The Platform Group SE & Co. KGaA (TPG0) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for taking time out of your day to join us this morning for our annual results, preliminary annual results press conference. Before I step into the details of the strategic and financial development of '21. Let me take a few minutes and explain the talk -- communication about me stepping down as the CEO at the end of the year, by the end of September. Those of you who have followed our company for quite a while know, out of all the developments that we've been able to achieve over the last 3 years. You can assume that not only me, but all of my team have worked really hard on the achievements and the results we were able to deliver, and we are very proud of that. My decision ultimately comes down to the fact that I need to recharge my batteries at one point in time. And at the same time, I have to make sure to provide a continuation of the strategic leadership of the company. And therefore, I asked the Supervisory Board to start a successor search as soon as possible with me stepping down as the CEO of the company. With that, I still want to remind you that all of the success is not all based on my shoulders, much, much more on the shoulders of all of the team and the leadership team, Thomas and I have been building over the last months and years. Thomas and the leadership team are totally fine continuing on our success track even without me. Bear in mind, you, the shareholders, all our employees, the Supervisory Board have my commitment for continuing the effort I've put into the company for the next months to come. And obviously, this commitment is only -- not only from me as a CEO, as a person, but also as a shareholder. And with that, I would like to start the presentation, but obviously, are happy to answer all your questions at the end of the presentation. So with '21, I want to start with obviously reassuring you of our vision. We have, since the announcement of the IPO, but even before that, continue to work on becoming the #1 European data-driven e-commerce group for premium and luxury fashion accessories. Let me just reiterate. We've started as an e-commerce company, very focused on the product, handbags. Obviously, a product that we love and our customers love, which is more important. But over time, we were able to establish a much, much broader portfolio, accessing a much, much broader market and obviously, a much broader and wider audience of customers. With the launch of our beauty assortment late in 2021, we have already planned to feed for continuous accelerated growth and also profitability in the long run. Before I go into the details, I would like to give you a quick snapshot on our strategy and the market, the developments and then obviously, it will go on to communicate the preliminary results of '21. Let me just reiterate what I've said. Obviously, there have always been discussions about the COVID development in e-commerce. And I think we, as a company, have proven more than well that we have not only a very attractive addressable market, it's a very resilient market. It's continuously growing, and we've been able to expand our addressable market, and I'll give you more details later. We've always been communicating the attractiveness of our business model. I understand that everyone is doing this, but we have also delivered on our promises. We have accelerated our growth, we remain profitable at any time, and we continue to improve our -- increase our profitability. With the support of extremely strong unit economics, has a strong input or average order value and obviously, the extremely positive feedback of our customers. The main achievements in '21, given the fact that we obviously also had a challenge with our logistics providers are definitely the fixture of our challenges and the part of the customer feedback and customer experience, we were able to provide starting with the Q4 of '21 again. The launch of our beauty selection, the integration of Brandfield, our acquisition, which we started to consolidate at the second half of last year and also the development of our own brand revenue share, which has already reached double-digit revenue contributions for '21. When we look at the bigger picture, the addressable market we are talking about is the global premium and luxury goods market segment. After the COVID impact, which was mainly visible in 2020, the market has completely recouped in 2021 and is expected to actually have grown versus 2019. The outlook is very positive on a general market view, but even more important, every data point we see out there remains very strong on the continued online penetration of the market segment, reaching about 30% in 2025. For us, we -- with our setup, given the facts of our online -- not only online, the mobile penetration, the revenue share we're generating from mobile phones, the diversified revenue base of our categories. We are more than well positioned to take our fair share and actually grow faster than the market segment to gain market share continuously. Looking at the total addressable market, obviously, we are at the beginning of taking a more relevant market share over time. We expect -- everyone out there expect the CAGR in the years 2023 of about 17% for the addressable online market. The active market we are approaching right now is about EUR 40 million for fashionette. And the wider also off-line market for luxury and premium accessories is about EUR 160 billion. When we talk about an addressable market, for us, our core competency will and our core focus will remain on the European market. You know that our operations are based in Germany and the Netherlands, and we only deliver products to Central Europe. Therefore, we have no risk outside the European Union or Eastern Europe and are not directly impacted by the geopolitical challenges that are in the world right now. With the launch of beauty in the later half of '21, we have actually added a market potential of about EUR 20 billion in Europe, which, as I mentioned before, for us, is one of the growth pillars for the future development of our company. I reiterated on that before, but we are very proud of the diversification of our product portfolio. For us, we've always communicated the strategy of completing -- helping a woman to complete her outfit by dressing up with the fashion accessories and not only focus on apparels. All our goods we are selling are only fashion accessories in multiple categories with the latest launch of beauty, as I said before. We've actually established another 20% -- EUR 20 billion market potential. As you can see on this chart, all of the categories are growing nicely, even our oldest categories, the launch category of fashion at handbags is almost growing double digits in '21. Quick insight to beauty. And as communicated last year, we've launched with a selection of more than 100 brands and more than 3,000 SKUs. For '22, we have actually set ourselves very strong targets, which we have got to achieve. We will double our selection, both from a brand selection and an SKU selection and remain focused on the category of skin care products. We've always concentrated on enabling customers to buy more products from our website. And therefore, the KPI of 70% of beauty orders are being done by returning customers just confirms our strategy and all the decisions we've taken around beauty. Therefore, for us, the launch of beauty was executed