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Edited Transcript of CLAS B.ST earnings conference call or presentation 4-Sep-19 7:00am GMT

Q1 2020 Clas Ohlson AB Earnings Call

Stockholm Sep 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Clas Ohlson AB earnings conference call or presentation Wednesday, September 4, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lotta Lyrå

Clas Ohlson AB (publ) - President & CEO

* Pär Christiansen

Clas Ohlson AB (publ) - CFO

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Conference Call Participants

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* Magnus Råman

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Nicklas Fhärm

SEB, Research Division - Country Head of Sweden Research & Analyst

* Niklas Ekman

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

* Stellan Hellström

Nordea Markets, Research Division - Senior Analyst of Retail and Consumer Goods

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Presentation

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [1]

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Good morning, and welcome to this presentation of the Q1 results '19/'20 for Clas Ohlson. My name is Lotta Lyrå. I'm the CEO and President, and I would do this presentation together with our CFO, Pär Christiansen.

It was a good summer. We see this in a good sales performance and a strengthened result. This comes from the fact that we have been able to offer our customers a relevant assortment and run successful campaigns.

Today, we also announced a new step in offering our Norwegian customers convenience and availability through a new cooperation with Kolonial.no, the largest online grocery retailer in Norway. We continue to optimize our store network with the announcement of 5 store closures today.

Overall, the implementation of our strategic program, Clas Ohlson 100+, is on track. We see good signs and good results of the efforts we are making, and we continue to work with high speed in the implementation of the program. All in all, this leads to that we are delivering in line with the guidance on margin that we have given.

The agenda for today's presentation is that I will start off with a business update. Pär will then take us through the financial developments and some events after the reporting period. I will do a summary, and then we will do a Q&A facilitated by Magnus Råman from Handelsbanken.

So in short, Q1, we deliver a Q1 with a sales growth of 4%. Organic sales is up 4% and so is like-for-like sales. Worth mentioning is that organic sales growth in the Nordics was up 6%. Online sales grew 20%. Gross margin is at 38.1%. And we improved both the underlying result and the reported result. And through the quarter, an important part has been to keep the full focus on the lowering cost efforts that we have in our strategic program.

Going in then to a little bit of an update on the strategic action program, Clas Ohlson 100+. And as many of you already know, we have 2 main financial targets in Clas Ohlson. One is to grow organically on average 5% during the current 5-year period, and the second one is to deliver an operating margin of 6% to 8% starting 2021.

To get us in shape for delivering these targets, we are doing growth initiatives and cost initiatives. The growth initiatives are very much targeted towards delivering a higher sales per square meter and a higher sales per customer. An important part is also to benefit from the growing online market where our ambition is to double online sales every other year, meaning a 50% growth approximately every year.

On the cost side, our goal is to deliver SEK 200 million to SEK 250 million in cost saving by optimizing our assortment, being more systematic in how we purchase and having an efficient organization with the right competence. To pursue these initiatives, we are investing 1% to 2% of the operating margin during '18/'19 and this year, '19/'20.

One red thread in our strategic program is to strengthen the convenience and availability of our offering and thereby, come really close to the customer. We believe that this is key going forward. It's always been a strength in Clas Ohlson to offer that through our stores, and now we are taking significant steps in offering the same convenience level and availability in our online channel.

A step in that direction was the collaboration with MatHem that we kicked off approximately 18 months ago. We see now that every 10th shopping bag in MatHem contains a Clas Ohlson product. And as an anecdote, every fifth bag that was delivered in the archipelago through boat, actually, contained a Clas Ohlson product during the summer. So we really do offer convenience and availability through the partnership with MatHem.

As a step in the same direction, we now offer our Norwegian customers better convenience and availability through a new cooperation with Kolonial.no. Kolonial is the largest grocery online store in Norway. As of launch today, our customers in Norway will be able to shop Clas Ohlson products through Kolonial. We have, of course, high expectations on the cooperation with Kolonial, and it follows the same logic and setup as the cooperation we have with MatHem.

