Welcome to BHG Q2 Report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to CEO Gustaf Öhrn and CFO Jesper Flemme. Please go ahead. Hi, my name is Gustaf Öhrn. I'm the CEO of BHG, and I'm here together with our CFO, Jesper Flemme. I'll give you a few highlights of the report, some future outlook, and our focus on the current actions. Jesper will try to further clarify the financial details, and we will both be available for the Q&A, doing our very best to try to answer all your questions. Slide three, please. I thought I would start this with a very short introduction of BHG, what we are and what we do. The group, with Byggmax as its starting point, was founded in 2012. Since then, we have grown organically and through some 25 acquisitions to the group we are today, approx SEK 13 million in turnover and some approx 20 businesses. We are, and we aim to remain, a highly decentralized group based on entrepreneurial accountability, offering a high degree of freedom for the entrepreneur, also keeping the entrepreneur highly accountable for the result. The head office is very limited to keep central costs low and has, in the last six months, become even smaller. On group level, we are basically a small group function, a finance function, and complemented by a few very limited center of excellences. The business is, since last fall, divided into three business units: Home Improvement, a do-it-yourself-based business, making up some 50% of sales and based primarily on a drop ship model with a Nordic focus, with Byggmax as its lead brand. Value Home, a home interior business in the value segment, built primarily on a private label-based business model, making up approximately 34% of sales and with Trademax as one of its lead brands. Premium Living, the latest addition to the group, making up approximately 70% of sales, a highly international business in the premium segment, based primarily on a wholesale model, complemented with private label. Slide four, please. A few words about the highlights of the second quarter. Sales was down approximately 10%-11% in the quarter compared to Q2 last year, an improvement from the historically weak first quarter. We are confident that we, with that, have continued to take market share in a challenging market. Earnings improved significantly in the second quarter to an EBIT of SEK 98 million, driven by improving gross margin and cost control. We are also very pleased with the very strong cash flow in the quarter, a cash flow of plus SEK 767 million, driven by a significant reduction in inventory, being down with more than SEK 400 million in the quarter and plus SEK 500 million year to date. All in all, summarizing an improved cash flow effect of more than SEK 900 million versus the second quarter last year. Slide five, please. A few words about the market development and the future outlook as we view it. Q2 was significantly stronger than Q1, partly driven by more favorable weather conditions. Spring came late, which you all know, really affected the first quarter with a weak March. Demand in some of the spring categories was stronger in the second quarter, but for some of the more capital-intensive categories as doors, windows, et cetera, the market is still weak, partly driven by low activity in the housing market and, as a consequence, less renovations, this putting a dent in the demand in these categories. Looking forward, we expect the remaining part of 2023, and also into 2024, to remain weak in demand, driven primarily by lower disposable income as a consequence of rent increases and inflation. Even if rent levels most likely will continue to increase and even more fixed rent levels will convert to variable rent or fixed rents at considerably higher rent levels, we also need to take into account that we are most likely close to what we call peak rent. With that, a significant part of the uncertainty of the future rent levels is decreasing. This reduction in uncertainty will most likely have a positive effect on consumer confidence. The price pressure in the market as a result of high inventory levels is still present and has been so for the second quarter, but we believe that it will decrease as inventory levels normalize... towards the second half of the third quarter. Slide six, please. Our key focus area are unchanged: to improve profitability, strengthen cash flow, and to strengthen our financial position. To improve profitability, our focus is to drive sales and margin and also to implement the earlier communicated cost-saving program of SEK 150 million-SEK 200 million. This program is on track, and the main focus is on organizational and warehousing costs. We are also, as part of our focus on profitability, investing in tech platforms in some of our main businesses, both to reduce cost and to enable future consolidations to realize synergies. Cash flow was strong in the second quarter, with SEK 767 million. To strengthen cash flow, the most important action is to reduce our inventory levels. We are very pleased with the progress in the second quarter. We are with a reduction of + SEK 500 million year to date, currently ahead of our early communicated ambition to lower inventory