Europris Asa · OSL:EPR
Europris Asa — Investor Day (December 2018)
159 slides from Europris Asa's investor day presentation, Dec 5, 2018
Slide 1: Capital markets day
Capital markets day 5 December 2018
Slide 2: Disclaimer
Disclaimer This presentation has been produced by Europris ASA (the "Company") exclusively for information purposes. This Presentation has not been approved, reviewed or registered with any public authority or stock exchange. Further to the aforementioned, this presentation is the result of an effor
Slide 3: Agenda
Agenda Retail is changing, discount variety is thriving 09:00 – 10:00 - Pål Wibe, Europris Strengthening price and cost position Pål Wibe - Pål Wibe, Espen Eldal, Pål Chr. Andersen, Europris CEO Continued concept development - Pål Wibe, Europris 10:00 – 10:10 Coffee break Espen Eldal CFO Drive custo
Slide 4: Retail is changing
Retail is changing 1980s 1990s 2000s Today Local stores One-stop shopping, Online retailing is born Omnichannel retail larger malls 4
Slide 5: In a world of winners and losers, variety retail is thriving
In a world of winners and losers, variety retail is thriving While online is challenging bricks-and-mortar… Variety retail has grown ~twice the speed of all retail Online share of retail sales Sales growth total vs. variety retail Variety retail1 Percent CAGR 2012-17, constant Total retail 16 +10.8
Slide 6: In the USA, discount continues to prosper
In the USA, discount continues to prosper Alongside the online giant’s growth Historic growth: average CAGR 2012-17, constant Total retail Grocery Discount segment 31.0% 16.9% 15.0% 11.3% 8.1% 8.2% 3.3% 2.7% Total Online Amazon 1 2 Total Online 1 Numbers for Amazon as a 3rd party grosser, excluding
Slide 7: Similar patterns observed in the UK
Similar patterns observed in the UK Historic growth: average CAGR 2012-17, constant Total retail Grocery Discount segment 20.0% 18.0% 11.0% 10.3% 8.8% 9.0% 2.3% 1.1% Total Online Amazon 1 2 Total Online Discounters 1 Total for Amazon 1st and 3rd party sales 2 B&M Bargains changed parent company in 2
Slide 8: Customers fully embrace online…
Customers fully embrace online… 2017 Online retail in Norway grew 13.5% of all Norwegian 75% consumers shopped online online purchases 4/10 in Norway were mobile Source: SSB; Virke; see appendix for full presentation 8
Slide 9: Variety discount and grocery less exposed to e-commerce so far
Variety discount and grocery less exposed to e-commerce so far Several factors affecting pace of adaptation for online sales Challenging economics Customer convenience In discount variety retail owning to Access to extensive store network and smaller basket size broad range maintains convenience fac
Slide 10: Global retail trends
Global retail trends Degree of relevance1 Online and Fully embraced by consumers omnichannel Retail Spending gravitating to discount and premium retailers polarisation Experience and Increasingly important drivers for purchase decisions convenience Private Increased consumer trust and strategically
Slide 11: Europris
Europris MER TIL OVERS
Slide 12: First choice for anyone who wants to shop convenient, smart, big and at low price
First choice for anyone who wants to shop convenient, smart, big and at low price 12
Slide 13: Europris – a growth story
Europris – a growth story NOK million 25 years of JV with Listing growth Tokmanni on Store #250 and opened Oslo 6 000 Shanghai Børs sourcing office 5 000 Acquired by Nordic Capital Central 4 000 warehouse opened in Acquired by Store Fredrikstad 3 000 Founded by IK #150 Wiggo Investment Erichsen Part
Slide 14: Norway’s #1 discount variety retailer
Norway’s #1 discount variety retailer • 30 million customer transactions in 2017 Customers • Widely recognised brand and price position1 Marketing • Over 1 million leaflets in distribution • Close to 300 000 subscribers to digital newsletter • Cost-efficient locations and operations Stores • 212 of
Slide 15: With a strong brand
With a strong brand 100% #1 Recognition Price perception Source: Mediacom annual market survey 15 Ranking among wide variety retailers (Biltema, Clas Ohlson, Coop OBS, Europris, Jernia, Jula, Jysk, Nille, Plantasjen, Rusta)
Slide 16: We exist to give our customers more time and money
We exist to give our customers more time and money to buy what they need and want for everyday life to make it nice at home to enjoy time with family and friends at the seasonal holidays and special occasions Mer til overs Pay less – Save more 16
Slide 17: Leveraging a strong business culture
Leveraging a strong business culture The dedicated people of Europris Our values Our loyal and dedicated employees are our most • Positive attitude important asset • Proactive With well-being and job satisfaction at an all time • Clear high, we are proud to say that… • Business acumen …Europris is a
Slide 18: Sustainability is an integrated part of the strategy
Sustainability is an integrated part of the strategy Resource efficient Satisfied customers Sustainable value Responsible and local chain business model employer communities Palm-oil-free products Energy consumption reduced Well-being and job satisfaction at In-house testing and control to by 23% si
Slide 19: Track record of above-market growth
Track record of above-market growth Revenue and EBITDA margin1 Total growth for Europris and market2,3 NOK billion 9.3% 5.6 5.4 8.4% 5.1 7.7% 4.6 4.3 6.0% 14% 13% 13% 12% 12% 3.0% 2014 2015 2016 2017 LTM Q3 2018 2014 2015 2016 2017 LTM Q3 2018 Revenue EBITDA margin Europris Kvarud 1 Europris group f
