreement to acquire the entire company. Since then, we have collaborated closely, first and foremost, in terms of converting all the City Gross stores to Axfood's IT systems and processes. However, also with regards to assortment, such as replacing City Gross private label with Axfood's, including the Garant and Eldorado brands that has happened recently. Turn now to page seven. We see a very compelling strategic rationale with this deal. This acquisition gives us an increased presence in the market and a clear position in a segment we are not fully currently present in. We believe the solid trend for the hypermarkets will continue. Hypermarkets represent the one-stop shop for consumers with a wide selection of products, service, and large retail areas. As you all probably know, the price value trend on the market is strong, and this trend fits well into the hypermarket's overall value proposition. And adding to that, we really see an opportunity to enhance City Gross' competitiveness in order to really take on the large players in the hypermarket segment. We intend to pursue a number of improvement initiatives to strengthen the customer offer, implement chain management, and lastly, focusing on making operations more efficient. As I mentioned, we have during the last years, mainly focused on the back-end operation and the assortment with City Gross. With this acquisition, we will now take a deeper step into developing the City Gross concept to an even more attractive hypermarket, with focus on fresh food, and we will improve its operation efficiencies to secure a competing, attractive consumer offering. As developing concept and operational efficiencies are clear areas and skills that we within Axfood have strong know-how in, and a proven track record looking at our progress with both Willys and Hemköp. This will contribute to City Gross reaching profitability by 2026 at latest, and thereafter gradually improving profitability. With that said, let's go into some financials. I now hand over the voice to Anders. Thank you, and we are now on page eight. As Klas mentioned in the beginning of this presentation, the consideration will be financed through a combination of existing cash and credit facility. Axfood has a strong financial position with very low gearing, and it obviously serves us very well here to be able to continue developing our business and pursue this opportunity. Overall, the transaction will have an initial dilutive effect of 0.3 percentage points on the group operating margin. But we are committing to our financial target for profitability and reiterate that the group operating margin will also going forward be at least 4.5% in the long term. We expect City Gross to gradually, over time, contribute to our target, and we estimate that the acquisition will be earnings accretive by 2026, at the latest. At closing of the transaction, which is subject to regulatory approvals and can occur on September the first at the earliest, City Gross will be reported as a separate operating segment in our financial reports. So, you will be able to see the performance of City Gross and the progress we are making, both in terms of growth, but of course, also in profitability. And with that, I hand the call back to you, Klas. Thank you, Anders, and, before I open up the meeting for question and answers, I just want to emphasize that we believe this is a compelling transaction that is attractive to Axfood, City Gross, and the Swedish consumers. With this deal, we will expand our presence and reach, and City Gross' competitiveness will improve. It will enable us to continue to drive growth and further strengthen our ability to deliver sustainable and, and strong shareholder returns over long term. But until the deal is closed, it is business as usual. We continue to work to deliver affordable, good, and sustainable food to over 5 million customers in the entire country that every week choosing to shop with us. And with that, thank you for listening at this part, and, with that, I also open up for questions. If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Gustav Hagéus from SEB. Please go ahead. Thanks, thanks for taking my questions. If I may start with the store locations, there are some 40-plus stores in City Gross. Just looking at the cities they're present and towns they're present, it looks like there are only five towns, really, where Willys aren't already present. But could you please... And I understand they're not next to each other at all time, but could you please elaborate a bit on the geographical overlap, and also if you already now know about the length of the leases in the stores that are in direct proximity to Willys, that'd be helpful. Thanks. Morning, Gustav. No, you're right, the locations of City Gross are more related to the southern part of Sweden. Now, as you're aware, we have. You know, a joint agreement with City Gross with the authorities, and so we together in many areas. And when we see these areas where Willys and City Gross is very close to each other, I think we mentioned that before, and we can mention that again, we don't see a very strong overlap between these two stores, if that's what you were relating to. Regarding lease lengths and so forth, obviously, we are, we are working on that, but that is gonna be areas, kind of questions areas that we will come back to, because first of all, we need now the authorities to say their point of view. Will it-- will it-- Do you think it will impact sort of your rollout strategy with Willys? Uh-uh. Because I assume some of the Willys, the impact going for, historically, has been to take market share from the likes of City Gross. And would you now defer from opening a Willys very close- Uh -to City Gross, or would you, would you go on? I'm sorry. I misunderstood you, Gustav. No, it will not at all impact our journey and going forward with Willys. We will be as aggressive as we have been. I think we are clear in terms of our concepts, that we have distinct unique concept. The City Gross will we