All in all, we see good progress in our online sales. They were up 20% in the first quarter. This figure is very much impacted by significant numbers last year in June due to our 100-years celebration. But if I look at the numbers in million SEK, we are happy with the development that our online sales have had during the quarter, and we are especially satisfied to see that also the profitability in this channel is improving.

As we speak, we are taking important steps in developing a responsive site to be ready for Black Friday, and this we are doing through a rebuild of the back-end of the site. The cost for that rebuild is part of the 1% to 2% of the operating margin that we are investing in our strategic program.

Still, majority of our sales happen in our stores, and therefore, having a profitable store network is key for us. And there are many parameters and perspectives to work with to secure a profitable store network. It's about having the right store in the right place, the right cost base, the right assortment and offer the right experience for that customer base. As part of this, we are working to find the right footprint for our stores, meaning that we will close and relocate stores, and we will, in selective cases, open new stores.

In line with this, we are today announcing that we are closing 4 stores in Finland and 1 in Sweden, and this is due to lack of profitability. We have one more Compact Store opening later here in September in Fältöversten here in Stockholm. And I think that is one good example of where you see that we do see potential, which is really about having a higher store density in the metro areas, and we see that our Compact Stores work very well in that setting. We have also during the quarter worked with the closure of the stores in Germany and the U.K., and that is proceeding according to plan. The final store to be closed in the U.K. will be closed end of September.

With that, I will hand over to you, Pär, to go through the financial development.

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [2]

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Thank you, Lotta. Good morning, everyone. Looking at the financial development in Q1, the sales was SEK 2.044 billion, up 4% compared to last year; organic sales, up 4%; and like-for-like sales, up 4%. And as Lotta said, the online sales was up 20%.

Looking at the sales per market. We saw a growth in all Nordic countries and also on online, so all countries in Nordics and also all channels were growing, which was good. And the outside Nordic was declining according to the plan.

Looking at the gross margin, it was down 0.4% points to 38.1%. The main impact comes from the stronger U.S. dollar. We are now looking to reduce the purchasing price as part of the CO100+ program as well as continuously reviewing the pricing for products on the market.

The share of selling expenses in Q1 was down by 2.3% units. If you exclude the IFRS 16 effect, it was down by 1.1%. This was also impacted by the closure of stores in U.K. and Germany. The administrative expenses was down, also according to plan and part of the CO100+ program.

Looking then at the new reporting standard, IFRS 16. We sent out a little bit of a first indication last Wednesday to prepare you for reading our quarterly report. But in short, the main impact comes from the reporting standard now recognize the leases as asset, and we will have, instead of a rent, we will have a depreciation. This impact us a lot in our report, and we have tried to indicate where it is for U.S. readers to understand as much as possible. In short, the positive impact on the operating profit was SEK 27 million, and the EBITDA was impacted positively by SEK 139 million.

Then looking at the profits for Q1. The operating profit improved to SEK 79 million. The underlying EBIT improved to SEK 91 million, and the operating margin was 3.9%.

Investments in the quarter amounted to SEK 22 million, distributed by 50% on the stores and almost 50% on the IT systems. And I guess this will be a trend we see going forward where we invest more in e-com and IT systems and probably a little less in the store network.

We still have a very financially strong position. We had a very strong cash flow in the first quarter, a little bit due to the buildup of inventory last year for the sCORE implementation. We had a positive cash flow also after financing activities and a net cash position -- or rather a net debt position of SEK [40] million.

Then looking at the events after reporting period. The August sales came in to SEK 740 million, up 2%. The organic sales was also up 2%. Like-for-like sales, up 3%. Online was up 36%. And we have reduced one store compared to last year.

Handing over to Lotta.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [3]

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Thanks. So our Clas Ohlson 100+ strategy is very much built on that we see potential for Clas Ohlson to grow in the Nordics based on the brand that we have built during 100 years, a loyal customer base and a strong financial position. In that context, I think it's good to see that during the first quarter and August, we do grow in the Nordics, 6% organically in quarter 1 and 4% in August, also growing both in stores and online. This is very much the reason why we also improved, result-wise, both reporting and underlying and deliver in-line with the margins that we have guided on.

