Musti Group Oyj (MUSTI) Earnings Call Transcript & Summary

Hello, everyone. David Ronnberg here from Stockholm. And with us, we also have Toni from Helsinki. We are glad to be here today to present our Q4 report that we're extremely happy with. So we can move on and -- change the slides, Toni. So we presented a strong growth with best-ever quarterly EBITA. And first, I'd like to start with some highlights for the fiscal year 2021 and also some of the fantastic records we've achieved. Extremely happy with this. If we look at the net sales during the year, that was very strong. We had 20%. But not only were we growing 20%, we were able to grow the gross profit with the 25%, which means that we were having higher margins even though we were growing 20%. So that's fantastic. Adjusted EBITA came in at 23% growth. So with 20% growth in sales, we were even doing stronger growth in EBITA. Something that we've been focusing on the full year is the loyalty club and getting as much customers into the system as possible. And we had a record growth of 13%. And if we include all the customers that has come into the online verticals, we actually go over that, up close to 15%. Another thing that is key for us is to focus on our own exclusive brands. And that share of sales came in at 51%, growing as well. So all of these things is helping out, of course, for stickiness, loyalty and also driving profitability. If we look at the cash flow, that came in at EUR 55 million, was also very strong. That's, of course, related to a lot of things, but one thing that we pointed out here is that average spend has been growing with 5%. We also have been focusing on opening and acquiring stores. We acquired all the franchise stores in Finland. We have opened greenfields in Sweden and Norway. So the number came in at 49 stores during the year. That's above our own expectations that was about 30. If you specifically look at the fourth quarter, that was actually the best in Musti's history. We had the highest sales, EUR 91.5 million. We had an accelerating 2-year growth. We look at it from a 1-year perspective but also from a 2-year perspective because of the COVID-19 impact that came earlier. So on a 2-year perspective, it came in at 42%. And that's actually during the year, we're accelerating, coming in at 32% 2-year growth and going up to 42%. We also achieved the highest adjusted EBITA in the group's history, came in at EUR 11.2 million. So all in all, we are extremely happy with the performance in the fourth quarter and during the year. But let's go in more into the Q4 report on the next slide. So if we look at a bit of the details, net sales increased with 18.9%, as I said, to EUR 91.5 million. That's mainly driven from new customers coming in. We are continuing taking market share in all 3 countries. Sales in like-for-like and -- which is something that we look at, we see that, that was growing with 10.9% in total, coming from 8.2% in the stores and online about 20.2%. We were meeting very high online growth numbers last year. That's why we look at this from a 2-year basis as well, but even though, we were growing 20% online. And the group's adjusted EBITA increased by 11.2% to EUR 11.2 million during the fourth quarter, and the margin came in at 12.2% versus 13.2% (sic) [ 13.1% ]. We have mentioned this before, but last year, there was some specific things coming in, in lower cost structure related to COVID-19. And also this year, we were burdened a bit in the Q4 regarding the warehouse consolidations with about EUR 0.4 million. So Toni will go into -- to this more in detail going forward. From a cash flow perspective, operations came in at EUR 15 million. Last year's were EUR 20 million. This fluctuates a bit up and down during the quarters. But from a full year perspective, we came in at EUR 55 million, which is something that we're extremely happy with. Also here, Toni will go into details. Number of customers, 1.3 million customers now. That's approximately a growth of 13% in the total customer base. And as I said earlier, if you include all the online verticals, we actually have 1.53 million customers, which is a record number in the Musti history. And important also to point out that the strong trend has continued after this fourth quarter into the first quarter this year. So let's look more into the growth drivers. One important thing that is driving growth, maybe not so much short term, but from a long-term perspective, is this puppy registrations. When we mentioned this before, we've seen that a lot of new customers is coming in with puppies. The fun thing with this is, of course, that we can serve them and help them. And from a long-term perspective, we hopefully can have them around for 10 years. But if you look at the numbers, we see that the puppy registrations that has been -- that we can follow in Sweden was growing 14% during the quarter. And on a 2-year growth, it was actually 26%, which is extremely good. But maybe more interesting is for see -- for us to see how many of these puppy customers we can capture into our loyalty program. And from a group perspective, during Q4, when the puppy registrations in Sweden was 14%, we saw that we had a growth of 34% of new puppy food customers. And in July, we had a record high levels. And as I said, the important is that these customers comes in at a low entry and then they will ramp up, hopefully, the coming 10 years. So this is supporting our long-term growth. So let's look more into the sales on the next slide. So net sales increased by 18.9%. Once again, a very strong quarter, 11% like-for-like. Strong growth in all countries. Finland came in at 12% growth, super strong. We were outgrowing the groceries and all the competitors in Finland, even though we've been there now for 30 years. It was a bit -- it was a strong growth in the stores, a bit lower in the online part, and that's related to admitting strong COVID-19 numbers in the online part. Sweden was growing 19%, strong growth in stores and a bit lower online as well. Also here, we were having high comparison numbers last year, as I talked about, with the strong channel shift that was. And then Norway came in at 53% growth, very strong growth in both stores and online. And the rolling 12 months, last 12 months, we had a sales of EUR 341 million. And per segment, Sweden and Norway is taking a bigger share. As we can see here on the right side, Finland has 44%; Sweden and Norway, 56%. And last year, same period, Finland had 47%. And this is part of our plan, grow in Sweden and Norway to be at the same levels as we have in Finland. So if we look at the sales on a bit longer perspective on next slide. And here is coming back to what I was saying earlier that we looked at it from a 1-year perspective but also from a 2-year perspective. This gives you a bit of a easy to see how strong the trends is in Musti Group. So Musti Group is actually increasing on a 2-year basis. We were growing -- coming in at 19% growth in the quarter, but we were meeting high comps last year. So again, you can see, on the right side, how strong actually the growth is on a 2-year basis. This is driven by new customers and average spend, as earlier. And it's obvious that our concept is working extremely well and that we're taking market share. And if you look at the last 4 quarters, Musti is growing with about 20%. If you look at a 2-year basis, we actually have been speeding up during the year, coming in at 32% growth in Q1. And in the end of the year, we came out of 42%. So -- yes, it's a fantastic situation to be in. So if we look into our profitability on the next slide. So we follow a lot of KPIs. One KPI that we will start following even more going forward is the EBITDA. And here, we -- you can see that we deliver a record EBITDA. And in Q4, we delivered 17.2%. We were still burdened some with the Eskilstuna on the supply chain part with about EUR 0.4 million. So if you adjust for that, 17.6%. We have some seasonality effect, as you see, and that also affects the margin going a bit up and down. But if you look at the last then 4 quarters, we see that we came in at EUR 58.8 million in EBITA. And if we adjust for the warehouse consolidation, we end up with a negative effect of EUR 1.5 million for the full year, we end up at EUR 60.3 million. So with the EUR 60.3 million adjusted, we have EUR 55 million in cash flow. So a very good situation. And with this, I would like to hand over to Toni that will go into the Q4 EBITA.

