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Komplett ASA
OSE:KOMPL
Komplett ASA
OSE:KOMPL
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Good morning. Welcome to the presentation of Komplett Group's second quarter results. My name is Kristin Hovland, and I'm Head of Communications. We will start today's presentation with some reflections from our CEO, Jaan Ivar Semlitsch. Then our CFO, Thomas Rokke, will go through the financials. Today's presentation will take approximately 20 minutes.
And during the presentation, you're welcome to post questions via web, and we will answer them together with the questions from the audience. So over to that to Jaan Ivar. The floor is yours.
Thank you so much, Kristin, and welcome on this actually Sunday morning here in Oslo. Before diving into my presentation, I will show 3 commercials from our 3 concepts. It will take around 1 minute. So stay tuned.
[Presentation]
Good commercials with good progress, which I will come back to. Before diving into the financial details of the presentation, I'd like to give some reflections around our key priorities and key actions during Q2 and then also some reflections around our medium- to long-term positioning. But first of all, I'm really pleased to say that we have scaled up our competitive advantages during Q2.
First of all, by using our combined scale, Webhallen, NetonNet and Komplett through improved sourcing terms and thereby also improved margins. But it's not just the scale which makes us attractive to our suppliers. We have very attractive concepts in both Norway and Sweden and with a larger scale. Moreover, our customer groups are younger than our competitors, often early adopters, very early adopters and also opinion leaders with good purchasing power as well. And we have the most satisfied customers and building the supplier brands as well. So our preferred suppliers, they clearly see that we are building not just our brands, but also the supplier brands.
And finally, we have a lower cost to serve to our suppliers. We have centralized customer support centers in Budos, Stockholm, and [indiscernible] where we do the centralized training and a limited store portfolio with 27 stores with NetonNet and 17 stores with Webhallen and a pure online offering with Komplett. So really happy that we have delivered on these synergies during Q2 as well.
A second element of our action is that we have optimized our inventory position. Our inventory level is significantly lower than last year, but actually with better product availability, now running at 85% to 90% during Q2, which is a good benchmark.
Moreover, we have provided for more optionality during the second half in terms of our buying behavior and buying pattern when it comes to back-to-school, Black Week, Black Friday and our peak season.
Also happy to say that we have a new marketing campaign launched in Norway this year or this Q2 with good results actually, the growth for B2C in Norway during Q2 has been 19.3%, and it has clearly lifted Komplett's top of mind and the customer response. And we'll use some of this learning when we introduced a new marketing concept for NetonNet the second half in Sweden this year. This is, of course, something NetonNet has worked on for a long time. So we'll take some of the learning from Norway and Komplett. But here, the approach is more how to improve conversion rate and reach an even larger customer base for NetonNet as the top-of-mind position is already very strong for NetonNet.
Also happy to say that we have expanded our private label product range for Komplett, NetonNet and Webhallen. NetonNet comes from a strong platform already with their private label share, but where we see that the TV category has had good momentum in Q2, higher growth than the rest of the portfolio and higher margin. We have also expanded our range into Webhallen, especially within accessories during Q2. We will also go into private label even further with our Komplett's brand in the second half this year, limited scale, but more impact during 2024 and onwards.
And finally, of our key actions, some of our key actions during Q2, very happy to say that I have my new management team in place, which was announced 1st of May. I joined the 10th of February. Thomas Rocke, my CFO, joined 1st of March. And the final piece of the puzzle will be Andreas Westergaard when he joins the 1st of August with a long track record being a commercial director for [indiscernible] Nordic over many years, and a long track record with LG and Sony as well.
But also happy to say that the local team in Sandefjord -- the local management team in Sandefjord has been in place since 1st of June, led by Alan Stefanson, lots of good promotions and they're off to a very good start. So these were some of the actions during Q2. I would also draw your attention to our medium- to long-term positioning, which I think is even stronger now than when I joined. We have superior customer satisfaction ratings among all retailers and within the industry. And this is something which is very difficult for the competitors to compare, and we also have very good momentum in this area.