Improving availability and convenience for Clas Ohlson customers is key, and we are happy to announce the cooperation with Kolonial.no today, which delivers exactly that to our customers in Norway. We continue our work with ensuring a profitable store network and today announced 5 closures of stores. And we will continue to have high pace in implementing all parts of the Clas Ohlson 100+ agenda, both growth initiatives and cost initiatives, all with the purpose of delivering long-term profitable growth and shareholder value. Thank you very much.

So Nicklas -- sorry, Magnus, please join us.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [4]

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Thank you, Lotta. All right. I will open up with a few questions, and then I hope there are several questions in the audience and perhaps also online.

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Questions and Answers

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [1]

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I'd like to first start out by asking about the cost-savings program. You've been quite clear previously in the reports that you expect full effect from the cost measures that you plan already by 2020/'21 next fiscal year. In this report, I find the comments a little bit more vague. So has that changed?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [2]

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Definitely not. So we are still working according to that plan, and that's part also of delivering 6% to 8% profitability in 2021.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [3]

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And coming to that profitability, 6% to 8%, now that you report with IFRS 16-backed operating profitability, I mean, that would add maybe a little bit above SEK 100 million to your operating results, which would translate to a little bit more than 1 percentage point in EBIT margin. So going forward, this long-term target that you have of 6% to 8%, will you adjust that accordingly to, say, 7% to 9% instead?

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [4]

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We have stated in the report that we, at least for 1 year, will continue to report everything without IFRS, so you have comparability between the targets and the report. So going forward, let's see what we will do then with the goal setting.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [5]

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So not clear for the longer term yet?

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [6]

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But of course, the SEK 100 million will be above our targets.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [7]

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Right. That sounds good.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [8]

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I think, therefore, it's very -- we're clear that the 52 -- it's SEK 52 million in reporting result this quarter versus SEK 32 million quarter 1, and that is completely comparable without the IFRS effect. So we're clear what's coming from the business and what's coming from the change in reporting standards.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [9]

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Yes. And then to the closure of stores, those 4 stores are about to be closed in Finland, I believe those were smaller formatted stores. Can you describe that? Is that the Compact format of yours that you are closing in Finland?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [10]

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Two of them is really small stores. One is what we would call a Compact Store compared to what you see here in Stockholm, for example, and one is a more normal-sized store. I think, in general, it's very much in-line with the optimizing the store network strategy that we have, that we want to have the right format in the right place and that we need to see profitability.

And also a little bit, which I think what I've been quite clear on, that it's important in the phase that we are in to be able to kill your darlings. So what we have seen is that a couple of these stores, exactly as you say, are smaller, more tailored stores and they weren't right. And therefore, we decided to kill that darling, so to say, already now rather than keeping it alive. And then that is how we will work, continue to look at profitability and act upon that.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [11]

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I was just a bit surprised because you've previously talked about the new smaller formats being very successful. I think you mentioned that here as well in relation to Sweden.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [12]

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Yes. But I think if you would look at the smaller stores we have across the company in its totality, the general trend is that they are successful, but it doesn't mean that they are successful everywhere. So I think like we've said before, you have to be on top of every store and secure that every piece of the network is profitable. That's how we make Clas Ohlson profitable. So the general statement is still true, but for these specific cases, they were not profitable.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [13]

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And just looking more broadly on the Nordics, after these measures, I think previously, you said that all stores are contributing positively to the group. And obviously, those 5 were not in that bracket. But after you've done this work, do you think that, that holds true again that all stores contributes positively to group profitability?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [14]

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Yes. It's one thing to contribute, but it's another thing to be within the bracket of 6% to 8%. So I think we have to -- I think we talked before about that it was almost 3 groups, right? You have the ones which actually burden the results, you have the one that contributes and you have the one that actually live up to the profitability target. And what we're doing a lot right now is initiating measures to secure that everyone deliver 6% to 8%. And for the cases that don't do that, I think we will go through this process. But we will also, as we've said before, be smart about when we close and how in order not to burden the result with unnecessary extraordinary cost.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [15]

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Sure. That's one of my question, that when you close those 5, are there any still left in the bracket burdening results?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [16]

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No.

