Cnova N.V. (CNV) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Cnova webcast. I now hand over to Emmanuel Wetzel, Investor Relations Director. Sir, please go ahead.

Good day, everyone, and welcome to Cnova's Full Year 2020 Financial Results Conference Call. Our CEO, Emmanuel Grenier; and CFO, Gautier Bailly, will be making today's presentation. The conference call slides can be downloaded from our website, cnova.com. This call is also being audio webcast, and a replay will be available on our website later today. All listeners are reminded to read the forward-looking disclaimer on Slide 2. I now turn the call over to Cnova's CEO, Emmanuel Grenier.

So hello, everyone. 2020 was a year of uncertainty, more challenges and more commitments, and it was also for Cnova a year of clear acceleration of our strategic shift towards the platform model. Cnova stepped up and turned 2020 into a year of more; more profitability and cash generation, driven by more marketplace, more digital marketing and more clients. More profitability. We can see here that our EBITDA reached EUR 133 million, a sizable 63% increase, thanks to 3 main growth drivers. First, our marketplace GMV grew by 22%, representing now 44% of our GMV, with revenues reaching EUR 182 million. Second, we had a record 10 million clients this year, a plus 12% growth. We have enlarged our assortment, and we have improved our customer satisfaction, plus 3-point NPS versus last year and plus 8 points over the last 3 years. Third, our new revenue stream, digital marketing, rose by 31%, supported by the launch of our in-house AdTech platform. These results stem directly from our strategy; concentrate on marketplace, clients and technology investment. As you know, all marketplace is at the heart of our increased growth and profitability strategy. Here, we can better visualize the dynamic performance in 2020 that I've already mentioned. Our marketplace GMV is EUR 1.5 billion, up 22%. And how did we get there? First, more merchants and more products. We went from 100,000 products 10 years ago to 100 million in 2020. Whatever the client wants, we have it. Second, the clients received the order faster, more than 1 marketplace product out of 3 is fulfilled and shipped by Cdiscount. These products are delivered twice as fast, thanks to our state-of-the-art high capacity and scalable fulfillment solution. And I'm proud to say that we are one of the European leader in this field. And my conviction is that today, a strong marketplace must have a robust and strong fulfillment solution. The end result, our marketplace revenue reached EUR 182 million, up 23%, accelerating at plus 40% in the fourth quarter. And the 2 main growth drivers are dynamic commission generation and our merchant increased use of our digital marketing platform to promote their products and brands. So this is clear that developing our marketplace is our first priority. Our second priority is to further improve customer satisfaction. So we are pushing more popular daily used product categories, such as home and decor, garden and DIY, sport and beauty. These categories are boosting the repurchase rate and loyalty. And furthermore, we now offer free home delivery to all our customers. And this is important to note that these categories also have higher marketplace share around 60% and higher margin than commissions. For example, the marketplace commission rate is twice as high as other categories. These categories grew by a solid 18% and gained 6 points of GMV share. Alongside our more successful product offer, another reason for success is our focus on our customer experience and satisfaction. First, as I have already mentioned, we deliver the order faster than ever. Thanks to our raising marketplace delivery option, Cdiscount Fulfillment and Cdiscount Express Seller. Second, we always find a way to say yes to our loyalty program clients to make sure that the expectations are not just met but indeed exceeded. The result, the 10% increase in the number of clients were part of our Cdiscount à volonté loyalty program as well as an impressive 8-point improvement in our NPS over the last 3 years. Our focus remains to continually improve our customers' experience and satisfaction. Third priority is digital marketing. Cnova's in-house AdTech digital marketing offering has been the main driver of traffic monetization and better profitability. Digital marketing revenues increased by 31% in 2020 and more than 4,000 merchants and vendors are already using the platform. And there are 2 levels. First, we offer our suppliers and marketplace merchants higher product and brand visibility to a better targeted audience on cdiscount.com. Second, we manage their marketing campaigns on Google, Twitter and Facebook to drive additional traffic to their products and cdiscount.com. This year's digital marketing growth was supported by the launch of our Cdiscount Ads Retail Solution, called CARS, our in-house advertising platform. And we plan to enrich this offer with new features in the coming months. And now let's talk about the future. I am particularly excited to present you an innovative model of e-commerce. We are building an open solution to create a network of marketplaces. Thousands of merchants, e-merchants, retailers can create or accelerate their marketplaces in this. Concretely, if you're a website, you will benefit from 3 ready-to-operate modules. First, an access to 100 million SKUs and our 13,000 selected merchants. Second, our front-to-back marketplace, high-end technology, based on 10 years of expertise and investments. Third, our fulfillment solution to accelerate their delivery, product, technology fulfillment. On top of that, integration for each module is both easy and fast. Now if you're a merchant, you will benefit from a one-click access to thousands of international websites and marketplaces. And Cnova is the only player to offer this unique solution in the market at scale. So this new business -- this new activity gives us excessive huge untapped market, more than EUR 600 billion of e-commerce GMV in the EMEA zone and almost 1 million e-commerce websites. Our ambition is to become the leading marketplace service provider in EMEA. And our offer already met a promising success; more than 200 websites in 27 countries are connected to our product catalog. Our fulfillment solution is opened to orders outside of Cdiscount for the first year, with 900 new merchants and more than 600,000 parcels delivered and a major EMEA client signed on for our full marketplace solution starting in the next month. So with our unique proposition targeting and extending market, our ambition is clear, making our open platform a EMEA leader, driving strong growth and profitability in the coming years. Finally, I told you at the beginning of this presentation that 2020 was a year of uncertainty and challenges and how we have stepped up our involvement in this environment. And the COVID was a global concern throughout the year. So we have decided to help French SMEs. During the first lockdown in April and May, in 10 days only, we built a platform to deliver 70 million masks to SMEs, City Hall and other public entities. We were the first to do that. So we can restart that business and activities. Then during the second lockdown, we opened at no-charge marketplace to small shops in order to help them to develop their e-commerce sales and their sales. This program is still going on. And alongside with what has been said, our focus paid on our commitment to reduce our environmental impact. And as you know, 85% of our packages now contain no empty space. And at the same time, we have launched a second-hand hub on the website. And finally, we are also deeply committed to advancing social solidarity and inclusion. Cnova is actively involved in fighting violence against women, equipping shelters and contributing other resources. We are and we will always be committed to being responsible, inclusive and open e-commerce platform. Now I would like to turn the discussion over to Gautier to comment on our 2020 financial performance.

