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

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

Good day, everyone, and welcome to Cnova's Full Year 2021 Financial Results Conference Call. Our CEO, Emmanuel Grenier; and CFO, Luc Peligry, 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. And I now turn the call over to Cnova's CEO, Emmanuel Grenier.

Thank you, Emmanuel, and hello, everyone. And thank you for your interest in Cnova. Luc and I would like to go over our full year '21 earnings presentation with you, after which we will be pleased to take your questions. Cnova had a solid performance in '21, thanks to a strong first half and despite a slower second half that was impacted by the high comparison base in '20 we [indiscernible]. And over the past 2 years, all our KPIs are well oriented. First, we have grown our GMV by 8%. Second, we have structurally improved our EBITDA, reaching EUR 109 million and growing at 33%, well above that of GMV. Third, we have accelerated on our key strategic B2C pillar, marketplace and digital marketing. And finally, fourth, acceleration of our B2B activities, Octopia and C-Logistics. Our higher-margin activities, mainly marketplace and digital marketing have done very well over the period, with revenues up 29% and 75%, respectively, since '19. Our B2B revenue streams are off to a very fast start. Octopia GMV tripled since '19 and has signed 12 clients in 7 countries in '21 for its marketplace and merchants as a service offer. Next slide. Our highly profitable marketplace, which is at the heart of our B2C strategy, has grown by 22% since '19, driving up its revenue by 29% to EUR 193 million. This performance was driven by 2 key levers. First, the increase in our qualitative merchant base by 2000 in 2 years, bringing to the customer of more choice and better pricing. Second, nearly half of our marketplace orders are now express delivered to customers, up from 1/3 in '19. This is primary thanks to 37% of marketplace GMV being fulfilled by Cdiscount, a significant increase of 6 point versus '19 and also the success of our Express Seller program. As you can see, our marketplace remains one of our key growth drivers and is center to our improved profitability. Next slide. We are also being successful in terms of customer satisfaction. Our NPS is a record high at 53 points, up 12 points since '19. Furthermore, the number of Cdiscount clients continues to grow year after year, and this is increasing the overall repurchase rate as they are buying 3x more often. And these achievements are explained by: first, we continue to deliver orders faster, and we have added more than 1 million SKUs eligible for express delivery. Our yes to the client policy is a success that we are earning out to the entire client base in '22. So our focus remains to continually enhance customer experience through faster delivery and high-quality customer care. Next slide. Our most profitable business line, digital marketing, continues to performance extremely well, growing more than 30% in each of the past 2 years. Our Cdiscount Ads Retail Solution, called CARS, is growing even faster at 70%. CARS in-house AdTech solution boost merchants and supplier sales and very confidently can drive traffic to their product on silicon sites. AI or the CARS performed at 3 level. It improves relevancy of top results for customers, boost ROI for the vendor and brand and increase its revenues for Cdiscount. And we are accelerating our investment in artificial intelligence. Digital marketing is now our fastest growing and most profitable business. Next slide. And now let's talk about our B2B activities. First, Octopia. Octopia is a turnkey market-based solution for retailers or e-tailers, which includes market-based technology, qualitative base of products and merchants as well as [ food-driven ] solutions. First, our historical Product-as-a-Service has surpassed the EUR 100 million GMV mark in '21, representing an impressive 400% increase since '19. And second, our new Merchant and Marketplace-as-a-Service solutions are accelerating. Third, in '21, 12 new clients signed with Octopia. Second, we have announced this morning a new partnership with Ocado to integrate Octopia's Marketplace platform into Ocado Smart Platform called OSP, and allow OSP partners around the world to launch their own marketplace offering. This is a major milestone. This is a recognition by a worldwide sale leader in the quality of the Octopia solution and it brings significant growth opportunity. And finally, '22 will record a major step for the first full implementation of Octopia marketplace solution. Longer term, Octopia represents a significant combination proposition for Cnova as it targets a massive market opportunity with worldwide e-commerce growth fueled by marketplace. Next slide, about logistics. Another growing source of profitable B2B revenues come from our third-party supply chain services. We also have turnkey large parcel transportation service through C Chez Vous and a full service of supply e-commerce operations through C-Logistics. First, C Chez Vous business accelerated significantly in '21 with 22 live clients as of today, benefiting from a record high customer satisfaction. And we expect to onboard at least 11 additional clients during the first half of '22. Second, C-Logistics end-to-end third-party logistics solution for retailers and e-tailers have worked extremely well with clients such as Stokomani and Adopt already live. Next slide. At Cdiscount, we are extremely proud of our leading position in ESG. First, for logistics, we have been continuously reducing our carbon footprint over many years, and we have launched a new plan of more than [ 20 actions ] including reducing hazard anticipating trucks, thanks to workload loading, a new alternative means of transport, to further reduce by 7% greenhouse gas emission by '23. Our deliveries and returns are already carbon neutral. And we are also at the forefront of reducing it with hydro packaging use. We have eliminated 1.3 million packages in '21, and we are now proposing a reusable packaging through a partnership with a startup Hipli. Second, we are promoting a more sustainable contention. Two examples. First, we are a key player in the circular economy in France, generating more than EUR 100 million of GMV in '21, consisted of refurbished goods. In fact, the quarter on the smartphone sold on Cdiscount.com are refurbished. Second, we are also reinforcing our Made in France provision. We are French. And finally, in terms of HR, Cdiscount was certified in 2021 as a Great Place to Work. And we were ranked fourth in France by the Financial Times as a Diversity Leader for its commitment to promote diversity within the company. We are absolutely committed to promoting equal opportunities for women and men. Now, I would like to introduce our new CFO, Mr. Luc Peligry. We are pleased to welcome Luc to the Cnova family, with his background in finance and management. So please welcome Luc. 