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

Good day, and thank you for standing by. Welcome to the Cnova Half Year Results Call and Webcast. [Operator Instructions] I would now like to turn the conference over to your speaker, Emmanuel Wetzel, Head of Investor Relations. Please go ahead, sir.

Thank you. Good day, everyone, and welcome to Cnova's Half Year 2023 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, Thomas Metivier.

Hello, everyone. Thank you for your interest in Cnova. I'm very pleased to present with you our half year 2023 activity and results. Afterwards, we will be happy to take your questions. We are glad to announce today that we are on track with our transformation plan in spite of a challenging and uncertain market, with high inflation and decreasing trends for high tech and home appliances according to FEVAD. In this difficult market context, coupled with the uncertainty regarding the ongoing conciliation proceedings of Casino Group, our mother company, Cnova has pursued its transformation plan focusing on switching towards a profitable business model with a voluntary evolution from Direct Sales to Marketplace revenue. First, Marketplace revenues outperformed the French e-commerce market for white goods and IC products, growing by plus 2% versus '22 and still on a very positive long-term trend of plus 10% growth rate over the last 6 years. Second, Advertising Services, powered by our CAS Retail Media platform and positive market trend is performing very well. Our revenues of our product GMV grew by nearly 1 point from 3% to 3.8%. Long-term trends are even higher in terms of revenues with a 32% growth rate over the last 6 years. Third, Octopia's B2B is accelerating its rollout with a focus on clients deliverable in the first semester. Six new live clients for market passenger service solution, while fulfillment-as-a-service posted a very high year-on-year growth of plus 36% in revenues. About EBITDA and cash. A very strong performance in profitability EBITDA, which more than doubled in just 1 year, driven by both platform revenues growth and the fast implementation of our efficiency plan launched in the second quarter of last year. As for cash, in a context where Cnova was heavily impacted by the ongoing conciliation proceeding at Casino Group level and deterioration of trade payables, free cash flow declined by more than EUR 80 million. The structural improvement of the cash profile of the company is still very well oriented. Adjusted for one-off impact, free cash flow has been improving by more than EUR 25 million compared to EUR 22 million, driven by the successful implementation of our transformation. Slide 6. Marketplace long-term trends remain dynamic in a challenging context. Slide -- Marketplace growth is at the heart of our B2C strategy. This is our first strategic pillar. Cdiscount offers an excellent range of millions of products to fulfill all of our customer needs. And second, Marketplace is a very profitable business. Our market place has increased by 15% versus pre-pandemic level of 2019, plus 6% annually over the last 6 years, and now represents close to 60% of our product GMV. Slide 7. How is this GMV translated into revenues? Over the last year, we've grown our Marketplace revenues quicker by 4 points than our Marketplace GMV by reinforcing the value created for our merchants. Our Marketplace revenue of our GMV increased from 13% in the first semester of 2017 to close to 17% in 2023. Our key drivers are clear and well oriented. First, net effective sellers sourcing generating growth and revenues. With strong international teams, we are screening more than 2 million sellers to identify and source the best one. Thanks to that, the GMV generated by our new sellers in the first half grew 18% compared to last year. Second, a strong focus on our top 200 merchants who are benefiting from premium account management. Their GMV grew 4.5% average in the first semester. Third, a day-to-day focus on quality illustrated by our express delivery standard. Express Delivery is now covering more than 50% of Marketplace GMV. This growth in Marketplace revenue is very significant as we are still facing difficult market conditions. And as part of our efficiency plan, we have also reduced investments supporting our Marketplace, most notably marketing investments and 4-installment payment financial costs by more than EUR 12 million in the first semester compared to the first half of '22. This leads to a very strong increase in the profitability of our Marketplace operation during this semester. Next slide, our most profitable business line. Advertising Services continues to perform extremely well. Our revenues of our product GMV grew by close to 1 point from 3% to 3.8%. Our Retail Media revenues are