Verkkokauppa.com Oyj (VERK) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to Verkkokauppa.com Q4 presentation. If you have any questions, please send them to investors@verkkokauppa.com, and all questions will be read out loud at the end of the presentation and Q&A section. Today, joining with me and available for your questions, CFO, Mikko Forsell. Today in my presentation, I will go slightly shorter through the figures from the morning published report regarding Q4 and the whole year, because we will spend most of the time going through highlights out of the renewed strategy that we published this morning as well. Then we will have the questions at the end. But let's go back shortly to the figures from last quarter. Revenue increased back to 2 digits, 10%, ending up at EUR 176 million. Margin also developed nicely. I will go later, into the reasoning behind it. From a cost perspective, personnel expenses slightly up due to extraordinary bonus that they paid, paid out for the whole staff, but also increased labor work needed for the increased revenue and e-commerce operations. In other operating expenses, same reason because of the increased revenue outsourced warehouse and operations regarding that reasoning into the increase. So after good revenue development, strong margin, operating profit stood at EUR 6.2 million with an increase of almost 40%. So it was the 30th consecutive quarter with growth from revenue, and it was also the fourth consecutive EBIT improvement for the company, consecutive one. And all in all, we can be very happy with the year. And actually, the Q4 was all-time high, not only for Q4, but from all quarters in the company's history. If you look slightly closer into the revenue development, consumer demand and especially our e-commerce platform has been performing nicely. We are attracting a lot of new customers and a lot of new active consumers to the site. Also, we were quite successful during the main campaigns during the holiday season, especially Single's Day and Cyber Monday increased strongly. Black Friday was slightly different than we have been witnessing before. The peaks we didn't see, but sales was distributed more throughout the year. And in combined, we also grew in that period of time. From the categories, looking at the revenue, extremely happy we can be with toys category, super important during the holiday season. Revenue grew almost 90%. Almost all midsized and small categories had a nice revenue development. The second one to lift out, out of those, is major domestic appliances, which has been flying throughout the year, now increasing almost 50%. And we are really shifting retail online in that category that has typically been more brick-and-mortar player ones. But at the same time, as consumer demand is strong, e-commerce platform is performing well; we are facing headwinds in our export operations. We can't do anything about it. It's related to travel restrictions. And during the last quarter, the counter figures were quite high. And therefore, we had a decrease of 60% in that line of business. So taking that in consideration, a solid performance to have a double-digit growth. Profitability improvement, mainly due to the strong margin coming up from sales mix as low-margin export sales is decreasing and normal margin consumer business is booming, the average margin goes up. And also from the category perspective, mid-sized and smaller categories typically have a slightly higher margin than the core categories, and that mix also contributing to the increase. We have been managing our stock well. Obsolete stock is small, and we have been increasing our inventory turn. So no need of additional campaigns to get rid of the obsolete stock. And all things returned to us, we are nowadays able to provide on our outlet also in web and the inventory turn, obviously, takes a positive toll from that. And all in all, if you look at campaigning and marketing combined, I think we can be happy with the marketing performance utilization of customer data. And we have been able to have revenue increase without extra additional marketing spend to provide that. Financial position, cash position is strong from the company, as typically inventory levels are high, 2 reasons behind that. First of all, we did a decision to take seasoned categories earlier in because we foresee that there might be some availability issues regarding containers and regarding some production in some categories. So taking those ones earlier in, we are now fully ready for the upcoming season. And also, the category that we are running at the moment is larger than that one of last year, and that's one sign for the increase in inventory. Cash flow, positive investments only at EUR 1.4 million. I will go slightly deeper into the investments for future, cash position strong as well as equity ratio. So combining 4 quarters of consecutive records, we are ending up in revenue development of 10% for the whole year. Revenue stood at EUR 554 million. And in comparable operating profit, an increase of 80% to EUR 20.4 million. Because of the good operational situation and performance from the company, the Board has decided to propose to the AGM a quarterly growing dividend as expected, that we have been having, but also an additional extraordinary dividend of EUR 0.44 per share, so also thank you for all the stakeholders. So great year during these difficult times, many thanks to the great staff, all the customers who have supported our journey. A few highlights out of the operations, marketing top of mind, our site in total attracting more and more customers and new customers to the site. Our brand is in a better position than it has ever been before. On the left-hand side, you can see brand index development throughout the last 3 years. And on the right side, you actually see that we are already top brand here in Finland. And if compared to our retail competitors here in Finland, we are already #1. And also, we have been voted second time in a row in a large customer, a consumer survey, the best e-commerce player in Finland. Customer experience also developing nicely, a lot work we have done regarding the search engine category descriptions, attributes and so on. So ease of shopping is getting better and better and also paying off in the search engine optimization. We have a new chatbot running our chat 24/7. 