Musti Group Oyj (MUSTI) Earnings Call Transcript & Summary

Very good. Good afternoon, everyone, and welcome to the Musti Q4 and Financial Year '25 webcast. David and Robert will run the presentation. And once they are done, we have spared some time for a Q&A session. So I will hand over to David.

Thank you very much, and welcome, everyone, listening into our financial statement release for '25. Starting off with the landscape where we are today with our 497 locations, 54 vet clinics and 173 spas. So we have been growing a lot, as you can see, in new markets as well. So starting off in Finland, with Musti ja Mirri and Peten, we have 136 stores and also, of course, our E-com, both pure play and omni. When we look at Sweden, 137 stores in Arken and 1 in Vetzoo. We are going to open more stores in Vetzoo, Sweden this year. And in Norway, growing rapidly, as we saw in the headlines and report, performing extremely well with 91 stores and also our E-com and pure play. And the new countries that we took in during the year, Baltics with 67 stores and E-com and then the new acquisition of ZU, 65 stores. So we are soon going over 500 locations. And this year, we have a plan to open more than 50 stores in total. So it's going to be interesting to see the growth going forward. If we move on and look a bit more into the numbers, we can see that the financial year '25 came in super good. So if we look at the quarter, EUR 140 million sales, good growth versus last year. Net sales increased 14.6%. So really, really strong number. Like-for-like also increased more than last year, 2.8%. Something that we've been talking a lot about and still are focusing a lot in our own and exclusive brands and share of sales of that was 52.4%. Also an increase versus last year fourth quarter. Cash flow, super strong, mainly related to net working capital came in at EUR 23.4 million. Online share of sales -- online like-for-like sales was quite slow. We did a platform change during the quarter in Vetzoo. So that's why the sales in the pure-play part was a bit lower, but it's ramping up nice now. So we did it during the quarter and now good momentum in this quarter. Number of customers growth, a bit slower also related to platform change. Gross margin had a fantastic development, 45.1% versus 44% last year's quarter. O&E percentage share of sales was impacting that. And of course, less discounting, more full price and also all the initiatives that we've been working with during the year with our own brands is now giving a good impact. So coming down then to the adjusted EBITDA, EUR 19.5 million versus last year's EUR 17.2 million. And in those EUR 19.5 million, there are also a couple of millions that has been burdened the result during the quarter that we relate to investments for getting more efficiency in growth going forward. So very, very happy with the quarter and the year, but especially the quarter was very strong from our side. So if we move on and look more into the topics, we can see that we were performing really well in the quarter from a sales perspective, 14.6%. That's including then, of course, the acquisition of Pet City and ZU. Norway was performing really well, strong development in more or less all areas, so sales, gross margin and profitability. And we can see that we ended up at the full year of EUR 508.9 million, also very good growth. So stable 8% growth CAGR since '22. And when we look at the sales per country, still -- so Finland, still the biggest part of the pie, but we're seeing that Sweden is getting close and then also Norway growing fast, and we have added new markets with 9%. So stable and good growth and very strong performance, especially in this last quarter of the year. If we move on and look at the margin, super happy to see that the gross margin is also coming up even though we're having this fantastic growth. So high double-digit growth numbers with increasing gross margin. So a couple of things driving that gross margin uplift. And as I said earlier, O&E, very important, as you can see, increasing versus last year, still not at the level where it was, but we should also have in mind that we've added new countries that is taking it down a bit. But of course, moving in our production -- to our production facility in PPF is having an impact sales with more full price, less discounting having an impact and also, of course, then the share of sales of own brands. So good performance and a good trend in our gross margin. And we look at the profitability. So if we look at the middle of the page, of course, you can see that we were -- we have been declining a bit. So we came in more or less flat versus last year in adjusted EBITDA so EUR 61.2 million (sic) [ EUR 62 million ] but I think the most important thing here is to see the trend. So we started off with a quite weak first quarter of the year, was not mainly sales, but it was more from a gross margin and a cost perspective. During the year, we have been improving sales and also gross margin. And then in the last quarter now, we really broke through with a fantastic growth. And as I said a bit earlier, is that we have a couple of million euros that has been impacting the result related to initiatives for further expansion, efficiency and growth. So without those, it would be even better, but still fantastic trend, I would say, especially when starting the year a bit slower and now we are going out the year very, very much stronger. So good trend in the business, good top line growth, good gross margin growth and now also the profitability. So with this, I'd like to hand over to Robert that will go through the segments more in detail.

