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

Hello, everyone, and thank you for your interest in Cnova. Maxime Dubarry and I would like to go over our half year 2022 earnings presentation with you. After which, we would be pleased to take your questions. So we are glad to announce today that our performance is resilient in spite of a challenging and uncertain market. High inflation, supply chain disruption due to the lockdown in China, war in Ukraine, we all know that. And Cnova posted a resilient performance in this context. 10% GMV decreased in the first half versus '21, but growing versus pre-pandemic level and gaining market share in April and May according to Kantar. And we still remain committed to our 3 strategic pillars: marketplace, advertising services and B2B activities, which pays up. First, marketplace revenues decreased by 7% versus '21, but still on a very positive long-term trend, plus 25% growth versus pre-pandemic levels in '19. Second, advertising services powered by our CARS advertising bidding platform grew 15% in the first half, multiplied by 2 versus pre-pandemic level. Third, B2B is accelerating with 11 new contracts of Octopia's Marketplace-as-a-Service solutions and 31 new contracts for C-Logistics in the last 6 months. About EBITDA and cash. Positive EBITDA decreasing compared to '21, but stable compared to pre-pandemic level of '19. Free cash flow improving by more than EUR 100 million compared to EUR 21 million in the first 6 months. In this context, we have launched an efficiency plan to swiftly recalibrate our cost structure and CapEx level to the current volume of activity with a EUR 75 million savings target on a full year basis by the end of '23. Next slide, marketplace. Marketplace growth is at the heart of our B2C strategy. This is our third strategic pillar. Cdiscount offers a very large range of products to the customer. We speak about more than 90 million products. And second, Marketplace is a very profitable business. And our marketplace has increased by 19% versus pre-pandemic level of '19, plus 8% annually over the last 6 years and now represents more than 50% of our product GMV, and we confirm our long-term target above 60% of GMV. Slide 7. So as we have just said, the main driver of our marketplace growth is the size of the assortment, but speed and delivery and quality of user experience are also contributing for growth. In '17, only 15% of products were expressed delivered. And today, 6 year later, it grew up to more than 50%. This is primarily thanks to the 38% of marketplace GMV being fu5lfilled by Cdiscount and to the success of our Express Seller program, which now brings 13% more additional Express GMV delivered to our clients. And the ramp-up of our express delivery program resulted into the constant client satisfaction for market-based orders, closing the gap with direct sales NPS. As you can see, our marketplace strategy remains one of the key drivers and keeps on a positive trend. And this is, of course, central to our model. Next slide about direct sales. We are convinced that our hybrid model with the right share of marketplace and direct sales for each category has been and remains our win strategy. For technical goods, a powerful direct sales offer and strong relationships with brands is one of the key drivers to bring value to our customers and be competitive. This strategy has led us to build a win-win relationship with top brands, exclusive offers and marketing contribution for Cdiscount, better awareness and user experience enhancements for the brand, and the results are promising. The 9% decrease in direct sales in the first half were our top 10 brands, when according to FEVAD and Kantar, the electronics market was down 19% in Q1. Next slide, 12. As you know, not only we offer our products, but also a marketplace of services to meet all our customer needs. In the first half, travel is growing fast to 67% versus '21 and more than [ 60% ] compared to the pre-pandemic in '19. And as you know, in the last 2 years, this market was and has been heavily impacted by the pandemic. Flights are up [ 61% ] with 6 destination trending: Tunisia, Turkey, Spain, Greece, Egypt and Dominican Republic. And flight packages are also benefiting from new partnerships. Next slide, about Cdiscount à Volonté. Our loyalty program, Cdiscount à Volonté, CDAV, is at the core of the strategy. CDAV customers are buying 3x often and our CDAV customer base keeps growing in a receding market. And the 3 reasons for this success. First, we continue to deliver orders faster and faster. We have added close to 1 million products visible to our Express Delivery program in 1 year. Second, we offer them dedicated promotions. And third, our [ yes ] to the