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Edited Transcript of BHGF.ST earnings conference call or presentation 29-Oct-19 9:00am GMT

Q3 2019 Bygghemma Group First AB Earnings Call

Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Bygghemma Group First AB earnings conference call or presentation Tuesday, October 29, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Schatz

Bygghemma Group First AB (publ) - CFO

* Martin Edblad

Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO

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Conference Call Participants

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* Gustav Sandström

SEB, Research Division - Research Analyst

* Markus Borge Heiberg

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Michael Benedict

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Niklas Ekman

Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst

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Presentation

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Operator [1]

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Good morning, everyone, and thank you for joining us on our conference call today to present Bygghemma Group Q3 Report 2019. This call is being recorded and a replay of the conference will be available later today on our Investor Relations website. Today's presenters are Martin Edblad, CEO; and Adam Schatz, CFO. Both will be available for Q&A later in today's call.

With that said, I'll now turn the call over to Martin. Please go ahead.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [2]

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Thank you, operator, and good morning, everyone. We're happy to present another very strong quarter for Bygghemma Group, in which we continue to deliver a strong bottom line, in fact, our strongest third quarter EBIT to date, while significantly accelerating our top line, recording a total sales growth of 31% and a like-for-like growth in the business we own today, our pro forma organic growth, that is up 18.7%.

The agenda for this presentation is divided into 4 sections and ends with a Q&A session. We'll start with result highlights, followed by business updates. I will then hand over to our CFO, Adam Schatz, who will walk you through the financials in more detail. Finally, after summarizing the quarter, we will focus on your questions. But before starting, I would like to highlight a couple of things.

In the previous 2 quarters, we wanted to ensure a maximum comparability to 2018 and so focused most of our commentary in the earnings calls on the numbers without the effects of IFRS 16 since we -- as most other companies have not restated 2018 for the effects of IFRS 16. Now in the report itself, we continue to discuss 2019 performance, both with and without the impact of IFRS 16, although the impact on our main profit measure, adjusted EBIT is relatively minor with a full year estimated impact of around SEK 7 million. In this presentation, however, we'll primarily discuss the numbers that we reported, i.e., including the IFRS 16 effect.

The triple reasons for doing so are: firstly, these are now the official numbers; secondly, our listed peers overwhelmingly do so; and finally, the equity research analysts covering us predominantly do so.

Having said that, let's start with results highlights on Page 5. So we reported our strongest third quarter-to-date by a wide margin. We accelerated our total growth to 31%, our reported organic growth of 14.7% and our pro forma organic growth, which is the number we consider most relevant since it includes also the year-on-year development of our LTM acquisition to 18.7%.

Hence, we materially outgrew the market in the quarter and consequently further improved our exceedingly dominant online position, which sums up to close to 30% in the Nordics. Furthermore, we combined our strong top line with an even stronger bottom line delivery, increasing adjusted EBIT in excess of 100% versus last year to SEK 82.5 million. We did this in combination with a positive cash flow generation in the cash flow wise relatively weak third quarter, ending up just shy of 100% cash conversion in the year-to-date.

Consequently, we, once again, underpinned our position as the #1 online retailer in the European home improvement space. Both our divisions saw strong sales growth in the period, but our Home Furnishing division excelled with a total growth of over 40% and an organic growth just shy of 20%. Sales in the period was driven by a strong development within all markets, but markedly so in Norway and Eastern Europe.

The DIY division in turn also continued to perform strongly and improved its total growth rate to 25.6% with an organic growth of 11.9%. The performance within both divisions were driven by the fast structural shift in the market from offline to online sales as well as by group market share gains and successful M&A.

In the EBIT margin increase, we saw a [drive] most others due to improved unit economics from our systematic work to push higher ticket items thereby increasing average order value across the board.

If we turn to Page 7, I want to start this section by repeating a few key facts about our business. So Bygghemma operates primarily in the Nordic home improvement market. This is a market that has a turnover of approximately SEK 230 billion annually, making it the third-largest retail category in the Nordics after groceries and clothing.

