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

Good day, and thank you for standing by. Welcome to the Cnova 2022 Full Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Emmanuel Wetzel, Head of Investor Relations. Please go ahead.

Thank you. Good day, everyone, and welcome to Cnova's Full Year 2022 Financial Results Conference Call. Our CEO, Thomas Metivier; and CFO, Yves Trezieres, will be making today's presentation. The 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 the Slide 2, and I now turn the call over to Cnova's CEO, Tom Metivier.

Hello, everyone. Thank you for your interest in Cnova. I'm very pleased to be here for the first time to present with Yves our full year 2022 earnings presentation and share my strategic vision for 2023, after which we will be pleased to take your questions. We are glad to announce today that we are on track with our transformation plan with all 3 pillars of our platform model performing very well in 2022 in spite of the challenging and uncertain market with high inflation and low consumption, leading to a receding French e-commerce market. As you may know, [Technical Difficulty] Technical Goods and Home & Deco were down by 19% and 18% in 2022. In this context, Cnova posted a resilient performance. All 3 strategic pillars: market-based, advertising services and B2B activities are very well oiled. First, Marketplace revenues outperformed the French commerce market, decreasing only by minus 2% versus '21 and still on a very positive long-term trend with 28% growth versus prepandemic level in 2019. Second, advertising services powered by our CARS advertising bidding platform is performing very well. Our revenues grew 5% last year, and our ratio of our GMV grew from 2.4% to 3.1%. Third, B2B activities are accelerating, with EUR 19 million of B2B revenues, growing 66% over the year. Octopia has won 14 new contracts for its turnkey marketplace solution to reach 26 clients at the end of the year. In this context, we have achieved a positive EBITDA as a result of the fast implemented efficiency plan that was launched as early as Q2. Our free cash flow before our financial interest is improving by EUR 94 million compared to '21. This is mainly due to our strong [resuridiction ] the first effect of our efficiency plan, and the disposal of nonstrategic assets such as Floa and CChezVous. Marketplace growth is at the heart of our business's strategy. This is our first strategic pillar. Thanks to it, [ Citis cons ] offers [ next to if brands ] of millions of products to fulfill all of our customer needs. And second, our Marketplace is a very profitable business. Our market has increased by 14% versus prepandemic level in 2019 and by 7% annually over the last 5 years. It now represents more than 50% of our product GMV with [ fix ] at 60% since the beginning of 2023. Next slide, how is the GMV translating to revenue. Over the last year, we've grown our Marketplace revenues quicker by 4 points than our Marketplace GMV by reinforcing the value we create for our merchants. As a result, our Marketplace revenues over GMV increased from 14% in '19 to 16% in '22. Our key drivers are clear and well oriented. First, an effective sellers sourcing. Our internal teams are screening more than 2 million sellers from all over the world to identify and source the best one. Thanks to that, close to 1/3 of our Marketplace GMV is generated by sellers recruited in the last 24 months. Second, a strong focus on our top 200 merchants who are benefiting from premium [ econ ] management. Their GMV grew 16% last year, 23 points faster than average, and they are at the core of our commercial strategy. Third, a day-to-day focus on quality. With a market [ rating ] at above 50 for the first time ever narrowing the gap with [ DirectPay ] notably thanks to the growth of our Express Delivery model, including fulfillment. Next slide. Our most profitable business line, advertising services, continues to perform extremely well. Our revenues of our present GMV grew from 2.4% to 3.1% faster. Our Cdiscount Ads Retail Solution, or CAR, is growing even faster at plus 29%. CAR's revenues now represent 2/3 of our underlying revenues. Merchants and brands are super excited by CARS as it makes them able to drive traffic to their products, engineer a sale with a very efficient monitoring [ in terms of ] performance of their marketing investment [ cost ]. The growth of our advertising services is leveraging on 2 key drivers: the number of merchants and brands using the platform, we doubled it in just 2 years, and the performance of the artificial intelligence at the core of our platform. We have improved the relevance of search results for its users and increased the click rate by 50% over the last 2 years. Next slide about direct sales. We are convinced that our hybrid model with the right share of market-facing directors for each category has been and remains our win strategy for the future. For technical goods, a powerful direct sales offer and strong relationships with brands is one of the key levers to bring value to our customers and be competitive. This strategy has led us to build a win-win relationship with top brands. We offer them a unique opportunity to express their brand and showcase their products and they benefit from accelerated growth. Those top 20 brands grew 8 points above the overall trend of direct sales and generated stronger contribution margin, 6 points above the average margin for direct sales. To optimize the profitability and cash of our direct sales business, we took bold decisions in 2022. First, shortened direct sales assortments by focusing on [ eye ] rotation and profitable SKUs, relying on our extensive marketplace assortment to cover specific customer needs. Second, reduced inventory coverage. At end of 2022, our coverage improved by 20% compared to end 2021. Third, in second semester, we restricted our 4-installment payment solution to lower-risk customers, reducing the GMV share by 4 points compared to the first semester. This action already brought EUR 13 million cash savings in H2 with full year impact expecting in 2023. Next slide. As you all know, not only we offer products, but also market [ outside of it ] to meet all our customer needs. In the full year, travel is growing fast, plus 46% versus 2021 and more than plus 14% compared to prepandemic level in 2019. Flights are up 39% with 6 destination trending in Asia, Turkey, Spain, Greece, Egypt and Dominican Republic. Flight packages are growing even faster at plus 63%, benefiting from new partnerships with Totemia and Smiley. Next slide. We are committed to enhance our customer-centric approach, not only for delivery and customer service, but also through a seamless experience on our website. Artificial intelligence is widely used throughout the customer's journey and especially for the search engine and to better position our products in terms of pricing. For the search engine, the results are really exceptional, with the click rate improving by 5 points year-on-year, thanks to the implementation and training of new semantics algorithm, leveraging on deep learning. For the pricing positioning, AI enables us to match more than 1 million SKUs, 2x more than last year, and compare that price with competitors. We are also very excited about the next generation of AI algorithms such as GPT-3, that we started to experiment in 2022, and their opportunities. More search result relevancy, more recommendation, more accurate [ result ] scoring, targeted promotions and more to come. Next slide. And now let's talk about our B2B activities. Profitable B2B revenues come first from our third party [ submission study ]. We offer a full service of supply e-commerce operations through C-Logistics. We have signed 3 new clients in 2022: Les Raffineurs, Boardriders and a luxury global leader to reach 4 clients, 3 of them already launched. Through [ c neto ] including industry leaders, prove the relevancy of our positioning in this market with key differentiating factors: high B2C service quality, very competitive pricing, CSR commitments and personalized packaging. Next slide. And now let's talk about Octopia. Our turnkey marketplace solutions for retailers and e-tailers, which includes market-based technology, qualitative base of products and merchant and the fulfillment solutions. Octopia [ are to be ] accelerating, reaching EUR 19 million, driven by our turnkey marketplace and fulfillment solutions performance. First, our merchants and Marketplace-as-a-Service solutions are accelerating. In the full year of 2022, we have signed 14 new clients for a total of 26 clients, such Tier 1 e-commerce players as Rakuten, Kingfisher, CDON. More than 50% of our clients are out of France, proving the value of our solutions. We are now rolling out a solution with 17 of those clients already live on the platform. Second, and also part of our differentiating Octopia offering our footprint [ as a satellite ] solution, which is providing logistics and delivery service to vendors, [ sitting on ] platform orders [ and is conduct off ] In this activity, parcels shipped grew by 38% to more than 1 million parcels delivered over the full year. On the long run, Octopia represents a significant value creation potential for Cnova and targets a massive market opportunity with worldwide e-commerce growth fueled by Marketplace. Next slide. Cnova maintained its CSR strategy. If we look especially at the climate change page, Cnova focus on 2 priorities, logistics and offer. Regarding the offer, Cnova has been accelerating its more sustainable program. This program includes refurbished products and products recognized by certified labor. At the end of 2022, these products represent 13% of the sales on cdiscount.com, growing 3 points versus 2021. Regarding logistics, 100% of deliveries for cdiscount.com contribute to carbon neutrality. It has been achieved thanks to concrete and long-term investments for 7 years. First, we [ worked ] up to reduce our GHG emissions. As an example, Cnova's unique fleet in Europe of 3D packaging machines and accelerate low-carbon last mile delivery. Between '20 and '21, we achieved a 7% reduction of GSG emission. Second, Cnova [ are to ] sequestrate 100% of its residual emissions through long-term partnerships with the [ endomensen promo folatnia ] initiating reforestation actions in France. With this achievement, Cnova is concretely engaged to fight against climate change, but also meet the new client expectations of cdiscount.com and our B2B activity. As you can see on the next slide, Cnova's achievements are well recognized by stakeholders, whether it be an environmental, social, and societal aspect. Now I will give the floor to our CFO, Mr. Yves Trezieres.

