Komplett ASA (KOMPL) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of Komplett Group's first quarter results. My name is Kristin Hovland, and I'm Head of Communications. We will start today's presentation with our CEO, Jaan Semlitsch, who after a couple of months in the role, has some early observations to share. And then he will go through the highlights. Then our CFO, Thomas Rokke, who'll give you some more details on the financials. And at the end, Jaan Ivar will summarize the quarter and give you some perspectives on the future. Today's presentation will take approximately 20 minutes. And during the session, you're welcome to post questions via web, and we will answer them at the end, together with the questions from the audience. Jaan Ivar, the floor is yours.

Thank you, Kristin. Good morning here from my partly sunny day here in Oslo. I'll start off with sharing some of my first observations since I joined 10th of February, then present by management team, and then finally, some key takeaways before I leave the word to Thomas. But I'd actually like to start off with some first observations. I must say that we have a very strong brand platform, strong brand preferences for all our brands. We have a loyal customer base and very high customer satisfaction. But there is more potential to utilize this position. For example, for Webhallen and Komplett, we can do much more in terms of top of mind, high brand awareness and utilizing this position even more. While for NetonNet, we have a very solid brand awareness, high brand liking, high top of mind, but we can do much more in terms of converting that into sales, both for our stores, our 27 stores in Sweden and 3 of them in Norway and for our online presence. That position with strong customer satisfaction makes us very attractive to our suppliers. Also because there is a low cost to serve us and we are well under our way on our NOK 200 million synergy program, [ Sparta ]. But on top of that, we want to get more access to exclusive models with our suppliers, more partnership, more cooperation to even be even closer to that position. And we also have a China office based out of our NetonNet position, and we can utilize that much more in terms of our private label journey if we don't see the right cooperation or partnership. Then I must say we have demonstrated recently some very strong hires, attractive employer brands, both internal promotions and external hires. So I believe that we will have the best team in the industry over time to deliver to our suppliers and to our customers. And then I must say I've been around to all our markets to Stockholm, Boras, Sundsvall, Oslo. And I see a lot of passion and energy in the organization; 1,683 employees delivering for the future. And I believe over time, and this is not a quick fix that we can be the best in the industry and then actually deliver on revenue growth, market share growth, profit growth and EBIT growth. And then a final reflection, final observation, is that we have a great potential to utilize our global scale, our Scandinavian scale, but still nurturing our local brands, I believe, in our local brands and our local presence. And that leads us to my management team, and it's designed around local presence but also global scale. Starting off with 3 very clear P&L owners, Susanne Holmstrom, who will continue to lead NetonNet, been in our company since 2018. Anders Torell, been in Webhallen 1 year, improving Webhallen. And then the announcement today, Erlend Stefansson, leading up Komplett Services joined us in 2022 as well. He has a long P&L experience, both B2B, B2C services, a safe pair of hands for our business. Then supported by 4 strong functions, support functions, Andreas Westgaard coming from Elkjop over the last 10 years, responsible for the commercial area there, also a long experience from LG and Sony. He will have total responsibility for the value chain margin, also supplier funding part of the business. And until then, Roger Sandberg will lead this area to 1st of August and then be part of Andreas' team. And I believe there will be a strong dream team together with their long industry experience. And then Thomas Rokke joined 1st of March, a couple of weeks after me. We have a different profile, and I really believe in that. So a long-standing record from FSN Capital and Saferoad. And then a young talent in our organization, Markus, who joined us in 2022, responsible for strategy and M&A, also with a BCG background. And finally, Kristin Torgersen leading up HR. She will be the only one in group HR, but working very closely with the local HR directors joined us in 2021 and a long-standing record from Danske Bank over close to 20 years. So I'm very comfortable with this team. But that's just the top team, 1,600 employees with lots of passion to deliver for the future. And then some key takeaways before I leave the word to Thomas. First of all, it's important to say that we still see a challenging market. It's a challenging market in many ways, and it will take some time before we recover to a normal market situation. But we do see some signs of improvements. We've been running some campaigns with some more premium products, some Apple campaigns in Sweden, some gaming campaigns in Norway, and we see traction, not cannibalization, building on top. And now we enter also in an important season in Q2, where we'll look at these things more in detail. Then in spite of that, we see improved gross margin improvement. We see positive pricing dynamics and also the inflationary environment we see right now, that's a positive for us in the relative cost position. The traditional retailers, we see increased salary levels in the stores, increased the rental levels and increased electricity prices. Then our inventory level is now in good shape; fresh goods and with the right service level being equally important as the price position. And I believe this has contributed to a good match for us in terms of market share, where we, in several areas, have gained market share, for example, in some of our core categories in the gaming area. The synergy program is well under its way. Good momentum in all categories, so we're happy with that. But again, there is more potential in this area and even more partnership and even more access to exclusive models. And then there is a strong cost control that's being maintained in an inflationary environment. And I'll come back with some further reflections, but now I leave the word to Thomas. So the floor is yours, Thomas.

