Earnings Call: Q4 2020

Nov 12, 2020

Hello, everyone, and welcome to this webcast. My name is David Romberg from Stockholm. And in Helsinki, we have Robert Berly on the other side. Today, we will go through the Q4 report. The agenda for today would be then group development. We will then go into the segments. Robert will take that part and when we wrap it up with the financial and the market outlook and also we will have questions in them. So if we start, the headline of the our report is continued strong momentum. This trend has been going on the last 9 to 12 months. So we are, of course, very pleased with the most strong Q4. If we flip the slide, Robert, you can see that net sales grew with 16.6% with increase of 19.2% growth. During the quarter, we have seen an extremely strong like for like. That is mainly coming from new customers coming in. Our adjusted EBITDA came in at €10,100,000 also an uplift versus the last couple of 3 quarters that we've seen. So we're extremely happy with that. The increased EBITDA came in at 44% versus last year. Something that we've been working a lot with is, of course, efficiency and the margin. So we saw that the margin came in at 13.1 percent. The operating profit increased to 63.5 percent to 7,800,000 dollars We had a bit lower cash flow in the last quarter. So this quarter we saw a bounce back to 20,600,000 in the free cash flow for operating activities that we are extremely proud of. And the number of loyal customers also increased to 1.1. That is about 13% growth. If we include all our verticals including the online, the pure play, vets and anime, we have about 1 point 4,000,000 customers in the database and number of stores grow to 293 stores versus 277. So we are also very pleased with the financial full year where we saw that group net sales totaled 284, which was an increase by 15.3 percent and like for like came in at 11.5 percent and as I said in on the 4th quarter we had a stronger momentum and which is of course something that is underpinned by that we are taking market share getting more customers into the system and also that there are a lot of new puppies registered and also that we are taking into the group adjusted EBITDA for the full year came in at 29.8 That was an uplift with 36.2 percent and the margin came in at 10.5% and that will coming back to our financial targets that is 10% to 12% long term to 2023. So we are in a very very good position already. Operating profit also here we saw a huge increase with 56% coming into at 19.6 percent and the profit for the period 11.8 percent. And also net cash flow for the full period came in over 40 42.3. And that with the strong development that we've seen and also the strong cash flow. We are now the Board of Directors is proposing for the financial year 2020 a capital return of $0.38 per share and that is in the upper level of the financial target. We had 60% to 80% and this is 80%. So we are very happy with the performance so far. And we can also look at the how the puppies registration has seen. So we are looking into this started in since the COVID-nineteen impact came from March and we have seen a rapid increase of registered puppies. This is something that we can then get in official statistics in Sweden but it is happening in all three countries. So we've seen that in September, it was 19% growth in registered puppies and actually the October numbers came in even higher at 23. And we have launched a lot of programs to get these puppies on board, to get the puppy parents to our Muster system. And what we've done is we have launched puppy programs, puppy training, etcetera. And we've seen that we are we our concept is actually tailored versus these new pet parents that is coming to the market. So, we are getting a lot of these puppy customers into the system. And we can see here that the difference versus last year is actually 35% on rolling 4 weeks trend. And this has been going on since March and the trend has been very, very strong and continued over until now. And this is, of course, an important part going forward in the long term view. So these puppies will, of course, stay around for 10 to 12 years and hopefully in the most system that will help us grow even faster going forward. This has, of course, an impact on our growth. We can move on and see how that looked. So, net sales grew with 19.2%. So very, very strong quarter, like for like came in at 12.2 percent coming from all verticals, all countries. In Q1, we grew with 9.7 percent, Q2, 15.9 percent, Q3, 16.6. So we have a really, really strong momentum coming back to the trend. If we look at it per country, we can see that Sweden was having 11.5 percent like for like, both stores and online was delivering strong. Norway came in at 35% like for like. Also here, both stores and online was delivering. And Finland that is for us the mature market, came