Musti Group Oyj
OMXH:MUSTI
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Thanks very much. Hi, my name is David Ronnberg. I'm the CEO for Musti Group. Also on the line is Robert Berglund, that is CFO for Musti Group. And he will take over in a little bit later when we're presenting the segment. So thanks for joining today. We're going to present the quarter report. We're going to have the agenda today. There is the group development. We're going to go through the segments. Financial and market outlook, we will wrap up with, and then we will have some questions. So strong growth in net sales across all channels and segments. We are very pleased with the strong second quarter report. Net sales grow with 15.9% to EUR 68.4 million. That was mainly driven through new customers coming in through all segments, both online and stores in all 3 countries. So we're seeing that we're taking market share. The market is, as we know before, growing with an average about 4%. So we're taking a lot of market share during the quarter.During first quarter, we grew with 9.7%, so strong momentum in the last 6 months. And we have been focusing more on growth during the quarter. There has been a goal to have high availability, fast deliveries through our online verticals. And also to have the right store hours in the stores, so we can have a good way of shipping out to the customers. Sales was 14.8% like-for-like in total, which is obviously very, very strong. 10% is coming from stores, and online was up 30% like-for-like. So we have also -- the last quarter, during the first quarter, we did the platform changes in Peten in Finland, and we've seen a strong ramp up, especially in the Finland online platform since the platform change. So we are very happy that we're seeing the uplift that we expected. Adjusted EBITA was EUR 5.5 million. That was 15.8% up versus last year. So -- and we saw also profitable growth in all 3 countries. Adjusted EBITA margin, 8.1%, which was in par more or less versus last year, and that we will probably come back to. But we have been focusing on growth, so we have been increasing marketing with focus on taking market share, especially after the platform changes that we did. And we have also seen a shift into online sales, especially from March when COVID-19 impact occurred. So those 2 parameters has affected the gross margin and also then the EBITA margin. Cash flow was also very strong, EUR 4.8 million versus EUR 3.5 million, so 37% up. And also, if we look at the trend the last 6 months, the cash flow has a good momentum. And that takes us to the net debt that ended up at EUR 96.1 million. That includes a lease liability of EUR 61.1 million. So if we remove that, take that out, we have a net debt of EUR 35 million end of the quarter. And the long-term financial goal of being below 2.5 in capital target is then achieved. We ended up at 2.3, so happy with that. And as I said in beginning, the main goal has been to take market share, growing the company. That we have seen from taking new customers into the loyalty program. So we had 1,076,000 customers in the end of the quarter. That's about 13% versus last year coming through all 3 countries, so good momentum.So let's look at the impact for the COVID-19. So first and most important, we have focused on staff and customer safety. We have been working shifts in stores and warehouses. We have adjusted store opening hours to have it more correlated with traffic to the stores. We've also been focusing on store hygiene even more than before. And as I said in the beginning, the goal has been to deliver high-quality service to the customers, be able to have high availability, fast deliveries, and we're seeing that in the customer feedback. We are using the net promoting score that we're measuring every month, and we had all-time high in March in the average in the group. That have been increasing in all 3 countries. So very happy to seeing the good customer feedback. Our online and omnichannel strategy that we've been working hard with changing the platforms has served us well during the period, especially when the pandemic impact occurred about second week during March. We saw a strong shift from stores to online. And we had -- we were -- we couldn't say that we were prepared, but we increased efficiency in the warehouses. We shifted to 3 shifts and increased availability throughout the online channels so we can -- so we could deliver in fast time. Similar to groceries, there was a spike also in pet food demand when the coronavirus restrictions were implementing across the Nordics, about the second week during March. But the effect was, I would say, limited. It was only a part of the period. The main impact was that we saw a channel shift from more -- coming from stores into online. And also very important to say is that due after the quarter, during April, we have seen the strong