Excellent. Thank you very much Jaan Ivar. So we'll just roll a little bit into the financial performance now in Q1. And obviously, this is going to be the last quarter, where we actually do not have NetonNet in the reported figures. So we basically start off by explaining a little bit on how that actually impacts the numbers. And as you can see here, we have a growth of 39% on revenue year-on-year. But as Jaan Ivar said, we are in a difficult market, which means that underlying demand or underlying revenue actually declined by 11% in the various business, and it continues to be a challenging market. On top of that, we had a gross margin uplift, as you can see here, of 2.3 percentage points. It is supported by the NetonNet combination, which by itself actually increases a mix effect of approximately 1% but also by the much improved pricing environment. As you may recall, the first quarter and the first half of last year was very difficult in terms of a reversal of all the positive trends from the COVID period, leading to a very difficult competitive environment that is now receding and normalizing. And on top of that, we can see that the sourcing improvement program, as Jaan Ivar said, is going according to plan in terms of negotiations with the suppliers and also on the cooperation with the suppliers, although the P&L effects are expected mainly later during this year. We do also see a continued cost control. It is an inflationary environment, but we do maintain the cost base. What you see here is also quite a lot of the operating expenses are increasing due to the NetonNet acquisition, both in absolute, but also in relative terms in the sense that the different business model on NetonNet leads to an even higher share of the cost as a percentage of sales. That said, the cost of savings initiatives are in line with expectations, as we'll also come back to later on. It should also be noted that the Q1 figures are also to some modest degree affected by project-related costs, which contribute to explain the uplift in the base business. And also for comparability, we have also highlighted here the amortization of the acquired customer value, which basically is a transaction-related cost that affects the comparability. Looking at the B2C business, you see the same effect in the sense that this is the one that is largely affected by the NetonNet acquisition. The underlying revenue development is obviously also here, both in terms of consumer demand and also in terms of the dynamics between offline and online. During the COVID period, obviously, it was a very high share of consumers going online, which has normalized over time. And we still see some effects of that going into Q2 and definitely during Q1. But we also see some positive developments from the dynamics in new product releases, et cetera. So quite a diverse set of developments in this segment. The gross margin uplift, again, supported by positive mix effects, but less here, given the higher underlying margin in the B2C business as a stand-alone, but very good supply dynamics supported by obviously renegotiations, but also by relaunch and renewal of the product assortments of the suppliers contributing both in an improved pricing environment contributing then to lifting the margins attractively. Again, higher operating expenses driven by NetonNet, which is basically an add-on and also the cost inflation. And the cost inflation, primarily seen in Sweden, given the exceptionally high inflation rates seen there, but NetonNet being able to more than compensate for that cost inflation, so it's mainly affecting our legacy business in Sweden for the time being. The B2B, I think that was one area that actually kept up quite a long time. Now we can see that it's actually evolving more into line with the normal consumers. In particular, the smaller customer segment is dropping off in line with them, leading to a sales decline. And combined with the requirement of investing additionally in marketing, you can see that, that leads to a drop in the performance for the segment overall. Distribution showing a similar pattern in the sense that, it kept up quite a long time, but is falling a little bit back. When you compare the quarter-on-quarter, it's also important here to notice that last quarter was affected by a backlog of deliveries than increasing the sales beyond the underlying demand. But again, the margin has been strengthened by the underlying competitive environment and still some inflationary pressures on the cost base. Going a little further down in the P&L. You can see that the numbers for Q1 are affected by one-offs to the tune of NOK 13 million, mainly related to changes of the organization of the company. We have an increase in the financial items, quite a substantial increase, of which NOK 10 million is deemed to be more or less one-offs, establishment of new credit facilities, et cetera, whereas the others are more relating to the ongoing business and continuing financing. We have a tax -- positive tax charge, mainly technically of NOK 10 million, of which a minor proportion is due to changes in deferred intangible assets leading to a loss for the period of NOK 43 million compared to NOK 7 million last year. The financial position is also improved. As you can see here, we do have gone through a significant increase in the equity and refinancing over time, leading to an increased equity ratio of 45%, which is significantly up on last year. As you also can see, the liquidity has also increased substantially and was NOK 975 million by the end of the quarter. And also despite the acquisition of NetonNet last year, the net interest-bearing debt has only moderately increased over this time as it has been financed partly through equity and partly through reduction of working capital. The liquidity -- sorry, the leverage ratio, as you can see here, fairly stable on 3.8 versus Q4 of 3.7. Needless to say, this is an area that we monitor carefully and also maintain a constructive dialogue with our banking partners. Cash flow was NOK 336 million for the quarter compared to minus NOK 18 million last year, driven by a balance of operating activities and reduced by investment activities. And here, the main part of the investment activities relate to the supply chain and IT program as we have described it before, and only a minor part to the ongoing underlying maintenance CapEx. We have also a net cash inflow from the financing activities of NOK 193 million. The main part of that is from the financing activities, whereas interest charges and IFRS 16 charges are reducing it by something like NOK 19 million. As you can also see, we have increased the inventory, as Jaan Ivar said, also to ensure a sufficient delivery ability in the current difficult environment. And we have financed that through the changes in the working capital for the time being. And we also would like to note that NOK 262 million down on last year. So we're not really increasing it versus last year, we are increasing it a little bit versus the end of the year. Part of this is also seasonally driven, given building up inventories for the now coming spring season. On that note, I will leave the word back to you, Jaan Ivar.