very well. And again, is a seed that we've planted for the continues growth of our business going forward. Let me dive a little bit deeper into our business model. And let me just make this very clear. All the numbers unless otherwise stated, are on a pro forma basis. Pro forma basis means we ignore the consolidation of Brandfield on July 1 and assume the consolidation in all numbers starting with January 1. So a full year look on all the numbers we are presenting. Most importantly, let me explain our flywheel of how we think about managing our business. It all starts with the selection, which are attracting customers. Over the time, we've now built a selection of more than 300 brands and more than 25,000 SKUs, and are already able to achieve 12% of our order share with our own brands that we own as a company. One of the key benefits, looking at the unit economics is obviously our high average order value. For fashionette, EUR 244 are quite outstanding. But even with Brandfield, we are achieving an order value -- an average order value of EUR 90 constantly growing, especially also with the addition of leather goods, mainly handbags into their selection. On a pro forma basis, so looking at a full year contribution from Brandfield, we've been able to grow our business 21% in net revenue, driven by the inputs just explained. But we've established despite heavily investing in the growth of company, more efficiently levels. For example, the overall marketing as a percent of net revenue has come to 13%. One of the key benefits, especially in the current environment rating, gas, oil prices is definitely our average cost per order, which is only at EUR 13.82, basically in line with the year before only growing slightly at 5%. Comparing our average cost per order with the average order value for us as a company, on average, EUR 174. You understand easily the benefits of the business model that we've been able to build. Let me quickly touch on the own brand development. As mentioned, 12% of our order revenue is already generated with own brands. It's a growth of 155% year-on-year. And our main brand, and I've communicated this before, it's Isabel Bernard. Our brand has already recognized outlet of Benelux and Germany. We are very active on pushing the brand further, just expanded the selection out of the focus of just jewelry products into leather goods, specifically handbags and small leather goods. And 50% -- and the average order value of Isabel Bernard is actually 50% higher on its own website, which is contributing significantly to the overall revenue than in other channels. Obviously, the benefits, you're all aware of that are a significantly higher gross margin, but also completely freedom of the positioning, the selection we are generating. And this ultimately provides just so many more opportunities for us as a group to benefit from that going forward. Let me just dive a little bit deeper into the unit economics. If you look at the left-hand chart, looking at the average order value of EUR 174 of the group and EUR 244 as fashionette. You quickly understand that this is a very outstanding number given the wider e-commerce space and comparing it to our peers. I think even more impressive, and I want to make that clear, is the customer acquisition cost comparing it to our peers, which are well in line with the average cost of our peers given that our average order value is significantly higher. It should make clear what benefit our business model brings to the table. We've been able to really diversify our portfolio, which ultimately is going to be very important for an increased customer lifetime value. I've made this clear often already, but I want to flag this again. 86% -- 68% -- sorry, 86% of our returning customers are actually buying products from 2 brands. So our customers are not making themselves depend on a single brand. They are very open in their purchasing decision. Everything we do -- technically, Thomas and his team is very focused on providing all the required input via automation, scalable tools to customers to make the right purchasing decision for themselves. So 86% of those customers are actually buying 2 brands. And even more important following our strategy, 75% of returning customers are actually buying 2 different product categories, which is following exactly the strategy we've laid out, benefiting from the high active customer base we have. I've mentioned also this before. Active customers are actually coming to our website on average or returning to us and newer subscribers are actually coming to our website about 13x a year so more than once a year. And with the expansion of our category, just provide more opportunities to actually buy something on our platform. No matter where we ask our customers, we always mentioned as 1 of the top 5 online platform for the product categories that we are selling. If you want more details, please jump to Slide 8. The presentation will obviously be -- 28 slides, the presentation will obviously be uploaded to our website later after the webcast is done. The customer profitability is being reached within the first 6 months of the life cycle of our customer. We have always been a big believer into first order profitability. And as you can see, we, again, move closer towards that goal every single year. When you look at the customer acquisition costs, the gray bar on that chart, we've actually been able to achieve a lower number than in 2018 and '17. So before the -- and '19 before the COVID impact. Therefore, we are very proud of the achievements given the fact that we've also reached as well, the highest number of active customers and the highest number of new customers we've ever been able to attract to our platform. We can also tell you that the customer lifetime value for every cohort is constantly growing, about 10% every single year. And given the AUV impact, handbags still have an AUV of more -- of about EUR 230. And the other categories are obviously diluting that slightly, but given the fact that EUR 174 are quite standing in the whole industry, you understand quickly that the benefit of our wider selection is in customer experience, the customer attraction and also the ongoing conversion of our active customers. Therefore, again, a very promising and confirming a figure for our long-term strategy. With that, let me jump over to the financial results or the preliminary for the financial results of '21. And before I start into that, let me also explain that we've successfully converted our accounting to IFRS, one other project that we've been able to tackle and launch. Every data point that you will see going forward is shared in HGB and IFRS numbers for comparison basis. But going forward, the company will only report on IFRS. Again, the numbers that we are seeing. Otherwise, it's called out differently are on the assumption of a pro forma consolidation of Brandfield starting with the January 1, '21, so a full year organic look. As said before, we've been able to grow 21% in '21. For us, very important, we have been able to grow in all of the important regions in DACH, 18%. The new region, one of the key investments of '21. Benelux, both from organic and inorganic perspective has grown 26% and actually also reached 20% -- 26% of the revenue share of our company. And again, just to make this clear, again, we have reached 12% of the total net revenue share with our own brands already. We've been able to achieve 26% to