The online share of the home improvement market is expected to double in size over the next 5 years to approximately SEK 40 billion annually, translating to a CAGR of around 15%. And in this market, Bygghemma Group is the clear Nordic online leader, with a close to 30% market share.

So on an LTM basis, we have reported net sales of SEK 5.8 billion, with an EBIT margin in excess of 5%, making Bygghemma Group the largest-listed consumer online retail in the Nordics.

The Group's core strategy and operating focus remain in place and can be summed up as follows: a continuous drive for capital leadership and expansion to mainly organic, but also augmented by acquisitions, making us a platform leader with strong compounding elements; a cost and infrastructure position, which allows us to match the lowest market pricing, while maintaining strong operating margins and cash generation; and offering great customer experience through best-in-class online and technical capabilities, including an unrivaled assortment of external brands as well as our own leading value-for-money private brands.

Going to Page 8, shortly on our recent acquisition. We acquired Arc E-commerce in the third quarter, which is the leading private label based pure-play online retailer in Sweden for home, household and leisure products. The company is consolidated within Bygghemma Group's DIY segment and strengthened its private label content. Arc has grown by 67% per annum over the last 5 years and turned over approximately SEK 100 million in 2018, with an EBIT margin of approximately 9%.

Now turning to Page 9. During the quarter, we have, as part of our mission, we make living easy, considerably scaled up for installation offering managed by our subsidiary Svensk Installationspartner. We now cover most of the DIY categories in Sweden and have also started to roll out these services in Finland.

Consequently, we now offer our customers not only the broadest product range but also a wider range of installation services than ever, which is key in our ambition of providing a complete ecosystem of products and services for home improvement online.

Now bringing us to Page 10. In order to better embody our Group's rapid international expansion and geographical footprint and to better reflect our mission, to make living easy as well as the fact that we operate through 2 segments: Home Furnishing and DIY that are of equal importance to our value proposition, we have decided to update our corporate identity. During the first quarter of 2020, we (inaudible) delivered an upgraded look and feel to our corporate website, our presence on social media and other corporate communications embodying our mission of providing a complete ecosystem of products and services for home improvement online, some of which the elements we now showcase on this slide.

And with that, I hand over to our CFO, Adam Schatz, who will walk you through the financials in more detail.

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [3]

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Thank you, Martin. So if we turn to Slide 12, the quarter's strong performance resulted from the continued diligence on operational execution, coupled with a growing share of sales of our own brands, both as a result of the strong performance in the primarily private-label-based Home Furnishing segment as well as the increasing importance of our brands in the DIY segment.

Net sales, as Martin already mentioned, grew significantly in the quarter with a 31% headline growth to reach SEK 1,639,000,000, of which organic growth amounted to 14.7% and pro forma organic growth, the more relevant measure, we believe, 18.7%.

As we will see in a couple of slides, both segments did well. The key metrics on the right-hand side of this slide further explain the top line development. The number of visits to the group's web stores increased by 68% to 48 million in the quarter. Orders rose by 18%. And just as in the first 2 quarters of the year, we succeeded in further increasing the average order value, which stood 13% higher, more than compensating the directly associated decrease in conversion rates. All in all, a similarly compelling picture, as in the first 2 quarters of the year, but with accelerated top line growth.

In the past 2 earnings calls, we spent some time elaborating on the importance of the average order value on unit economics. The importance of this mechanism in explaining the structural uptick in margins, especially within the Home Furnishing segment remains. The bulk of this improvement has come about through the deployment of enhanced duration on UI, UX as well as leveraging data and smart technology. But since we have discussed these effects in some detail in the previous quarters, we wanted to highlight another couple of key developments in the group in this quarter. One is our ongoing internationalization and the other one is the importance of our own brands in the sales mix.

Next slide, please. From our Swedish origins, we've grown rapidly, first in the Nordic countries and more recently, in the nascent Eastern European ones, balancing our geographic mix and making sales less dependent on macroeconomic conditions in any one country.