Thank you, David, and hello, everyone. So my name is Toni Rannikko. I started as Musti CFO in September, so being with the company a very short while of the full year '21. But luckily, I have a great finance team in Musti who has helped to put together the report. So as mentioned, Musti had its record quarter in EBITA and still remembering that it was burdened a bit by our warehouse consolidation project with a EUR 0.4 million effect on that one. And still you're kind of recalling the year ago time. Especially in Finland, there was quite heavy restrictions related to COVID. So if summing up both of these parts, we are actually quite on the level on a relative profitability year-on-year. Our gross margin improved due to the reasons what David showed there in the first page. So especially our own and exclusive share of sales is growing and is now over half of our sales. Also, we have efficient category management. So the team is relentlessly looking at opportunities what we can get in the sourcing part. There were adjustments so far EUR 0.9 million, mainly related to restructuring costs on the quarter 4. And also, the EBIT on the quarter was Musti record of improving from last year with a EUR 1 million. And here on the next slide, we can take a look on the EBITA margin development. And you can see on the left side of the picture, kind of the normal seasonality and the record high number there on the quarter and on a 2-year basis, improvement of 61% on the quarter 4. So good development in that sense. And then in the right side picture, maybe the red one describing last year with lots of COVID impacts and then the light green describing this year are maybe upside down in a sense, but I see this as a lot of opportunities for Musti. So we are doing great in our front part of the company. So in the markets and sales and acquiring new customers, but we have quite good opportunities in the back end of the company, talking about our supply chain, our head office and so on, how we can do things more efficiently as Musti has been on the rapid growth and continues to be on the rapid growth. So there, we can have more focus on, and we'll have more focus with very firm actions in the future. Then going more detailed on the segments. So we start from Finland, where we had the net sales increased by 12% on the quarter. And then for the full year, we grew into EUR 153 million, which means a 12.5% growth. At the same time, the market growth in Finland is roughly 6%, so we are growing twice as fast as the marketplace does. Our market share in Finland is now roughly 31% and we improved that there, of course, as well. What was topical for the Finland's quarter and the year was that in quarter 4, we acquired altogether 16 new franchise stores, and during the year, even a bit more. What comes to the profitability of Finland, so there was the impact on the COVID comped last year and then also the kind of our main warehouse burdening cost to Finland as well. Then going to Sweden. And there, we had also a great growth, growing faster than Finland, like David there mentioned, which is our plan, to grow Sweden and Norway. So here, we had the quarterly growth on 19%. And then the full year, we reached almost EUR 150 million with growth of roughly 20%. In Sweden, the market growth was a bit faster than in Finland, around 8%. So there, our market share at the moment is also around 30%, 31%. There was a bit of a tailwind from the currencies. But even if you look at in the local currencies, the performance of Sweden was stellar. We also opened new stores in the quarter 4 and also during the whole year in Sweden with large numbers. And then the final but not the least market what we have. So Norway, incredible growth there continues. So in the quarter, we increased our net sales over 50% to EUR 11.5 million. And the full year numbers for Norway are now a bit north from EUR 40 million with a stellar 60% growth on that marketplace. And due to our fast growth, also the whole market is growing faster than in other countries. So we are there around 10% to 13% market growth and having now double-digit market share also in Norway. In Norway, the result was sort of on the level compared to previous quarters. And here, maybe the main reason is that Norway is growing in size compared to its colleagues in Finland and Sweden. So then also kind of the share that we allocate to Norway in our sort of our central cost, meaning the supply chain warehouse and head office, so Norway is getting a proportionately larger share on these ones. So combining that into the rapid growth and openings of the new stores in Norway, which then start to bear fruit in the later stage, quite fast, but still having the ramp-up phase there in the new stores, looking at Norway, there is good reason to be proud on that growth. Then moving to a slide on our financial position. So net cash flow from last quarter, EUR 15 million, compared to last year's EUR 20 million. So that is explained mainly due to the inventory growth and accounts payable growth as our size is growing bigger. So preparing for the Christmas season at that point is the main item in that one. The full year cash flow, like David said there, EUR 55 million. It's a great number compared to our growth speed and other KPIs. Gearing, steady on 70%. And then the net debt growth from EUR 95 million to EUR 113 million is mainly coming also from the network expansion and IFRS 16 bookings. So sort of our leasing liabilities is growing that number. Then maybe the final point on this slide is the investments and CapEx that we have used. So on the final quarter, EUR 3.2 million into investments. And on top of that, we used also a EUR 4 million on acquisitions, as mentioned, the Finland 16 new stores. And then during the full year, we invested almost EUR 13 million plus EUR 10 million on the acquisitions, which totals to roughly 7% of our top line as investments for the future growth. With these words, I hand over back to David and our ecosystem.

