Hi everyone, welcome to Musti's half year financial report. David Rönnberg is my name, and I'm CEO for the company. With us we also have Toni Rannikko, CFO of the company. It was a solid first half of the financial year. A lot of the numbers that we're looking at was extremely well. We are very proud of what we've achieved during our first half, especially in this environment. Net sales increased with 14.2% in local currency and 9.4% in EUR. We had a fantastic like-for-like that increased with 8.8% and adjusted EBITDA was EUR 35.8 million, an increase of 6%.
We also increased our loyal members with 10%, so it shows that we're taking market share from our competitors, which is of course really good. We had a strong cash flow that came in at EUR 28.4 million, an increase with 53% versus last year, so very strong numbers there as well. Our own and exclusive products increased slightly. That is stable at 53% currently. During the last months, we've been slowing down in opening stores. We opened eight stores in the period, and we have opened 24 stores the last 12 months and also part of the strategy.
Let's go through the second quarter more in detail. Strong cash flow and increased profitability in the quarter. Net sales increased with 10% to EUR 101.7 million in Q2. 15.4% growth in local currency, mainly driven from new customers. As I said, gaining and taking market share. In Q2, like-for-like sales growth increased with 10.8%, close to 11% from last year's 4.5%. We had higher growth in food and consumables than discretionary categories as same period, same trend as before. The Group's adjusted EBITDA increased with 19.3% to EUR 16.6 million in Q2.
Adjusted EBITDA margin was 16.4% versus last year 15.1%. The increased profitability was due to good traffic and cost control. Also have in mind that the negative FX impact was about EUR 1 million on the EBITDA. In Q2, the group's adjusted EBITDA increased by 27.1% to EUR 8.9 million. The margin was 8.7% versus last year 7.6%. Also negative FX impact here with about EUR 0.6 million. If we go into the customers, we can see that they were growing with 10.1%. We now currently have 1.5 million customers approximately in the loyalty base.
Also if we include the online verticals, we have 1.8 million customers. Cash flow extremely strong in the quarter, EUR 9.7 million, up by 84%. If we move on and look at the sales categories, we can see that we had double-digit growth in resilient food and consumables categories. If we look at the growth trend over time, food and consumable that stands for around 75% of the sales has been stable, growing at 15%-20%. The other 25% that is discretionary accessories categories are more volatile and has had a growth in local currency of approximately 5%-10% the last 12 months.
We've seen the discretionary categories has been more impacted in this tougher demand environment but is still growing more than 5%. The trend in food that stands for more than 50% has been stable upgoing since Q4 2022. You can see that in the dark green line that the trend has been very favorable to us. Stable in food and consumables and a bit more volatile in the discretionary part. Let's move into the online sales. Interesting to see here is that we had a fantastic uplift in the COVID period. That was Q2 2020 to Q1 2021, as you can see there on the right, where online peaked to 30% growth around.
After that period, we've been seeing a stable growth with close to 20% in the online, and that's building on top of those high growth numbers that we saw on the peak in the COVID period. Online stands for about 23% share of sales, and that's been on that level for quite a while now. The last two quarters, as you can see to the left, we've seen an uplift, an increase in the online sales versus earlier. Good development also in the online categories. We can look more into the sales on the next slide. Strong sales in the quarter.
As I said, the net sales increased by 10%. FX neutral growth was 15.4%. If we look at the countries, we can see that Finland in the second quarter had 10.9% growth, strong growth in stores and online. Sweden had 50% growth in local currency, strong growth in stores and online. Norway had 31% growth in local currency, very strong growth in both stores and online. We see also the big impact here from an FX perspective. Online share sales was more or less as same as last year. If we look at in the middle chart, CAGR first half year sales growth 2020-2023, it has been very stable at 15%.
That took us to the rolling 12 months sales EUR 409 million. If we FX adjust it is EUR 425 million. As before, Finland stands for the biggest share at 44%, but Sweden are gaining in and starting to come up to the same level soon. Let's move on and look at our like-for-like. Like-for-like is of course extremely important as well as growth. But if you look at the growth, it was 15% in local currency, and of that 11% was like-for-like. FX has had a huge impact on group revenue over the quarter with 5%. Sweden has been impacted with 8%, as you see on the right, and Norway with 15%. FX-adjusted growth increased from 13% last year Q2 to 15% this year.