As an example, [indiscernible] which is a big survey in Norway, we were on the top 20 list a year ago. Now we are on the top 10 list and accelerating further both within the industry and against also other retailers and other companies. This is probably partly related to an unparalleled customer service response time, dedicated and local loyal employees with full responsibility. I listen in to the customer service center myself with [indiscernible] here. And I was impressed the way we take care of the customer from the product availability, the product choosing to after sales services, whether it's the chat function, the mail function, the call center or your own navigation through the web, the way we operate.
Moreover, we have best-in-class same and next-day delivery and seamless logistical setup. Just as an example, if you order something online from komplett.no Sunday before 11 a.m., you will have it delivered the same day, the same afternoon -- evening when all stores are closed. And with very few mistakes. We feel very comfortable that we can deliver on this promise going forward as well. But it's not just the customer piece of it, which is clearly a very good positioning for us. We have attractive synergies between B2C and the B2B business. So when we do the B2C campaigns in Norway, we see good spillover effects to our B2B business and the way we operate for small- and medium-sized businesses. And when the B2B business is back to more normal market conditions, we see further upside in this area. As an example, we're coming from a rather low level in Sweden with our B2B offer. So also huge potential in this area. Extracting more synergies, whether it's the logistical setup, the forecasting, the planning, the stock availability, the product assortment.
Moreover, we have an industry-leading cost position and the fact that we are now narrowing the sourcing gap to our biggest competitor makes us even more attractive in terms of our cost position because the rest of our cost portfolio is much lower than the competition. We, of course, will work hard with the cost base in an inflation environment, but the fact that we have increased rental costs, substantially increased utility rates, increased wage inflation, it's a positive to us relative to the competition where they have a large store portfolio. So in my view, we will accelerate our cost position versus the competition even further.
And finally, we do have an untapped potential in core and adjacent categories such as SDA, small domestic appliances, MDA and mobile with subscriptions. For SDA, for example, we have hired one of the best people within the industry. [indiscernible] starting 1st of December reporting into Andreas Westergaard's team. And he has built and been instrumental in building a 60% market share for [indiscernible] within this category. So we're really looking forward to getting him on board as well. For the MDA area, we have improved our sourcing terms, our cooperation with the WhiteAway Group, part of our sourcing cooperation going forward to have a right assortment mix. And finally, we sell a lot of mobile phones without subscription. We would like to do more in the area with subscription. It's a higher profit pool in this area.
Now I'll move into some of the financial details for the quarter. We have steady course in a challenging market, and we do see that there is a soft retail market. We saw that during Q1 with a lower consumer sentiment, more cautious consumers, and we saw that into Q2 and during Q2 as well. Most notably in Sweden with NetonNet and Webhallen being most challenged in the market. But we do have an improved EBIT from Q2 '22 to Q2 '23. Sales are benefiting from careful investments in brand building and product availability, which I referred to also during my introduction. And the gross margin progress is supported by active management in a healthier price environment where the stock availability and the stock situation is better in the industry. And it's important to continue this journey. Synergies are extracting according to plan, and the cost base is impacted by higher inflation. We have a sound inventory position, and that also contributes to improved working capital and profitability.
And finally, Komplett Group remains well positioned to capitalize on future market recovery with an asset-light and a very scalable business model. So with this introduction, I'd like to leave the floor to Thomas Rokke, who will take us through more of the details of the financials. So the floor is yours, Thomas.
Thank you, Jaan. I'll go and spend a couple of minutes now delving into some of the details. I think we're going to look into the overall level, some of the segments and also some of the line items. And I think those of you who actually have time to read the report we'll probably have some deal for voice over there. We're also going to focus on the Q2. We know this is the first half report, but we're going to focus on the Q2. Given that, that is actually the most recent development, but also because us make it comparable to last year for the first time -- for some time.
