Komplett ASA (KOMPL) Earnings Call Transcript & Summary

Good morning from a sunny spring day here in Oslo. Welcome to the presentation of Komplett Group's First Quarter Results. My name is Kristin Hovland, and I'm Head of Communications. Our CEO, Jaan Ivar Semlitsch; and our CFO, Thomas Røkke, will take you through the latest events and financials for the first quarter of 2025. The presentation will take approximately 25 minutes, and we are happy to answer questions via web and from the audience at the end of the presentation. Today, Jaan Ivar will take you through the highlights for Q1 and provide you with an operational update. Thomas will then discuss the financials before Jaan Ivar summarize the quarter and outlook. Jaan Ivar, the floor is yours.

Thank you, Kristin. And before we dive into the highlights, I will just briefly address the global uncertainty concerning trade tariffs and trade wars. We have not been immune to this uncertainty, but the group is monitoring the situation closely, and we are maintaining close dialogue with our suppliers to mitigate any significant changes, and we believe we have a very good control so far. But then moving into the highlights for the period, I'm pleased to share that we are seeing improvements in key markets and product categories. And we have noted a gradual and steady market recovery in both Norway and Sweden, though with some variations between product categories and brands. And then we have registered an initial positive effect of new products that launched during the period and particularly in the gaming and computing categories. And the 2 graphic cards, NVIDIA and AMD have been particularly well received by our consumers. Looking ahead, we expect the positive reception of these new launches to last throughout 2025 and to gradually increase as large supplies of new products are made available. In 2025, we are looking into several exciting product launches, very important for the Komplett Group across categories ranging from high tech to the more classical consumer electronic segments, like also washing machines and vacuum cleaners. The overall market outlook has also been supported by improved consumer fundamentals as consumer purchasing power has improved. The macroeconomic forecast remain positive, but cautious consumer sentiments persist due to global uncertainty. Now moving into the financials, the financial highlights for the period. There has been gradual improvement so far in 2025, corresponding by the trends we are seeing across our markets. We've had a positive start to the year with revenues increasing 3.8% compared to Q1 2024, including some positive currency translation effects. The underlying growth was supported by more positive market dynamics and sales growth was seen broadly across product categories, alongside tailwind from new product launches in the core areas of computing and gaming. Our gross margin has remained stable at 15%, which reflects a positive mix and also new commercial activities, which were partly offset by the impact of operational inventory management. The group's operating expenses increased by 2.4%, largely driven by currency effects, resulting in a stable operating cost percentage of 16.1%, and the slight increase in operating expenses was largely driven by general cost inflation and commercial expansion measures, combined with a modest increase in marketing investments year-over-year. The cost and restructuring measures are proceeding as planned and will have larger effects during 2025. Finally, looking at the net working capital, the level continued to improve during the period, which has to do with improved commercial terms. Lastly, by the end of March, the group's leverage ratio ended at 3.4, which is well in line with our agreed financial covenants. Now then I would like to just give you some operational highlights before I give the word to Thomas, starting with Komplett.  We have strong momentum in Komplett due to also an expanded supply range and product offering. Also very good recruitment to the B2B loyalty program where we give the best offers to our best customers. And we're also strengthening this area with additional sales resources for large accounts. And the previously announced cost program has been implemented in Sandefjord, including the workforce reductions of 80 FTEs.  Finally, supporting this work is Morten Johnsen, who was appointed Managing Director of Komplett Services with effect from 15th of January this year. Now moving on to Webhallen. We have initiated a warehouse consolidation plan where the aim is to increase the efficiency of the business in Sweden. And in practice, this means that the Stockholm warehouses will be consolidated into NetOnNet central warehouse in Borås, which will include all Webhallen's logistics and return handling functions, already operating as we speak today and working very well out of Borås. And this is expected to reflect meaningful savings in terms of rent, facility management and administration when looking at logistics, sales and operational planning. And in parallel, we have continued the upgrade of store concepts and the latest relocation in Stockholm with our Solna store reopened last Friday with great results. And additionally, we have initiated a new ERP system, IFS, the same as NetOnNet and various other IT upgrades. And these have now been completed and were actually effective as of 1st of February this year. This has been a big task for NetOnNet to take on, but it's working well. And on top of that, NetOnNet has opened another successful store in Norway in Trondheim. And since March, customers then have had access to NetOnNet's offerings and products also in Trondheim in addition to the web offering. And with the previous store openings in Bergen and Stavanger, we believe now that we have a good store coverage for 2025 in Norway to ensure a profitable NetOnNet in Norway. Moreover, we have conducted a commercial IT upgrade for the whole of NetOnNet, which was launched in Q1, and this has led to an improved customer journey online, and we are optimistic to see further improvement in customer satisfaction for our NetOnNet customers. Worth mentioning, during the period, we worked to reposition the brand profile and pricing of the NetOnNet brand, and this has involved reduced campaign intensity versus last year as well as adjustments in pricing and margins in several core categories. But we're a bit back to the DNA of NetOnNet, everyday low prices and strongly believe in this brand positioning. And lastly, for NetOnNet, we have noted a positive demand for private label products. So we have decided to expand the private label portfolio. Worth mentioning our Avant brand with washing machines selling very well, and it has been well received by our consumers. And we are potentially looking at ramping up further the share of private label products. So with that backdrop, I would like to leave the word to Thomas to give some more details around our financial performance.

