Hi, everyone. My name is David Rönnberg. I'm CEO for Musti Group, and with us today, we also have Toni Rannikko. We are here in Helsinki, and we also have some people here in the studio that we welcome as well. Today we're gonna go through the financial statements review for the fourth quarter and the full year, and let's jump in. When we look at the main KPIs that the ones that we are following, they all look really, really good. So we had 14.4% growth in local currency. We had a strong like-for-like, 10%. We had a strong cash flow, EUR 29 million, which is a record for us. We also had an online growth that was quite stable, but extremely high numbers, 20.7%.
The loyalty club has been growing with about 6%, and something that we want to point out is that we were able to increase the gross margin, especially in this tough environment with the FX headwinds. We were able to increase the gross margin from 45.2%-46%. And that led to that we had an extremely good Adjusted EBITDA that came in to EUR 20.6. And if we look at the full year, we had EUR 425.7 million in sales. If we look at the FX-adjusted top line, it was EUR 450 million. From a cash flow perspective, also for the full year, it was really strong, EUR 79.6 million, and the Adjusted EBITDA EUR 73.6.
Also here, we had some FX headwinds, so if we add back those, we end up at EUR 79 million. So overall, for the fourth quarter and the full year, we are extremely pleased and happy with the results. But let's now take a look into what has happened the last week with the recalls of the SMAAK grain-free products. And for having that presentation, I welcome Pamela to the stage, so we can go a bit more into the detail. So if Pamela can present yourself, please.
Hi, everyone. Good afternoon. I'm Pamela Nelimarkka, and Musti Group's COO.
Very good. Also, welcome from my behalf, Toni Rannikko, CFO of the company. So as you have probably seen in the releases, what we have put out and in the media, at least in Finland, we have been calling back a couple of grain-free products in our range. We have established also yesterday in a release, a possible reason for what is causing the symptoms with the pets, and we have ended up into this, excluding different factors in the product. So we have been able to test almost all ingredients in the product, and through that, comparing those into the symptoms with the pets, we have come into the conclusion that the only possible thing or the most likely possible thing causing this is the toxins in potato flakes.
Pamela will tell you more about this in a minute. Majority of these batches were halted in our stores and warehouse, but still, few thousands of bags ended up into consumption and into our customers. Putting that into perspective, in a month, we sell roughly 400,000 bags of food, but still, even one sick pet is too much. Sales of these two recipes during the last financial year was approximately EUR 2.5 million, and the whole SMAAK brand equals to roughly sixteen million brand, sixteen million euro. During these days, during the media turmoil in Finland, and while our thoughts are with our customers, we still have had steady performance in our stores and our online business.
We have pledged and promised that we will cover the veterinary cost related to these batches and products, and we have also halted the orders from this potato flake supplier currently. Also, in the future, we will do self-monitoring and test every potato batch in our factory. And now to Pamela for the more detailed part.
Thank you, Toni. So yes, indeed, as Toni mentioned to you, we are currently suspecting that the cause of the ill dogs may be the glycoalkaloids in potatoes. How you can see if the glycoalkaloid concentration is high is basically of the green color of the potato. We have been using potato flakes both within the EU and the likelihood that these potatoes may have contained increased amount of glycoalkaloids can be seen as likely. And the symptoms also is matching with the symptoms that you have when consuming glycoalkaloids.
The Glycoalkaloids do not have established feed limit in the EU, and this is, of course, something that we hope that is something that EU and the food authorities will continue investigating to make sure that there is a limit to where we can then in the future also measure against when we are measuring our inbounding potato as a raw material. This is also the reason for why these aren't measured right now every batches in our industry, and also our supplier have not measured every batch of the potatoes that they have supplied to us. As we communicated earlier, we have halted the purchase with this supplier.
These potato flakes from our supplier within the EU have been used for two grain-free products in our segment. The rest of the products we are using potato starch from a Finnish supplier. Then a few sentences also about our factory in Finland. Musti Group's factory in Lieto in Finland, western part of Finland, is a very modern 2021. We established the dry food line on which these products are being produced. From a technology point of view, we are talking about extrusion, and when you produce products via extrusion process, the products goes through a high degree.
