Komplett ASA (KOMPL) Earnings Call Transcript & Summary

Good morning from a sunny winter day here in Oslo. Welcome to the presentation of Komplett Group's fourth quarter results. My name is Kristin Hovland, and I'm Head of Communication. We will start today's presentation with our CEO, Jaan Ivar Semlitsch, who will go through the highlights for the quarter. Then our CFO, Thomas Røkke, will give you some more details on the financials. At the end, Jaan Ivar will summarize the quarter and give you some perspectives on the future. Today's presentation will take approximately 25 minutes. And during, you are welcome to post questions via web, and we will answer them at the end, together with any questions from the audience. Jaan Ivar, the floor is yours.

Thank you so much, Kristin, and welcome to this Q4 presentation. Starting off with highlights from the fourth quarter, we have seen improved consumer demand both in Norway and Sweden, and this has been largely driven by good results from black week and peak season from mid-November to the end of December. And higher sales levels during peak season has been coupled with improved sales from new products and in-demand updates. And this has, in turn, reduced the headwinds in some of our core categories. As expected, and particularly during a time with intense campaign activity in peak season, we see intense competition. But overall, we remain optimistic and see signs of market improvements, though it is too early to determine a clear shift in consumer demand. The current outlook is supported by expectations of an improved economic situation for our customers, both B2C and B2B customers, and with additional positive momentum from the launch of new and innovative products in our space now in February, March and onwards. So how does this all impact our results and our financials? As you can see, the financial performance of the group reflects a much more supportive market environment. With good preparation ahead of peak, we delivered a revenue growth of 3.1% for the quarter. And despite intense competition, we delivered a margin -- a relatively stable margin of 13.9% versus 14% in Q4 2023. In the period, we have continued active cost management. The 4.3% increase is primarily due to increased marketing costs -- marketing efforts during the quarter and store expansion. There has been good cost discipline during the quarter, and we will continue to have cost discipline in an inflationary environment. Adjusted EBIT ended at NOK 77 million in the quarter. This is explained by improved gross profit, which was offset by the increased operating costs and higher depreciation. Looking at our inventory position, it remains well controlled and has reduced year-on-year despite black week and the high season sales kicking off later than usual. Our liquidity position remains solid and has been improved by better payment terms, good inventory management as well as temporary phasing effect from a late black week. And lastly, I'm pleased to say that we closed the final quarter with good headroom to our financial covenants ending at 2.5x and new covenants account for normalized liquidity into Q1 this year. Let me then move into some of our strategic agenda presented at the Capital Markets Day. We have remained dedicated to our strategic agenda throughout 2024, and the fourth quarter was no exception. In Q4, we opened 2 new NetOnNet stores, one in Södertälje in November and Bergen in December, strengthening our omnichannel concept. Both stores have been well received. And with the store opening in Stavanger earlier this year, NetOnNet is gaining ground in Norway. And up next will be a new store in Trondheim in March this year. And then I believe we have a good coverage for NetOnNet in Norway this year. The NetOnNet brand position has also been strengthened during the period through everyday low-price concept, a bit back to the DNA of NetOnNet. And we are experiencing good traction from our commercial initiatives. Looking ahead, we will also conduct a commercial IT upgrade, which will be launched later in the quarter for NetOnNet, improving the customer journey online even further for our customers. Webhallen has delivered within several areas. We now have an extended product and supply range available both online and in physical stores, benefiting our customers and our sales. We have continued to upgrade existing stores, and another 3 were upgraded during the quarter, Sickla, Täby and Fridhemsplan. The IFS ERP solution and the upgrade of the commercial back end at Webhallen were also successfully launched 1st of February. And we now have the same system between NetOnNet and Webhallen, providing also for much more efficient logistical setup. And as for Komplett, there is strong momentum from an expanded supply range and product offering. And with our competitive pricing, our customers can benefit from a broad assortment of products and services. The B2B program introduced in August has also seen a good uptick in recruitment during the period, also attracting new B2B customers. Despite these positive developments, Komplett has initiated a significant cost program involving workforce reductions, which started after year-end with very good progress. To lead this process, Morten Johnsen has been appointed the new Managing Director of Komplett Services. He has a long track record from the industry and is based in Sandefjord. With that introduction, I will hand over the word to Thomas Røkke who will take you through the financials.

