Duell Oyj (DUELL) Earnings Call Transcript & Summary

Good morning, and welcome to Duell's webcast for 9 months and the Third Quarter 2026 Financial Report. We have, today, Tomi Virtanen, CEO; and CFO, Caj Malmsten, presenting the report and the highlights from it. My name is Pellervo Hamalainen from Investor Relations. During the webcast, there's an opportunity to send questions via chat in Finnish and English, and we will come back to those questions at the end of the broadcast and the webcast. So I think we start to be ready, so Tomi and Caj, the stage is yours.

Thank you, Pellervo. Great to be here, and good morning on my behalf. So third quarter was quite sales-focused effort from our company, and we are very proud of the results in terms of the sales what we achieved. As I earlier pointed out that we have 3 focus areas: number one, strengthening our position in Nordics; number two, restoring the profitable growth in France; and third, improving our financial position through better management of the net working capital and improving profitability. And I'm very pleased to say that we have progressed in all of these areas. Of course, the results in some cases, we see them sooner; in other cases, a little bit later, but the solid plans what we have in place have been progressed very well. So if we look at the financials, the net sales increased year-on-year, and main reason is our sales-focused initiatives. Of course, we also saw a pretty nice springtime in Nordic countries, but weather is never the explanation for everything. And our team has done the utmost to serve our customers the best possible way. And this is, of course, something that we need to improve and earn the trust of our customers, our most valuable asset every day. Profitability remained at the same level. Of course, we are not pleased with the profitability level altogether. But of course, it's good that we didn't see the erosion of the margin when we were increasing the sales. And the continuous decrease of inventory levels continued. This is really important for us that we are releasing the tight capital in our company. If you look at the market and product categories, again, it's very important that we have the rich portfolio and very lucrative brands so that we can serve our customers in the best possible way. We introduced new products in our portfolio, and we cherish the ones that what we have. And I'm pretty happy to say that overall our capability to serve our customers with our existing portfolio is very good. Of course, there are huge variations between different markets. And as I mentioned, the implementation of new business plan in France, so restoring the profitable growth is well on its way. However, of course, the financial results are still to be seen. When we look at some operational highlights, we have much more, but some of them during the third quarter. So on the left-hand side, you can see our happy warehouse manager in Mustasaari, Emil Eckerman, receiving the award of the Warehouse Excellence Award 2026. We are very proud to be part of this club who has now won this award, and it tells about our impeccable capabilities in our warehouse operations. Both Mustasaari warehouse and Tranås warehouse in Sweden made record-breaking days in terms of the picking lines and our teams were very stressed to serve the customers, but happy to see that we were very successful in that respect. As mentioned regarding our brands, our aim is that we have the most lucrative brands for our customers in our portfolio. And it's a great honor to be now the distributor of the Quad Lock in Nordics. And that is, of course, one of those brands that our customers, dealers and end customers are really looking after. Jean-Marc Autheman, with the impeccable track record in our business, joined us as a General Manager for our French operations and has renewed the organization, introduced new brands and doing really great in our journey to be back on the profitable growth path in France. And of course, we also completed the warehouse consolidation in Nordics. So concentrating now in Tranås, Sweden and Mustasaari in Finland with the full portfolio serving the whole Nordic area. And this has been particularly good in terms of having better availability in bicycle products in Sweden and thus in Norway, which is, of course, again, enabling us to serve the customers even better than before. So when we talk about the numbers, as I already mentioned, year-on-year, so compared to the previous year, we have a growth in net sales. And particularly as the beginning of the year has been quite challenging. So this is absolutely good news. So when we look at the year-to-date figures, we are still behind last year, but the quarter was clearly better. And when we look at the -- so we reached the level of EUR 39.5 million, which is growth of 3.5% on the quarter. On the profitability side, as said, the gross margin roughly on the same level as a year ago, 21.6%. And again, we would like to be on a higher level, but it's a good defense that when we were investing in sales, we didn't dilute the gross margin level. Adjusted EBITA showing EUR 2 million. And of course, we should be on a much higher level. So the journey is continuing, and we're doing utmost to improve the situation, giving us the adjusted EBITA margin of 5.0%. On the financial position. Our net debt on a EUR 22 million level delivering the leverage of 4.8x, and net cash flow from operating activities being EUR 0.3 million. But more about the financial figures, I hand over to Caj.