have one position, Willys another, Hemköp a third, et cetera. As we have done before with with Willys and Hemköp, we you know we we drive our concept as much as we can, and we will continue to drive Willys as we still see a lot of opportunities in. Now, looking at the hypermarket segment, as I pointed out, it is a somewhat different consumers that go to hypermarket, and City Gross only have around 10-12 percentage points of that market share. So we see obviously an opportunity to strengthen City Gross in that segment, going forward. Is there a critical level of the number of City Gross stores you think is needed to maintain scale with having that as a standalone brand? I recognize that you have about half the store count now in City Gross versus ICA Maxi, if you believe that is a peer of yours. I think we've seen, as if you look—if you go back, City Gross has proven, you know, a profitable retail chain, despite having a wholesaler that has been the smallest wholesaler in the market. Now, we've changed that. Scale effect is very much in the back end, but obviously, from a brand point of view, you need some scale. But I think if you look at it, City Gross is a well-known brand, and we need now to continue to grow and to strengthen the concept and also, of course, to drive that brand further. Obviously, scale is, when you're driving the brand, you need to make sure you have the location spread out in vectors. So that's why also with the number of stores, City Gross has located very much southern part of Sweden, makes a lot of sense in that aspects. Oh, okay. And if I can sneak one last in. Just looking at the available data, I don't know if that is the correct picture, but it looks like, City Gross averaged, say, 1.6% EBIT margin before 2023, sort of in the nine years preceding that, and then obviously, a drop in profitability now recently. Mm-hmm. Was the end of the scale benefits that you have been pushing already in 2023? Or how do you explain this drop in margins? Yeah, I- If I can add, do you think that this is a concept that inherently carries lower margins? Because it's markedly lower historically versus both Hemköp and obviously Willys. No, I don't see that we should not be able to have a solid margin improvement in City Gross. And if you—as you point out, historically, around 2%, but then they had a, they, they came from a, from a lower or from, from the smallest wholesale operation. So that wholesale we have taken care of now with this. But obviously, if you look at the last, as I pointed out, the last couple of years is very much, you know, if you look at the overall market, the volume, there's been a volume drop in the market that has an impact, but also City Gross has done a lot of internal restructuring that has also had an impact. So, but clearly, we need now to get, to, to invest and to strengthen the concept of City Gross, and we need to, to drive that, further. But if you do that, and, and I think you look at it, if you look at the, sales per square meter, and that compared to the other hypermarkets, there's a really good opportunity. If we increase that, that will also, of course, uplift the margins. Okay, thanks for taking my questions. Thank you. The next question comes from Fredrik Ivarsson, from ABG Sundal Collier. Please go ahead. Thank you so much. Sort of following up on Gustav's last question. You assume the deal will be EPS accretive by 2026 at the latest, and then historically, as you mentioned, City Gross has been operating with a 2% margin. Is that sort of the base case margin in 2026, or do you think you can get it even higher already by that year? I think all of that kind of outlooking margin forecast I'm not gonna get into. First of all, we need to get into this, but we have been clear in terms of when we will be, as you pointed out, by latest 2026 we'll be back to profitability. Now, you're coming back then into what is the target going forward? And I think there's an opportunity if I look at the chain that we should be able to have a solid profitability with the structure we have, with the different wholesale operations, we should be able to clearly improve the margins going forward over time in City Gross with what we are now adding. We're adding a lot of efficiencies and improvements that we can add to the chain, and of course, also strengthen the concept. Driving solid like for like, as you all know, in retail, will have impact on profitability. Okay. Yeah, fair enough. And on that, improved efficiency and improvements, Klas, which are the sort of low-hanging fruits here, in order to get back to profitability? No, I think first of all, we need to, you know, we need to get a stable business, regarding an attractive concept. And the other part, which we have a lot of experience on, both in Hemköp and Willys, that is being a centralized chain, which City Gross is. So we can add a lot of what we call chain management in terms of how we're handling, how we are operations. We have, I would say, one of the best in class experience from that in Willys. And with their technique and with their added value, we can drive that, and we can improve and help City Gross to truly become a centralized, strong hypermarket chain with an efficient operation. At the same time, adding a fresh value, a lot of assortment into it that will drive a consumer's appeal. So, the combination of what you can say in terms of what we're driving in the larger Hemköp with the attractiveness of the assortment, combining that with a very efficient operations that we have a lot of track record from. So, these are the areas that we'll get into. But at pointing out, first of all, we need to get the authorities to say yes, and then secondly, of course, we need to work with the City Gross team now to lay out the plans going forward. This opportunity that we have now is that we can take control of this, and we can drive it, and we can drive it even further. Yep. Thanks, that's a good color. All my questions. Thanks so much. Well done. Thank you. The next question comes from