Earnings Call: Q2 2021

May 4, 2021

Hello everyone. Welcome to most its half year financial report. Here in Stockholm we have David Romberg CEO And from Helsinki, we have Robert Berglund, CFO. Today, we will go through the agenda with the group development, the segments and then also the financial and market outlook. We call this report accelerating growth. That takes us to Slide 4. And mostly is growing faster than ever. Net sales increased with 20.5 percent to €82,400,000 mainly driven from as we saw before from new customers. And we are continued taking Good market share in all three countries. During the quarter we have continued to focus on growth adapting to the COVID-nineteen situations and Profitability. Sales in like flight was 11.6% in total 8% in stores and online about 20%. So during the quarter we had some short term negative sales impact on our online due to the platform change that we did last quarter and also the warehouse constellation. We will come back to that later. We see that we are back on track from April. So we see higher sales in the online verticals from that. Adjusted EBITDA was €7,700,000 And if we exclude the short term negative impact related to our warehouse consolidations. We end up at €8,500,000 and that's about 54% versus last year. So strong profit of growth in all countries. Adjusted EBITDA margin was 9.3 percent and excluding the warehouse impact it was 10.3% versus last year 8.3%. Something that we're really proud about is cash flow from the operations that came in strong at €14,000,000 versus last year 4.7. Robert will go through the details later. We focus on the number of customers that's coming in and the number of loyal customers grew to 1.2 million. That's approximately 14% versus last year. And if we include the ones that is coming in, in the registrations in the online verticals. We are at 1.45000000 customers as we speak. Also important to highlight is that the most underlying growth has continued very strong after the quarter. So let's move on and look at our growth. So net sales increased by at 20.5%. That's a record quarter in growth 12% like for like strong growth in all countries. As you see in the staples the trend are looking really really good. Sweden came in at 19% 19 a half percent growth. That was strong growth in stores and a bit lower in the online due to warehouse consolidation platform change and Norway 70 8 percent growth very strong growth in both stores and online. Finland our mature market came in at 10% growth. So strong growth in both stores and online even though we've seen some stronger COVID-nineteen restrictions compared to Sweden Norway. Net sales rolling 12 months was €312,000,000 per segment. Sweden Norway are taking a bigger share where Finland now has 45% and Sweden Norway has 55%. So let's move on and look at our EBITDA. On Slide 6, you can see that we are trending up and we are very pleased with the increased profitability in the quarter. So EBITDA increased with 54 percent to 8.5% within 10.3% margin versus last year 8.1% if we clue the short term negative impact to the warehouse consolidation. And we truly see this as a short term impact When we're doing we're doing the warehouse consultation that has been affecting the efficiency and has also been seen in higher cost in the P and L. Something that we're also extremely proud about is the gross margin that's increased to 45.3% from last year 43.3. And at the same time we saw that online share of sales increased to 24.4 versus last year 23.7. As we've been discussing before we've seen that the margins in Sweden and Norway has converged faster than expected. And we saw this even this quarter. And maybe we've seen that Norway is going faster than before. And Robert will go through that more later. Operating profit was €6,500,000 which increased with 183% versus last year. So let's look why most is gaining share in this growing market. We mainly see 3 and main reasons why we are we're seeing this high growth and that will continue for a long time. So since April last year we've seen a strong growth in puppy registrations. So 2 year growth is steady at 32, 33% since January to April this year. And during our Q2 there was 29% growth in pop registrations was versus last year. You can see that in Staples. Second thing is that the new puppy customers is that most is taking more than 50% of the market. And it seems like our concept is tailored for these public customers. And the new customers that we acquired the last 4 quarters are the best in history. They are more loyal and spending more than the ones before. And the third reason is that we're gaining share in a growing market where Nordic is a sizable market. So we still see a long runway ahead of us especially in Sweden and Norway. We see the significant runway to reach the market share we have in Finland. So if we look at Norway the momentum has accelerated. So this takes us to the next slide where we have updated the financial targets. So with this favorable trends we're seeing we have updated our financial targets. So if we look at the growth we say that we will at least reached 500,000,000 at 2024. And before we came, we had 350,000,000 at 2023. From a profitability mid to long term EBITDA margin at least 13%. It's not it's a floor. So let's see where it takes us. But before, we had a range between 10 12 to reach at 2023. Both capital structure and dividend policy we kept the same. So in the capital structure we keep as before net debt in relation to adjusted