Based on this high degree of temperature, we can then more likely exclude certain bacteria, for example, or most of the products. That has also then led to our suspicion of the glycoalkaloids, together, of course, with our specialists who have been also investigating the case. What is very rare in our industry is that our factory has two certificates. We have FSSC 22000, which is used actually for the human food industry. And on top of that, we have ISO 14001, which is then covering the environmental impact. We take this very seriously in our factory, in our whole company, and we continue investigating. We are not excluding anything right now.
As said, we are suspecting the glycoalkaloids, but still of course, also analyzing it from many different angles in order to make sure that we are not missing anything.
Thank you very much. We have then taken the decision to take away this product, those two products, those full ranges from the market. From the beginning, we took away the batches, but now, when we went out with the information regarding this, we have been getting in some more complaints from customers. And just to make sure none of these products is out there and could have this problem in it, we have been taking decision now to take away both of these products. And it's the same supplier, it's the same potato, so by precaution and also for the information that we now have, we've been taking decision to take out everything. Thanks, Pamela. If we then move on into the numbers again.
So strong growth with improved profitability, I think that's the main, the headlines we have for the quarterly and the yearly results. So extremely happy with the top line growth, 14.4%, as I said, maybe even stronger with the like for like, that came in at 10%, and last year, 4.7%, so. And a huge uplift. Online growth like for like was also very strong, as I said, with 20.7%. And then the gross margin that I pointed out is a strong achievement. If we then look a bit more into the margins and the EBITDA improvement, that was also very, very good.
We see that we've had very tight cost control and good top line, and then with an improved gross margin, that of course improves the profitability. So the Adjusted EBITDA increased with 23.7% to EUR 12.6 million, which is very, very strong. Adjusted EBITDA margin, 11.4% versus 10%, so a huge uplift there. And then net cash flow, as talked, EUR 29 million. If we look at the categories, we see that we've had double-digit growth has been continuing in the resilient food and consumables. We saw that the discretionary part, that has been impacting a bit more the last quarters, was bouncing back. So last quarter we had negative growth, we were also, of course, meeting high comps there in Q3 2022.
But now we saw that the discretionary was bouncing back to positive growth. Otherwise, the driver that stands for 75% of our sales, the consumables and the food, has been very strong the last quarters, and actually food has been upgoing. And this, of course, is driving stability in the company. We believe that the discretionary will continue to come back and grow a bit faster going forward. If we look more into the sales, we can see that quite stable 14% net sales growth, if we look at the year CAGR 2020 to 2023. If we look at the quarter, it was also 14.4% growth in local currency.
If we look at the total last 12 months, EUR 426 million, and if we add then the FX impact, we end up at EUR 450 million. And as before, Finland has been, still is the biggest part of the total sales with 45.3%. Sweden is coming closer, but still, still a bit behind. And Norway, the kind of a ramp-up country, is also coming closer. When we look at the like-for-like and the growth, as I mentioned before, we see a big deviation here between the reported growth and the local currency growth. So the biggest deviation was actually last quarter, and this quarter it came back a bit, but still we have a huge difference here.
You can see on the right side, from a group perspective, it was 6% impact. Sweden had 10% impact, and Norway 13%. But that is, of course, not calculated in the like-for-like, as you see, in the staples, where we can see that the like-for-like has been stable with it being between 11% and 10% now, the last three quarters. And if we then look at the countries, it's also important to point out that the like-for-like has been strong in all three countries. And maybe one of the most positive things in the quarter is the very strong gross margin that we saw was increasing versus last year. So as you can see in the staples, we have been below last year, the last couple of quarters in the gross margin.
The deviation has been shrinking, but now we saw that we were able to go over last year. There's a lot of things behind it. It takes a lot of time, and campaign pressure is one. Supply chain management is another important thing, sales mix, and also discounts. So all of that combined took us to this good level of 46%. And this is, of course, a trend, so we hope that this will then, of course, continue. Own & Exclusive, also important, quite stable, 52%. So if you look at the profitability, that was increasing with 23.7%, a fantastic result. We came in at 12.6.