When we look at the like-for-like, there's been even stronger development that came in at 11% this year and 4% last year. We've seen a good trend, as you can see on the right in the like-for-like, where traffic has been very positive, especially in this quarter. If you look at the quarter and also continuing after the quarter in April, if you look January to April, we've seen that January was maybe the slowest month, and then February, March, April has been very stable. Let's look at our gross margin development. Also here, we see a huge impact from the FX.
Our share of own and exclusive products are on a good level, as you can see on the right, but the FX has been impacting the gross margin heavily. The negative impact of the gross margin going from 46.5% to 45.1% is mainly driven by the exchange rate development in SEK and NOK. You can see it to the left, in the left chart, where the huge deviation is between the periods. This is of course something that we're working with to mitigate, but it's not easy to fully mitigate it. The things where we can actually affect from our side with the O&E and other things is going the right way.
On top of that, we also did the acquisition of PPF that Toni will speak more about now.
Thank you, David. Right after the quarter two ended, we announced the acquisition of our joint venture company, Premium Pet Food Finland. Here at Musti, we're super excited about this and also on Premium Pet Food side, our team is super excited about the opportunities, what we can do together. Already internally, this factory has received the name of Musti Kitchen, and that tells a lot that we're gonna develop a lot of good food in future for our customers. We have cooperated with Premium Pet Food almost 10 years already, and we know each other very well.
At the moment we saw that it's a great opportunity to acquire the full stake in the company. Annualized profit impact for Musti about this acquisition as we start to consolidate the numbers starting from our quarter three is around EUR 3 million in rolling base with current volumes. Of course, we want to, want to increase the volumes in the factory with new products and and new development. From ESG angle, this is a very new factory. It's a two-year-old factory and very sustainable what comes to the energy efficiency and all the angles of raw material sourcing as the location of the factory is southwest corner of Finland, which is enjoying a lot of local production of raw materials in close by proximity.
Excellent addition and and fits to our strategy perfectly. If we go back to the numbers, looking at the EBITDA in a little bit longer perspective, steady growth and a clear improvement from last year. You can see that there has been a kind of 18% CAGR growth in the first half of during the past four years. This is a result that we are very proud of and as David mentioned, quite a big FX impact on the numbers, so EUR 1 million on the EBITDA level in the quarter 2. Our key performance indicator, EBITDA, increased almost 30% in the quarter.
This was result of good traffic in the stores, in the online. We managed to mitigate the inflation. We have been tight on the cost control and also our central warehouse in Eskilstuna is performing a lot more efficiently than it was still a year ago. We have combined all our warehouses into a central warehouse in Sweden, and now we can really see a great performance in that unit. A lot of FX impacts into the profit as well. EUR 600,000 impact on EBITDA comparing year back FX levels. Net price increases around 8%. Then of course, in Sweden and Norway, the FX impacts on top of that, it's very hard to mitigate fully.
Kind of, in compared to sales, group cost, relation to that, we are very proud on the development on this one and start to see the scalability all over the organization to bite in. If we look at the segments, meaning our different countries. We start from Finland, our most mature market. Amazing growth in Finland, and what we are most proud of is that the improvement on profitability quarter after quarter after quarter. We've been climbing now since quarter two 2022, 18% levels into over 21% level where we are now, and what we have said that we target with around 22% in Finland, adjusted EBITDA level.
No changes in the Finland market when it comes to the store network. In Sweden, as mentioned by David Rönnberg and myself as well, quite heavy or even massive impact on SEK EUR FX rate through the translation impact into the numbers. 7% growth, looking FX neutral almost 15%. The impact, of course, goes through the whole P&L. We can see slightly declining adjusted EBITDA in Sweden market. No changes in the Sweden store network as well, adjusted EBITDA decreased a bit, as mentioned, into 14%. Norway, similar type of effect, but the FX impact in Norway seems to get even stronger than in Sweden.
