Musti Group Oyj
OMXH:MUSTI
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Hi, everyone, and welcome to Musti's presentation of the interim report from 1 October to 31 December. So we are happy to present the report here today. We are going to go through some interesting slides. We can maybe start with showing the first one then.
So if we look at the first slide, the summary of the first quarter of the financial year 2023, we are extremely proud of the numbers that we have communicated today. So we had a net increase with net decrease sales of 13.1% in local currency.
We had, of course, a negative effect in the FX, mainly impacting the Sweden and the Norwegian business. We had a strong like-for-like in the quarter, came in at 7%. And we also saw that our own and exclusive share of sales in the brands was coming at 53.7%, so a good number.
We saw that we had a record cash flow in the quarter, extremely strong, EUR 18.7 million. And during the quarter, we opened 6 stores; the last 12 months, it was actually 31. So we've been slowing down a bit. The adjusted EBITDA came in at EUR 19.1 million, partly had a negative impact of the FX. The FX impact was about EUR 1 million. So if we adjust for that, we were a bit ahead of last year.
So overall, good numbers and maybe the one that we're most proud of is the loyalty base growth that was increasing with 11%. So it's obvious that we are taking market share. So if we look at the next slide and go more into the numbers in detail, as I said, so record sales and cash flow in the quarter. Increased sales with 8.9%, 13.1% in local currency. We actually came in at the highest sales in euro ever, EUR 110.4 million. The last 12 months, we are now over EUR 400 million in sales. So we're extremely, extremely proud about that.
We were seeing that the growth of 13.1% was mainly coming from getting new customers into all 3 markets. So we're continuing to taking market share. And if we look at the 7% like-for-like, we've seen that food and consumables was growing well, where the discretionary categories was growing a bit not as fast as the other ones.
We will come back to that later in the presentation. If we look at the group's adjusted EBITDA that decreased by 3.5% to EUR 19.1 million in Q1. We saw that, that was impacted by the FX of EUR 1 million in the period. That also had an impact, of course, of the EBITDA margin that was 17.3% versus 19.6%.
Also have in mind that last year's Q1 was an exceptional quarter with a very fantastic Christmas sales. The number of loyal customers came -- was growing with 11%. So we have approximately now 1.5 million customers in the loyalty program. And if we include all the customers that we have in the online verticals, we are at about 1.8 million customers.
In Q1, the group's adjusted EBITA decreased by 12.2% to EUR 11.7 million, main reason of the decrease versus last year's quarter was due to discretionary products and negative FX effects. Also here, the FX effects was calculated to EUR 0.7 million.
And as I said, cash flow was good, up 41% to EUR 18.7 million. So we can look more into the puppy acquisitions. Most of these puppy acquisitions continue to be very, very strong, that's indicating that we're taking market share. Here in the slide, you can see that the last 3 months, puppy registrations or -- in Sweden was 4%. And if you then compare to what it was minus 4%, and then you look what we had as a registration in the Musti Group, that was plus 3%. So it's obvious that we are taking market share.
If you look at the pre-COVID numbers, October-December '19, the registration since was 11% and at the same time, we had 56%. So once again, we're taking market share, and it's proven that we are getting about 50% to 60% of all puppies that is coming on to the market into our loyalty program, which is extremely good for us.
And these puppies, as you know, will probably stick around for 10 years, which is, of course, extremely good for our long-term growth.
So let's look more into the growth of the product categories. We had double-digit growth in the resilient food and consumable categories. As you can see here, the 3 categories here is the food, the consumables and discretionary. Discretionary standing for 25%, 27% of our sales, whereas food and consumables is the rest, so over 70%.
So the food and the consumables has been very stable here, as you can see over the quarters growing with 15% to 20% and is the discretionary products that has been swinging a bit over the quarters. The positive thing is that even though the discretionary sales has been growing less, we have still had good growth.
This is in local currency. So you also see that we were meeting them very strong comps in Q1 '22. But still, we were having good growth. This will, of course, swing a bit back and forth during the discretionary products. And we have seen that the discretionary category has been impacted in a tougher demand environment, but nevertheless, good growth, even though we've seen that the discretionary product is growing less than the food and the consumables.
So let's look more into the sales. We had record sales in the quarter, as said before, EUR 110.4 million, 13% growth in local currency. If we look more into the countries, we can see that Finland had 8.5% growth in Q1, strong growth in stores and online.
Sweden had 13% growth in local currency, strong growth in stores and a bit lower online. Norway had 28% growth in local currency.
So very strong growth in both stores and online. If we look at online share of sales that came in about 22% versus last year at 21.5%. So also more or less at the same levels.