client policy has been rolled out to all our clients. Our focus remains to continue to enhance customer experience through faster delivery and high-quality customer care. Slide 11. We have committed to enhance our customer-centric approach, not only for delivery and customer site, but also through a seamless experience on the website. AI, Artificial Intelligence is widely used throughout the customer journey and especially for the search engine and the recommendation on cdiscount.com. For the search engine, the results are very promising. The GMV share of the search engine has been increasing by 4 points in 1 year, thanks to the implementation and training of new semantics algorithms, leveraging on this learning. Another way to improve the customer experience is to display the relevant product to the customer. And thanks to targeted product display to our customers, the GMV share personalization has increased by 2 points. So we are very excited about what it will bring next; more search engine relevancy, more recommendation, more accurate credit [ carding ], targeted promotion and more to plan. Next slide about advertising services. Advertising services are most profitable business line. It continues to perform extremely well, growing plus 15% versus last year. And our Cdiscount Ad Retail Solution, or CARS, is growing even faster at 73%. CARS is our in-house ad tech solution, boost merchants and supplier sales. Concretely, CARS drive traffic to their product and discounts and brings profitability to Cdiscount and Artificial Intelligence for [indiscernible] CARS platform. And it does it at 3 levels. It improves relevancy of search results for customers. It boosts ROI for the vendors and brands, it increases revenues for the discount. Advertising services are now our fastest-growing and most profitable business. Slide 14. Now let's talk about our B2B activity. Profitable B2B revenues comes first from our third-party supply chain services. We offer them, the turnkey large parcel transportation service with C Chez Vous and a full service of supply chain e-commerce operations through C-Logistics. First session, C Chez Vous [indiscernible] is accelerating significantly with 49 [ lined ] clients as of today, benefiting from price competitiveness and a record high customer satisfaction. This offer is an amazing success with 30 new client signed in the first half of 2022. Second, C-Logistics. Our end-to-end third party logistics solution for retailers and e-tailers has gone extremely well with clients such as Stokomani, adopt already live. And we have just signed with a major client, a worldwide leader in its market. Slide 15. And now let's talk about Octopia, our turnkey marketplace solution for retailers and e-tailers, which includes marketplace technology, qualitative base of products and merchants and fulfillment solutions. Our new merchants and marketplace solutions are accelerating. In H1 '22, we have signed 11 new clients for a total of 23 clients, such as Tier 1 e-commerce players: Rakuten, Kingfisher, CDON, the leader in Scandinavian countries. And we are now rolling out the solution with 10 of these clients already implemented. Our Fulfillment-as-a-Service solution, which is providing logistics and delivery services to vendors selling on platform other than cdiscount.com. And for those members, GMV grew by 18%, with 0.5 million parcels delivered in the first half and more than to 1,000 clients. On the long run, Octopia represents huge value creation potential for Cnova as it targets a massive market opportunity with worldwide e-commerce growth fueled by marketplace. Next slide and last slide before giving the floor to Maxime. It's about ESG. So we are at a discount, we are very proud of our leading position in ESG. First, for logistics, we started a long time ago, and we have been continuously reducing our carbon footprint over many years. Greenhouse gas emission per parcel has been reduced by 7% between '20 and '21. And our deliveries and returns are already carbon neutral, thanks to 2 things: First, all the actions undertaken over the past year, especially with our fleet, which is unique in Europe or 3D packing machine; and second, thanks to the long-term partnership, we have signed with Plantons pour l'Avenir, which is initiating reforestation actions in France to sequest 100% of the residual GHG emissions. Second, we are promoting ecoproducts and refurbishment. We have launched a more sustainable [indiscernible] cdiscount.com. This is covering already nearly 40,000 SKUs on the site. And we are a leading player on secondhand and refurbishment, generating more than EUR 100 million GMV in '21 and still growing 7% in the first half. Thank you. And now I give the floor to Maxime, our CFO.

