Verkkokauppa.com Oyj

OMXH:VERK

Earnings Call Transcript 2020-Q2

[Panu Porkka, CEO & Managing Director]

All right. Good morning, everybody, and welcome to Verkkokauppa.com's Q2 presentation. In my presentation, I will go through the figures from the morning published report. If you have any questions, please send them to [e-mail], and questions will be read out loud at the end of the presentation. So I will start with key figures from the report in the morning. We will go a little bit deeper through the sales and profitability development. As you know, the profitability development has been on focus. So we will get -- give you the reasoning behind the strong improvement regarding that, and we will also disclose all the investments and all the development that we have done regarding our key competitive advantages for this year and also years to come. Then our view on the market, on consumer behavior changes, as we have seen them today and also for the latter half of the year. And then at the end, we will have a short summary and questions, if there are any. So let's start with the revenue development. Revenue was developing in a positive direction, growth of 14.1%. And basically, all categories were growing, and we were able to gain market share and utilize all opportunities that lie up ahead in these special circumstances. The second thing to mention is the strong development on gross margin side. There are a few things that regard that, and I will go that later through in my presentation. If we then have a look at expenses side. On the personnel side, there's a slight increase, mainly due to the extra label that we had to make to pull through the revenue growth. In other operating expenses, there are basically 3 things to mention. One is the one-off expenses regarding main listing, and those costs are also deducted in the comparable EBIT you can see below. Credit risk facilities have been increasing slightly, as there are some uncertainties if you go to the end of the year and just to make sure risk management is in a proper way, so we increased the provision slightly at this point. And the third thing to mention is we have an outsourced warehouse and always, when e-commerce is strongly evolving, there are more transaction and more labor to be needed, and those costs you can see here in this column. If we add this all up, we end up in the record-breaking Q2 profitability and profit of EUR 4.4 million. And if we deduct the one-off expenses regarding first listing that we had on 5th of June, we have even higher EBIT of EUR 4.8 million. So all in all, a solid quarter with a record-breaking profit. And as I remember, we had also a record profit in Q1, so extremely solid first half of the year for the company. It was the 26th consecutive growth quarter and very important thing for us as a growth company. And as expected, in the company's solid performance and state, this morning, the Board decided to pay out a quarterly growing dividend, and dividend will be paid out per share EUR 0.054 for this quarter. So thank you, all you investors, newer and older ones. And I'm pretty sure that this appealing dividend policy in the company's good state is also introducing new ones as investors. From the sales development perspective, a bit more information. First of all, it started strongly as the pandemic hit. We saw a massive increase in site visitors to a site. And throughout the quarter, site visits were extremely increasing and totaling 33% more than we had the year before. The second thing where you see clearly disruption in the market. We had 39% more new customers to the website than we had before. So 40% more new customers, customers who have never bought online from us before now are buying from us, and we are pretty sure that this is a permanent transition that we have seen at the moment. The second thing you can look, the sales development from the category side. All categories were basically growing, but the highest increase we saw in the midsized and small and evolving categories. So just meaning that category decisions made by the company throughout the years are showing a positive effect, and we are also able to grow outside consumer electronic categories, which is immensely important going to the future. All these positive things, it is fair to say that export had extreme headwind as the pandemic hit and restrictions regarding travel were banned and also B2B sector was having a soft development as there are uncertainties for investments and outlook for the rest of the year for smaller companies. So all in all, solid performance, and especially the consumer demand and web channels were doing very good. From development side, record-breaking profit was mainly due to the revenue and the gross margin that came with it. There are basically 3 major things impacting the gross margin. First of all, the sales channels mix. The thing that I mentioned before, export sale is extremely low-margin business for us. And automatically, if that business is declining, the average gross margin has some positive effect on that. Also, B2B slightly below that one of the average. The second thing comes from the categories. In main categories, TV, computers and phones, we have low margin, sometimes single-digit margins. And if the growth comes from midsized evolving and smaller categories, where average gross margin is extremely higher than those of the main categories, it has a positive effect on the margin in general. Also, the understatement to the delta of last year comes from improved stock and turnover. Last year, we had