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [17]

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But I think also it's worth mentioning that these stores will not incur any extra cost because its contract sets are ending. So instead of continuing those, we will close it, so there's no cost of closing stores. So it's a very logical decision point for us to do that.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [18]

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And you have -- you stick to your 4%, 5% average annual organic growth target. And of course, online is growing faster, but it's only 5% penetration roughly. So if you have a net negative store expansion, how -- I have a little bit difficultly to get that math to sum up.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [19]

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First of all, we have said that it's on average 5% during the 5-year period, so it's not every month, every quarter, every year. It's on average that during the 5-year period. And I think this is about getting a healthy core in place. And I think we said that last -- when we talked about Finland the last time as well that the important step we need to take in Finland is to secure that we increase sales per square meter. That is the main, I would say, lever to get profitability at the right level, meaning that we need to take these measures to get there. So -- and I think even though, exactly as you say, online is still a small share, if you look at the contribution to our growth, it's starting to become quite significant. So the impact on the organic sales number is still substantial, I would say.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [20]

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But with 20% growth for a 5% penetration, that would be 1 percentage point. And if you then close 5 stores out of 230, so it's maybe 2 percentage points or something...

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [21]

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Yes. And then as we said, we are opening stores as well. So Fältöversten, we'll open as well. So I think this is a little bit what it will be like. We will open some, we will close some, we will relocate some.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [22]

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Perfect. Any questions out in the audience? Maybe Nicklas Fhärm from SEB first?

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [23]

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Nicklas Fhärm with SEB Equities. Let's start by asking you a few questions on the actual quarter. And I was just wondering, you talk about pricing impacting gross margins, but I was just -- to start wondering, how does the like-for-like in current trading, i.e., August and perhaps also in fiscal Q1, how does that break down into price, mix and volume or footfall to stores? What's the drivers here, the main drivers behind the like-for-like?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [24]

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The main driver is volume because Clas Ohlson is a company for many wallets for all kinds of homes, so we will always live by volume. And then secondary, naturally, we're optimizing both how we do our black pricing and our red pricing, so to say, but it's volume-driven.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [25]

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But there is somewhat slight positive price/mix impact?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [26]

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Pricing is a natural part of the business we do, so it will always be. But I think the main result that we see from the strategic efforts we have done is actually in how we do red pricing and campaigns and so on, where we are optimizing our promotions in a completely different way today.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [27]

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The follow-up question will be on the gross margin bridge. I think I estimated the dollar impact negative to the tune of 1 full percentage point, so quite negative. And yet, you speak about in the text of pricing effects and improved profitability that has positively impacted the gross margin. And it would be very useful if you could give us some more color on those main drivers behind the gross margin change, please.

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [28]

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Yes. Looking at the dollar, it's -- the effect of the dollar is more than 1%, I'd say. It's more in the range of almost 2%. And of course, there's -- we hedged 50% of the dollar for 6 months, but the dollar has come up almost 20% if you look 24 months, back in 6%, 7% if you look at the current 12-month period. So of course, there's a delay in that. And of course, as we said, we are looking at how we then buy the products. Will we buy more products in China's RMB or in dollar and do that?

The estimates for the dollar, if you look at consensus, is more flattish, but it's still going up. So I guess we don't want to speculate on the dollar, but I guess, it's gone up more than we believed, so that is a higher impact. And on the positive side, we see that campaigns are better. We see that some of the effects from the NOK is positive and other things. So when you weigh those together, it's a total negative impact of it.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [29]

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That makes perfect sense. And it means that to the extent you're actually contributing to the gross margin, the company specifics, you have improved basically because the dollar, you can't control.

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [30]

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Yes.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [31]

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All right. Can I also ask you, when it comes to the strategic-related costs and investments, I think you said around SEK 40 million or SEK 39 million in this quarter. How do you see the sort of number developing on more of a quarterly basis within your communicated guidance of 1 to 2 percentage points of operating margins? How do you see that sequentially?