Yes. Thanks, David. So let's start with Finland. Finland ended up in a sales increase of 3.2%, but actually the like-for-like sales increase was 4.5%, which actually is quite good given the current market conditions. And we ended up at the sales of EUR 53 million. We also saw an increasing absolute profitability of adjusted EBITDA, now EUR 13.2 million compared to EUR 12.8 million last year, same quarter and with the same EBITDA margin as the quarter last year. So of course, with better like-for-like, we also get better scalability and that contributes. But as David said, we at this stage are still kind of investing in the future, which brings then cost into the business that offset maybe the kind of growth -- the profitability improvement potential. And our adjusted EBITDA for the full year then ended up at EUR 47.3 million and the margin at 33.9% (sic) [ 23.9% ]. Then moving on to Sweden. Sweden sales increased by EUR 7.1 million. However, like-for-like was actually negative at minus 1.7%. David mentioned about the platform changes that, of course, temporarily had an impact. We also see strong price competition on the online market that drives down the sales growth. Otherwise, store network performed quite okay. And then we also had a strong kind of impact from the exchange rate of EUR 1.7 million. Profitability, adjusted EBITDA landed at EUR 9.5 million compared to EUR 8.8 million last year. So rare increase given the price fight and the platform change. However, the adjusted EBITDA margin stayed at the same level. And for the full year, we ended up at EUR 33.1 million adjusted EBITDA and 17.6%. Then moving into Sweden -- to Norway, and this is maybe quite a repetition of earlier quarters. Norway is performing -- continue to perform very well. Now the sales increase was 17.6%, like-for-like was 9.7% with very small impact from FX changes. We ended up with the sales of EUR 24.3 million. Also, we saw an improving margin, both improving profitability, both absolute and also compared to sales. So the adjusted EBITDA for the quarter was EUR 6.1 million compared to EUR 5 million last year and ended up at 25% EBITDA margin. On a year level, the adjusted EBITDA was now EUR 18.2 million. And then last but not least, the new markets segment, including the acquired business, Pet City, which we acquired in November '24 and ZU that we acquired in December '25. Sales of this -- for ZU, we only have 1 month in; for Pet City, we have the full year. So now the sales for this quarter, Q4 was EUR 12.4 million and adjusted EBITDA of EUR 1.5 million. It's good to remember that this -- both these kind of acquisitions are still in the integration phase. Pet City will be shortly finalized and ZU, of course, will now start. So the profitability is planned to kind of move in the right direction when we get the integration finalized. Then let's move to the financial position. We had a strong cash flow, operating cash flow ended at EUR 23.4 million compared to EUR 7.6 million last year's same quarter. A big part of this is actually driven by timing of accounts payables. The level last year was actually lower than normal and this level -- the level was actually higher than normal. It really had to do with kind of the payment timing and kind of how the weekdays and holidays kind of which weekdays the holidays are. But also, we had a positive, actually, cash flow impact from taxes and also the kind of operating results before net working capital changes. Gearing ended up at 123.8%. Net debt, EUR 209.4 million, which includes interest-bearing loans or commercial papers of EUR 124.9 million and then a bit more than EUR 100 million leasing liabilities. Net debt in relation to LTM adjusted EBITDA was now 3.4x. We had still good liquidity in the company at the end of the year, EUR 16.2 million in cash and cash equivalents. Investments amounted to EUR 5.6 million. But here it is good to remember that part of the platform investments are actually -- are not capitalized. They are treated as nonrecurring items. That was all for my part, and I hand over to David for concluding remarks.