some obsolete stock that we have to get rid with extra pricing that we made. And if you don't have to do those kind of activities, all actions, all campaigns are planned for in cooperation with suppliers, the margin is normally healthier than if you had to act regarding the situation. And from the cost side, it's also good to understand that all the revenue growth came with actually slightly less marketing budget than before. So marketing performance, digital marketing, we're doing extremely well. And this is a positive thing if we are going also to the future because this is a point where we see development area still to be needed. From the balance sheet, from the financials of the company, nothing too spectacular. Inventory increased from Q1 to Q2, currently at 55 approx. This is a level where we have a healthy inventory. Now it will be increasing as we go towards the most important times of year, back-to-school and also then the most important part of the year, Q4. Cash flow was developed positively. It was positive. At this time of the year, normally, it's slightly negative, resulting out of the good performance and the revenue and margin development. In investments, you can see that our business model is clearly quite low demanding on investment, only 700,000 so far this year. At this point, we don't see any major investment needed to be running our operation this year or next year to come. Cash position, almost EUR 10 million more than last year, at the same time resulting out of the good operations. Equity ratio solid at 27.4% figure. And on top of that, we have still negotiated a credit revolving facility of EUR 20 million, but obviously no need at this point of time of drawing that. So all in all, the company is in good, solid financial situation. Even though uncertainties might arise or not, strong cash position, debt-free company, and there's nothing troubling about that. Also, the dividend policy is something that we can hold on to. If we go to the outlook for the market, let's start with the figures from our own operations. This week in Tuesday, as we had the figures ready, we updated our guidance for the whole year. Because of the extreme strong first half of the year, we want to increase the brackets in revenue and comparable EBIT. Today, we are expecting revenue would be somewhere EUR 520 million to EUR 545 million. Prior, it was EUR 510 million to EUR 530 million. And comparable EBIT to be somewhere between EUR 13 million and EUR 18 million, and it was before EUR 12 million to EUR 15 million. Still, last year, EUR 11 million in comparable EBIT. You see that we are expecting a strong increase in profitability. If we talk shortly about the vision, we are still determined to be at some point at some day, the leading Nordic retailer. We are already the leading e-commerce player here in Finland. We strongly believe that our local best-known brand and low-cost business model are those ones that carry us through, although the competition might intensify at some point. One step for the company was the first listing. We were prior at first not listed here in Helsinki. And since the 5th of June, the trade is -- the stock is traded in the first main list here in Finland, and this opens up new opportunities for foreign investors and bigger investors as well. Let's talk shortly about the brand position. Our brand is extremely known here in Finland. We are the leading e-commerce player. We have 37 million site visits during the first half of the year. So we are somewhat a cornerstone in the Finnish retail landscape, best fit for an environment of need of change. We saw it here during the pandemic time. And as retail is going at a faster pace online, our omnichannel business model is best fit for that. If Alibaba and Amazon might do something in the exposure in the Nordic, we strongly believe that the market will increase. As we are doing price comparisons all the time and we are making sure that our prices are at the right level, our availability with the local warehouses is best and possible at the moment. So we think that we are really equipped for the challenging, probable times that will come in the future. Below, you see 2 graphs that display the brand recognition here in Finland. At the left side, you can see the Buzz index from BrandIndex. So ours looking really, really good if you compare to the competitors. And here, if you look at consumers about recommendation, our brand, our website is the best and most recommended one compared to our peers. Customer experience. A seamless customer experience has been on focus for a few years now. The site and the search engines are updated. We have also introduced new product information, new attributes to the sites, so product search and product purchases are even easier done than prior. There's a new customer data platform that opens up for better segmentation and better personalization and also, store improvements have been done. And nowadays in a few days, there are a lockers that can be used 7 -- 24/7 here in Jätkäsaari, so you can also pick your purchase in the middle of the night. Our assortment, developing. As always, we have the goal to introduce one main category or at least one big subcategory every year. This year, it was cordless outdoor power tools that we introduced in April. There are also jacuzzis, smaller boats and so on. So outdoor home and garden area really developing at the moment. There are also some A brands listed, Sonos and Webasto, and I'm pretty sure that there will be 1 to 2 A brands in addition that we will be introducing. On top