Komplett ASA (KOMPL) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to Komplett Group's presentation of the fourth quarter results. My name is Ros-Marie Grusen, and I'm the CEO of the company. And joining me this morning, I have our CFO, Thomas Rokke. The agenda for today, I will start with a few highlights from the past quarter, followed by an operational update. Thomas will then take you through the group's financial performance in more detail, and we will conclude with a summary of key takeaways and a brief outlook for the period ahead before opening up the floor for questions. Starting with the highlights. The quarter ended with an EBIT of NOK 102 million, representing a year-over-year improvement of NOK 25 million. And the performance reflects steady revenue growth supported by another strong peak season and generally positive market conditions. And the gross margin continued its positive trend, although the pace of improvement slowed, and this was mainly due to tougher comparisons, of course, and certain temporary effects in the prior year quarter. Operating costs measured in constant currency were reduced. Cost and restructuring measures offset the impact from general inflation and continued commercial investments. Our Swedish operations have continued to face challenges, and in light of the delayed recovery, we recognized a non-cash impairment charges of NOK 535 million, which reduced balance sheet risk associated with the Swedish entities. The impairment, though, do not alter our view of the underlying Swedish business or its business potential. Our strong brand position provide us with a solid foundation to develop the business further. The net working capital level continued to improve year-over-year, supporting both liquidity and financial position. And as seen as last year, the phasing effect of Black Week shifted supply payments from the peak months into 2026. This is, however, expected to normalize in line with the usual seasonal pattern into the first quarter. In summary, the fourth quarter concludes a year of consistent profitability improvement and a stable financial position for Komplett Group. Stronger gross margins, combined with proactive cost control, resulted in a full year EBIT improvement of NOK 91 million. So the recent performance shows that we are moving in the right direction when it comes to our priorities. That said, there is still untapped potential across the group, and our focus remains on execution on those priorities. Looking ahead, we see a market environment that's broadly supportive, but also more demanding because, on one hand, the consumer sentiment is improving and replacement cycles are also gradually improving, which, of course, supports demand, but at the same time, on the other hand, the contribution from recent product launches is expected to decline in 2026 and supply constraints in memory and other components remains a source of uncertainty. To manage that specific risk, we've taken mitigating actions, including selective preemptive purchasing. And to support top line growth, we are increasing our focus on selected attractive categories such as gaming and domestic appliances, and we continue to expand our private label portfolio. In parallel, of course, we are maintaining a very strict cost discipline. As you know, during 2025, we implemented both cost and commercial measures, including consolidation of the logistics and back-office functions in Sweden. We have also strengthened the management team to support execution. We have new leadership team -- sorry, leadership has been recruited to our Swedish operations. Karl Eckerdal recently joined as Managing Director for NetOnNet, bringing extensive experience from retail and management. Kim Andersson has been internally appointed as Managing Director for Webhallen and brings a solid industry experience. And with those 2 appointments, we will strengthen our omnichannel capabilities in the team. And at the group level, we added a CTO to the team, Kristian Torgersen, who also just joined. He brings deep hands-on retail online expertise as well as digital commerce. And this is -- this strengthens our ability to build scalable customer offerings across group. And he will also contribute to the development -- the technological development across group in a cost-efficient manner. And in March, we look forward welcoming our new HR Director, [ Nicoline Baartvedt Yarmaan ]. Operational update. The strength and awareness of our brands remains a key asset. Delivering a strong and consistent customer experience continues, of course, to be a core priority. And what you see here is an extract from a recent customer survey, where respondents were asked about their open associations and the preferences for Komplett, NetOnNet and Webhallen. And as you can see, the feedback clearly validated the positioning of each brand, showing that our retail brands are well understood and highly regarded by customers. And this gives us a very strong foundation to build on, creating opportunities to further develop our customer offerings and leverage how the brands complement each other to drive growth across prioritized categories. Let's have a look at Komplett, which I'm pleased to say, continue its positive good momentum and development as we've seen in the past quarters. We are especially excited to see that our own produced PCs, known as Komplett PC, continue to gain traction among dedicated gamers, and that despite the fierce competition in this very segment. High demand for Komplett PC, of course, increased our overall growth, but as would be expected, substituted some demand in related categories such as gaming PCs, gaming laptops and components. We also continue to optimize the already, what I would say, quite efficient production setup in Sandefjord, improving flow and reducing manual handling. In Q4, our extended robotic arm setup delivered productivity improvement, and this is particularly important in maintaining capacity and service level as we absorb volume increase with a leaner workforce following the downsizing in Q1. Moving to NetOnNet. NetOnNet -- speaking about brand and brand strength, NetOnNet has recently been acknowledged for its strong brand reputation. Baymard Institute recognized NetOnNet for our UX performance on mobile. And as you know, a lot of purchasings are done via mobile only. YouGov also recognized NetOnNet for its strong brand recognition, actually one of the strongest in Sweden. And alongside with staying top of mind with consumers, we continue to work on improving our business with ongoing initiatives focusing on customer offering and the customer journey optimization and more efficient and lean cost structure. And with the recruitment of Karl Eckerdal as MD, we have strengthened leadership with a clear mandate to further develop NetOnNet and drive continued execution across the organization. And finally, Webhallen. As you know, with the shared functions, in addition to improving Webhallen's cost base after the shared functions between NetOnNet and Webhallen, this also gave Webhallen access to a broader range, which enabled them to improve their customer offering. And under the leadership of Kim Andersson, Webhallen has continued the execution of productivity initiatives, operational improvements while building a further developing disciplined cost control. So those were our retail brands. Thomas, will you take it from here and guide us through the financials?