with SEK 600 million during 2023. We track this reduction weekly by entity and have well-defined goals on entity level to follow our progress against. Last but not least, our focus to strengthen our financial position. During the quarter, we have, in addition to the inventory reduction, sold 20.1% of our holding in Furniture1. This subject to an EGM decision in late July, thereby eliminating a put option and as a consequence, reducing both a potential cash flow effect and our acquisition-related liabilities with some SEK 470 million. During the quarter, we have also renegotiated our financing agreement and its covenants, allowing us more financial flexibility looking forward. Slide 7, please. As mentioned, we are very pleased with our inventory reduction in the second quarter. Reducing inventory is crucial, both to free up cash and also because high inventory levels is a cost driver, both from the extra warehouse space it requires and also from the decreased efficiency in fulfillment. The focus has been to reduce our inventory of spring and summer products. We have, as mentioned, reduced inventory by SEK 410 million in the second quarter and with SEK 510 million year to date, and is with that currently ahead of our plan to reduce the inventory with SEK 600 million during the year. We have now reduced our inventory level the last four quarters in a row, and inventory is now down more than SEK 400 million since the peak inventory level one year ago when we closed Q2 last year. With this said, also after reducing inventory with SEK 600 million this year, we see room for further improvements and further inventory reductions in 2024. Slide eight, please. A few words about our strategic priorities on group level to take us back to the pre-pandemic levels on profit and cash flow generation, that is our current short-term priority. Customer centricity. We have parts of the group who are super strong on this, and we have others where there's room for improvement. We are now measuring NPS in most entities. We're working hard to improve. We are utilizing both analytics and AI capabilities to improve this, both from customer satisfaction and efficiency. As an example, we are already now using ChatGPT to improve both quality and efficiency in our product-related content. Competitiveness need to be a super focus in this challenging market. We are focusing on everything from supply chain efficiencies, warehouse consolidations, to online marketing to stay competitive. Sustainability is one of our defined key strategic focuses. We're trying to break it down into a few tangible focus areas where we can make a difference. On a business opportunity, Within ESG, there is an increased focus on selling energy-efficient appliances. Another focus is to improve ourselves on sustainable packaging. Assortment expansion is an area that built this group to what it is, and we remain committed to offer a wide and relevant assortment, and now also looking forward to do this to an increasing extent, enabled by analytics and AI. Last but not least, simplification and consolidation. After 35 acquisitions and 10 years of focus on growth in a strong market, we need to simplify our structure and reduce complexity. As part of this, we are working hard to consolidate our business into fewer entities and thereby realize synergies. The ambition is to remain decentralized, but gravitate from many smaller entities to fewer, larger platforms. I spoke at great length about this and what we have done and are doing in the Q1 report. Will today settle with mentioning the fact that we, in the last 6-9 months, have done a significant number of consolidation and also closed down a few businesses. We have the ambition to continue on this journey. Slide nine, please. On business unit level, where we believe most of the synergies are to be realized, we have the following key strategic and operational priorities. On Home Improvement, consolidation of our entities into fewer and larger platforms to increase competitiveness and simplify our structure and realize synergies. In order to do so, we need to invest in our tech platform to enable it, to enable this consolidation. One example of this is Byggmax Sweden, where we're currently investing. Reduce inventory is some of the non-drop ship-based businesses and reduce cost levels to reflect current tough market demand situation. Focus on growing sales through assortment expansion, through driving into company sales, and in some entities, expanding internationally. On Value Home, our focus is, as this is a primarily private label-based business model, this is where we have the biggest overstock, and we need to continue to reduce inventory levels. We have also initiated the process to reduce retail footprint in some of the entities where we have physical stores. Upgrade tech platform and in Value Home, more to improve customer experience and to reduce cost levels from older, non-efficient platforms. Currently, we are investing in HFN or the Trademax platform. Also here to consolidate into fewer and larger platforms to improve competitiveness. On Premium Living, the main entity in this group is Nordic Nest, a highly international business