Earnings Call: Q1 2021

Feb 9, 2021

Hello, everyone. This is David Romberg, CEO for Mosti from Stockholm. And with us, we also have Robert from Helsinki. We are very proud to be able to present this fantastic report that we launched this morning. We will go through the slides today. So we have first we have the agenda that will be group development. We will go through the segments. Robert will take over and go through the financial and the market outlook. So if we can start going into the first slide on the highlights. So mostly doing its strongest quarter so far. Incredible growth, 19.9%. We came in at €84,300,000 This is mainly driven through new customers. We are continued taking market share in all three countries. During the quarter, we have continued to focus on growth, adapting, of course, to the COVID-nineteen situation. And also that we've been talking about a lot, the profitability. Sales was also extremely strong in like for like, came in at 13.1% in total. That is from 8 presenting the stores and online about 33.1% like for like. During the quarter we did the platform change for our Swedish online verticals so that had a short term negative sales impact. So we could actually been doing a bit stronger. The adjusted EBITDA was 10,600,000. That's an uplift with 36.4% versus last year. This is also strong profitable growth in all countries. And the adjusted EBITDA margin was 12.6 versus last year 11.1. Also here we had this negative impact on the EBITDA and the margin that is correlating with the warehouse mode that we finalized during the quarter. We will come back to that a bit later but we consolidated our Swedish warehouses so we saw a efficiency decrease during the quarter. Cash flow from operations came in at 15.9% versus last year 14.6%. So also very strong. And coming back then to the number customers. So 1,189,000 customers, approximately 13% more than last year in the loyalty base. So if you also add the customers that is registered in the online verticals, We are now up at 1,450,000 customers. And And also as we communicated the end of last quarter the most is underlying growth has continued to be very strong after the Q1. So let's look how the market is growing. So there has been a extremely strong growth in puppy registrations and new puppy customers into Musty. So since April, we've seen a strong growth in puppy registrations this is measured in Sweden when we get the official data during Q1 our Q1 and We saw a 29% growth. You can see also here on the left side that it was peaking in December with 40% to new registrations. We see this more of a trend line. So we see also that in January it was up 23%. So from a trend perspective, we believe that this will continue. But maybe more important is that our concept seems to be extremely tailored versus these pet parents and puppy customers. So as we can see here, During the quarter, we were then able to getting 46% more of these public customers than the quarter last year, same period, even though the number of registrations was only 29. So we can see that actually we're taking about 50% of the market, even though we have lower percent as a market share. So extremely nice to see that we are able to welcome and take care of all of these new puppy parents. And this, of course, has a huge impact, not so much short term, but more of a long term perspective. So if we move on to next slide, we can see how that will affect the market share. So it's evident that Moste has a winning concept with the online, with the pure play, with all the articles and the services that we are offering. And we can continue gain share as been doing and we also see that we have a long runway ahead of us market is growing with about 6 percent earlier 4%. But now with the puppy registrations, we see this uplift to 6. So if we look there on the left, you can see in the pie chart that except mostly grocery and small independents, have still the biggest market share. And grocery and mixed retail has around 35% in this 2019 data. And in Finland, as an example, Grocery grow only with 1.2% during 2020. At the same time, mostly was growing 11%. And this is a country that we call a bit more mature. We see similar trends in all three countries. So we have good opportunities still taking market share for a huge part of the market. So let us move to and see how the record sales quarter looked like. As I said, net sales increased by 19.9%, a record quarter in growth, 13% like for like, strong growth in all countries. So if you look per country, you can say that Sweden had 10% like for like was a bit negative impacted with the platform change that we did in the online verticals. We could have reached more. But of course, we're doing this platform change and also the warehouse consolidations because we believe that we can get even more efficiency in sales over time. The strong growth in both stores and online in Sweden. Norway going extremely strong, 40% like for like, strong growth in both stores and online. Even though the restrictions has gone up and down