And if you look at the sales over a longer period, the CAGR between 2019 to '22, it has been stable at 16%. And rolling the last 12 months, rolling 12 months was EUR 400 million. And if FX adjusted and look in local currency, it actually comes up to [ 450 million ]. Per segment, still Finland is the biggest country, 43% of the sales where Sweden is close by, probably going to grow ahead of Finland soon, and then Norway are at 16%.
And -- yes, so good progress on the top line. If we look at sales on a longer perspective, we can see that it has been coming down a bit since Q1 2022. And since then, it has been on FX adjusted about 13% growth. If we move into 2-year growth, it's even more stable.
You can see that it's been the peak there during the COVID period, growing 40% to 44% and now coming down to maybe 30%, 35%. And on a 3-year basis, it's super stable. So there is close to 50% to 60% on a 3-year basis.
And these 3 years has been a fast-growing period for Musti and the COVID pandemic increased growth for the pet sector globally, which is affecting those 1-year and 2-year comps. But on a 3-year comps, it looks much more stable. So good growth, especially if you look on a 3-year basis.
So let's look at the gross margin development. So gross margin in O&E, you can see here on the slide, the O&E came in at 53.7% more or less the same level as last year. Overall, the O&E has been growing steadily the last years.
There are a couple of things impacting gross margin. One is O&E. But in this case, in this quarter, we have seen that the gross margin came down from 47.5% to 45.9%. The negative impact in the quarter is mainly driven through inflation, unfavorable currency rate development with FX and lower sales in the discretionary products. all of these things we're working with, and we believe that we will also be able to do some price increases going forward to be able to adjust this gross margin part.
But overall, a quite good development in the gross margin in -- especially in these demanding times, but we think that we can do better going forward.
Now I will hand over to Toni that will go through Q4 EBITA in the segment.
Thank you, David. So looking at the EBITA track record years back steadily going upwards. And recalling those tough comps from the last year, what David mentioned and the currency headwinds quite an okay and based on expectations, reaching those level targets in profitability.
But going more into detail in the EBITA. So as David described, there is a lot of pressure in the gross margin, what we have faced. So a vast majority of the impact in profitability compared to last year derives from there. We have defended against this by tough negotiation with the suppliers who want their price increases.
We have pushed forward towards our customers, a net price increase of 5%, gross price increases some extent higher from that, but the net price increase of 5% and kind of looking into the company internal processes to make it more efficient end-to-end supply chain and gain from that.
Headwind also on EBITA level, EUR 700,000 in the quarter compared to EUR 200,000 tailwind in year before. So positive also in the kind of our cost side, the group functions compared to last year cost towards sales from 8.1% towards 7.5%. So we're on the right track with decisive actions on the scalability of the group.
And especially group head office and central warehouse are performing up more and more efficiently from a quarter-to-quarter. Let's then take a deeper dive into each market. So Finland, our most mature market with 140 stores, impressed us with 8.5% growth in the quarter, really good performance on Finland on the top level and also on the profitability side, looking at the percentages from kind of a record high level of 24 hours declining after us adding more hours into the stores and balancing the -- our capabilities to serve customers better, we are now trending back towards somewhere on the midpoint of the kind of the lowest there and the highest percentage towards 21%, 22% levels in Finland.
Sweden getting the toughest beating on the exchange rate. So clearing the FX impact from Sweden growth, big difference between 4.3% reported an FX neutral of 13%.
Also, the gross margin pressure tougher in Sweden and in Norway due to the currency exchange. So kind of inflation in all of the countries is quite on the same level, but then having sort of a double inflation in Sweden as the currency rate is changing so much compared year-on-year.
Strong like-for-like over 7%, but still EBITA decreasing from last year, a bit over EUR 1 million and a lot of negative currency exchange rate impact in that one as well.
Norway, our fastest-growing market. At the moment, we are around 60 stores in Norway and opening, on average, 1 new store every month all over the country, a bit of a headwind also in the currencies, what comes to the Norway. But excellent result, like-for-like of 6.5% and cleaning the exchange rate impacts in the quarter 1 have the kind of impact from 23.7% to almost 28%. So gap there as well.
EBITA margin declining a bit from last year, but in euros improvement on year-on-year. Going to the financial position of the company. So like David mentioned in the beginning, most grow record cash flow in the quarter, almost EUR 19 million resulting from the efficiency gain in the working capital structure and otherwise focusing more on the cash and ensuring that we have good cash flow for fueling our growth.
Gearing also improving from last year, and net debt improving from last year coming down from the levels there. We have loans and commercial papers worth of EUR 72 million and then lease liabilities closer to EUR 80 million in the group. So that's the composition of the net debt.
Our target is to keep the leverage ratio below 2.5 and in the end of quarter, this was exactly 2x EBITDA compared to adjusted last 12 months.