in at 10% like for like, which is, of course, double digit growth in a mature market is, of course, very, very good for us. Yes, net sales rolling 12 months came in at 284. We can also see that Norway and Sweden is taking a bigger share of the pie, whereas Finland today has 47%. So let's look at the EBITDA. Even here, we can see a very good momentum. So group adjusted EBITDA increased with 44.6 percent to 10.1 percent and the margin came in at 13.1 We can see a seasonal effect, but if we compare it versus last quarter, the margin came up to a very, very good level. And there are some reasons behind it, of course, but new customers coming in, good margins and high efficiency in the scalable platform is the reasons behind it. There are some adjustments in the figures, SEK 700,000 that's related to distribution, warehousing, consolidation. We will mention it more later on. So overall, we are extremely proud of the result and Robert will take you through the segments. Yes. Thank you, David. So we can generally say that also this quarter has been a continuance of the trends we have seen in the previous quarters also in the countries. But if you look at them a bit more in detail, Finland, we delivered again strong sales and result development, good high margin on an EBITDA level. Sales increased by 11.5 percent to €36,000,000 like for like increase was €9,700,000 And on a yearly basis, that ended up in the sales growth of €10,600,000 percent, almost the same level as last year of 10.8 percent. Online continued to be positively, of course, impacted by the COVID-nineteen pandemic, but the impact of that was lower now in this quarter comparing to the quarter to the 3rd quarter. Adjusted EBITDA increased by 8.7 percent 8.5 percent to 9,400,000 euros and that was 26% of net sales, mainly driven by the kind of operating leverage we have in the business and then offset by the higher share of online and the related kind of distribution cost and product mix. If you go to Sweden, Sweden continued to have a strong momentum both in now in Q4, also both for sales and also for the EBITA development. Sales increased by 21.3 percent to 30 3,400,000. Like for like was 11.5 percent. Total growth for the full year was 14.7% this year compared to 10 point 9% last year, so a clear increase there. We had a strong like for like in both the stores and also on the in the online channels. We are very happy about the development of the EBITDA or profitability increase. We increased adjusted EBITDA by 70.8 percent to €4,900,000 That was 14.8 percent of net sales, clearly higher than last year. And that resulted in a total margin of 12.1% compared to last year. And then yes, we opened 2 owned stores during the quarter in Sweden. Then Norway, there we also saw a continuance of the on the extremely strong trend we have seen last quarter, both in terms of the sales development but also the profitability development. Sales increase was 59.8 percent, up to €7,500,000 Like for like was €35,300,000 and that ended up in the sales growth for the total year of 54.6%. Strong like for like in both the stores and online space. And we are very happy with how the new stores and the stores opened during the year and the years before are actually ramping up in the country all over. Adjusted EBITDA was now €1,100,000 15.4 percent of net sales, more or less on the same level as in Q3, which shows the extremely good impact of kind of getting the company more mature and seeing the kind of operating leverage in the business. On a total yearly level, the margin now landed at 11.5%, clearly higher than in last year. And now we opened this quarter 1 new only owned store. Then we go into the financials and the market outlook, starting with the financial position. Also, as David mentioned, we had a strong net cash flow from operating activities in the quarter, ended up at €20,600,000 compared to €2,200,000 last quarter and €10,000,000 Q4 last year. So a clear improvement. And of course, this was driven by the good profitability development, but also then a lower net working capital. And there, especially that what we saw last quarter that accounts payables increased. Now we saw a decrease in trend in debt, which was kind of a part of the kind of a timing different timing of payments that we saw last quarter. Yes, so Gearing ended up at 61.8%, of course, last clearly lower than last year, but we need to remember that last year Q4 was the time before the refinance we did in connection with the IPO. Net debt as relation to latest 12 month adjusted EBITA was €2,000,000 Net debt amounted to €94,700,000 including €66,500,000 of leasing liabilities. So excluding that, our net debt was €28,200,000 We ended up the year with a very good liquidity, €21,600,000 of cash and cash equivalents. And of course, on top of that, we have then a credit limit of €4,000,000 and unutilized