Thank you, Tomi. Let's dig into the numbers a little bit more deep. So as Tomi said, quarter 3 was good in terms of sales, so up 3.5% compared to last year. And you have to remember then on the cumulative side, we are bringing the weak first half year with us. So on a year-to-date basis, we are EUR 2.4 million behind, but direction is correct. And if we look a little bit deeper, then we can see that especially the Nordics performed really well during quarter 3 and also whole year and especially quarter 3, the powersports part were performing really good. And we can also see that both the own brands and online sales side continue to grow. And looking the same then for the year-to-date figures. The Nordic shares now is higher by 54% compared to 51% a year back. And as I said, that's a strong quarter in the Nordics. And we have to keep in mind here also a part of it is that Central Europe is a little bit weaker due to the fact that we have the challenges in the French business. Going to the profitability side. So adjusted EBITA, EUR 2 million; and gross margins, as Tomi said, on similar level as last year. So good that we managed to keep the gross margin levels in the current market situation. And we have a little bit higher OpEx, operating expenses, for the quarter, 18.3% coming mainly from the fact that we are putting efforts in developing our e-commerce platform as well as a transition from 3 warehouses to 2 in the Nordics, always create a little bit start-up cost as such. We -- when we made the move, we got, in the same time, a lot of incoming goods when the volumes were in the same time increasing. And the warehouse personnel managed it well, but it, of course, has a little bit of impact to the figures. For the full year or the year-to-date figures, we are adjusted EBITA EUR 2.2 million compared to EUR 3.9 million. And here, we bring the weak beginning of the year with us. And that, of course, will go through the year. We cannot cover up for the beginning of the year. Going forward to net working capital. We have an improvement year-on-year in the net working capital, down by EUR 0.8 million. But moreover, I would say now finally, the actions we are taking in order to optimize the inventory levels, they are starting to pay off. We can see a decrease in the inventory levels of more than EUR 5 million year-on-year. And in the same time, with a little bit higher volumes, the receivables remain on same level. So here, we can also see that the meter we follow, inventory to LTM sales, is gradually improving. We are now at 36 percentage; a year back, 39% (sic) [ 39.1% ]. So we are coming closer to the long-term targets. And we have to remember that all the actions that are done on the inventory level side, it consists of many small and bigger actions starting from way of purchasing, way of dealing with potential slow moving. So it's a sum of many ongoing actions in the group for the moment. And here, we can, for the quarter, be really proud that we see a good development. Turning into the financial position. So here we have the net debt level on similar level as a year back, EUR 22 million. And here, we have a little bit higher investments this year compared to the previous, which have an impact also, and we have to keep in mind, we saw the inventory going down, but not yet during quarter 3, we have been able fully to turn around. So a big portion moved from inventories to receivables to turn that out in cash in the future. Anyhow, we improved the cash flow profile with EUR 0.3 million. So that's an improvement of EUR 1 million, but we expect further improvement here. On the leverage side, we have an increase to 4.8x compared to 3.4x. And here, a big part of it is coming from the weaker profitability side of the first half of the year. And in terms of really financial position, then, as you can see, we have an unused RCF facility still of EUR 12 million. So if I summarize the quarter in a few words. Overall, a good quarter. We are happy to see sales coming back and especially happy to see that inventory levels are going down, which in the future will turn into cash -- positive cash flow. So with these words, I hand back to Tomi.

Thank you, Caj. Of course, then looking ahead, looking for the future. We updated our guidance in April, and it remains the same. Of course, if you look at the overall situation on -- first on a global level, it remains very uncertain. We've seen the conflict in Strait of Hormuz and Iran, and nobody knows how it is ending. We have the ongoing Russian brutal war in Ukraine. We have many other kind of crises in the world. So this doesn't improve or increase the consumer confidence at all. At the same token, as very well known, our business is not order book based, so we need to prove ourselves every single day in the eyes of our customer. We have still 2/3 of this quarter going ahead. And so there is a lot of uncertainty that we do not know how exactly we are going to land. But based on our best estimations, we believe that we are within the guidance. I'm saying that consumer sentiment remains very fragile and uncertainty persists in the market. We expect that the market environment is remaining suppressed until end of our fiscal year, so end of August. And it's also worth mentioning that even though we have now very good plans in place in France, but our performance in France continues to be weak. We have now basically sold out all the brands that we are closing and that means that we do not have any tails of that profitable business to come during the fourth quarter. So we are expecting the organic net sales to be around EUR 115 million and the adjusted EBITA to be around EUR 2 million. And in addition, as Caj was also referring to, our supply chain operations, including the inventory optimization, is having a nonrecurring negative impact of EUR 2 million to EUR 3 million for the full year's result. So that's about our guidance. And when we look at the actions going on, as I already mentioned, we are strengthening our market position in the Nordics. And this means, of course, new products are added into our portfolio. I already mentioned quite a lot, but there are many more and many more to come. We are also addressing better certain customer segments in the Nordics business area, including the bicycle market in Sweden and Norway. And overall, of course, we are making sure that we have all the necessary positions, people in place in order to serve the customers even better in the Nordics. We have a very good plan, restoring the profitable growth in France headed by Jean-Marc Autheman. And we have already signed a lot of new brands to our portfolio in France. And we see that there is a lot of interest with the big players, with our customers, dealers in France for this enriched portfolio. But as I said, even though we are getting a lot of interest and some preorders, we cannot deliver and sell and generate revenue prior we have the products first in a country, and then we need to, as I said, deliver to the customers to get to the invoicing phase. So this will take a little bit time. We are strengthening our financial position. Particularly, I'm happy to see the development with our net working capital management. As said, we are not near where we supposed to be, and we continue with all of the efforts. And we believe that this we can do without jeopardizing or worsening our availability because, of course, the availability to our customers is the cornerstone of our business. And as mentioned, the Tampere warehouse completion means then, of course, also very positive things, including the better availability of the bicycle products in Sweden. So we will continue all of the efforts rigorously, and we are confident that this is improving our position both in the short and in the long term. And keep in mind about our strong position in the value chain. We are the link between the valuable brands and then our valued customers. And we are the experts who can guide, advice, be a trusted adviser for our customers about what is the right brand selection just for them. With way over 100,000 stock-keeping units, we have a very good assortment, which for surely can give the right selection for the different kind of customers. So closing the presentation part. We are happy to see the stronger than originally expected sales in the third quarter, and this is due to the initiatives we have taken on the sales front. The profitability remained at the same level. And as I said, we would like to see better profitability. But the good thing is that despite of the increased sales, we didn't jeopardize the gross margin level. And the activities, the 3 focus areas are going, strengthening the position in Nordics, restoring the profitable growth in France and improving our financial position through better management of net working capital and improved cash flow. With this, I conclude the presentation, and Pellervo, hand it over to you.

