Good morning and welcome to Duell's webcast for the nine months and third quarter 2025 Financial Results webcast. We have here Magnus Miemois, CEO and CFO, Caj Malmsten, presenting the highlights of the financial report. My name is Pellervo Hämäläinen from Investor Relations. During the webcast, there is an opportunity to send questions from the chat in Finnish and English, and at the end of the presentation, we will come back to the questions in the Q&A session. I think we are ready to move on. Magnus and Caj, stage is yours.
Thank you, Pellervo. Good morning and welcome also on my behalf. The third quarter is normally the peak season in Duell's financial year. The third quarter that goes from March, April, and May. This is the peak season typically in our full year. Also this year, this was the highest activity of the season so far. However, during these months of March, April, and May, we saw a clear change in the dynamics in the market with respect to demand if we compare the first months and particularly the month of May. This, we believe, is partly shown up from the point of view that in the early months there in the third quarter, the activity is very much about delivering pre-orders that were agreed and committed earlier, and it is, let's say, execution phase of those.
Whereas in May, the market is more in the hands of so-called daily sales, meaning to which degree consumers are active on the shop floors of our dealers and what type of products and in which regions. Here we saw a clear shift between, let's say, March, April, and May, and a change which was not favorable. The demand in Nordics is still not developing favorably in our business. We also had some activities related to the overall product assortment, brand portfolio, and some changes in the distribution value chain there in France that also impacted this period. These dynamics in the market then, unfortunately, also impacted the rate of profitability during the period.
We can see overall in the market, and let's say overall consumer market, also looking at comments and looking at data from overall consumer confidence, this seems to be in this period starting to develop unfavorably in how consumers use their purchase power and what sort of categories and so forth. When we look a little bit, peel open and look into markets and product categories, we can note that in this type of dynamics in the market, it seems in our view that customers to us, dealers that are playing a broader area, they're serving perhaps a broader array of different types of consumers, they seem to have fared a little bit better compared to those who serve consumers very locally. This has to do with what type of price points, with which regions the activity then comes from. This is something we note.
Of course, in a good part of the Nordics, I'm calling in today from Mustasaari in the, let's say, west coast of Ostrobothnia, and it's not motorcycle riding weather today. The fact that we have had an unusually cold early summer has been against the activity of consumers on our dealer shop floors. This is something we can clearly note. On a more positive note, as many of you have picked up from earlier communications, our strategy is to gradually grow the business in Central Europe, where we think the potential is massive for Duell, and this success continues also in quarter three. More details about that here slightly later. We can also see that some of the product categories that Duell has continue to grow. The bicycle category has been on a positive note throughout the fiscal year, essentially every month, every quarter.
Of course, equally, bicycle market peaks in this quarter three, where essentially everybody that owns a bicycle used them actively in these summer months. Here also a slight change in the month of May, but still on positive growth trajectory. This is a category that we see with very positive perspective. If I'm allowed to highlight a few activities, a few elements of our business, also from the point of view that you get a little bit insight into what is behind the numbers, and with a few things to raise here, as usual. As I said, the growth in the Central European market continues. As a matter of fact, Central Europe was the clear star in quarter three in Duell's equation. This is very important for us to continue the strategic efforts, the investments we have done into achieving this, they continue to gradually pay off.
As said, the bicycle category is positive, particularly in the Nordics. You could say the trend of bicycling for various reasons is on a steady positive note. However, of course, we can also here note now recently some possible clouds on the sky with respect to market mechanisms and regimes that have so far had a positive support to this business. Now I'm talking about, particularly in Finland, the suggestion to change the bicycle benefit that many employers offer to their employees and the taxation impact of this change. That's, of course, unfortunate that otherwise positive drivers are, let's say, possibly taken back, and it remains to be seen what's the impact then for the sector. We note that this is a possible cloud on the sky around bicycle business going forward in the Nordics.
The third highlight is maybe a detail in the overall equation, but about 70% of Duell's business is technical parts. Of course, this is a huge array of different items because they are somewhat specific, for many of them are actually specific for the particular vehicle. It is a match to a make and a model. Availability of technical parts is a key value to our customers that do service on vehicles. We had decided to actually invest in a little bit higher inventory on certain, let's call them high runners, very popular parts that have a steady flow demand. We have done this in a couple of locations in our group. The results that we have seen on this is very positive, basically driving above average growth by ensuring that we have an improved service level.
