Komplett ASA (KOMPL) Earnings Call Transcript & Summary

Good morning all, and a warmly welcome to Komplett Group's third quarter presentation. My name is Ros-Marie Grusén, and -- new CEO at the Komplett Group. And with me this morning, I have our CFO, Thomas Røkke. And the agenda for today is as usual, we go through the highlights of the quarter -- of the past quarter, and we will give you an operational update. Thomas will walk through the financials in more detail. And lastly, we'll provide a summary and an outlook for the time coming. And after the presentation, as usual, we'll open up for Q&As, both from the audience here and online. But before I go into the highlights, let me introduce myself as I'm new at Komplett Group. I've been here for almost 3 months now. And -- so who am I and what I've done so far? And I usually say that I'm a retailer in heart and soul. I spent my entire career in retail in different areas, but always very close to the customers. Also in different geographies, but mainly in the Nordic area. And now since I started and joined Komplett in August, I spent majority of my time to getting to know the people, our brands, our customers and, of course, our operations. And what I reflect upon is that I joined a company with great people, people like Thomas who are really greatly knowledgeable and dedicated to the business and improving the business. I also reflect on the fact that the organization has undergone a lot of changes and taken up lot of initiatives in order to improve our businesses. And this has laid a very good foundation for us to build upon when it comes to our great brands and their individual brand positioning, as well as or in parallel, taking advantage of synergies and efficiencies from group. And one of the most common questions I get nowadays is that, okay, so what's your role in this? What will be your role in this journey? And how I see is that I will be an accelerator, maybe a catalyst and an enabler for the organization to achieve and have progress in our strategic activities in a timely manner. Okay. Moving on to the agenda. So the financial highlights. The quarter ended at NOK 3 million, which is a marked improvement versus preceding quarters and versus last year's of negative minus NOK 46 million. And our performance in the quarter reflects a steady revenue growth; thanks to our commercial initiatives, but also supported by a more positive market dynamics. And the gross margin continued to develop positively as we did in the -- as you could see in the first half of the 2025. And this is thanks to rebalanced campaigns, price policy and also positive effects from range mix. The operating costs remained stable despite of expansion and general cost inflation. And this is thanks to cost and efficiency measures taken. And I think it's worth mentioning also that during quarter 3, we implemented additional cost initiatives to improve our business. Inventory reduction and consistent effort to improve our payment terms give positive effect on the net working capital that continued to improve year-over-year. And finally, our liquidity position remains solid. I'll start the operational update with a brief market overview. And we are pleased to see that the markets are gradually recovering from what has been challenging years for the industry. And with certain exception, the market progress has been relatively broadly based across most categories. And also recent product launches continued to support demand in the gaming-related categories, which is one of our core categories, and also additional tailwind from seasonal sales. And as we move now into our most active period, commercial period, we see that these recent launches will continue to contribute to the demand and the demand drive. And although the consumer sentiment in Norway and Sweden may be held back by global uncertainties, we see a positive market momentum. And now let's have a look at our three consumer brands, starting with Komplett. And I'm very pleased to report that we continue the good momentum we are having in Komplett. We are consistently focusing on having the right customer offer. And in the period, we saw high demand, as mentioned, in the gaming-related categories and also recent product launches. On the cost side, we are benefiting from the cost and efficiency measures taken in the beginning of the year. We are also very pleased to see that our business-to-business loyalty program continues to attract new customers in the small segments and also the reinforced sales team targeting the larger SME groups, they are now operational. Webhallen, moving to Sweden and Webhallen. Webhallen, which caters to our gaming enthusiasts and fans, I can report that the warehouse and the back office consolidation has now been completed. So the inventory is now integrated with NetOnNet, involving an even broader assortment base for Webhallen. The shared functions across Webhallen and NetOnNet involving areas like finance, HR and IT is now -- have now been established. And these initiatives are expected to generate improved productivity gains going forward. Webhallen again proved their strong gaming position in the Swedish market, while also accessing more broadly assortment appeal to a broader tech assortment. And they experienced good interest for product launches in the telecom area quite recently. Our store upgrade program continues in Webhallen, and we recently welcomed new and revamped stores in Gothenburg and in Northern Stockholm, InfraCity. And with those, we now total 13 stores in Webhallen. And moving to NetOnNet, where we have reaffirmed our brand repositioning and commercial strategy. This involves reduced campaign intensity, coupled with a more balanced volume and gross margin activities across several categories. The message to our customer is that you can trust NetOnNet to have low prices every day and a great assortment. And when it comes to our great affordable and attractive assortment, we could see that especially during summer, there was a strong demand for our seasonal products. And additional measures to improve efficiency were implemented during the last quarter, including workforce reduction in Sweden and in Norway. And now going into the financial performance. Thomas, will you do me the honor?

