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Edited Transcript of ICA.ST earnings conference call or presentation 24-Oct-19 8:30am GMT

Q3 2019 ICA Gruppen AB Earnings Call

Solna Oct 26, 2019 (Thomson StreetEvents) -- Edited Transcript of ICA Gruppen AB earnings conference call or presentation Thursday, October 24, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Frans Benson

ICA Gruppen AB (publ) - Head of IR

* Per Strömberg

ICA Gruppen AB (publ) - CEO

* Sven Lindskog

ICA Gruppen AB (publ) - CFO

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Presentation

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [1]

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Good morning, everyone, and welcome to this earnings call for ICA Gruppen, our third quarter 2019. Unfortunately, it begins with some tech problems that is that the numbers that you have supplied with does not work at all. So this can only be followed via our website and through the webcast. Extremely sorry for this, we hope we'll be able to run through this in a good way anyway. It also means that if this is not rectified during the call that you need to ask all questions via our website as well, so scroll under the IR tab and there you can ask questions. And then I will read them out loud. So once again, sorry for this, but let's move on with the call.

And with me, I have Per Stromberg, our CEO and Sven Lindskog, our CFO that will start with the presentation and then we will have a Q&A session as usual. With that, Per, please go ahead.

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Per Strömberg, ICA Gruppen AB (publ) - CEO [2]

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Thank you, Frans. So a warm welcome to the quarter 3 report, and as usual we start with a summary. And overall, this has been a good or a solid quarter for the company. We see a solid profit development. We also see good net sales numbers, and in particular, we have strong online sales numbers for the ICA stores. During the quarter, we have also announced that we're going to start or establish a new mortgage company and we will be coming back to that.

If we look at the actual numbers, we see net sales being up 3.4% in the quarter, in local currency around 3%. And if you adjust for the Hemtex divestment, we are up 4.2%, so a strong net sales development. From an EBIT standpoint, we are up some 3% in absolute numbers and the EBIT margin is 5.4%, exactly the same number as we had in the third quarter last year.

If we then move to the market starting with ICA Sweden, we see that our store sales and the growth that we have when it comes to the ICA store is in line with market growth. ICA store sales are up 3.4% and the market in the quarter is up 3.5%. On the online side, we continue to have a very strong performance, as I touched on in my introduction. We are up 38%, market growth at 30%. And if we look at food inflation, I think it's worth noticing that we had high food inflation in the quarter. We saw it coming down a little bit month by month, but overall it ended up at 3.3% in the quarter.

If we look at Rimi Baltic, we don't have market data available yet. We will report that later in November. But the numbers we have is of course that we know that our sales is up and it's up 2.8% in total and food inflation is around 4%. What we can say here is that our sales numbers are of course still impacted by the store conversions in Latvia where we are converting Supernetto stores to Rimi stores.

For the pharmacy business, sales results are disappointing in the quarter. We have over the last few quarters we have reported sales growth in line with market growth. But this quarter we clearly see that sales growth is coming in at only 3% while the market is growing 4.5%. And the explanation, the key explanation behind this is the automation start-up challenges that we have seen in our warehouse in Norrkoping. And this is something we talked about when we presented the quarter 2 results and we have seen that we have got a material impact from this in the third quarter.

I also want to take you through a few highlights that we see in the market, starting with online. And as I said, we continue to have a strong performance when it comes to online growth. We are up 38% in the quarter. And we now see that our share in the active online stores is above 3%. We have close to 300 stores now working with online and in the Stockholm area, more than 60 of these stores are now served out of our e-commerce warehouse south of Stockholm. And I think it's fair to say that the e-commerce warehouse from a sales perspective has been a very important step. And based on that, we are now taking 2 further steps in this direction. First of all, we're going to open a new e-commerce warehouse in Gothenburg next year and in 2022 we will in partnership with Ocado open our customer fulfillment center, a fully automated e-commerce warehouse that will serve our customers.

So if we look at little bit on the facts here, first of all, we continue to show good growth numbers. If we look year-to-date, we are up 36%. And we have a very strong position. We are overall market leaders and we are particularly strong in the regions outside the big metropolitan areas. Another fact is that the large part of the market here is in the larger cities like Stockholm and Gothenburg, which represents more than 60% of the market. And therefore, of course, it's important for us to have a strong presence. And what we see is that since we established the e-commerce warehouse in Stockholm, we have seen very good growth numbers, more than 100% over the last 12 months. And therefore, it is a very natural step to now build 2 further e-commerce warehouses.