We had a EUR 0.8 million impact from an FX, so if we add that back, we had EUR 13.4 million. As I said earlier, it was good traffic, good top line, high gross margin, and tight cost control that took us to this level. And from a year-to-date EBITDA, we had EUR 42.6 million, versus last year, EUR 38.8 million. And also kind of a stable growth there of 13%. But to be able to increase top line with the 9% and profitability with 24% is quite of an achievement. So, yes, with that, I hand over to Toni for the segment.
Thank you, David. So let's start in Finland. Finland presenting quite, quite astonishing growth for our most mature country again. Finland has had a few strong quarters now in a row, and again, Finland's sales increased by almost 13% to EUR 50 million. This was resolved, like, David said, steady growth, both online and stores. And as I mentioned a bit earlier, we have witnessed this trend also during the past days and weeks. We had good traffic. We have, of course, done price increases in all of our markets and some impact also integrating the pet food factory into Finland segment. Strong like-for-like, Finland over 9%, adjusted EBITDA increased by 33% to EUR 12 million in Finland market.
Adjusted EBITDA margin almost 25%, so very good profitability level in Finland, and we have introduced quite a few efficiency improvements in our store network. So this is a combination of kind of a good operations in place in Finland market. Then, if we look at the Sweden market, so Sweden and Norway, both pacing as fast as Finland, but there is a heavy headwinds. So both SEK and NOK are pushing the performance in Sweden and Norway market down. But if looking at the local FX neutral growth of almost 12% and how big impact the SEK had for the growth of around EUR 4 million, it's easy to say that Sweden is performing quite well, improving profitability compared to last year. And very good signals in Sweden market in that sense.
Now, when we are looking at the FX rates, having a little bit steadier mode compared to a couple of quarters back, we believe that Sweden and Norway can now improve even more. Norway, pretty much the same story. Of course, higher growth, as Norway is still in our kind of a growth bucket for introducing the most new stores in this market. But also here, FX having a significant impact on both top line and profitability. So FX also has impacts on Norway gross margin and, through that, the country profitability. But still, compared to last year, level in euros, but in percentage, a little bit below last year performance in profitability. Then we move to financial position, which in Musti Group is very strong.
We had a record cash flow in the quarter, and that is a result of our long and hard work in our end-to-end supply chain. So we've been talking that before as well, so how we operate from suppliers all the way to the stores. So we have been able to increase that speed, how fast the products travel through the company, and also reduce the net working capital levels of inventory, and improve the AP performance in that part. Then about the debt position. Looking at the debt without the lease liabilities and comparing that to our cash position equals around EUR 50-60 million-EUR 50 million level debt. So company has kind of a good headroom to invest in the growth as well in the future.
Investments quite in level of last year, but very strong balance sheet and very strong cash generation in the quarter and for the full year. Our long-term financial targets are unchanged. So we see good speed on growth. FX adjusted last year was EUR 450 million. Profitability on a good trend. Just mentioned, our capital structure is very strong and allows us to grow further. In the dividend policy, our board is proposing to the annual general meeting a dividend of EUR 0.60 per share. Through that, I'll hand over back to you, David, to wrap up.
Thank you very much. So when we do a summary then, I think, there's so many things going our way. First of all, if you look at the top line with a 10% like-for-like, it's quite an achievement. We can also see that the gross margin has been improving. We can see that the profitability with the EBITDA was improving with 24%. The margin, profitability margin went from 10% to 11.4%, and the cash flow actually was over 100% growth to the record of 29. We can also see that food and consumables that make up the majority of the sales is strong throughout the fiscal year and also the quarters. We can see that the kind of internal projects that we've been working with the supply chain and the cost is bearing fruit.
We see that our online sales has a growth of 20%, and also the profitability in the online channel is growing, and growing fast. Also correlated with the supply chain that is performing really, really well. So as we say, we are on track with the long-term financial targets, and overall, the company's performing really well in the numbers. But from this point, our full focus is on our customers, as it's always been before, and especially those that is impacted by the SMAAK recall after the reporting period. And this is, of course, a high focus for us now to solve that and do it fast. So with that, we hand over to Q&A. And I think first out is the people that is here live in the studio.