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [32]

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Yes. I mean we will stay within the 1%, 2% for the year, but I think we've been mentioning that part of the program now is targeting some of the staff of the organization. And when we do that, it will be more of an impact in that quarter. We had some sort of big reductions targeting the administration in Insjön and in some other countries in Q1, and that will continue. And of course, it's a discussion between us and the employee representatives to define the right pace of that. So every quarter, there will be more of an impact on recession. It will go up a little bit, and I will not speculate when it is. But it, of course, be more front-loaded than back-loaded because we want to run into the 6% to 8% next year. So you probably will expect higher cost in the beginning than in the end of the program.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [33]

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Any further questions in the audience? I can continue with the question here on your new cooperation with Kolonial. Firstly, maybe I can just check with you if it's -- if I'm correct by assuming that Kolonial more tend to rise roughly the same top line size, around SEK 1 billion in revenue. And you stated here now and then you've written that also that around 1/10 of every basket in the MatHem delivery contains at least one Clas Ohlson article. But could you give us any light on the average value of that Clas Ohlson content in the MatHem baskets?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [34]

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No, I won't give a number, so to say. But I can say this, that the starting point of both the MatHem collaboration and the Kolonial collaboration was very much related to consumables. And what we have seen over time is that the share of more capital products is increasing because people have started to discover that you can actually order birthday presents or things -- bigger things you needed in home this way as well. And of course, we have high hopes for that also going into Christmas where this will be a core part of our convenience offer. So I think the hypothesis that consumables work in this channel is proved and then we start to see also other products coming into the game.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [35]

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Would that alter the margin factor or the margin potential of these cooperations?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [36]

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It's still very much based on our own brand. That is the base for it.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [37]

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So my thought was that you have an extra step, logistically-wise, that could potentially be covered by these merchandise being consumables with higher margins. But if you start shipping capital like lower gross margin items, can you still cover for that extra freight?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [38]

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Yes, because again, even though it's capital goods, it's still very much focused on what carries our brand ourselves and not so much known brands.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [39]

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Right. I just assume that you will not disclose any number on the value of those, apart from the 1/10. But assuming that it would contribute or make up around 10% of the total basket of MatHem's deliveries, that would imply around SEK 10 million in top line contribution annually for you. And I mean seeing then that Kolonial is around the same size in revenue, my take is that it will not have any meaningful or large impact on your financials as a group just as the MatHem hasn't. Is that fair to assume?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [40]

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I think it's important to remember that the reason we're doing this is a very long-term reason. People have shopped with Clas Ohlson for 100 years due to that we have been around the corner, very convenient place to go to. I would say that online shopping at Clas Ohlson has been not so convenient because you have to wait a long time. Our lead times were far too long, and we have too few delivery options. So the journey we are on is to make online as convenient as shopping in the store, and having these delivery options with MatHem and Kolonial contributes exactly that. So the financial reasoning is one, the short-term one, but then I think the long-term effect of this is another one. So let's see where we end up.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [41]

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Right. And then when we're talking about online, can you update us on the Amazon pilot that you're doing in the U.K.? Are you still on that?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [42]

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Yes. I don't know if it's in the Q&A, but maybe I'll say it anyway. It's actually 20% of the online sales that we have in the U.K. comes through the Amazon platform. So I would say it's substantial. And it's great learnings for us working with these platforms and learning how to do it in still a quite limited scale.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [43]

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And the margins that you see in that cooperation, does that encourage you to extend this to other regions? And would Amazon then have a presence in other regions in the future?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [44]

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I think that remains to be seen. But that's exactly where the learnings come in also, what products do you put there, which brands, how much, how do you make sure that you have synergies between what you do on these platforms and our own channels, so to say. So this is all part of the learning package.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [45]

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But it's fair to assume that it's Clas Ohlson-labeled, private-labeled articles?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [46]

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Yes. Yes. Yes.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [47]

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My name is Niklas. I just have a question regarding the online sale. So the increase of sale of 20% is just with Amazon and MatHem as well?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [48]