Cash at the end of the period, EUR 15 million, and investments totaled to EUR 3 million. And as mentioned already before, we're a bit slowing down on the pace of opening the new stores, so we focus on Sweden and Norway markets, opening the new stores around 20 to 25 this year compared to the pace of almost 50 stores in the last 12 months behind us.
Long-term targets, unchanged. And today is the date also for a dividend first part to split from the share and the payment of the first part of dividend is taking place February 8.
Through that, handing back to you, David, and the summary.
Yes. Thank you very much. So if we do the summary of the quarter, you can say that Musti had a record sales and the cash flow quarter. We had a sales increase of 13.1% in local currency, with a strong 7% like-for-like. It's obvious that the pet sector has been proven to be resilient, and I think that is showing here that over 70% of the products are nondiscretionary.
We also have proven that we continue winning new customers with 11% and gaining market share, looking at the puppy registrations and also how many customers we're getting into the system. We saw the decrease in profitability versus last record quarter in the EBITA. It was mainly related to lower sales of discretionary products and the negative FX effect of EUR 1 million. Adjusted for the EUR 1 million, we will be a bit above last year. And we are well on track with our long-term financial targets.
So with that, and we're handing over to Q&A.
[Operator Instructions] The next question comes from Adela Dashian from Jefferies.
My first question relates to your top line growth and with respect to the fact that you mentioned that you've increased prices to customers net by 5%. Could you give us some more granularity on what the top line growth, the composition of volume versus price mix is?
Yes, that's right. So kind of looking at the traffic and the price. So in the quarter, it was mostly about the price. So around 5% on the price and 1%, 2% on the traffic.
Yes, 2% traffic, 5% net price.
Excellent. And then also on further price increases, are you expecting to have to raise prices more throughout the year? Or are you -- do you feel like you've done what you need is sufficiently to offset the inflationary pressures?
Yes, we are looking more price increases during the year a bit by bit. We are not doing anything -- any sudden moves on that one, but continue on the road where we are persistently pushing big portion of the inflation forward.
Got it. And then just if I may ask on the current trading now in January, are you seeing any downward pressure on the discretionary product categories in January that looks different from what you've just reported?
I think overall, we've seen that it's been quite stable, quite stable the last, I would say, 6 months, and it's still the same kind of trends we're seeing in January. So quite good performance in the demand or in a tough market.
The next question comes from Maria Wikstrom from SEB.
Yes. Some of my questions were already answered, but a few more. So just to clarify on the store opening. So you plan for 20 to 25 for the full year, was that the figure that you gave?
Yes. Probably in the lower end.
And then you still have like some of these franchisees left. I mean, is there any update that, I mean, when you are able to -- I mean, I guess, the idea is to acquire those remaining franchisees as well. So would you see that?
I mean there is -- that's possible to complete early this year or what's the outlook there?
Yes. We -- so the franchise acquisition potential stores are included in those 20, 25.
All right. And then I think in your closing remarks, David, you said that you have a good confidence that you will be reaching your long-term targets. And especially, I mean, I would like to ask on the profitability target is over 30% EBITA margin by 2024, that what makes you so confident that you are going to reach that, given that I think we've been a little bit short on the profitability compared to the market estimates?
Yes. Now I think we have a good plan of being able to reach it. If you look at the today between about [ 3% ] to 10%, there are a couple of reasons that will drive the margin upwards. We can say that 1% will come -- roughly 1% will come through the J curves in the stores that we're seeing. So you should remember that we have opened over 30 -- close to 40 stores to last year and maybe close to 80, 90 stores the last 2 years, so acquisitions and opening close to 90 stores last 2 years. Those are ramping up, so that will be 1%.
The other than 1% will come roughly through internal efficiency and cost reduction, et cetera, that we're working with. And the [ 30% ] will come from gross margin and the gross margin is a cocktail of things. But of course, we know the O&E, it's kind of negotiations with our suppliers, it's lower container prices, it's moving our own brands to our production facility, et cetera. So those [ 30% ], it's in the plans, and we are confident of reaching it.
Maybe there -- just to clarify that, I mean, if you get this 1 percentage point from the gross margin that how much of the basically, the food production comes from your own factory at that time?
Yes, that's only 1 portion of that 1%. So at the moment, if we look at our own food production, I would estimate that maybe 23% to 25% of that production is happening in our own facility. So there's a lot of runway on that one. We are ramping up the volumes all the time.
Yes. So then finally, some -- maybe some remarks on the competition that we've been, on the recent quarterly reports as well that like what do you see on the like competitive landscape? And what do you see is the most like valuable asset with your brand to basically different from this increase in competition?