As you can see on the left-hand side of this slide, the CAGR since 2016 at 31% has resulted from growth in all our geographies, but growth has been markedly higher than the ones we have more recently entered. Sweden remains our second most important market and will do so for the foreseeable future, but its weight in our sales mix has decreased over this period from 72% to 67%.

Turning our attention to the right-hand side of this slide with a mini deep dive on the importance of our own brands within DIY. Our own brands differ in a few significant ways from the external brands. The latter will continue to constitute the bulk of the revenue mix within DIY, and we cherish our relationships with the suppliers of it. However, whereas most of the external brands within DIY are quite specific to each geography, our own brands have successfully found their niche in multiple geographies.

Further, in spite of competitive price points within the various niches occupied by our own brands, this typically generates a significantly higher gross as well as fully loaded bottom line margin. You can see a selection of our own brands on this slide, with Bathlife being our flagship brand for the bathroom category, more on which shortly.

I first want to take this opportunity to highlight the brand to the far right, Dimma, the new range of lighting products, which we launched recently this past Friday. The work to develop Dimma, including the design and sourcing base was led by our Bathlife team, which in turn was supported by both our Stonefactory team with their extensive experience in sourcing from Asia as well as the recently acquired Lampgallerian team which, of course, are experts in the lighting category as such. So it showed a collaborative effort across a number of the group's brands.

Now going back to Bathlife very briefly. Since we acquired Bathlife in 2014 and had the entrepreneur behind Bathlife join us to continue leading the work, Bathlife has enjoyed a CAGR of some 70%. Further, it's been a stable contributor of profits with well above segment average margins. In the process, Bathlife has established itself as a strong brand in its own right and has found a clear niche not only in the Swedish market but also in the other Nordic countries.

Turning to the next slide, Slide 14, please. One pleasing aspect of the quarter was that we enjoyed a leveraged P&L. The significant top line growth of 31% translated into an even higher gross margin increase of 55% and have further boosted EBIT increase of 106%. I've already elaborated on the key factors behind the margin improvement, i.e., the strong operating performance in both segments and especially the higher margin Home Furnishing one, the structural improvements in average order value as well as the growth in our private label mix. All of this helped lift gross margin by 3.5 percentage points.

In this report, we've also chosen to disclose the main components of the gross margin, i.e., the product margin, which stood at 34.4% in the quarter, and which is the measure most commonly used by our listed peers and the fully loaded contribution margin of 23.1%. The strong EBIT, which at SEK 82.5 million is our best third quarter EBIT to date, resulted from the gross profit improvement, coupled with disciplined SG&A. However, we have also made targeted investments and we'll continue to do so into our IT and infrastructure platforms as well as to support our leading online traffic generation [power].

It's also important to note that we did not account for any items as affecting comparability in the quarter. We have made the decision from this report onwards to treat expenses relating to the ongoing execution of the group's base M&A agenda as part of the ordinary course of business and thus not affecting comparability.

Let's now turn to the segments, starting with DIY. Net sales in the DIY segment at just above SEK 1 billion increased 25.6% in the quarter and organic growth amounted to 11.9%. Overall market conditions were mixed across the Nordic region with a more stable environment in Finland and Denmark, markets in which we did particularly well in the quarter, than in Norway and Sweden. This is a similar picture to that of the first half of the year, the main reason that our DIY segment continues to show good growth in the offline-to-online migration. The DIY segment not only continued growing but also gained further market share. Our leading portfolio of external brands constitutes this -- continues to form the foundation of the segment. But as we've already touched on several times in this presentation, our own brands from a low base are developing strongly and growing in importance, and so increasingly contributing to net sales as well as EBIT. EBIT grew nicely by 32%, reaching SEK 47.7 million and EBIT margin strengthened to 4.8%.

