Duell Oyj (DUELL) Earnings Call Transcript & Summary

Good morning, and welcome to Duell's Full Year 2026 Financial Report webcast, including also the Q4. We have Tomi Virtanen CEO; and Caj Malmsten, CFO, presenting the highlights of the result. My name is Pellervo Hamalainen from Investor Relations. During the webcast, there's opportunity to send questions for your chat and after the presentation, we have time for the Q&A. So gentlemen, the stage is yours.

Thank you, Pellervo. Good morning, everybody, and welcome on my behalf of this full year 2026 financial report webcast. So when we stand here today, it's the very same place I -- it was 6 months ago. [ As I ] started as the CEO of Duell, and I introduced our strategic focus areas. Three of them. So strengthening our position in Nordics, restoring the profitable growth in France and improving our net working capital and cash situation. And now when we look at what we have done and the results it's good to look at in the lenses of these three strategic efforts and how we have succeeded, particularly how we have succeeded to transfer the actions to the relevant things, i.e., to money. So when we look at fourth quarter of '26 some time period from June to August '26. The thing I really want to highlight is our good results in terms of supply chain efficiency and reducing the inventory levels. So when we ask ourselves, can we do the significant improvement in net working capital and cash situation. The answer is yes, we can. Talking about the strengthening the market position in Nordics. We see that on a group level, our net sales on the fourth quarter was on previous year level. And we, of course, know that the challenges in France with the change of the portfolio, clearly, didn't deliver as much as previous year, which means that in Q4, we have done better in other areas. So clearly, we have had a solid development in Nordics and U.K., which means that the answer, can we do better strengthen our position in Nordics. The answer is yes, we can. However, when we look at the fourth quarter, our profitability level is not on a level we wanted to be. So there is a lot to do still in the future. Coming back to this third strategic initiative, restoring the profitable growth in France. We have very good plans in place. We have really changed the organization, quite a bit, and we have introduced really significant performing individuals into the key positions. We have launched new brands, and I'm confident that we are on our track. But in the terms of the monetary results, we are not there yet. So still a lot to do. All in all, so summarizing the fourth quarter, I would say that I'm pleased with the efforts we have taken on the sales side and particularly with the supply chain inventory level side, but we have a lot to do in terms of improving the profitability. When we look at the operational highlights of the fourth quarter, clearly, we are aiming for One Duell. It doesn't mean that we are aiming for one same portfolio in all geographies. But it means that we have a common processes and tools in place, common Spirit, common values that we are then deploying throughout organization. As I already mentioned, the inventory optimization we reached good results in fourth quarter. And particularly, we need to remember that we did it while still keeping good availability for our customers. At the end of the day, the customers, our most important asset is the reason why we are standing here. Part of the customer experience is also our e-commerce platform, which we renewed, and we are still every day, every week, every month, improving and bringing in new features with our new in-commerce platform. And of course, the aim is that we are gradually scaling that across out the Duell environment, so all the countries. So there will be one universal experience of the same kind of like e-commerce platform. And we are developing bringing new features all the time. In fourth quarter, we also announced some key appointments that materialized now in the third quarter. So Hannu Holopainen started last week in our supply chain. Jonathan started in September as a Nordic Sales Director, and Tarja Kaipio also in September as our new HR Director. These key appointments will strengthen the organization and also bringing new ideas, new competencies, what we need in our development journey. I really welcome all of them warmly to Duell family and I hope that we will together reach excellent results. As you already saw in the very opening slide, we have also then renewed our brand, changed the logo a little bit. For me, at least, it's very refreshing, easy to read. And of course, we are then utilizing these new brand elements in all our activities, what we are doing. We also rebranded our French operations, Techno Globe, to be part of the Duell family more closely, i.e., Duell France, which we believe is essential that we all see that we belong to the same Duell family. So a lot of activities even though it was a summer time and a lot of activities also bringing results, which I'm grateful for our organization. Now going then in detail through the numbers, I'm handing over to our CFO, Caj, please.