in the countries. We have all the stores has been open in all three countries. Finland, 12% like for like. Also here, strong growth in both stores and online. And summing this up, then the net sales rolling 12 months. It was €298,000,000 per segment. Sweden and Norway are taking bigger share as in our strategy, where Finland has 46 and Sweden Norway has 54. So let's look at our record EBITDA quarter on the next page. We are very pleased, of course, with increased profitability in the quarter. EBITDA increased, as I said earlier, with 36.4% to 10.6 that has done a 12.6% margin versus last year of 11.1. That's an increase about 14%. And as I said, we had this negative short term negative impact from the warehouse consolidation in Sweden. We have been focusing on growth, taking market share and using our operating leverage. Even though we had a record growth, We've been able to increase our gross margins at the same time. And as we all know, there's been a big channel shift from stores to online the last 12 months. So gross margin came in at 46.1 versus last year, 45.4. And this and this traffic has then moved a bit from stores into online back and forth during the months. So online share of sales came in at 21.6% versus last year 19.5%. So even we have had the channel shift. We have been able to increase our margins, which we, of course, are very happy with. And something that we've been communicating before as well. Part of our strategy is to convert the Swedish and Norway margins towards Finland levels. And this has actually gone faster than expected that we also said last quarter. And the trend has actually continued. Robert will talk more about that in next section. So I hand over to you, Robert. Thank you, David. So let's go into the segments, starting from Finland. So as David said, we saw strong sales Development in Finjan, like for like growth was 11.8% and the total growth was 12.99%, ending up at €39,100,000 in sales, a strong growth. And clearly, of course, we saw benefits both from the puppy boon on, but also we had a successful Christmas season sales during the period. Adjusted EBITDA increased by 15.1 percent to €10,000,000 The margin was 25.6% compared to 25.1% last year. So increasing trend there, which we are very happy about to see that we also get the kind of benefits of the scale benefits and efficiency from marketing and stores in Finland. At the same time, also the share of online increased, which had an offsetting impact on the profitability. Also very happy to see that also the store efficiency continued to be on a high level, which we have seen already for a long time. During the period, we also opened 3 new stores. We closed one and then we also acquired 1 franchise store, which is then also in line with what we have communicated earlier in terms of opening stores in the countries. If you then go into Sweden, also in Sweden, we saw a strong sales growth, 15.6 percent like for total growth, 9.5 percent like for like. As David said, that was impacted by a kind of a lower increase online due to the Platform change, but we had also a positive impact from a stronger Swedish kronor exchange rate. The development was very strong, strong both in stores and online. So in that sense, a very good situation. Also EBITDA increased now by 44.7 percent to 5.6%. The margin landed at 15.6 compared to 12.9% last year. The same more or less the same reasons for the development as for the whole group, meaning We have benefits from operating leverage. We have also had a more efficient campaigning mix campaign mix Marketing campaign mix and also kind of a favorable product mix during the quarter and also then have a high efficiency in stores. Also in Sweden, We opened new stores. We opened 2 new stores and also acquired 3 franchise stores and 1 franchise store was closed. Then to Norway, where we saw a continuance of the Strong momentum that we have seen already for a couple of previous quarters. Sales growth was 64.2 percent, like for like growth of that was 40.4%. And actually, we had also the negative impact from a weaker Norwegian kronor exchange rate compared to the same quarter last year. Also very happy with the continuance of the margin development in terms of the EBITDA margin. Adjusted EBITDA now landed at €1,800,000 19.1 percent of net sales compared to €0,600,000,000 last here and 10.3% of net sales, a clear step up. And really, if you look at Norway as a country, We see kind of a very strong performance in kind of all the profitability KPIs that we are following. So very happy with the development there. During the quarter, we also opened 4 new stores. And also here, I can say that Also the stores that we have opened last year has performed very well and above our expectations. So So very happy with that as well. David also touched upon the kind of a convergence of the profitability That has been a theme that we have kind of discussed earlier and a clear target for us to convert the Sweden and Norway profitabilities towards Finland, the Finland level. And here, we can