Slide 20: Growth driven by customers and basket value
Growth driven by customers and basket value Number of customer transactions Basket value1 NOK billion NOK 30.2 30.2 193 194 199 28.6 187 27.4 180 26.2 2014 2015 2016 2017 LTM Q3 2018 2014 2015 2016 2017 LTM Q3 2018 1 Change in basket value is a combination of changes in price per item, number of 20
Slide 21: Significant market potential for multi-category retailers
Significant market potential for multi-category retailers Addressable market in Norway Population per country million Groceries General merchandise ~300. 5.3 NOKbn1 5.5 10.2 ~180. NOKbn1 Specialty retail ~420. NOKbn1 Sources: Statistics Norway (SSB), 2017; Statistics Sweden (SCB), 2018 LTM; Statisti
Slide 22: With substantial room for growth
With substantial room for growth Strong growth for discount variety in Norway Unpenetrated market in Norway Market share2 Discount variety market in Discount variety penetration of 2017 market share discount variety NOK billion total retail market1 in Norway players in Norway 4.5% 4.4% Europris 18.8
Slide 23: Be the best discount variety retailer in Europe
Be the best discount variety retailer in Europe Fogra Reklamefoto 23
Slide 24: On the quest to be the best
On the quest to be the best The goal is to be the best in all four areas below Price Number 1 in price perception in Norway, the fight for lower prices continues Concept Continuous development, focus on customer need-based flow and distinct shop-in-shop Value chain and cost Nordic sourcing, new ware
Slide 25: Many trends favour discount variety retail and Europris in particular
Many trends favour discount variety retail and Europris in particular Online and • Omnichannel and eCRM provide consistent, seamless physical and digital customer journeys omnichannel Retail • Distinct low-price value proposition, large assortment and efficient low-cost network polarisation • Fuelle
Slide 26: Strategic focus areas
Strategic focus areas Strengthen price Improve customer Drive customer and cost position experience growth 26
Slide 27: Strategic focus areas – key actions
Strategic focus areas – key actions • Strengthen price position • Develop Europris private label • Secure low cost through sourcing agreements with ÖoB and Tokmanni Strengthen price • International scale and integration through cooperation with ÖoB and cost position • From five to one warehouse with
Slide 28: Long-term financial and operational ambitions
Long-term financial and operational ambitions Growth Continue to deliver like-for-like growth above the market over time Target to open on average 5 new stores net per year, depending on availability of locations which meet Number of new stores strict return requirements, potential for relocations,
Slide 29: Strengthen price and cost position
Strengthen price and cost position Strengthen price Improve customer Drive customer and cost position experience growth 29
Slide 30: A relentless search for efficiencies
A relentless search for efficiencies Value chain Sourcing Logistics Central warehouse Flow of goods Stores Value initiatives • Nordic purchasing • Information • Reduce to one • Digitalisation • Omnichannel offering power management warehouse • Information • Sharing best practice • Sharing best pract
Slide 31: Boost established price position
Boost established price position Status Challenges Success factors Statement: Europris has generally low prices 2007 55% Threat of competition from 2008 47% international discount retail 2009 47% • Nordic sourcing - unique 2010 44% competitive advantage 2011 42% New entrants in the discount 2012 55%
Slide 32: No compromise on low prices
No compromise on low prices 10-12% of sales Unbeatable price on frontpage products in the weekly leaflet 15-17% Compete for the lowest prices on other weekly leaflet products of sales and feature and profile products Always lower prices than Competitive prices on all other 70-75% of sales specialty
Slide 33: Private label driving variety and lower prices
Private label driving variety and lower prices Strategy for private label (PL) Where we are heading Optimise range and private label • Build “umbrella private label brands” in selected categories brand strength • Nordic private label brands to share cost and best practice • Nordic sourcing agreement
Slide 34: Launching the first Nordic private label
Launching the first Nordic private label Today Value to customers • Strong position in Norway within • Increased offering of price points Washing & Cleaning (good, better, best) • Annual sales above NOK 100m • Top level quality product at across multiple categories significant lower price points • D
Slide 35: Significant economics of scale from Nordic sourcing
Significant economics of scale from Nordic sourcing 35
Slide 36: Securing lower costs through sourcing agreements with Tokmanni and ÖoB
Securing lower costs through sourcing agreements with Tokmanni and ÖoB 2013 2018 2020 Tokmanni sourcing Europris acquires Option to acquire agreement 20% of ÖoB remaining shares in ÖoB 36
Slide 37: Sourcing power from a solid Nordic base
Sourcing power from a solid Nordic base Representing sales of NOK 17.1bn1 NOK 5.9bn NOK 7.6bn NOK 3.6bn 1 2017 retail sales 37
Slide 38: Size matters