Good 15% growth in EUR, FX neutral growth over 30%. Brings a lot of volatility into the kind of profitability numbers and kind of causes a bit challenging on the pricing side. Inflation is mitigatable in pricing, but FX impacts are difficult to take through to consumers. EBITDA decreased 12% from last year and was kind of a basically only reason for that was the gross margin impact and the FX impact in the gross margin. In Norway, we have kept the steady pace of opening roughly one store per month. In the quarter, we opened two new stores in Norway.
Financial position remaining very steady. Net cash flow operating activities almost doubled from last year. Very proud on that. Net working capital having a slight impact on that. The kind of a second quarter for us is a quarter of paying dividends and taxes and a lot of sort of one-timers in the year and then a little bit impact on the accounts payable on this one. What comes to the inventory, we actually have kept it quite on the level and considering the inflation in the inventory, we are managed to decline the inventory levels at Musti.
Net debt, steady as well as the cash position. In investment side, we have kept the steady pace equivalent to last year. Investments on EUR 3 million level in the quarter. Financial targets unchanged. We target EUR 500 million top line, EBITDA margin 13% and the leverage below 2.5 times last 12 months EBITDA. Dividend policy remains as well 60%-80% of net profit, and the first share of this year dividend was paid in February, and then the second half of the dividend will be paid in August. Back to you, David, to wrap up the presentation.
Yes. Thank you, Toni. If we look at it and summarize it, we see that it was a fantastic quarter in many ways. There were some tough areas, especially with the FX impacting the gross margin. I think looking at the net sales that increased with 15.4% in local currency and 11% like-for-like in this environment is extremely strong. That also proves that the pet sector continues to be resilient. Food and consumables that stands for over 70% remain strong in the quarter. We also continue to winning new customers with 10% and strengthen our ecosystem.
We also increased our adjusted EBITDA with 27% despite the headwinds from the challenging economic environment. We have proven also the scalability of the company now with the cost control and good performance in the central warehouse, Eskilstuna. Cash flow remains strong in the quarter and also if you look from the last 12 months, performance in cash flow and EBITDA, it has been very, very good. With all of this, we see that Musti is on track to reach the long-term financial targets that Toni just talked about.
Overall, we are proud and happy to be communicating this quarterly result. With that, we will hand over to questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Svante Krokfors from Nordea. Please go ahead.
Hi. Svante Krokfors from Nordea. Thank you, David and Toni, for the presentation. I have a couple of questions. First, regarding the FX impact. Could you elaborate a bit on how you calculate the EUR -0.6 million headwind? If I look at Norway and Sweden, it appears to me that adjusting for FX as we then, EBITDA margin was rather flat but Norway was down. Is that the correct interpretation?
Yeah. We compare the FX into a year ago level, what it was and through that calculate the impact into the EBITDA and EBITDA. Actually both were a bit down.
Both were impacted, but I think Norway was. As you say, Norway was more impacted.
Okay. Thank you. Norway margin was the under, if you exclude FX, was Norway margin still a bit weaker than you expect?
A bit, yes. Caused also by the sales mix in the quarter. FX was the main driver on both countries.
Okay. Thank you. For Norway it seems that the stores that are included in like-for-like have reached maturity quite quick. Should we now expect a similar growth as on all group level for the more mature Norwegian stores?
Yes. We can expect that.
On price increases, 8% you mentioned. What has the price increases been in food? Some of your, for example, Nestlé has said that they, the main driver in their growth has been price increases and they have been quite steep. Have you raised prices in food more or less than 8%?
Yes. The 8% is average, so we have raised the prices a bit more in food than in the accessories.
Thank you. You also mentioned improvement in online channel profitability. Could you elaborate a bit on that and what kind of impact that has on a group level?
Yeah. We haven't... I think from a group level we haven't communicated, but what we've been working with earlier as said is first of all O&E that we're increasing in the online verticals. Percentage wise that brings higher gross margin. We also have been taking down the campaign pressure a bit so we can be at the stable 20% growth. We've been working with the cost side that relates to Eskilstuna mainly. Those three in combination has increased the profitability in the online verticals.
