Musti Group Oyj
OMXH:MUSTI
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Welcome, everyone, to this fantastic day for us to present the first quarter as a public company.My name is David Ronnberg. I'm CEO for the company. And here, we have...
Robert Berglund, CFO of the company.
All right, we will go through -- today, we will have a Musti Group snapshot, then we will go through the quarter report and the group development. Robert will take us through the segments. And then we will sum up the presentation with the financial and market outlook as well as the targets.So if we just take a look back on Musti, where we are and who is. So as we've communicated before, we are the leading Nordic pet care specialist. We are in the 3 countries Sweden, Norway and Finland. We are the #1 player in those 3 countries. We have a 22% market share, and we are 10x bigger than #2. We have a very wide and loyal customer base. We get about 150,000 customers into the company every year, and it's growing rapidly. And that's the main driver of our success growth that we're seeing.We are getting those customers through our superior omnichannel. So we have not only the 277 stores. We also have omnichannel features and the pure play. That stands for about 20% of our sales. And behind all of this is maybe the most important thing, is the staff members that are pet parents themselves. So 93% of our staff have pets and are pet parents themselves. That's why they can give the trusted advice and to our customers.We have a very stable business model. And food is nondiscretionary. So dogs and cats needs to eat every day, such as human beings, and the business that we are driving is then very stable. We have a wide assortment. We, of course, focus on all products in food, accessories and also other services. We put a little bit more and -- maybe love into our own and exclusive brands, and they are standing for over 50% of our sales.We are looking at the 3 countries a bit different, where we see Finland is the mature country. So the business started in Finland. We took it into Sweden and Norway. We have 127 stores in Finland, and it's growing very well. Sweden, we have a lot of volume, but we have still a lot of things to do to converge the profitability up to Finland levels. We have 121 stores, whereas some is franchise. And in Norway it's more of a ramp-up case. We have only 33 stores. We started Norway expansion a bit later; and the goal is, of course, to converge both Sweden and Norway to Finland levels.We are operating this under the same concept. So the strategy is we have the store banners under Musti ja Mirri in Finland, Arken Zoo in Sweden and Musti in Norway. Everything is the same concept but local banners. We have the omni banners the same, FI, SE, NO. And then we have the pure-play strategy. So in Finland we have Peten; Sweden, VetZoo; and Norway, VetZoo. We will come into this in the report what we also done during the quarter with the platforms.So this is a big -- bit of a background about Musti. So now let's go into the report.So of course, we are very pleased with the first quarter that we are publishing today. We are seeing profitable growth in all segments. And the group sales ended up at EUR 70.3 million. So that was a sales growth of 9.7%. Like-for-like, that is the measure that we are looking a lot into, ended up at 7.7%. And 7.2% of that was in stores like-for-like, so very strong underlying growth in the stores. And then during the quarter, we changed and updated the platform of Peten, the online business in Finland, for us to be able to drive even more growth, profitable growth. So during that period, we saw a little bit lower sales online. That's why our online sales came up at 10% growth during the quarter. This is planned and forecasted before, and we're seeing a good uplift since then.EBITA. Adjusted EBITA ended up at EUR 7.8 million, a 30% growth, which is of course we are very pleased with that. We were seeing also operating profits increasing even though we are focusing more on the adjusted EBITA figure. We also see that we had a very strong margin in the quarter. So the adjusted EBITA margin ended up at 11.1% versus, last year, 9.3%. And that margin is driven through a very strong performance in the Sweden business. Robert will go more into the details per segment, but a very positive signal for the business.We also had a strong cash flow. We are always discussing profitable growth. We had a cash flow in the quarter of EUR 14.7 million, and after the investments that we've done in the stores, we ended up at EUR 12 million in the quarter.Net debt, if we look at that, amounted to EUR 126.3 million. We -- during the IPO offering, we did a share issue of EUR 45 million, so if we take the pro forma and deduct that EUR 45 million, we end up at EUR 81.3 million, yes. So that takes us to the net debt, in relation to LTM adjusted EBITA, from 3.1x down to 2.0x. And as we all know, during the -- during February, we had a successful IPO where we are welcoming 4,000 new shareholders.So if we look a little bit more on the sales. It increased by 9.7%. Of course, we are happy with the growth. And we planned for a little bit lower growth in the quarter due to the platform change that we had in Finland. So if we look per segments, we can see that stores in Sweden and online in Sweden had very strong growth in both verticals. If we look at Norway, both stores and online was also strong. If we look at Finland, stores was performing well, but we had a lower growth online during the quarter due to the platform change that I talked about. So that's why the like-for-like and the growth came down a couple of percent from the average trend that we've seen. This is, as said before, an important part for consolidating and have everything on the same platform so we can use CRM even more and do targeted offers.Per segment, we're seeing that Finland is still the biggest part even though Sweden and Norway are taking more ground as we speak. And we're seeing, as said before, a fantastic growth in Sweden. Sweden had 10.5% like-for-like mainly driven from like-for-likes in the stores.And that takes us to the profitability. So the profitability, as I talked about before, increased with 30% up to EUR 7.8 million. And maybe the part where -- which we think is maybe the strongest is the 11.1% margin, adjusted EBITA margin, that we're seeing. A ramp-up from the 9.3% mainly, I will say, driven -- all segments are going the right way, but maybe the one thing that is standing out is Sweden that is converging a bit quicker than forecasted versus Finland. And the adjustments that we're having in the EUR 7.8 million is the EUR 0.9 million related to the IPO process.So overall we are very pleased with the profitability and the margins in the quarter. With that, I'd like to hand over to Robert that can go through the segments.