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Yes.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [49]

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Okay. So there's nothing increased whatsoever on your regular kind of web sales?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [50]

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No, the 20% includes all online sales, so what we do on ClasOhlson.com, what we do on the platforms we act. So it's the totality. Yes.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [51]

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Okay. I can see that. But is it just for the increase of revenue with Amazon and MatHem, the ordinary sales of ClasOhlson.se?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [52]

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It's all of it, and the big chunk comes from ClasOhlson.se and .no and .fi.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [53]

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Okay. So it's not MatHem and Amazon that is the plus 20% then?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [54]

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No, it's all of it.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [55]

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Okay. So what's the difference between -- so what's the figures between these 3 sites?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [56]

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We don't communicate that.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [57]

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Any further questions from the audience? I have one here. Maybe we should check also if there's any question from the telephone conference.

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Operator [58]

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(Operator Instructions) And our first question comes from the line of Stellan Hellström from Nordea.

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Stellan Hellström, Nordea Markets, Research Division - Senior Analyst of Retail and Consumer Goods [59]

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Just one question here on the gross margin and the currency effect. It looks like that the impact from the dollar will be much more negative in the coming quarters and also the impact from hedging will be less positive. Can you comment if you will be able to improve the pricing component, so to say, so that you will be able to offset that?

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [60]

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I will not speculate on the dollar going forward, but of course, we are working with the -- the purchasing department is working on reducing the prices, as we speak, so some of those components will be lesser purchasing price going forward. And of course, if the dollar goes up, continue to go up, we will see impact of that. And as you said, the hedge will have, over time, a lesser effect if the dollar flattens out and then we will have a bigger impact from the dollar. So I guess your math is correct.

But I guess, on top of that, we're always looking at the pricing for the products and balancing the -- some of the products or branded products where there's a quite open market price. And some of them are non-branded products where we can look at it, but there's always a balance to offer the right product mix with the right pricing to our customers.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [61]

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I think maybe to add another perspective to this question, what we have seen during summer is also that a lot of people decided to stay home instead of going on vacation. And I visited myself a substantial number of stores in Sweden this summer, and I think every single store I went to, they commented how much English, Norwegian, Danish they have spoken during the summer. So I think also this currency situation, on one hand, it impacts negatively the gross margin, but we also see that it leads to that more people stay home, that we have more tourists in Sweden and that people decide to spend their money a little bit differently. So there is also a counterbalance had here to take into account.

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Operator [62]

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(Operator Instructions) And there seems to be no further questions from the phone lines, so I will hand the word back to the speakers.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [63]

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All right. Then we follow up with an additional question from Nicklas.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [64]

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I think maybe you just answered the question, if I put in a way, you asked your suppliers to lower their prices by about 3% going into this year, and my question is how far have you actually come in that process?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [65]

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It's part of the SEK 200 million to SEK 250 million. And we don't break that down further, but it's part of that.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [66]

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But you're mostly done, you would say?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [67]

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I think when it comes to the whole cost effort, I think we are just in the middle. That's -- yes.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [68]

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Okay. Perfect. And next question is, how many of the bracket contributing stores, at the end of the day, are still subject to being closed if they do not improve? I mean are we talking about 5? Are we talking about 15? How many stores are at risk, or opportunity, if you like?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [69]

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Yes. I think the starting point of this business is that we have approximately a market share of around 10% in the market we act so that we know there's potential to grow. Then the question is how. And some stores today are in the right place, others are not. So I think this is a little bit shift in mindset. A store is not put on a certain street or in a certain shopping center to be there forever. It's about being where the customer is. And I think it's this more agile, flexible mindset that you will see much more in the store network, meaning that you will see more stores closing, but you will also see stores opening in new places. So it's more about sales per customer and sales per square meter and less about number of stores. So it's sort of it's not a question to give a number on, so to say, because we will be very agile and flexible here.