of that, we want to help Finnish suppliers, those ones who have probably problems getting exposure to the products because of the pandemic, finding the right channels for the products. We started a campaign where we are searching for the best and most qualitative products here in Finland, and those will be then shown from our sub website, Verkkokauppa.fi, during the fall time. Delivery options have been on focus also for the last 1 year. We, as a leading e-commerce player, are basically the ones who introduce all the fastest and newest ways of deliveries. Fast deliveries here in Helsinki area have been deducted on price. And also, same-day deliveries introduced this year in Helsinki area and Tampere area. And if it combine all these, the increase this quarter was 665% in fast deliveries. And actually, the disruption, you can see clearly here, home deliveries, which is a big way of delivering at the moment, almost double during the Q2 time period. And locker deliveries, parcel locker deliveries, which is the most used way of delivering, was up by 66%. So people are purchasing more and more online, and people are getting products delivered to parcel lockers at home more and more often. So as a conclusion for this year. Obviously, we will be having a close look at the pandemic situation. We make sure that the securities is a first priority, but also making sure that all opportunities that might lie ahead are used for our business. We are determined to continue to push the marketing on brand, as we understand that the best possible brand recognition is something that we can utilize also in -- and if we are in an international competition. Product information and development showing first positive signs. The product and this process project will continue this year and probably also partly next year. In category management and supply chain management, we did a fairly good job in this first half of the year. But still, it's fair to say that most of the job is done manually. And we see great potential in automation and digitalization on that one, and that project will probably start at some point next year. And all of the development and all of the investments that we do is heavily underlining and making sure that our low-cost operation stays at the same level or even is improved for future. About the market situation, many times already said that online shifted strongly towards -- retail shifted strongly towards online. In many surveys asked in Nordics, people are saying that almost 2/3 of people bought online during the pandemic time. And same people asked, was the share of their purchase increased, 35% said yes, they purchased more. And the most important part of this is the same number of people said the shift in their personal behavior is permanent, and we also believe that this is true. On the right side, you can see the online penetration in the Nordic markets from categories. Clearly to be seen that here in Finland, we are not the first one. So to the Nordic peers, there's still room to be gained. And in Nordics, as we will at some point, see Alibaba and Amazon taking more presence. These penetrations will increase and stating that the market potential for us also increases. So if we make sure that we hold on to the market position, our revenue will also grow. All those things positive, affecting our business, important not to forget that the general picture of Stage 2 is still cloudy. The world trade is expecting a declining trade, and sales and uncertainties are still ahead. But what is safe to say, that the consumer behavior has changed. People are purchasing more and more online. People are starting their purchase route on mobile. So if your mobile experience is not at the level it should be, retailer is really, really 2, 3 years behind. Delivery options getting more and more important. And we, as a pioneer here in Finland, are the ones who will introduce the fastest and multiple delivery options to be used for consumers.And the fourth one, slightly a new one and increasing strongly is this support your local mentality. So if the price is right, if the delivery time is the same, consumer says that they rather purchase from a local player than from an international player. So to sum it up, solid performance in the first half of the year, record profitability, a record profit in Q1, record profit in Q2. We can be happy about it. Many things in favor from the market size. We were able to utilize the opportunities that lie ahead and quickly adapt to the change in consumer behavior, category management clearly showing positive effects and affecting the margin. And also, our marketing performance has developed in a positive direction. But all these positive things said, the uncertainties are still there for the latter half of the year. And will there be a second phase of the pandemic? What happens to purchasing power and consumer behavior? Nobody knows. But we think that we are well fit for those times ahead. Because of the first and strong half of the year, we updated our guidance regarding the revenue and profitability. Main list done. So probably more interesting for international or bigger investors as we are now the main listed company. And to sum it up, the company is in a good, solid position. Dividend policy is very appealing. There's no debt at the company. And we are also in a situation to make investments if the change in the environment gives us and opens up opportunities. There are, as I understand, no questions at this point of time. So thank you very much. Have a nice Friday and summer. Thank you.