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Thank you, Emmanuel. Good afternoon, everybody, and the growth drivers. So we are on Slide 15. So overall, the 2021 GMV is showing the strong performance versus 2019 at 7.9% and resilient versus 2020 exceptional performance. At the marketplace, GMV valued share is now reaching 45%, which is increasing by 1.3% versus last year. Revenues are increasing by 23% versus 2019 and stable versus 2020, despite the introduction of new VAT law and introduction of higher quality standards. Direct sales are decreasing as part of our strategic voluntary shift from 1P to 3P and mainly focused on nontechnical tools. The B2C services is growing significantly year-on-year, reaching EUR 280 million, plus 44% versus 2020, mainly driven by travel, energy and mobile. The others revenues are stable, with a contrasted picture, a sharp increase in digital marketing, growing year-on-year by 32%, driven by our in-house AdTech platform CARS reported to our sellers and brand. This is the main lever of our strategy to increase the monetization of our offer to reinforce our profitable growth path. And secondly, a decrease on the general casino corners, which have been affected by the COVID, with the closing of the store during the pandemic. On the B2B side, Octopia is accelerating its growth, reaching EUR 109 million of GMV in 2021 with success with the Product-as-a-Service and the fulfillment of the service offers. The partnership was signed with Ocado today and the launch of the Marketplace-as-a-Service tech platform will boost the development of Octopia in 2022. Next slide. Gross margin. The gross margin is reaching EUR 480 million in 2021, with a 4.5% increase in margin rate on sales. It's a 25% growth in margin rate over 2 years. What are the main reasons of this success? First, the marketplace share is increasing year-on-year with a stable commission rate. And the percentage of the marketplace, which is now fulfilled the base discount, decreasing by 6 points to 37,000. Second driver is the direct sales margin, which has improved mainly thanks to the transfer to marketplace of low-margin products. And the third lever, of course, is the digital marketing, which is growing fast. As highlighted by Emmanuel, we are now at more than 2% of our GMV, with excellent future growth of sales. Next slide. SG&A -- so SG&A before depreciation and amortization accounted at 17.1% of net sales, so a 3.1% increase over the last 2 years versus a 4.5 improvement of the gross margin. The main impact of the increase will be taken into account is the investments borne to support Octopia's development, where we had some extra commercial cost with sales team and participation to worldwide events to promote the offer, experiment cost on IT and G&A to support the situation of the activity. As far as the rate is concerned, we increased our marketing cost to support TV media campaign in H2 '21 to improve our market share. And also, as mentioned by Emmanuel, we import our content on the site through live shopping, after payment, games and our IT costs to support the digital marketing and reinforce our capabilities in artificial intelligence. Next slide. As a result, we achieved a revenue performance with a 5% EBITDA margin at EUR 109 million, 39% above 2019 with some major shifts on our 3 strategic pillars: increasing the 3P versus 1P, accelerating the digital marketing and supporting our development on the B2B area with Octopia and C-Logistics. EBIT grew by 25% versus 2019 to EUR 18.4 million. Many balances is coming from the increase in depreciation and amortization by EUR 10 million, replacing the higher CapEx and gain to support the development of our B2B activity. Cash flow on next slide. As far as the cash flow is concerned, cash flow from operating activities are at EUR 64 million, which is increased by 43% versus 2019, showing a structural improvement of cash generation. Taking into account investment and changes in working capital, the free cash flow before financial expenses amounted to minus EUR 77 million and has been impacted by 2 major exceptional triggers. First, the change in working capital. With a swing of more EUR 100 million between 2020 change in working capital and '21 change in working capital. Remind you that in 2020 -- 2020 was impacted positively by exceptional sales in November and December 2020 because of the [indiscernible] where in '21, we paid headwinds on the business at the same period and also took a cautious view on technical products, given some extra strategic inventories to prevent shortages, which lead, of course, to the semiconductor prices. Our target for '22 is to come back to a more normative position on the stock -- on the working capital. Second exception that we have on the change in free cash flow is the higher CapEx in '21. It stands at EUR 94 million versus EUR 71 million in 2020, i.e., an increase of EUR 23 million, reflecting the high investments in the Octopia Market-as-a-Service platform. So as a conclusion, after integrating the EUR 44 million of financial costs, which are mainly coming from the 4x installments of retail, which have improved versus last year, thanks to better risk management. The change in net debt is negative by EUR 126 million. Next slide. to include the cash chapter status about our financial debt, a quick reminder of the structure, which is made of 3 major sources. Casino lines to a term loan and a cash pooling for EUR 550 million, a stake of EUR 120 million and balance [indiscernible] of EUR 70 million, a total of EUR 740 million. As at the end of December 2021, we were using a gross EUR 343 million. In terms of scheduled repayments, we had repaid EUR 60 million in August this year. They are obtained from state granted loans, and we are already in discussion with our banks to refinancing strategy. And with that, I pass the floor to Emmanuel.