momentum being -- continued through all 3 countries. So we can see that the trend during the quarter also into April has continued. And the pet care market has proven to be resilient in downturns in the past. And during the last month, I think we have been tested, and it's now clear that in this downturn, we're seeing the resilience as well. So if we go into sales specifically, we can see that net sales increased by 15.9%, ended up with 14% -- 14.8% like-for-like. And we saw strong like-for-like in all 3 countries. In Q1, we had 7.7% like-for-like. So we're seeing a very, very strong trend. And I think we mentioned it a bit before that Sweden had a very good momentum last quarter, and we've seen that uplift continue. And also when we have done the platform change in Finland, we've seen the uplift there as well. So Sweden ended up at 19% like-for-like, strong growth in both stores and online. During first quarter, we had 11% like-for-like, so an uplift in Sweden. Norway, the more of a ramp-up country, had 30% like-for-like, also strong growth in both stores and online. During first quarter, we had 22% like-for-like, so an uplift there as well. And then Finland, that stands for the biggest part of the sales. They had 10% like-for-like, also strong growth in stores and online, but a huge shift in the online verticals in Finland after the platform change during first quarter. And during first quarter, we had 4% like-for-like in Finland, so a big uplift there as well. Net sales rolling 12 months, EUR 262.2 million. And per segment, we are seeing the trend that Sweden and Norway are taking a bigger part of the total sales. Finland is still the biggest, taking 48% of the total sales. But as said, Sweden and Norway are taking share of the total. We can go into EBITA. We are very pleased with the profitability, even though we are seeing a bit lower margin. And the margin we were talking about is more focused on growth and focused on having high availability, seeing the change from stores into online. And of course, online has a bit lower gross margin and also a bit lower EBITA margin. We're seeing that, that shift has been increasing super, super fast. And we believe that, that will also come back a bit now. We've seen it already in April. So -- but EBITA, adjusted EBITA increased by 15.8% to EUR 5.5 million with an 8.8% (sic) [ 8.1% ] margin that was in the same level as last year. We can also say that last year, same quarter, we had a very high EBITA margin. We've been focusing on growth that, as said, increasing market share -- marketing, and also the shift into online. That has overall been very high efficiency during all verticals. And also a very good cost control had continued during the quarter as we saw in the first quarter. Adjustments in EBITA is EUR 1.9 million, referring to IPO process that we communicated before. And adjusted EBITA margins in Sweden and Norway continue to converge to Finland levels. That has -- that is our target and our goal, and also in line with our expectations. And Robert will tell you more about that in his section coming up.
So hello, everyone. My name is Robert Berglund, CFO of Musti Group. I will start by covering the segments and then go into the financial position. If we start with Finland, first of all, Finland delivered a strong sales growth, again, with also very high profitability, a 13.3% sales growth driven by 9.7% like-for-like and where part of it was driven by the bounce back of the kind of online sales increase after the platform change in Peten Koiratarvike. Also, the stores delivered strong like-for-like and higher like-for-like than in Q1.EBITA, adjusted EBITA increased by 10.8%. Driven by the sales increase. We also -- and we had a kind of a slightly higher marketing cost this quarter compared to the last year and then the increased share of online, which then kind of decreased the profit -- the adjusted profit -- EBITA margin to 22.9%. And on the store side, no significant movements there, one new franchise store during Q2. If we then go into Sweden. Sweden, as David already said, very strong momentum, like-for-like of 19%. The total growth was 14.8%, actually diluted by the weakening SEK rate and also closure of a couple of stores during 2019. But actually, the like-for-like increase was very high, both in stores and online and higher than in Q1. So a very strong momentum. And also the EBITA margin, adjusted EBITA margin increased by 21.7% (sic) [ 21.5% ] to 9.8% in margin where we see the same trend as in Q1, good efficiency in campaigning and in supply chain management. However, partly offset by a higher share of online impacting the gross margin mainly. We opened 4 new stores during Q2, and 1 franchise store was closed. Then if we go into Norway. There, the kind of a ramp-up of the country with strong like-for-like and strong growth continued. Total growth was 43.7%. 