Partnerships is another thing that we have underlined the last 2 years. We have the partnership with Ocado, but we are also now going for an important partnership when it comes to our bank business. And this is building a mortgage company with 4 other successful players in the bank area. Niche players like Alandsbanken, Ikano Bank, Soderberg & Partners and Borgo, Borgo being a smaller start-up company. So we will have a new mortgage platform, a new mortgage company ready during end of next year and this will give us a much stronger position and a much better position when it comes to building a strong customer offer in the mortgage area. But we also know that this is an important step for all parts of our bank business and also for ICA Gruppen overall.

We have a good starting point, our bank being ranked as the second strongest bank when it comes to customer satisfaction and it's also important to say that in the transition period here, when we are moving away from SBAB solution to the new mortgage solution, we will have an interim solution with Alandsbanken and of course we will have some costs and start-up costs for the new mortgage company in relation to this during next year.

Another thing is the changes that we see on the customer side, and what we see now is particularly strong growth when it comes to meat alternatives. Actually, we have seen an increase in people who want to buy these kind of products by 40% over the last 12 months. And we also see strong sales increases when it comes to fresh and frozen vegetarian food. And if you just play a little bit with the numbers here and say that if this growth will continue for the coming years, we will actually see this market being as big as the chicken market, the overall chicken market, already in 2025. And we, of course, want to be in the forefront here. So this year we will launch some 50 new private label products within this area and you see a few examples here on the picture.

So with that, I hand over to you, Sven, and we're going to look at the financials.

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [3]

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Thank you, Per. Good morning, everybody. And I will start then with an overview of some of the key financial KPIs in the quarter like I usually do. So Per mentioned a net sales growth number in comparable terms, so adjusting for the divestment of Hemtex in the order of 4%, you will see our reported EBIT some SEK 50 million up compared to last year at an EBIT margin which is more or less exactly the same as what we reported in the third quarter of last year.

So it means that we have some positive impact then on our EBIT development from growing sales, also some further improvement in our gross margins and then that is reinvested also in additional costs related to our large business development initiatives: e-commerce, digitalization and so on. You see also a good cash flow being reported in this quarter, although in all fairness it should be said that there is quite a significant calendar impact on that number and I will come back to that a bit later on.

Then earnings per share you see also there a nice increase compared to the third quarter of last year, of course with some positive impact from growing EBIT. But there is also some improvement in financial net, as you will see in the report. But there is also, of course, the impact some of you if you look back on the third quarter report last year that we had some write-downs, some impairments related to real estate assets at that time, which we didn't have in the third quarter of this year. So that is, of course, also affecting the comparison.

Then going to the simplified variance analysis, so just like previous quarters, recent quarters, the volume impact on our EBIT progress is fairly limited. As you can see on this slide, on the other hand there's continued good progress in terms of margin. That's basically from most of our businesses, Apotek Hjartat this quarter being the exception and of course I'm coming back to that later on. Store costs up close to SEK 80 million, not an exceptional number. A large part of that, by far the largest part is coming from the Baltics. And then you see the other costs up by some SEK 130 million compared to last year. It's a relatively large increase, although if you look back at the third quarter of last year, you will see that there was a one-off impact in the bank of some SEK 30 million which has an impact on this number. But even if we exclude that, we see a cost increase in other costs of some SEK 100 million compared to last year. And it also that a relatively high number. Some of you may recall that in the third quarter report of last year we were talking a lot about cost savings, keeping our cost increases to a minimum and so on. Of course, we were then coming out from a relatively weak first half year of last year and there was a lot of focus on keeping costs to a minimum. Now this year the situation is different. Of course, cost efficiency is equally important this year, but we are now coming from a first half year with a very strong result recovery. So for that reason, it's natural that we are scaling up on our investments in projects, and costs and so on, which we believe are very important for the future of the business.

And then there is this item of SEK 17 million positive. It's similar to the previous 2 quarters, depreciation lower due to the fact that the useful lives of some assets in the real estate business have been revised. And acquisition and divestment effects in aggregate some SEK 15 million negative effect compared to last year. On the one hand, then the Min Doktor acquisition, so our share of the losses in Min Doktor, but there is also a small Hemtex impact where we made a gain in the third quarter of last year, which we don't have in the third quarter this year, obviously due to the divestment.

