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Good morning, ladies and gentlemen, and welcome to the conference call regarding the first quarter results 2018/'19 of the Hornbach Group. [Operator Instructions] Let me now turn the floor over to your host, Mr. Axel Müller.
Yes. Thank you. Good morning, everybody. My name is Axel Müller. I'm in charge of Investor Relations, and I'm sitting together with the CFO of the company, Roland Pelka. Today morning, we released our first quarter results, and we experienced some challenging conditions in this quarter. Roland will shed or bring some more color on the picture, and that's why I would like to hand over to Roland.
Yes. Thank you, Axel. Good morning, ladies and gentlemen. All in all, we are satisfied with our results for the first quarter of the new financial year. Despite a very weak performance in March due to weather conditions. Over the quarter as a whole, we managed to make up ground and meet our sales and earnings targets. The forecast we made for the current financial year in our annual report for the past financial year are still valid. Before we begin the discussion and you ask your questions, I would like to start by offering you a very brief overview of the most important facts.In the first quarter, we launched operations at 2 new large former Hornbach DIY stores in Switzerland and The Netherlands. We also closed an uncompetitive small former Compact store in Alzey. The reporting date on May 31, the total number of Hornbach DIY stores, therefore, rose to 157. These are located in 9 European countries and have total sales areas of 1.845 million square meters.The number of builders' merchant outlets operated by Hornbach Baustoff Union remains unchanged at 29. Sales at the Hornbach Holding Group rose by 2.7% to EUR 1.227 billion. The figure for the overall group also includes Hornbach Baustoff Union, which maintains its sales at the previous year's level at EUR 64.6 million. Sales at the most important subgroup, Hornbach Baumarkt AG, increased year-on-year by EUR 2.8% to EUR 1.162 billion.Like-for-like sales developed as follows. Due to poor weather conditions, we took a knock in March and were confronted with an 11.7% downturn in sales. Fortunately, we were able to make up for the setback in subsequent months. Our sales rose by 14.8% in April, and we concluded May with year-on-year sales growth of 3.3%. At the end of the first 3 months, our like-for-like sales growth came to 2.3%. First quarter sales in Germany basically remained at the previous year's level. While outside Germany, we managed to increase our like-for-like sales in constant currencies by 5.2% overall.Let's now turn to our earnings performance and start by looking at the Hornbach Baumarkt subgroup. Given a 73 base point reduction in our gross margin and a scheduled increase in store administration and preopening expenses, operating earnings before interest and taxes, EBIT, came to EUR 65.2 million as against EUR 77.6 million in the previous year. We met our earnings targets for Hornbach Baumarkt in the first quarter. This also holds true for the key earnings figures of -- at the overall Hornbach Holding Group, which posted EBIT of EUR 79.3 million as against EUR 92.7 million in the previous year.First quarter earnings before taxes at the overall group came to EUR 72.8 million. Consolidated net income amounted to EUR 53.7 million. The group invested a total of EUR 69 million, mainly in plant and office equipment, in the first 3 months of the current financial year. The equity ratios remained high as of May 31 and amounted to 53.7% at the overall group and 50.9% at the Hornbach Baumarkt subgroup. Cash and cash equivalents totaled EUR 225 million at the overall group and EUR 162 million at the Hornbach Baumarkt subgroup. Net debt as of May 31 amount to EUR 393 million at the overall group and EUR 263 million at the Hornbach Baumarkt subgroup.That brings me to the end of my introduction and thus to our outlook. What do we now expect? In the third quarter, we will be launching operations at the Hornbach DIY store in Sweden. By the end of the financial year, the total number of Hornbach DIY stores will therefore rise to 158. Once conversion work is completed, Hornbach Baustoff Union will be newly opening a further location in the [Odenwaldkreis] region. Despite a more difficult start to the new financial year due to weather conditions, our full year outlook is unchanged on the forecast made in the management report for the past financial year. We still expect to generate sales growth in the medium single-digit percentage range and that's both at the Hornbach Group and at the Hornbach Baumarkt subgroup. We also still expect adjusted operating earnings, both at the Hornbach Baumarkt and at the overall Hornbach Group to match the level reported for the 2017/2018 financial year.That brings me to the end of my comments. Together with Axel, I would be glad to answer any questions you have. Many thanks for listening.
[Operator Instructions] And we have our first question for today from Juergen Elfers, who's calling from the Commerzbank.
I would like to ask whether you could please share with us your like-for-like performance in the respective international markets.
The like-for-like performance in the various countries in the first quarter of the current financial year were as follows: in Germany, as I said, we were flat, minus 0.2%, in the first quarter. And in Austria, we had a slight minus, 1 -- with 1.5%. Netherlands, were extremely positive with a plus of 11.5%. Switzerland was positive with a plus 1.2%. Sweden was very positive with 6.8%-plus. The Czech Republic was also very positive with a plus of 8.3%. Slovakia, extremely positive with a plus 9.3%. And Romania, also very positive with 5.8%-plus in the first quarter.
All right. And Luxembourg is still a negative territory, I assume, due to the new BAUHAUS store next door.
Sorry, I forgot Luxembourg, still small, though Luxembourg is positive with 0.6%.
0.6%. Okay, right. Then I would like to sort of ask for some background on the gross margin decline by 70 basis points, please.
The decline in the gross margin of 73 basis points in the first month is mainly due to higher purchasing costs, an increase in purchasing costs, and we couldn't pass on the higher purchasing costs on our sales prices, selling prices. That is -- this is the main reason for the lower gross margin in the first 3 months. In addition, we had negative foreign exchange effects in Switzerland and in Sweden, especially. And -- but the main reason is higher purchasing costs which couldn't pass on, on the selling prices.