30.2% of that was like-for-like growth, and the rest was then driven by the ramp of the stores. The adjusted EBITA increased and was actually positive this year compared to negative margin last year, again, driven by the operating leverage from the increase in net sales and the increasing store efficiency in the country. However, also here, the kind of share of online increased, which also had a part slightly kind of offsetting impact on the margin. We opened 3 new stores during the quarter, and 1 store was closed. That's about the segments. So next, we go into the financial position. We had, as David said already, cash flow, net cash flow from operating activities that increased by 37% to EUR 4.8 million in the period. And then the capital structure was highly impacted by the IPO and the refinancing in connection with IPO. So gearing ended up at 67.8% compared to 123.6% in Q1 and 135.4% end of last financial year. Net debt amounted EUR 96.1 million, including EUR 61.1 million of lease liabilities. So the leverage, meaning net debt in relation to latest 12-month adjusted EBITDA, was 2.3, which is in line with our financial target of below 2.5. We had also a very strong liquidity at the end of the quarter, EUR 14.5 million in cash and cash equivalents compared to EUR 8.7 million at the end of the financial year. And as said, this was impacted by the IPO and the share issue in connection with the IPO, where we raised EUR 45 million in equity and also refinanced the company with a new loan agreement of EUR 60 million, out of which EUR 50 million has been drawn, and EUR 10 million is still undrawn. Then I hand over to David to continue with the market outlook.
So the market outlook and the financial targets. So the market is growing at about 4%. And as we presented, we are now growing even faster than the first quarter. So we can say that if the average is 4%, we were outgrowing the market with about 12% during Q2, taking a lot of market share. So looking at our financial targets. Growth to -- is to reach at least EUR 350 million 2023. That's about 9% CAGR. And we are at the first 6 months, delivering 12.7% growth. Profitability, 10% to 12% adjusted EBITA margin, mid to long term. We are at 9.6% the first 6 months. And capital structure, as Robert talked about, net debt below 2.5, and we are at 2.3. We have a strong cash flow, which takes us to the dividend policy, 60% to 80% to dividend of the net profit. So overall, we are seeing that we are good, in line with our financial targets. So if we do the summary for the quarter, is that we are seeing that we have a very strong growth sales quarter with profitable growth in all 3 countries. Sales grew with 15.9%, and I think the 14.8% like-for-like figure is maybe the one that is standing out most. And that's mainly driven by new customers coming in. All 3 segments delivering to that like-for-like. Sweden and Norway, adjusted EBITA margin is continuing to converge to Finland. That is -- which is our strategy. We were also seeing after the good performance in Sweden and also the platform change in Finland, focus on growth, taking market shares, which were proven, and a very strong momentum during the quarter that has continued into April.Cash flow from operating activities has continued to be strong during the quarter. And as said before, the momentum in the last 6 months has been very positive. And we've seen that, that has continued during April. So I think we hand over to questions with that.
[Operator Instructions] Our first question is from Svante Krokfors from Nordea.
First, can you elaborate a bit on the footfall in your stores during March and how it has developed after that? And has that affected the sales mix in stores? Do you see that the high-margin products, like accessories, are less sold now?
Yes. What we've seen is that -- this sounds bad -- what we've seen is that when the pandemic impact came second week of March, we saw a shift more into online. We also saw that specific stores were getting lower traffic, whereas other stores getting more traffic. So for an example, shopping centers getting lower and retail parks close to groceries are getting higher. So we had to adjust quickly during store opening hours. Also changing the shifts in the stores. As well as we were -- it was important that we shifted to -- from 2 to 3 shifts in our warehouses, first, to have the high efficiency, but also from a security point of view, not getting the diseases, et cetera. We saw a small hoarding effect, limited I would say, and that was mainly driven to food and litter. But after the hoarding effect, we've seen that accessories and other products has been growing even faster like treats, et cetera, when you're more at home with your pets.
Okay. Then regarding your new customer acquisition, is it -- does the low footfall impact that? Or do you see that you get loyal customers online even in more growing share?