see that we have in this quarter also, we see a continuance of the trend that we have seen already for many years, a clear step in both countries. But we are kind of positively surprised of the good performance and development in Norway, now starting really kind of a converge towards the Finland level. Sweden also is doing a very good job. And we need to remember that this quarter actually was negatively impacted by both the platform change and also the warehouse consolidation project that we finalized during the quarter. So there are a lot kind of more potential going forward. Also to mention Finland that we are very happy with the level of profitability we have seen And also the fact that we still can still kind of see an increasing trend here. Now 25.6% is a level that we are very proud of. If we then go to the financial position, The cash flow of the quarter was also very strong. Net cash from operating activities This amounted to SEK 15,900,000 compared to SEK 14,600,000 last year. Gearing was now at 56 point 3 percent compared to €61.8 at the end of last financial year. Net debt amounted SEK18.9 million, including SEK67.5 million of lease liabilities. So the net debt relation to latest 12 month adjusted EBITDA was 1.8x. Cash and cash equivalents amounted to the €27,500,000 strong liquidity continue in the group. And on top of that, we have then unutilized facilities of €10,000,000 and the credit limit of €4,000,000 Need to also remember that now this kind of a capital structure and liquidity KPIs will be and has been impacted during Q1 Q2 now by the capital return of €0.38 per share as was decided in the Annual General Meeting. And then also investments amounted to €3,100,000 into tangible and intangible assets, mainly relating to new stores and also The kind of digital development that we have ongoing, also the small part relating to the central warehouse consolidation, but clearly, a small only a small part of this amount. That was all for me. I then hand over to David for the market outlook. Thank you, Robert. So market is growing with 4% 6%, more on the upper range of 6% the last 12 months. And we are then outgrowing the market with 14% to 16% during this quarter. So if we then look at our financial targets, growth 2023 reached at least €250,000,000 that is 9% CAGR, and we are at 18% the last 12 months. Profitability 10% to 12%, adjusted EBITDA margin mid to long term was something we communicated when we IPO then we are at 10.9 the last 12 months and also from a capital structure net debt below 2.5. We are at Robert said 1.8. And then the dividend policy to pay dividend corresponds 60% to 80% of net profit. And we recently just paid 80% for 2020. So it's obvious that our finance we are in a good position here. That's why we also communicated in the report that the board is in the process of reviewing the financial targets during the spring. So we will be able to come back to that. So if we do a summary of the quarter, move to next page. So Most has done its strongest quarter so far, record growth with strong profitable growth in all segments. Sales grow with 19.9%, 13.1% like for like, mainly driven from new customers. All three segments showed strong like for like. Online share came up a bit versus last year to 21.6% and the growth online was 33%. Profitability in Sweden and Norway converged faster than expected toward Finland levels, the same trends that we've seen over the last 9 months, maybe a bit stronger up Tic in Norway in the quarter than before. And we have also continued to focus on profitable growth supported by efficient and the scalable platform that we have invested in. And that was also proven during the quarter. And adjusted EBITDA increased with 36.4 percent to 10,600,000 euros Even though we had this Center Warehouse Consolidation short term negative impact. Gross margin also extremely good 46.1 versus last year 45.4. And most its underlying growth has continued to be very strong after Q1. And as I just said, that the board is in the process of reviewing the financial targets during the spring. So I thank you for listening and I can hand over to questions. We have a few We have a few questions coming through at this point. The first is from the line of Santi Korofoz of Nordea. Please go ahead. Your line is open. Yes. Hi, it's Matti Krogas from Nordea. Hope you can hear me. Yes. Hello? Can you hear me? Yes. We can hear you. Yes, great. So the first question is looking at the divisional estimates or Outcome for Q1 was quite as expected. But on the group function, when you have had negative EBITDA of Minus 5, 5.5, right now it was 6.8, that was the big deviations. Could you elaborate a bit on that? I guess it has to do mostly with doing that change, but could you quantify it and how it's looking going forward? Yes. I think I hand over to you, Robert. Yes. So that's, first of all, true that the kind of most Significant impact on that line was the Eskilstuna warehouse, where we, of course, in connection with this type of a huge project, have a kind of a negative