Thank you very much, Jaan Ivar, and good morning to you all. I'll bring you briefly through the financial figures for the first quarter. As outlined by Jaan Ivar, that's been going on quite a lot of activities in the first quarter, while the financial figures has actually been fairly stable. The sales and the gross margins and the operating costs are largely in line with last year. If you look at the top line, that has been, as Jaan Ivar outlined, supported by a continuous positive development in the markets. And despite a falling consumer sentiment in the Nordic countries, the underlying trends are keeping up, which was confirmed at the latest last -- yesterday, actually, both in Norway and Sweden, where the statistics came out and supported that picture. However, it's as Jaan Ivar is saying, it's difficult to say how this will progress, but first quarter has at least had the benefit of this and have also benefited from several innovations as we'll come back to later. The gross margin is now in line with last year. And as you may recall, first quarter last year was a strong quarter compared to the other ones. So we see a positive evolution also towards more campaign heavy Q4, but we're now back on the right level in terms of margins, while the cost base has remained stable if adjusted for the OpEx base. And it should also be noted that in percentage terms, this is obviously a weak quarter, which means that the OpEx ratio is fairly high, but remaining stable over the year. Nevertheless, the cost buildup did actually outweigh the GP development. So in the end, we ended up on a fairly stable result for the quarter, which also explains the Aneba's focus on several new cost initiatives as we'll come back to. Looking into the various segments. The B2C segment developed quite nicely, but diverged according to geography, as you may see on the figures. Norway was particularly strong from a number of reasons. First and foremost, the underlying market was quite positive and also the effect of the innovations in the gaming segment were quite substantial in terms of moving from being a headwind to becoming a tailwind into this quarter. And all the innovations, as Jaan Ivar outlined, was well received by our customers, which signs very good for the coming quarters when higher volumes will be available. On top of that, in Norway, we had the positive effects of newly opened stores, which also contributed to the significant growth in the quarter, but also corrected for these, the growth was significant.  The Swedish picture is a more mixed picture. And while we had very good growth in our focus areas and also in our commercial initiatives like white goods and also seasonal wears, we did actively reposition our pricing in some of the low-margin segments. And also as a part of the repositioning of the brand, stepped away from heavy campaigning activity, which obviously held back the underlying growth, but contributed to supporting the margin, which was lifted up to last year's level in the quarter, largely due to these factors.    However, in the B2C segment, the additional cost buildup from expansion activities, also the FX effects, but also the marketing activities could not quite cope with the additional headroom. Hence, the EBIT is slightly down quarter on versus last year. And therefore, also in terms of the cost initiatives outlined by Jaan Ivar, this is obviously the area where these will have the largest magnitude. The B2B segment had also an increase and in a slightly more stable market environment.  The B2B business is obviously strongly dependent on the PC market and the PC market, while becoming more positive, is still not drawing all the benefits from new innovations, but is stabilizing in terms of old installed base and seeing some advantages of that. On top of that, there were some more sales days due to Easter, which contributed to the growth and a slight weakening of the margin given the mix effects as some of the higher-margin segments were slightly weaker than the lower margin ones. Nevertheless, given the reduced cost, the EBIT for the period increased slightly versus last year. So overall, the B2B business was fairly stable.  In the Distribution segment, there was also growth. And obviously, here, the Easter effect is slightly higher than in the other segments. And we could see that market stabilizing, but this is also a segment where we are more dependent on individual customers and individual suppliers, and we could still see some of the trends we have highlighted previously that the larger customers are the ones growing, whereas we still have some challenges in the smaller reseller segment due to market environment and also trends there. While I think overall, the perception was that we did see some stabilization or an improvement in that market position.  The end effect by a combination of cost savings led to a fairly large increase in percentage terms in EBIT from NOK 1 million to NOK 6 million in the quarter. Looking at the cash flow and the working capital. We had a negative development in the cash flow in the quarter, and that is quite usual. This is after the peak season, which means that we, in largely all quarters have this. So it was driven mainly by a change in operating working cash flow, which again was driven mainly by the working capital where we reduced the amount of payables, which was substantial at the end of last quarter, as we also indicated.  We did also invest NOK 45 million, which is in line with last year and reflects a relatively high activity, both on the IT side, as Jaan alluded to, we did complete the IFS, but also a significant upgrade of the customer journey in NetOnNet. But we also had quite a high activity on the storage front, opening stores last in December, but also now in Trondheim in Q1, also drawing additional investments in that.    Net cash used in financing activities are underlyingly, in line with the previous quarter. But Q1 last year saw a rebalancing on our financial facilities, which is a more technical term. So adjusted for that, there is nothing unusual in the financial activities. Hence, a normal negative cash flow in the sense of NOK 370 million.  The working capital was influenced by the inventory. And as you can see, that is slightly higher than last year and slightly higher than Q4, which reflects a deliberate buildup in terms of making sure we could transfer the ERP system in Webhallen in an orderly manner while still maintaining service levels and also some deliberate buildup ahead of Q2 in certain categories. We could more than compensate for that by improved payment terms and supplier credits. Hence, overall, the net working capital is down versus last year, but obviously a little bit up versus Q4, which is an unusual quarter in that respect.    That brings us to the financial position. And as you can see, we have a continued solid liquidity, which has increased quite substantially towards last year, partly from phasing now in the last part of Q1, but mainly due to the improved payment terms over the quarter. And that has enabled the net interest-bearing debt to be reduced by approximately NOK 270 million despite our reallocation of the Swedish tax deferral debt in Q3 last year, as you may recall.  That again, yield a leverage ratio of 3.4, which is in line with last year and well below the level we have agreed with our creditors for the first half of the year. On that note, I would just say we entered in Q2 with a good financial position. And thank you very much for your attention, and then I pass the word back to you, Jaan.

