Earnings Call: Q4 2022

Nov 8, 2022

Hi, everyone, and welcome to Moste Group's presentation for the financial statements release fiscal year 20 2. With you today, we have myself, David Romberg, CEO and Toni Ramnikau, CFO. Yes, we can move into the presentation. So the our resilient growth continues. That's the kind of a statement how we're seeing it. There's a lot of things that we have achieved during 2022 that I'm, of course, extremely proud about. And if we look at it from the yearly perspective, we see that net sales increased by 14.7%, And we had 38% growth on a 2 year basis. We were also able to increase our gross margin from 45.7 percent to 46.4% during the year. So it's good progress in that area. We were able to increase our adjusted EBITDA margin with 13.7%, and the cash Flow came in at 13.6% in the quarter, 46.1% for the year. There's a lot of other things that we are proud about. First of all, that we have been continuing opening a lot of stores. The last 2, 2.5 years, we've opened about 100 stores. And the last year, we opened 39 stores. If we look at our own and exclusive brands portfolio, that also increased. It went up from 51% share of sales to 52.7%. The loyalty base has also been growing fine during the year and increased to 12%. And also, we were able to increase our profit distribution with 14%. So the total part for the fiscal year 'twenty two, we are very, very proud of. Let's go into the details in the Q4. So double digit growth in the 4th quarter. Net sales increased with 11.3 percent to EUR 101,800,000 in Q4, mainly driven from new customers. We are continuing taking market share. In Q4, like for like sales growth was 4.7% and 6.7% for the fiscal year 2. There are some FX and cannibalization effects in this like for like that Onno will mention later on. The group's adjusted EBITDA increased by 2.2 percent to SEK 17,600,000 in Q4. Adjusted EBITDA margin was 17 point 2 percent versus last year, 18.8 percent. For fiscal year 2022, for the full year, adjusted EBITDA was 6.9%. That is up 13.7% versus last year's 58.8 So a good progress versus last year. Number of customers that I talked about, they were growing with 12% to approximately 1,500,000. And if we include all the loyal and registered customers in our online verticals, we are at a new record 1,800,000 customers. Cash flow, I mentioned before, came in at SEK 13,600,000 in the for the Q4 and 46.6 percent for the full year. So let's look at the Moosties Puppy acquisition. The Moleseys puppy acquisition continues to be on a high level. Moleseys puppy acquisitions continues to grow during 2022 and is clearly higher than fiscal year 2021, even though registration in Sweden is down versus 2 last year. Comparing pre COVID fiscal year 2019 to the latest fiscal year 2022, Swedish market is up 20%, while Muzdzi is up 75%. And this is because Muzdzi has gained market share on new puppets. And Mostly, it's approximately getting 60% of all the puppies into the loyalty program, which is then more than double our market size. That's, of course, because we're doing a lot of things in the puppy program that is working extremely well. And if we look at the retention of the public customers after 1 year, it's on a high level, 90%, which is, It's very good for us from a long term perspective. Now we have a bigger pool of happy customers in our a customer base that we can work with going forward. So let's look more into the growth of the company. Most of this growth trend continues to be solid, double digit growth despite economic uncertainty. Net sales increased by 11.3%, as I mentioned, of 14.7% during the fiscal year 2022. For Q4, Finland had 10% growth, strong growth in stores and a bit lower online. Sweden had 7% growth, strong growth in stores and a bit lower online. Norway had 31% growth, very strong growth in both stores and online. And the online share of sales came in at 21.3% versus last year 22.3%, which it's a bit lower than last year because stores are now performing a bit stronger versus online. If we look at the CAGR yearly sales growth between 'nineteen 'twenty two that has been clearly steady and has been at 17% during that period. And net sales growth in 12 months was €391,000,000 Per segment, as we've been talking about before, Sweden and Norway are taking a bigger share, where Finland has had 43%, Sweden Norway 57% together. And last year, the same period in Sweden Norway at 55%. So they are growing the share of the total sales. So if you look at sales on a bit longer perspective, most of this growth on a 1 year basis came in at 11%. We have seen a slowdown in the discretionary products. What we saw also in Q2. On a 2 year basis, growth was 38%, And on a 3 year basis, it was 58. Why are we looking at 3 year basis? So we look at the growth as an average over time. On a 3 year basis, it's now comping against pre COVID fiscal year 2019. So these 3 years has been a fast growing period for Muzvi. And the COVID pandemic increased growth for the pet sector globally, which is affecting those 1 year comps, as you can see in the left graph between Q1 2021 and Q1 2022. And on a 3 year basis compared to the pre pandemic levels, our growth has been steady at 6%, which is, course, extremely good, which is something that we believe will continue going forward. So let's look at the gross margin development. 