This is good to see, but it also is maybe a good snapshot of the value positioning, the value chain positioning, and the value added Duell creates to its customers, particularly on these so-called hard parts, and where product availability is a very, very crucial part of the value creation model. The final highlight in this season of early spring and early summer season ahead or season ongoing, of course, is also the prime time for rider gear, motorcycle rider gear. Duell has a couple of house brands on rider gear, with Halvarssons being the largest one and the most, let's say, high-end one. This year also we have brought new products to the collection of Halvarssons rider gear, and the reception of these have been very positive in the market.
These products have their pedigree very strongly in the Nordics, and the brand is established in the Nordics. That is the, we could say, main market. We also note that these brands have been favoring or fared quite well in the U.K., where, let's say, the environmental situation is very, in many cases, very similar to Nordics, that you might have both rain and shine during your long ride. The product has found a good start also in the U.K. market. This is a good highlight in this period for also one of our important house brands, Halvarssons. If I then move to the key figures for the period there, both the quarter itself and the nine months cumulative, the growth continued. The growth continued, albeit in the quarter three, it slowed down.
The growth was marginal, but still growing year on year, reaching 38 and change in net sales, EUR 38.2 million. This slight slowdown, of course, also is seen on the year-to-date, where we had an over 4% growth in the first quarter. We were over 3% in the second quarter year-to-date, and now at three quarters year-to-date, then the rate is, if we round it off, 3%, slightly below, as you can note, reaching almost EUR 96 million. Again, here we see this trend in the end of Q3 with respect to consumer confidence.
This dynamic of consumer confidence, the dynamic of price points of the total blended array of products sold, the composition of which type of dealers favored stronger than others, the composition of which countries have a positive sign in front of their growth trend and which do not, this also affects the blended gross margin development in an unfavorable way. The blended margins were slightly lower than previous year. Since the quarter three is the dominant in volume, this also plays out in the year-to-date that it did not reach on a year-to-date level, the gross margins either. Equally, this is of a magnitude that it also trickles down to profitability to adjusted EBITDA that did not reach on the quarterly level nor on the year-to-date, the previous year's levels.
On the financial position, comparing to a year ago, the net debt is significantly lower. Duell is tending to and sticking to the debt repayment plans that we have agreed with our bank relations. This is going exactly as expected, as planned. At the end of quarter three, the leverage ratio was 3.4, the ratio of net debt -to -adjusted EBITDA. The cash flow profile improved. In this period, it is still slightly negative with the cycles of high volume of incoming goods versus before they are delivered to the market and payment settles. Comparing it to the previous year's similar period, this is an improvement. Overall, we are very happy and proud to see that we are continuing the growth. The market is shifting to a more difficult market, and even in difficult circumstances, Duell is able to deliver the growth.
The challenge is more on this profitability side, where it sort of indicates what is the market willing to pay in this kind of circumstances in the market. Here I hand over to Caj, and we open up these key, we can help open up these key figures a little bit more in detail. Caj, please.
Yes, welcome from my side as well. If I open up the key numbers a little bit more, then starting from the sales. As the heading is saying, role of Central Europe is increasing according to our strategy. Now we have the weight in the quarter three turned over to Central Europe's favor, so 51% of the volume. There on a year-to-date level, it is 49, so reaching 50-50 zone and will continue to grow.
Overall growth, as Magnus said, slowed down a little bit. Still positive, 0.7%. In comparable currencies, unfortunately, a little bit lower, so a negative growth in comparable currencies. All in all, still for the full year, a clear growth. I'd say the trends in the market continue also that online sales is gradually growing now for the quarter, 30%, so clearly up from previous year, also year-to-date up. That market trend seems to continue. An important piece for us is the own -brand sales that has kept during the whole year as well as in this quarter also on a stable level. Around now for the quarter, 17%, and year-to-date, 19. Moving over to the profitability side, which weakened during the quarter, very much affected by the prevailing market conditions.