Thank you, Thomas. Then to briefly summarize, stable growth with stable margin performance and driven by improved market and innovation environment, continued focus on strategic initiatives and yielding positive margin effects in selected categories and private label lines despite some volume trade-offs in low-margin categories, and Thomas also mentioned that in his presentation. Group-wide and cost efficiency measures implemented, including workforce reductions and logistics consolidation and working further on this topic, active cost management.  Finally, stable financial position maintained with strong liquidity and continued cost discipline. Now so what does this mean for the future? There is global uncertainty, increased global uncertainty, but we are registering a more positive macroeconomic outlook. And with households experiencing a more improved economic situation and the positive impact of new product launches hitting the market, we are registering more supportive market conditions.    The new product launches have given positive momentum to the first months of the year, and we expect these launches to continue to have an even more positive impact on sales, especially in gaming, computing and private label products. And staying on top of strategic initiatives and cost-saving measures will remain a priority and is expected to become increasingly important with more impact throughout 2025. The group is currently considering additional cost mitigating factors in this to further strengthen the group's leading cost position.  I will just close in by saying that moving forward, we will continue our efforts to leverage our scalable and efficient platform while implementing these further cost measures across the group. And we remain as dedicated as ever to our strategic direction, which positions the group well in fundamentally attractive channels, products and categories. So with that, we'd like to open up for Q&A. And hopefully, you have some questions either from the web or here from the audience.