Thank you, Tomi and Caj. We have several questions here, and we can start with the financials. In Q3, there were financial expenses about minus EUR 0.7 million, how much this is related to noncash items and how much is ordinary interest expenses?

Yes. A big portion of it, the interest portion is as normal, then a portion is related to unrealized or realized exchange rates that's a little bit higher than normally, especially the unrealized part.

Okay. Good. Then in the Q2, so we estimated that we have about EUR 2 million to EUR 3 million in one-off items for current financial year related to the beginning of the warehouse. So is the same level of kind of today estimated to the end of the financial year or there's some changes?

The number remains the same. The estimated number is EUR 2 million to EUR 3 million. And the walk-through to inventories and so forth, what part of the EUR 2 million to EUR 3 million is ongoing and that write-down will be made during the quarter 4 when we have more clarity where we end with the number, but somewhere between EUR 2 million and EUR 3 million.

Okay. Good. Then about the covenants. So how certain we are currently that we can meet the covenant conditions in the Q4? And do we see that we manage with our cash flow that there is no need for any capitalization in the -- from the market?

If I take this. So as I already mentioned, when we look at the fourth quarter, it's only 1/3 that we have experienced. And as I said, because this is not the order book business, but we need to prove ourselves every day, it is very uncertain how the sales will develop during the July and August. But of course, we are giving the -- based on the best information what we can to outlook of the future. In that sense, we are keeping the guidance, and we believe that this is then also delivering what is expected in terms of the covenants. But as I said, there is a lot of uncertainty, and we will be wiser when we are closer to the end of the quarter.

Okay. Then we have several questions related to the guidance. So the guidance seems to be quite conservative. If we look at the figures from Q3, so what can we expect from the Q4, since it looks like the guidance is going way over?

I do not agree that the guidance is very conservative. And as I said, the guidance is our best understanding where are we landing. Even though our Q3 sales was better than expected, we -- it was not way over what was expected and, of course, the Q4 sales remains to be seen. Overall, if we look at the sort of like megatrends, nothing is pushing or giving us freelances, so to speak, that we would see that there is an unplanned demand that is heavily then increasing our sales. When it comes to the profitability, as I already mentioned, now we are totally out of stock of those discontinued brands in France. And of course, when we have sold them earlier in Q3 and Q2, that has helped on a profitability level and that help is not anymore there. There is nothing left to be sold. And as I mentioned, even though we have very solid plan for France in place, the new brands that we are introducing, they will take time also just physically to get the goods in France and then being able to do the sales. And this is unfortunately not happening so much during the fourth quarter, i.e., now during the months of July and August. It will help us, of course, then in the future, but this is now the struggle we need to take. And therefore, the profitability level what we are expecting is -- for the full year is where it is. So overall, I wouldn't call our guidance conservative. It's the realistic and that is the best estimation that we can give as we speak.

Okay. Then about the -- question about the financials. So the gross margin in Q3 seems to be, let's say, in average, lower level from '22 -- '21 to '24. So did the company focus more on reducing the inventory and increase sales, let's say that with lack of profitability?

Yes, if I answer to that. No, that we have not done, and it's better reference point here is the last year, and we are at a similar level as last year. And the margin levels depends, of course, on a lot of things, but mostly the competition in the market. And the sales has been grown in quarter 3, thanks to good sales works and with similar margin levels as last year's.

Yes. Very good.

Perhaps if I add. It's good to also recognize that the product mix is heavily impacting the margin level. And of course, then when we look at in the past for a very long time, then, of course, the product mix for sure has been somewhat different. And it's, of course, changing all the time. So we, of course, know how it has changed, but we are not disclosing everything.