Next slide, please. The Home Furnishing segment developed particularly strong during the quarter, with net sales growing 40.9% to reach SEK 643.9 million, of which organic growth accelerated to 19.7%. As we write in the report, the strong trajectory of the Home Furnishing segment is now well into its fourth quarter. The plan of action we put in place during the second half of 2018 has gone from delivering a lasting margin improvement and are also significantly driving organic growth.

All geographies did well in the quarter, extending the segment's leading market share and growth was particularly strong in our Eastern European and Norwegian Home Furnishing destinations. Assortment expansion was the single-most important growth driver in the quarter and the segment's range now extends to 150,000 SKUs. Importantly, the rollout of our own last-mile operations continued as per plan, with the Gothenburg hub now serving the greater Gothenburg area and the Öresund region being next in line. On a related note, we also announced the expansion of our main Helsingborg warehouse facility, which will help us unlock internal efficiencies as well as key customer satisfaction-related aspects, such as delivery, speed and accuracy.

Just as in the DIY segment, the P&L in the Home Furnishing segment was nicely leveraged with the top line growth of 41%, translating to an EBIT jump far in excess of that to reach SEK 38.6 million, corresponding to an EBIT margin of 6%.

Let's now turn to cash flow. Next slide, please. The third quarter in itself is not a particularly strong cash flow quarter for seasonal reasons. Nevertheless, operating cash flow also in the quarter was positive and helped increase the year-to-date operating cash flow to SEK 255.9 million, corresponding to a cash conversion of 96.2%. Our full year targets for cash flow conversion remains at 100%.

The right-hand graph showing the development in liquidity walks us through the starting period position of SEK 226.9 million, adding a strong cash flow from operations, deducting the impact of investing activity, the majority of which is M&A-related. And finally, the financing activities, which on a year-to-date basis consists of a mix of our decision to amortize the revolving credit facility, while funding the ongoing M&A agenda through an acquisition facility. And this brings us to a period end SEK 307.1 million of liquidity, our target.

Now moving to Slide 18 on the financial position. The group's net debt amounted to SEK 433 million at the end of the quarter. Our strong operating performance meant that our net debt in relation to LTM adjusted EBITDA ended at 1.3x, outperforming the group's medium-term financial targets. The financial position remains solid, but the operating cash flow reflects our strong business model, on top of which we had unutilized credit facilities at the end of the quarter of SEK 355 million.

Further, after the end of the quarter, we announced an extension to our existing credit facility, whereby the acquisition and CapEx portion was doubled from SEK 300 million to SEK 600 million. The combined credit facility now totals SEK 1,395,000,000. This increase was negotiated to reflect the group's continued active M&A agenda.

Handing it back over to you, Martin, to summarize and continue.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [4]

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Thank you, Adam. So to summarize, we further increased our market share once again underpinning our position as European online champion within home improvement, driven by our superior Nordic online market position with a close to 30% market share and accelerated by a rapid European expansion within Home Furnishing. We posted our strongest third quarter results to date, both in terms of sales and EBIT, but also in terms of EBIT margin and cash flow. We delivered in line with our core strategic priorities, both in terms of extending our assortments, now including over 0.5 million SKUs and through improving our private label range both organically and through acquisition.

We also took a major step in the journey towards our mission of making living easy with the accelerated rollout of installation services, now covering most of our core DIY categories in Sweden and rapidly expanding in Finland. Within our Home Furnishing division, we continued the rollout of our highly appreciated last mile deliveries. All in all, this leaves us in an excellent position and with a positive momentum as we enter the fourth and final quarter of 2019.