Thank you, David Rönnberg, Toni Rannikko, and Pamela Nelimarkka for the presentations. Matias Kärkkäinen from Nordea. Couple of questions. If I start on the financial side, your Finnish EBITDA margin was very strong in Q4, and you have earlier talked about perhaps reaching 22%, now you exceeded that significantly. Is there other explanations than the Lieto factory integration into numbers now fully?
Yeah, of course. Looking at year-over-year price increases, what we have been doing during the past year are now biting perhaps even more. And then, due to the good work in Pamela's organization, we have also seen that the input price increases from our suppliers have flattened out. So this is kind of a really important part of the story, what David mentioned on our gross margin rebounding and turning back into a growth mode.
Thank you. And actually following up on your answer, quite big part of your like-for-like growth over the last 12 months has been price increases. Looking at how the situation looks now, how should we look at your like-for-like outlook for financial year 2024, and or should we expect that the impact will come more from that the gross margin will further improve from the favorable pricing situation when it comes to purchases from your side?
I think from a like-for-like perspective, we are at a kind of a stable and good trend. We, of course, see that a big part of it is driven through price increases. Traffic as is a smaller part of that total like-for-like. We believe that we can continue on a good level from a like-for-like perspective, especially when the online is growing 20% in a like-for-like perspective. We also believe that the gross margin has the potential to stay or continue that good trend that we've seen. And then of course, the cost base that we've been working with for a long time, we believe also that will from a trend-wise continue. We should also remember that we have added the Lieto factory into the cost side.
Thank you, and regarding the gross margin, I mean, you have had significant FX headwinds in Sweden and Norway. To what extent, I mean, if FX headwinds have been between 10% and 15%, how much of that have you been able to compensate through price increases?
Not much, 'cause at the same time, we have had also the inflation on all markets, so that we have been mitigating quite well. But then the FX impacts both in Sweden and Norway, we haven't.
Question about the SMAAK recall. You have outside clients also in the Lieto factory. Do you believe you could be forced to pay any damages to corporate clients?
I don't think we are speculating on that right now.
But of course, we have insurance companies in that.
We have liability insurance is well covered. We have already discussed with our partner in insurances, and now we're in good cooperation and following up how the situation evolves. But then it's good to remember that we still don't have full certainty on what was causing the symptoms in the pets. So we have a strong suspicion that it could be the toxins in the potato, and now we are eagerly waiting laboratory results on that.
We also, of course, have a supplier that we need to set up some meetings with.
Thank you.
Right. Thank you. It's Joonas from OP Financial Group. Maybe a question about the product mix. Your food and consumable sales have been growing faster than the discretionary part, and it's been like that for many, many quarters in a row. Can you comment on your thoughts and expectations? When do you expect the share to stabilize?
What we saw was that, as we can see there in the graph, Q3 2022, until then, it was fairly stable, if you averaged out the backwards quarters in all categories, then it started to drop. Since then, we've seen that the discretionary has been going down and now starting to go up again. The other categories, we believe, is going to be quite stable at those growth levels, but we hope that the discretionary will start to come back. We don't believe it's gonna come back to the same levels as it was before, in short term, but over time, we believe it's gonna come back. But we see that that specific category is a category that may... That was a bit, can you say, inflated in the COVID period?
Yes. Thank you. And then maybe another one regarding your own and exclusive brands and the share of that. We look at the country-specific shares. I think Finland and Norway are roughly at the same level, and Sweden is then the lowest. So could you please comment on the kind of the mid-term potential? Do you see potential to increase the share in Finland and Norway, where the share is already high versus Sweden? How do you think about that?
Yeah. So for, when we look at the own exclusive, it's important to look at it, first per country, but also per channel. So you can see that the stores has one level and online has another level. Sweden has a higher share of sales online. That's why the total, O&E goes down in Sweden versus other countries. When you look at stores, Finland is at the highest level, then, not far from, Sweden and Norway comes. So we're talking about 70% in stores, maybe in Finland, and 55% in Sweden and Norway. But when it comes to online, that takes it down. And that's also one of the things that we're working with to increase the O&E all over, but especially in online.
And the other part, that's not referring to your question, is to increase the accessories in the online verticals. Both those combined is driving profitability.
Okay. Thank you.
