Verkkokauppa.com Oyj

OMXH:VERK

Earnings Call Transcript 2021-Q2

[Panu Porkka, CEO & Managing Director]

Good morning, everybody, and welcome to Verkkokauppa.com's Q2 presentation. If you have any questions, please send them during the presentation to [e-mail] and all questions will be then read out loud at the end of the presentation in the Q&A section. Today, joining with me and also available for the questions CFO, Mikko Forsell.So I will start my presentation first with the business review. Some highlights out of the report of this morning then give you some overview on the strategic development of the company and then our assumptions of consumer behavior and how market will develop going towards the end of the year. And at the end, we have key takeaways and the questions, if there are any. So all in all, pretty much according to our expectation, solid quarter, growth continuing while providing a record-breaking operating profit for the second quarter. Growth especially coming from our online channel, which really indicates that the online shift that has been happening throughout the years before is a permanent one, and the consumer behavior has been changing and is now evolving from the plateau that we have currently here in the Finnish market. Secondly, growth came especially from our B2B line of business, growing almost 40% to previous year. That highlights our approach to that line of business, really looking at it like consumer behavior. So small and midsized businesses typically act like consumers. They appreciate ease of shopping experience, good availabilities, multiple delivery options, for example. So that combining with the fact that also that line of business is rapidly moving online. And the online shift actually in the B2B segment is even faster than in the consumer business, really also showing in our figures. Then looking at the general picture from categories in our main categories, IT-related categories market is slightly toughening up. Consumption slightly softer. But on the other hand, midsized and evolving categories really showing a good performance, and we are able to gain market share, which indicates the transformation of our company from consumer electronic retail into a general retailer, which is also a good thing going towards our strategic targets and expanding our assortment in new and evolving categories and continue that development. But at the same time, it's fair to say that export business, although facing COVID and travel restrictions previous year, still slightly declining. So that market is tough at the moment. The situation on the Eastern border in Finland is not really that good. So given the circumstances that we have today, we are not expecting export business to recover soon. It is rather that it will slowly start to recover towards the end of the year and that the full recovery will start at the beginning of next year. Profitability on a good level, like I said, record-breaking operating profit for the second quarter. obviously driven by good revenue development with good margins. At the same time, costs not increasing at the same pace as revenue, ending up in operating profit of EUR 5.1 million, with an increase to previous year of EUR 0.8 million. It was not a big surprise that the Board utilized its right and authority and decided this morning to pay out the quarterly growing dividend. Dividend shall be paid out per share EUR 0.058, I think it is the 27th of July. So thank you all investors, all current owners, and obviously, welcome to all new investors to this great success story of Verkkokauppa.com. Few KPIs. Revenue development, we touched upon. Interesting is to see how the latter half will develop in our line of business in retail. As such, the last quarter is still the main quarter and heavily flavoring how the whole year is going to be in revenue and also profit wise. Now we have started to disclose the online sales and the performance in our online channel, really good development to strong figures from previous year. But obviously, also there, you can see that the last quarter is the main quarter where you need to really succeed. Third one, you can see down below on the left-hand side is the B2B performance, which has been good first quarter and especially the second quarter, the development was strong. Obviously, previous year, we had some softness in the figures, but still absolutely looking at it. It's a good performance. And we actually expect that line of business to continue to develop like that as that line of business is also rapidly moving online. And here, at the down right side, you see the cost ratio per revenue during the second quarter, normally slightly higher than the latter half of the year, but we are good on track reaching our long-term target at 10% or below cost per revenue within -- or by end of 2025. So P&L, once again, so from the revenue, we come down to the gross margin. Almost at the same level as last year, driven by solid performance in midsized, smaller categories. Exports slightly declining, so almost matching the high figures from previous year. From the cost side, we have slight increase in personnel expenses, the resources as such, but also know-how capabilities, right people to make sure that we stay on track and development work of the company towards the strategic goals is fulfilled. On the other side, other operating expenses slightly below previous year. So in total costs not growing at the same pace as revenue, ending up in the result of EUR 5.1 million. And actually, the profitability stood at 3.9%, which is quite good achievement. Looking at the long-term target is to be at 5% profitability levels. So we are quite close already in that perspective. So all in all, if you look into the history, it was the 32nd growth quarter for the company. And it was also the sixth consecutive profit development quarter for the company. So long term and midterm track record for the company is good, and we do all we can to make sure that this stays on like that for a long period of time. So wrapping up the first half revenue increasing nicely and expected just below 7%, really driven by online and B2B, both growing almost by 25%. At the same time, growing and developing the profitability is a good sign. We have now, after the first half year, over EUR 10 million in EBIT already and the increase the previous year of EUR 1.7 million, also good on track reaching our profitability targets. A few things good to mention from inventories, balance sheet and cash flows. If we start with the inventories, I think it's fair to start with the previous year figures below EUR 55 million. It's, for our line of business with a wide assortment, actually a quite low figure. So also, we had some issues last year as we had some extraordinary peaks in different categories and subcategories, the demand was quite high and we were out of stock as well. So in general, I think that level of inventory is slightly too low for us. At the same time, looking at this year figure, we prepared ourselves for the upcoming season, the first one coming just around the corner back to school, back to business. So if there would be any supply chain logistical issues or productional issues and shortages of chips or whatever. We wanted to make sure that we utilize the strong cash position and make sure that availability is on a high level and consumer experience is not jeopardized, but also slightly starting to prepare ourselves for the main seasons upcoming in the last quarter. Cash flow negative, which is indicated that we have been purchasing more into our inventories, which go hand-in-hand. Investments higher than previous year, EUR 2.1 million at this point, partly also due to the logistical investment program that we disclosed beginning of this year. So we have started to prepare ourselves to implement a micro fulfillment center, here in