The adjusted EBITDA for the quarter was EUR 2.1 million and 5.4%, clearly down from a year back. Coming through via the gross margin, which Magnus explained, we had 21.7% for the quarter and year-to-date, 23.2%. Both are down on a comparison to the previous year. On a positive note here, we can see that the operating expenses in relation to sales are developing as we have forecasted and expected to develop. For the quarter, 15.4% compared to sales, and for the year-to-date, 18.3%. Decreasing compared to the previous year, which is totally according to plan. On the capital balance sheet side and the capital management side, the working capital developed very positively during the quarter, EUR 52.5 million compared to EUR 57.7 million. Overall, a good development.
If we then break it down, look into the inventory portion, then we can see we are on the same level as last year, just below EUR 50 million. Here we have still the impact from the weak winter season. Some snow category products are still in the inventory. Now with the summer that started a little bit late and is pretty cold, we have also summer products a little bit more than expected in the inventory. As we at the same time during the year have decided to increase the availability of high runners or high demand spare parts, we still managed to be on the same level inventory total as last year. The expectation was to go down a little bit, and that is why we have a continued focus and will continue to be on the capital management.
If we compare the inventory to LTM sales, we are now 39%, year back 40%, so same level. The goal is to quarter by quarter go downwards to improve the capital efficiency. Financial position then end of the quarter, we had cash flow wise from the operations, good quarter. Year-to-date now we have operational cash flow just on the minus side, EUR -1.3 million compared to year back. It is an improvement of EUR 7 million. Taking into consideration the profile of the business we have, we have the winter time, spring time here, it is more the most capital intensive part of the year when the inventory is on the highest level and sales is okay, but then it turns into receivables, so it takes some time before we can turn it around.
Here a pretty good development and shows also that the cash balance in end of the quarter, EUR 5.9 million. Leverage also year by year has improved now, end of quarter three, 3.4. On a good level in this time of the year. I hand back to you, Magnus.
Thank you, Caj. As we communicated on Monday this week, with the development of the third quarter and the year-to-date, we revised the guidance for this fiscal year. The new guidance that we now have communicated is that we expect that with respect to revenue or net sales, this fiscal year we will end up at a point which is in comparable currencies at the same level or lower.
With respect to profitability, just expressed in adjusted EBITDA, we see now after the peak season and after three quarters that we will not reach the same level in absolute terms as last year, so it will come in lower. We also communicated on Monday that we decided to now remove our medium term guidance, and this we are now reviewing as a part of also finalizing the planning for the next fiscal year starting in September. We will come back then and issue a new medium term guidance for the company around that time. The medium term guidance has several components. We decided to, let's say, as a package to take it off the board and then review this and then come back with a new package.
That may have similar components or this is to be seen, but consider it as a complete unit that we are reviewing and we will communicate as soon as we are in that situation, we can communicate. Closing with recap, I guess, recap of a highlight again, what is the strategy of Duell? We are continuing to grow in Central Europe. This third quarter is a super good example of this where when the market demand and market dynamics change, Duell is able to continue growing because we are gradually diversifying the addressable market that the company has. This is something we consider extremely important both for the resilience of the company, but primarily for the absolute growth potential of the company.
We also saw in this quarter that the share of online sales slightly grew once again, and this, of course, is something we believe is a long trend. It reflects consumer behaviors. We also believe it is gradually shifting the, let's say, the ratios of power in the industry that who is able to do the things and gain market share. This is where we partly want to be with the big ones, and we are, but it's also that we have capabilities in the company that allows also smaller players to extract and utilize these type of go-to-market channels. Here, of course, elements like product information, digital collateral, etc., is very, very valuable to our dealers. Strategically, of course, we are continuing therefore to improve the profitability.
Some of these are now actually these focus areas, you could say, shift in focus or demand even more attention in terms of the current performance we are reporting, particularly then profitability and working capital management. These are elements that we have focused on, and now we need to just intensify the focus on these. We still believe that Duell is positioned well in the market and the value chain and the fact that we can grow and we can deliver growth in these large markets where we are up against other companies, some of them larger than Duell, is in our view clear evidence of that we have the competitive advantages required to have these ambitions.