Great. Thank you. We'll start off by seeing if there's any questions in the room. Yes. Okay. We'll start with questions online.  Can you please elaborate on the sold-out situation in the gaming category during the quarter? How much did this impact overall revenue growth?

Yes. So we sold -- if we take the graphic cards, AMD and NVIDIA, they were sold out like in 20 minutes. So we could have sold much more. Very responsive reception, both at Webhallen and Komplett in particular, where we have a strong position. So we got our share of the allocation, but we expect to get much more during Q2.

And I think it's important that it's a part of the supplier strategy when it comes to supplying the goods. It's not a stock out. It's just a deliberate policy by the suppliers. And still with those limited volumes, we did get meaningful revenue.

And in this, we just don't sell the graphic cards. We also sell quite high-end computers with the new graphic cards, and they were also very positively received in the market. And these are computers between NOK 50,000 and NOK 80,000. So they are not for everyone.

What is the expected full year contribution of your ongoing cost reduction initiatives? And how much has been crystallized so far? And how will it be distributed?

So we don't give an exact figure, but perhaps you can give some color to that, Thomas.

I think we are seeing a fairly large program in overall terms, not far away from what we have previously communicated in earlier phases. I think we will see most of the effects from second half of the year and going onwards, but I don't think we would like to quantify nor actually time that more specifically.

How do you see the competitive landscape within B2C across the various countries?

I guess, as always, it's an industry with tough competition, many competitors, but we do see that there is, perhaps a better environment now than what we saw from some previous quarters. And when there is growth in the market, that's always a positive. And also when there are new product launches, that's also a positive. So we see a different innovation cycle as we have also presented and talked about before. There have been some delays like the Nintendo Switch 2 will come beginning of June and not in May, but still that will also be a very good launch. And we have had some presales on Nintendo Switch, and it's been very well received.

How much did the opening of the store contribute to the revenue growth of 16.7% in Norway for B2C?

That's a great question for Thomas.

I don't think we're going to give an exact number. But if you exclude the figures, we still have a high single-digit growth in Norway organically.

The growth in Sweden was negative 5% in Q1. What was the impact of the rebalancing of the brand portfolio in Q1? And should we expect this to have a similar negative effect in the coming quarters?

Yes. So again, we don't split that sort of balance between what's the brand positioning. We have also deliberately said no to some campaigns in the telecom sector where the margin is not good enough. So it's a mix of different situations, I would say.

Yes. And I think it's also very early in the phase of the repositioning. So we will adjust that path to the market. So overall, yes, I expect some drag in terms of the telecom segment, but we wouldn't give an indication on the rest.

And continuing on Sweden, would you say that it's a soft market issue or more of an issue related to complex operations or any other factors?

I would say that we see the Swedish market now improving. So the indicators are positive, not just in Norway, but also in Sweden. And then our repositioning will take some time, but it's working in terms of the concept and the customer feedback and the campaign activity will be a bit less, but still in the total gross profit, we think it's a good strategy, and it's good for the customer, and it brings us back to the DNA. So we firmly believe in this. And then it's worth mentioning that in Sweden, we also have Webhallen, where we also see good progress on their top line.

And what was the quarter end factoring balance?

It's about NOK 360 million, which is slightly down on Q4 and slightly NOK 60 million up on last year, and it comes down to the phasing of the B2B and the distribution revenues. Right

April seems to have had a lot of noise from the U.S. and deteriorating consumer confidence in Norway and Sweden. Is it possible to comment on any effect so far and revenue trends in April?

I think it's too early to judge the effects of that. I think we have been surprised by how resilient actually the underlying trends have been -- despite a deteriorating consumer sentiment. But I think you also see in April, you will have some Easter effects on the phasing and days, et cetera. So it's a very hard month to judge. So I think we can give a better answer on that on the next update.