credit facilities of €10,000,000 Investment ended up at €1,900,000 a bit higher than the last year, but mainly driven by the fact that we continue to push on stores and the digital development. So all in all, a very strong financial position at the end of the financial year. And now I hand over to David for the market outlook. Thanks, Robert. If we look at the market outlook and also how is growing, 1st of all, we've seen a steady growth in the market with about 4% the last 10 years. And what has happened is that we've seen a lot more registered puppies into the market. So we believe that the market is growing faster than those 4%. Our estimation is that we are now seeing about 6% growth. And if we look versus our numbers, we are outgrowing the market last quarter with 14% to 16%, which is incredible. If we take that to the COVID-nineteen situation, we've seen a shift from online into stores and then coming back to the traffic coming back to the stores and that we've seen also during the quarter where the share of sales online came back to normalized levels. If we look at our financial targets, we have growth target 2023 to reach at least €250,000,000 which is a 9% CAGR. We are currently during 20 20 at 15.3 percent, so in a very, very good position on the growth part. On the profitability, we have 10% to 12% adjusted EBITDA margin mid to long term. And as we just reported, we are at 10.5, 2020. So we are already in the range. So, we can say that, of course, the midterm for 10% to 12%, we have reached it with a 10.5%. From a capital structure, net debt is below 2.5% and we are currently at 2%. So also here we are in a good position. The dividend policy to pay dividend corresponding to 60% to 80% on net profit And we are now paying 80%, so on the upper level of that range. So overall, a bit stronger growth in the market underpinned by new puppies and versus our financial targets, we are in a very, very good position, which is very comfortable going into 2021. So let's do a summary of the report. So first of all, we have a very strong Q4, record growth with strong profitability in all three countries where Sweden and Norway are converging faster than expected as we saw last quarter. Sales growth was 19.2%, so extremely high growth, 12 point 1% like for like, mainly driven through new customers coming in to the system. We can see that we had strong growth both in stores and online share of sales came into 22.1%, which is more normalized after the clear channel shift we saw. We have a continued focus on profitable growth. It's important for us to grow, but it's also even more important to grow with profitability and that we've been showing now in the Q2 in a row, I would say. And that is supported by efficient and scalable platform during the quarter and the EBITDA increased with 44.6% to 10.1%. Most of these underlying growth has continued to be strong after this quarter. So we can see that the momentum and the trend has been going very, very good the last 9 months. And the board has proposed a dividend of €0.38 which is on the upper level, the 80% of adjusted net profit. So, overall, I think we are in a very, very good position going into 2021. We are seeing more puppies in the market and our concept is more and more clear that it's tailored to the pet parents out there. So we are very in a good position. And let's go into questions. Thank Question comes from Sivante Krufos from Nordea. Please go ahead. Yes. Hi, David and Robert Sivante from Nordea. Hope you can hear me. Yes. Yes, we can. Hello? Okay, great. Yes, perhaps if we start with your financial target, you have the €350,000,000 sales target by 2023. Basically, if you calculate that from this year's sales and that implies a CAGR of 7% and that's basically what the market grows currently. The other one is your EBITDA margin target of 10% to 12%. You are now at 10.5% and improving faster than you earlier have communicated. How do you want to comment on this quite in the light of latest numbers conservative targets? Yes. Do you hear me, Oren? Oren? Yes. Okay, great. No, I think with respect of that we are fairly new in as a public company, there was only 9 months ago when we were public and also that we have a pretty long runway on the financial targets even though we are obviously delivering a stronger momentum that we saw 9 months ago. I think that the dividend that we have been communicating today is showing a good strength where we're putting the dividend at the upper level. Regarding the sales and the margin, I think we have a lot of time ahead of us to be able to review them. Okay. That's clear. Then this your Sweden and Norway, the margin improvement there has been quicker than you earlier anticipated. Do you still believe it's and at what time frame do you believe that Sweden could approach Finland? Or is it possible for Sweden to reach Finland's level