This broad portfolio that we have, the broad product category assortment, is a clear advantage to many of our customers when they make decisions on who they partner with and who are logical business partners in their business. This is what we strive for, that we are the best logical partner, both for the brands we represent to the dealers that we do business with. In this mix also, there is, we believe, room for the house brands. Every period, also this year-to-date, we have added brands to our portfolio. We have rationalized our brand portfolio in some parts. We have added house brand products, and all these elements are constantly ongoing in a continuum. We believe the company has the position to execute this strategy.
If I summarize the quarter three, we are growing year-to-date, but the trend of growth slowed down in quarter three. As we have mentioned here earlier, the role of the Central European market area was very important, and this is exactly in line with the strategy. In the future, if we look at some time down the road, of course, we can project and expect that the Central European market area will be larger than Nordics in the long run. Of course, individual quarters, there are isolated circumstances that also affect these ratios, but overall, if you look at the long-term vision, then this can be expected. The result we managed to achieve in the quarter three was clearly not what we were shooting for, such a disappointment.
As I mentioned already in the beginning, the dynamics of where activities, what price points in which particular country and region, this impacted the profitability in this quarter. Now when we go forward, what we will put focus on is that we will continue to work on the things that are addressing improved customer service level. As I mentioned, we have several examples of where activities focus on this. It might be the certain product availability that we have in a certain period, as in one of the highlights I mentioned. It might be which assortment we carry in a specific market, a specific country we have had good results in, some of the companies in the group with such actions.
All of these is, of course, steps that serve how can we better serve the customer on speed of delivery, the right product at the right time. This will continue, and we just have to accelerate it. It is obvious that we will have to increase focus on profitability improvement measures, any equation, any element that has a positive impact on that, everything from sourcing to pricing to efficiency and everything. Now with the slightly slowed up demand, of course we need to make sure that we have full focus, more focus, and have our eyes on the ball with respect to the capital, working capital efficiency. Particularly this is, of course, inventory being the largest component of our working capital, but equally the other elements as well. How to manage the turnaround of inventory is maybe the easiest way to look at it.
These things are with intensified focus now going forward after this quarter three. This brings us to the end of the presentation itself. I believe, Pellervo, you can take over and guide us through any possible questions online.
Thank you very much. Let's move to the questions. First question is related to the, let's say, view on the net sales. We are a bit ahead of last year, but how do you see the Q4 going forward? How has the tune started?
Yeah, today we are reporting quarter three, so we are not in a position that we can forecast and talk about the quarter four. We will revert to that in our full year release in October. Of course, I think it is important here to note what we note and follow the consumer confidence trend in the market.
This, of course, there are some overall averages on the European level, but we also see that the individual countries have their own dynamics in this. It is not a one wide paint brush across the board. It is thinner lines with smaller painting brushes. Very good. Going to the different markets, the European market, the Nordics. How do you see that Duell gained market share or have we lost? What is the competitive situation in these markets? We certainly gained market share in Central Europe. There is no doubt. This is also where we are a relatively small player against those who are, let's say, incumbents in those traditional markets. Also within the Central European region, the individual countries are showing very different dynamics.
Maybe the easiest way to look at the market activity is particularly in this period that is very summer season oriented and you could say motorcycle parts category is very center stage. Looking at registration data is being like an underlying market activity. There we can see huge swings between countries. Some countries heavily on the plus side and some countries significantly on the negative side. For example, Nordics, Sweden, Finland being the biggest markets in our equation, they're clearly on the negative trend when it comes to new motorcycle registrations, unfortunately.
Very good. We come to the, let's say, the acquisitions that Duell has made in past years. How these companies have performed despite we don't kind of open a report by the company, but overall, what is kind of the current situation?
I would say overall, extremely important steps in the growth, excuse me, in the growth path of Duell. The fact that we are growing is telling its clear message that they are performing. Those acquisitions have performed. That said, integrating companies into and really extracting all the synergies, this is a journey, and I do not consider us even close to the finish line on that process, the integration process. The companies have fared well and developed well in their own individual markets. We still have potential to extract synergies from these companies as, let's say, utilizing the total Duell capabilities. Of course, this goes both ways. We have examples of where we have implemented product brands and driven growth in an acquired company using the, let's say, prior Duell, the classic Duell capabilities with respect to products and assortment.