almost 37% new customer growth, more than 0.75 million new customers gained in full year '21. And we just barely missed the 1 million mark of active customers at 32% growth year-on-year, which for us is just an outstanding success and something we can be really proud of because it provides just an outstanding basis of continuous profitable growth, which, again, just pays back into the strategy we've laid out and focused on executing. We successfully balanced the investments into marketing. I've made it very clear already with the IPO that '21 will be an investment year. Specifically, if you jump to the right-hand side, the first half year of '21 was focused on -- with the high investments in Q1 and also at the beginning of Q2, and we've made this very clear. But some of the efficiencies, we were able to regain at the second half year, which are leading to the EUR 31 customer acquisition cost, 28.7% increase year-on-year. Please don't get confused with the total 21% net revenue growth. The customer acquisition cost is much more linked to the actual order growth, and we were able to achieve a 31% order growth. So actually, despite the heavy investment, which was clearly communicated and clearly following our strategy, we've actually achieved a slower customer acquisition cost growth and an order growth we were able to realize in '21. Therefore, we believe our marketing investments were done the right way. You can always make things better, and we continuously improve on that. But we are proud of the results and I think we're also demonstrating the execution of the strategy here again with recouping the profitability, especially starting with the second half of the year. On a P&L level, let me just touch on the gross margin. Basically, the gross margin just as the returns, were flat year on year. I've always said that for us, the relevant figure is to remain north of 40% gross margin. We've solidly done that despite also a competitive market environment. The distribution cost ratio, a growth of 145 basis points. Again, also commented on the right-hand side is more driven by the decrease of average order value and the increase of order value by 31%, then it's driven by the actual cost increase we had to tackle with more efficiency gains in our operating -- in our cost per order. The cost per order only increased by 5% year-on-year, which I believe given all the cost increases is pretty solid achievement and our teams in the operations can be really proud of that. Marketing cost ratio, I've commented before, given the investment year of '21, it was clear that we are going to increase the investment that fully paid back with growth of new customers of 27%, and also the active customer -- by growing the active customer base with 32%. Obviously, with the scale, we've been able to improve the G&A ratio. And you can -- and you will see a continuation of that going forward. So all in all, I'm looking at the IFRS number, which is the relevant number to compare by looking at Capital Markets is 3.7%. Again, given that '21 was clearly communicated to be an investment year. Let me just reiterate on the development quarter-over-quarter, Q1 also given the loss on comp but also the remaining lockdown in Germany. We were able to grow the company 32%. The comp in Q2 was the first lockdown in Germany in '20. So still achieved a 19% growth. We started to consolidate Brandfield in Q3. And despite the challenges from our logistics service provider change, we were able to grow the company on a consolidated basis of 42%. And obviously, Q4, with the focus of customer acquisition, et cetera, we were able to grow the business by 60%. So all in all, and again, despite the challenges we were facing with our service provider, we are super happy with the developments we were able to achieve in '21 as a company. As a result, we achieved both our guidance on top line, both in HGB and IFRS, and we actually achieved our profitability target on an EBITDA basis. On IFRS basis, we are actually slightly above the communication we've done. And just for clarification, the pro forma basis on the right-hand side, again, soothes the consolidation of Brandfield on January 1 on a like-for-like basis. And with that, I will switch over to the communication of the guidance for '22. I think this is not the right way to talk about all the challenges we are facing right now, not as a company but more -- we are together as humans. And obviously, there is also an impact on consumer sentiment. Let me just reiterate that Q1 for us was quite an up and down. We were really happy with the growth on -- in January. Obviously, in February, we saw an impact in the consumer sentiment that the latter half of February going into March. But especially, the last days of March have given us comfort to be able to communicate actually quite a solid growth with 16% to 21% versus the pro forma basis up to EUR 180 million to EUR 187 million in net revenue. And also despite the uncertainty, we expect to remain profitable and still improve despite the challenging environment and improve our EBITDA margin with a range of 5% to 7.5%. So on average, the midpoint beating our achievement of 21%. I think it's very clear to us that we are working, and I hope I was able to present this to you that we are working on the right things. We focus on customer experience. We deliver on all the promises given the selection expansion, the M&A. We've added our own brand share, and we are absolutely on the right track despite the challenges that we are facing. And therefore, we're able to come to the conclusion of the guidance that we are providing today. Before handing over to you with your questions, let me just reiterate what we just discussed. For us, nothing has changed. We have delivered on the promises that we have been giving to you and to the market on driving our growth with focus on the long-term profitability. I think it's very clear that we've been building a very attractive business model based on very strong unit economics and a very growing attractive market. All the operations are focused on DACH and Benelux. and so, we are not facing any challenges directly from the geopolitical environment right now. We're addressing a very large and continuously growing total addressable market. Especially important for us is the continuous development of the online penetration, which is confirmed by everyone out there is just continuing and expected to increase to about 30% by the end of '25. As a platform, Thomas and his teams have done a great job to continually develop our technical approach, the buying teams have worked hard to expand our selection and all other teams focus on customer experience. All in all, given also the inorganic growth, the organic growth and the total growth of our company. We are exactly on the right track. And we have proven to deliver multiple profitability drivers and actually demonstrate them to you over time. Given the strong customer base of almost 1 million active customers, we have actually -- we are very confident on the long-term success of our company. The continued outperformance of the European premium luxury market is just benefiting us and the market and everything I've just explained to you. With that, obviously, the annual report will be follow-up at the end of April. The numbers I've shown today are all preliminary but very stable. And with that, I would like to hand over to you with your questions. Thank you very much for your time.