Maria Wikström from SEB. A few questions on my side. Maybe starting a bit again on the profitability and-
... it's still Sweden and Norway that are much below the level of Finland, and probably the story to increase the profitability in these markets are a bit different. But if you could describe that if there are any fundamental differences in the markets, why you should be on a different profitability level going forward? And do you see, I mean, both of Sweden and Norway, like, continue to grow profitability, like, hand in hand, or is there one that you expect to grow the profitability faster?
So from a fundamental perspective, there's no difference. We can see that we have a bit higher gross margin, maybe Norway and Finland versus Sweden. That's because of the mix and also the online share of sales. From a market perspective, which also relates to profitability, is that in Finland we have a stronger position. From a market share perspective, we are stronger in Finland. There are still some more smaller competitors in Sweden and Norway if you exclude the groceries. I think with the setup now, we are ready to push a lot harder in Sweden and Norway versus our competitors, especially through the online seamless omnichannel and the online verticals that we have. We're seeing that we're growing 20% online and 14% total, which when the market is maybe growing 4%, so obviously we're taking market share.
Now is the time to push a lot harder in Sweden and Norway, and when that happens, we are also able to increase profitability.
It's good to remember also a little bit different structure in the countries what comes to the store network. So in Finland, the most of the stores are what we call mature stores. And then in Norway and Sweden, we've been opening with a more fast phase, new stores, especially Norway, but also in Sweden, acquiring franchise stores and opening new stores. So we have the maturity curve effect still in those countries.
Yes.
I think this is the second quarter in a row when you talk more about, like, pushing the online verticals. Can you be more open that what you are actually doing when you say that you are pushing the online verticals?
Yeah. Now you can start from the basics and say that if you don't have a very kind of efficient supply chain, everything, taking in the products, picking, packing, sending out, returns, all of that, that is a huge cost in the P&L for a onliner, and it also impacts the customer service. The work we've done the last two years with Eskilstuna, our main hub, through the supply chain, is bearing fruit, and it's going and it's going really well. When we are at that level, of course, then it's easier for us to push more marketing. We can do more to get customers in, into our online verticals, and we can do it with higher profitability and better customer service.
So that's what we're actually doing now, and we're using that kind of a possibility, and we've done it, and that's why we're seeing very good growth numbers through online.
And then finally, touching on this unfortunate situation with the product recalls, that, how many customer complaints you have so far?
Can I hand over to Pamela?
Yes. We are still working on going through these customer complaints. So we don't have a sort of exact number right now, but we go through them every day, and then we are in contact with our consumers.
What we could say was that when we went out with the communication, we had five complaints. When we took the decision to stop selling the product, the products, we had one complaint.
We have now been focusing on, as we have received messages via social media and also claims to our customer service, that our biggest sort of emphasis to the consumers now is that they should be in contact with us and and send in the reclamation so that we can basically then treat them kind of in a in the way that we we want to to be in contact with them.
To get a bit of sense of the scope, I mean, you said that, was it 2,000, or could you... Could we be more specific on the number that, of the, like, 2,000 bags, I mean, that, that went out before you stopped the product or-
Yeah. The first item that we got the five reclamations of, that David was referring to, 1,400 of the production batch reached the consumers, and the majority of the consumers are in Finland. Then the other batches that we withdraw yesterday, it's approximately another same amount.
3,000.
3,000 about.
3,000 altogether.
There has been some number going around and just like we had 33 tons was one number that went out, not from us, but that's been in the media. That was the total-
Production
... production batch, whereas a lot of that was still in the warehouse and in the stores. That wasn't sent out. But also important to point out is that these batches, we took back, we have now taken a decision to take back everything that is out there, not only these two batches, but also other batches. There are a number of reasons of because that, but one is, of course, that when we went out with the communication of these batches, we have been also getting more complaints that we have been analyzing, and some of those complaints could have been on batches before.
But it's the same supplier, it's the same potato, it's the same product, but just from a precaution perspective, with the information we have now, and also from a customer perspective, it's hard to actually know which batch it was. We take out the full range in those two products.
Just curious that, is there other European dog food manufacturer who uses potato as a raw material, which may come, I mean, from the same factory, or is this really, like, a Nordic specific? Because it's, at least on my news source, I mean, this is first time when I come to this issue with the pet food and the glycoalkaloids.