Then going briefly through the segments one by one and starting with ICA Sweden and as Per said before, a relatively good quarter in ICA Sweden. Net sales growth close to 4%, EBIT up 7%, almost 7% in absolute terms and you can see also the EBIT margin improving slightly compared to the third quarter of last year, which we saw as a good quarter in itself. And of course, we get the good contribution here both from the sales increases, but also from the fact that from a logistics and distribution point of view, the third quarter this year was very different to last year. Last year, you remember with the very warm summer, also with an impact on the third quarter we were talking a lot about turbulence in logistics and distribution, high volatility of delivery volumes and so on. This third quarter has been very different, so it means that our shrink numbers have been much better. We have, in fact, also reduced our obsolescence provision in the business. And in terms of logistic costs, of course, logistic costs also in this quarter with growing volumes, still growing inflation, logistics costs are up, but not nearly as much as what we have seen maybe in previous quarters and during last year and so on. And efficiency, the key reason then efficiency being much improved compared to last year. And of course the cost inflation that we saw in our numbers last year, that has by now been carried forward also to our customers.

So that means with a good underlying improvement in gross profit in ICA Sweden, we have also been able to scale up our investments in these large projects and large digitalization initiatives, the e-commerce and so on that Per also referred to before.

Then going to Rimi Baltics, also here a very good quarter. Now net sales up in local currency by some 3%. And as Per said, these numbers may be not exactly in line with our ambitions, but we have still this negative impact from the store conversions in Latvia. They have now been concluded, but there is still a quite significant impact in the third quarter compared to last year. Still, in terms of EBIT and EBIT margin, a very strong improvement compared to last year, as you can see in the table here on the right-hand side. So that we're looking at the EBIT, good improvement coming from the assortment mix, private label margins improving, also efficiency and not least the campaign efficiency improving with a good impact on our EBIT progress. We still incur some additional costs related to our warehouse expansion project in Latvia. We still see relatively high salary inflation in the Baltics and the store conversions that I talked about before with some negative impact on net sales. It has, in fact, also some negative impact on our costs in this quarter.

But then going to the pharmacy segment, and as Per said, a very challenging quarter very much related then to these automation issues, the issues in our new automated warehouse. So net sales up on a comparable basis in the order of 3%, which is of course much lower than what we have seen previously and much lower than our target. But it's of course very much related then to the automation issues. Maybe it should also be mentioned that also Apotek Hjartat was very positively affected by the good weather during last summer and last third quarter last year. So there's some impact of that as well.

But you see the EBIT numbers and the EBIT margin numbers are of course very much below last year and below our ambitions. There is still some positive effect that prescribed drug sales have been unaffected by these automation issues, but of course, the traded goods sales are down quite significantly compared to last year. So that is a negative impact clearly on our EBIT. Furthermore, we are then incurring additional costs, very much in the logistics and distribution area related to this. And we have also concluded that it's important that we still continue our investments for the future, so in e-commerce, digitalization and so on. So we have not scaled back that during the quarter. So that then in connection and together with our share of the Min Doktor results which we didn't have last year, it was some SEK 10 million; that is then the explanation for this EBIT development.

And just a few more words concerning then these automation issues, as Per said, we mentioned this already when we reported the second quarter results. But that was only at the start of the third quarter obviously. Some of you know that we have been running a kind of large-scale automation project in the pharmacy segment. We had a targeted go-live in the second quarter of this year, the plan then to go from a manual operation to a fully automated operation, and at the same time also changing the warehouse management system. And what happened, as happens sometimes with these sort of large-scale complex projects, is that we were running into delays just before the summer and we were then coming into the summer period and it had a large impact on our traded good sales, as I said, costs much higher due to additional costs and so on. And of course inefficiency, we are operating not at all at targeted efficiency, but also not at the efficiency that we were running at last year when we were running a manual operation.