Thank you very much, Jaan Ivar, and good morning to you all. I will give you some background to the information that Jaan Ivar already described and go through some of the financials with you. Looking into the fourth quarter of 2024, you can see that we have an acceptable ending to the year where we returned to growth with 3.1%, and the growth was actually fairly broadly based with some differences across the segments, which I will come back to. We had stable margins and stable margins not because the market turned very much more positive, but because of mix effects, while we maintained and saw the necessary margin pressure in the market and also invested in price where required. But given a strengthened assortment and also widened assortment, we were able to compensate this overall across the formats. That also alludes to, obviously, the benefits from the new commercial organization that is now able to both strengthen and negotiate with our suppliers. However, the very hard market environment saw a requirement for investing in marketing to ensure visibility and demand during this difficult season. The peak season this year was associated with more campaign activity than we normally see. And we obviously had to follow that and also invested quite significantly in the marketing to be visible in this environment, which is a tactical decision, whereas our committed -- continued commitment to controlling our costs and also keeping down the cost inflation, which is occurring, remains. And we have also during this period, as you heard from Jaan Ivar, launched a number of new initiatives to make sure that we can actually keep our cost base under control both in the long term and in the short term. Overall, this ended with a result of NOK 77 million, NOK 14 million down since last year, but definitely a significant improvement to the recent past. Drilling down in a little bit into the various segments. The B2C segment was actually one of the segments that was most kind of broadly affected by all the trends we looked at previously. On the market side, we did see a very strong execution of our peak campaigns, which have been well prepared and well executed in a very tough environment. During that, we saw actually growth across a broad array of categories predominantly in the traditional segments, but also in the new ones. And at the same time, we did also see that we had receding headwinds, as we term it, in the computing and gaming segment. Receding headwinds means in this case that the drag we experienced during the first 3 quarters of 2024 receded, whereas the growth has not yet entirely returned given that the large innovations are likely to come now in the first quarter of this year. I will come a little bit back to that. At the same time, this obviously led to some late-cycle dynamics in the computing and gaming segment, as we referred to in the report, which means that customers are a bit reluctant to buy components on the late cycle, and also the price pressure obviously increases this. But this could be compensated through the benefits in other segments. On the positive side on this segment, obviously, in the Consumer Electronics Show in Las Vegas this January, quite a lot of the innovations were confirmed that we have alluded to previously with the NVIDIA cards now coming out already in January and being followed with other stronger innovations. And it's quite important that these innovations are strong because I think the experience learned us in Q4 that consumers are actually differentiating with value-add and are willing to pay for that; whereas if only incremental advantages are achieved, they are still reluctant to buy that. This is also the segment where we could see the mix effects very clearly in the margin. And we're talking here mix effects not only between the categories, but also within the categories. We have launched new categories, that is right, with new suppliers through the new category sourcing team, but we could also add new suppliers within the categories to strengthen our margin and, hence, drawing the full benefits of a centralized sourcing team. The back-end side of this is obviously that we did also see the necessity to invest in marketing, and we did that. And we did that as far as we could term quite successfully. But this would obviously drag down the results for the quarter, which still is, as you can see from the graph on the left-hand side, a significant improvement towards the recent past. The B2B segment, as you know, is, in our case, targeted towards very small customers or small-business customers and are not typical and not that dissimilar from the B2C segment in terms of purchasing behavior. In this case, it was also fairly similar when it comes to the demand side in the sense that we also had some very strong campaigns in this segment and also saw continued progress on our customer loyalty program, which led to a fairly significant increase in sales. However, in this segment, we do not have the breadth of assortment to compensate through mix effects. And on top of that, we did also see a slight shift between the categories towards lower-margin categories dragging down the margin. Nevertheless, a fairly stable result year-on-year, which again is an improvement in the performance towards the recent past. Last but not least, the Distribution segment is also quite tied into this, but more dependent on the broader market in terms of demand for these products. In the quarter, we did see some shifts in deliveries, and we also saw some shifts in launching plans for some of our major partners. But overall, the weakness in the market was more kind of related again to smaller customers and smaller resellers, which still are hurting with a difficult end environment. And that was mainly the key driver for the lower result for that -- for the quarter; whereas the margin, which is a Distribution margin, was maintained despite slight negative shifts in mix through better operational efficiency on the logistics side. Net working capital contributed significantly this to lift the amount of cash with NOK 470 million in the quarter. Central to this is obviously the working capital element, which is around NOK 490 million of those NOK 660 million contained in the operating cash flow, and I will come back a little bit to explain that. And these were obviously, as in previous periods, used partly in investing activities, again, mainly in the IT area, but also through the new stores in Norway and Sweden and also for financial items, i.e., interest costs and also this quarter, a repayment of the deferred tax arrangement in Sweden with NOK 41 million, bringing down the net contribution to liquidity to NOK 470 million. Central in this development is the postponement of the black week period, as Jaan Ivar alluded to. That basically had a kind of series of events in the sense that you have later deliveries out, so you have the later deliveries in and, therefore, you also have later payments out in the end. That effect we have every quarter, as you have seen previously. This time, it was just more -- a little bit more bigger than previously seen. And the reason for that is obviously a part of the phasing, i.e., by having the black week later, you will actually phase more into next year, but also a substantial part is related to our effort to harmonize the payment terms more in line with the industry practice, which also had a material impact on the liquidity for the quarter, both of which these effects will obviously normalize more into Q1 when the overall level of supplier payables are being reduced. The inventory side was also maintained. That was the other part of the challenge from the black week period. And through clear discipline, I think we also managed to control that exit into the next year. I would also like to emphasize or mention that for the quarter, we have also sold NOK 420 million of receivables on a nonrecourse basis, which do, of course, contribute to the liquidity, but to avoid any misconception, technically does not actually represent a debt or a financial debt item. That positive contribution from the working capital and liquidity obviously raised the liquidity level in the quarter towards a very high level of NOK 1.7 billion, which is partly influenced by these, let's say, transitory events, but also demonstrates the continued solid liquidity level that we have maintained and will keep to maintain as a policy. The liquidity effect also reduces the net debt accordingly and reduces it by more than NOK 300 million this quarter compared to last year. And it should also be noted that in the meantime, we have also added a NOK 263 million of long-term debt from the Swedish tax arrangement. That yielded a covenant level of 2.5x, which is with very good headroom to the current covenant of 4.0x. But as you can see from the development last year, there is a clear seasonality in our covenant development, which basically reflects the payment mechanics I just described. To cater for this seasonality and also to reestablish a certain adequate headroom into the beginning of next year, we have, in cooperation with our financial partners, raised the covenants for the coming 2 quarters by 1 turn on the multiple. So we now have 4.5x and 4.0x for Q1 and Q2, respectively. So overall, I think we can just state that we have an acceptable although not quite satisfactory quarter behind us. We have a better market outlook, and I think we also have a very solid financial position going into the next quarter. Thank you very much.