Yes, exactly. We're not seeing -- if we look at it from a total perspective in stores and online, we don't see -- we're not seeing any drop in footfall. We're seeing actually the opposite, that we're taking market share, that we're seeing, especially in the online verticals where probably international players have hard time doing fast deliveries. We have been focusing on delivering in 24 hours. That has been communicating before, and also maybe up to 48 hours in specific areas. And no one, except us, more or less, can do the -- can deliver so fast. So that was one unique selling point for us, of course, to take market share for -- from other online -- international onliners.
Okay. That's very, very encouraging to hear. Regarding the online sales and the O&E share in online sales, do you have any comments on that? Your O&E went down. But how has that developed in -- if you only look at online isolated?
Yes. I think we should look at this -- we should look at it, the quarter, as a very specific period where the shift from stores to online increased extremely much during mid-March, I would say. That is, of course -- and we believe that this will come back, and we're seeing it already now when restrictions are loosening up. We're seeing it in Sweden. The shift hasn't been as strong. Finland, we've seen a quicker shift. We're seeing it also that's coming back. The O&E online is lower than stores. So that's why the total O&E in the group are coming down, I would say. But O&E, if we look at stores in countries, are still going the same trend, the same positive trend that we've had the last 2 years.
And then one question regarding new store openings. Has that view changed in some way? And do you see opportunities, that there could be new opportunities as there's probably quite significant rental pressure in good locations in shopping centers and other good locations?
Yes, so exactly. We -- I think what we communicated in the first quarter was that Sweden is one of the countries that we're seeing the biggest potential in sales uplift from the group. We saw during first quarter that growth and also profitability, efficiency was converging a bit faster than we have expected. So what we have done is that during that momentum, we have increased growth, taking market share, also looking at new location. And then on top of that, the pandemic came, and you can think that all small, independent stores that is still out there, they don't have an omni or a pure-play strategy that we have. So of course, we're seeing a potential of taking more market share by opening stores, which also have been speeding up now, especially in Sweden, which means that we are seeing a bigger opportunity now in Sweden, taking market share than we did before, I would say, March.
[Operator Instructions] Our next question is from [ Manan Kolon ] from [ Erasmus ].
I have 3 questions, if I may. The first one would be, can we -- did you have to try to estimate how is your like-for-like sales, excluding the kind of COVID-19 boost you had, because, I guess, customers kind of stockpiling at the end of March? And then I have 2 questions on margin, but maybe just the first one.
Yes. I think we haven't calculated the specific hoarding effect we've seen. So you can say that Sweden has been least affected because of the restrictions. The like-for-like has been very flat in trend. If I should say something, maybe a couple of percent. But what's the positive is that if the hoarding effect will be massive, then we will see a hangover in April, which we haven't seen. So that tells us that the underlying demand has probably been growing during these 2 months just because you're more home with your pets. And that we've also seen in accessories and treats, especially during the period and after the period.
My 2 other questions were regarding what you said on adjusted EBITA margin. You talked about more marketing expenses. How should we think about that going ahead? Was it -- is it a special boost for this year? Is it the new normal?
I mean exactly. So we planned this before. We saw that after the platform change and during that quarter, we also decreased marketing spend, especially online in Finland during the platform change. And when we saw the positive effects, we increased it in Google or other digital areas. On top of that, we have seen a very good trend in Sweden in top of mind. So we also increased marketing for increasing the awareness in Sweden. When the pandemic hit the market, we took a decision to actually increase it even more, which has been proven to be right. And those kind of marketing areas could be everything from radio, TV, print, et cetera. We don't believe that this high marketing spend will be the same during the year. But if we're seeing the potentials that we've seen during the quarter, we're happy to keep it to increase market share.
Regarding online margins, we can see from the financials that the gross margin is lower in online. But can we have a sense on what is the EBITA margin of online maybe? How should we think of it going forward? Do you think it's going to be flat? Or should we incorporate some economy of scale?
Maybe I hand that over to you, Robert.