So then what we have done in the pharmacy segment, of course, we had to stop the ramp-up of the automation and we also had to roll back sort of part of the assortment, which had already been moved to automation, we had to roll back to a manual handling. That meant then that we are building up a backlog of orders. Of course there has been a full focus on keeping the backlog down and reducing the backlog as much as possible. But being in the middle of summer, it has been quite challenging. Work has also, of course, been on stabilizing the system so that we can move further and we can say by the start of September we could see that the delivery problems had been solved and then it took a couple of more weeks before we had, say, full stabilization. And we could see that we had the delivery capacity that we need in the business. But by then, we were basically by the end of September. So it means that there was a large impact in the third quarter.

Now moving into the fourth quarter, we can now see that we can resume the ramp-up of the automation, but we will then sort of gradually improve this. We will still have some double-running costs of systems and so on also in the fourth quarter, even if we see that we believe that we are now clearly on the right track and ready to move forward with the ramp-up of the automation, then to be finished in the first quarter of next year, according to our plans.

Then going to real estate in a much more stable quarter, some increase in our income both in our own business, but also our joint venture businesses. Also operating costs being somewhat higher, so the EBIT growth that you see in this table is in fact very much then related to this lower depreciation that I talked about before related to the revised useful lives of fixed assets.

And then going to the bank finally, another good quarter, good growth continuing both in the bank in the insurance business. Still, you see the EBIT here in the table being at exactly the same level as the third quarter of last year. But if you then look back at the report of the third quarter last year, we'll see that we had a very significant one-off item, then this SEK 30 million. In all fairness, it should be said we had also a bit of a one-off effect this quarter, a credit loss provision released some SEK 10 million. But that means still that the one-off effect of last year was much bigger than what we had this quarter. So we still see on an underlying basis our EBIT is improving nicely in the bank, very much volume-driven. There's of course also some impact coming from the repo rate increase since last year. We see also slightly higher costs in the bank. We're also investing for the future in the bank, but still on an underlying basis, a good improvement in our EBIT.

So then the cash flow, and as I said before a very good quarter in terms of cash flow. Earnings up, also our financial net up due to a successful refinancing that we have done recently, we have reported also about in previous quarters. We have also our paid tax being lower this quarter. I think we mentioned that in the report of the second quarter as well. And that is related to sort of old deferred tax losses which have been blocked up to the summer of 2019, but we are now able to use them. So that means our paid tax is lower for this quarter and will be so also for the fourth quarter of this year.

And then the positive working capital movement, although as I said, to a large extent in fact related to calendar where we saw that we started the quarter with relatively high accounts receivable positions. Whereas now, due to the cut-off of the quarter, we ended the third quarter with much lower accounts receivable, so a good inflow from that. There is also some underlying improvement still positive effects from our supply chain financing program, but not to the same extent as last year when you know we were starting the project and we were ramping it up and so on. Still this good cash flow, of course, means that our net debt as well as our net debt ratio to EBITDA, they are continuing to move down and that is whether you look at it before IFRS 16 or after IFRS 16. As you will see from the report, indebtedness is continuing down.

So finally then, looking at where we are compared to our long-term financial targets in terms of growing faster than the market, by the end of September on a rolling 12-month basis in Sweden we are growing faster than the market. In the Baltics, not yet, maybe still also in this quarter with the impact of the store conversions in Latvia that is where we see the biggest difference. In the pharmacy segment, also slightly below market growth now, following this third quarter. Whereas EBIT margin, very close to the long-term financial target and return on capital employed as well as indebtedness, as I said before, very well within the financial targets and continuing to improve if you compare to where we were at the end of the second quarter this year.

So with that, back to you, Per.

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Per Strömberg, ICA Gruppen AB (publ) - CEO [4]

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Thank you, Sven. And just a few final comments, starting with the outlook. So if we start with ICA Sweden, you all know that we have implemented a new organization, a new way of working for ICA Sweden. And we started that up some 3 months ago and it's working well. And going forward we will now be able to leverage the benefits of this new organization. We will also, of course, continue to invest in the future in digitalization and business development. We will continue with the ramp-up of our e-commerce warehouse where we have had some challenges with efficiency. But on the other hand, volume growth has been very strong. And we're going to have 8 to 10 store openings during the year.

For Rimi Baltic, we will continue to see high salary inflation numbers. And that, of course, means for us that we need to work very hard on the efficiency side and we have been very successful with that over the past few quarters. We have as we speak, launched our e-commerce pilot in Latvia. So it's now available for our customers. And we also are working hard when it comes to convenience, both establishing more Rimi Express stores, but also developing our meal solution offer. And of course, Lidl will as it looks, launch both in Latvia and Estonia next year. And of course, we are preparing ourselves for their entry. And we will have 10 to 11 store openings this year.