Thank you, Robert. So yes, looking at the quarter and the summary of it, I think fantastic growth in all markets, especially Norway standing out, but also the other markets is performing really well. So coming in at 14.6% growth, it's very, very strong. Like-for-like coming in at 2.8%, also that is much better than last year's quarter. Super nice to see the gross margin that we're able to grow the gross margin with 1.1%, even though we are, at the same time, growing top line as much as we're doing. So that's super nice to see. And that, of course, have the positive effects on the profitability. So adjusted EBITDA 13% up to EUR 19.5 million. And also have in mind that in that number, there are still costs that we treat as -- that is not coming during '26. So the number is actually even higher. So good margin and good number of customers coming in and strong cash flow. And I think the most important thing is here is to show and see that we are taking a lot of market share. We're gaining market share, I would say, in all countries. And I think also it's proven that our concept now is giving fruit from other new areas, but there's still a lot to do, but nice to see that the growth has been coming back to double digit and also very interesting to see during '26, what more we can do with the fantastic Musti concept. So with that, I'd like to hand over to Q&A.

[Operator Instructions] And I guess we'll start with Maria.

It's always nice to check in every now and then. It looks like the Q4 had a, I mean, quite a bit of progress compared to the rest of '25. And just a little bit I would like to have a bit of more views on the Finnish like-for-like, I mean, 4% up. And at the same time, I mean, there has been like Tokmanni who have been trying to grow in the space. So what is your view on the underlying growth in the pet care market? So have you grown in line the market or taken market share? And what kind of like pricing competition you see in the segment?

So we would say that we believe that the market is growing slower than we are doing. We have seen that the competition's impact on Musti is not as hard as it was maybe 1.5 years ago or 1 year ago, especially I think there was a push from others during a situation where we were with this Smaak incident. I think we have recovered really well, and we're seeing much less impact from competitors, I would say.

And maybe one then on Sweden. I mean you mentioned the price competition in the online vertical. Can you be a bit more specific? I mean who is currently -- I mean what are the players you are facing in the online verticals? And is this more like a persistent or this is more like a campaign sales driven through the Black Friday, I mean, holiday season?

Yes. So when we look at the market, we divide it into the omni, which is the stores and the online and then we have the pure play, so 2 kind of channels. And when we specifically look at Sweden, we talk about Arken Zoo and Vetzoo. And when we talk about the price competition, it's mainly in the pure play. So price competition in Sweden that has been going on for a while. And it's mainly, I would say, from Zooplus that is pushing and then there's also newcomers, a bit smaller companies that is pushing prices. But we have taken a decision not to follow that price war. So we have been keeping our prices a bit higher. But of course, during the quarter, as I said, we changed the platform on Vetzoo. So that has a quite big impact, not only that traffic and other things is going down during the platform change, but we also, by purpose, don't -- we're not active with campaigns and marketing, et cetera, when we're doing a platform change because we don't want to have disappointed customers with late deliveries or things that can happen.

And you acquired the company from Portugal now at the end of last year. What kind of synergies, I mean, you see from the acquisition to the rest of the business?

It's mainly -- so first of all, we -- as we've seen, we have a fantastic concept that can travel. So that's something that we're really going to do. We're going to take the Musti concept into new markets. So the concept with the visualization, store layouts and so on. But otherwise, from a synergy perspective, it's mainly our products. So we now have over 60 stores in a new country where we can launch and also sell most of our own brands, which is really good. And the synergies for that is, of course, in our own production and so on.

And then my final question is that it seems to be a very topical in the markets, I mean, in recent days is that how do you see AI impacting your business, if any?

Yes. I think we are using AI. The boring part of AI, I have done that for quite a long time and that's related to the store replenishment, so how we replenish the stores and products and so on. We also did a huge project called assortment and space during the last 6 months, which means that you are kind of -- from an AI perspective, a lot of data replenish the stores the best way. So that's implemented. But we are, of course, looking into AI as much as anyone else, especially if it's related to content, customer service and so on.

Do we have any other hands raised? No. Any final questions to David and Robert? if none, then...

Thank you very much. Thanks, everyone, for listening in.

Thank you very much, and have a great day.

Bye-bye.

Thank you, bye.