Thanks, Toni. Yes. So I think coming back also to some of the investments is that during 2021, we have been building and launching a lot of things in our ecosystem. We know that we, since before, have a fantastic concept with the stores with our online presence, the omnichannel, fast deliveries, et cetera. But we have been speeding up, especially in the puppy initiatives. We have puppy dates, puppy clubs have been launched in all markets. We have -- we're widening also the pet spa, like grooming, trimming. We have about now 80 stores with that spa. We have been launching training like digital training, training in the stores, and live shopping is launched. And all of this combined is something that we call all you need is Musti. This will continue and we show -- we can see the fantastic results getting more of these puppy customers in than the market, more than our market share, more than twice as much actually. And we can see that we now have a record number of customers in the loyalty program, 1.3 million, and including the online ones we have in the verticals, we have 1.53 million customers. With that said, we have never been in a stronger position than we are at this point, and that takes us to our financial targets. So Musti Group is well on track to reach our net sales and margin targets that was set in May 2021. If you look at the growth, net sales is to reach EUR 500 million at 2024. And last 12 months, we are at EUR 341 million. If we look at the profitability, mid- to long-term EBITA margin is at least 13% and we are now at 2021 at 10.8%. Capital structure, net debt, as Toni was talking about, below 2.5, and we are currently at 1.9. And then dividend policy, to pay a dividend corresponding to 60% to 80%, and -- of the net profit, and we now have suggested for 70% for 2021. So overall, we are happy with our position and look forward of continue this fantastic journey. So if you do a summary on the quarter, I think something that I want to point out is that the front end, with the sales customers margin, gross profit is going extremely well. We are growing the business with over 40% with increased margins over a 2-year basis. Also all other important indicators that we look at like own exclusive brands, share sales, the growth customers, average spend, et cetera, is all going in the right directions. But with that said, we still have opportunities in the back end. We have a clear plan what we should do to actually achieve it. And that will have a positive effect on the efficiency and the margin. But coming back then to the store sales that during the quarter was growing extremely fast. We saw that online growth has been a bit slower. That will start to speed up again now when we're meeting a bit lower comps online. We had an EBITA with 11.2%, came in at EUR 11.2 million. That was a record EBITA quarter, but still, we're not happy. We want to have these burden things from the warehouse and the supply chain out of the way so we can have a more efficient and higher EBITA going forward. EBITA -- the gross margin is something that we want to point out as well, as I did earlier, It came in at 45.7% versus last year, 44%. And at the same time, we were growing 19%, which is extremely good. And the Board has also then proposed a dividend of EUR 0.44 versus last year, EUR 0.38, which is also a number that's a bit higher than last year. And extremely important to point out that these trends is very stable and that most this underlying growth has continued to be strong after the fourth quarter. So with that, we are happy to hand over for questions.