Thank you. Yes. Let's look into the numbers for both Q4 and full year 2026 and break the key, so to say, points up here. And let's see, as Tomi said, the sales for the fourth quarter was on a good level, similar to previous year, EUR 31 million. And on the full year side, we reached EUR 124 million, so slightly below previous year, but we could not catch the weak impact from the weak first half of the year. On the profitability side, looking on the full year side, we have more or less, a little bit percent less than last year, but then on the quarter 4, we have 20.6%, so almost 4% lower. I open up the details in a while. And then an adjusted EBITDA of minus EUR 0.2 million for the quarter and EUR 2 million for the full year. So profitability, not where we would like it to be, but that's been worked on. On the financial position side, net debt clearly down EUR 14.9 million, bringing leverage to 3.6x and a good cash flow development, ending with a positive cash flow from operating activities of EUR 7.3 million. So let's look into the details behind. So what happened on the sales side and especially then on the quarter 4 side, first, we had similar levels as last year. So you could see that Central Europe came back to 50% of the total own brands declining a little bit in the fourth quarter and online sales stable. More importantly, looking at the full year, that we have almost, say, reached previous year's level, below EUR 2.3 million, so reaching EUR 124 million. It should be noticed that we have an impact from France of around EUR 6 million, decreased net sales during the year, meaning the rest of the group did pretty well during the year. So almost managed to cover it up. And for the full year, then Nordics, Central Europe is same level as last year. So sales wise, after big First half year, we managed to close part of the gap in the second half of the year. Profitability side, then was weak during the whole year, except third quarter, which was on normal level. But looking into the fourth quarter, we had despite a pretty good sales and adjusted EBITDA of minus EUR 0.2 million. And this we need to break down a little bit, so the gross margin clearly down. And the main point which taken it down is the product mix on which type of products were sold during the quarter 4 had a pretty big impact. And also, we could clearly see higher logistic costs impacting the profitability during quarter 4. On the other side, the OpEx cost a little bit down, 17.7% of the sales. But here, we need to keep in mind one thing that last year number were impacted a little bit about by bad debt reservation. So the comparable number is not that good, but it's still in the right direction, which reflects the impact we can see now from the warehouse moves that has been done earlier this year, for example, the same warehouse motor Mustasaari and Tranas in Sweden. And then for the full year, we reached EUR 2 million and on the adjusted EBITDA side. And here, we have had a trend from the beginning of the year with weak results covered it up a little bit during quarter 3. But then we could see a weaker quarter 4. But the gross margins anyhow still despite the quarter 4, lower percentage still on acceptable level as well as the OpEx overall. So with this, I hand it back to Tomi.