Yes, I will. Thank you very much, Rosie, and thank you all for joining us today. I will walk us briefly through the quarterly financial performance and discuss some of the moving details and moving parts, of which there is quite a lot. So bear with you. Well, starting on a high level, as Rosie indicated, we had a good sales growth or acceptable sales growth. We had a stable but still improving margin versus last year, and we had a stable cost base, which basically turned into a profit improvement of NOK 25 million versus last quarter last year. This is relatively consistent across segments and across time. We have a profit uplift across all the segments, and we have that for the quarter, but we have it also for the full year. So the improvement have been fairly consistent. What we did see this year or last year was a relatively tough comparable, which does influence how the margin look year-on-year, and I'll come a little bit more back to that. This effect was mainly visible in the B2C segment. The B2C segment did see a good growth of 6%, but somewhat lower on a like-for-like basis adjusted for currency movements. This time, the growth was actually relatively balanced between the 2 countries, our 2 core markets, i.e., Norway and Sweden. In Norway, as Rosie alluded to, the traditional Komplett business continued at a very fast pace, supported by the Komplett PC, which necessarily also took some cannibalization effects on related products, i.e., you don't buy both the Komplett PC and a gaming PC, et cetera. But apart from that, we're seeing actually a relatively good development across the board. On the other hand, the NetOnNet business in Norway, which we have been building slowly and which we indicated in Q3 required a profit readjustment. And as part of that, sales -- unprofitable sales were taken out, and that affected the growth rate and comparable in the Norwegian market. So that's basically the reason why this rebalanced. On the positive side, Sweden is picking up in the sense that we did improve Q-on-Q growth rates. We did see in our core segments a good development and where we basically focused the effort. We did also see continued growth. But we're also held back in the telecom segment, again, as previously, both due to rebalancing of margins, but also due to the fact that last year was particularly apt for the Swedish market when it comes to model cycles in the telecom segment, which affected the campaign structure. The campaign structure also affected the margin in the sense that the margin in last quarter last year was basically a bit positively influenced both by campaign and phasing, but also on the one-off elements, including some hedging effects. That makes the comparable very difficult for this segment. But the underlying margin, I think that is the important part here. The underlying product margin is still evolving as we anticipate and continuing on the traditional path. So apart from the normal things you will find in a season -- in the high season, i.e., you have to offer some freight, you have to offer some price concessions and so forth, the underlying development is unbroken. That led to a profit uplift of NOK 12 million in the quarter with obviously the Norwegian business taking the largest part of that. On the B2B side, we do see that the market is stabilizing. In Norway, we did see the PC demand kind of normalizing in the sense of the refreshment cycle of the previous period and also by introducing new PCs and also, of course, the Windows 11 effect, which we have been discussing on several occasions. It does, however, appear that this effect is starting in the larger segments, i.e., not at the SME and the SOHO segment where we are serving, but we are slowly seeing an improvement in that area as well. Somewhat positive, though, the Swedish market for this business had a very good performance in the quarter, also supported by system integration solutions, i.e., dedicated PCs, and also by an attractive offering that we actually could provide into the Swedish market, availability of products, et cetera. Combined with a solid margin improvement based both on a positive mix effect but also on how we actually manage the offering towards the customer, that also contributed to a positive result for the quarter and also a positive uplift for the full year, which is a promising start. Distribution, which has been -- some of our -- somewhat slower during the first mid part of the year, is also coming back in the last quarter, also supported by the Swedish market, which is again promising, given also that this is driven by distributors in Sweden buying from us, which has been a sign of a stabilizing market as we have been indicating before. And on top of a good margin development for this segment, that obviously also lifts the profit for the Distribution segment, which is a very promising development. Coming to cash flow and working capital. The fourth quarter, as you can see here, compared to last year is a quarter where we normally have large cash inflows operationally, and this time, beating that of last year, mainly driven by a higher level of supplier funding. We have the investments, which are slightly down. And we also have net cash used in financing activities, which is mainly interest repayment of leases, but also the repayment of the Swedish tax deferment scheme, which we repaid approximately NOK 38 million in the quarter and which also explain the difference. When you look at the full year figures between the NOK 540 million and the NOK 419 million, that is predominantly a repayment of this deferred tax scheme. Inventory levels, as you can see here, are slightly elevated, and that is a deliberate choice, as we also indicated. On the one hand, basically is components, where we took early orders and preempted the development on the pricing side, but also product categories, where we decided to delay the sellout to take advantage of the price development. But this basically reflects the early stages of the needed mitigation of this quite considerable issue affecting the industry. When it comes to trade receivables, we are on the same level as last year. But on that side, we have also intentionally reduced the factoring for the B2B business, which basically represents NOK 60 million to NOK 70 million a year in outstandings. So the consistent development is despite this reduction in factoring volumes. Trade payables are up on last year, partly reflecting the high inventory, which basically is the purchasing volumes coming in, but also partly reflecting the phasing within the quarter with a slightly delayed ordering pattern this year, which, as Rosie said, will basically normalize into the coming season. Resulting of that is that we have an improved working capital which is negative at year-end, which it was also during the last year. That obviously provides an improved liquidity. As you can see here, we are on par with last year. But again, the factoring of NOK 60 million plays in here, but also the fact that we have taken the superfluous part of the overdraft facility out of NOK 100 million, which means that the comparable here would be NOK 100 million -- NOK 160 million lower year-on-year if you were to compare that. So a solid result on that part. Net interest-bearing debt is obviously also affected by this. Some of this goes into cash and affects the net debt. And that basically reduces it. But on top of that, obviously, in the long-term debt part, also the repayment of the Swedish deferral scheme is providing some support for reducing the debt. As a result of that and also the improved profitability, the leverage ratio for the quarter is 1.4, which is well below the covenant for the quarter. And we do expect this number to normalize along with the seasonal pattern, but that is also reflected in the covenant pattern. So again, a good starting point. And as you can see, the leverage ratio is significantly down year-on-year. The equity ratio is also down, down to 27% basically. And while that may sound less than we actually had before, it's perfectly in line with the industry. In fact, it's probably the average. And it's also negatively affected by the buildup of the inventory at year-end, which basically expands the balance sheet position without your equity. So this has a seasonal fluctuation to it, which we -- so we expect that also to improve along with the seasonal development into the quarter. Then when it comes to the impairment, and the impairment on the goodwill is a fairly technical issue. For those not really familiar with it, it's simply that when you buy a company, what you cannot identify as tangible net assets after debt, you basically have to put up as a goodwill. And that's once more overvalue, so to speak. That overvalue has to be tested every year. And given that this industry has a -- are very asset light, it's very common that the purchase price very much ends up in this territory. We have in that respect made a choice that, given the delayed improvement in performance of the Swedish entities, to reduce that part of the goodwill on their respective cash-generating unit, as it is called. That has obviously no operational impact and it has no bearing on our expectations for those businesses. As Rosie alluded to, all of these brands are very strong in the Swedish market, as you would expect for NetOnNet, very distinct and a very high awareness, and also Webhallen with a very distinct offering, but for a niche brand also a surprisingly high awareness. So it's nothing that we actually doubt about the businesses. But it is a technical requirement for -- and we have done in accordance with IAS 36, taken down the values of these assets in the balance sheet, and thereby also reducing risk going forward, obviously. That said, we do still need to see a performance improvement in these entities to reflect the remaining goodwill in those CDUs. And I would refer to Note 13 in the quarterly report for more details on that calculation. Needless to say, this is -- remains for next year one of the focus areas for performance improvement measures. And on that note, I think I will leave it over to you, Rosie.