[Operator Instructions] Our first question comes from the line of Joni Sandvall from Nordea.

A couple of questions. Maybe I start with the puppy customers growth. Can you give any comments on how this developed during the Q4 and how it has continued after the Q4?

Yes. So what we've seen is the registrations that we see in Sweden, and that's obviously official data. That was down a bit in October. On a 2-year basis, it was still positive. When we look at our numbers, we still continue to get really good growth in these puppy customers coming in. And if we look at the 2-year basis, it's even stronger. So we believe that that's going to fluctuate a bit up and down in actually registrations in Sweden. But from our perspective, it's kind of a linear upwards going.

Okay. And then maybe the ecosystem and related costs are quite interesting. Interesting developments there. Can you give any more color? Are you aiming to increase spending on the ecosystem? And when should we see clear materializing in the top line development?

No, we're not planning to increase the spending in the ecosystem that will burden the result going forward. We're doing a -- the things we've done is already in the P&L, et cetera. And we believe that, that has a good input. And also when we look at the average spend, when we look at the puppies that we're able to capture and also on the O&E part, so good KPIs that we're seeing going the right way due to the ecosystem.

Okay. Then maybe central warehouse and headquarter, cost level and those EUR 0.4 million, now extras related to warehouse. Is this -- now if we take off this, is this the run rate that we should expect going forward?