Size matters Unique scale among discount variety retailers in the Nordic region Private label synergies Inventory best practice NOK 17.1bn though sharing, cost and cost sharing and best practice Joint Nordic campaigns a new value driver for suppliers 38
Slide 39: ÖoB – a perfect partner
ÖoB – a perfect partner 90% category overlap Mutual value best practice: ÖoB: living in a lower price market environment Europris: seasons and inspiration Strong cultural fit Europris version 5.1 ÖoB new concept store 39
Slide 40: A low-risk synergistic partnership today
A low-risk synergistic partnership today Potential for true European scale tomorrow 2018 2019 2020 2021 2022 Strategic initiatives Increase profitability Option to of ÖoB acquire remaining Store initiatives 80% stake (incl. ÖoB 2.0) Sharing Best practice best practice sharing Purchasing Strengthen p
Slide 41: A promising start to the partnership
A promising start to the partnership But a lot of hard work ahead Case: local suppliers • More than 115 joint opportunities identified Together, Europris and ÖoB can benefit from increased negotiating power. We focus on: • Early meetings with 16 major, local suppliers – identified 14 with significan
Slide 42: Great strategic fit creating value for shareholders
Great strategic fit creating value for shareholders • Significant synergy potential in sourcing from product overlap Sourcing synergies • Initial synergies expected late 2019, with full effect thereafter • Extensive concept alignment – exploiting best practice and knowledge- Concept overlap sharing
Slide 43: Futureproofing distribution
Futureproofing distribution 43
Slide 44: Moving from five warehouses to one
Moving from five warehouses to one Total • New, modern and purpose-built facility Rental area capacity • Enables efficient personnel and system operations +34% -13% • Single-site logistics • Fully automated high-bay storage 100 700 • Automated order-picking stations • 15-year lease with extension ri
Slide 45: Unique dry port to boost efficiency and reduce risk
Unique dry port to boost efficiency and reduce risk First of its kind in Norway. Moss Port relocating major part of its activities, becoming next-door neighbour! High bay storage Low bay storage Dry port • Reduces operational risk and potential for bottlenecks at the harbour • Easy access to contain
Slide 46: Ensuring seamless transition to new warehouse
Ensuring seamless transition to new warehouse LEAN method 5S1: before and after • Comprehensive LEAN programme introduced to ensure a fresh, efficient start at the new warehouse • Key part of preparing for a seamless transition from five warehouses to one • Automation is the main driver for efficien
Slide 47: High-bay storage automation
High-bay storage automation A first step to increasing efficiency • 35 metres high, very space-efficient storage • Capacity of 65 000 pallets • Automated control of inbound goods • Automated labelling of pallets • Conveyors mounted on the roof ensure effective flow of goods throughout the storage ar
Slide 48: Warehouse automation in low bay storage
Warehouse automation in low bay storage Taking it one step further From inefficiency To efficiency To Nordic retail best practice - Main production sites - Buffer storage - 3PL handling 48
Slide 49: High automation potential in low-bay picking area
High automation potential in low-bay picking area Low-bay storage High-bay storage Potential for further automation • Picking area selected for 2. Inbound automation owing to high potential for reducing manual labour • New, innovative solutions have been considered for all areas 1. Picking • Lessons
Slide 50: Areas in picking which lack automation identified
Areas in picking which lack automation identified Automation is needed for products with mid-frequent picks per day Covered by sufficient/ Manual today Covered by sufficient/ efficient solutions efficient solutions Pick/lines per day White spot Pallets with Items of non-standardised size and high fr
Slide 51: Evaluated innovative new solutions to cover the white spot
Evaluated innovative new solutions to cover the “white spot” Shuttle system evaluated as the best fit Miniload Covered by sufficient/ To be covered by Covered by sufficient/ efficient solutions sufficient automation efficient solutions Pick/lines per day Shuttle ASRS (automatic storage and Best fit
Slide 52: Full benefit of new warehouse from 2021
Full benefit of new warehouse from 2021 Øra warehouse and the new warehouse at Moss will serve Europris’ jointly most of 2019/2020 • 70% of stock-keeping units (SKUs) covered by the solution • Scaled for growth, with 2026 as the design year • Picking efficiency to increase more than 300% • Shuttle-s
Slide 53: Fit-for-purpose equipment financing
Fit-for-purpose equipment financing • Warehouse automation part 1, logistics fixtures and fittings financed through 10-year lease agreement • Represents investment value of NOK 115m • Automated high-bay storage system by Swisslog • Automated order-picking stations • Conventional racking in low-rise
Slide 54: Further Opex reductions from low-bay automation
Further Opex reductions from low-bay automation Opex in % of group revenue Opex in % of group revenue • Automation part 2 expected to reduce Opex/group revenue ratio 30.8% by 0.25 percentage-point • Total reduction in Opex/group revenue ratio from new warehouse expected between 0.75 to 1.25 percenta
Slide 55: Continued development and strengthening of concept