Yes. Thank you, Rossi, and good morning to you all. I'll just briefly walk you through the financial performance for the quarter, and I'm pleased to say that it has evolved positively on quite a lot of indicators, but also in line with quite -- with what we actually indicated last quarter. Starting up with the top level, and the quarter ended with an improvement in EBIT, which was fairly substantial, NOK 49 million. And I think the positive side of that is that it was contributed to by all the underlying segments. All segments in their own form, but all of the three segments we're operating it had a better performance this year than during the last quarter -- the same quarter last year. Mainly contributing to this development was the gross profit development, and that was also a common theme across all these three segments. But starting from the top, looking at the sales development. You can see that it was a relatively stable growth, but it was very uneven in the sense that the B2C segment and the B2B segment grew relatively well, whereas the distribution segment again were lower than the last year. That reflects basically an improved market for the B2B and the B2C segment, whereas to a certain extent, contract and particular customer issues affected the distribution business. I'll come back to that. On the gross margin, we contributed to lifting the gross profit 12% year-on-year. And as we stated during the last presentation, this is actually where we can cover our fixed costs. So this is kind of the critical parameters as we see it. And here, we continue to see good growth quarter-on-quarter. On that note is also somewhat inverse related to the sales growth in the sense that in those areas where we did see actually a weak sales performance, we did also see a significantly better margin improvement. Operating costs, if you correct for the currency translation effect, remained relatively stable, up 0.3% year-on-year, which reflects the impact of the cost savings measures we are doing, but it also reflects a certain cost buildup in marketing and market investments, and also some cost overruns on the consolidation efforts. That has been continuously addressed and also been addressed through additional cost measures in the quarter and of which have been executed a relatively large proportion, causing a one-off cost in termination and redundancy costs of NOK 14 million. Overall, and the combination of these, today in particular, the strong gross profit development and the stable cost base resulted in an improvement year-on-year of NOK 49 million, which is still with NOK 3 million, as Rossi alluded to, not a satisfactory level, but a continued improvement from last quarter and a significant step upwards from last year. Looking into the B2C segment, showing the largest uplift in profitability. This segment was characterized by quite some differences, as you can note from the underlying material in the quarterly report, where Norway showed a fairly strong growth and Sweden less so. Norway was supported not only by a good market, but also by definitely the gaming categories, which performed very strongly in this quarter as well and benefiting still from the recent launches during the first half of the year with these still popular items. In Sweden, we did see a slower growth in the sense that we have rebalanced the price and campaign policies, as Rossi alluded to, which also translated into different performance according to the segments. So in Sweden, you will see a much broader divergence in terms of category development, i.e., gaming and season developing pretty strongly, meeting there, as Rossi alluded to, the need from -- and hard to imagine on a day like this, very hot summer with air conditioning, lawn mowers, automatic lawn mowers and the sort, which also contributed to the growth in Sweden in the quarter. On the weak side, obviously, as in the last quarter, the telecom segment, where we have done a deliberate choice to go for profit rather than sales. And while that contributed to dragging down the revenue, it did also contribute to lifting the margins. On the -- that combination caused a strong increase in the gross profit for the quarter, which is the main cause for driving the increased profitability, whereas the cost continued to increase. Some of this is the translation effects. Some of this is the market investments, and some of this is the cost overruns on the consolidation efforts, which still are not showing the impact that it should have given the efforts to set up the structure. As Rossi alluded to, that process is now largely complete. And we have also, during the quarter, taken additional action in this segment to reduce the cost base even further. Nevertheless, the combination of these two obviously yields a fairly significant EBIT improvement, which we are indeed very pleased to see. And we also see