impact on the efficiency of the operations there. We have actually employed a lot of new people into the operations in order to kind of cope with the high volumes that we have through to the warehouse, and this is a temporary result of that. The good thing is that the trend in terms of efficiency is upward. So we are kind of going kind of seeing a better trend all the time. In terms of the kind of Vacation of that, I mean, probably not going to give out a clear exact figure on that, but it had a clearly Kind of a big impact on that. And I could say that the result EBITDA would clearly have been above 11% due to this maybe, between 11% and 11.5% without this kind of impacts. Of course, also need to remember that the cost base as such increases both in especially for the group functions True volumes and true also the kind of efforts we put in kind of increasing the develop The digital capabilities in the company. And the volumes, of course, due to the fact that the central warehouse operations are included there. And the more volumes we get through Then question to David regarding the CEO comment, one part, you say that the Channel mix is more moving back to the stores and also in omni channel. Omnichannel part is up more than pure play sales. Should we interpret this as You are quite optimistic regarding the gross margin. Yeah, exactly. I think this is the first time where we're communicating with Omni and pure play but we've said earlier I think that the from a profitability and margins we are channel agnostic between the stores and the Omni. The Omni has been growing faster than the pure play, maybe a strong effect from the COVID-nineteen situation. So the trend has been visible the last 6 to 9 months. And we see that that has a positive impact for the margins. Any more questions? Yes. Can you hear my question? Could you just want to please repeat it? I think David didn't hear it. Yes. So the own and exclusive share is well, picked up again in Q1. Is that Only a result of sales going more back to stores or have you done something actively to change that? No, exactly. So one thing is the traffic, but other things is that we've been working with the sort been launching also new for an example articles in dog outdoor and reviewing the Ortman, something that we've been working with for a longer period. And also, of course, been prioritizing that work with O and E specifically driven maybe more in Sweden than Norway than Finland. So It's good trends. It's not a one time positive thing. It's something that we will continue doing. And that, of course, as you mentioned, has a positive impact on the margins as well. So overall, I think the margin uplift that we saw is we are, of course, very happy with that, especially when we're seeing a channel shift from stores to online share assets. Thank you. And then Just two questions. One, you earlier said that you have been able to get over 50% market share in new puppies into your programs. Is that continuing at the same level or any changes there? It's continuing at the same level. Since we launched all the puppy programs after summer within a clear uplift. This is also things that we are focusing even more on. We should forget the kits as well. But yeah we're seeing those percentages. Okay. Then the last one regarding product availability and pricing from suppliers. Have you seen Any bottlenecks there or pressure in prices due to the global demand uptick? And Do you have any comments on have you been affected at all by the increasing shipping costs? Thank you. I can hand over to you, Robert. Yes. I mean, we have seen some impact on all the increase in shipping costs, But so far, no really significant impact on the financials. In terms of the availability, it has been good throughout the quarter. Of course, let's now see how Brexit impacts that. There could be some temporary impacts, but nothing that we are that worried about. We think we have also kind of a quite extensive safety stocks in place at the moment for that. So, so far, no significant impacts from that. And in terms of price increases, there we haven't seen any kind of abnormal pressure so far. Thank you. Our next question comes from the line of Manan Colon of Erasmus Chesson. Please go ahead. Your line is open. Hi. Thank you very much for taking my question. At the IPO their long term guidance was €10,000,000 to €12,000,000 And the convergence of margins of Norway and Sweden toward a Finland margin was not exactly in the plan. So I have 2 questions on that topic. First, is Convergence actually possible. And what did change since the IPO was structurally changed It's possible we believe to reach the same margins. The reason why it's gone faster than expected Florezstan. So the first is that we have always believed that we can reach it but it's about time. It has gone faster than expected because of the way of working efficiency and also that the concept is performing stronger and faster than expected. Then of course we've had some help with the puppy boom that we're seeing. But