We believe that this will fade out now. We hope that this was the last quarter where we had the impact. Of course, all around the world, supply chain problems doesn't help. And the other thing is that we're growing extremely fast. But what we believe is that during this quarter and quarter-on-quarter, we will see a more positive view on it, and we have clear, clear goals to actually be on the positive side during the year.

Okay. A couple more. About the tax level, it was a bit elevated now in the Q4. And then you mentioned that you have had tax audit going on, and there was, what, EUR 0.9 million some extra tax. Are you booking these on the Q1 numbers? Or how should we read this?

I can take that. So those are related to the IPO phase VAT deductions in the subsidiaries of Musti. And we have a discussion there with the tax authorities and most likely booking them on the quarter 1, but then continuing the discussion with the authorities to give our opinion here.

Okay. And the last question from me, relating to cost savings. If you could just remind us, did you have any bigger cost savings from the -- due to the COVID now during H1 '21?

No, nothing. It came in...

I think the final COVID related cost savings were -- they're on June, July time. So they touched the quarter 4, but now looking at the comps in the future, they are more comparable.

And the next question comes from the line of [ Uta Raittenen ] from SEB.

A few more questions, if I may. Firstly, on the Swedish development, which was really good, and you listed the reasons also for the adjusted EBITA to increase, but could we a bit more specify that? Was that more of a sort of gross margin year-on-year or operating leverage or perhaps both?

And maybe I'll take that one. So I think it was a combination of both. We have rolled a lot of good initiatives in Sweden and kind of then also looking at the split, how it is between the online and stores and own and exclusive. So I think the good performance of Sweden was a combination of both of these, and then Daniel and the team in Sweden doing magnificent work.

Okay. And then another gross margin question. And now looking at the group level, and you had a nice improvement on that one for all year, should we assume that profitability, or gross margin specifically, improved in all 3 geographies? And if so, could you perhaps give us a pecking order where we are now sort of full year maybe? Rather, I mean where is the best gross margin, Finland or Norway, perhaps, and then Sweden, is it far off on that metric?

Yes. Thank you. So there was a good development in the gross margin, but of course, we are not stopping that. So like I mentioned, the activities when it comes to the supply chain side, we see upsides there, but also then in our efficiency in that sense, and maybe the opportunities on growing still our own and exclusive part in the countries where we have just acquired the franchising stores. So I see there is a good opportunities in Finland and Sweden, especially on this development, and maybe then in Norway as well, but I probably highlight the Finland and Sweden in that sense.

Okay. And was this specifically for Q4 or the full year?

In general. General [indiscernible]. Yes.

In general speaking, all right. Okay. And do you want to confirm that you had a gross margin improvement for all markets in Q4 specifically, year-on-year?

Yes.

Good. Yes, actually one more. Could you just talk a bit more on the services that your slide on this, Musti is all you need slide, how much are services today of revenues, as in, very small still? And where could it go in this, say, strategy period of yours, 2024, '25? Maybe just to give a feeling sort of is it going to remain just low single digits of revenue? So could it become a significant business for you?

Yes. Maybe I can take that. Do you exactly -- I can add one. So -- yes, so today, it's a limited business. If you look at the total percentage share of sales it's only 80 -- in about 80 of our stores. But of course, in the 2024 plan, we have a goal to have much more than that. The biggest impact we see today is part of the -- how we are attracting new customer stickiness and up spend. So that has a positive impact on the average spend as well, loyalty and so on. But from a per se, if you only look at the percentage revenue coming from that, we believe maybe that could be about 5% of the total sales, but it will be -- have a bigger impact if you include everything with the up spend.

[Operator Instructions] Our next question comes from the line of [ Oli Gilfo ] from Inderes.

You didn't open up about store openings 2022. Can you give us some color on that?

Yes, maybe I can take that. So we opened all together 49 stores in the financial year combined in all of the countries. So that's greenfield stores and including also the franchise acquisition. So 49 was the net number for the year.