Yes. So in terms of the online margin, I mean, first of all, gross margin is lower due to the fact that the sales mix is different online, less own products or any products, less accessories, but also due to the fact that the gross margin includes the distribution costs of the online business, which is, of course, higher there. On the other hand, the online business doesn't have any store cost, which then, of course, offsets the difference. Marketing costs are slightly higher as well on online than the stores. So all in all, it's a bit lower, not kind of a huge, much lower than the stores. For us, the -- as earlier communicated also, the strategy is really to increase the share of own and exclusive brands and the share of accessories online, which is the one to kind of really 2 factors that's drive the margin online as well. And that we will continue to work with.
[Operator Instructions] Our next question is from [ Julian Badam ] from [ Pascel ].
First of all, congrats for the very strong performance during the very difficult environment. I have a couple of questions. The first one is on the recruitment of new customers. I'm -- something is -- you recruited a little bit less loyal customers than I would have expected in this period. So can you remind me what your definition of loyal customers is? And would you and -- or are you sure that the customers you recruited in this, let's say, strange period are loyal. Let's put it this way. And they're not there just because they needed food and they worked with you online.
Exactly. First of all, all our online verticals is not included in the loyalty program yet. So when we're seeing that the group sales we're seeing that the biggest part is, of course, into the loyalty program. But there are still online verticals that is not included there yet, so I think that would probably be the difference. Maybe, Robert, you can add in that.
Yes, so I mean, loyal customers are the one customers that are kind of a part of a loyalty program, which are in the kind of main banners, Arken Zoo, Musti ja Mirri and Musti. Peten Koiratarvike doesn't have loyalty programs today. So the customers that register online of that are not included in the kind of loyalty -- the definition of the loyal customers. And of course, now increasing the share of online, a lot of customers -- new customers has been customers registered in these online banners that are not included in the loyal customer definition.
And would you dare -- you say that the April momentum was in line with Q1 or, let's say, March, I think. Would you dare to give a -- would you say that you would expect Q3 to be in line with Q2 in terms of growth? Or is it too soon?
The trend in growth has been -- is in a very good momentum. There was a bit of a spike in March. But if we take an average over the last 6 months, for example, from a group perspective, April was very strong.
Would you dare to say how much marketing spend has increased? Because we can see that in the overlying -- the nonallocated cost line in the EBITA split, the number increased fairly -- numbering quite a lot. So is that a reflection of your increased investment in marketing?
So in general, we don't go into the exact details how much we're spending more and less. But on the specific question, Robert, do you want to add something on the P&L view?
Yes. I can add that, actually, the marketing cost, the main part of the marketing actually are calculated out of the segments, meaning it's part of the segment EBITA. And actually, the increase of group function is just driven by the fact that we have strengthened the organization in different parts in order to -- for instance, the warehouse, in order to make sure that we are fit for the growth. And of course, also in other areas, partly relating to the -- to us being now listed, but also partly to kind of customer service and other parts where we want to be -- have a high -- continue to have a very high quality.
Maybe last 2 questions. The first one, on the IPO cost total. Can you remind me, because last year, you already had EUR 2 million roughly, the IPO cost. At least that's what you disclosed as the exceptional items. This year, you already had another EUR 2 million something -- no, even EUR 3 million almost in the first half. And then there was also the cost of the listing, basically, that was reporting in the cash flow statement, which is another EUR 3 million. So will there -- I mean can you remind me what you put under IPO costs characterization? And will there be some items in H2 as well?
IPO cost, as such, how we -- I mean, are the costs that are directly are relating to the process and the preparation of that process in terms of kind of fees to different advisers and for that part. Also, the costs that are included in the -- or kind of deducted directly from the equities is part of the -- a part of that is then the cost that are relating to the share issue of EUR 45 million that we did. Yes, so those are the costs. So far, I mean, most of the costs are now also, I should say, in the books.
It's from Svante Krokfors from Nordea.
A question regarding -- can you comment on inventory levels? And how sourcing channels are working, product availability, transportation costs and stuff like that?
Robert?
Inventory level in end of March was EUR 35.2 million, and we actually increased inventory levels slightly, not that much, but slightly in order to make sure that we have availability. So far, we haven't seen any significant kind of impacts from COVID-19 on the availability in kind of any product groups. Smaller delays from Far East, but they are limited compared to the total. So far, availability has been on a good level.