Jätkäsaari, software integration almost done, and then we start to build up the grids and shelves and that will start beginning of fall. Cash just below EUR 20 million, the delta the previous year mainly because of the extraordinary dividend payout that we did a few months ago, equity ratio on a solid level. And on top of that, we have negotiated an extra credit facility which is obviously not utilized, and there is no need for that for the coming future. A few words about the renewed strategy, the process, how it's going along. Basically, all of the development work around the strategies tied around the customer promises, the customer value creation, around our assortment experience, speed and flexibility. And obviously, the position that we have here in Finland, the trust that our consumers give us, the brand position and the recognition that we have is important if you develop and widen your offering from the current situation.That's really funneling then down to the promise of providing the best possible customer experience within the Nordics retail. We are on a good track, but it's fair to say that we have a lot of room for development in assortment, in experience, in development of our delivery options as well. But from the trust side, obviously, it's a thing that needs a lot of work. You can lose it quite fast. But there has been several surveys during the last weeks and few months. The first one came out, conducted by Swedish Hanken School of Economics here in Finland. A survey, including 2,500 consumers asked about which companies are the most innovative in Finland, all companies, medical and financial and tech and all. And we were among the top 10 of the companies. And from these top 10 companies, the 4 best ones were awarded and we were among those 4 ones. So consumers tend to look at us as an innovative company. And it's an important value for us as forerunner of retail, as the pioneers of e-commerce on online, we need to be innovative, not only to stay at the same pace, but we also want to develop our technology backbone, our experience and our operational excellency. So innovation is really in the core of the company's development work. Second survey also just recently published in Finland about trust and reputation by T-media, really giving numbers to different sectors of the company's operation and all sectors that were rated, we were given a green, a good or excellent value. Excellent in product services and financial performance, but you can also see innovation quite high and management and governance on a high level. So the trust and reputation of the company is on a really good level at the moment. The third one, also around the same topic. YouGov is publishing always certain kind of top brand results every year. And the last that they published was about recommendations. So consumers utilizing certain brands, product services and then asked would they recommend that to somebody else. So actually a quite important factor because not only purchasing, but saying to your friend or family member that, okay, it's very good. You should try it as well. So it's a good indicator of the trust given to the company. We have been among top 10 before, but now we were #7. I think it's all-time high for the company. So also from that perspective, consumers not only like us, but they also recommend further to other consumers. And the last one, you can see on the left side, it's about the same company that measures this kind of positive buzz around the company, around the brand. As compared to our key competitors here in Finland, you see that we are ahead of them, and quite far away ahead of some of those. And also if you look us and our brand perception and the positive talk about us versus Amazon here at the moment in Finland, I think the gap is huge. So we are really in a good position when it comes down the local hero position that we have here and defend. So let's go on to the last segment of the presentation. In general, if we see ourself and our operations, we expect that to be developing positively, revenue and profit for the latter half of the year. Looking at the retail sector, it is fair to say that in general, I think the consumption will be slightly softer we had previous year. And the consumption will be obviously divided between products and services. But we don't believe that, for example, traveling will pick up that soon. So generally speaking, retail should be favorable in the latter half of the year, and especially in the most important periods of the season. But at the same time, we expect the Finnish consumption to stay in Finland that will probably happen to other areas as well, meaning that our line of business and export will be headwinded. And probably, like I said before, will not recover during this year, probably the really recovery will start at the beginning of next year. When it comes down to growth, we expect online movement, online shift to continue. So online channels will be in favor. B2B segments, for example, in our line of business should continue to grow. And the online shift will be shown also from categories. So midsized, small categories, which typically are brick-and-mortar dominated, specialty retail dominated are areas where we see that we can gain market share as well. But therefore, no need to make any adjustments on the guidance. So revenue is expected to be between EUR 570 million and EUR 620 million, so nicely in the mid of that bracket at the moment and also that goes along for the EBIT as well. It is expected to be between EUR 20 million and EUR 26 million. And long-term targets, like I said, we have been living with those just sort of 6 months. So obviously, no need to adapt those. So we have a clear picture where we want to aim when it comes down to year 2025. And good to mention as well that the dividend policy is important to us. It's almost sacred to us. We want to distribute quarterly growing dividend, and there's nothing at the moment that should have a negative impact on that. So we keep on to our promise of paying out the quarterly growing dividend. So if we summarize the report and the presentation, expectations were met internally, at least online channel is continuing to show the trend in consumer behavior and the online shift. B2B in our line of business, strong improvement. But also, we have high hopes that that line of business will carry on and it is, like I said, one of the strategic growth areas for the company. And if you look at the Finnish market as such, so revenue, excluding export, our growth was built -- above 7% at the same time market growing below 6%. So gaining market share while improving profit is a good sign of company's execution. Our financial position is solid. So if we would see any additional needs for investments or interesting opportunities should lie ahead, we are ready for those. And looking at the current biggest historic investment that we have in Jätkäsaari regarding the micro fulfillment center, regarding pallet conveyance and so on, we are fully on plan. And we expect those to have a positive impact on the operation after summer next year. And last, but not least, for the first time in company's history, we have also disclosed that we will have a Capital Markets Day. I think the invites will be sent out today probably. So please have that in mind so Wednesday, the 29th of September. It hopefully will be a hybrid one so physically -- physical meeting with presentation, it will be also an on-site visit to the store. And we probably also go to the warehouse, let's see what is there to be seen. Hopefully, at least something is already built. But it's also a live stream. So if you are not able to travel, you can also attempt and listen to the presentations. Thank you. That was all. There are no questions at this point. So from my side, thank you for listening. Thank you for following and have a great summer.