I think overall, everything that we have in the concept together makes us extremely competitive. So if you look at, first of all, that we have our own brands, we have a wide assortment, we have staff that is giving trusted advice that is that has all the knowledge in the space.
We have services, we have convenience, we have stores and the omnichannel with home deliveries, fast deliveries, kind of everything in our concept that we're delivering. If we tick all of those boxes and compare it versus groceries online, small independents, et cetera, I think we are ticking a lot more boxes than the others.
Please state your name and company. Please go ahead.
Svante Krokfors from Nordea. Some of the questions have already been answered. But coming back to Finland, and Toni, you mentioned that you see Finland at 21%, 22% adjusted EBITA level going forward from the current around 20%. What are the main components of that improvement?
Yes, that's a good question, Svante. So it's more how we balance the hours in the stores, optimize the store staffing in different type of stores. So we have really small stores with 1 person staff and then bigger stores with more employees at the same time, how we balance the training hour and how we can find efficiencies in our processes kind of a back office versus the front office.
We're looking at different type of digital solutions for handheld devices into the stores that optimize the dismantling the shipments into the store. We are installing a new system for price tags into the store and a list of many small things that together contribute to more efficient Musti store. So it's about working with the processes, working with the technology and optimizing the staffing in the stores in a way that we still are able to provide the high-quality Musti trusted advice.
And then a question about Sweden. I mean, obviously, FX headwinds impacted EBITA margin, but were there also other components? I think, to me, at least, the margin was a bit low even adjusting for FX.
Yes, that's right. So then we have the discretionary sales, which was very strong in Sweden a year ago. The balance between online and store sales, which kind of in Sweden, the online share sales is higher than in other countries. And then also, we have a similar type of opportunities in kind of a Sweden store efficiency as we have in Finland and for sure in Norway as well.
And then regarding Norway, I mean, we have been used to quite high like-for-like growth numbers. Now 2 quarters have been clearly below 10%. What should we expect from the coming quarters and years?
On the kind of our long-term game, we see that Norway is probably going to be the most profitable country at some point in these 3, which are in the group at the moment. So it's the FX and the inflation pushing the Norway. And also in Norway, we see maybe kind of increased competition happening there.
So if large-box store open close by to Musti, we need to also then locally react to that kind of competition and some aggressive pricing happening in the Norway market. So combination of these things in the short term, but in the longer term, we believe into our model and continue developing that.
And then a question regarding owner exclusive products, which have now share has turned up. Have you -- what have we done actively there? Or is it more of a normalization after the pandemic?
Yes. I think what we've been working with is that especially the online verticals, we've been trying to increase the own exclusive more than before than we're seeing that Sweden has the most potential increasing it. But last -- meeting, of course, last year, high numbers of discretionary products, and now it was a bit lower in sales, so that takes it down.
So I think we believe that the O&E will be maybe a bit more stable and slowly upgoing going forward, while we don't believe in this massive jump up to kind of a 55%, 60%, it will take gradually go upwards.
And the last question regarding inventory. I mean your cash flow was quite strong in Q1, and I think inventories were broadly flat quarter-on-quarter. What measures are you -- what are the concrete measures to lower net working capital for Q2 to Q4?
Yes, that's a really good one. We are working a lot with the net working capital. So different components, one coming from the payment terms. We have started kind of categorizing our suppliers in different buckets and pushing the payment terms to be more favorable for Musti.
Then one big portion is the purchasing levels. So during the COVID when we started to see that the supply chain is a bit shaky, we took our adequacy levels up on purpose. And now we are then starting to adjust into a more normal world in that one and also kind of the top line growth difference between the kind of a couple of past years and how the world looks now.
So turning the purchasing volumes down and then being active on the inventory management that we are looking in a smart way how we can push the slower moving part of the inventory, which is the discretionary part, the dog outdoor scratchers for cats and beds for dogs and on that part out. So what is kind of a positive in this one that inventory, which is moving a bit slower is not having a best-before date.
So food has been circling through the inventory all the time quite rapidly, but we also see opportunities there to be a bit more efficient on the inventory levels. But mainly those 3 parts: payment terms, purchasing levels and then managing the current inventory.
Yes. And overall, we can see that we're seeing positive on the cash flow going forward.
Okay. And one more question regarding the J curve of new stores. You haven't seen any -- I mean, the environment has changed quite a bit, obviously. You don't see any kind of -- we shouldn't expect anything different now from the store J curve going forward?
Exactly. Now we're constantly looking at the J curves and they are still performing as we were hoping. So no difference there.
[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers.
Okay. So thanks for listening in, and good questions. I hope to speak to you all soon, again. And then thanks for today. Thank you very much.
Thank you.