based on selling Scandinavian design in international markets, with a main focus on Europe and a few selected markets in Asia. It is clear that internationalization is working, and our focus is to continue executing on this strategy. Last year, we also initiated the work to improve efficiency in handling and fulfillment, with an investment in AutoStore for automated picking. Here, we continue this work and with follow-on investments to improve efficiency. Thank you, and with this, I will leave the word to Jesper. Thank you, Gustav, and slide 10, please. The second quarter of the year saw a clear improvement from a historically weak first quarter, despite underlying demand being weak. Net sales decreased 10.9%, reaching SEK 3.5 billion. Category-wise, the garden and outdoor furniture categories performed better than the group as a whole. Meanwhile, capital-intensive categories performed worse. From a geographical perspective, demand in the Nordic region was weaker than in other geographies, primarily driven by Sweden. Adjusted EBIT amounted to SEK 98 million, corresponding to an EBIT margin of 2.8%. Turning now to page 11 and the EBIT bridge. The product margin improved by 0.8 percentage points compared to Q2 last year, mainly due to strong performance of our assortment of own brands, which generally has a higher product margin. Inventory handling costs was lower as we continue to see results from our cost-saving initiatives. Last mile and other direct selling costs was negative, mainly driven by inflation-related cost increases for last mile delivery. Marketing costs increased slightly because of mix effects. The increase in organizational costs from same period last year is mainly due to investments in tech platforms. Personal-related costs are starting to come down, although cost savings have not yet had full effect. Finally, the increase in depreciation and amortization in relation to sales was primarily driven by weak sales and costs related to lease agreements. All in all, our EBIT margin amounted to 2.8% in the quarter. Move on to cash flow. Slide 12, please. Successful inventory reduction generated very strong cash flow in the quarter. Cash flow from operating activities amount to SEK 767 million. Our assessment is that we will be able to further reduce our inventory this year, but not as fast as during the second quarter. The right-hand graph, showing the development in liquidity, walks us through the starting period position of SEK 478 million, adding the cash flow from operations and the impact of investing activities, a majority of which is M&A related. Finally, deducting the financing activities, which includes proceeds from the share issue in December, amortization of leasing liabilities, and interest payments, bring us to the period end, SEK 1.1 billion of liquidity at hand. Slide 13, please. The group's net debt amounted to SEK 969 million at the end of the quarter, and net debt in relation to LTM adjusted EBITDA ended at 4.1 times. On top of our liquidity at hand, we had unutilized credit facilities at the end of the quarter of SEK 1.3 billion. Acquisition-related liabilities amounted to SEK 1.2 billion at the end of the quarter. Excluding the liability related to Furniture1, the liabilities would have amounted to SEK 711 million. Cash flow-wise, we assesses that roughly SEK 350 million will be paid out during the rest of the year, and another SEK 50 million in 2024. During the quarter, we also amended our existing financing agreement in order to provide additional flexibility from a covenant perspective. With that, I will hand it back over to you, Gustaf, to summarize and conclude. Thank you, Jesper. Will you please take me to slide 14? I will do my best to summarize this. From a historically weak first quarter, we rebounded with a second quarter that is much stronger on both profitability and cash flow. We expect the market to remain challenging for the remainder of 2023 and also into 2024. We are unchanged, prioritizing cash flow and profitability and the strengthening of our financial position. In challenging times, we need to continue to drive growth with initiatives that, as internationalization, intercompany sales, marketplace, et cetera. Our cost reduction program of 150 to 200 million SEK is on plan. Simplifying our structure, including consolidations to realize synergies and also closing of non-performing businesses and reducing retail footprint, is high on our agenda. In order to enable this consolidation and also to improve customer satisfaction and reduce cost, we are investing in tech in some of our main platforms. We are very pleased with our inventory reduction in Q2, and we are currently ahead of our plan to reduce inventory by 600 million SEK during the year. Selling 20.1% of our holding in F1 reduces our acquisition rate and liabilities and the potential cash flow effect with some 470 million SEK. Our renegotiated covenants gives us increased financial flexibility looking forward. The main trends that has built BHG to what it is, the migration to the online channel, and the interest in home and home environment remains unchanged, and we see no reason why we should not be able to take BHG back to pre-pandemic levels of profitability and cash flow generation. This is our short-term main focus. Thank you very much for listening, and now, me and Jesper will be able to answer all your questions to our best of our abilities. Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Please go ahead. Good morning, guys. Congratulations on staying on track on the strategy you're running currently. Just a couple of questions from me. Ahead of the original inventory release plan, you say, I see you're still running rather steep discounts on several sites. Should we expect a larger than SEK 600 million release for the full year? No, our ambition is unchanged, the 600, I think as Jesper pointed out, we see, you know, the very, very high pace of inventory reduction in Q2. We don't see that looking forward. Of course, we have ambitions to re-reduce it more, but we still remain with the 600 as our main ambition for the year. I think we should also acknowledge the fact that even if it was somewhat easier to reduce inventory in Q2, because spring and summer sort of focused, it's gonna be tougher going forward. We also need to be very, very careful and keep a very, very good and important eye on availability and NPS on product. Continue to reduce inventory. There's definitely room for further reduction, but the 600 that we have set as the goal for this year still stands. Perfect. Thank you. You also mentioned seeing stronger demand in Q2, and I think any additional flavor here would be helpful. First of all, you note that the trend in net sales during the second quarter is better compared with the first. Just to clarify, is this a comment on intra-quarter positive momentum? Second, is stronger demand in Q2 versus Q1 true also for, I guess, non-weather-related products? Intra-quarter momentum and is it true for non-weather-related products, please? I think you should start in the fundamentals. What we see in the fundamentals is that, you know, disposable income is not up, that is down, if anything. We also see it coming down further in the quarters to come. We see a small improvement, actually, in consumer confidence. We see reasons to believe that that potentially can continue. We also see, as we saw already in Q1, a significant effect on what we call the capital-intensive categories, where demand definitely is down. Then I'm talking about the doors and the windows, et cetera. The weather-related categories, as you say, that is where we saw the main increase in demand in the second quarter. All right, thank you. A bit of a housekeeping question. Do we keep expecting earn out payments of SEK 400 million this year, i.e., expecting roughly SEK 250 million to be paid out during Q3, please? SEK 350 during the second half of this year stands. 350? Okay. SEK 300. Thank you very much. Thank you. Those were all my questions for now. Thank you. Thank you. The next question comes from Daniel Schmidt, from Danske Bank. Please go ahead. Yes, good morning, Gustaf and Jesper. Hope you can hear me. A couple of questions. If I got you right, this Jesper, have you been sort of shifting around in terms of earn-out payments, timing for the year? I think you said before it was supposed to be about SEK 200 million in Q2, but that sort of postponed into H2 then, basically, but it's the same number. Yes. You did SEK 100, basically, in Q2, right? SEK 150. Maybe also, I should clarify that to some extent, when we have a very strong cash flow, that can also affect the actual payment when buying additional shares from minority owners. Slight increase in. Okay. The total earn-out commitment for 2023 is actually SEK 500, and it was SEK 450 before, right? Yes. Yeah. Okay, you have another SEK 350 to go. Just the timing of that, is that mostly in Q3, or is it equally divided? Mostly in Q3. Okay. Good. Just coming back to, sort of, cash flow generation, I hear what you're saying in terms of reduction of inventory, maybe another sort of SEK 90 million-100 million for the second half of this year, but you do sound, hopeful that you can do more in 2024. What is a reasonable sort of, what's your target, basically? Where do you want to sort of come back to? I think that given the size of the business that we see today, I think it would be fair to aim against some SEK 1.5 billion or so. I think that's a reasonable amount. Yeah. Is it sort of the target to get there basically in 18 months time, or is that going to take longer? At least 18 months, if I answer that way. Yeah. All right. Good. Then just, sort of, the deal that you struck with the minority owner of the FurnitureOne, that is still up for approval, of course, on the extra general meeting. Assuming that that happens, that sort of earn-out disappears. When would have that sort of earn-out, have been in time if you wouldn't have done this, basically? Based on how we estimated, that would have happened in 2025, but I should say the option was valid to utilize at any point. Okay, okay. It was not within our control exactly when it was to be utilized. That could have come on top of what you had in terms of commitments for this year already? Yes. Yeah. Given that you still consolidate the results in Furniture1, given that