that there is a need for further profitability improvement, obviously. The B2B segment is also showing a fairly good growth in this quarter. Some of that is actually relating to the composition of the contracts for educational PCs, where we have through a change in composition, not in the number, achieved higher volume this year on the PC sales, whereas the underlying revenue development was much more stable. What we are also seeing in this segment is that the demand for new PCs, given the aging installed base in the market, is increasing and stabilizing the market. And we expect that to develop positively going forward also as the positive consumer economics translate into this segment. What we're still not seeing is the effect of the Windows 11 transition where the uncertainty around that is being handled has so far not translated into a large demand for PCs in that respect. Here, the combination of margin management and a good cost management had also lifted the EBIT year-on-year, which means that we still in this quarter can deliver the same EBIT as last quarter. In the distribution segment, which is heavily also relating on the telecom business, we did see again a weak development. What we are seeing on the positive note is the stabilization of the underlying market characterized by our resellers coming back, whereas some of our larger customers, as you may recall, this is a segment driven very much by both large suppliers and large customers. The timing of these and also the contract composition of our customers affected the revenue in the quarter, whereas the underlying demand stabilized. Nevertheless, the combination again by a good margin development and margin management, operational efficiencies and also good cost control resulted in a lift of the underlying EBIT year-on-year. Net working capital development and cash flow. The quarter started with, as you may recall, for us, unsatisfactory level on the inventory side, and we managed to drive that down during the quarter, and that contributed very positively to the cash flow. In that process, you obviously will affect when you actually so quickly drive down your inventory and we stop your purchasing will drive down your supplier credits, and that is also the counterweighting force in the quarter. But overall, a combination that actually yielded a very good cash flow for the quarter in line with previous year. On the investment side, we continue to maintain and develop our IT infrastructure, and that's the main cause for the NOK 25 million in investments for the quarter. Net financial items still remain mainly driven by the leasing repayments and interest costs. And if you look at the lift up year-on-year, it's mainly driven by a repayment of the deferred Swedish tax, which is running at a rate of something like NOK 39 million every quarter. Last but not least, that ended with a cash flow that's very much in line with last year despite the rundown of the supplier credits. And when we are on that note, you can see that the inventory level is also now below last year and also below previous quarter, which is exactly where we would like to have it also now in the beginning for building up for the peak season, but that we also continue to improve our position on the payables, where we have, as you may recall, already last year, started a program to harmonize the payment terms with the industry normal. And we are relatively progressed on that, which means that we will continue working on it, but we will also now increase our focus on the inventory in our work to continue reducing the net working capital. The net impact of this is obviously that we have a remaining very solid liquidity of NOK 1.2 billion, which is higher than last year and also higher than the last quarter. And we have also this period managed to reduce the net debt. The reduction there is mainly related to repayment of the Swedish tax deferred payment scheme, which have contributed the reduction by NOK 150 million, partly of which was reallocated to receivables. However, the combination of that with an improvement in the EBITDA, i.e., with contributing like 50-50 on each, i.e., have contributed to reducing the leverage ratio to 3.0, which is in line with our financial arrangement and significantly below our temporarily stated covenant level for the quarter, which we, given the operational challenges as we outlined them during the last quarter, took as a precautionary measures before the now covenant path returns to the normal level of 3.0 in Q4 and 3.5 in Q1. But nevertheless, a significant improvement from Q2 and also a significant improvement from the same quarter last year. So overall, well positioned now to go into the most important period of them all, Q4 is obviously peak season. So we are very pleased to have a good starting point. And then on that note, I give the word back to Rossi.