Thank you, Emmanuel. GMV growth was 9% over the year for 3 reasons. The first and most importantly, the marketplace GMV with its higher-margin profile rose by 34% in the fourth quarter and 22% over the year, contributing for 80% of Cnova overall growth. Second, relatively stable direct sales, while at the same time, we achieved growing international and B2B sales. Third, our overall services offering, including energy, ticketing and mobile, grew by 15%. And this despite the COVID-related sluggish travel service performance. Next slide, our gross margin strongly improved in 2020, up 360 basis points over 2019. As a result, our gross profit increased 22% to EUR 474 million. And this was due, first, to the growth of the marketplace, which represented 40% of this improvement; second, to our product mix evolution towards higher-margin categories for another 40%; and the remaining 20% is driven by all other activities and mainly digital marketing. SG&A represented 18.9% of sales. It's a 1.9-point increase over 2019. Fulfillment costs accounted for 0.6-point of increase. It resulted from the acceleration of our Cdiscount Fulfillment service and faster delivery investments. Marketing grew only slightly 0.2 points, thanks to improved free traffic performance. Tech and content increased by 0.8 points, as we continued to invest in traffic monetization, B2C and B2B capabilities. G&A expenses came in at 2.1% of sales. On EBITDA, for the third year in a row, we significantly increased our EBITDA with a strong acceleration in 2020, plus EUR 51 million compared to 2019, up 63%. The EBITDA margin increased 6%, up 2.3 points year-on-year. And as we said previously, thanks to the marketplace growth, product mix evolution and higher monetization revenues. Before IFRS 16, EBITDA nearly doubled. And EBIT was more than 3x higher to reach EUR 53 million. Another key achievement of 2020 is a substantial positive free cash flow generation, plus EUR 73 million over the 12 months at the end of December 2020. Thanks to the EBITDA for EUR 133 million and thanks to a positive change in working capital of EUR 64 million. As we see, another virtue of the marketplace and its capacity to lower the level of inventories. This free cash flow includes EUR 71 million of CapEx and allowed us to cover our financial expenses and most importantly, to reduce our net debt by EUR 21 million. Back to you, Emmanuel.

Thank you, Gautier. So in 2021, we are pushing our strategic shift further towards the platform model, as I said. And we are doing this by growing the marketplace even more and particularly Cdiscount Fulfillment with a target of 50% in the near term; second, pursuing our product mix evolution; third, accelerating digital marketing revenue growth; fourth, rolling out our unique marketplace turnkey solution. And I would like to close by what we said at the beginning, more clients, more marketplace, more profitability and more cash flow generation. So thank you for your time and attention, and we are ready to take your questions. Operator, could we have the first question, please?

[Operator Instructions] We have no question on the telephone. Maybe we have some on the platform. We have some in the platform. One from [ Jean-Francois, Enrique ]. I heard a new regulation regarding marketplaces will be in 1st of July [indiscernible] applicable to all merchants. If I'm right, what could be the consequences for Cnova too?

Yes, you're right, [ Jean-Francois ]. There will be new regulation from the third -- beginning of June. This is about the VAT. It seems that the marketplace will have to pay the VAT on behalf of the non-European sellers. So we have prepared that, and we have asked first all our merchants to be sure that they will be paying the VAT and this work is going on. So it has been prepared for 1 year now. So we are prepared.

Yes. We have another question from [ Alison Lopez ]. Currently, CBD in Brazil continue subsidiary on 33%, 98% of Cnova. Do you think this huge participation could be sold to a new investor like, Alibaba [indiscernible]?

To be sure, well, I couldn't comment this kind of investor, but we have a plan of development, which is very clear, the plan I have explained. Obviously, this plan is mobilizing investment in CapEx. So, so far, we are financing with our own cash generation and the cash coming from the casino. But obviously, if we could hire an investor, we could accelerate our investments. And you know we are always open to new investors coming to the capital.

Yes. We have now a question by phone. Mr. [indiscernible].

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