EBITDA below 2a half and a dividend policy to keep pay dividend corresponding to 60 to 80 percent of the net profit. I will hand over to Robert that will go through the segments more in detail. Thank you, David. So we start with Finland. As David said, we had a strong sales growth in Finland of about 11.9%, out of which 10.6% was driven by like for like. We had a good sales trend in both the stores and on the online channels. And This was actually then also driven by the customer, of course, increased number of customers as we have seen before, but also This quarter now partly driven by the average increase in average spend. EBITDA also increased by 11.1 percent now to 8,400,000 Which in terms of EBITDA margin is about the same level As in last year, so we keep the kind of a steady high level of margin in Finland. And the reason why is the Operating leverage and a good kind of campaigning mix that we have seen already for some time. Of course, that is then offset By the increase of share of online sales with a slightly lower margin. The store efficiency has also continued to be on a high level, and we were Pretty efficient in adjusting the cost base in the stores based on the changes in the traffic due to the COVID-nineteen restrictions. During the quarter in Finland, we did no changes to the store network. In Sweden, we had a very strong sales growth of 19.6%, driven by, 1st of all, Number of stores, new acquisitions of franchise stores and new stores, by the like for like growth of 6.8%, but also by a strengthening Swedish kronor exchange rate. As David also said, the online Sales was slightly negative impact by the consolidation and the platform change that we did in Q1. But there, we have a favorable good trend at the moment. Adjusted EBITDA increased by 53.1%, Now to €4,500,000 which was 12.5% of sales compared to 9.8% of sales. Last year's Q1 Q2, again, the same reasons behind that, Good operating leverage, good campaigning mix and then partly offset by the lower share of sales online. Here also, we had a good efficiency in the stores that we also have seen earlier. In Q2, we also increased the number of Directly operated stores. We opened 1. We acquired 3 franchise stores. We also, at the same time, closed one Directly opened operated stores and one franchise agreement was terminated. And then to Norway. Here, again, we have seen quite strong sales growth for many quarters already, and that just continued now. This Q2, 77.6 percent sales growth now up to €9,700,000 42% It was driven by the like for like and the rest then by the good ramp up of the new stores that we have opened. We actually also had a slight negative impact of the Norwegian kronor exchange rate, but that was not significant. Adjusted EBITDA landed at €1,600,000 compared to €100,000 last year, an extremely good Development, now 16% of sales compared to 2.5% of sales last year's same quarter, Again, driven by the fact that we have operating leverage. We also have a good increase in the store efficiency due to the fact More and more stores are getting matured. And also, the ramp up of our new stores have been very good. During the quarter, we opened 2 directly operated stores in Norway. So if we Compared to countries, we really can see that Sweden and Norway continue to converging towards the profitability level in Finland. On the right hand side, you can see the situation now in Q2, where Finland has been steady on the level of 22.8 Norway has now increased up to 16% and Sweden to 12.5%. And on the left On the side, you can see the long term development there where we are very happy to see that Finland has continued to stay on this high level of 24%. And really now Sweden and Norway are approaching that level. Norway, the fastest, But also Sweden has a good trend. Sweden now 14% Norway 18% compared to 24% in Finland, Which is, of course, in line with the strategy we have to really converge the profitability on Sweden and Norway towards Finland. Then we go over to the financial position. As David also said, We had a strong cash flow, €14,000,000 in Q2 compared to €4,700,000 last year, Driven by a couple of things. First of all, a good trend in EBITDA and also a decrease in net working capital this quarter. We also had no adjustments to the EBITDA, which we had last year due to the IPO costs. Yes. Then if you go down to the financing activities cash flow, you actually see that, that has been impacted by the cash return that we paid out in line with our financial target in February of 12.2 12 point €7,000,000 And that, of course, impacts the KPIs relating to the capital structure. Gearing is now €70,700,000 €700,000 compared to €61,800,000 at the end of last financial year. Net debt is now €106,300,000 out of which, €73,800,000 is leasing. And net debt in relation to LTM adjusted EBITDA was €1,900,000 The liquidity of the group continues to be on a strong level. Cash and cash equivalents at the end of the period amounted to 17.6 compared to €21,600,000 at the end of September. And investments into tangible or intangible assets amounted to €3,000,000 mainly relating to stores and digital and ecom development we have ongoing. Also, we invested €1,100,000 into the acquisitions of franchised stores during the quarter. Then I hand over to David for the closing remarks. Thank you, Robert. So if we do a summary of the report, we see that sales is increasing over the last quarter. So we came in at 20.5. So a record high growth mainly driven from new customers as before. We