the main lever, growing 16% year-on-year and now representing close to 80% of our total advertising business. Behind this performance is our in-house advertising platform, Cdiscount Ads Retail Solution, or CARS, which enables our merchants and brands to drive traffic to their products and generate sales with a very efficient monitoring on the performance of their marketing investments. The growth of our Advertising Services is leveraging on 2 key drivers in the first half. First, we increased by close to EUR 5, the spend -- the advertising revenues per 1,000 pages viewed in 1 year. Second, continuous innovation in artificial intelligence powers the CARS platform to improve relevancy of marketing campaigns on our search engine for sellers and brands. 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 the future. For technical goods, a powerful Direct Sales offer and a strong relationship 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 with well-oriented KPIs in the first half. Those top 10 brands grew 8 points of overall trend. Client loyalty is 1.5x higher than the rest of the 1P and the Advertising Services spending are also growing faster than average at plus 23%. The successful launch of a new long-term financing offer for Apple products with Floa Bank in the first half is illustrating the relevancy of this win-win strategy, and we are now rolling out this solution on other brands. Second, part of our strategy to drive profitable oriented business, we have implemented actions to improve this profitability. This has impacted negatively our Direct Sales growth over the last -- past 18 months as we focus on advertising and profitable category. First, we divided by 2 high Direct Sales assortments compared to June '22, focusing on advertising and profitable SKUs, relating on our expensive Marketplace assortments to cover specific customer needs. Second, we've reduced our inventory turnover by close to 20 days compared to June last year. Third, in H1, we continue to accelerate in our automated dynamic pricing strategy powered by artificial intelligence to improve our contributed margin with now 30% of our Direct Sales revenue covered by this solution. To summarize the results of all these actions, we have now more qualitative and more profitable Direct Sales offering and with better rotation to improve cash profile. Next slide. As you all know, not only we are for products, but also Marketplace [ as a total ] to meet all our customer needs. In the first half of the year, travel is growing fast, plus 16% versus 22%, nearly doubled compared to pre-pandemic level in the first half of '19. This performance has been driven by recreation parks and holiday packages, both growing at double-digit rates and the launch of multiple dedicated commercial offers with airlines companies, which also demonstrate our position as one of the leading partners of travel e-commerce sales in France. Next slide. We are committed to enhance our customer-centric approach not only for delivery and customer service, but also through seamless and qualitative experience on the website. Artificial intelligence is already widely used throughout our customer journey, and we are now accelerating in 2 main fields, thanks to generative AI algorithms such as GPT and Barb. First, we are considerably enhancing our product content, thanks to generative AI. Identification of broadly categorized SKUs, improvement of titles to make them more appealing for customers, arrangement of product description. All of this is now fully automated on the scale of millions of SKUs. Second, we are in the process of following out a chatbot powered by generative AI in partnership with iAdvize and the results are outstanding. The chatbot is fully autonomous to answer more than 40% of client's request with the same conversion rate as with physical advisers. And we have reached 70% satisfaction rate, 3x more than we had with our previous chatbot. We are very excited about this new generation of AI algorithm and we will be accelerating on several other key topics such as relevancy, recommendation, more accurate credit scoring and targeted promotions. And now Slide 13, let's talk about our B2B activities. Profitable B2B revenues come first from our third-party supply chain services. We offer a full service of supply e-commerce operations through C-Logistics, which has generated EUR 7 million revenues in the first half, multiplying by 6 versus last year. Of the 3 new clients signed in '22, all are now live with Boardriders launched in February, showing very promising results. Already more than 300,000 parcels have been delivered in just 4 months. In the meantime, we are pushing the implementation of our [ long back ] clients, a luxury worldwide leader aiming to start live in early '24 with