Continued development and strengthening of concept Strengthen price Improve customer Drive customer and cost position experience growth 55
Slide 56: Understanding our customers’ needs and wants
Understanding our customers’ needs and wants Who are our customers? What do they like? Families …and some special, Value for money - “Mer til overs” loyal customers… Access to an extensive store network and a broad range Spending time shopping and bargain hunting Go-to store for seasonal products Ad
Slide 57: Using customer feedback to improve offering
Using customer feedback to improve offering Customer survey questions Perception development 2014-2018 (indexed) 1 Has generally low prices +10% #1 2 Has a wide selection of products +34% #4 3 Has good products to reasonable prices +33% #4 4 Has products of good quality +63% #8 5 A place where one c
Slide 58: New concepts improve the customer experience
New concepts improve the customer experience From Today In future Europris 6.0 concept focus More distinct shops-in-shops Customer need-based flow Improved lay-out of dedicated seasonal area Simplification of in-store communication 58
Slide 59: Concept development matters
Concept development matters Growth in like-for-like revenue for stores1 by concept version LFL growth 2017 (%) 5.0% 4.0% 3.70% LFL avg. chain 3.0% 2.0% 1.40% 1.0% 0.80% 0% 0.20% 0.0% #4 #4 #7 #16 #10 #187 -1.0% # of stores -2.0% -2.30% -3.0% 1.0 2.0 3.0 4.0 4.5 5.0 Concept layout version 1 Number of
Slide 60: Bringing new distinct seasonal offerings to market
Bringing new distinct seasonal offerings to market From one seasonal store among many To the “Seasonal Store of Norway” Towards a more distinct position Indexed Example of distinct position within Summer 175 170 Fertiliser Garden 150 tools 133 125 Soil The lawn expert Trim 100 and cutting 75 Seed Ir
Slide 61: Category development affects growth and margins
Category development affects growth and margins 2015 share of sales LTM Q3 2018 share of sales Impact of categories on margins Gross margins (%) Groceries Personal care, Groceries, 29% 28% 30-40 Laundry & Cleaning, Candy & Chocolate, Pets 44% General merchandise 47% Home & Kitchen 50-60 Hobby & Offi
Slide 62: Constant category evaluation and refining
Constant category evaluation and refining Assortment optimisation In-store Redesigned optimisation packaging Our proven category management tools Improved Campaign in-store development communication Revitalised marketing 62
Slide 63: Pets – a successful category journey
Pets – a successful category journey 2014 2015 2016 2017 2018 Pet food category Pet food was Introduction of top Shop-in-shop was Harringtons on- Cooperation with Introducing was organised as identified as a quality brands like launched boarded as a veterinarians and Europris Private part of groceri
Slide 64: The strategy is paying off
The strategy is paying off Sales development Pets Gross profit development Pets NOK million NOK million 250 Millions 12.7% 13.8% CAGR CAGR 200 150 100 50 - 2014 2015 2016 2017 LTM Q3 2018 2014 2015 2016 2017 LTM Q3 2018 64
Slide 65: MaxDog Premium Selected from Q1 2019
MaxDog Premium Selected from Q1 2019 65
Slide 66: Digital strategies to drive physical sales
Digital strategies to drive physical sales Strengthen price Improve customer Drive customer and cost position experience growth 66
Slide 67: Bridging digital opportunities and physical stores
Bridging digital opportunities and physical stores Europris’ 360⁰ customer vision • Digital channels are an increasingly important supplement to the physical store • Reach new and younger customer groups SEARCH ENGINE • Be relevant and build loyalty STORE CUSTOMER SERVICE WEB CAMPAIGN • Take ownersh
Slide 68: Strategic priorities for integrating online and physical stores
Strategic priorities for integrating online and physical stores Digital marketing eCRM and loyalty program e-commerce • 360⁰ mindset, optimising channel mix, • Build customer base and effective • All platforms, mobile first digital visibility and interest communication channel • Click & collect • De
Slide 69: Leverage big data for relevance, personalisation and build loyalty
Leverage big data for relevance, personalisation and build loyalty Data Intelligence Communication Track customer behavior and Apply machine learning to create Personalised and automated integrate with internal/external customer segments and individual marketing and offerings data sources profiles U
Slide 70: Customer data will be used over time to improve and optimise offering
Customer data will be used over time to improve and optimise customer offering 30 million sales Data used to: Examples of use: slips per year • Campaign mix • Which products create the most added margin? • Improve campaign mix • What products are the most profitable customers buying? • Which front p
Slide 71: Online enables range expansion and new direct channel to customers
Online enables range expansion and new direct channel to customers Example: 2018 Christmas three seasonal offering • All stores can offer the same range via e-commerce Store 9 (+4) items Online 14 items • Click & collect and home delivery • Leverage e-commerce platform to sell partner products • Off
Slide 72: The e-commerce growth experience so far