saw that all three countries showed a very strong like for like store sales increased by 21.5 percent. So extremely high store sales growth online share of sales came in at 24.4. We saw strong growth in Finland and Norway and a bit lower in Sweden relating then to the platform change in the world consolidations that will be seeing uptrends already from April. And as said before profitability in Sweden and Norway has converge faster than expected towards Finland levels and we saw a huge uplift here in Norway going extremely strong. EBITDA increased with 54 percent to 8.5. If we take out the short term negative impact due to the warehouse consolidation which also was 10.3% margin versus last year 8.1. Gross margin has increased as well to 45.3 versus last year 43.3. And most its Underlying growth has continued to be strong after the Q2. And also that we communicated is that the board has updated long turn on financial targets and we are well on track and committed to delivering on this plan. So with that I will hand over for questions. Thank you. Currently there's one question lined up. Just as a reminder to participants, if you do wish And the question we have in the deal is from Soren Kroffos of Nordea. Please go ahead. Your line is open. Yes. Hi, David and Robert. Thanks for taking my questions. The first one is relating to your updated financial targets. And Looking at the top line target is that's actually quite a strong one. But then looking at The margin target, I know it's above 13%, but I think the 13% is Kind of a low sounds quite conservative given basically what you have said also today with Norway and Sweden Converging towards Finland faster than expected stable gross margin. So if you calculate Backwards, the EBITDA drop through seems quite weak in your when you put the guidances together. So could you elaborate a bit On the reason behind the margin target? No, I think it's the I have some echo here. I think it is if we look at how we have been communicating since we did the IPO and also that we saw that we were waiting a bit coming out with the revised targets is that when we did the IPO, we came in at $350,000,000 and we'd also range $10,000,000 to $12,000,000 And when we communicated 10% to 12% margin. We I think we were also saying that that was absolutely not the ceiling. And I think you should see that this way when we communicate the 13% is that the 13% is a floor. But then where the ceiling is, I think that's something that that you can calculate that we have some upsides. Absolutely. If we get the follow through as we're talking about and the Norway and Sweden continue, I think we have good opportunities to have it above pretty much above 13%. But we we see that we want to come in that it did to over deliver than underperform. Okay. Thank you. So we shouldn't Factor in any increased cost of increasing growth or perhaps Finnish EBIT margin Being under pressure. No, exactly. We don't see any reasons why the cost structure which changed and the follow through will change. We see the short term negative impact with Eskilstormow that will that will go away hopefully from now from April and that we offer some we will have higher efficiency than before and it has nothing to do that we're opening stores. So it's it's the same model and the strategy that we're working with. But we come in with the sea with the floor instead of a range. Okay. Thank you. And then regarding SKILLS do you know you had €800,000 one off there, was that mainly related Do extra work for us. Was there also some lost sales in that? So what we do is it's both cost and lost sales. We have not accounted anything of the lost sales. But of course, when we did the warehouse consolidation and also changed the platform, we were we needed to take down marketing and also reduce traffic to the Swedish online verticals. That has an impact on the sales online. We haven't accounted that anything. But what we look at Is that we the Q1, we had about €1,200,000 impact in the cost structure. Some we had as one offs in the peanut. This quarter we had 0.8. That's mainly related to higher cost and lower efficiency. Then that's related to what we had before we did the move. What we hope is that we will have higher efficiency from summer and then going and going forward. But during this consolidation phase It has a negative short term effect. Thanks. Then perhaps on Your puppies into your loyalty programs, are you still gaining over 50% of new puppies into your programs. Yes we're seeing the same trends that we've done that we've seen now the last months. So and the interesting thing and the interesting thing is that it's same same percentage more or less in all three countries. Now when we're meeting a bit higher comps in April for an example last year If we look at it over a 2 year period that's why we're looking at the steady 32% to 33% if we look January 2 to April versus 21 versus 19 and that growth in public stations with 32, 33 percent is that we're seeing that we're getting more than 50% of those in from a group perspective. Thank you. And then regarding your average spend per loyal customer, which has now Started to pick up quite nicely. Can you comment a bit on the cohorts there? You said that the new Customers are quite eager spenders, but have you seen some change also in the older cohorts? Exactly. So important to highlight there is that we said the with the with the last name and the pop the puppy customers and other new customers coming in are spending more