[Operator Instructions] And the first question is from Catharina Claes, Berenberg.

Yes. First of all, sorry to hear Daniel stepping down, obviously. I hope that you are going to do well in the future and hope we will cross our path again. I have actually 4 questions. The first one would be, you have shown that the customer estimate in 2021 was actually below the pre-COVID years. I was wondering whether this is due to the category mix change or decrease NOV any other reasons? Secondly, on 2022, can you maybe give us an understanding of how you think about it in terms of top line growth in H1 versus H2? Like what are the drivers? Like what is impacting the not so much quarters, but I think the 2 half of the year? And then thirdly, I was wondering what the current plans are regarding the expansion of other categories than handbags and beauty? And lastly, can you maybe give us an indication of your M&A plans at the moment and the pipeline? Are you looking at specific targets or where are you there?

Catharina, I'll go through all the questions, and we might have to follow up with the data on the CLV. The CLV over time, obviously, is impacted by the average order value, which is impacted, again, by the product mix, but also impacted by the sheer amount of new customers. And new customers versus existing customers are actually contributing a lower average order value and therefore have a double impact on the CLV. But I will propose that we'll follow up with that. And obviously, this will also be presented in the annual results. The second question was about the sales growth, H1 and H2. And I guess despite the bigger geopolitical challenges right now. Obviously, we also face a lower comp in Q3, given the impact of the logistics provider change last year. So naturally, our second half of the year is expected to grow faster than the first half of the year. What I can also tell you is what we are seeing regionally, the impact on consumer sentiment from inflation and the geopolitical challenges are significantly stronger on Benelux than on the German-speaking regions. The demand in the German-speaking region is more strong than it is in Benelux. Therefore, we expect to benefit from our high revenue share coming from the German-speaking market. And this is also an impact I can give you. So confirming that H2 is expected to grow faster than H1. And also given the comp of Q3 with the logistics challenges from last year. The third question was about category expansion. So with the launch of beauty, the big milestones for now are kind of set. It's very focused on -- we, as a company, are very focused on continuing the selection expansion on existing categories. Just on the slide of beauty, I mentioned that the target for '22 is just double the selection again in beauty, more than 200 brands and more than 6,000 SKUs. So quite a massive expansion plan here. But also there's a continuous selection expansion in all other categories. We're continuing to list more products in our jewelry assortment even in handbags. We're looking for more opportunities to bring on new brands, especially what you would call niche brands. And I don't think this is a negative explanation around organic materials and other opportunities we are looking at. The fourth question was about the M&A plans and literally nothing has changed. We've always communicated M&A is and will remain a strategic growth pillar, especially for 2 opportunities, international growth, but also since we've added that to the portfolio, the growth of categories and especially the growth of our own brand share. So nothing has stopped. I've been working with the team on the continuation of the conversations with potential targets, but nothing is imminent. Obviously, otherwise, we would have as stated in our outlook. So if you have follow-up questions, Catharina, please feel free to do so now or catch up afterwards with me or Irina.