Yes. Hello, everyone.If we start with Finland. What we can say about Finland is that we continue with the operating leverage in the country and had a increasing margin. EBIT -- adjusted EBITDA (sic) [ adjusted EBITA ] increased to -- by 10% to EUR 8.7 million, and the margin to 25.1% from 24.6% in Q1 last year. Of course, this is partly driven by sales growth of 7.8% in total and a like-for-like of 4%, where as mentioned, the online sales growth was impacted by the platform change in Peten Koiratarvike. The margin uplift is driven by, first of all, more efficient campaigning throughout the group actually but affecting also Finland; and more efficient supply chain management in terms of handling obsolescence, discounts and prices. We also benefit, of course, from the operating leverage on the cost base in the stores in the country.We opened 1 new store in Finland and acquired 1 franchise store, so now we have a store count of 127, out of which 17 are franchise stores.In Sweden the strong like-for-like growth continued. Like-for-like were 10.5%, ending up in -- with a sales of EUR 29.9 million. The total growth was 6.2%, lower than the like-for-like due to a weakening SEK, krone FX rate comparing to Q1 2019. And then we also, during last year, closed 3 stores that then have an impact on the total growth. What we are very happy about is the margin uplift in Sweden. EBIT -- adjusted EBITA margin increased from 9.5% to 12.9%, driven by the same measures as in Finland, more efficient campaigning, more efficient supply chain management but also the operating leverage on the store cost base.In Sweden we opened 1 new store, and we've acquired 1 franchise and actually also closed 1 store. So that's actually a merger with the acquired franchise store. So now we have a store count of 69 own store and 121 total stores.And in Norway the expansion, store network expansion, continued. We had a total growth of 52 -- 50.2% and a like-for-like on 21.7%. We also saw a significant impact, improvement in the adjusted EBITA both in terms of absolute numbers and margin. Absolute numbers increased EUR 100,000 to EUR 600,000, and the margin from 3.3% to 10.3%, which is actually driven by the fact that more and more stores start to reach the later phase of the ramp-up curve and also start to reach maturity which then drive profitability into the country. And of course, at the same time also, the scale gives us operating leverage in the country.At the same time, we opened 3 new stores in Norway, all own stores.That's about the countries. Let's then go into the -- to the financial position and cash flow.As David told us, we had a cash flow of EUR 14.7 million. If we deduct the investments of in total EUR 2.7 million, including the franchise acquisition, we have had a cash flow of -- from operating activities and deducted with investments of EUR 12 million.Gearing was on a level of 123.6%, decreased from 135.4% in Q1 last year. And net debt, on a level of EUR 126.3 million, including EUR 51.2 million of leasing liabilities. Net debt leverage, net debt in relations to the rolling 12-month adjusted EBITA, was 3.1x.And we -- and then we did in February the primary in connection with IPO, raising EUR 45 million of new equity into the company; and used that to deleverage the capital structure. And as David told us, on a pro forma basis that takes the leverage down to about 2x.Then I hand over to David.