Thank you. On the J curve for the stores, is it still valid that we expect that this second half of 2023 will be the first time that we see a clear improvement or have we seen that already?
Yeah. The J curve start to come in all countries, especially the Norway and Sweden. Now we, as David mentioned, we have opened a little bit less stores lately. They will start to come through more visibly.
The last question on just to make sure the Premium Pet Food result impact of EUR 3 million on an annual level, is that the EBITDA?
Yes.
Okay. Thank you. That's all from me.
Thank you.
Yeah. Thanks, Svante.
The next question comes from Magnus Råman from Kepler Cheuvreux. Please go ahead.
Thank you. Yes. It's Magnus Råman from Kepler Cheuvreux. So, I wanted to ask about the market share gains that you're achieving. Do you see that you are predominantly taking from some smaller pet specialists or is it the large food retailers you're winning market share from? Also if you could comment on how you believe that the online pure players such as Zooplus are performing post pandemic. Are they also taking market share in the Nordics? Thank you.
Yeah. I think, we're taking from smaller independents, we've been doing for a long time. It's getting more the last 12 months I would say from food, from the groceries, and then from some other kind of smaller competitors that is out there. I think the groceries are the one that we're taking most customers from. The last six to 12 months. When we look at Pure Play or Zooplus, we see that they have been coming down a bit in growth, we believe, because they are being focusing maybe on other regions more lately. They have been around for a long time, but the competition from their side has been a bit, yeah, a bit weakening, how is it.
Excellent. That's interesting. That last part, the way you see the competition decreasing somewhat, is that through their price position, you are intending them?
It seems like they're focusing a bit more on profitability, trying to increase the gross margin than earlier. They are not fighting that hard with prices, as they did earlier.
Excellent. I think, yeah, that's a trend that is observable for many Pure Plays in different categories. Okay. Then, just to also understand a little bit about the gains that you say you are making predominantly from the grocers now in the recent six months or so. Do you have any idea what is changing there in terms of customer? Is there something you could point out that you believe is a driver to this acceleration in market share gain from that side?
I think one thing was we launched a new brand called Smart that is locally produced in Finland, in PPF. That is kind of in our lower price segment. So we have low, mid, high price segments. Also that relates to the quality. That is then closer to grocery brands pricing, even though this is a bit higher. It seems that that has been a success. That in combination with the kind of a trusted advice and also the services that we're pushing even more, including then puppy training and puppy classes, that has been also a success. That's something that, of course, grocers can't deliver.
Excellent. Okay. There was already from some questions about the margin. In terms of the previous sourcing inflation, transportation cost, so weight on your business and you elaborate on how much you have raised prices yourself, how do you see this panning out if you look out in the coming half year or a year? This transportation cost on the spot rate, for example, has been coming down shortly last year, but I guess there are lags in the contracts and the inventory delay and so on. Could you elaborate a little bit about that?
Yes, good question.
Yes.
In sourcing side, what we can see on the price increase is that the level of the price increase is what is asked is maybe a bit cooling down or inflation is a bit stabilizing. You're right on the spot prices on the long-haul flights from Asia to Europe. On those prices, we are already kind of a pre-COVID levels. We can see the impact kind of immediately in cash flow perspective. In the inventory side, how it comes to the P&L, we have a first in, first out inventory method. There we can start to see towards August, September, the impact of kind of a high cost flight melting off from the inventory and coming also through the numbers.
In general, what comes to the cost inflation, I think we have been fairly successful on mitigating what we can, what comes to the premise cost and sourcing side. Very kind of a promising look on that side.
That's great and really helpful. Just a final one on that. Then in terms of, I get that in the Nordic market, Sweden and Norway. The sort of the sourcing to those markets or the gross margin is based on the SEK versus euro and the NOK versus euro. Is that correct? Then how is the, how should we see that sort of lead time and look at that specifically?