Thank you, Thomas. Good afternoon. By making GMV trend, we have posted an over EUR 3.4 billion GMV in '22. The GMV has decreased by 17% on a reported basis and 15% on a like-for-like basis. If we look into the detailed services, the Marketplace is resilient. Marketplace GMV decreased by 6% in '22, but nearly stable at minus 2% in Q4. '22% being over prepandemic level of 2019 by 28%. Marketplace GMV share is now reaching 52% in '22, gaining plus 9 points versus last year, accelerating in Q4 with a share at 54%. Direct sales are decreasing by 27% as part of our strategic voluntary shift from direct sales to marketplace. [ Result of ] particular international conditions, the national context is into low market demand, all reinforced by a [ fully intense ] period of inflation. Advertising services GMV continued to grow semester after semester, reaching now EUR 86 million in '22, growing by 5% on yearly basis versus 2019. This growth is mainly driven by the C-Logistics and retail solution, growing plus 29% compared to '21. B2C services showed good dynamics, especially thanks to a fast-growing activity for Cdiscount travel, plus 46% GMV on mobile to 56% GMV. On the B2B side, the expansion is on track with Octopia B2B reaching EUR 23 million, plus 66% versus '21 with 14 new plants in '22 for its turnkey Marketplace solutions to reach 26 [ PM ] at year-end. C-logistics e3PL third-party solution is now launched with 3 active customers to date. One [ t compact ] started in February '23. Slide 20, gross margin. Gross margin represented 23.2% of net sales, an increase of 1.3 points compared to '21 and 5.4 points versus prepandemic level of 2019. This positive rate growth is provided by the acceleration of Cnova shifts towards more platform revenues. Marketplace, its associated [ territory including ] food advertising, altogether brought more than 3 points in gross margin. Gross margin amounted to EUR 394 million for the full year '22, decreasing by 17%. The direct sales margin was negatively impacted by the destocking operation in the context of the efficiency plan focusing on cash. Despite the savings plan, we have suffered from additional shipping costs due to inflation especially [ on chu ]. On Slide 21, SG&A. SG&A before G&A are closing at EUR 342 million in '22, a reduction of EUR 29 million compared to '21. The Efficiency Plan launched in Q2 to rectify cost structure current level of activities and support our transformation plan has delivered [ above target]. The full plan, OpEx and CapEx, delivering EUR 47 million [ saving ] versus '21 was 10 million over guidance. Cnova has maintained the necessary investment to secure the distributed activities on their commercial divestments to preserve growth potential in the coming year. Slide 22, EBITDA. As a result, the EBITDA [ come ] at EUR 52 million, minus EUR 51 million compared to last year, representing 3.1% of net sales. In the context of significant market [ in way from ] B2B initiatives, EBITDA delivered from a Marketplace performance, the increase of advertising services and the first result of the efficiency plan at the OpEx level. Slide 23, bridge EBITDA to net result. EBIT additional [ value ] is coming first from the decrease [ warranted ] in D&A by EUR 8 million, reflecting the higher CapEx related to the B2B activity in the last year, also grown from the increase of financial costs by EUR 19 million, impacted by the [ CD4 ] acceleration in [ iswan ]. All in all, net result of the transition year to the new business model add up to minus EUR 125 million. Slide 24, free cash flow. Despite the synergy [ and market headwinds ] we have been able to limit the increase of our net financial debt by EUR 46 million, which is the overall debt at the committed level to our investors [ en bas ]. This performance represents a EUR 79 million improvement for 2021, thanks to the voluntary inventory reduction, the first effect of the efficiency plan on disposal of nonstrategic assets. Before financial interest, the company generated EUR 50 million positive cash flow. Slide 25, net financial debt. To grow the cash capture, the status about our financial debt, [ a quick reminder ] on how the debt which is [ made of 3 major sources ]: [ Capitalize determined on cash claim ] for EUR 700 million, [ state guaranteed ] remaining for EUR 60 million, [ on denitiod ] slides sources capped and remaining for reaching a total liquidity available of EUR 830 million. At the end of December, we were using net EUR 373 million. In terms of schedule of repayments, we will have to repay 1/12 of the state guarantee loans in the next 12 months, EUR 30 million in August '23. Slide 26. Efficiency. As already mentioned, we are committed to recalibrate our OpEx and CapEx to the current level of activity and to support the transformation. The efficiency plan has overperformed in '22 with EUR 47 million plus EUR 17 million above the [ July ] guidance, thanks to EUR 29 million cost decrease on a EUR 80 million CapEx decrease versus '21. Our transformation team is already engaged in additional actions to [ transition ] the company to the new business. In this context, we clearly confirm our strategy to go for more Marketplace, more advertising services and more B2B activities. Thank you.