Daniel Schmidt from Danske Bank. Please go ahead. Yes, good morning, Klas and Anders. A couple of questions from me. Just coming back to the performance, and you showed a slide on hypermarkets growth, the segment hypermarkets between 2020 and 2023, and I think it was 4% CAGR over that time period. City Gross, if I got the numbers right, is, is, as a negative sales of minus 5 over the same period, and I think you, you touched upon it a little bit in terms of the reason for the margin drop, but what is the reason for the top line drop versus their main peers? No, I think as I tried to mention, one of the areas is, of course, has been a bit of internal focus within some of the internal changes. I think that's one area. In those numbers, we've also converted and changed and closed and opened some stores. That has also had an impact there. But again, I'm not hiding from that, we are now need to get a true injection into the concept and into to the how we're presenting the concept and how we're driving that also to the consumers. And that's what we plan to do. So clearly, it's been a couple of years now with soft development. A lot of we've seen a volume drop in the overall market, and unfortunately, City Gross has faced that as well. So, yeah, I hope that at least gave you a little bit of flavor of it. Yeah, but it sounds a little bit like a defensive move in my eyes, because you had this plan of sort of owning 10%, and then in 2026, owning 30%. And now, given the sort of sounds like the performance, which has been quite bad, you feel the need to take control and sort of you're left with 2 options, leaving it in the hands of the current owners and see it fading basically, or try to take control and do what you do best, simply, and run the businesses efficiently. Would this have happened if City Gross would have been sort of performing well in the past couple of years? Well, I think it's always two to tango in that aspect. Now we've come to an agreement with the other owner that we both agree that we're gonna be better positioned to drive it fully with our experience, with the full power of all the competence we have within Axfood. And that's gonna be easier to drive and easier to manage if we are fully in sitting on the steering wheel ourselves. So, I don't know if you said a defensive, I think it's an offensive move now that we're taking a step, and we are now taking fully in charge of also not only handling the back end but also taking it further out with all the systems we have that we know and we are well experienced on in terms of how we're driving the assortment, how we're driving our private label, how we are driving the efficient operations. We have a lot of skills on that, and that's gonna be easier when we are sitting on it, our own hand. Yeah. Okay. And on the assortment, I think it's my understanding that you have done a lot already since 2021, but it's more about the sort of displaying the assortment and marketing the assortment then? ... Well, I think, I mean, that's my point, that we have taken steps in the assortment, but again, I'm coming back to how you are driving chain management, how you're running a fully operational centralized chain in terms of how you're driving the assortment and the campaigns, et cetera. That is a shift that takes time. You don't switch that overnight. We have not even switched the private label overnight. That has been a gradual move over. And we know that that is always a small reaction when we are changing, when you have these assortment changes in the stores, and that goes over time when they get used to it. But it's very much now to take them to get all—not only to have the assortment availability there, is also how we are driving the assortment in the stores, and how we are planning, and how we are campaigning it. Yeah. Okay, and then maybe just a final question for Anders. And you say you will finance it through cash and credit facilities, of course, and you have a fair amount of cash, but there will be some borrowing as well. What is a sort of a reasonable borrowing cost right now in terms of interest rate? Well, we have the market. We don't deviate from the market offerings that you have on the market, so. That will be cash out, sort of SEK 2 billion in one go, or is it gonna be sort of divided into a couple of tranches? No, that's one go when we close the deal. Okay. Okay, thank you. That's all for me. Thanks. The next question comes from Magnus Råman from Kepler. Please go ahead. Thank you very much. I'm gonna come back first to the historic performance of City Gross, because you mentioned here the recent 2-year period with very high inflation affecting City Gross and, and the losses of market share in that environment. But if we look back in time, for example, the aggregated period, 2016 to 2021, City Gross actually lost quite a bit of market share over this period as well. So, perhaps you could give a comment on, on what you think have been, missing and, and what you would be adding. You, you've already touched upon it, but, but perhaps also from that perspective of the historic losses of market share. No, but I think it's been a journey that's been on and on. They have not been the fastest growing retail chains in the last years, agreed. But if you look at it, they've been a solid, they have a solid performance, at least in terms of profitability, but they can move up on that. But if you look at and one of the areas for the previous deal was also how to, they are sitting with the smallest wholesale operation in the market, which has impacted their proposition to the consumers. So that's why we made the last deal. Now we're adding it into the next one in terms of how do we drive the next step. If we look at it, they—it's been, you know, an opportunity. I think if you look at how they have improved and modernized their stores and improved their concept, it's been a long time since they did that. So we are—we have some areas that we are well familiar with in terms of how we believe we need to take the next injection into