And the outlook for 2022?

Sorry, now I think the line was bad. Outlook for?

For the openings for the -- for 2022. I mean before, you have given these numbers.

Yes, I can maybe take that. So what we've done really is that we have been about 30 stores, and now we speeded up due to franchise acquisitions and we saw bigger opportunities. We still see good opportunities, but we will probably not come up at that kind of a level of 49. We will probably be in around 30 this year when we look at the plans. We can also say that we have kind of a number of stores that is related to our long-term financial plan, which is 500. The importantness of this is that we want to increase number of service stations, pickup points and the omni part, which is related then to the stores. But with all of that said, we believe around 30 stores, 2022.

Okay. That's clear. And about the average spend of the loyal customers, it went up 5%. And previous years, it has been kind of flat. So was this due to the increased service portfolio, or what was the reason behind?

Yes. It's a combination of the service portfolio. It's a combination of the other things that we have in the ecosystem. But it's also mainly the most important, driven by the new customers that we have been able to acquire is spending up the spend ladder faster than earlier. And in a way, you can say that average spend is highest in Finland, and then Norway and Sweden are a similar side level. And now we're seeing that the average spend in Sweden and Norway are increasing versus Finland levels, which is obviously having impact.

Okay. And last question from me. The Eskilstuna warehouse, is there still like a free room to increase the volumes? Or do you need to expand the warehouse system?

We -- at the current plan that we've done now, where we see a lot of things that is obvious for us to execute and deliver, we see that we probably can be there for about 3, 4 years still before we need to move.

And we have one more question, from Andrew Wade from Jefferies.

Just a couple from me. The first one, just looking at the sort of Q4 EBIT margin, I know you've sort of talked about the impact of sort of costs in stores. But it's quite a big drop year-on-year, particularly when we consider the gross margin was up 170 basis points. So I mean is that the only pressure point in there, the fact that the sort of store costs and store cost efficiencies? Or are there any other factors at play in there?

Yes, maybe I'll take that one. So maybe the main things are kind of in profitability comparing to previous year is the comparison numbers and the tailwind sort of from the cost base in COVID-19 and then the extra burden that we have had to take the hit in the warehouse consolidation project. So actually, in the stores, we are quite efficient in many metrics, but these impacts are coming then through the comps and through the central warehouse.

Okay. I mean but if we look at, I don't know, say, the EBITA progression on a 2-year basis, you were running at sort of 70-odd through the first 9 months, and it's only 60% in Q4. So even if we ex out the benefits that you got last year, that doesn't quite explain that sort of step back in the 2-year EBITA growth rate. And you've also been -- I know you saw a GBP 0.4 million headwind from Eskilstuna in Q4, but you also saw that -- you saw also headwinds through previous quarters as well, didn't you? So I'm just trying to get at why that -- let's look at it a different way. Why is that 2-year growth rate 10 percentage points slower than it has been for the first 9 months in Q4?

Oh, I got your point. So there, we need to also look kind of at the group functions in total maybe. So mostly it's growing fast. We have also invested into our sort of our head office headquarters capabilities and acquire different kind of talent into the company. So there, the difference between that cost level is maybe taking a little bit lean on the -- even in the future. So that gap is also impacting in that one. So now what we do is, like David said and what I said myself as well, that we are taking a closer look into the cost structure and opportunities in that one and how we can now leverage these sort of investments into our human capital in most -- more stronger in the future as well. Thank you for the clarification.

Just to be clear on that then, the investment in head office and capability in personnel is more in Q4 than it has been in the previous 3 quarters?

If you look at it quarter 4 on quarter 4 last year, so there we can see kind of the full impact that during the last financial year, we had quite a few new colleagues joining are mostly back. Same also in the previous year.

And as there are no further audio questions, I'll hand it back to the speakers.

All right. Any more questions? Okay. So thanks, everyone, for listening in, and let's have this nice presentation in a couple of months from now. Thank you very much. Bye-bye.

Thank you. Bye.