The next question is from Christian Salis, Hauck Aufhauser.

Good morning, everyone, also from my side. First of all, Daniel, it's sad to hear that you are leaving the company. I think -- but I think the explanation is well understood, and I definitely wish you all the best for your future, and we all as the HAIP team. So my questions are -- first of all, one clarification. I think that crucial to be made here this morning. So on the top line guidance in the press release, you are saying 16% to 21% organic growth year-over-year. But unfortunately, you have not mentioned the EUR 180 million to EUR 187 million target range. Now in the presentation, you have mentioned this. But actually, this is much more than 16% to 21% growth, right? So this would be more than 30% growth actually compared to the reported number in 2021. Can you confirm that?

Yes. So the press release as well as the presentation in general, we are on a pro forma basis as we have always communicated our numbers to give a clear picture to the capital market. The 16% to 21% is on the pro forma basis and will lead up to the, I think, EUR 179.8 million to EUR 187.8 million as a risk -- as a guidance for this year. The basis for the 16% to 21% is the pro forma basis, which you can see on the slide in the presentation.

Okay. And then what has been organic growth then in Q4 year-over-year?

Q4 '21?

Yes.

Yes. We'll follow up with that. It's part of the presentation.

So it should be around about 25%, right? .

Yes, let me go through the presentation. But we follow up on that, Christian, but that's -- that should be right.