So that concludes the presentation. Time for your questions. Please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Niklas Ekman from Carnegie.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [2]

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A couple of questions, if I may. First, if you could comment a bit on the overall market because I think after the Q2 results, you were a bit optimistic on the overall market. You talked about rising housing prices and how that basically was driving the market after a couple of more difficult quarters. So I was wondering if you have a similar view or any kind of update there. And any thoughts here on the -- maybe the colder starts to the autumn, if that is something that affects your short-term view? That's my first question.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [3]

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Thank you. I think we can reiterate what we said in the last quarter, basically. And I mean the -- we obviously saw an uplift in inorganic growth. And let's put it like this, we -- it was pretty much evenly spread throughout the quarter. So we did not really see a decline towards the end of the quarter. So I think we can restate what we said in the last quarter, basically.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [4]

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Excellent. And average order value was something you touched upon as well. I think it was up 16% in the first half, up 13% now in Q3. Do you see a further increase here? Obviously, in Q4, I guess it will remain at a fairly similar level, but do you see this continuing into 2020? Are you pleased where you are now? Do you see a shift in focus maybe from lifting the average order value to driving volumes? Or can you elaborate?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [5]

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Yes. I mean we -- as you know, we did the number of structural changes to the business and what types of items that we promote from the site and so on and so forth and basically in the fourth quarter of last year. So I mean we're quite happy with the level that we are at right now, focusing on continue to accelerate and driving growth. So yes.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [6]

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Okay. And on that topic, I mean, you have a growth target now of 20% to 25% and you're clearly delivering on that, but you have an organic growth target of 15%. And in this quarter, you almost got up to that number, but on quite easy comparisons. But over the past 5 quarters, you've actually been a bit below. Do you think this is a realistic target? Do you think that you will get up to 15% or above in the coming quarters? Or is this a bit optimistic? Does it require a stronger market?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [7]

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I mean this target is obviously related to the market and the prediction that the online market will grow by 15 to 10 CAGR over the coming 5 years. But then obviously, that's basically -- I mean it's over a business cycle, and it's obviously related to the market. Having said that, as I said, the growth was fairly evenly spread throughout the quarter. We did not really see a decline towards the end of the quarter. So I mean we are -- basically, I mean, we're optimistic and this remains our target. Obviously, it's related to the total market growth and, particularly, the online market growth.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [8]

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Okay. Excellent. And private label, you talked a bit about here. And I think at the time of the IPO, private label in DIY was very limited. And I think it was around 2/3 or 70% in Home Furnishing. Can you give us an update where you are in these 2 different segments and if you see this changing over the next few years in either direction?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [9]

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So as we write in the report, the combined share of private label across the 2 segments now exceeds 40%. And the composition of that is that the overwhelming majority of the Home Furnishing segment already is private label-based, and we don't envisage growing that significantly. We're happy with the level that it is at within Home Furnishing. Whereas in DIY, as we also mentioned without giving any tangible numbers, the vast majority -- the opposite picture with the vast majority being external brands, and it will continue to be external brands. Also went 24:50 into the future. But we see a significant potential to grow the share of private label within DIY. And we think that within the foreseeable future, we could probably double that from the levels that we're at now within DIY.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [10]

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And can you give some details there? Double from what to what, roughly an indication?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [11]

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So very round numbers. It's 90-10, and then it's 10-90. So it's a mirror image between the 2 segments.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [12]

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Okay, excellent. So basically, in DIY, you think you can grow from 10% to 20% roughly?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [13]

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Yes. Over a period of time, yes.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [14]

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Okay, excellent. And can you also give some more details here on the warehouse expansion? Do you see any significant investments related to this? Can you talk about the time line? Any concerns that you might see some kind of disruptions during this process? Or do you expect it to be a smooth transition?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [15]

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We're not expecting any disruptions. We have a very well-trending team on the Home Furnishing side, as we do on the DIY side. But -- so this is the consolidation within helping more of 2 different facilities into the main one. So we feel very confident with our ability to execute on that. And we're also happy with this being planned now, and it will take place over the next 9 to 12 months.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [16]

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And no material investment from your end related to this?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [17]

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No.

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Operator [18]

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And the next question comes from the line of Gustav Sandström from SEB.