Thank you, Thomas. So in summary, for the past quarter, increased sales and a good margin trajectory and also supported by positive market dynamics. Our cost base remained stable, and additional measures have been implemented during the quarter in order to optimize operations and accelerate profitability. We maintained a solid liquidity position supported by inventory reductions and improved payment terms. So all in all, overall, we delivered a quarter clearly showing progress on our key initiatives and key financial metrics. And as Thomas mentioned -- sorry about that, my bad, this was what I just mentioned, right? So moving on to what lies ahead. The consumer sentiment continues to be subdued, but improving, while market momentum remains positive. And macroeconomic forecast indicate continued positive dynamics for our core markets. And recent product launches are expected to continue to support demand in the latter part of 2025. And as Thomas mentioned, we see an emerging need of upgrading PCs, reflecting an aging installed base as well as expectations on the Windows 11 upgrade or transition. From an operational perspective, we continue to advance on our priorities. The impact from consolidation and efficiency measures are expected to increase in the latter part of 2025 going into 2026. And we are now approaching the most active commercial period of the year, and we are fully prepared and have great deals for our customers. My priority, as initially mentioned, is to focus on the execution of our key strategic activities in a timely manner. So with that, Thomas, I think we are happy to take your questions from the audience here and online, of course.

Thank you. I think we will start to see if there are any questions from the audience here in Oslo.

Sigurd Flaa from Nordea. I have a couple of questions. The first one is in terms of the gross profit from the B2C improvement. Could you give some flavor of which geography has impacted the most on the improvement and maybe a bit about the competitive situation in -- especially in Sweden?

Yes. No, as I alluded to, the margin improvement is inverse related to the sales growth. Which means that in Norway, you have seen a good uplift in the gross profit, but not necessarily that much in the margin side. In Sweden, it's the other way around. And actually, on the uplift, Sweden has contributed fairly significantly to the uplift as a share of the total. And that comes from various segments, but it has been a rebalancing from low margin to high-end products in that region. On the competitive environment, I think as we have alluded to in the report also is that last year was a unusually intensive period in the Swedish market. And we have seen that while this industry will never be uncompetitive, we have seen a more normalized level during this year so far. And it also reflects that we may have stepped back from some of the hottest areas.

Any other questions from the room?

[indiscernible] I was a little bit surprised by the personnel cost, which was higher than I expected. Could you please elaborate a little bit about the level?

Yes. I assume you have been reading the Note 3 fairly elaborately, so that's good. There are several factors in there. First of all, you looked at the B2C segment, which has a fairly high level of translation effects. You will also, in that area, see the -- quite a lot of the market and expansion investments, obviously, in new stores and the sort, which has contributed to a positive -- a negative development from that point of view. And you also have a reallocation in the sense that some of the FTEs we have outsourced previously have been in-sourced. For instance, a customer service center in Sweden, which has enabled us to take down the customer service center in Norway, but also in-sourced a customer service center in Sweden at a lower cost, but then with a higher personnel cost. So there has been quite some movement from other costs into the personnel cost side. So the total of the OpEx needs to be seen in parallel there. That said, as we said, we are not happy with that development, and that's why also the cost efforts going forward and also ongoing are mainly related to that segment.

Could you say anything about how, if any, impact from the lower dollar on the gross margin so far?

Actually, it has been fairly neutral. You've seen the currency effect from the Norwegian krona and the Swedish krona going in opposite directions. So while we previously have also seen a relatively limited currency impact on those as the prices are being dynamically adjusted in the market, this time, we're also seeing different dynamics in the two markets, i.e., one area being negatively affected and one positively affected. So there has not been, to our knowledge, any material impact on that.

Compared to other consumer companies, the revenue increase is not very high actually. To me, it seems like you lose market share to some extent at least. Is there any way to talk about your relative position in the market and the growth in your segments versus what we can see from other companies?