Thank you, Caj. So let's look at the improved net working capital and particularly the inventories. So as I said, we reached good results in the fourth quarter, and this will then at the end of the quarter, so at the end of the fiscal year, brought our inventory compared to our LTM sales below the 30% mark, which I find a very good achievement. And I said, frankly, our teams were working rigorously for the past 6 months to reach this. The fundamental thing I see that we did in terms of the inventories was the change of the thinking that we really need to order due to purchase orders as per the demand of the season and not demand of the longer period. So we are in a very seasonal business, as everybody knows. And it's very important that we have sufficient material for each season, but there is no need that we will have the excess inventories after the season. Because then, of course, we have time to replenish for the next season. And this is, of course, the fundamental, sort of, like I would say, even paradigm shift change in thinking that we believe that by continuing on this path, we will reach even better results. Of course, we did a lot of things. So we have implemented new purchasing practices. We are using the AI as a purchase proposals in a larger extent, analyzing the historical data and we're trying to be more accurate, what we are then planning and what we are actually ordering from our plans. We have optimized the delivery timings. So how, for example, when we are just in the beginning of the season, and we have a huge inbound load, including containers, so that we are not scheduling them arriving at the same time. So our warehouses can cope with the space of unloading those. We have renegotiated a lot of supplier agreement in good cooperation with our brands in order that we have a sensible lot sizes, sensible terms, how we are taking the products in and a lot of things related on this topic. And as said, we have now evidence that is actually bringing the results. But if we look at this sort of like EUR 10 million reduction on inventory levels, EUR 7.5 million have been based on doing this, I would say, basic right, doing things very systematic matter. And this is all about just our normal operations that we are sensible in our purchasing, and we are aligning the inbound and the outbound flows very well. On top of that, we did some write-downs up to the EUR 2.9 million. This is not the normal business. This is something that I would say that from the past, from the history. No need to concentrate on the history too much, but we all know that there has been these anomalies COVID-19 hitting the market which translated to the situation that there was a lot of demand and very low supply and then suddenly, the supply started to flow from, for example, Asia and causing a lot of problems. And we have cleaned all of this now. And this is very important now when we are starting this fiscal year, that we have a sort of like a clean plate where we can operate. Also, as mentioned, of course, there where we have seen the discontinuity of the certain brands, either that in general or particularly related to us, of course, that this is causing also some trouble in the supply chain. But overall, I would say that when we look at the future, also the good thing is that we have seen from the market that our customers, the dealers, they have been cleaning up a lot of their inventories which is extremely good thing because that means that no one in the value chain has excess inventories. And when the demand is then rising, it's then transparently, the demand picture is coming to all of the players in the value chain, including us. And that is a very positive thing. Financial position already, as Caj stated, the free up of the inventories, the tight capital has improved our cash situation. As always, we are taking, of course, there of our debt repayments, interest, et cetera, never had any issues with those ones and never will be. So we are in a good position in terms of the cash when we are facing the new fiscal year. Then our guidance for this fiscal year. So September '26 until August '27. When we look at the market altogether, it is still challenging. We see all consumer confidence. We see global crisis we see inflation, particularly related to the oil price, which is due to the global crises wars in Ukraine, travel in Middle East and other challenges in a global economy. So it is challenging to create a very accurate picture about the future. For that reason, we have decided that we will give the guidance in a range. So our net sales is estimated to be between EUR 122 million and EUR 130 million in this year. Of course, we hope that we can then -- as the time goes by, we can then be more accurate here. But as I said, the market outlook is very unstable. There can be positive surprises. We have also seen that there are more registration of the motorbikes in most of the European countries. And as said, when the value chain or supply chain inventories are in general in a lower level, we believe that, that will mean that there will be the faster reaction for the rising demand. But as I said, there are so many uncertainties that is very challenging to be very accurate in terms of the sales. And of course, then the profitability adjusted EBITDA is following a lot of the sales. And currently, we are estimating it be on a level of EUR 3 million to EUR 5 million for this fiscal period. As a summary, when we look at the whole year, our net sales went up roughly on previous year's level. Particularly, we're doing well in elsewhere, except in France in terms of the sales. And profitability was below previous year level and not definitely not on a satisfactory level. And this is due to the increased logistics cost and the portfolio changes in France. And we will continue with our strategic focus areas. So we continue strengthening our market position in the Nordics. We already appointed a new sales head. We already demonstrated a strong sales execution. We will also be more active in a bicycle market in Nordics. And I'm sure that we will bring results from there. We are doing the restoring the profitable growth in France. We have the organization in place very motivated organization, a very experienced organization. And now we are also adding more and more brands in France, which will deliver results already during this fiscal year. And we continue strengthening the financial position through more systematic net working capital management and positive cash flow. I really want to thank our customers for trusting us during this, I would say, a challenging in market. As said, customers are the most valued asset we have in our company, and we really want to be the trusted adviser for our customers, for the dealers, not just pushing sales towards them. I want to thank the brands who have taken us, giving us the possibility to present them and making sure that we are conveying both the message and the goods in the best possible and efficient way to the consumers. And I want to thank our employees for the hard work we have put together. And I'm very confident that we have a bright future and these are the activities that will bring the results in the future. So thank you, and let's move to the Q&A, Pellervo, please.

Thank you, gentlemen. We can start with the guidance for 2026, so we went somewhat over to the sales guidance. So, what was the reason that we didn't update the guidance?

Good question. First of all, when it's always in the -- looking back, it's easy to have all the wisdom in the world. still, when I look at the situation where we were when we changed the guidance during the springtime, I think it was totally the most -- best viewpoint of what we had at that point of time. And then moving ahead, it's good to understand that as we are not in our order book business, we need to prove ourselves every day in the market. And it's very difficult to say beforehand that what is going to happen, even though you have a good day or a good week, next day can be totally something different. When we look at overall the guidance. As said, we communicated that this is approximately, which is exactly addressing the fact that we do not know the accurate numbers, and it's very difficult to forecast that correct numbers. So approximately ended up being spot on, on the profitability side, not exactly spot on, on the sales side. But if I look at it as a whole, I think it still was reflecting pretty much the -- what is the true performance of the company.

Very good. What were the biggest positive surprises during the Q4 in terms of sales?

In terms of sales, clearly, that we recovered so fast in Nordics after the bad first half. And that was definitely a good thing. The other thing is that in U.K., we made a record year. And big thanks to our U.K. organization, they are very consistent, the rigorous way of executing the business and supporting the customers. That is absolutely a good thing. And also in most of the Central European countries, even though the starting point is very low, but we managed to grow quite nicely.