Thank you, Yves. As you see, despite the challenging market in 2022, we've accelerated the deployment of our strategy. It relies on 2 proprietary pillars, our business strategy cdiscount.com and our growing B2B activities, Octopia and C-Logistics. In [ for discom ] our priorities are first, reinforce our brand identity, notably on promotion, to strengthen our positioning in the market as it is a strong driver of consumer preference in the current context. Second, accelerate our transformation to the platform model. It will improve the profitability of cdiscount.com, thanks to growing marketplace and digital marketing reviews. For our B2B activities, which are our main driver of value creation in the midterm, we are capitalizing on the technology, marketplace and logistics know-how we have built of cdiscount.com, to support French and international e-commerce player. Our priority is to accelerate our commercial development to reach to breakeven in the coming years. Developing our B2C and B2B activities, we reinforce existing synergies and strengthen scale effects within the group, creating a [ positive cycle ]. Thank you for your time and attention. We are ready to take your questions. Operator, may we have the first question, please?

[Operator Instructions] Speakers, there are no questions over the phone line. So I will hand over to Emmanuel Wetzel for any webcast questions.

Yes. We have 4 questions from Alex [ Saint Catesse ] from Catesse [ Esatile ]. Let's switch to French as the question were asked in French by Alexandre. So the first question is [Foreign Language].

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Then the second question is [Foreign Language].

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Then the third question [Foreign Language]

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And then the fourth question. [Foreign Language]

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