you do have some sort of buyback agreement also, for these 20%, what is that, what price does that entail, that buyback agreement, and when? We will not disclose the term, actual terms, but just underlining that we now, if the EGM approves the transaction, fully control if and when such a deal would take place. Okay. You can execute that buyback when you feel needed, basically, is that what you're saying? Yes. Yes, that is within our control, time. The price, I assume, is already set. The price, we have agreed on a mechanism to calculate the price, yes. Okay. Of course, that's all we are going to be able to know. Is that what you're saying? There's not going to be any extra information in connection with the EGM or? No. Okay. All right. Just a housekeeping question as well. A change of top line in reported numbers is basically the same as organic. I was just thinking FX has moved quite a bit in many of the countries that you do sell in. Am I missing something here, or is this the right number? Sorry, I did not fully understand your question. I'm just saying that if you look at the reported top line decline is 11%, then it's basically the same for organic decline, but sort of in the EUR has probably moved 12% or something like that during this time. Our definition of organic does not include the effect from FX. Oh, okay. Okay, okay. The true organic is probably then, minus 15% or something like that. Given that we have been able to adjust, I mean, you have so many effects. You have also the our ability to adjust prices. So I will not comment on the exact number. That's fine. FX effect. Yeah. Just coming back also to Q2 in terms of the inventory write-down that you did, in, I think it was Q4 last year, relating to outdoor furniture, greenhouses, jacuzzis, big-ticket items that have been sort of course, lacking a lot of demand. Do you feel that that write-down did that sort of match the outcome for this particular season, or was there a sort of slight net gain or net loss compared to what you thought? I think we did a really good job, I have to say. I mean, trying to assess net sales value, 8, 9 months in advance, I think we did a good job. I also should say that without that impairment or write-down, those products would have been very hard to sell, given that the landing cost was simply too high. Yeah. so no material effect. Then maybe just sort of how we should model operational performance into the second half of this year. It's sort of a very difficult market, of course, still. And that, of course, shows in the numbers, although you did do a lot better in Q2 versus Q1, coming from a big loss to a decent sort of gain. How should we look at Q3 and Q4 from a PNL perspective? You're saying that the market is still tough, especially for big ticket, you're seeing some slight improvement in consumer confidence. It sounds like you did have a sequential improvement in the quarter, but maybe that is partly also weather related. Where are we basically looking into Q3 and Q4? At first, I should say that we don't give any forward-looking statements. It's very hard for me to give any exact answers on that. I don't think I can say much more than what we've talked about before. We see some positives, we see some negatives. We believe that the market will remain challenging. You will have more savings coming too, because you are saying that they are more, most of them to be realized in the second half, right? We have more savings, yes. We see comparables coming down. There's quite a few positives in the mix as well. How much of that sort of targeted savings that you announced for this year have been realized already in H1? Maybe some 20%-30% have been realized, but as you said, the majority is to be seen in the second half of the year. Yeah. We should also mention significant cost increases in some of our cost lines as well. Of course, staffing costs, but also rent levels. Yeah, sure. Especially since first of April, when it comes to salaries, I assume in Sweden at least. The rent levels you already had by the first of January, correct me if I'm wrong. Some difference versus Q1, of course, but maybe more sort of the same from Q2 and onwards into the second half. 'Cause you're also seeing, I assume, freight costs coming down. Okay. Thank you. I think that's all for me, guys. Thank you. Thank you. The next question comes from Gustaf Hagius from SEB. Please go ahead. Thank you. Good morning, guys. I have a few questions on my own. With the apparent change of ownership now, the main owner of BHG, there's still the financial target that you've had for some time, which imply 5%-10% growth per year stemming from M&A, and also the financial target of having a net debt EBITDA of 1.5-2.5x. As far as I understand, you have not changed those. Is that still a good guidance for the market as you see it, or are those subject to change? How do you think about this? They still remain valid. We have not changed them, as you know. We still think they are valid in the long-term perspective, but they need to be regarded in the long-term perspective. We're currently in a tough market situation. Our main focus now, as I commented on earlier on, is to, what we