Other suppliers do use potatoes. We cannot, however, confirm from where they are purchasing the potatoes.
Potato is very common protein in a grain-free products, tying up the necessary items in the product.
Especially in the grain-free products.
Grain-
... they are used, yes.
All right. Thank you. Kalle Loikkanen from Danske Bank. Thank you for taking my questions. Going back perhaps to the gross margin, it was really strong in the quarter. And perhaps two questions relating to this. Can you elaborate on what the margin would have been if adjusting for FX? And then secondly, what sort of margin level should we be expecting going into this new fiscal year?
Well, a bit what I mentioned there earlier, that now how we can deduct from the price increase is what we have done, and the inflation cooling down from our supplier end and how the trend is turning. We can kind of see the future that gross margin is on the level or turning back in the growth mode. And what would be in the FX impact, we haven't put out a number on that, but, of course, percentage is a percentage. But then if we took the kind of a real FX mix behind it, as we source in US dollars, euros, and then sell in SEK and NOK, so it's a quite complicated puzzle to come up with the exact number, what the impact would have been there.
All right. That's clear. Thank you. Then perhaps on the longer-term targets, and the EUR 500 million of sales in fiscal year 2024, that basically means that sales should grow 17%. And I guess the 500 million is FX adjusted, so the kind of the growth drivers or the levers would be practically like for like growth and then new store growth as well. So basically my question is that, how much of that 17% is like for like growth, and how much is the new store growth? And then also, do you need to enter a new country or make any sizable acquisitions to get to that EUR 500 million?
Yeah, so the plan is to open or acquire combined 25, around 25 stores. We're currently looking into the possibility to speed up that a bit. So we have been opening two- three years ago. Two years ago, we were opening and acquired a lot more, and then we have been slowing down, and now we're thinking about speeding up a bit again, especially in Norway and Sweden. We will not need to go into a new country. The financial target is for the three countries that we operate in. But obviously, there is also important to get a strong like-for-like, driven not only from stores, but also with the online, to be able to reach that target.
All right, good. And then regarding the margin target, it's at least 13%. Is that doable with the EUR 500 million of top line? I mean, you've been doing around 10% for the past four years, I think. So getting to 13% in one year or from 10%-13% in one year would be quite a big jump. So do you need more than EUR 500 million of sales to get that 13%?
We don't think we need more than 500. Our plan is to reach, to reach 13 in the end of the year. So when we go out to 2024, we have 13. It's not reaching the 13 in the full year 2024. And, I think the, the accomplishment that we did now, going from 10 to 11.4, is quite an achievement. And with the trends that we're seeing, we believe that's possible.
... All right, that's very clear. And then, perhaps lastly, any comments regarding entering a new country, or have the recent events kind of postponed any plans to some extent?
No, the recent events haven't postponed anything. It's on our list, absolutely, to enter a new country. We're doing a lot of work in that area, and hopefully we can come back with something in the maybe coming six months.
All right. Thank you.
Okay.
Okay.
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 Magnus Rahm from Kepler Cheuvreux. Please go ahead.
Hello, everybody. Yes, I wanted to tie into the last question, firstly, here with your expansion and your sales target in 2024, which is quite aggressive or strongly positive. But, you mentioned here that you see flattening out purchasing costs and looking into 2024, 2024 and your sort of pricing plans. Do you see that additional price hike is a component here to reach this sales target?
For the 2024, we have planned slight price increases, not on the level of what we saw in the 2023, but roughly half of it, we will be introducing. Mostly this will happen in Sweden and Norway markets, to mitigate that FX impact. That was a question already before.
All right, great. So that would come as a sort of with a lag, and then if we assume flat FX, spot FX from here, you would sort of gain out of a lagged effect of that, I guess, then.
Yes.
Then, um-
Increases will happen throughout the year, so not there's a one lump in, in certain point of time.
Right. Then a few questions on my side also as relates to the recall here. You mentioned, and it's been circulating before, the 33,000 kilos of those specific batches, but then you looking now withdrawing of those two products or, or, or taking all the products. Can you comment on the total weight of all that taken back products?