We have also the opposite where we have been able to bring to Nordics products and brands that we did not have earlier. It actually is, and this, of course, is the whole point of it that we seek all synergies possible. Duell communicated earlier during the Q2 that we are ready to, let's say, look for some new acquisitions, but are those now off the table after this, let's say, not that good result? Is this one of the reasons that we are removing the guidance if we think about the older financial targets when it comes to the net sales level? I think we have to use the proper horizon for this discussion and maybe talk about strategic steps in general, whether they are of a, let's say, organic nature or inorganic nature, like acquisitions.
We are not looking at those matters on a quarterly or even a fiscal year basis. It is more of a longer horizon. You could say that on that horizon, nothing has changed. The timing and the priorities of the company might change depending on the situation. Now we have a situation where we have a clear unfavorable change on profitability. This needs attention. This will get our attention. When we talk about, let's say, short-term focus, other priority matters might take precedence over some longer horizon. This is how we normally shift and share the total bandwidth between short-term and long-term focuses.
Yeah. Related to this, as we remove the mid-term financial targets, what was the major reason behind this action? The major reason simply being that now, actually, you could say here the fiscal year perspective played a role into this.
That now when we saw that the development in quarter three doesn't support maintaining the fiscal year full year guidance, and we have revised that, the decision was that now is probably a good time to also revisit the medium-term guidance. As that will require a little bit more analysis and projection work, we simply decided now we'll take a small timeout to do that work and then communicate that when we are ready to do so.
Yeah. Very good. If we could take a few questions from the financial side. Looking for the, let's say, the working capital at the end of Q3, there was a big change in the payables. What was the reason behind this one?
Of course, we work on getting better terms with suppliers every day and so, but the big portion here is that we also had a little bit of delays in incoming goods, which also then pushed the payments forward to a later point in time. I can say we have, it's a result of a job that has been done for a long time, start to pay off. Yeah. You mentioned earlier that our continuous focus is to kind of manage the, let's say, working capital. Are there any concerns towards the end of Q4 that we won't meet the covenants? Of course, as with the earlier questions there, I cannot really comment on the future here at the end of Q4, but I can say it the other way around.
Since the capital injection some time back, we have managed the covenants all the time, and we work for that every day. That work continues also during the fourth quarter and forward. Yeah. If we dig then to the profitability, in Q3, what were the kind of the major reasons behind the lowering gross margin? Is it kind of a sales mix, product mix, competition, or a bunch of these? Yeah, if I say, I think you have a mix of everything. We cannot, so to say, pinpoint this or that. It is a weakened market situation, mixed products, customers, so on. It is a mix of everything, and so hard to say it is this or that.
Yeah. How do we see the, let's say, the competition and the price pressures? Will it continue as we told that the consumer confidence is lowering?
Will this set new pressure for our company?
I leave that question to you, Magnus.
Yeah. I think always when there is a change in how consumers are, and that, of course, plays an effect on our customers, the dealers' considerations of what to buy in what quantities and when to buy. Absolutely. Of course, it is a challenge that goes through the entire chain. Again, as Caj was pointing out, this is a total equation that has many factors. Is it the high-end product that is of the consumer's interest? Is it more an entry-level product? Again, just that component has a bearing on both the value, meaning the revenue, so to speak, of that particular transaction. The margin, the earnings profile is not totally homogeneous across brands and particularly neither on price points. This is why I talk about blended margins.
This is what we then, depending on who buys what they buy and also to some degree the geographical spread there. Okay. Have there been any, let's say, changes in this competitive environment thinking about the biggest European players? I would say only the natural aspect that in a market that is starting to show signs of slowdown, then everybody trying to do their efforts to secure the volumes they need, including Duell, but not also the main competitors. Then again, if we talk about have we seen any significant strategic shifts, any new establishments, these kind of major things in this period? No, not that I could see worthwhile mentioning.
Okay. Then we have a, let's say, related to the bicycle business, one question. For Finland, so how do you see the possible impact if the government decides to remove the bicycle benefits from employees?
It's certainly not positive. It cannot be seen as anything else than a cloud over the bicycle business in Finland. Now we have to remember that there are different mechanisms in Sweden. There are also incentives in Sweden, but they are not, let's say, structured in the exact same way, nor is there a discussion about changing those in Sweden. This is only related to the Finnish part of our bicycle business, nor is it affecting, of course, the French bicycle business we have. In the Nordics, while we're not, of course, reporting particular product categories and the geographical revenue split on those, just from the point of view that we have our warehouse for bicycle parts for the Nordics in Finland, we have the best service level in the industry to this sector, better than anybody, even huge companies in that sector.