Thank you, Thomas. And I will shortly sum up before we open up for Q&A. And as also Thomas mentioned, this year has had its challenges, but we closed off 2024 on a more positive note. And we are pleased to see that the headwinds for computing and gaming have receded, and the category delivered strong results on the back of a solid black week and also in general for the whole peak season from mid-November. And despite the intense and continued competition in the market, coupled with high campaign activity, the combination of commercial activities and positive mix effects have delivered a stable margin. Our costs have increased because of higher marketing investments and expansion activities in Norway and Sweden, but there is good cost control and further cost reduction measures have been initiated. Our liquidity position is stable. It's a result of improved payment terms, but also good discipline around inventory management and also temporary effects of later black week. And then finally, we have a good headroom in the quarter towards our financial covenants ending at 2.5x. So where does this leave us by summing up? We are optimistic that early market signs are pointing towards improved market dynamics. Several key indicators point to increased demand, but the market and consumer behavior remain unpredictable. And we are eagerly awaiting new product launches. Thomas mentioned NVIDIA in February, AMD in March, and there's already been a successful launch in January. And that is expected to drive positive demand in the coming months and for the rest of the year. And with strong market and brand recognition, Komplett is capable of offsetting the competition. And the competition remains intense, but the group will continue to adapt its pricing strategies to the trading environment. As mentioned, we have accelerated cost-mitigating initiatives to ensure intended cost degression. We expect to see most of the significant impact into the second half of 2025, but also we'll see effects in Q1 and Q2. And lastly, we remain committed to maintaining our industry-leading cost position, our strong brand recognition, our high customer rating and leveraging the group's efficient and scalable platform, and that's part of our DNA. And before we open up for questions, I would also like to address the news of my transition from the CEO of Komplett Group. And first of all, this change does not happen until August. It's still full speed ahead. I'm fully dedicated to our strategic priorities and to delivering the numbers together with my team and the whole of Komplett Group. And the main shareholders have signaled that they will recommend to the Annual General Meeting that I will be elected as the Chair of the Board, which is a role I would be highly motivated and committed to take on. So thank you for listening. We will now start the Q&A session.

Okay. Thank you.

So kicking off the Q&A session, we'll see if there are any questions in the room first. No? Okay. So the first question online is that self-driving cars will soon be a reality in the U.S. How do you plan to utilize this technology when it comes to Norway?