Thank you, Thomas. So in summary, throughout the year, we have strengthened the group's operating platform and organizational setup. EBIT was improved, supported by sales growth. A modest uplift in gross margin and stable operating costs. And looking ahead, we see a broadly supportive market environment, although, as mentioned, the innovation cycles and supply conditions are expected to remain challenging. Realizing the group's long-term potential, however, will require continued discipline and strong delivery. We will focus on reinforcing our market position with a competitive cost base, developing our customer offering and improving operational excellence. And with that, we are ready to take your questions. [ Elisa ], may I kindly ask you to facilitate this session for us.

Thank you. We will start with questions from the audience here in Oslo, if there are any. No? We will then move on to the questions from the audience following us online. First one goes to you, Rosie. You have made several changes to the management team. What qualities do you look for when hiring?

That's a very good and fair question. So a lot is the first answer. But first of all, I'm looking for someone with a good business acumen, the balance between being data-driven but also having a sound judgment to see what's a good business opportunity or not. I would also say considering what I've been working with, a true customer focus, having the ability to create meaningful customer value in a profitable way. And in this context, since we are talking about managerial positions, I would also say leadership skills, being grounded in sound values, being able to inspire, develop people and, not least, getting things done. And on that note, maybe my final comment on this one is, and this is really difficult to find, being able to move seamlessly from -- between strategy and operations, basically taking a plan and make it happen to measurable results. I probably have forgotten a lot, but those are qualities I would look for.