22. Gross margin and share of own exclusive products are strong. The trend in Multi's gross margin has been strong in the last quarters. And during fiscal year 2, it increased to SEK 46.4 versus last year's SEK 45.7. That being going up and down a bit versus last year. And during this quarter, we're a bit we had a bit lower gross margin versus last year, but we also see that and swing between the quarters. So we see it more comparing H1 and H2 as periods. And the strong development during the year in the gross margin is, of course, a lot of things. But one very important thing for us is our own exclusive brands, share of sales that we can see has been growing every quarter. And during Q4, it was 52.7%. Other reasons is, of course, successful campaign pressure, increased gross margin in our pure play and favorable product mix. So let's look at our EBITDA development. Musti continues to increase the EBITDA. In Q4, must deliver EUR 17,600,000 in EBITDA with 17.2% margin. And we had a seasonality effect, for us as before between the quarter. And that is, of course, also reflected in the margin where Q2 and Q3 is the lowest and Q4 and Q1 is higher. For the last 12 months, Muztiv delivered SEK 66,900,000 in EBITDA, and that's close to 14% growth versus the same period last year. And if we look from a longer perspective, CAGR 2019 '22, it has been 21% EBITDA growth during that period, which is, of course, a very strong number. Now I will hand over to Tom, that will go through the EBITDA and the segments more in detail. Thank you, David, and hi, everybody. So during the year, group adjusted EBITDA increased around 5.5 percent to 30 almost €39,000,000 which equivalent to 9.9% of the sales. And this was kind of the main reasons behind it, strong seasonal sales during the year and improving gross margin in that period, like David mentioned. Then looking at the quarter 4, adjusted EBITDA decreased to SEK10,200,000 from SEK11,200,000. And the main reasons here was the sort of stabilization of sales in discretionary items like beds or scratchers for the cats. And despite that the this is stabilizing, it is still growing. And in the quarter, these item sales grew 7%. Also what is impacting the quarter 4 is that, like David said, During the past couple of years, we have opened a lot of stores. So we have approximately 100 stores that we call that they are in the ramp up phase and not contributing with all cylinders to the group. So these are also impacting the profitability, but we have grasped the opportunity the market what there has been during these years and increased our network. Also, the currency is not favoring Musti During the past quarters, especially Swedish krona is ahead of us and the strong U. S. Dollars. So these had also impact on profitability into some extent. We've been working a lot with the scalability during the 'twenty two, and there is great to see that the development in the overhead costs and our central warehouse have turned in the right direction. So the cost relation to the group net sales was now in the final quarter 7.7 percent as it was 9.2% a year ago. Really proud of the team in our central warehouse Eskilstuna, which is roughly onefour of the pile and then Rest is some other central functions like marketing and what we have in the head office. Then going into the segments, we start with the Finland. Finland is our most mature market. We've been here over 30 years, but still we are managing to grow double digit in Finland market as well. So net sales increased by 11%, reaching almost €170,000,000 In the quarter 4, Finland sales increased over 10% as well. This was supported by the stores opened the latest 12 months, which is actually 6 stores in Finland, but then also the franchise stores acquired a bit over a year ago. Some headwind in the quarter, too. You might recall on the uncertainty in the economy, and we can still feel a bit the consumer behavior being more vigilant. Like for like growth in Finland, bit below 2%, And this was affected by the high number of new directly operated stores, so the 16 franchise stores and then stores opened during the year, which are not calculated in the like for like. So this sort of overlapping sales is impacting around 3% in the life of like in Finland. Adjusted EBITDA decreased by 7.9%. And main reason here is that the growth in Finland stores has been somewhat faster than in online. So we have added more hours into the store, more staff into the store to respond the more traffic in the stores and this has caused some weakness in the store efficiency. So in the middle picture there, you can see the development of Finland margin from 24% to 23% levels to both from levels of 18% and 19% and now turning back into the right direction again in Finland. In the last quarter, we didn't open any new stores in Finland. And in the near future, we don't expect to open either new stores anymore in Finland, but we focus the growth endeavors in Sweden and Norway. We are a clear market leader in Finland with the 31% share of the total pet food and product market over here. Next market, Sweden, growing roughly the same pace as Finland and reaching the Finland levels in the group share of sales and in net sales in Sweden increased by 7% in the quarter to €42,500,000 Weakensect brought some headwinds in this. So in the quarter and in the year, around 3 percentage points were washed out from the translation impact in the group numbers when it comes to Sweden growth. Adjusted EBITDA decreased in Sweden as well to €6,500,000 and the decrease was mainly kind of a sales speed, a bit normalizing discretionary item sales also impacting in Sweden. And then the new stores opened during the past years are not still contributing with the full power into the group. So it's burdening us with the short term, but in the long term, will be favorable for Mostly Group. During the last quarter, we opened one new store and acquired one store