And then on the margin guidance. So could you just provide more color on your underlying assumptions regarding the adjusted EBITDA margin guidance? I think the implied margin is now 2.7% to 4.1% based on IFRS. So could you maybe talk about your gross margin assumptions? Are you expecting more markdowns again, given the normalized environment? And then also in terms of marketing, what have you -- what are you expecting? I think 2021 was supposed to be the year with the highest marketing spend, as you also mentioned in the presentation. So are you expecting this to go down again? And then also on fulfillment costs, a comment would be appreciated given the intensified -- yes, trade cost inflation we are seeing currently.

Okay. So obviously, given the environment, the guidance was not the easiest to put together. And I'm sure that's challenging for the companies that are presenting their guidance right now. However, with the data that we have at hand, and I can just reiterate what I said a few minutes ago, the strong start into January, it's clearly attributable impact of the geopolitical situation at the end of February, but also the developments we are seeing in the last couple of -- in the last few days of March have helped us to put together the guidance. I clearly expect a competitive environment just simply for the reason that nobody is going to optimize for the short term, right? And we will not do the same. We optimize everything we do on the mid- to long-term success of our company. So I'm not changing any of the strategic targets because of the current situation. And therefore, I'm expecting a pressure from a competitive view. But also leverages we can stimulate, for example, the category mix, the own brand share that we can develop, which is also going beneficial to our gross margin. On marketing cost perspective, we've always said that '21 is the investment year. We still, despite the expectation of a competitive market environment, given the challenges, I expect an improvement in marketing efficiency. But we will, for example, not step down our investments in, for example, the team and not safe in the short term. And therefore, you'll see the results of our thoughts in the guidance. And as stated on the slide, there is a big uncertainty about the geopolitical development, which for us, is just that also to fully reflect right now. The guidance is fully based on everything we do know and have learned in the last weeks.

Okay. Fair enough. And then third question would be on the integration of Brandfield, could you maybe provide a little bit of color, i.e., on the assortment expansion or integrate assortment integration and any impact of cross-selling you have seen in Q4 and you're also expecting maybe in 2022?

Yes. So far, we are happy with the development. We continue to consolidate the business, especially focused on the integration into our BI platform, which is still ongoing. It's a progress that we're making in the level of depth of the integration. We've clearly said this before, obviously, the financial integration is done. We have integrated the first layer, I would say, of all the data layers that we can call. And one of the main focuses right now is clearly on the consolidation of our CRM efforts or the consolidation of the technology setup and also on the strategy and how we approach CRM, which is essential for us and the future success of our company. From a revenue contribution, I can tell you that on variable terms, handbags is now the fastest-growing category within Brandfield, which is clearly attributable to the development the teams have done on the selection expansion. And therefore, we look forward to the continuous development of the integration. I think we are fully on the right track, but there's also enough opportunities left to provide more positive impact on the overall success of our business. And I mentioned -- I think I've made this very clear, one of the biggest synergies obviously is the own brand share and with 12%, I think coming from basically 0. We have added a quite strong leverage to our business model.

At the moment, there are no further questions. [Operator Instructions] And we have another question. It is from [indiscernible].

I have one question regarding your net working capital. You mentioned that the net working capital is about -- you build up, net working capital is about EUR 15.4 million in the last year also per year-end, which seems to be quite on the same level as in the half year or after 9 months. Can you elaborate a bit on how you are going to manage your net working capital also forward because one should have expected that net working capital per year end to fall? Or has the composition of net working capital change from inventories to receivables.

So my answer to this, and I've also said this in the past, the industry we are working in, we do not optimize for the inventory situation for the 31st of December. And the only reason for that is, it's the start the spring season. And the spring season change, for example, is super important for us because it obviously also stimulates gross margin with the new products. And depending on the deliverables of our suppliers, there is always the opportunity of bringing in inventory before the year-end. At the moment, we are absolutely not worried about our inventory situation. We obviously adjusted going forward based on the demand. But the teams are actively working on it both with our suppliers, but also in terms of markdowns, et cetera. Overall, no big changes to receivables and liabilities.

There are no further questions. I hand back to you, Mr. Raab.

No problem. Thank you so much. And thank you, everyone, for joining. If there are any follow-up questions, please reach out to Irina or me. And looking forward to speaking to you with the Q1 results in just about 6 weeks. Thank you so much. Bye-bye.