On the pharmacy side, the main focus is obvious. We need to fix all of the automation challenges that we have seen now in the end of the second quarter and particularly in the beginning of the third quarter, so that we get it running and that we get to the efficiency numbers where we want to be longer term. We're also going to continue to invest here. It's online, it's last mile, it's advanced analytics, artificial intelligence; but also an expansion of our Min Doktor clinics. And we're going to open 8 more clinics during the fourth quarter, meaning that we will end up at some 20 clinics by the end of the year. We will also have launched 6 new pharmacies in 2019.

For real estate, we will continue to focus on increasing our presence in metropolitan areas and as Sven has talked about, we get this positive one-time effect of the revised estimates of the useful life of fixed assets of around SEK 60 million for the year.

On the bank side, strong focus now on setting up the new mortgage solution and short-term this transition phase that we're going to have with Alandsbanken will mean some extra costs from our perspective. And of course, also setting up this new mortgage solution will also drive some extra cost. And we will come back to that and talk about that a little bit more when we have the Capital Market Day in December.

On the insurance side, we continue to see good growth. We are strengthening and building our market share here and that's going to be our main focus also going forward. And if we look at the group cost, we are committed to our guidance here of some SEK 460 million for 2019.

So to sum it up, this is another solid quarter from ICA. We see solid profit development. We see strong growth, particularly for the ICA stores when it comes to online sales. And a key thing that we have announced for the future is the establishment of this joint venture and mortgage company that we're going to launch by the end of next year.

So that's the report. Back to you, Frans. And do we have any questions?

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Questions and Answers

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [1]

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We have indeed, actually. It's been a, perhaps a stable and good quarter for ICA Gruppen, but a very bad quarter for phone conference service providers. We're sorry about that. But we have received a number of questions through the webcast. The first one comes from Gustav Sandstrom, SEB. And he says, good morning, guys. Should we expect the negative volume growth in ICA Sweden store network which looks to have been around negative 1% in Q2 and Q3, to reverse in Q4 as food price inflation now seems to ease somewhat?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [2]

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I mean I would agree with your comment, Gustav. Normally what we see is when inflation starts to come down, volumes will start to come up. And longer term, we would like to see a volume growth of around 1%.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [3]

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And we have another question from Julian Sallmard from Man GLG. He also asked about volume developments in Sweden. I guess we can say that that question has been answered. Next question comes from Stellan Hellstrom at Nordea. Year-over-year, how much is logistics costs up for ICA Sweden, and can you also say how much the logistics fee to retailers is up, or if you can just way which is up most year-over-year? That's the first question, so I guess we start with that one.

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [4]

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And the question is exactly how much details we want to say on this. But I think Frans, we could say that this quarter we have basically been in balance. So we have a continued increase in cost, but much lower than what we saw during last year when we were quarter-over-quarter. And with this recovery of the inflation of last year, we are basically in balance in this quarter. That is of course very different to what we saw last year.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [5]

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Yes, that's correct. And for Rimi Baltic and this is still Stellan Hellstrom. For Rimi Baltic, sales in comparable stores is up less than food inflation. Are the weak volumes only due to store conversions, or do you see this as an indication that your price position could need some adjustment?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [6]

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We have had weaker sales development than we would like to see. Most of it we can, as Sven and I have talked about, explain by the store conversion, Supernettos becoming Rimi stores, and that we typically had quite a substantial loss in the beginning and it takes time to build it back. And we are still in the middle of getting these stores up when it comes to sales. We have also seen quite a few refurbishments, both in Estonia and Latvia, and that's also had an impact on the numbers when stores are closed for a certain period. But all that said, you know we would still like to see somewhat higher growth. And as you said, inflation numbers in the last quarter were around 4%. Of course, that tends to bring volume growth a little bit -- it will put pressure on volume growth. I think that's what we can say, Sven. Do you want to add anything?

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [7]

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No, that's fine.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [8]

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Next question comes from Nicolaus Champ at Barclays. He has actually 3 questions. The first one is, where do you see food inflation trending in Sweden over the coming quarters? Yes, let's start with that one.