I would say the total production weight of the products, I think-
From a financial point of view.
No. So, what we communicated earlier is, like, is, 12 months sales is EUR 2.5 million, that we are completely taking out and going to come back with a product in a different, yeah, communication and, and, regarding everything, with, with that. But,
Yeah, but regarding the inventory situation with the pet food, in general, is circulating very fast. So on average, we have one or 1.5 months inventory per product.
All right. So but if I understand you correctly now, as it relates to this grain-free chicken cat food and fish dog food, you will cease to use the sort of this brand packaging and so on and make a relaunch, but you will keep the other smart food products unchanged.
Yeah, sure. We will keep, we will keep the other... All the other products, we will keep unchanged. We will do a relaunch on these specific two, and those specific two has won, two-- have EUR 2.5 million sales last twelve months. It's only the-- So point out, it's only those two that we have an, a external supplier with this potato in the production. All other products doesn't have that, so it's only these two.
Indeed.
Right.
So we want to now-
And then you-
... see the laboratory results for the potato, and then we do next decisions on those products and how we possibly change the supplier and ingredient.
Right. Yeah, yeah. Maybe I'm rushing ahead of you with that, with the follow-up question on that, since maybe you haven't taken a decision yet. But do you see that you can produce these two products that now have been halted with the potato starch instead of the flakes, as you have with the other products?
Well, those two ingredients have a little bit of different functionality in the product, but this is now what we want to do for the best of our customers, create clarity on the stores and in the online space, and therefore, we did it.
Yeah, we will look into it from a NPD point of view as well, how to further develop similar products without this potato flakes.
Right. Right. Okay, that's clear. Then could you perhaps give any lead to... I mean, you're given the component here of total sales, which is very limited, but, can you give any comments on the very sort of short-term, this week current trading of pet food within the group as a total, if there's any effect that you can see there?
... So it's quite early days, but so far we haven't seen any impact at all, except on those two specific products.
Which is, of course, natural since you pulled them out, I guess.
Exactly.
Yeah. But then, I also have a question as relates to if you have been looking at previous historical examples. For example, some years ago, the big producer, Hill's Pet Nutrition, they had a recall of canned foods. I believe that was elevated levels of vitamin D that poisoned dogs. Have you looked at this or any other historical example and seen any impact, if any impact, in the longer term sales of such recalls in history?
So far, so far, we haven't had the time, you could say that, to go into that, but, of course, it's something that we're gonna do. But we... Oh, yeah, our view is that we will, of course, see an impact on the sales on SMAAK, we believe. Of course, these two products, but also maybe SMAAK as a brand. It will have an impact, for a while, and then we believe it's gonna come back.
But what we have estimated and stated in our report is on a group level, our estimation and experience on the past couple of days is that there is no major implication to the sales or profitability, so there might be a minor impact for the sales or profitability.
Great. Good, good answers there to put some more color. Then I have one also finally on the profitability. You highlighted online here as an important driver, both to your sales growth on your sales targets and also as relates to profitability. And you mentioned here that it has improved quickly or rapidly. I mean, can you elaborate a bit on the reasons behind this? Is it mainly a gross margin factor here, or is it the operating costs or both?
In the online vertical specifically, you mean?
Yeah. Yes.
Yeah. So, yeah, we have been improving the gross margin and all over, and also, of course, in online, a bit, maybe a bit more online than in stores, actually. And then we have been able to have a more efficient supply chain that I said, that I talked about, that also has a good impact on the profitability. And then marketing expenses has been quite flat, or actually percentage going down. So overall, that has been a good combination. And also important to point out is that we are, even though we are growing online with 20% and stores with less, we are increasing gross margin, and we are increasing profitability in the group. So the kind of a growth from an online perspective doesn't hurt the business that much.
Clear. Clear. But... And then just finally, and you plan to try to outcompete some smaller local competitors in Sweden and Norway, you mentioned here, to do some price push, I presume that that is, or is it more marketing than...? And if it's price, then should or whatever it is, should we expect then a bit of a near-term profitability effect from this and then more positive effect in the longer term?
No.
How can that be achieved?