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Gustav Sandström, SEB, Research Division - Research Analyst [19]

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If I might start with a question on capital allocation. You highlight here in the presentation that you're gearing now is below the threshold target and I would expect that EBITDA and cash flow would improve in Q4 meaning that you'll further distance that target all else equal. So I would appreciate it, if you could give some color on how you might prioritize going forward if you see some internal investments that you might be able to do? Or if it's solely focused on M&A? Or -- and also if we should definitely rule out any hopes for a small dividend this year in a scenario where you have similar earnings, perhaps in Q4 versus Q3?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [20]

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Thank you, Gustav. So we see many interesting M&A opportunities still, primarily niche players -- well-positioned niche players. We've done a number of those this year, and we see a continued very interesting deal flow in terms of those kind of targets. We will do some investments in the platform as we have done during this year with a very good outcome, I think, in terms of improving technical capabilities, curation, AR and so on and so forth. In terms of dividends, we have not yet reflected over how we will stand when it comes to that, but our main priority is obviously growth right now and continue to consolidate our leading position so on and so forth.

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Gustav Sandström, SEB, Research Division - Research Analyst [21]

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Okay. And is it mainly -- or is it only bolt-on acquisitions there, you look at? Or is there any scenario where you would perhaps look at something a little bit bigger, something more of a platform acquisition to go out and expand further in Europe. Is that something you look at?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [22]

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We primarily look at a bolt-on acquisition. But if -- I mean but we have a broad look when it comes to acquisitions and if -- I mean an interesting opportunity arises then we -- I think we have the -- we obviously have the ability to look at other types, larger acquisitions as well.

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Gustav Sandström, SEB, Research Division - Research Analyst [23]

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Okay. And could you remind us what's a good estimate you think for cash costs for earn-outs for 2020, 2021 from your current -- from your -- what you can see now?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [24]

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So we haven't specified the timing of the commitments that we have, but the commitments themselves, of course, are specified in the balance sheet and in the net debt footnotes in the report. And coming back to the question on the net debt to EBITDA, we have a relatively significant amount slated for the coming 12- to 18-month period.

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Gustav Sandström, SEB, Research Division - Research Analyst [25]

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Okay. And when thinking about growth versus margins next year, how do you feel that you want to prioritize. Obviously, both of them have been very strong this year, but comps are tougher and whatnot next year. How should we think about your internal strategy there?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [26]

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So we -- our aim and our belief is that we will continue to manage the triple balancing act of growing profitably and generating cash flow. And that is what we intend to do, and that's what we believe we can do. So we are not -- we don't believe that we will have to sacrifice margins, for instance, to reach our growth targets.

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Gustav Sandström, SEB, Research Division - Research Analyst [27]

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But do you believe you have to sacrifice margin expansion to reach your growth target?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [28]

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We -- so we've communicated our financial goals, and I would reiterate that we believe that we can continue growing by 20%, 25%, of which 15% organic, while driving towards the 7% EBIT margin in the medium term. That's the plan.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [29]

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I mean we obviously made investments in the platform and so on, and we obviously think that we should see a nice operating leverage moving forward.

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Gustav Sandström, SEB, Research Division - Research Analyst [30]

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Okay. Sounds promising. And last one for me. If I recall correctly, Q3 last year was quite miserable in terms of lawnmower sales in the Nordics, and I would think it's a bit of a substantial subsegment for you. So could you give us a little bit of color on the year-on-year impact from sales and earnings related to DIY from lawnmower sales, please?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [31]

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We don't really disclose that, but it's been considerably better than last year. Obviously, having said that, it's not -- and that's an important part of the mix as it has been historically.

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Operator [32]

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And the next question comes from the line of Michael Benedict from Berenberg.

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Michael Benedict, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [33]

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First one is in relation to Furniturebox. I think, last time we heard from you, you guided that you expected it to return to preintegration levels during Q3. Has that been the case?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [34]

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So the traffic to the brand in isolation has stabilized. But more importantly, and that was the strategy from the outset in acquiring Furniturebox. The combined Trademax, Chilli, Furniturebox business, which is run by 1 team through 1 platform, is developing very strongly as we can also see in the Home Furnishing segment's performance. And the acquisition of Furniturebox, which done, admittedly, required a longer integration effort than we initially envisaged and was a key step towards establishing the market dominance, the associate pricing stability and the scale effects that we now see in the segment.