The e-commerce growth experience so far • Key growth levers Click & collect revenue Monthly traffic on Europris.no • Increased sales through click & collect for higher-priced items NOK million 27 Million visitors 1.20 • Increased online assortment 1.05 • Further opportunities identified in verticals
Slide 73: A complementary source for revenue growth
A complementary source for revenue growth Share of group revenue from digital channels1 2025E revenue from digital channels by source1 >0.5% 5-10% 25% 75% 2018 2025E Click & collect Home delivery • Strong growth expected in e-commerce • Click & collect is the main revenue driver • Complementary to t
Slide 74: Drive customer growth by utilising physical opportunities alongside digital presence
Drive customer growth by utilising physical opportunities alongside digital presence Fogra Reklamefoto 74
Slide 75: Robust pipeline of new stores
Robust pipeline of new stores • New store openings on track • Two new stores and one store closure scheduled for the rest of the year, eight net new stores in total for 2018 • Maura, Akershus was closed in October • Nannestad , Akershus opened in October • Rjukan, Telemark is set to open in December
Slide 76: Strict return requirements for new stores
Strict return requirements for new stores EBITDA Group year 1 > 0 Criteria 01 EBITDA Group year 1+2 > NOK 1m Criteria 02 IRR over 15-25 % after 5 years Payback on investment (excl. inventory) Criteria 03 < 3 years Payback on total investment (incl. inventory) Criteria 04 < 5 years Nannestad opening,
Slide 77: New stores are delivering on strict requirements
New stores are delivering on strict requirements Revenue by opening year EBITDA by opening year Payback time by opening year NOK million NOK million 1.5 Years ~4.2 1.4 1.4 1.4 ~4.0 19.6 1.2 ~3.4 18.3 18 16.7 15.6 15.9 1.0 14.4 0.9 ~1.5 ~1.5 ~1.2 1.8 1.7 2.1 2.1 N/A 2013 2014 2015 2016 2013 2014 2015
Slide 78: Rapid growth in the first few years after opening
Rapid growth in the first few years after opening Growth revenue like-for-like (LFL) by opening year (vintage) LFL growth 2017 (%) 8.5% 7.0% 6.0% 4.9% 4.2% 3.1% 3.1% 2.0% #77 #106 #7 #10 #10 #9 #9 1992-2000 2001-2010 2011 2012 2013 2014 2015 LFL by vintage Average chain LFL Number of LFL stores in 2
Slide 79: Existing store portfolio another source of growth
Existing store portfolio another source of growth Stores refurbished, relocated or expanded in 2016 Stores refurbished, relocated or expanded in 2017 LFL growth 2017 (%) LFL growth 2017 (%) 10.8% 7.1% 7.1% 5.0% 4.4% 3.1% 1.3% #16 #10 #8 #13 #7 #6 Refurbished Relocated Expanded Refurbished Relocated
Slide 80: Competition can be positive
Competition can be positive Like-for-like (LFL) growth in revenue by proximity to other retail outlets LFL growth 2017 (%) 3.9% 3.7% 3.3% 3.1% 2.7% #76 #12 #10 #130 Grocery store Shopping mall Shopping area (local centre) None of the above Revenue LFL growth Average chain LFL Number of LFL stores in
Slide 81: Strong profitability across the store base
Strong profitability across the store base Adjusted EBITDA by m2 sales area for the LFL stores in the chain (Average) Sales (NOKm) M2 NOK thousand (2017) Top 10 31.0 1 030 10 Thousands Bottom 10 15.7 1 309 8 • Top 10 stores are characterised • 93% of like-for-like stores are profitable (212 of 228)
Slide 82: Creating shareholder value
Creating shareholder value 82
Slide 83: Long-term financial and operational ambitions
Long-term financial and operational ambitions Growth Continue to deliver like-for-like growth above the market over time Target to open on average 5 new stores net per year, depending on availability of locations which meet Number of new stores strict return requirements, potential for relocations,
Slide 84: Long-term growth ambition, above market
Long-term growth ambition, above market Like-for-like growth above market1 • Concept development • Expand seasonal leadership 4.3% • Category management • Leverage digital opportunities 3.1% • Continue to deliver like-for-like growth above the market over time 2.2% 1.7% 2014 2015 2016 2017 1 Percent
Slide 85: Store development adds to growth potential
Store development adds to growth potential Historical store development • Strict return requirement 300 • Comprehensive store development plan 11 8 250 10 9 38 • Relocation 7 45 8 54 • Upgrade 200 63 71 • Expansion 87 150 95 • New stores 205 220 • Long-term targets 100 185 166 149 • Net 5 new stores
Slide 86: Sourcing and value chain initiatives to improve profitability
Sourcing and value chain initiatives to improve profitability EBITDA margin development • Gross margin effect from improved sourcing • Initial long-term synergies of NOK 30-40 million identified from ÖoB partnership 13.8% • Synergies will partly be re-invested to ensure competitive 13.3% 12.9% 13.1%
Slide 87: Committed to creating shareholder returns
Committed to creating shareholder returns Dividend NOK/share and pay-out ratio1 • Dividend pay-out ratio of 50-60% of group net profit 69% 60% 73% • Provide a competitive return on invested capital, taking into account the group’s risk profile 0.50 • Considered against new investment or repayment of
Slide 88: Maintaining an efficient balance sheet
Maintaining an efficient balance sheet Available liquidity • Available liquidity of NOK 520 million as of Q3 2018 NOK million 23 Drawn RCF • Interest bearing debt of NOK 1 646 million • NOK 1 641 million term loan (amortised cost) • NOK 5.2 million leasing • NOK 23 million drawn of NOK 450 million r
Slide 89: Capital Market Day: Taking ÖoB to market leadership