So on that note, I will just jump into the numbers. And as Jaan Ivar saying, it's been a fairly stable quarter, but it's actually quite a lot of moving parts underneath. If we look at the revenue part, as you can see here, we have a positive growth versus last year. But on a like-for-like basis, when it comes to currency effects and we'll come back to quite a lot of currency effect, actually, which has surprisingly been between the NOK and the SEC, not necessarily the currency effects we normally discuss. You can see here that we are ideally plus 2 or minus 2, which is fairly stable, but it will be in a large regional differences and large brand differences. We'll come back to that later on. Overall, good progress in Norway, also supported by the marketing campaign as Jaan Ivar has illustrated here, but also generally supported across the board in the investments in small -- a little bit more stock and more tuned stock as we discussed in the Q1 report, but also in marketing and other efforts.
That said, there is still a very difficult market. I think those of you who actually read macroeconomic reports and the sort will see that it has lightened up in terms of real income consumer behavior and support, but we're not seeing that in any of the market statistics on the market reports we received so far. So we anticipate a tough market going forward. It's not a change in that, what we're seeing in the figures here, quite of this is actually homemade.
Gross margin, which is kind of the other important element here. Obviously, as Jaan Ivar alluded to, there is a more positive and healthy pricing environment right now. Compared to last year when there was a need for liquidating stocks across the industry. This year has seen a much more kind of healthy environment to deal with that in a normal sort of fashion. But also these things does not come by themselves. So we have also seen a more proactive approach to actually pricing from our side. We have launched in part of the business. We'll come back to that pricing tool that makes it easier to both track and change our prices.
And also, there has been stepped up the efforts of discussing with suppliers and making sure that we actually have an ongoing dialogue to make sure that part of cost can be compensated by suppliers. On top of that, we also have the synergy program, as I have been discussed on a number of occasions, which is coming through. The negotiation potential is in place according to plan. The P&L effects are coming in not as fast as we had hoped, but in line -- broadly in line with what we have actually alluded to at earlier occasions.
Last but not least, continued cost control in an inflationary environment is obviously a daring statement, if you look at the cost items on the right-hand side being up 60 million year-on-year. Here, it's very important to actually acknowledge kind of the one-off effects or the like-for-like effects in this sort. We are the second quarter running a little bit more project cost than was actually seen last year. We are also seeing a currency effect on the cost base. The Swedish NOK, we have quite a lot of our OpEx in Swedish krona, which means that, that is actually affecting it. And last but not least, there were some dispositions on the cost items done last year, which we couldn't actually repeat this year, which means that from a like-for-like basis, we are actually broadly in line with last year if you compare it on equal terms.
And I think that's also important to notice that, that means that the cost savings we have initiated have been used partly to finance the marketing campaign, as Jaan Ivar as alluded to, but also to mitigate the cost inflation coming through. So we're not seeing too much of that in the underlying numbers here. Is that going to continue? That's very hard to say. We are seeing inflation continuing at a very high level, 6% in Norway, 9% in Sweden. So we do anticipate to have some effects. We will also see that the effects of the initiative programs will receive over the coming quarters. And therefore, we are looking into managing our cost base or proactively to make sure that we actually can keep that. But it is a very difficult environment to navigate in these terms.
So the sum of those 3, obviously, a modest pickup in the EBIT of NOK 10 million, which we think in the current environment is actually a fairly decent result.
Moving then a little bit into the individual segments. And the B2C segment is probably one of the more interesting one this time for several reasons. One is, obviously, this is one of the areas that actually lifted bottom line the most. But here is also where we see the biggest differences in performance. As Jaan Ivar alluded to the Norwegian business or the B2C business is actually going up 19% year-on-year. And I think what we're seeing there is quite a lot of things coming together, 3 things in particular, and that is improved marketing. The marketing campaign you've seen here is one, but also a more proactive use of e-commerce means to actually generate traffic in a sensible way.
The other one effect is basically the availability. We had transition phase last year when we managed down the inventories where it was much more difficult to manage the availability. And that is essential and obviously, for an online business, which hurt business last year. So some of that is recovery. And last but not least, we also see in the gaming segment, you can call it the rejuvenation in the sense that there has come quite a lot of new products, including graphics card. It actually draws quite a lot of revenue and traffic as well. So a combination of those 3 has actually contributed to actually lift the result there or to say revenues there significantly.