in Sweden. Also in Sweden market, we are the clear market leader almost a 30% market share in the country. Norway, our fast growing segment, almost 40% growth to 56,500,000. And on the right side pillar, you can see the development of Norway during the past couple of years from almost no profit to a €10,000,000 profit contributing unit for the group. So a really, really good story. And during the year, mostly Norway was also awarded as the fastest growing retail business in the whole Norway. So that was a great achievement and acknowledgment in the country. Norway, we had a bit of a tailwind from the currency during the fiscal year 'twenty two and in the Q4 still. Now that has also a bit changed, but in the last year, we enjoyed that. Adjusted EBITDA increased by almost 36% to in a quarter to €2,500,000 During quarter 4, we opened 3 stores and 2 stores were acquired in Norway. And also in Norway, mostly group is market leader in with a 13% share of the total pet food. Grocery retail, of course, still the biggest as combined, but as a single player, mostly biggest one on the Norway market as well. Then moving into our financial position. And as David mentioned already earlier, we collected cash flow for the year of SEK 46,100,000 and a bit of a decline there compared to last year. That was mainly due to that during the year, we increased the buffers in our inventory to secure the availability of the goods for our customers, And that burdened our cash flow and increased our inventory and also net working capital. Now as we see that there is more stabilization in the supply chain and better grip on kind of other a forecast of the good flows, we have started to normalize the inventory in mostly group. Net debt amounted on the year for SEK 100 and €43,000,000 And then if looking at the interest bearing loan part of that being a bit less than €75,000,000 So that relation to the latest 12 months EBITDA leverage, so the total leverage of 2.1, But calculating only the interest bearing loans, the multiplier is a bit below 1. Similar way, if looking at the gearing with only interest loans, the gearing number is €37,500,000 Cash and equivalent at the end of the period, €10,000,000 exactly where we wanted it to be. And during quarter 4, investments of the Mosti Group, €7,000,000 split between growth investments in the store network and acquisitions of new stores. And on my final slide, long term financial targets remain. And on the dividend, mostly group board is proposing to annual general meeting the dividend of 50 per share equaling to 75% of the net profit. There I can hand over then back to David for a summary. Yes. Thank you, Toni. So doing a summary of the quarter and the year, we had a strong sales quarter, net sales growing a bit more than 11% and close to 15% for the fiscal year 2022. On a 2 year basis, it was actually 38%. Pet sector proves that it continues to be resilient. Over 70% of the products are nondiscretionary. Gross margin has increased during the year to SEK 46.4 versus last year SEK 45.7 billion. We have increased our O and E share sales. We have increased our customer base with 12%, and we have had a very strong expansion the last 4 months with close to 100 stores. They burden us short term profitability, yet it supports reaching our long term target. And as Tony said, mostly is on track with the long term financial targets. So with that, we're handing over to Q and A. 2. Your line is open now. Please introduce yourself and go ahead with the question. Thank you. Yes. Hi, it's Van de from Nordea. Hope you can hear me. First question is regarding your gross margin. You had a negative impact From inflation, could you elaborate a bit on your pricing strategy there? Are you have you been reluctant to raise prices? And What will you do going forward? We're not hearing anything. It's a really bad connection. Has to do something with the Can you hear me now? Can you hear me now? Maybe for the moderators, is there another method of Delivering questions for us. We will take the next question. The line is open now. Please go ahead. Hello. This is Maria Vigstrom from SEB. Not sure if you hear me or no. Pardon the interruption. We are unable to hear you. Thank you. Okay. Some technical issues, if you all hold for a while in the line and let's see if They will make it work. Okay. Let's have a second shot. If you try to ask questions, we'll try to hear We will take the first question. The line is open now. Please introduce yourself and go on. Thank you. Smarter Krogas from Nordea. Can you hear me now? Yes, we can hear you. You can go on. Thank you. Yes. It's Van de Krukvos from Nordea. A couple of questions. I hope you can hear me now, David and Tony. Great. So question regarding your gross margin. You said you have a negative impact from inflation. What about your pricing strategy? Have you been reluctant to raise prices? And will you step up that or how should we look at that? Maybe I suggested in a way that if there is people on the line who have questions, so you can be in touch with our Head of Investor Relations, Ms. Esi Niketin, And you can book a separate slot with me and David and share your questions with us. Apologies for technical inconveniences, and I want to thank you all for being on the line. Yes, let's see if we can fix this. But people are still left. We're sorry for the technical issue, but let's Continue It appears there's no question at this time. Thank you. Okay. So and we will make sure that this will never happen again. But thank you for listening in, and please get in contact with us so we can give answers on your questions. Thank you very much.