Okay. Now let's move to France business. So how do you see -- when the, let's say, the turnover could happen and for the coming quarters, so what is going to be the speed?

Excellent question. There are few determining factors. One is coming back to the seasonality. So of course, even though it's in most of the parts of France, it's not slowing. But nevertheless, even there, we can see -- clearly see the seasonality of the bicycle and motorbike season. And now we are facing the low season. And we will see the increasing demand in February, March time. So that is one thing. The other thing is that as we have just introduced a launch to the market with the new brands. It will take some time before they are picking up. So of course, we are now trying to live on all the signals from the market, testing the market and see how things are progressing and reacting accordingly. But in terms of that we have a substantial increase of the sales. Unfortunately, it is the nature of the business that we will be in the third quarter and fourth quarter of our fiscal year before we'll see that to happen.

Very good. Then still one question about the France. So, what was the negative impact during the Q4? We opened up the annual, kind of, the impact of EUR 6 million. And related to that, which is due to the Central Europe, which countries were kind of making very good compensating kind of the negatives, sorry.

About the French, the thing is that when you have this sort of like a brand discontinuity, of course, it will impact both of the profitability and then the revenue. And I think it's Safe to say that now the worst is over, and we are heading towards new plans towards the good growth for this fiscal year. And I don't see too much reason to any more speculate and analyze what is past. What is past is past. Now we have fresh, new portfolio, and we are using with that towards the future as well as we have done a big reorganization, reinforced the organization with a very experienced and capable people. So that's the way ahead. As said, year-on-year, this sort of like EUR 6 million drop, that's significant in a company of our size. And of course, that is something that we need to get to the -- back on the back of the growth. In Central Europe, we -- I wouldn't even go to the sort of like country level analysis. It's more about the certain areas and certain sales. We have had a very good individual results in Netherlands. For example, we have had good results in Germany. Actually, some of the results are very good in Germany. But as said, in Central Europe, the strategic position of Duell is varying a lot, and we need to always look at that where are those windows of opportunity where we can play on a profitable manner.

Okay. And then we have two financial questions. So the gross margin was lower in Q4 impacted by the, let's say, softer product mix and the higher transportation costs. Do you expect that to go through the 2027 financial year?

That's, of course, a good question and hard to speculate about. So that we need just to prepare ourselves. And whatever the cost is high, we need to make sure that we can push it into the prices as much as we can. And with the instability in the world right now, I would say, nobody can pay how it looks.

Yes, I think that's the case. Then about the depreciations in Q4, those were pretty high. How do you see -- or can it open that? And how do you see that going forward in '27?

we had a one-off item in the quarter 4. So the depreciation will go back to, I would say, previous levels. So the onetime item there of writing off investment that is not generating revenues anymore.

Okay. Then I think one of the hot topics is the inventory. So how low can we go without hurting, kind of, the availability? And have you noticed any kind of marks that there's no kind of possibility to deliver the goods that customers are ordering.

Good question. And again, forecasting is challenging, particularly forecasting the future. As [ Carolana ] used to say. So we have genuinely come down on the inventory levels on a permanent manner in order to free up the cash and which means that I was explaining earlier. However, of course, we will see the fluctuation of the inventory levels over the seasons. We are always increasing the inbound prior the season start, and then we will decrease the inventories during the season. It's obvious that I said from the availability reasons, we need to have goods, that's the nature of being a wholesale. How does it work with each product group? That varies a lot. We have been putting quite a effort that we will find the sources of supply in Europe with the shorter delivery times. And because we all know that when we start to order from Asia, which we still need to do in a great extent, then the lead times are long, and it brings also then the challenge of the forecasting because, of course, then you need to forecast for the longer period. How -- in longer term, how our brand portfolio is developing and where the goods are produced and what are the ordering windows, et cetera, is impacting, of course, a lot about our inventory elements. But as said, with all of these activities we have already taken and implemented across our purchasing organization I'm sure that we are on a permanent manner on a lower level than we used to be. But I wouldn't like to give any specific number. For example, what is the inventory level compared to the LTM sales for the reason that there might be very operative brands that our customers do want because that's again the most important thing, what do our customers want? And if they are then with the long lead time, of course, that will then increase the inventory levels. And if we can get them with a shorter lead time and then we can say even lower level.