Capital Market Day Taking ÖoB to market leadership 2018.12.05
Slide 90: Agenda
Agenda 1 Company overview 2 Assortment and focus area 3 Stores and marketing 4 Runsvengruppen and Europris 5 Summing up
Slide 91: Runsvengruppen / History
Runsvengruppen / History 1948 – The beginning 1977 – Management Changes 1993-2008 Överskottsbolaget June 2018 24-year-old Rune Svensson decided to acquire Rune Svensson handed over The acquired store chains Storcks and his own country store in Mariedamm. management to the next Storckens were convert
Slide 92: Runsvengruppen / Facts
Runsvengruppen / Facts Customers Quick facts Locations & Format ▪ Target customer: Woman 30-49 years old ▪ Established 1948 ▪ 95 stores in Sweden, from Ystad in the south to Kiruna in ▪ Customers shop at ÖoB for quality brands at hard the north ▪ 2017 sales of ~SEK 4.0bn discount prices ▪ 1 concept
Slide 93: Management team
Management team Fredrik S6derberg f + Chief Executive Officer (since 2017) + 25 years of experience in Swedish retail and pharmacy business, latest at ICA as Director of Sales & Operations IA a mcssice — @Japoteket ————— Eva Lundqvist + Head of HR (since 2009) + 30 years of experience in IT and HR p
Slide 94: Runsvengruppen / Customer promise
”The price is the Runsvengruppen / Customer promise difference”
Slide 95: Runsvengruppen / The price is the difference
Runsvengruppen / The price is the difference Top of mind when thinking of ÖoB: 2 1) www.market.se – Share of the consumers that associates the brand with low price/strong price perception 2) Runsvengruppen - Market survey, November 2018, 1 024 interviewed consumers
Slide 96: Runsvengruppen / Focus areas
Runsvengruppen / Focus areas 2017 2018 2019 - 2020 ▪ Assortment development ▪ Overview of business – turnaround ▪ Refurbishing our store network – ▪ Strengthen our position in key ▪ New management team onboard ÖoB 2.0 category's and general merchandise ▪ New organization ▪ Pilot of ÖoB City ▪ Increa
Slide 97: Group revenue & Gross margin
Group revenue & Gross margin ▪ Group revenues reached 2 853 MSEK (2 813), an increase of 1.4% compared with the same period last year - Like-for-like retail sales increased by 0.9% ▪ Gross margin rose by 0.8% points up to 34.1% (33.3%)
Slide 98: OPEX & EBITDA development
OPEX & EBITDA development ▪ OPEX in % of revenue was 32.7% (33.6%), a decrease of 0.9% points compared with YTD Q3 2017 - OPEX decrease mainly due to lower personnel costs ▪ EBITDA amounted to 47 MSEK (-1) - Adjusted EBITDA was 51 MSEK (21)
Slide 99: Agenda
Agenda 1 Company overview 2 Assortment and focus area 3 Stores and marketing 4 Runsvengruppen and Europris 5 Sum-up
Slide 100: The price is the difference!
The price is the difference!
Slide 101: Assortment and category
Assortment and category Groceries Candy/Soft drink Wash & Cleaning Groceries Health & Beauty Pet Personal Care General Merchandise Play & Storage Season Season Out Door Christmas Kitchen Home Do it yourself Electronics Groceries General merchandise Newspaper/ Tobacco Magazine
Slide 102: Asia imports / Private Label
Private Label Asia imports Stands for 20 % of our total sales
Slide 103: Focus areas 2019-2020
(@4 Wg WAN ae ee ae ee 1] hy | MMII ER MIATA ATAN An Th TTT ITIN Em MTOR Gn oT deer) Tera,
Slide 104: Pilot 2019 - 2020
Pampers baby-dry’ “
Slide 105: Asia sourcing, Office location
Asia sourcing, Office location ▪ Key functions Sourcing, QC and CSR ▪ Reach suppliers within 2-3 hours Shanghai ▪ Travel buy car or train Ningbo ▪ Visit suppliers more frequently ▪ Find new products faster Shenzhen By Air By train or Car Ho Chi Minh
Slide 106: Membership in Amfori BSCI
42 Member countries 13 Local representations +100 Countries where we have sustainability operations a betel ssi) Dansk Supermanes As KEN ssoceerres E> TUKO
Slide 107: Cooperation with Europris / A good start
Cooperation with Europris / A good start ▪ Common supplier negotiations started ▪ Common Kick off all category managers ▪ Asia sourcing cooperation started
Slide 108: Agenda
Agenda 1 Company overview 2 Assortment and focus area 3 Stores and marketing 4 Runsvengruppen and Europris 5 Sum-up
Slide 109: The price is the difference!
The price is the difference!
Slide 110: Our goal - Grand opening every day!
110 Our goal - Grand opening every day! New customer flow through our stores helps us achieve our goal.
Slide 111: Meta Persdotter, Commercial Director, ÖoB
111 Meta Persdotter Commercial Director, ÖoB
Slide 112: New concept for city locations
LE it iad ULE New concept for city locations — increased convenience for the customer! OcoB CITY ina Wey Vd BALAN
Slide 113: A growing brand
A growing brand The price is the difference!
Slide 114: ÖoB has a strong low price position!
ÖoB has a strong low price position! Low prices Good bargains Easy to shop Quantitative study. 1000 respondents. 2018
Slide 115: A popular brand - Customers love us!
A popular brand - Customers loves us! 50% Share of associations* 40% 34% 65% likes 31% or loves 30% 20% 17% ÖoB 11% 10% 7% 0% -- (Very negative) - 0 (Neutral) + ++ (Very positive) Quantitative study. 1000 respondents. 2018 *A total of 3144 associations.
Slide 116: One ÖoB in all channels
116 One ÖoB in all channels - Brand builders and traffic drivers!
Slide 117: New loyalty program - Even more ÖoB lovers!
New loyalty program - Even more ÖoB lovers!
Slide 118: The Swedes have made their choice - ÖoB is growing!