60% of all chat is already AI-driven, also one thing for the future scale. And everything ending up in a record high Net Promoter Score, Net Promoter Score of 70-something. You don't normally see in retail. I don't know if it's the highest in Finland, but it is pretty sure close to being the highest. So also, the customers are getting the feedback back to us that they are happy with what we are doing. Second thing, where we are on the driver seat, we are setting the bar the standard in Finland regarding e-commerce. Obviously, deliveries, last quarter, same-day and express deliveries alone grew 400% in our line of business. And all other delivery options supporting e-commerce were performing nicely. Home deliveries almost up by 70%. Deliveries including some kind of service component, if it's installment or recycling, grew by almost 60%. And parcel locker, which is the most used way of deliveries here in Finland, grew by 60%. So we are not only driving retail online. We also are driving deliveries faster at home. Here you can see that even though we are the leaders, if we just look back a few years' time, we weren't able to fulfill most of Finland deliveries during 1 or 2 days. Most of deliveries took 3 days or 4 days. Today, we are proud to say that 70% of Finnish population we can handle within the next day. And if we would like and when we would like to take it another step, like utilize our stores as logistical hubs and continue the development that we have done in future times, we could manage to have almost all population in Finland within next day and almost 50% of our population within the same day, and that's something that no other player in Finland or abroad could provide for the Finnish population. Assortment getting wider, more interesting every time, day in, day out. The last one that we introduced as a big A brand was Miele. So after this, we can really say we have the largest small and major domestic appliances assortment that you can find in Finland. So if we wrap up the year, what did we promise to do, where did we promise to focus our efforts on? First of all, we said we're going to focus on profitability, as the company has not been able to increase profit at the same time as revenue has been increasing. This year, we did it. Last year, we did it and we had really good results. Second thing what we promised is that we're going to keep on investing in brand marketing and top of mind, because that's also the enabler for going into new categories, as you are not familiar for the customer in those categories yet. So that's also something we are doing for the future success. We are now #1 brand in our peer group. We are among top brands already in Finland. So everybody basically knows us. We said that we're going to keep on improving customer experience. As a result, we have extreme high Net Promoter Score. Fourth one, we said that we are going to look into, we are going to search for best logistical solution. This is a topic where we probably overachieved the most. We didn't just look in on search. We also discovered, planned and made a plan to invest in the logistical center here in Jatkasaari, and that program will be starting in some weeks' time and will be concluded by end of next year. And not that surprising is that we could hold on to the promise of paying out a quarterly growing dividend. But besides of, I think, pretty good making sure that promises are kept, on the same time during this extraordinary corona times, the company pulled through 2 big initiatives. First of all, we main listed the company on the 5th of June. And at the same time, we worked on the renewed strategy which we are proud to present to you today. But before that, slightly go into this year what's our expectations and outlook. As a company, we believe that this year will be same flavor as last year. We expect revenue to develop and continue to develop nicely to be somewhere between EUR 570 million and EUR 620 million. And also from the profitability perspective and EBIT perspective, I think we have now a standard where we can build on, and we expect EBIT to be somewhere between EUR 20 million and EUR 26 million. And besides that, we have a positive outlook for this year. We have always said that we have a positive outlook for the next 5-year strategy period, ending up in new long-term financial targets. Revenue is targeted to be around EUR 1 billion, EBIT percent 5% of the revenue and on top of that, we promise to keep on to our quarterly growing dividend. Last outlook before we go into the strategies regarding the market economy here in Finland, GDP is expected to slightly grow this year; next year, maybe slightly more. Retail is going online. So from a bigger perspective around the market, we are not seeing any troubles or troubling skies regarding our business. All right. But let's start to go into the strategy, a few highlights. Out of it, we will probably later in the Capital Markets Day then disclose and reveal even more. But now I have prepared highlights out of that deck. Normally, when you start large strategy work, you should step back and look at what has happened, what