[ All right ]. So if we look at the market outlook and the financial targets, we can see that -- as presented before, we see that the market is still growing strong. The growth in the segment is about 4% to 4.5%, forecasted to be strong in the coming years. And we are seeing this as the pet parenting trend that people are shifting up on premium food, accessories, et cetera. And also the number of pets is growing with about 1%, so we are, of course, feeling that tailwind.If that takes us to -- then to the financial targets that we're having is that the growth is that we should at least reach EUR 350 million sales by 2023, which is then 9% CAGR growth year by year. The profitability is that we should have 10% to 12% mid- to long term in EBITA margin. And the capital structure is that we should be below 2.5x adjusted EBITDA in net debt. And then the dividend policy is to pay out 60% to 80% of net profit.So if we have that in mind, we can summarize this first quarter, which we of course are very happy with. We are profitable in all segments. We have sales growth of 9.7% mainly driven from new customers. The growth is strong in all segments: stores in Sweden, Norway, Finland; online Sweden and Norway; and a little bit lower in Finland. That was planned. So overall it's the growth is coming from all segments.We are focusing on profitable growth that we're seeing in the margin that come -- came up to 11.1%. And so far, we are delivering on all financial targets that we have. And net debt is below 2.5x and actually at 2x after the share issue that we did. So overall we are very happy and pleased with the quarterly report.And not least, we have done a successful IPO and have welcomed 4,000 new shareholders to the company.Thank you very much. We can then go for questions.
Yes. Joni Sandvall from Nordea. How you see the pipeline for new opening, new store openings this year.
Yes. We have -- as planned, we have today -- the growth segments is then Sweden and Norway. We see that about 15 to 20 new stores this year is planned, whereas half-half is about Sweden and Norway. So -- and we -- and if we look at the pipeline, a lot of those is actually already spotted or signed, so we see a good pipeline of opening new stores. And important to say is that we have planned not to open so much until now because we have been working a lot with the backbone, getting things in place, seeing the growth and the margin coming up. And now when we're seeing it, we are starting pushing.
And then second question, relating to investments. Can you open a little bit how much of this investment on this quarter was IT and how much on the stores?
Yes. It was actually -- most of it actually was driven by stores, both stores that were opened at the end of last period, but the last part of the investments were paid this year and then the new stores that now are planned and open. And then IT was the second part, a smaller part than the stores. And then we had EUR 200,000 on the acquisition [ also ].
Tommy Ilmoni from Carnegie. Can you explain or -- a bit more about the gross margin improvement in Q1? I see here that the -- your own and exclusive share actually slightly dropped from the previous year. So what is explaining the gross margin improvement?
I think the easiest way is -- to explain it is that we're focusing, as we're talking about, on the profitable growth, which is that we are -- instead of pushing growth by doing campaigning or discounts, we are doing the opposite. So we're actually taking away a lot of the campaigning, trying to sell on full price, because we are in the position that we can do that. That's one. Second thing is that we are working with the supply chain. We are working with the suppliers and also getting the targeted offers more spotted than before, so -- but overall, less discounts, less campaigning, more full-price sales. And we're seeing the margin uplift in all verticals and all countries, so -- and that's also one of the things that we saw in Finland that was increasing EBITA margin. And one of the drivers there is, of course, the growth but also stable or increased margin and cost control.
Joni Sandvall, Nordea. Could you elaborate a little bit on the FX impact in Sweden?
Yes. So I mean we had a negative impact now on Q1 in sales due to the fact that last year it was clearly, clearly a stronger FX rate. Then after that, the FX rate actually started to getting weaker in Sweden compared to where we are today. So that's actually the impact of that. And of course, we also then have costs in kronor, which then kind of offsets the impact then on a profitability basis.
And a little bit about targeted marketing, I would say. How is this proceeding at the moment? You said that you had better -- not so much campaigning but more targeted, so is this something that we should wait for the rest of the year also?
Yes, exactly. So we -- that's one of the -- to be able to be in this position, we did the investments in the backbone and putting all the things on the same platform. That's why we changed Peten to the same platform, et cetera. So we are in early stage. We think that we will see more uplift to come in this area. This is something that is important to drive the more profitable growth going forward. I think the easiest way is maybe to do TV commercials, very costful. You have a high churn, but if you do more targeted communication through CRM, then you will have higher conversion and also more profitable growth.
It's Petri Kajaani from Inderes. When you find a good store location and you sign the lease -- can you elaborate how much time does it take for you to open the store? How much capital expenditure does it need? And when does it pop up to black figures?
Yes, maybe Robert can...
Yes. So I mean, first of all, we are very, very careful when we look at stores, make sure that we really find the ones that we want to open and in the locations where we want to be. When we do find that, we start the project then on -- from the start -- or the signing of the contract, when we open, it's a bit dependent on how much renovation is needed to -- done. That could be -- go fast. It could be taking more time. And in terms of -- the CapEx for a store is about on average 100,000. Then we also include 80,000 in inventory, on average, in the store. Takes a couple of months to reach black figures, yes, in terms of profitability. And then we have a 3 years ramp-up period with a average payback time of 2 years [indiscernible].