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Per Strömberg, ICA Gruppen AB (publ) - CEO [9]

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Yes, I mean as I said, food inflation in the third quarter was 3.3%. But it was actually coming down month by month. It was a bit lower when we ended September. And longer term, we are talking about 2% to 2.5% probably this year, given that we have had very weak Swedish krona and also some substantial increases on raw material prices, we will end up a little bit higher this year. But we expect it to come down. We will see exactly where it ends up this year.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [10]

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And the second question concerns volumes here as well. And given that your sales volume growth is negative in both ICA Sweden and Rimi Baltic, how are you confident that you will maintain profitability? So I guess how will volume development affect profitability going forward?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [11]

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Yes, and I think we basically touched on that. But we have seen high inflation numbers. That always puts some pressure on volumes. But as inflation will start to come down, especially for Sweden or that what we are expecting, volume numbers should come back. And it's important to say, you know, in Sweden we are growing in line with the market, so it's not that we are losing market share.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [12]

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And the third question from Nicolaus is, looking at your working capital variation over the first 9 months, there is a significant inflow from receivables. How do you explain this strong inflow?

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [13]

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I would say it's very much a calendar impact. So we can have sort of quite large swings in our accounts receivable from month to month. So I would say it's a relatively high one that we see now. But we have seen that before. So that is normal in our business. And it's very much to do then with cut-off dates and so on, how many days of accounts receivable, what day of the month, is it a weekday or is it sort of a Sunday or so on that we are closing the month on. So there are no other underlying sort of movements and so on in our accounts receivable.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [14]

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And that could, of course, be quite large swings from time to time. Thank you. Next question comes from [Frederick Iverson at ABG]. On Apotek Hjartat, the pharmacy business, even adjusting for the hiccup in the new distribution center and Min Doktor, the margin is down quite a bit. Can you elaborate a little bit on that and also help us understand the magnitude of additional costs to expect in Q4 and Q1?

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [15]

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Now, what we can say is of course that the mix impact is relatively important also on our numbers. There is also this impact that we have talked about before concerning high-priced prescribed drugs and so on, which are diluting our margin somewhat. In all fairness, it should also be said that establishing exactly what the impact of this automation issues have been with both in terms of sales and exactly in terms of lost efficiency and so on, is quite difficult. But I think it's fair to say that we expect or we see that the margins are relatively stable on an underlying basis, if we adjust for that. So there's otherwise nothing of the ordinary -- we don't have any other sort of significant one-off items or underlying trend or so on in the business. Now going forward, as I said, of course, we are targeting with this investment not only coming back to the efficiency that we had last year, but we should improve by Q1, by the end of Q1 when we have finalized this transition, efficiency should clearly be improved. But up until, say, the period up until the end of the first quarter it's, of course, difficult exactly to say, but clearly I think we can say that in the fourth quarter seeing where we are now, having sort of recovered from the difficulties during the summer, we're resuming the ramp-up of the automation again, we clearly expect the impact to be much less materially in the fourth quarter. Although still some negative effect in the fourth quarter, I would say, before we are sort of fully automated.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [16]

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Frederick's second question concerns the online growth for the pharmacy in the quarter, which was of course much lower than the numbers we have seen previously, where we have beaten market. And his question is, is this due to the automation problems?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [17]

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And the short answer is yes. We have also had a significant impact. We had to cancel a lot of the campaigns that we would otherwise have run in the markets. So this will, of course, going forward, also look much better than we have seen in the third quarter.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [18]

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And the last and final question from Frederick is in Rimi you have been improving the private label margin for quite some time now. Do you see further margin upside in terms of private label in the Rimi Baltic business?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [19]

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It's an area where we always will work. But as he said in the question, you know, we have seen substantial improvement and we are not going to give a forecast whether that's going to -- you know, the pace will continue. But it's an area where we have strong continued focus. Let's put it like that.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [20]

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Next question comes from Carole Madjo with Exane BNP Paribas. ICA Sweden, you're still not gaining market share in Sweden. Are you thinking of doing some initiatives in order to regain some competitiveness? Could price investment be a solution? And do you feel like consumers have become more price sensitive in Sweden?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [21]

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I don't think we can say that consumers are becoming more price sensitive. What we see is a normal reaction. When prices are going up a little bit more, you know, volume increases are more moderate or even negative. But whether we are planning for initiatives when it comes to price, that's never something that we will talk in advance. What we can say is that we have a solid market share development. We are not gaining. We would like to see a little bit more. But on a rolling 12-month basis, we are actually still a little bit up also when it comes to market shares.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [22]

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Thank you. The second question from Carole is Rimi Baltics. I think you mentioned that your level of sales on promotion was around 40% last quarter in Latvia. That is generally, I should add, for the old Rimi Baltic business would be around last year at least. Can you tell us what it is now and if you're happy with this current level? And I can actually answer that directly.