I think also for us, in addition to the macroeconomic environment, the product launches are also very important. And we do see that there's a good pipeline in Q2 for that.

Inventory levels seem high relative to the very good trend that you've had in the last few quarters. Could that be a result of lower-than-expected sales in Q1?

No, as we stated, it's more a deliberate policy in terms of making sure we will have availability over the ERP change and also that we have made some deliberate bets on certain categories, which we expect to ship out in Q2.

Yes. And the quality of the stock is strong and healthy.

When do you expect the tax payments to be done for Webhallen and NetOnNet tax debt that they have had since around COVID time? And also, will there be more headcount reductions outside of the warehouse consolidation?

If you answer the first -- last one, I'll take the...

Yes, yes. I think we will actively manage our cost base, so we can never sort of exclude any other effects and measures in terms of workforce reduction, but we are working very closely on this topic. And the process we had with Sandefjord, it's been a tough process, but it's gone well, and it's been well handled together with the union and all the employees. So that part is completed. And of course, the learning from that process has been a good learning exercise and it has been the right thing to do.

And on the tax payments that those are regularly being paid down. We had an agreement of 36 months in Q3 last year and have been living up to that ever since. And the effect in the month -- in the quarter is NOK 32 million, which also reflects certain FX changes. So we are paying down on that schedule.

How much of the 8% year-over-year growth in Norway stems from NetOnNet and how much from new product launches?

I guess you already answered that more or less.

Yes.

More or less.

How did the competition develop during the quarter?

I guess we also touched upon that.

I think you did.

Yes.

Can you quantify the potential annual savings from Sandefjord reductions and from the warehouse consolidation in Sweden?

Yes. So again, we don't give any exact figures on that, but the work is being carried out according to plan. So, yes.

In combination is a large proportion of the indication we gave previously in the discussion.

Can you share some more light on your strategic repositioning in Sweden? Is this something you expect will continue to hold sales growth somewhat down in the coming quarters?

So again, we don't comment specifically on the growth figures, but worth mentioning also is that -- we have product launches coming up. We have a season now with barbecues where we have a very strong position with NetOnNet. I think we're the biggest seller of Weber in the whole of Nordics for barbecues and with our own brand, Austin barbecue. So this is a combination of several factors for sort of the Q2 growth with NetOnNet also in terms of how active we will be in our marketing efforts. But again, we very much believe in the repositioning, great customer feedback. And now we're tweaking it to make sure that everybody sort of sees and understands that part of the concept.

And we've touched on this also, but the question is, you've highlighted new product launches and innovation. How was your availability on these products in Q1? And how do you see the availability in Q2 and onwards?

Significantly better in Q2.

Yes.

You've had a NOK 18 million restructuring cost in Q1. Should we expect more of these costs in Q2 and onwards?

Yes, you should. Not necessarily in this magnitude, but there will come additional restructuring costs.

And what can you say about your future distribution strategy and facilities? Are Boras the long-term solution for Sweden? Will there still be 2 centers in Sandefjord and Boras for the longer term? And how much will cost come down?

Yes, that's a great question, but we will come back to that at a later stage. But the first step now has been the consolidation in Sweden, progressing very well and been very well handled internally as well, both on the Webhallen side and on the NetOnNet side. But we do see more potential on the logistics and harmonizing our operations in the longer term as well.

And unless there are any other questions, this is the last one. Are you happy with the auto store in Sandefjord and any changes on that going forward in order to be more effective? What is your thoughts on bringing costs down in warehouse consolidation in Boras? And will there also be an auto store there?

That's a great question. It could be a session in itself. Yes, but we are very happy with the AutoStore setup in Sandefjord. We actually have 100% running time there now during Q1. So it's very smooth. We also now have 2 robots working very well in Sandefjord and with no sick leave for those robots. So no, it's progressing well, and we are very happy with the AutoStore cooperation. We also have internal competence. So I think that's, yes, running very well. In terms of AutoStore in the future in other operations, that's something we will have to consider. But it's been a good cooperation since 2007, actually. So everybody is welcome to have a look at any time.

Great. Any other questions from the room? No. That concludes the Q&A session and today's presentation. Thank you so much for joining.

Thank you.