I think we have a policy of not discussing market shares, but I think you can see from the growth rates that there has been different development according to the segment or the countries. I think if you look at Norway, it's pretty obvious that, that has been a strong development, only partly driven by the new stores we have been opening. So definitely also benefiting from the gaming development. In the Swedish market, as we have been alluding to, we have made some deliberate choices. So whereas the overall development is slightly negative. The mix we are gaining from that is more positive. So overall, we are quite satisfied with the development going forward there for the time being, given the net effect on the gross profit.

Any other questions? Then let's move on to the online questions. First, what was revenue growth in Norway for B2C, excluding the contribution from NetOnNet stores?

I don't think we have a policy of giving out exact numbers, but the impact of the stores are not that large. You can take something like 25% of the growth or maybe something in that direction.

Thank you. In B2C, Sweden was down 1.7% as you hold back volume to support gross margins. For how long should we expect this trend to continue?

I think that is a topic that is a bit competitively sensitive, which we would like to maintain in-house for the time being.

How do you consider Q4 2024 performance? Is it hard to -- is this hard or easy comparable for you? Any product launches likely to be a driver of Christmas sales?

Well, first and foremost, I think we were pretty happy with the '24 level. I think we thought that we actually executed that well. So we have some high bar to meet. That said, this is a year with quite a lot of Christmas gifts coming our way, switch to gaming-related items, which will be natural parts of the Christmas tree. And also -- and I'm not the expert, but some -- those who are and have been looking through our peak planning are very satisfied. So I think we have high expectations for that period.

How was your availability of products this quarter? Is there enough supply of graphic cards?

Enough is hard to define. I think we experienced that the graphic cards are still somewhat limited during this quarter. We still think the availability will be higher now as the suppliers gear up for the Christmas season. But it has not been a major issue in that sense. It's not kind of -- it's basically a deliberate policy from the suppliers.

Can you comment upon what you expect in cost savings from your current cost programs? And how much of this you have been able to crystallize so far?

I think we have been very careful on actually stating that. We have a total cost program addressing something like 8% to 10% of our cost base, excluding depreciation. And we are something like 25% to 30% through that when it comes to the run rate. That said, it's very important to remember that, that is a gross figure, which means that the net impact will obviously be less. And we're also seeing cost inflation running at 3% to 3.5% in Norway and Sweden and salary inflation at 3.5% to 4.5%. So there is also some countervailing forces here.

Your gross margin is up 1.2 percentage points year-over-year. Can you provide a breakdown of what is driving this?

No.

Moving on. The concept of building your own PC has been a success. Do you see any potential to expanding this concept into other product categories?

Could you repeat the question?

The concept of building your own PC has been a great success. Do you see a potential of expanding this concept into other categories such as domestic appliances and so on?

For the time being, we are not planning on extending a self-make program to other categories, no.

Thank you. There has been many management changes over the course of the last few years, both in the group and in Webhallen. Have you established your management team, hence, interim roles? And what is your perspective on current diversity ratio?

Finally, a question for me. So there's been some changes recently also during my period here. And -- but important to remember is that, that also includes internal promotions like the Commercial Director coming from Webhallen, which also is a great signal internally at least to say that this is a place where you can work and have your development. So we have two interim positions right now, and that is at Webhallen and NetOnNet. But important to state is that they are internal interim, and this is in order to keep up the good momentum in the activities we are working on and to create as less disturbance as possible for the organization.

Thank you. How much was the negative impact on telecom in the quarter in Sweden? And what was the impact of this on gross margins?

I think that is a level of detail we would like to avoid publishing.

Can you please elaborate on what you expect from the new cost initiatives introduced this quarter?

We indicated during the last quarter that this would involve something of half of that 8% to 10% figure we put in the room, and that's still the case.

A bit higher, please.

About half of the target that we indicated.