It's a million-dollar question. I think, first of all, we are still working on many of our basics to solve the last-mile delivery for MDA in Norway, for example, where we have a good offering, but I think we can do much more in terms of the last-mile delivery on some of our basic areas. And then we follow this very closely, but I think it's not our first priority. But we are open-minded, and we will see how this will evolve over time.

Are you using any AI today? If so, how? And what are your plans moving forward with regards to the use of artificial intelligence?

Well, a couple of things, and Thomas could add as well, but we do a lot within our customer care center, where we do content translation through AI technology. We're also checking out new routines and automizing quite a lot both within finance, but also within the customer support center. And then I think it's important to add that to the customers, we do see more and more AI products, whether it's mobile phones or computers, and that will have a positive effect from the customer point of view as well.

Good And how much was factoring in the quarter?

NOK 420 million. It's also described in the report.

You talked about improved demand, but also intense competition. How do you expect these 2 effects to impact 2025's gross margin versus the 2024 gross margin?

Well, first of all, we don't guide on the margin as such, but I think we expect intense competition. And therefore, we will navigate within that space. We're used to that type of competition. And we are also doing more on the cost side to make sure that we are industry-leading on the cost position and, therefore, to continue the development of increased profits.

Good. So unless there are any questions in the room at this time -- yes? Sorry, just wait for the microphone.

It's Torgeir Haugland from DNB Bank. Can you touch upon your strategy regarding private labels going forward, please?

Yes. So private label is an important part of our strategy. In NetOnNet, we have the highest share of private label compared to Komplett and Webhallen. We have an office in Asia, a very good office where we will continue to develop. We are launching a private label washing machine very soon from that office, which will be very exciting. I won't reveal the date because of -- for competitive reasons. So we do see a potential in that area, whether it's accessories or more sophisticated items. So it's an area with a focus also described at our Capital Markets Day, February 2023. Anything to add, Thomas, on that?

No, I think that sums it up nicely.

In the meantime, there -- more questions? Just wait for the microphone.

Which key indicators are used to predict the demand? So basically, you say that the demand looks like better and growing. Like what do you look and how do you analyze?

This is a perfect area for Thomas to answer because we have many different sources.

I think we have a very qualitative process in the sense that we discuss this very strongly with our category team, which are specialized in their respective categories to actually assess what the suppliers and also our customers are requesting. On the macro environment, we do obviously look at consumer sentiment. We look at the disposable income and also at consumption. And I think all those indicators are pointing in the right direction. That's why we're a bit more comfortable with the macroeconomic environment right now. But still, those things have taken time to materialize before. But it's a combination of those 3, what the suppliers say in terms of launches, what macroeconomic conditions actually read up to us and also what our industry of product category experts actually can contribute.

So there's a few more questions online. So concerning Distribution, you talked about weak order intake. How do you see this segment benefiting from more product launches?

I think this segment is driven very much by mobile and computing. And if you see the trends there and also from the Consumer Electronics Show in Las Vegas, the Edge AI topic is very strongly on the forefront. But we do believe that, that is going to be more gradual in the sense that the uptake there is going to be gradual, but it will benefit from the underlying bigger trends in the computing and gaming segment when it comes to the installed base and also the Windows 10 discontinuation. But critical here is actually that the resellers in the market are coming back. And for them, they need to have an improved market environment, whereas our larger customers are actually dealing with this in a nice fashion.

And you look to have new initiatives on costs. How much savings are you targeting?

Well, we haven't sort of put out a firm number in the market. But in total, as we described, there will be 80 FTEs reduction, where 65, 66 will be to Komplett Services and the others will be group functions. And the new organization will be -- or the process will be finished by 1st of March, and that's progressing well. And then I could mention that for Webhallen, the cost reduction measures have been done during 2024, but we will do further logistical consolidation in May, June together with NetOnNet and Webhallen as we now have the IFS go-live from 1st of February.

Right. That question knits nicely into this one. Do you expect to do more cost savings to have a relocation of headquarters and so on in the Swedish companies during 2025?

I think we always have cost focus every month with cost discipline, but we haven't launched any major programs in Sweden. There has been a process in Sweden both in '23 and '24, but there will always be a constant focus on our cost agenda.

Yes. It will be tactical cost reductions in all entities in Sweden.

So how do you see the competitive landscape in the Nordics?

Well, it is an industry with quite high competition. There are many players, both online and offline, both globally, locally, pure players. And we're used to that situation. We do see perhaps the competition has been intense, but was probably a bit more intense in Q1, Q2, Q3 than in Q4. So -- but again, it's an industry with high intensity, but we are adapting to that and used to that sort of environment.

So unless there are any more questions in the room, that concludes today's Q&A session. Thank you.