118 The Swedes have made their choice - ÖoB is growing!
Slide 119: Slide 119
Slide 120: Agenda
Agenda 1 Company overview 2 Assortment and focus area 3 Stores and marketing 4 Runsvengruppen and Europris 5 Sum-up
Slide 121: Runsvengruppen and Europris / a business with great logic
Runsvengruppen and Europris / a business with great logic ”Bringing the segment’s two strong players in Norway and Sweden together, leveraging a significantly overlapping range, deep retail know-how and a common strategic agenda to create a robust Nordic constellation in discount variety retail !” •
Slide 122: Summing up
Summing up • Strong management on-board • New organisation is working well • Stable sales development • Costs under control – a new cost base implemented • Earnings improving • At the end of our turnaround period • Cooperation with Europris will make sense over time
Slide 123: Summary Europris
Summary Europris
Slide 124: Be the best discount variety retailer in Europe
Be the best discount variety retailer in Europe 124
Slide 125: Strategic focus areas
Strategic focus areas Strengthen price Improve customer Drive customer and cost position experience growth
Slide 126: Strategic focus areas – key actions
Strategic focus areas – key actions • Strengthen price position • Develop Europris private label • Secure low cost through sourcing agreements with ÖoB and Tokmanni Strengthen price • International scale and integration through cooperation with ÖoB and cost position • From five to one warehouse with
Slide 127: Why invest in Europris
Why invest in Europris 1 Significant untapped market potential in thriving discount variety retail segment 2 Norway’s #1 discount variety retailer with unrivalled store network, brand recognition and price perception 3 More than two decades of consecutive growth and high profitability fuelled by con
Slide 128: Q&A
Retail is changing, discount variety is thriving Q&A Next event: Q4 presentation 31 January 128
Slide 129: Appendix
Appendix
Slide 130: Appendix
Appendix Management and board of directors Top 20 shareholders Analytical information Insights for Europris and other Nordic Discount Variety Retailers – learnings from the UK and US 130
Slide 131: Management team
Management team Pål Wibe Pål Christian Andersen Maria Borge Andreassen Jon Boye Borgersen Espen Eldal Chief executive officer Logistics director Strategy and business Marketing and concept Chief financial officer development director director Kristine Frøberg Øyvind Haakerud Ole Petter Harv Knut Spæ
Slide 132: Board of directors
Board of directors Tom Vidar Rygh Hege Bømark Tone Fintland Chairman Board member Board member Claus Juel-Jensen Sverre R. Kjær Bente Sollid Storehaug Board member Board member Board member 132
Slide 133: Top shareholders
Top 20 shareholders Holder No of shares Holding ARCTIC FUNDS PLC 5,126,610 3.07% FOLKETRYGDFONDET 4,678,488 2.80% EUROPRIS ASA 4,090,000 2.45% KLP AKSJENORGE 3,805,052 2.28% HOLBERG NORGE VERDIPAPIRFONDET 3,800,000 2.28% VERDIPAPIRFONDET PARETO INVESTMENT 3,786,504 2.27% STOREBRAND NORGE I VERDIPAPI
Slide 134: Analytical info
Analytical info1 Seasonality • As rule-of-thumb, the Easter impact is approximately NOK 50 million in revenue and NOK 10 million of EBITDA • As rule-of-thumb, OPEX in year ago quarter + inflation + NOK 1.5 – 1.6 million per extra directly Quarterly OPEX operated store (DOS) • New store – NOK 2.3 mil
Slide 135: Analytical info: New warehouse
Analytical info: New warehouse NOK million 2019 2020 2021 2022 Investments IT, office equipment and other (CAPEX) ~15 ~5 Automation, part 1 (lease) ~85 ~30 Automation, part 21 (CAPEX) ~25 ~90 Non-recurring OPEX items Moving costs 5-10 5-10 Redundant warehouse capacity in 2019 and Øra lease from H2 2
Slide 136: IFRS 16 implementation - preliminary estimates
IFRS 16 implementation - preliminary estimates1 Preliminary effect on group balance sheet Preliminary effect on group P&L statement Implementation effect 01.01.2019 2019 estimate Estimated 2019 P&L effects Assets Group revenue Total fixed assets +1.93bn +165m COGS Total assets +1.93bn +165m Opex Red
Slide 137: Alternative performance measures (APMs)
Alternative performance measures (APMs) APMs are used by Europris for annual and periodic financial reporting in order to provide a better understanding of Europris’ financial performance and are also used by management to measure operating performance. APMs are adjusted IFRS figures defined, calcul
Slide 138: Insights for Europris and other Nordic Discount Variety Retailers
Insights for Europris and other Nordic Discount Variety Retailers – learnings from the UK and US 5 December 2018
Slide 139: US & UK trends
Implications US & UK Consumer for variety trends preferences discount 139
Slide 140: Retail is changing, not dying
Retail is changing, not dying Global retail trends Degree of relevance1 Online and Consumers are fully embracing online and omnichannel sales driven omnichannel by globalization and cross-border competition Retail Shopper spend has polarized, shifting away from mass market bifurcation towards discou
Slide 141: In a world of winners and losers, variety retail keeps growing
In a world of winners and losers, variety retail keeps growing While online is challenging brick-and-mortar … … variety retail has grown ~twice the speed of retail overall Online share of retail sales Sales growth total vs. variety retail Variety retail11 Percent CAGR 2012-17 current Total retail 16
Slide 142: While many traditional retailers struggle, discount continues to thrive
While many traditional retailers struggle next to online and Amazon, discount continues to thrive Historic growth; average CAGR 2012-17 current Discount segment Total retail Grocery 20.0 18.0 11.0 10.3 8.8 9.0 2.3 1.1 Total Online 1 22 Total Online Discounters3 1 Total for Amazon 1P and 3rd party sa
