Hema - 10 points from the call

All,

Hema had a few comments today that stood out to us:

1) The new distribution centre will be taken over in February. But it seems that much of the business it is designed to handle (Franprix, Jumbo, online) will only ramp up over the coming 1.5 years. So it will likely weigh further on margins for some time. 

2) Management used the words: 2020 will be “very much a transition year”. That does not sound good at all.

3) The Q4 WC benefit from “saving" one VAT payment (+ other related payments) will be around E35m. We had assumed only E20m.

4) The payment for the 17 stores to be gradually transferred to Jumbo will be made in the “near term”, which sounded like this year.

5) Ramphastos will apparently not be repaying the PIK until June 2020. So that issue will remain with us for some time longer. Also the company’s inability to surround that news bite with any further colour feels a little unfortunate. 

6) The WC benefit in Q3 is here to stay and to a large extent owed to the annualisation of the shorter payment terms introduced in Q318.

7) Staff costs should begin to see a tangible benefit from the new CLA agreement in Q4 and going forward. But overall we are likely going to increase our estimate for staff costs for 2020, both as a result of the new DC centre and due to management’s sheer unwillingness to provide us with any estimate of the expense. The switch to the bigger national CLA will only occur in late 2020, early 2021.

8) Embedded in Hema’s GP margins is a trade off between higher FX costs and lower buy-in margins. Hence the improvement.

9) With the targeted 2-10 m2 isle space Hema is to take at Jumbo and Jumbo’s average sales / sqm of E10k p.a., we estimate sales of E20m p.a. or GM = EBITDA potential of E9m, to be ramped up between H220 and H121.

10) Thus far Hema have realised cost savings of some E7m out of the E20m targeted.

Wolfgang