also coming back to the gross margins which is extremely important. The assortment that we've been working with has also had a positive effect on the total gross margin and that, of course, to the EBITDA margin. Thank you very much. And you've talked about online and warehouse Changes during the Q1. Do you have any other one off changes or restructuring to come during the year? I can hand over to you, Robert. So any restructuring late into online? Did I understand correctly? Well, any other restructuring or any consolidation or any changes like The example you gave us for Q1, the online in the U. S. Okay. No, I mean, yes, in terms of that, no. We don't kind of foresee any kind of a major project in that now going forward. I think This warehouse consolidation and platform chain that we did now, we're kind of more or less the biggest Yes, steps left that we had. And of course, we will continue to fine tune all the platforms, everything that we have. But that's kind of a more kind of As business as usual from us. Okay. Thank you very much. And maybe just one last one on my side. So you revised the your expectation in terms of market growth because of the PEPI bonds linked to the COVID crisis. Probably, how long do you think it's going to last? Do you think it's going to anniversary like in April 2021? Or do you think this tendency may last in terms of volume growth? Yeah, right. I can take this. So of course impossible to forecast, but we believe that this is quite a Transshift. We believe that the number of registrations on the higher level will continue. We see that people still are on waiting lists. So there's still a huge demand for getting puppies. And we also believe that this will then will continue, maybe not at the same high level. Also during this year, but we will we believe that this will continue during the year at a high level. Thank you very much. Thank you. And our next question comes from the line of Ioannis Sandoval of Nordea. Please go ahead. Your line is open. Yes. Hi, it's Sione from Nordea. A couple of follow-up questions. And first, regarding profitability in Sweden. You have been working with Store Site Efficiency and I'm just wondering how much you see Still potential within the store efficiency in the country. Right. Robert, you can take. Yes. Well, as you see, I mean, the trend has continued to be upwards. And So we I mean, for each quarter now. So in that sense, we still have kind of potential and we continue to utilize that. That, of course, we are also doing new measures all the time, which also means that, of course, it gets Harder and harder, but still we see potential in the metrics that we see. And also need to remember that About 30% of the Swedish business is online. So also the potential we're seeing increasing the profitability there has a significant impact on the profitability of the whole country or the whole segment. So yes, There are kind of a potential in all both kind of both store sites but also the online side. Okay. Thanks. And second and last question from me about franchise stores acquired. I think it was 4 stores now in Q1. And I'm just wondering what prices are you paying currently for the acquisitions? And is this increased acquisition amount due to the lower acquisition prices? Should I take it? Yes, please. Yes. So yes, I mean, in terms of the kind of acquisition prices, I mean, we have continued to stick to the kind of same level as so far in terms of the company's or acquired franchised also. So no deviation there, about 3x to 5x EBITDA. And I wouldn't say that we have seen any in that sense kind of Now changed during this quarter or even this year, it's more now more a question that we've put a bit more focused on acquiring franchise stores, have a tight dialogue with them in order to see that which are the ones that we want to have as own stores and which we will keep as franchise stores. It's more kind of driven by focus from our side at the moment. Okay. Thanks. That's all for me. Thank you. We have one more question in the queue so far. The next question comes from the line of Olli Thilper of Inderes. Please go ahead. Your line is open. Hi, guys. Congrats for the good results. Only one question left for me. The Amazon opened during the quarter in Sweden. Did you see any effects from that in your operations? And how do you see it as a long term opponent. Straight answer. We haven't seen any effect at all. But of course, Amazon is Amazon. We need to do our best to do what we've been doing the last couple of years. And I think the concept with the Omni and the PurePlay is working well. We're also following this from Google search and all of that. And we're not seeing any impact at all. Thank you. That's all for me. Thank you. And as there are no further questions at this Time, I'll hand back to our speakers for the closing comments. Okay. So thank you for listening and we will then continue with all our meetings now the coming week and next. So if there are any things please reach out to Essie that can take it forward to us then.