call the short and short-term ambition. That is to take us back to the pre-pandemic levels of profitability and cash flow generation. Long term, we still believe that the financial goals we have over a cycle is valid, yes. The organic growth is one thing. I'm more asking about the M&A growth now that you're starting to divest and consolidate your holdings. As far as I remember from the IPO, part of the strategy was to buy these storefronts to sort of cloud the search field for potential buyers, that you would sort of own the Google windows. Now that you're sort of it seems like you're reverting from that strategy to consolidate and build stronger sites. Is the M&A target still valid in your opinion? The M&A target is still valid. We still believe in M&A. We still want to continue to do M&A. As we said in the report, M&A is currently not within our main focus, but we still evaluate M&A opportunities as they come in. Looking forward, we still believe it's gonna be key component in building, BHG to what we want to be. We will do acquisitions as add-on acquisitions. I think a good example is the way we acquired Svenssons and sort of a, and put it into Nordic Nest group at once. I think it would be more those type of acquisitions, basically, the platforms acquiring businesses to add to their existing businesses. We will also, looking forward, invest in and look into potential further platform acquisitions. It's definitely a key component, but it's not within our main focus right now. Just thinking that perhaps the analysis in retrospect of the value creation from doing these acquisitions was not as good as they were. That's why I was asking you if perhaps you would start to reconsider that strategy. Maybe a topic for another discussion. Related then, you have SEK 6.5 billion in goodwill still, if I recall correctly. Is that... Part of that is stemming from these acquisitions that you now discontinue or consolidate. Can you talk a little bit about that goodwill position and if you feel that that is over time, gonna need some revisions? Not where we stand right now. I mean, goodwill is tested on segment level, so consolidations does not really affect the testing. We do not see any need for impairment. Yeah, no. I guess part of the goodwill related to these brands that are now discontinued or was, but how can it not affect? I think we should also clarify that quite a lot of the consolidations means that we still remain with several brand names and sites. I think a good example is Bygghemma Finland, where we basically had four different businesses that we consolidated into one. We terminated one, yes, but the other three, we have consolidated into one entity, but we still run three different sites, but under one organization and one IT platform. Consolidation does not necessarily mean reduce the number of sites or brands. You're, of course, perfectly right. If we were to discontinue any brand, that value would need to be impaired. Mm-hmm. The main synergies does not come from reducing site. The main synergies comes from consolidating on entity level to reduce cost levels in running platforms, organizations, et cetera. Yeah. Okay, that's clear. Thank you, guys. Thank you. Thank you. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Yeah. We have also received a question in the chat, and the first question comes from Magnus Roman, and it consists of two parts. The first one is: You mentioned that a wide selection and availability remains at the heart of your business. Where is the balance between this ambition and your target to reduce inventory? It seems possible that your inventory reduction will exceed the SEK 600 million target at the end of 2023, but will you see a limit in inventory reduction from where the sales potential is affected too much? I think it's a very good question, actually, and we really work hard to balance this. We need to measure both inventory reduction, and we also need to measure availability. I would say that in all our businesses today, we measure availability, and the main focus, of course, is to not decrease availability on the most important and the highest turnover products. There's still room to decrease inventory, but it will be done more on the tail and not to the same extent, on the high-running products, because there, availability definitely is a key driver. Measure that, be careful with that, and balance that, yes. With that said, still room for significant inventory reduction, but we need to be careful and considerate when we do it. Thank you. The second question from Magnus is: Can you elaborate on how your interest cost will be affected following the renegotiation with banks? I mean, we have communicated, of course, additional flexibility comes with a cost, and, trying to quantify, I would say, interest expenses would be 1.5 times the number that we reported in 2022. That was all of the questions from the chat. Thank you. I'll just say thank you very much. Thank you much for listening, highly appreciate it. If you have any other further questions that you want to take with us, please don't hesitate to contact us. We will do our very best to answer. Thank you very much for listening, and bye.