Important to maybe point out is that the -- some of the closures that we talked about is more mergers and also acquisitions that we've done before. That we're seeing that maybe 2 stores are too close to each other, so that's why we're closing 1, is not failure, so to speak. It's more in the strategy when we acquired more stores earlier. Okay, should we go over to...
Should we take the questions from -- directly from online first?
[Operator Instructions] We have a question from the line of Caroline Gulliver from Jefferies.
Congratulations on the results. Just in terms of the Finland re-platform, I just wondered if you could talk us through a little bit more about the benefits you've had from that in terms of personalization and whether the response you've seen since completing it is as you expected. And then secondly, I had a question just on own label development in Sweden. I know you -- I'm not sure if you've given the detail. And I haven't got the group number, but just any comments and color around own label development in Sweden would be really helpful.
Thanks a lot. Regarding the platform change, this was done then during the quarter. And usually, just to put a little bit more flavor on it: During that period, you more or less switch off the electricity. You don't want to have too much customers coming into the platform when you're doing the upgrade, so we're taking away discounts, offers, et cetera. It takes about 2 to 3 months to do the change. And when that is done, we have the platform then changed to the group platform. And when that is accomplished, which it is now, we see, you usually see a good uplift both in conversion and also traffic. On top of that, we're adding then the targeted offers, that we have seen since January that the tests that we're doing are giving a good response that we're seeing uplifts in the conversion. So we forecast that the growth in the -- that specific vertical will continue. The second question, regarding Sweden, Robert?
Yes. First, the O&E development, [ yes, you'll take ].
Yes, yes, exactly, O&E development. So the O&E development has been pretty stable in Sweden. We see it both from online and stores, whereas online is taking a bit longer time to increase O&E, whereas stores is going a bit faster. Then to be -- give a little bit more detail: We focus on own brands and exclusive brands, whereas the own brands is going a bit stronger than the exclusive brands in Sweden, but the trend for Sweden combined looks good, has been a bit stronger in the stores specifically.
That's really helpful. And could -- just going back to the Finland re-platform, could you give an example of the -- sort of the customer journey now, what -- the improvements you've made in personalization?
Yes, exactly. So yes, to start, from the very, very simple ways that we distinguish with customers that's having a cat or a dog. Or the website is changing the offers that's coming up that is specifically target to you because of your recent purchase behaviors, et cetera. Important thing is that we are doing like A/B tests that we are taking. Like 10% of the customers are getting offers. And then we're seeing, if the conversion is going up on those, we shift for the full traffic that is coming in. And the test that we've done now is that we're seeing an uplift about -- yes, maybe 15% uplift in conversion on those specific areas, which means that when we put on full speed maybe in April, going forward, we see good potentials on the growth on that platform, which then is also being done for the other verticals in the company, not only the Finland that is now converted into the same platform. But this is part of the CRM, customer journey transformation that we've been working with; and also why we did the heavy investments in the backbone the last 2 years, where we invested EUR 25 million, yes. So now going forward, the coming 12 to 18 months, we will see uplifts on all platforms.
And as there are no further questions, I will hand back to the speakers.
So we have one -- questions also through the messaging board. What was the impact of online platform migration in Finland? Do you expect sales growth to accelerate in Q2? Or comp base is higher.
So specific impact. I think it's hard to actually say the specific impact, but we know that the growth in that specific online vertical came down pretty much. Usually we see like a J-curve. So it's -- it drops quickly because we more or less turn off the lights. And then it goes up after a couple -- it doesn't like spike the day after. So it takes a couple of months. We see it as a 3 to 4 months period when you're up and running to the same levels as before. And the goal is, of course, that you will be then, 6 months, on a higher level than you were before you changed it. Everything is pointing that way. We're seeing uplifts already now, so yes, we are happy with the progress.
And then another question is central costs are higher year-on-year. What are the main items? I can take that. There is actually 2 components where the costs are higher; first of all, central warehouse costs due to the fact that the volumes through the central warehouse increases all the time. And there we -- there especially the personnel costs are increasing. And then the other one is on the head office personnel costs, where we have done some recruitment to strengthen the organization to be ready for the coming growth as well. That was all the questions through the messaging board.
Okay, perfect. Thanks, everyone, for coming. And thanks for all good questions. Thank you.
Thank you.