And you haven't run into not being able to sell products because they are out of inventory or...
No, no kind of a significant or kind of a -- or abnormal kind of issues on the availability.
Okay. Then perhaps finally, a question about your targeted marketing efforts. How are those proceeding now in this environment? Any changes there?
Do you mean specific -- do you mean levels or channels?
Well, basically, you -- in the IPO, you said that you want to put more efforts on targeted marketing based on customer needs, that you could also increase the share of...
Okay. Yes. Sorry, yes. Yes, that's -- we're working with it. And I think that also is a part of the good growth that we're seeing. The targeted marketing, it's a bit more cost in the beginning. And then when we're taking the cost also from the platform changes and then other internal work with consultants, et cetera, over time, that cost structure will go down, but the effect will go up when we can work more with the targeted offers. We're seeing it -- I would say that we're seeing a very good uplift specifically in Finland since we did the platform change. I think that was before platform change, then the platform, and then adding the targeting offers. So those 2 things combined, has delivered a very strong growth during those verticals.
And our next question is from Tommy Ilmoni from Carnegie.
Have you done any changes to your plans regarding store openings for the current year? And how many have you already decided for the current financial year?
Yes, I think we haven't done any changes in the numbers maybe on the upside, I would say, where we're seeing the potential, specifically in Sweden. The exact ones, maybe, Robert, you can voice over more.
Yes. I mean so far, I mean, we have opened actually 12 stores and increased the total number of stores by 10. And we said that we will -- our target is to open 15 to 20 stores. As such, we haven't changed the plan for that, and we are kind of committing to that. And maybe even can say that we are close -- we'll be closer to the -- estimated to be closer to the upper part of the range than the lower part, given the fact that we have opened already 10 stores -- opened 12 and increased the total number by 10. So no changes there. And we have actually already, during the Q2, kind of committed to many stores. So good trend continue then.
And maybe also good to mention that during this pandemic, we've seen also even more specific locations that we want to -- that we want to open stores in. And also, the possibility has increased for us to find those locations.
At the moment, there are no further audio questions.
There was a -- from [ Miko Lasco ] here is that answer already taken? Are they seeing the dilutive profitability effect on, let's say, channel mix shift online has had? What plans do you have to mitigate this considering a more permanent shift?I think that one, we haven't answered, right? So there has been an extreme shift in very, very short notice. Of course, we were not seeing it coming. We hadn't planned for it. We -- because of that availability in customer service has been the key thing, we have been adding maybe more cost, et cetera, during the period because of delivering those high service levels, these 3 shifts, for an example, in the warehouses, et cetera.We believe that the share of sales will come down, and we're seeing it already now. And there are also other things in our project list that we're working with, consolidating warehouses and increasing efficiency in the warehouses that will help out with the lower cost in the online verticals. Any more questions?
There are currently no further audio questions.
Okay.
In the chat, maybe we -- should it...
Okay, we have the chat. We have there from [ Caroline ]. Congratulations. Can you talk about your O&E penetration in each country, given increase in online sales? You mentioned an increase in marketing. By how much? And what types of marketing, please? Yes, I think the first question there, Robert, do we reveal the O&E penetration in each country?
No, we don't disclose that information. But I mean, we can say that, of course, the increasing online share have an impact on the O&E penetration in the different country, and led to the overall decrease due to the channel shift mix as such.
And marketing, it's in channels. It's digital marketing that has been more or less all the marketing channels that we're using, so digital, radio, TV, from a group perspective. When we're coming to the online channels, it's more digital. The levels of the increased marketing is something that we're not going out with exactly. But we can say that, percentage-wise, has been more during the quarter than usually. From a positives perspective, that we have decided to focus on growth and taking market share. Then we have one more question coming in. Any idea when the first dividend will be paid? No, that's nothing that we are communicating. All right. I think those are all the questions here in the chat as well, right? So if not anything more. I'd like to thank you all for joining. I'm happy to probably see you face-to-face in the 4th of August when we're presenting the next quarter report.