Slide 143: Grocery discounter market with clear bifurcation
This is particularly seen in grocery discounter market with clear bifurcation at the expense of mid-market players Changes in market share vs. 20121; percentage point change Market share change between x% June 2017 June 2017 and 2012 Market share Jan-17 Jul-17 5 4.3 6.9% 4 Discounters 3 2.3 5.0% 2 1
Slide 144: Discounters lead on price but are also not far off on remaining areas
Discounters lead on price but are also not far off on remaining areas of value proposition Big 4 Performance of “Big 4” Performance of Lidl Performance of Aldi Relative grocer performance Importance to Cost of a grocer 33 basket customers1 Low High index: TESCO Average Average Price High Big 4 2013-
Slide 145: Similar patterns can be observed in the US
Similar patterns can be observed in the US Historic growth; average CAGR 2012-17 current Discount segment Total retail Grocery 31.0 16.9 15.0 11.3 8.1 8.2 3.3 2.7 Total Online Amazon1 1 2 Total Online 1 Numbers for Amazon as a 3rd party grosser, excluding Wholefoods 2 Dollar Tree stores, not Dollar
Slide 146: Discounters and dollar stores outpacing grocery market growth in the US
Discounters and dollar stores outpacing overall ‘brick- and-mortar’ grocery market growth by 2x in the US U.S. grocery market1 growth; USD billions CAGR CAGR Channel 2010-152 2015-202 Main growth drivers: Convenience • Access to new customers 3.2% 3.2% +2.6% p.a. (w/o gas) through aggressive store 9
Slide 147: Aggressive store expansion by Aldi and Lidl
This is mainly driven by aggressive footstore expansion by Aldi and Lidl Aldi and Lidl store expansion plans Store count 2016 2017 2018E Expansion plans 2,000 ▪ Announced plans to invest USD 1,740 3.4 billion to increase US store 1,600 base to 2,500 by 2022 ▪ In addition, Aldi will invest USD 1.6 bi
Slide 148: Case study: Dollar General
Case study: Dollar General Business description Quick facts Financials ▪ Dollar General helps shoppers Save time. ▪ Ownership: Public – trades under DG at NYSE Net sales Save money. Every day! by offering products ▪ Market cap: USD 28 billion (as of Oct 31st, 2018) USD billions that are frequently u
Slide 149: US & UK trends
Implications US & UK Consumer for variety trends preferences discount 11
Slide 150: Customers are fully embracing online …
Customers are fully embracing online … 2017 of all Norwegian Online retail in 75% consumers shopped online Norway grew 13.5% of online purchases 4/10 in Norway were done via mobile SOURCE: SSB; Virke
Slide 151: … but variety discount and grocery has been less exposed to online so far
… but variety discount and grocery has been less exposed to online so far Grocery & variety retailers do not accelerate … while customers value convenience and omni- online experience … channel experience Challenging economics Customers value convenience In variety discount formats due to Access to
Slide 152: Changing consumer behavior is increasing expectations in Norway
Still, changing consumer behavior is increasing expectations across the board also in Norway Well-informed Always “on” 6/10 >2 compare prices and read online reviews online before making purchase hours spent online every day For me Connected 5/10 99% think apps and online of people aged 12-49 conten
Slide 153: We are a digital nation, but fewer make purchases online
We are a “digital” nation, but with a lower share making purchases online compared to other markets Digital propensity of consumers across markets; % of population 100% = 5 66 17 6 82 10 Not online 9% 12% 8% 8% 10% 17% 13% 14% 12% Online, but not buyers 17% 12% 15% Online buyers 74% 76% 79% 78% 78%
Slide 154: Online development fuels growing difference between winners and losers
COMPETITIVE DYNAMICS The online development is likely to fuel continued growing difference between winners and losers Lower quartile Median Top quartile E-com Profitability in durable retail E-com sales EBIT % NOK billions 10 40 9 8 35 7 30 6 5 25 4 8.2 %-p 3 20 10.1 %-p 2 1 15 10 -1 -2 5 -3 -4 0 20
Slide 155: US & UK trends
Implications US & UK Consumer for variety trends preferences discount 17
Slide 156: Many changes are positive for discount variety retail and Europris
Many changes are positive for discount variety retail and Europris in particular Online and • Omni-channel and eCRM provides consistent, “phygital” customer journeys omnichannel • Improved access to attractive locations and lower rental prices Retail • Distinct value proposition of low prices and la
Slide 157: Barriers to online discount variety retail at scale
Historically several barriers have prevented online discount variety retail at scale Operational barriers Commercial barriers A B Operational Last mile Consumer Omnichannel Profitability execution infrastructure preferences experience Efficient order There has Consumers Cumbersome So far, online ful
Slide 158: Last-mile example
A Last-mile example: Only a few of the current and potential Last Mile methods are used at the moment Commercially available Pilots ongoing In R&D Degree of Dedicated to automation Last Mile solutions Users and technology producers or developers grocery deliveries Regular Common Last Mile solution c
Slide 159: Profitability example: Economics of online grocery are challenging
B Profitability example: Economics of online grocery are ILLUSTRATIVE challenging Basket profitability of online grocery1, % of sales Assuming home delivery; if 50% of these costs are cut, online grocery becomes at least as profitable as traditional grocery 2-3% 1-2% 15-20% Ignoring -10-12% cannibal