That this change is affecting the Finnish market is, of course, kind of like hitting where we have the most unique competitive advantage. Personally, I'm positive that it will not undermine the bicycle market and the trend in which we all utilize bicycles on a daily basis. I believe those fundamentals are linked to other things than a small benefit of some tens of euros per month from taxation authorities. As said, incentives are typically the effect are bigger than the nominal value. Yes, numerically, it's a small ticket, but how it impacts on, particularly how it impacts on bringing more enthusiasts and users of bicycles, this remains to be seen. It is certainly not a positive trend, not at all.
What about the bicycle has certain kind of support from the, let's say, EU part as well?
Duell has a bicycle business in the Nordics, Finland, Sweden, and France. Do you see the opportunity to expand the bicycle business to other countries as well in addition to current markets?
Yes, clearly on paper, so to say. If you start with the, let's say, the theoretical point there, every country where Duell has activities has a clear bicycle market, no doubt. What is the barrier to entry to enter that market in very well-established markets with very well-established players and value chains? This is the real question. I think to organically enter that, it would be a very slow process. Just as Duell has entered the Nordics and the French bicycle market in a big way through acquisition, this would be probably the most likely strategic approach to entering a new country, a new market for this product category.
That is just an, let's say, objective analysis of the barriers to entry.
Okay. Let's move back still to the Q3. And also to Q2. As you stated that the weather conditions were pretty bad in the Nordics, did we have a big amount of winter products or snow category products in the inventory? What will happen to them?
Yeah. As we commented already at our Q2 report, yes, when the snow conditions were unfavorable, of course, it had an impact on that category. Of course, that effect kind of like is carried through this period. Obviously, there has been no opportunity in the third quarter to correct, and let's say very simply, there has been no opportunity to sell snowmobile parts in Q3 that did not have a demand in Q2.
That correction, that opportunity comes towards the fall when our dealers start to gear up for the winter season again. It kind of carries through. This is why also, as Caj mentioned there, when we looked at the inventory, that was a highlight. We had that, let's call it a little bit handicap throughout this quarter three and quarter four on that element.
Very good. I think we are pretty much gone through the questions. We have similar kind of questions from several participants. Now when we have come out with the lowered guidance and removed the, let's say, midterm financial targets, what are the focus areas that Duell is now really kind of working on, and what are the key things that are on top of the agenda?
As I mentioned earlier, we clearly recognize that now we need to, how shall I say, reshift and intensify focus on a number of things. All of those things that we prioritize going forward now are not new. There are items that have been on our focus and continue to be. Now we just need to further intensify. They are, of course, on profitability improvement measures, making sure that we manage our particular inventory well. Let's say that we can, as quick as possible, move back to the longer-term plan of improvement, the improvement trend that now got a little bit of a stagnation and slowdown. The fundamentals that we continue to have enough efforts on are improving availability, improving what we offer in which location, and keep on stocking for those customers, recognizing that most of our warehouses serve within a certain circle.
Of course, this is purely from a logistical driver point of view that you cannot be too far away from the customer because your time to the customer's doorstep is too long on outbound logistics. This work continues. Like I said, we have seen very positive effects in a number of places when we have taken steps forward on matters like this. This remains. We just have to shift gears and put in the next gear on our machine and throttle wide open. I look at this mostly as intensified focus on priority matters. As we discussed when we talked about mergers, acquisitions, etc., it does not mean it is off the table, but the priority matter prioritization shifts a little bit now.
Very good.
I think you could have still the closing words for the whole nine months and Q3, despite you went through kind of the focus areas. Yeah.
Really, then just with the closing words, we continue to grow. We continue to demonstrate our ability to drive growth in the main markets of Europe. The strategy that Duell has is working. We hit a bump in the road what comes to profitability development. This is why we need to shift priority focus now to making sure that we correct this as soon as possible.
Thank you very much. Thank you for all the participants who followed this webcast. We will come back with the full year results in mid-October. Thank you very much and have a pleasant summer days.
Thank you.
Thank you.