Basically, if you look at the from the consumer angle in Sweden and Norway, the inflation is probably roughly on the same level as it is in Finland. On top of that, for imported goods, you have kind of double inflation through the FX. We've been managed to mitigate the inflation side into the pricing, but then putting kind of a double increases in those markets on our prices, it's very difficult or impossible to do.
Right. Okay. Thank you very much. Thank you.
Thanks.
Thanks.
The next question comes from Adela Dashian from Jefferies. Please go ahead.
Good afternoon. Most of my questions have already been answered, but I do have one regarding the split between food and consumables and then the more discretionary product category. To the latter half, the discretionary product categories, you've previously mentioned that you're still experiencing growth there. Is that something that has changed now in Q1, or is it something that you're expecting or expecting a greater weakness or more of a stability or even greater growth in the coming quarters? Just so that we can get some type of sense of the different, two different segments. Thanks.
Yeah. You see the extreme volatility there, where in Q3 the volatility went up. Growth in discretionary was high. In Q2 last year we were meeting kind of a normal comps. We're now meeting strong comps in Q3. We still believe that we're gonna have growth, but how much we don't know, especially when you, when you look at the local currency.
Got it. if we were.
Yeah
Yeah, sorry.
Trend-wise, I think we will see a stabilization and that the discretionary will start to go up again growth-wise.
Okay. That was gonna be my second question.
Yeah
Maybe if you could also, I mean, you've previously mentioned kind of that you're thinking about an expansion outside of the Nordic region. Would that kind of an expansion then take place organically or are you looking at M&A targets if you were to go into other markets?
Currently the plan we're looking at is going organically.
Okay. The competitive landscape, is it a lot different than what you're currently running into in the Nordic countries?
I think there are market leaders in some of the countries that we're looking into that is stronger than the competitors that we have in of course the Nordic countries. It's still the same kind of a consumer behavior where we think our concept is going to work extremely well.
Will your focus be on growing stores, so opening new stores, or more online or a combination of both in this case?
Combination. Combination, more kind of a online heavy with stores.
Got it. Makes total sense. Thank you very much.
Thank you.
The next question comes from Maria Wikström from SEB. Please go ahead.
Yes. Thank you. This is Maria Wikström from SEB. I don't have that many questions anymore, but I have a few. One would be, is there any changes in the ticket size that you're currently seeing in store or online, or no changes whatsoever? Little bit kind of feeling that if there is any changes in the consumer behavior in this environment.
The only impact we're seeing is that the discretionary is a bit lower in sales. Otherwise it's quite the same. Ticket size is mainly the same.
Okay, good. One on the cost inflation what comes to wages as well as, I mean, the rent costs that. I mean, how do you see the cost inflation if we think about the quarters? Of course, I guess, I mean, the rent costs started growing already in the beginning of January. In Finland, these new wage contracts come into play in April. How we should think about the cost inflation in the various quarters?
Yeah, that's right. Most of the cost increases are already in. As you mentioned, Finland, some of the premise cost will still increase a bit in this quarter and probably also the following one. The wage increases in Finland were now level 4%. In our preliminary plan we were expecting something between 2% and 3%, but still 4% is mitigatable. Sweden is most likely gonna be roughly on the same level and then Norway is still a bit question mark how that will play out. All in all, as mentioned, we can see a bit relieving on the cost inflation side in general.
At least the acceleration has stopped and also the inflation is starting to see sort of a tougher comps in that sense. Hopefully it's getting better.
Okay, Thank you, you mentioned many times the traffic growth, I mean, both in store and online, and I think, I mean, one of the growth drivers in stores is maybe access to different services which is not presented online. So can you talk about a bit like what do you think are the like the success components of increasing the traffic also in online?
Yeah. I think, first of all, of course, the wide assortment that we're having, good marketing, strong brands in general. We have been successful in our digital marketing lately. Then of course there are other things versus our competitors like fast deliveries. We have been increasing and sure we're shortening the delivery time. Then customer service overall, when we are measuring that is on a very high level.
Okay. Perfect. This is all from me today.
Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. I think that was, all for us. Thank you for listening in and good questions and we will see you soon again. Thank you very much. Bye-bye.
Thank you. Bye.