Thank you, Luc. So our long-term objectives remain unchanged. GMV growth, EBITDA improvement and cash generation. And for that, Cnova have 3 clear strategic priorities: first, grow the marketplace, leveraging on fulfillment capacity as well as merchant recruitment, leading to more quality and higher customer satisfaction; second, good digital marketing revenues by developing CARS and our in-house asset platform; and third, accelerate B2B developed Octopia by targeting the EMEA markets and launching new major clients. And make C-Logistics and C Chez Vous leader in e-commerce logistics. We will also continue to reinforce our ESG commitment by reducing our carbon footprint, stimulating the circular economy and promoting diversity. Thank you for your time and attention, and we are ready to take your questions. Operator, may we have the first question, please?

[Operator Instructions] We have one first question coming from Alexander [indiscernible].

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] No problem with 2 top questions about the departure of [indiscernible] in April '21, [indiscernible] in November. So [indiscernible] had wanted to give a new orientation with carrier. And we have lived 2 years of COVID. The world has changed during these year. And thanks for the people -- is the company that did the company as well. So [indiscernible] for this decision. So we are -- welcome Luc in November coming from -- with a strong background. And this is, I would say, the normal life of the company. About the administrator and as -- this is as well the result [ there is no specific ] signal behind that. [indiscernible] development.

[Foreign Language]

Yes. Yes. So I would say, normal like of the government to [indiscernible]. There is no special signal behind that. About the financing, we have been clear on that, that in Q2 we decided not to go with this scenario, and there is no change so far. There is no change so far. This is deferred, and we have not seen new to add on that.

Yes, but what was the reason of the delay?

The reason was the market condition...

Okay.

We'll make the bridge with -- your last question around the activity. If you look at '21 and H2 '21, Q3 was challenging. We have invested in Q3, and our growth was around 8%. Q4 was down in the market -- in the whole market. We have gained market share in Q4, but you can see all the market and all the results were down compared to '20 because of the high comparison. I would say that Q1 starts as the same kind of Q4, is that we still have high comparison base in '21. We know that '20 is normal until the 16th of March. So we are comparing to '20. And for the full Q1, we compare to '19.

Okay.

Again because it is the only normal year in the last 3 years. What I can tell you is that there is still a slowdown of the market. We have good market share. This is a second message. And third, our marketplaces and our digital marketing are dynamic.

We have another question from Christian [indiscernible].

Three quick questions for me. The first is under EBITDA guidance. You released EUR 110 million. The guidance since June was EUR 160 million, but excluding Octopia. So first point, what is the amount of Octopia in 2021? And second point, could you explain the other part of the gap? I understand your previous explanation, but it's quite a huge gap. So could you explain a bit the gap? The second question was about the market share. You explained that you gained market share. It's perhaps true on the second half. But if you look on Page 15, you recorded a growth of 0%. Compared to last year, you had a growth of 8% compared to 2019. And obviously, when I compare with the figure of [indiscernible], I can't say that you are winning market share. So could you elaborate a bit about your mix of products, your mix of service and so on? And the last question was about the IPO and capital increase. It was a follow-up of the [indiscernible] question. So at present, there is no plan. So does it mean that you are going to delay -- to postpone Octopia project? Or do -- you are going to find other way of financing this project?