makes the company great. Why has the company been successful? What are the driving forces? What's the fire within? We are not only the forerunners. We are the pioneers of e-commerce, founded 30 years back, before Amazon was founded. We were an e-commerce player before there was a term of e-commerce market. We started to evolve from that into omnichannel business model with pickup places. Then we had stores to support the e-commerce platform. We became a household brand throughout categories. The last years, we've been perfecting our customer experience. And now we have all the right pieces in the right spot to take the company to the next level. But why should the customer continue to shop first and foremost from Verkkokauppa.com? What are we promising that attracts customers day in, day out? What's the combining glue between us? We did large surveys, workshops and studies. And what we found out is that customers that interact with us who are buying actively from our website or stores, they have some kind of strong passion, whether it's family-related, hobby-related, work-related, socially related; there's some kind of passion for doing something or spending your time. And those people, they come to us because they know that we are the right address to that passion. We are the right address to empower on that road to seek that passion. And what's also something we found out is that the same kind of passion is shared inside the company. Whether it's purchasing department who are passionate about the products, who are passionate about new releases or new technical devices or new innovations; or whether it's our sales staff with their expertise or their will to seek for answers for customer needs; or whether it's the IT department, the software developers that we have in-house working every day on our own platform and own code, they are passionate about their work. So that's a solid foundation that you can start with your promises, what you are giving and promises that you should then keep. For us, it was quite clear that the assortment that we are running: the widest, the most interesting, the most exciting assortment in the chosen categories is something that we will promise, that we can promise and we can continue to develop even further to be there for the customer. The experience, customer experience, whether it's web or customer center or our stores; at the same time, developed with our technical backbone with our own platform that we can really daily develop, or 2 weeks or biweekly develop is something that makes us agile to the changes of customer need, and really makes us able to stand out and be there if needs are changed or to be met. Third one is around, first of all, the availability. We have 2 big warehouses here in Finland. So we are miles ahead of those who don't have big warehouses in Finland. That, combined with our delivery network, speed and flexibility that nobody else is providing in that magnitude gives us the edge of the largest available assortment, fastest delivered than anybody else. And the fourth one is really the interaction. Something that we have built throughout 3 decades now is the trust that a customer gives us, the trust that we give back. They trust us that they don't have to spend more than they should, with our probably cheaper prices. They trust us that we run the assortment on the quality that they want, so they don't have to return the products. Or they trust us that we have all the right reviews on the site to help them and guide them in their purchase decisions. And the passion, combined with the customer promise that we made, ends up in our mission which is basically providing the best possible customer journey to our consumers, to our customers in our chosen categories. Why are we that bold to state all kind of things that we promise this and that? Because in most cases, we are already there that we can say we are the ones who are promising the best experience or the best deliveries. If we start with the big numbers, we are already the biggest platform here in Finland. Our e-commerce revenue alone last year, EUR 324 million. So a big proportion of our total revenue comes already from our e-commerce platform. Our e-commerce platform has been growing 5% last year's, 16% in average, meaning that we have been gaining market share and basically meaning that we have been shifting retail online here in Finland. We have 87 million site visits, which makes us the most visited site here in Finland. On top of that, like I said earlier on, we are voted among a large customer survey, again, to be the leading retailer, e-tailer here in Finland. Well, how does the trust then reflect? I already disclosed a few of these figures, we have over 400,000 product reviews on our site. Some customers are utilizing our site as a search engine to look for products and look for quality. And that is something that they are used to. We have done it for many, many years, and that gives them the certainty that they can trust us and buy products from our site. Net Promoter Score, I don't know if it's the highest in Finland or if it's even the highest in the world. It is super high for retailers, 70. So customers are really, really happy when interacting with us. And we have a large number of active customers. Last year alone, we had 115,000 average monthly active customers, with an increase of 30% to the year before. So we are not only attracting new site visitors. We are not only attracting new customers. We are making new active customers. They come again after the first purchase, and we believe that this is something that will continue and happen as people get more and more familiar with purchasing online. And the fourth one is probably where we are the most proud of. Out of the