Thank you, Emmanuel, and good morning, everyone. I'm going to walk you through the financials of the first semester. Moving to Slide 19 on GMV. We have posted a EUR 1.8 billion GMV in the first half of '22. As already commented by Emmanuel, the GMP has decreased by 10% on a reported basis and 12% on a like-for-like basis. If we look into the details of our business, the marketplace is doing quite well. The marketplace GMV share is now rising close to 50% in the semester, but plus 3 points compared to prior period. The marketplace GMV has decreased by 11% in the first half, but a significant increase by 19% versus pre-pandemic level of '19. Direct sales are decreasing 21%. This is related to low market demand and our strategic voluntary shift from 1P to 3P. Advertising services is seeing good performance over GMV, reached EUR 40 million in the first half of 2022, growing plus 15% compared to prior period and doubling versus pre-pandemic level of '19. This is driven by the continuous development of our sponsored product or CARS solution that Emmanuel already commented. B2C services are also showing good dynamics, especially thanks to fast-growing activity for Cdiscount travel that Emmanuel commented as well. And our other segment is stable. In a like-for-like basis, our H1 '22 actuals has benefited from the EUR 45 million sale of the [ cross ] [indiscernible] inventory to them. On the B2B side, as already commented by Emmanuel as well, Octopia and C-Logistics are seeing good dynamics with significant number of clients signed in the first semester. Moving to next slide on gross margin. Our gross margin was EUR 201 million in the first half of '22. It's 23% of our net sales or a decrease of 0.4 points compared to '19, but still a significant increase of 5.3 points compared to pre-pandemic level. This is consistent with the 3-point increase that we have seen over the past year. The gross margin increase compared to pre-pandemic tier demonstrates the success of the implementation of our strategic plan. We are promoting the high profitability activities, and they are growing. In particular, marketplace is growing 19% compared to pre-pandemic, and advertising service is doubling compared to pre-pandemic. If we now look compared to 2021, we have accelerated our seats to a marketplace with direct sales negatively impacted by our actions aimed to reduce inventory. This is also part of the [indiscernible] plan, and we have also suffered from additional cost of transportation of goods related to the inflation on fuel. Moving to next slide on SG&A. Our SG&A has stabilized in the first semester. SG&A before G&A amounted to EUR 184 million in the first half of '22. It's representing close to 21% of net sales or a reduction of EUR 1.4 million in value compared to prior period. During the second quarter, as already commented by Emmanuel, we have launched an efficiency plan to recalibrate the cost structure to current level of activities with significant cost savings expected in the second half on a full run rate basis of -- EUR 75 million. If we now go back to the SG&A variation compared to prior period, 2 contrasting impacts are to be noted: the first one is we continue to invest in the B2B activities with commercial IT, G&A expense to support the development of activity. And on the second hand, we have the decrease in value of G&A that are benefiting from the earlier results of our efficiency plan. And this is balanced also by additional costs that we bear for the structuration of the B2B activities. Moving to next slide on EBITDA and EBIT. So as a result of what I just commented on gross margin and SG&A, our first half EBITDA has decreased to EUR 70 million compared to prior period, representing 1.9% of net sales. In the context of significant market headwinds and destocking initiatives, EBITDA delinquencies on the resident marketplace performance, increased advertising services and first results of our efficiency plan on SG&A. If we now look at EBIT, its additional variance compared to EBITDA is coming from the increase in G&A and by close to EUR 5 million, and this is reflecting the higher CapEx that we are engaging to support the B2B activities in the last year. Moving to next slide on cash flow. As you know, our cash flow saw structural significant structural seasonality over the year. Our H1 cash flow is negatively impacted by the cash out of payables related to the early day period, while the second semester, issued by the high level of GMV in November and December related to the holiday period. Despite the significant market headwinds, we have been able to improve by EUR 82 million to free cash flow as a value add, [ Géant ] are threefold. The first one is our action on inventory. We have delivered a reduction of inventory of EUR 85 million coming from a structural decrease of EUR 40 million in inventories related to the efficiency plan and a one-off impact of EUR 45 million related to the sale of [indiscernible] market [indiscernible] on inventories to the that occurred in June [ 2022 ]. Second, on net CapEx, we have decreased the amount of net CapEx by EUR 26 million. There are 2 elements for that: the first one is a EUR 20 million one-off impact related to the sale of assets to flow out, that is described in the financial statements. And we also are seeing a EUR 6 million reduction in CapEx related to the efficiency plan. The third element is finance expense. Our finance expense has increased by EUR 21 million compared to prior period. This is related to the increased take rate of our CBForEx solution and the cost of sale of receivable related to our CBForex solution as well. Moving to next slide and to close the chapter on cash status on our net financial debt. As a reminder, our liquidity structure remain of free different source of liquidity. The first one is Casino line through term loan and cash pooling for a total amount of EUR 700 million. The second one is a state-guaranteed loan for EUR 120 million. And the third one is bilateral credit lines for successes EUR 70 million, meaning our total liquidity available is EUR 890 million in the first semester. In the end of June, we were using net EUR 470 million. If we now look at the schedule of repayments on the right of the slide, we will have to repay 2 times of the state-guaranteed loan in the next 18 months. The first one is coming in August this year for EUR 60 million, and an additional EUR 30 million is expected in August '23. And I will now hand over to Emmanuel for [indiscernible] detail.

Thank you. So to conclude, the main thing is that we are committed to recalibrate our cost structure and CapEx level to the current level of activity. Therefore, we are implementing an efficiency plan that started beginning of Q2, EUR 30 million savings projected in the second half '22 with a full year impact of EUR 75 million in 2023. And in this context, we firmly confirm our strategy to push more marketplace, advertising services, B2B activities. But thank you for your time and attention. We are ready to take your questions. Operator, may we have the first question, please?

[Operator Instructions] We have our first question from Alexandre [indiscernible] from [indiscernible] Associate.

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