given the a bit different mix and legacy from online M and A? Yes. I think the goal is still the same and that we will reach the same levels that we have in Finland in both Norway and Sweden. Regarding the timeframe, that's we haven't communicated an exact timeframe. But what has been clear for us is that it's going faster than expected. And there are a couple of reasons behind it. But I think a lot of good internal work and that also the concept is really working in Sweden and Norway. And if you can say that it took we tested the concept for 15 years in Finland and that's not 100% sure that we worked as fast as it's done into new countries. But it's obvious that we have adapted quick and now performing ahead of the plan, you can say. Regarding timeframe, nothing that we have communicated, but it's going faster than expected. Okay. Then you commented in the report, at least that's how I understand it for the first time, the market shares. That's good info. You said that in Sweden, you have 50% online market share. Is it about the same level in Finland? I can hand it over to you, Robert, regarding that. Yes. It's about the same level. Okay. Then perhaps, Robert, a question to you. You saw the gross margin decline 1.2 percentage points year on year and you said that it's going to online lower O and E and nonrecurring warehouse consolidation costs. Okay. Yes. So yes, that's true. And I mean, what we have seen in the earlier quarters also is that the distribution costs are clearly, of course, higher in the online space, and they are included in gross margins. They have a kind of negative impact on it in terms of the channel mix, and that's what we see also. So also now, we also have slightly lower O and E share, which has its own impact on it as well. And then the smaller part is the fact that we have some nonrecurring items relating to the warehouse consolidation in Finland and Sweden. But it's kind of the same. In that sense, we have we see the same type of trend as previous quarters that online share is the one that impacts that. But as you can see, it doesn't necessarily have a bad impact kind of adverse impact on the margin as such due to the fact that we can run the business quite efficiently. Okay. Perhaps one more question. You acquired 1 franchise store in Q4. What's your outlook for acquiring more? I guess, in Sweden, you have ambitions to continue with that? Yes. I think what we did was that we had a strategy of opening 20, 25 stores including some acquisitions and then we raised the bar twice actually and now we have up to 35 that is including some acquisitions. There are the limited amount of acquisitions in those 35 stores and they are mainly franchise Sweden, I would say. So no big effect, I would say, for CapEx. Okay. Thank you. I think I pause here. I might return with a couple of questions more, but thank you for now. Thank you. Our next question comes from Ali Liopo from Indirects. Please go ahead. Good afternoon. Oliver from Inderes. You see that the COVID pandemic has increased your total revenue if we exclude the increased number of puppies in the market. When the customers use less money for traveling and you'll see some categories benefiting from that behavior. So what we saw was first we saw hoarding effect in March and then was a bit of a hangover in April May. And then I think it's been stabilizing. Overall the total demand has been pretty stable. What we've seen is that we've seen a growth in specific areas like toys and treats and some accessories. Otherwise, I would say that we don't see a significant effect that from a short term regarding the COVID-nineteen. I think overall the demand has been very, very yes, the same over the time. Okay. Any negative effects for the service sales? Sorry, say again. Do you have any negative effects for the service sales? Yes, exactly. So our service stations hasn't been fully up and running at the same hours as before COVID-nineteen. So we've had some negative impact, but that's also limited due to that the service revenue is fairly small in the for the group. Okay. Going forward, you are increasing the speed of the store openings. Do the risks increase at the selected locations would not be optimal? No. I think for us it's extremely important to find the right locations. So I think we if we will not look into it for us to choose the right ones, I think we can probably increase speed even more. But for us, these 35 that we're talking about, will be for all three countries. Mainly, the majority will be in Sweden and Norway and then some in Finland as well. But finding the right location is key for us. So quality before quantity in that sense. So high traffic smaller stores in high traffic locations is still the strategy. Okay. And in the financial items for Q4, did you have there unrealized currency losses or gains? Yes, I can answer that question. Yes, there