total revenue, 1% is returned, 1%. And normally, if you talk to e-commerce players, you have return percentages in 10%, 20%, 30%. Some of them have 50% or 60% even return percentage, meaning that people are really not that happy about the products that they are buying. We have 1%. And out of the 1% that's returned, most of them is then really getting re-commerce and sold from our outlet channel. And the few ones that are really not working, we obviously recycle. So we have almost a closed circle when it comes down to the products. So what do we think are our competitive advantages? Where do we think that we stand out? And on what pillars should we build our operations upon? We have found 4 or 5 of them. First one, we have talked some time already. It's the excellent customer experience, combined with the strong, most recognized brand. We are the most known, best known, in Finland already. Second one is obviously regarding the availability, the delivery, the fulfillment. We are the fastest. We are the most flexible already and we can take that to next level as well. Third one is an interesting thing. It's the owned platform that we have developed. It's our own code. So if you, as a retailer, buy something from a service provider off the shelf, it basically means that you are just as good as anybody else utilizing the platform. What's common about local champions and global champions is that most of them, maybe all of them, have their own platform, meaning that we as well as local champion [ Bol ] in Finland, or there's also a smaller player in the States who has its own platform. If you have your own platform, you can really every day have some releases, making it better and better for the customer to use. The fourth one is around the existing assortment, how we make it even more exciting. We have good plans to make sure that we stay ahead of all our competitors. We are already miles away from our main competitors, and we are really tapping into new territories. And the fifth one is really the enabler of all of this. If you are running your business wisely and cost effective, then you have also possibilities to invest to grow even more in the future. That's the recipe. And with that recipe, we have cooked the menu. We have basically 9 courses. So there are 9 themes divided in 3 sections on revenue and profitability. The first one, which I will go later more deeper through is around the online shift that's happening. And what does it mean when retail is shifting online? And what should you think about it? And what kind of opportunity that gives? Obviously, we have huge possibilities with our core categories, which are already quite online mature, but still they are going also more and more retail. But even more opportunity lies in small and midsized categories, as the market is more fragmented and customers are not that familiar. They are more into specialty retail or brick-and-mortar. So there are huge possibilities for a large known brand, an e-commerce player platform like us in Finland. And third one is everything after that, what kind of new categories could we go into and discover. How can we utilize the platform even more in future times? And that will be content later through. In the middle, we have also discovered what we can do with the current customer groups with our current platform. Obviously, we have a good B2B business organization in place. We think that we can double the revenue, and I will go with that later, deeper through. The second one where we believe we have huge opportunities is that with the 87 million site visits, if offering them even more qualitative and more exciting private label, we can lift that business part as well. We have a good service portfolio already in place. I think we have still room to improve. And there are also new service elements outside the products that we could look into and discover in a longer period of time. And the last one, we are also saying it out loud. We are open for new opportunities. We are open for new businesses and we are open for possible M&A as well. And all that combined, obviously running into a better profitability and a better EBIT, from revenue and added margin comes most of it. On top of that, the sales mix that we will be having or we are going more and more into is the midsized and the small, and the new ones have a higher-margin than the core categories. So the average margin should go up. And to make sure that the cost levels stay and decrease throughout the years, we have a good investment plan which we have already disclosed the first one for the Jatkasaari premise. The revenue split roughly will be that most of it obviously comes from core categories, mid-sized new categories and new categories. So that one will be roughly EUR 250 million in a 5-year period. Doubling B2B would mean EUR 100 million growth in that segment. And the rest including new businesses, new service, new private label and also possible M&A would be then the last remaining EUR 100 million. From the category perspective, here, analysis about what is happening, what's expected to happen in the market in the next 5-year period. In our core categories, which are represented here, the market size last year was EUR 2.9 billion. We are not expecting the market as such to grow significantly, maybe 2% to 3%. The online penetration last year was roughly 27%, so quite high. We are expecting that these categories will be typically bought online in future times. Online maturity should be somewhere around 50% in a 5-years' time, meaning that this would give up a market opportunity of EUR 900 million, EUR 900 million, shifting from offline to online in the next 5-year period. The same with midsized and evolving categories, which we have analyzed and listed