significant revenue potential. Next slide on Octopia. Our turnkey Marketplace platform for retailers and e-tailers, which includes marketplace technology, qualitative base of products and merchants and fulfillment solution. Octopia B2B revenues are accelerating and reaching EUR 9 million, growing 43% versus '22, driven by our turnkey Marketplace and our fulfillment solutions performance. First, our merchant -- Marketplace-as-a-Service solutions are accelerating. In the first half of '23, our revenues were multiplied by 2, with 6 clients launched, 20 clients are now live on the platform. The number of merchants available on the platform are key differentiating factors increased by 2% compared to the end of '22. Second and also part of our differentiating Octopia offering, our Fulfillment-as-a-Service solution, which is providing logistics and delivery solutions to vendors selling on platform [ that order on discount ]. And for those vendors, revenue grew by 36%, with more than 0.5 million parcels delivered in 6 months. Client base growing very fast with 300 recruited new sellers in the first half, such as CEVA, Too Good To Go, Emma and Baita. We also launched our first Marketplace partnership with Adeo in the first half to be the fulfillment solution for the Marketplace of Leroy Merlin in France, Spain and Portugal as well as Bricoman in France. On the long run, Octopia represents a very significant value creation potential for Cnova as it targets a massive market opportunity with the worldwide e-commerce growth fueled by Marketplaces. Slide 15. On our commitment for a more sustainable e-commerce and notably on sustainable products. We continue to pursue a proactive policy in favor of a more sustainable consumption with a strong emphasis on second life products. Today, more sustainable products account for over 15% of our GMV growing by 6 points versus '21 and nearly 5 points compared to last year, which illustrates both the success of our policy and the change in our consumer behavior. As part of this policy, we support development of secondhand products, thanks to strong partnership. First, with more than 800 sellers who offer qualitative refurbished products to our customers. We've gradually opened up several categories of refurbished products, smartphones, tablets, computers, home appliances, baby pusher, et cetera. Second, by developing our own refurbishment center for the funds coming back from our customers. We have a dedicated team checking and refurbishing those funds to sell them again on our website. Third, we keep developing new categories to answer our customer request for sustainable and economical solution. This semester, we have joined forces with Envie, our long-standing partner for the processing of returns and a major player in the French circular economy. After receiving the electric scooters returned by Cdiscount customers, Envie team made of people in professional reintegration give them a second life in their warehousing port before sending them back on Cdiscount Marketplace. That's good for the planet, good for our customers and good for the people working at Envie. As you see, this first semester has been a key milestone in our transformation plan as we have delivered a strong EBITDA improvement, thanks to our clear strategy, profitable Direct Sales, growing Marketplace and Advertising revenues, thanks to unique technology and strong commercial push, cost-effective operation and quickly growing B2B revenue. We have also been able to keep investing in midterm projects with strong results such as generative AI and ESG. I now hand over to Yves, our CFO, to present with more details on our financial results.

Thank you, Thomas. On Slide 18, we have posted an overall EUR 1.4 billion GMV in H1 '23. The GMV has decreased by 23% on a reported basis and 14% on a like-for-like basis in a still challenging market environment. If we look into the details per business, the Marketplace is resilient with Marketplace GMV decreasing by 3% in H1 '23, Marketplace GMV share stands at 58% in H1, plus 9 points versus last year accelerating in Q2 '23 with a share at 60%. Direct Sales GMV decreased by 32% versus last year as part of our voluntary strategic shift from Direct Sales to Marketplace, mostly from nontechnical goods with low margin, combined with a decrease in marketing intensity as part of the efficiency plan. Advertising Services GMV continued to grow, reaching EUR 42 million in H1 '23, growing by 5% versus H1 '22, and doubling versus H1 '19. The growth is mainly driven by the continued development of Retail Media plus 16% versus H1 '22. B2C services GMV showed a record performance with 21% versus last year, especially thanks to the continuous recovery of travel activities with Travel GMV increasing by 16%. On the B2B