Can I ask, Mr. Pelka, is that a specific situation on -- in Germany? Or is that virtually across-the-board in all markets that you operate?
That's across-the-board in all markets where we have operations.
Oh, okay, okay. So that's driven by wage hikes predominantly? Or what's the reason for the higher sourcing costs?
The higher sourcing costs, the reason is, okay, there is a pressure on the sourcing costs. We -- it began last year and it's continuing now this year. We expected this, so we already planned a lower gross margin the first -- or for this year. But due to the competitive situation, especially in Germany now, this is -- we couldn't -- can't pass on the higher purchasing costs to the selling price.
Okay. Then one final question, if I may, and that's on the CapEx number, which was coming in pretty highly, shall I say, at EUR 69 million for the holding and almost EUR 65 million for the Baumarkt. If I'm not mistaken, that's been the highest quarterly CapEx also since Q1 2007/2008, i.e., before you started to think of transforming the business and making the business fit for the digital era of retailing. Is that a shift? Or do we just need to read into the numbers that there have been opportunities that you had to grab rather than changing the view and investing more into plots of land and real estate?
The main reason for the higher CapEx in the first quarter is just one transaction, which was the purchasing of a piece of land, including the building in Switzerland in the area of Zurich, where we had -- we formed an excellent opportunity to grab a very good location for our business. This is the main reason for the higher CapEx.
So is it fair to assume then that the plot of land at Zurich and the building on it have assumed the vast majority of CapEx?
Exactly.
Okay, okay. You wouldn't want to share the magnitude of the amount spent for this particular plot?
It's approximately half of the total CapEx in the first quarter.
Next up, we have Christian Bruns, who's calling from equinet.
This is Christian Bruns from equinet. I have an additional question on your digitalization expenses. Were they -- were these expenses the reason for the higher administration costs or were there other reasons? And maybe a follow-up on the sourcing costs because I don't really have an idea why your sourcing costs are -- why sourcing costs generally go up.
Yes. First of all, the digitalization cost in the first quarter were slightly higher compared to the previous year but in plan for the current [fiscal year] and approximately EUR 2 million higher compared to the previous year. The main reason for the higher operating expenses are the higher personnel costs in our stores, yes?
Okay. Yes, and on the sourcing cost...
Sourcing costs, as I explained, already explained, are increasing in Germany and in other countries. In Sweden and in Switzerland, we are also faced with negative foreign exchange impacts due to a lower Swiss franc against the euro and a similar situation in Sweden, which increases purchasing costs in those countries. And generally speaking, where we have most of our vendors on -- try to pass on higher production costs, manufacturing costs for whatever reasons due to higher wages, salaries, whatever, and we had to accept this.
And do you plan to source more from Asia, where you should have a positive impact from exchange rate?
No, we source. We have a buying office in Hong Kong and approximately EUR 100 million, EUR 120 million per year comes from Asia. And the number is increasing a little bit, but it's not so much. You can't just replace European vendors by Asian vendors. It's impossible and makes no sense for various reasons.
Could you repeat the number, what do you source from Asia? What -- I didn't get the number.
Approximately -- the volume per year is approximately EUR 120 million.
Okay, okay. And if I may follow up on the Compact store. You closed the Compact store and I think it was a time ago that you gave update on the development of the smaller concept stores. Is it generally -- is this experiment finished?
No, it's not finished, but it's still an experiment. So we still have 2 Hornbach Compact stores open and -- but it's not -- it's not a situation that we can do a rollout with this new format. It's not working.
We don't currently have any more questions -- oh, I see actually one just appeared again. [Operator Instructions] And we have a follow-up question from Juergen Elfers from Commerzbank.
Yes. Mr. Pelka, you just mentioned the increase in the ICR project cost by roughly EUR 2 million. Last year, you digested EUR 30 million in the first half. Should we expect another similar increase in the second quarter? And could you also probably share the Q1 this year absolute cost level?
The absolute costs the first quarter last year, EUR 30 million. That's...
No, that was H1. That was the first half. I didn't -- we didn't get the breakdown of sales between...
That number is not correct. So last -- this year, we had approximately -- we had EUR 17 million. This is EUR 2 million more compared to the previous year first quarter.
Right, right. Okay. And we had like EUR 30.4 million in the first half, if I'm not mistaken. So would you expect a similar rise in the second quarter so that H1 would probably arrive at like EUR 34 million to EUR 35 million? Would that be in the ballpark?
Yes, I think this is a fair opinion -- assumption.
And next up, we have Thomas Maul from DZ Bank.
I have one again on the sourcing issue. In your annual report, you highlight that you will further try to increase import volumes to stabilize gross margin. And today, you mentioned that it is actually not that easy to buy more product in Asia. So how can you increase your input volumes? What are you trying to do?
We are increasing our import volumes from Asia. That's -- it's an increasing number. We have this buying office now in place, it's a couple of years, in Hong Kong and they do a great job. And with this buying office, we have a better access to Asian manufacturers and so on. And -- but this is a number which is an increasing number, but it's not a number which is exploding, yes?
[Operator Instructions]
Is there anybody who would like to pose some questions? Anything left?
I think that's all the questions we have for today. Looks like no one else is stepping forward.
Okay. So it seems to be quite a very brief round today. So we were glad that you were in the call. And yes, next news flow will be for the second -- for the first half of the fiscal year '18/'19. We will release the numbers on September 27. Yes, thanks for being with us, and we keep in touch. Thank you. Bye-bye.
Thank you. Bye-bye.