On B2C and Sweden, when do you expect the NetOnNet rebranding to start driving stronger sales and not only better gross margins?

Again, that is a question that is very hard to answer and also a bit competitively sensitive.

Yes. Thank you. Distribution sales, down nearly 10% year-over-year, and you've mentioned timing effects from large accounts. Is this quarter more representative of a normal run rate? Or do you expect to recapture some of those lost sales in Q4?

The run rate in the quarter is unfortunately relatively well reflecting kind of the underlying development in the sense that some of the end customers or some of our customers have not kind of materialized to the extent they did last year. That said, as we said on the distribution review, is that the underlying market appears to be stabilizing, which is a positive development.

For B2C, how much do you estimate that the extraordinary costs related to the consolidation measures impacted B2C Q3 results?

That is a level that we would maybe try to avoid, but something in the range of NOK 6 million to NOK 8 million.

Final question for now. What was the year-over-year growth in Komplett B2C in Q3, excluding NetOnNet and Webhallen?

That's again a figure we are preferring to maintain inside -- in-house.

Thank you. That was all of the questions online. Are there any other questions from the room?

Can you say more about the sourcing and the situation? You have talked about it many for, well, basically many years that your sourcing power has not been, let's say, strong enough compared to Elkjop and maybe also Power. I know that you have tried to strengthen that in the last few years. We have seen that your working capital is going in the right direction. But also, is there a question mark concerning your availability of the stock. I've been trying to buy some exercise sometimes that you basically don't have. Is that an issue that might have affected your top line growth? Can you say more about that? And how do you think? Because I think that's maybe one of the most important things for Komplett going forward to be sure that we have the best competitive prices going in. You haven't had that previously. I know that you're going in the right direction. But can you say more about that and your efforts and your contribution from the suppliers on actually achieving that?

I think, as you know, we put quite a lot of effort into centralizing the sourcing, and that has contributed significantly to improving both the terms when it comes to funding and also when it comes to the purchase prices. And also the availability, adding new suppliers both in areas where we were strong before, but also in areas that we're building up like the MDA. So I think the contribution so far has been very positive. Are we on the same terms as other competitors in the market? That's very hard to judge, but I think we have caught up quite a lot towards that end. And we will obviously continue that effort, whereas that is now more in a kind of an ongoing operational business as the supply of the centralization of the each category and sourcing responsibility is completed and has been completed for 18 months. Availability has been an issue. As you may see, we have run down the inventories fairly strongly during the quarter. And that has kind of had some impact, but we are monitoring availability fairly tightly. And also the -- during the last period, our availability on the Triple-i items, i.e., the critical items have been going up. So we don't actually perceive that to have been a very negative contributing factor in the quarter.

Over to profitability. I think you, so far in '25, have lost approximately NOK 155 million in operating income in Norwegian GAAP. And that's quite a high number. And I kind of can't say that I have an impression that there is explicit plan to reach even 0 on operating income. That might be true or untrue. Could you please tell a little bit about how you are working to restore not only 0, but a decent operating income level?

Yes. And as you know, year-to-date is not necessarily reflecting the potential for the year given that the main season is coming up, and that is also where we regained quite a lot of that. We outlined -- and first and foremost, I mean, Rossi has been on this for 3 months. She needs to get some time to kind of speed up and put our own mark on the plan. But I think overall, we are pursuing the plan as outlined previously. We are, as you're seeing from our discussions during these presentations, we're just rebalancing a little bit in the sense that we had hoped the market would recover more quickly and giving us cost aggression. Well, that didn't happen. So we are putting more efforts on the cost side. But we are still progressing the other priorities, maybe not with the speed we would have liked to see, reflecting also a difficult market environment during the last years. But that's also some of the role that Rossi has in this is obviously to speed up on all those initiatives that are already there, and that will bring you back to your net profit 0.

Thank you. I think that concludes today's Q&A session.

Thank you, [indiscernible], and thank you all for joining during this session. Appreciate it.