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Per Strömberg, ICA Gruppen AB (publ) - CEO [23]

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You can do that, Frans.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [24]

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Thank you, Per. It's below 40 now. It's somewhere between 38 and 39. So it has come down further a little bit compared to last year.

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Per Strömberg, ICA Gruppen AB (publ) - CEO [25]

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Of course, it's a focus area for us and it's also an important step when it comes to the Lidl entry.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [26]

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And final question from Carole is concerning the pharmacy business. Could you quantify the costs that you expect from the warehouse disruption in Q4? That was a question that we talked about before, I guess.

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [27]

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Yes, as I said, we expect a significantly lower negative impact for the fourth quarter. Obviously, anybody understands that I cannot quantify exactly. But clearly we expect a significantly lower number, although likely also some negative impact in the fourth quarter.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [28]

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And Daniel Schmidt from Danske Bank next question, good morning. What should we expect in terms of extra costs for the pharma business for Q4? So it's the same question again. And he has just pinpointed that we have written considerably lower. But I think we have run through that, so we don't need to revisit that one.

We have a question from [Alex at Schoenfeld]. Can you comment on the key margin drivers in Rimi Baltic and how we should think about profitability development in Q4 and 2020? With the various moving parts of competitive dynamic, own logistic costs; thoughts around market growth and product mix, private label, et cetera?

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [29]

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No, so I think maybe the way I see, both Per and I, we tried basically to comment upon that. Now we are of course preparing ourselves for the expected Lidl entry into Latvia and Estonia. And as Per said, we are still incurring also quite high salary inflation pressure. So it's extremely important that we continue to work with efficiency. Now we have done so successfully in a number of quarters. We have come back and we have reported about success. And of course, as Per said before, doing still further things on private label, assortment harmonization, also working a lot with obviously even if, as Frans said, our promotion share is coming down. Still, 38-39% is still a high number. There's clearly more work to be done there. And that will be very important going forward. So our ambition will, of course, be that we're going into next year in a very strong position. We believe that as will then face new competition that we are going into that situation from a very strong point of view. Then we will need to see. Very likely we will need to invest a bit when we are facing competition. But at this point of time that's of course very, very difficult to say exactly how much and also disclosing exactly how we will do or what we will do. That everybody will understand is also not a good idea to do. But I think the key thing, as Per said before, that we need to continue to work very, very focused with efficiency improvements also going next year.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [30]

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And the last question that has come in comes from [Reyda Molta] in Norway, who asks, when the e-commerce business in Sweden will be profitable. That's an old one. And what is your total investment in e-commerce so far, including sunken costs?

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Sven Lindskog, ICA Gruppen AB (publ) - CFO [31]

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Yes, and as I think we have said many times, we're not going to reveal a date where or when our online business will be profitable. We are doing big investments as we speak, and we will continue to do big investments. You know, we talked about 2 new e-commerce warehouses. We talked about the Ocado partnership, et cetera. But we believe in this business. We believe it adds value. It increases loyalty with our customers. So in the end, it's going to be a good business also for ICA.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [32]

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Thank you. That concludes the Q&A session because there are no more questions. If you could?

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Per Strömberg, ICA Gruppen AB (publ) - CEO [33]

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Yes, we have a final page, right. We refer to the Capital Market Day, Frans.

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Frans Benson, ICA Gruppen AB (publ) - Head of IR [34]

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Yes, before closing this, just to remind you that December 11 we will host this year's Investor Day or Capital Markets Day in our building here where we stand right now, actually. And just a reminder to sign up for that. It's going to be good, as usual.

And with that, we close this and once again, we are very sorry about the technical problems that we have experienced. It's out of our hands. But it's very unfortunate, of course. So thank you and see you in December.