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Michael Benedict, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [35]

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Okay. And so you're not expecting any sort of further improvement in traffic sort of getting back to previous levels. Is that right?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [36]

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We're not focusing -- singling out the furniture box destination as such. We really look at the combination of the 3, primarily the Sweden-focused Home Furnishing business is the same, actually, and Furniturebox, and we're positioning them slightly differently in the marketplace, and we're happy with the general development across the 3 today.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [37]

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So the important metric is total growth, and we obviously expect total growth for this division and -- to further improve, definitely.

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Michael Benedict, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [38]

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Okay. And just on private label products, could you give us a sense of the gross and bottom-line-margin differential between your private label products and external brands, in DIY specifically?

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [39]

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Yes.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [40]

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Okay. Very roughly, it's 10 percentage points higher gross margin. Then it requires some more cost, obviously, to develop, build these brands and keeping them in stock when that's the case and so on and so forth, but obviously that also followed through to the bottom line by a number of percentage points, basically.

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Michael Benedict, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [41]

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Okay. And just on the last one on the DIY installation services. Could you give us some color on the financial dynamics around that? Is it a net cost and therefore, a margin drag? And what potential of sales are you currently covering? And where do you hope it to get to? And I guess any impact on KPIs you've seen from the rollout?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [42]

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So basically we just started rolling out these services to a larger extent. We now cover most of our important DIY categories within Sweden. We've started to roll out these services in Finland as well. I mean, they will have a positive margin contribution impact, but it's still early days. So not the opposite. They will not depress margins but rather the opposite. And then I cannot say that these services are highly appreciated by our customers. We're very happy with the services as such.

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Michael Benedict, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [43]

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And so just for clarity, is that because you are charging for the installation services that there are margin -- positive margin impact?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [44]

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Yes.

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Michael Benedict, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [45]

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Okay. And I believe you said that you want to cover 70% of Sweden in terms of last-mile delivery. Do you have a similar target for these services? Obviously, it's...

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [46]

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We haven't set the target really. We want to cover all the categories and products that we sell that require installation. That's what we're aiming for. We do cover basically all our important categories within DIY Sweden, and obviously these are quite complex installations. It could be installation of heat pumps or windows or -- and so on. So our target is 100% coverage within these categories that require installation.

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Operator [47]

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And the last question comes from the line of Markus Heiberg from Kepler Cheuvreux.

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Markus Borge Heiberg, Kepler Cheuvreux, Research Division - Equity Research Analyst [48]

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So my question digs into the average order value development because it increased significantly in the DIY segment, while the average order value in Home Furnishing only increased slightly after dropping massively last year, yet the gross margin primarily improved in Home Furnishing and not in DIY, where you saw the biggest AOV increase. Can you elaborate on this development?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [49]

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Yes. I mean it's partly has to do with -- thank you. It partly has to do with operating leverage with our legacy businesses. So we've made acquisitions that have a higher gross margin level than our -- all the businesses within DIY. So basically, it's a mixed impact. As we scale these businesses, you should obviously see operating leverage within DIY, but basically, it has to do with mix.

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Markus Borge Heiberg, Kepler Cheuvreux, Research Division - Equity Research Analyst [50]

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Yes. Okay. So is it -- those are private labels, of course, driving Home Furnishing, I guess?

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [51]

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Exactly.

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Operator [52]

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As there are no further questions, I'll hand back to the speakers.

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Martin Edblad, Bygghemma Group First AB (publ) - Head of Home Furnishings, Acting President & CEO [53]

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So that obviously concludes the presentation. Thank you for listening. Thank you for dialing in, so -- and that's it. Thank you.

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Adam Schatz, Bygghemma Group First AB (publ) - CFO [54]

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Thank you.

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Operator [55]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.