this brand. It is a strong brand, but it needs to take the next step. And they haven't done that for some years, and that, you see that has impacted when also the market becomes a bit tougher, where they have a volume drop in the whole market, they have not been able to compensate for that. Right. But you mentioned here sales densities and like-for-like sales growth improvement. If you take... I guess you have been able to look back at numbers here. If you take a sort of ten-year historic perspective or so, where City Gross was then in terms of sales per square meter and where it is now, how Yeah. much of an improvement would you have if you would? Yeah, you're right, and that's why, that's why in terms of they have added more further up in areas they haven't been to before. So, they are very, very strong in the southern part, and they have grown, and they have not invested enough, I think, in their concept, in the market position. So, and that is areas we need to address. If I hear you correctly, you would look to expand City Gross presence in the north in Sweden as well in over the coming years? Well, I think that's to be seen obviously, but I think if you look at it, if you have a retail chain only present in parts of Sweden, and historically, due to they had a wholesale operation located in the absolute southern part, we have a wholesale operation covering the whole country. It gives an opportunity to expand the concept further up, absolutely. But I also think that, and I think you all pointed out, that the initial start now is to make sure that with the existing stores we have, is that we are getting, you know, fully on in terms of how we are getting City Gross back into attractiveness and more consumers appealing and driving that like for like. That's gonna be the first step, and that will give us opportunities when we've done that to further expand the chain. And I think it's a great opportunity to look at it, the number of stores we have versus competition, so there are a lot of white spaces. But first of all, we need to secure that we have a strong base business. Now, that, that's interesting and, and really makes sense. Thank, thank you for that reply. Can I also ask perhaps more overview, what, what preparation work you have done as it relates to the questions of authority approvals? Yeah. ... Well, obviously, we made the contacts with the authorities in the last deal where we acquired the wholesale part, and we also made in with a minority share, and we got, I'm missing about the word here, where we got common control, which has agreed. If I look at it, and if you look at, we need to make the authorities to make their decision, but we are obviously confident that this will pass through as they have 3% of the market as a whole. They are very small in their segment, but they have, they are small as a retail in the whole total market. In fact, these areas that we are doing will actually strengthen the competitiveness in the market with the moves that we are taking. So, we are confident on that part. Right. Okay, that sounds good. Competition authorities do not look at number of players in the market, but rather market shares that will be consolidated, is what you're saying? They should look at, will this have a negative effect on the competitiveness in the market? And, we, to the opposite, believe this will strengthen the competitiveness and the attractiveness for consumers in the market. Right. Thanks. And then maybe one more- Just to add, when it comes to stores, we have, you know, over 3,000 stores competing in Sweden, and we are now talking 42 stores in this area. Yeah, which are much larger, I guess, in sales than the average of those. But, yeah, okay, I hear you. All right, so and then, maybe one for Anders, finally, about the EBIT loss of the 12-month trailing here. Could you elaborate in any way? Did you look at how much you could have been deeming as sort of one-off cost for the changes in IT, logistics, and the assortment changes with the private label rollover and so on, during this period? No, I can't comment on that, actually. Okay. Yep, that's, that's a short, short reply. That's an answer. No, but it's their numbers, so, yeah. All right. Well, just one final then. About this private label rollover, could you give some color on when this... Because you said it was a gradual journey, and it has sort of made a bit of a disruption, I guess, to the sales trend to do this exercise. But could you... Over what time period did you switch into Axfood's private labels, and when was this finalized? Then maybe you can also say something about- We are finalized now. We are finalized, I would say, since last, I'm not sure exactly on the date, so maybe I'll not say anything, but last year or so. So we are finalized on that. But my experience is clear in terms of when you're making these changes and the consumers comes in, there's a change in the assortment, and that has some short-term effects. But we are finalized on the assortment. Then, of course, the next step is also how do you drive that? How do you combine that? How do you activate the assortment in the stores? And we have a lot of skills on that that we are eager to support and help City Gross with. Sure. But maybe to give a bit of a sweet here to us, can you say something about what private label share was under the old Favorit brand or sort of before you made this transition? Yeah, it's, If you've had any evolution after that, that you can- Yeah, absolutely. That absolutely flavor on that. It was significantly lower, and now it's significantly higher. Still, with that said, it's still not at the levels that we see in our other chains. So, still a good opportunity, but significantly higher than before. Okay. That, that's really helpful. Thank you very much. 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 closing comments. Well, thank you. And, now, let me just thank you for, again, calling in on a short notice, and thanks for your questions. And, I hope you have a good day. Thank you very much.