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [70]

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Yes. And then it's also worth mentioning that the store itself is becoming a different creature. It's not just shopping for the actual store. It's where you pick up online shopping. It's where you look at products and then you buy online. It's a lot of things that the store will be in the future. It's a showroom. So I guess it's not just a store itself, it's square meters that is contributing to the store. It's part of a network. And I guess it's important for us to look at that and also measure it from a different angle to, as Lotta said before, to look at the sales per customer. How that customer decides to look, shop and pick up is not for us to decide, it's for the customer to decide and us to match that demand.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [71]

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Final question, if I may. So was there ever an intention or discussion with Kinnevik of sort of buying your way into Kolonial.no? Or would you be willing to take part in a rights issue, a tentative rights issue in the future to get an actual equity stake in Kolonial?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [72]

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We invested in MatHem in order to get certain benefits and a strategic position. And I think these 18 months have proven that it's really given us a strategic position. And with all the learnings and with everything we have done and how these partnerships developed, I think it really forms the base for what we're doing with Kolonial. There is no purpose in itself for Clas Ohlson to invest money in other companies unless it gives us a very clear business upside in the core business that we do.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [73]

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So that means that your stake in MatHem is for sale from a strategic perspective?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [74]

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That, I'm not sure of.

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Nicklas Fhärm, SEB, Research Division - Country Head of Sweden Research & Analyst [75]

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Okay. How do you view the actual results there in MatHem? I mean it's around SEK 180 million losses every year. And I think management guidance for this year is along the same lines. What's your opinion on that, please?

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [76]

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I think, first of all, I think it's for MatHem to comment on their results. But MatHem is very clearly on a growth journey, which has been strengthened further by Kinnevik stepping into the company, so to say. So that is -- there's a very clear plan and an agenda, and Clas Ohlson will profit from that journey.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [77]

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Maybe I can just be a name a little bit here and hinge around the gross margin question a little bit. I think that Stellan's question was for you, Pär, was about the visibility that you actually have due to the lag you have from the point of sourcing to the point of sales, that might be a lag of around 0.5 year or so and then the visibility you have already, what you know. I'm not speculating about the dollar progression going forward how you will be impacted in the coming 2 quarters? And if you deem that you see that the market is affected in the similar fashion so that you have room to increase prices to counter this gross margin pressure that we actually see coming.

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [78]

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I think it will be, of course, dependent on each market. If you look at Norwegian press, there's been a lot of talks about the dollar impact, official press, mainly to fashion and [chew] and other type of retail. And of course, they might start to do price increases. We look at this market all the time, Sweden, Norway, Finland and outside, and try to optimize that day-by-day. And of course, with the forward-looking dollar and also what we see on the counter side with our improved purchasing prices, we try to optimize that because we want to optimize the gross profit. So some of it, we might not even consider to high price it because we know that we will get the better pricing from our suppliers. So optimizing volume and that we will always do that. And exactly how everything weighs in, it's really hard to speculate on. I mean we want to optimize gross profit and market share. And if we overpriced even with the prices today, we might need to lower prices in some product. And in some prices, we need to increase. So that is part of daily business for the business units we have.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [79]

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Right. But that's interesting because I think the balance here at the cost-savings initiatives where the sourcing improvement, so to speak, is one component, I think many people view -- regards those cost savings as a way back to recover profitability that you have lost, so to speak. But if you then have the dynamics of adverse currency effects, if you would use that cost savings to say that you would not raise prices, that would be a little bit...

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Pär Christiansen, Clas Ohlson AB (publ) - CFO [80]

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But I mean we mentioned before also that we're doing what we call the category set, that we are reducing the number of product, increase in volumes, so there are many things weighing in to getting a better price and also hopefully then increase sales for those products. So yes.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [81]

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But just to be crystal clear, the SEK 200 million to SEK 250 million stands. Yes. Dollar or not.

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Magnus Råman, Handelsbanken Capital Markets AB, Research Division - Research Analyst [82]

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Yes. Perfectly clear. Yes. All right. If there are no further questions, I think we sum it up to that. Thank you very much.

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Lotta Lyrå, Clas Ohlson AB (publ) - President & CEO [83]

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Thank you, Magnus.