was some impact on that. We can actually come back with at least latest in the financial report then on the amounts of that. Okay. And how do you expect the tax rate to be in 2021? Do you still have this unrealized tax benefits? The tax rate, you asked, yes. So yes, I mean, in this year, we were as expected, we could utilize part of the carry forward losses we have, especially now in Sweden. But we still have kind of unused losses in both Sweden and Norway. So kind of if you can keep up with this development in the countries, we will, of course, have also have the possibilities to utilize them also during this financial year. But then exactly how much, it's always very hard to say because it's really then depends on in which legal entity in our structure it ends up and so on. On. Our next question comes from Tommy Belloni from Carnegie. Please go ahead. Yes, hi. I have a question about your sales mix. Can you explain the how your own and exclusive sales have developed in the different countries during the year? Has there been any big difference during the last year? Yes, exactly. So if we maybe Robert had a more detailed fees. But what we've seen is that if we divide it in countries, I think it's more or less the same that we've seen before on the same levels, which is that the stores are at a higher level and online on a lower. When we saw an increase in online sales, it's clear that the total shareholder sales, own exclusive, is going down. We have also been focusing a bit more on own than exclusive in that matter. But the reason why we've seen a bit lower own and exclusive share of sales is 2 reasons. 1st, the channel and more online sales and also a bit more focus on the own brands, if that answers your question. Yes. But you still have, I guess, a plan to increase the share of own exclusive brands in Sweden, in particular, where it's still quite much lower than in Finland, for instance? Absolutely. I mean, the strategy is still the same. So the strategy is to increase Why is it going so slowly I mean is it different difficult to change the sales mix Or what's the reason behind? Yes. So I think the COVID-nineteen situation to that we've been focusing on a lot of other things than just that share mix or that mix of products. But the online part is taking longer time than it does in store. So, if you look at it from a store perspective, it's going well in Sweden and Norway. But from an online perspective, it's going a bit slower than expected. Okay. Thank you. And then regarding your online sales, what is the share of your online sales in the different countries now for the last fiscal year? All right. I can hand over to you, Robert, if you have that. Yes. So it's actually, I could say, about more or less on the same levels as it has been in last year as well, where we said that Sweden is about 30%, Finland is half of that, and Sweden Norway is then about 5%. We have seen an increasing trend actually in all countries, slightly in Sweden and then a bit higher in Finland and Norway. But yes, you could say more or less on the same levels. Norway, we have seen the highest increase, but it also started from the lowest level. Okay. Thanks. That's all from me. Thank Okay. Our next question comes from Savantar Crawford from Nordea. Please go ahead. Yes. Hi, again. A couple of follow-up questions. You already discussed the service business being a small part. You had the ambitions to grow that quite significantly. Has I guess that the pandemic has slowed your plans for growing the service part? Yes. Yes, that's right. So number of entities is the same or the growth in number of entities is more or less the same. But how many hours that we have been open is lower than planned because of the pandemic. Yes, that's true. And that's mainly, I would say, Sweden, less difference. Biggest difference is in Finland and Norway due to the restrictions that they are tougher. Okay. Thank you. And then regarding footfall, can you elaborate a bit on how the regional differences have been there between countries and within countries and how that has affected your profitability in the area? Now what we can see is that footfall has been affected most from a negative perspective than in if you take Finland, for example, it's Helsinki and more or less Helsinki area. If you look at Sweden and Norway, there are no differences more or less as before the COVID-nineteen. Okay. Thank you. That's all from me. And then of course, we're hoping to open the questions. So I'll hand back to the speakers for any other or more. Just to add also, shopping centers is of course overall affected but that's traffic in general otherwise fairly the same situation. And was it any more questions? There appears to be no further questions. All right. Thanks a lot for listening. And then we will have our other meetings coming up going forward. Thanks a lot.