It's achieved by the books. As I said, like, the market growing maybe around 4%, and if we are growing 20% online, 14% total, acquiring and opening stores in those areas, and at the same time having online growth, that is probably twice what the competitor has, then you're able to take market share quite fast. And when you do that, over time, they will not able to perform or actually be there in the market, as we've seen in Finland with Faunat ar, and others.
Right. That's clear. So we should view it as you open close by the competitors with a better offering, rather than that you are price aggressive or marketing aggressive to push them out.
Yeah, exactly. So it's like we have a toolbox that we're gonna use.
Great. Thank you, and sorry for asking a bit too many questions.
Thank you.
The next question comes from Adela Dashian from Jefferies. Please go ahead.
Yes. Hello, everyone. Most of my questions have already been asked and answered, but I do just have two follow-ups on the product recall. The first one being associated with this one specific supplier you've been able to isolate. Could you give us any more color on how big of a supplier this is for you, or if the potatoes are the only, I guess, ingredient that you use it for?
It's a minor supplier for us.
Potatoes only.
It's only the potato flakes for these two items.
Okay, great. And then also, you mentioned earlier that you do have insurance policies that cover you pretty well. Does that also extend to potential recovery of veterinary costs?
... We are looking into that together with our insurance partner, but most likely, yes.
Okay, thank you. That's all for me.
Okay, then we have an online question from Tom Ilmoni from Carnegie. "You mentioned that your financial targets are unchanged. Can you specify what you mean by that? Are you expecting net sales to be at least EUR 500 million during the current fiscal year?
Exactly. So when we talk about the EUR 500, it's the FX adjusted, so let's see what happens there with the FX. Then acquiring and opening stores will of course have an important part of that, and then the online growth. In that combination, we still believe that we can reach the EUR 500.
Then we have another question, a bit of a continuing to that: "Regarding the target of EUR 500 million revenue in 2024, does it include any acquisition, or is it fully organic?
Yeah, including acquisitions of stores, but not, not a bigger acquisition.
Indeed. And the third one for the same topic: "How do you aim to achieve the 16% growth rate needed for-- to reach EUR 500 million in revenue by the end of fiscal 2024?
Yeah, I think that-
I think we have-
That's the answer.
... answered that twice. And then I believe there is no more... Oh, one more question on the line from Mr. Peter Gustafsson. Two questions. First, "When it comes to capital allocation based on the low price compared to free cash flow, why is Musti not trying to increase compounding by spending excess capital on share buybacks instead of just sending capital back to the shareholders?
Dividend.
In Musti Group, kind of, shareholder returns are handled via dividend or capital returns, so, it's what the board has now proposed for the AGM is the EUR 0.60 per share. Then a second part of Peter's question is, "Can you elaborate a little bit what kind of suitable opportunities you're looking for? What potential markets or new product services could fit with Musti business model?" David, you wanna take that?
Yeah, so, I think in the ecosystem, there's big potentials of course, but you have the vet business that we have 10-12 clinics today that we can expand. We have digital services, we have more of the kind of physical services in the grooming and the service stations. And then when we look at other countries, it's likely that there are countries close to the three ones we're operating in.
One more question: "How have you seen the SMAAK brand sales development after the news during the weekend?" I can maybe answer that. So, of course, SMAAK sales, especially with these two products, but maybe in general, SMAAK has been a bit slower. But then on a total, Finland sales normal or actually even a bit better than an average, and then on a group-wise, no change on that.
Important also to point out that this SMAAK has a bigger impact in Finland than in Sweden and Norway.
SMAAK is having a larger share in Finland than in Sweden and Norway.
The media coverage, more in Finland than in Sweden and Norway.
How large do you estimate the compensation responsibilities caused by faulty dog food will rise?" Well, first of all, we are not yet entirely fact-driven on what is the reason in the dog food, but of course, we are helping our customers now with the veterinary cost. And at this point, we don't disclose any estimation on what could be the amount.
It is also important to point out that we still are not 100% sure that these two recipes are behind the situation. We're still waiting for some lab results. It's most likely, but just to-
Yes.
Okay, I think that was it.
That was it.
All right. So with that, we thank you all for listening and all the good questions, and hope to see you soon again. Thank you.
Thank you.
Thank you.