Next one, how is the NetOnNet stores in Norway performing?

I think we indicated that we're not happy with the progression on the Norwegian stores. And we are, as we also said in Q3, developing a concept for how to actually evolve and accelerate the profitability development on that part of the business. So I think that sums it up.

Can you please elaborate on which measures you have taken with regards to the RAM situation? Will this have an impact already in Q1? And where do you see the biggest impact?

This is a fairly big topic, so I can probably go on for half an hour. But I think the epicenter of this development is in the memory chips, both in the DRAM and also in the video RAM, VRAM. And that, it basically evolves out from there, and it will probably affect not only all of the product categories in the electronics, but it also evolves into hitting quite a lot of the supply chain. First, it basically sucks up quite a lot of the wafer capacity. It also will suck up quite a lot of the very technical assembly capacity of players like TSMC, et cetera, in Taiwan. So this is going to be a very big issue for the whole electronics value chain. Where you will see the first impact is obviously on the chips themselves. We do sell memory cards. And if you look at the price in the market, it's basically quadrupled since this autumn. And I think the estimates of external -- not going after what we have actually discussed with our suppliers, but external estimates is that this could still go on 195% to 200% during the coming year. So this is where you're going to see the biggest impact. And you're going to see the biggest impact on price, but you're also going to see the biggest issue around availability, given that the IE centers is actually taking up quite a lot of the capacity here, and it's also more attractive customers -- the providers of these and the market for the memory or the suppliers of these are basically 3 global players that will use the capacity mainly towards the IE segment. So the first part is going to be price and then it's going to be an availability issue. That's why we have taken the step for preemptive buying. So we are filling up the capacity so we can support our own production of PCs and keep that business line running. And then we will obviously develop our pricing strategy around that. And we also have to develop that around the PC segment, the mobile phones, et cetera, which will subsequently in the second wave will be affected. But there's going to be much more of issue of price more than availability.

And follow-up questions on the same topic. Could you elaborate on how increasing memory prices are affecting your gross profit margin?

It's actually quite diverse. For the first part, obviously, given that we have taken preemptive position, it will be a positive development. It's also that we will have to focus or emphasize our own production on this so that we'll be more kind of focused on our system integrated products rather than the component products. But over time, we will have to see how we can actually adjust to that.

Can you update us on where you are on your cost-cutting initiatives? What should we expect going forward?

I think you can expect what we have been saying all along, that we aim to maintain a stable and controlled cost base. We are well underway with the program, but we have also, as we said, a sufficient program now taking place in the Swedish operations to continue that development. The focus was in '25 a little bit on Norway. It will have an increasing emphasis now on making sure that the Swedish operation also can speed up its recovery.

Good. Then 2 questions on the competitive landscape. Can you give some color on the competitive landscape in Norway and Sweden? And how was the competitive environment during Q4? Is the competitive situation more rational?

I think the competitive landscape or evolution hasn't changed too much between Q3 when we commented upon this. I think we have seen that there have been moves around the campaign activity and different focus areas. And we are seeing increased competition in our gaming segment. I think more players and us have identified that as an attractive growth area. But apart from that, I think the competition is generally aligned with what we've actually seen throughout '25.

The hybrid console PC solutions have become increasingly popular in 2025 with products like the Lenovo Legion Go and Valve Steam Deck on the market. Valve has also recently announced that they are launching new hardware for 2026. How does the Board assess this growing hybrid console market? And is this considered a growth area for Komplett?

I think you are going beyond my detailed knowledge of the gaming segment, but I can assure you that our team will be looking thoroughly and carefully at these developments and we'll make sure and -- gaming is one of our focus areas strategically and we have been able to fend off competition so far. We are reinforcing that with both attractive developments on the system side from our side, but also in the offering. And I think our team will be more than happy to take up that inspiring initiative.

In recent years, there has been an increased awareness of price increases in the run-up to Black Week and price reductions during the sales period itself. How does the Board assess this increased awareness among consumers about pricing and price history against the company's goals of user satisfaction and loyalty to the company? And does this awareness of price and price history have any bearing on how the company markets Black Week and Black Friday going forward?

I think on an overall scale, the pricing environment around Black Week is something that the industry ideally would probably like to avoid, but it's a part of the business, and I think we will just have to adjust to the environment as it goes. That's as far as I'm able to answer that question.

That's okay. There are no further questions online. Are there any follow-up questions from the room? No? Then that concludes today's Q&A session.

Thank you, Elisa. And thank you for your attention and thank you very much.