left, excluding obviously food and drink, because then the market would be huge. That market is roughly EUR 2 billion, also not expected to grow as such. And that category mix has an online penetration of only 11%. So it's really lagging behind the average development. From consumer behavior perspective, it is to be expected that that will increase, and the penetration will be somewhere around 30% in 5 years' time ending up in a market opportunity of EUR 500 million, so EUR 500 million shifting from offline to online in the next 5 years. And the last one, obviously, we looked also in all new possible categories. We have not disclosed what categories because we don't have that exact plans yet, what we have disclosed is that we are organically not that interested in groceries and not that interested in fashion. But basically everything outside those is something that we might look into in a 5-year period of time. That market is obviously huge, EUR 6.4 billion, super low online maturity, a lot of potential. Even if it would go only to 20% in that category, opening up an online shift opportunity of EUR 800 million. So really stating that the Finnish market is super interesting for us still and in the next 5-year period we have room to grow in our existing categories, in our new chosen and evolving categories and on top of that, we have a long list of new categories where we could go into. Well, B2B market looks like this last year, the market size was EUR 1.65 billion. It's divided, segmented in 3: small and midsized businesses, then you have big ones and then the public ones. Our market share in public and enterprise segment is low. And our goal is to focus on this area, where we have a market share of 9%. The business is quite consumer-like. We have built already an interface, an integration and where you can really purchase things like a consumer. So we think that here lies within a huge opportunity for us to grow the business. Doubling B2B in 5 years is actually something that we have already done. The last 5 years, the revenue has doubled. And now with the improvements: the technical improvements, platform improvements, stronger organization; it is more than realistic to say that we can double that in the next 5-year period. And the last one, how do we invest to make sure that we stay competitive? How do we invest in the operation that it will scale to reach the 5% EBIT margin? First of all, we have already discovered that the logistical center that we are actually at the moment are also presenting you that investing in warehouse automation in conveyors and packaging automation, we can significantly grow also here within this area, this premise in the next 5-years' time, with a larger assortment, faster delivered with not increasing costs. On top of that, we have discovered 3 other areas where we can improve supply chain. And product automation is quite manual still in our line of business. This is something we will probably look into next, and also some processes and marketing and utilization of marketing data is something where we believe we can still improve. Meaning that there's a clear track that with the revenue development with these investments, first one already starting in some weeks' time, we can have a target of being below 10% in costs per revenue. So if we wrap it up, we have a clear, hopefully, understandable road map strategy with clear set targets where we want to aim. We know how we can get there. We know what kind of tools we need to get there. We have discovered our platform, our business model, all our categories, new categories, the segments; looked at it from all different angles. I think we are quite certain on what to do in the next 5-year period to make sure that the company stays a growing company and a growth company. But not only a growth company with -- okay [Technical Difficulty]. Thank you, technical help. We can also make sure that with this kind of performance, we can hold on to the promise of paying out a quarterly growing dividend. So if we sum up what will be the focus area for this year, obviously, the renewed strategy with all the incentives, with all the themes, with all things and tasks to do will be guiding us. What is nice to see is that most of the areas have already started or are in planning. So we are good in time. COVID will probably be around us, be around the market, our daily life, at least until summer, maybe throughout the rest of the year. We'll look closely into that and make sure that we make the right decisions to stay healthy, take care of our people and our customers. And I think that the first half of the year is also to do with availability, making sure that we get all the products we need, and we are really also providing all customers what they need in the coming season and in the summer season. Marketing program will continue, and we will make our brand best known and even more known also for future sakes to be then able to provide them with new products and categories. And we talked about the investment program that will probably start. So if we sum up the presentation, solid performance from the company, record year in revenue, in margin, in EBIT. At this point, a big, big thanks to the greatest team in the world. Thank you, all, loyal customers and also all shareholders and stakeholders. We can take it from here and also have a nice year 2021 and the years after that. And because of the financial situation, the extra dividend that is to be paid out probably after the AGM, also something to be mentioned. All right. We are now ready, and we can start -- no? There are no questions. So no questions at this time. Thank you from our side. Have a great Friday, a great weekend and enjoy your Valentine's Day on Sunday. Thank you.