Thank you, Thomas. And then to sum up and give some perspectives on the outlook. As mentioned, a challenging demand environment, but some signs of improvement, and I mentioned some few examples of that: improved pricing environment, good pricing dynamics versus the competitors, healthy inventory level, very important for our market share position and making sure that we are available for the customer at any point in time so that we become the destination. And I must say, strong internal culture and passion, a good foundation for the work going forward, well-positioned brands with more potential to go for and solid and improving supplier relationships where we also meet suppliers at the right level in their organization. Again, low consumer sentiment still, but we think it will come back. And over time, when that comes back, it will also affect, of course, our cost percentage and our scalability. Healthier inventory, improved pricing environment, as mentioned. And then the combination with NetonNet allows us for more scale, taking out the central synergies, whether it's in the commercial area or in the financial area, but still nurturing our local brands being well positioned as local brands. I, for example, also believe in NetonNet brand in Norway, in addition to the Komplett brand. So to sum up, over time, demand is expected to return to attractive growth trajectory. And with that, we will open up for a Q&A session.

Thank you, Jaan Ivar and Thomas. I will now hand the word over to Karina for the Q&A session.

Thank you. Should we start off and see if there are any questions in the room? Yes.

Joachim Huse from Pareto Securities. Congrats on a really strong gross margin recovery and what appears to be still a challenging market. So I was wondering, you said in the presentation that we should expect year-over-year gross margin expansion. Should we also expect the gross margin to improve quarter-over-quarter throughout the year? Or should we expect more of a normalized seasonality?

I think it's very hard to judge in the sense that in the current environment, given the sourcing impact we are expecting in the second half of the year, we would expect to see an improvement, but there are also other challenges out there, including the FX environment and also other competitive changes taking in place, for instance, in the Swedish market. So I think we would be careful of not actually giving a concrete guidance on where the margin is going to evolve from here, but that is going to be above last year. That is, I think, the exceptions we do have.

And just to add one more question. I believe in the Q4 presentation, you said that you expected cost savings from NetonNet of approximately NOK 70 million to NOK 90 million. I believe you touched upon it briefly at least. But could you elaborate a bit on where you are in terms of realizing those cost savings.

We are quite far -- just jump in there.

Okay. Good.

In the sense that I think when you talk about the program of NOK 70 million to NOK 90 million is the full run rate since the acquisition of the company. Quite a lot of that has actually been realized in the meantime. So it's quite far progressed and actually a fairly modest amount now being expected a year to go on that note. So it's mainly already in the figures as you see them now.

I think what's encouraging is that when we look at the cost level of NetonNet, in absolute numbers it's lower than the year before. So we see it in the numbers. To your -- also to add on the margin question, we see positive effects, as I mentioned, on the Sparta program, and we're also very conscious to follow the price dynamics in the market in terms of good pricing dynamics.

Have you started to see any price increases for consumer electronics? I believe prices in that particular market has been fairly stable or declining due to competition. So yes.

Yes. So we do see those increases. And competitors, they have to increase prices because of their cost inflationary environment. So I think that's one thing. And of course, with the currency effects, Thomas mentioned that, that needs to be passed on to the consumer over time.

Any other questions? So we will move on to those from the webcast. So the first question is, is there any data available on whether you have gained market share in the quarter?

Yes. So I mentioned that briefly. If you look at the quarter in total, it's rather flat because January and February last year, we had the pandemic, and then we had some positive online dynamics. But if you look at March isolated, we see encouraging signals. We have gained market share within gaming in Norway with Komplett and gaming is a core category for us. So that makes it easier to build on the market share development and the growth in the other categories. So we do also see positive signs from market share gain in Norway on computers and on TVs. In Sweden, in particular, we have gained share within MDA and within private label and also some other categories, while the total picture also in Sweden is rather flat market share development for the full quarter. But I'm optimistic for the second quarter in terms of market share gains because we have a good service delivery position. And it's as equally important as price is our service delivery position. And we are well above 80%, 85% in that area now, which is much better than a year ago.

So the next question is, Currys has announced that they are stepping up their efforts in the Nordics with new leadership and [ Power ] is stepping up their game in Sweden. What is your response to that? Do you have any concerns?

Yes. So normally, we don't comment on all that competitors. It's an intense industry with lots of competition, and we just welcome that. We love competition, but we want to be the best in the industry in terms of how we work with suppliers and with customers and being the sort of most admired brand over time. And I hope and believe we will have the best team to deliver on that. But let's see, it's a tough competition there.

Unless there are any other questions from the room, that concludes today's session. Thank you.

Thank you. We will be back presenting our second quarter results on the 20th of July. Thank you all for watching, and we wish you all a great day.