activities, C-Logistics B2B GMV multiplicate by 8 versus last year with 1 major client launch on an increase in the number of shipped parcels for external clients, multiplicated by 6. Octopia B2B GMV increased by 43% in H1 '22 -- versus H1 '22, sorry. One, with 6 client launch for Marketplace-as-a-Service on Merchant-as-a-Service. Second, with an increase in the number of shipped parcels by 30% versus H1 '22 for Fulfillment-as-a-Service. Slide 19, gross margin. The gross margin represented around 30% of net sales, an increase of 7 points compared to H1 '22 and 12 points versus pre-pandemic level. This increase in gross margin rate is mostly driven by the acceleration of Cnova shift towards more platform revenues. Marketplace brought 3 points in gross margin rate. Advertising Services brought us 2 points in gross margin rate. Gross margin volume amounted to EUR 182 million in H1 '23, decreasing by 8% versus last year, but above pre-pandemic period. The gross margin was negatively impacted in volume and rate by an additional destocking initiatives focus on SKUs with unfavorable inventory turn. The level of inventory is now stabilized. It has been divided by 2 compared to June '22. Slide 20, SG&A. SG&A, excluding depreciation and amortization, are closing at EUR 148 million in H1 '23, improving by EUR 35 million compared to H1 '22, on below 2019 level. The efficiency plan launched in Q2 '22 to recalibrate cost structure to the level of activity and to support our transformation plan has delivered significant savings with specific actions, such as the rationalization of warehouses capacities, marketing intensity, FTEs and associated staff costs like office rent. Cnova is on track to adjust its level of SG&A to business levels while preserving growth potential for the coming years. Slide 21, EBITDA. As a result, EBITDA stands at EUR 34 million, improving by EUR 19 million compared to H1 '22, representing 5.5% of net sales above plus 3.7% -- 3.7 points, sorry, versus last year and versus 2019. In a still challenging market, EBITDA benefited from the transformation of the business model with the mix improvement on the significant reduction of SG&A. Slide 22, net result. Net loss amounted to EUR 69 million, improving by EUR 4 million compared to last year with positive impact from one, EBIT improving by EUR 19 million; and second, financial results improving by EUR 16 million, mostly due to the optimization of [ CB ] ForEx policy as followed in the transformation plan and despite higher financial cost of the structural debt. This partly offset by: one, the noncash change in deferred assets related to tax losses for EUR 18 million; and second, due to the basis effect from last year with the Floa transaction in January '22, generating a negative variation of EUR 13 million from other products and charges. On a comparable basis, net result is improving by EUR 22 million. Slide 23, free cash flows. Before financial interest on other products and charges and adjusted from one-offs, mainly basis effect from '22, the free cash flows from continuing operations improved by EUR 25 million with positive impact from EBITDA improvement by EUR 19 million and capital expenditure improvement by EUR 15 million, thanks to the efficiency plan despite the very negative impact of trade payables. Working capital was mostly impacted by guarantee reduction from credit insurers, offsetting unfortunately, the positive inventory reduction. Slide 24, net financial debt. To close the cash chapter status about our financial debt. A quick reminder of the structure made of 3 major sources group Casino line through a term loan on cash pooling for EUR 700 million, state-guaranteed loan for EUR 60 million and bank overdraft for EUR 70 million, reaching a total liquidity available for EUR 830 million, excluding other operational working capital financing. Net financial debt at the end of June '23 stood at minus EUR 582 million. Slide 26, efficiency plan. The efficiency plan launched in Q2 '22 to recalibrate our SG&A and CapEx structure to the level of activity while supporting the transformation is delivering as planned. Already EUR 60 million sales secured in H1 '23 versus H1 '21, on track with a EUR 90 million efficiency plan, composed of EUR 75 million from July '22 guidance on an additional EUR 15 million savings plan announced in April '23. SG&A, excluding D&A improving by EUR 38 million versus '21, capital expenditure improving by EUR 22 million versus '21. On top, as said, we have optimized our financial result by EUR 16 million in H1 to deliver between EUR 18 million to EUR 20 million this year. So all in all, a target of more than EUR 100 million savings. In this context, we firmly confirm our strategy to push the profitable sales drivers with a leaner operational cost.