and are more loyal. And also we've seen some up spending the old customers. And we believe that that is relating to that the pet parenting strand is increasing. That Trend is increasing due to COVID-nineteen and we've seen that the average spend is picking up nicely and we have a plan to of course increased that further on. So the growth will be number of customers new customers coming in and that also average spend will increase going forward. Thanks. And then perhaps a question on market shares. The numbers you disclosed are from 2019. What's your feeling of the size of market share gains Over the last 2 years. Yes. Maybe, Robert, you have a view on that. So I mean, I can say that we, of course, don't have any data from 2020 yet Available, but I mean, you can see our growth has been pretty strong during the The last quarters and comparing that to a market growth at the moment of maybe 5%, 6%, we are clearly gaining market share at the moment. And that It actually happens in all countries. But we don't have any exact data at the moment. Okay. Thanks. And then perhaps a question regarding the competitive landscape in Norway. Have you seen any changes there given Your very successful start there. I can I can answer that? So no way we haven't seen any specific increase in the from competitors in Norway or I would say in Sweden and in Finland either. And regarding some statistics we showed last Quarter 2020 Groceries in Finland was growing with about 1% in the space where we were growing over 10 and in a market that is growing 5% to 6%. So I think we're we're getting a lot of market share in all three countries. Could you please repeat the question, Svante? Yes. In online, have you seen any change in how Sure. Plus behaves or in the competitive landscape in the online? Yeah I can I can answer? So we see that so surplus has been around since a long time long before me since I joined. But we're not seeing any difference from their for their point of view in the 3 markets from from how do you will pay and all of those things. We're not seeing it in the in the SEM. So more or less the same in all three countries. Okay. Thank you. That's all from me. Thank you. Our next question comes from the line of Oli Vielpo of Inderes. Please go ahead. Your line is open. Hello, guys. This is Holubil from Inderes. Can you talk about Your revenue target and how do you think about this store network expansion going forward? This year, it's 25 to 35 on stars. And is the base going to be kept as high as this? Yes, thank you. I can hand over to you, Robert. Yes. So I mean, we see Clear opportunities going forward also to open new stores in all the countries and especially, of course, Sweden and Norway. So and we I mean, one part of this growth target is really to, of course, push on that and make sure that we take Big market share in all countries. So I mean, we haven't set any clear targets on next year's, but of course, We will we see opportunities. And we also, in order to, of course, reach this target, we will clearly open more stores Also going forward. So I would could say that we will continue with the pace that Is this or close to this level as where we are today. Okay. And is that target to Get something like 30% of the Norway market. How do you see that? How much stores you can fit in Norway? I mean, we have in terms of I mean, there's no reason to believe That we couldn't reach the same type of market share in Norway as we have in Finland or in Sweden. So there, clearly, we can continue to push. And exactly how many stores that applies That we need to, of course, look at. But I mean, the market Norway market is a bit This is about the same size as Finland. And Norway, we have a bit more than 40 stores. In Finland, 130. So a lot of opportunities still to open stores. Okay. And about this puppy boom continuing after this pandemia, I checked the April numbers and there was only 11% growth in the new puppy registrations. This is Just the 1 month that is lower, lower than previous months. So how do you see that it's continuing? Yeah I can I can answer? So how we see it. So now we need people we're meeting much much stronger comps last year. So how we see it is first we calculated a number of registrations and then we see it over 2 years. So If we look at it was 11% in Sweden in April meeting 19% last year. So that was about 30%. And as I said if we look at it over a 2 year period it's stable at about 30%. We believe that that will continue. We also get the information from the Canning Clubs that there are still waiting lists on about 4 to 6 months on many breeds. So it's it's to our failure. Additional question regarding the mostly Ecosystem, what's going on there? And how has the, for example, the digital vet business started? And do you expect To do something, additionally. Yes, Robert, maybe you can take that. Yes. Yes. First of all, I mean, the web chat that we started in Finland has started very well, of course. We need a couple of more months to have good enough data on then taking decisions on rolling out to other countries. But clearly, kind of a positive trend in that. And of course and also in terms of the whole Ecosystem, we are working on a number of different initiatives on that. And of course, we will come Publish those and come up with new more information once we are that far with the initiatives and can start to launch them. Thank you. Okay. Perfect. Thanks a lot. So please reach out if there are any things. Thank you very much. Bye bye.