In the Swedish market, we're still having a tough time. The market is down, and we are on the wrong end on the offline, online transition for the sale for the time being. But we are maintaining a healthy level compared to the market and developing accordingly. And some of that effect, as you saw on the first page, is basically being compensated currently by the currency effects making the effects on the numbers -- reported numbers this time, fairly limited.
Gross margin, again, one area where the whole story we talked about on the previous page, still remains, but this is also one of the areas where we have started rolling out our pricing tool, which is helping us to actually monitor the market and also adjust prices, and where we come the furthest, and that has contributed also to an uplift. Obviously, also in the -- particularly in the Swedish market, where we have a more difficult environment and also, I think, higher share of private label we are seeing some benefit from that. This is also one of the areas where the marketing effects and also the phasing of the costs basically affect the results. But still, it lifts the underlying results by 30 million year-on-year, which means that it's 1 of the -- more positive developments year-on-year for this quarter.
B2B. Relatively stable year-on-year, both on sales and bottom line. This is one area also where a difficult market. I think if you look at our competitors in this segment, who has released their information recently. You can see this is still a very tough market, but it's also an area where we're benefiting from both the drag on effect from the marketing campaign in the B2C segment, but more importantly, the availability. It was hurt very strongly by availability last year. And in particularly certain critical product categories, which are now basically coming back and it's also helping itself through that availability to also lift margins. So stable sales and basically a stable bottom line.
Distribution slightly down year-on-year on EBIT terms. This is obviously a segment that depends very strongly on a few customers. So their choice and their dependency on the consumer sentiment and the consumer market is very determining for the overall level. And what we're seeing here is partly the weak customer sentiment and part interfacing between different brands and accounts, yielding a slight downturn as the revenue goes down, but also not -- given the mix effect from these major accounts, we are also not realizing the full margin impact in this segment as we do in the others and combined with a certain cost remnants that declines the underlying EBIT.
Coming then to the profit and loss. And obviously, I think we've dealt with kind of the critical items already. But if you look at some of the other items that could be interesting to actually just allude a little bit to you and give a voice over, we have a fairly higher uptake in the depreciation and amortization, as you can see in relative terms. A very high proportion of that is actually cost inflation to the IFRS 16 effect, which is the one that actually drives the uptake here. And which also represents the highest proportion of these cost items. So it's not kind of major investments and other things coming through is basically the IFRS 16 effects. One, of course, are significantly reduced. Obviously, as the transaction with NetonNet was being conducted last year and also the refinancing the amount of exceptional items increased significantly this quarter, it has been reduced to a fairly low level, and we hope we can stay that way.
The increase in net financial is basically following the interest rate development as we've seen since last year. We do have a fairly high proportion of our debt, driven by the underlying [indiscernible] and margin, and that will obviously then increase over time. So we're not seeing the benefit of the reduction in net interest-bearing debt from -- due to that factor. Part of the interest-bearing debt has also been replaced by factoring, which still represent a cost item in this line, which basically explains the development. Taxes been relatively stable due to the normal way of delivering taxes. And that means that the loss for the period is reduced partly from the reduction in exceptional items. But in all fairness, also through one-off items that are accounted for in this quarter that kind of distorts the like-for-like.
Cash flow and working capital. The cash flow has been positive on the operating activities. We have there maintained a fairly reduced inventory, but better inventory, but the largest effect you will see from postponement of the tax deferment scheme in Sweden, which we have been utilizing to a certain extent which has benefited, obviously, this line. It goes under the other networking capital in the balancing item in the cash flow statement and has given us some more flexibility, which we have utilized to do commercially sensible payments to our suppliers. So it's not a one-to-one effect on the liquidity here.
When it comes to investing and financing activities, it's been fairly simple this year. It's mainly a limited investment, but quite a lot of that is in the upgrade of our existing systems or potentially new systems, depending on how much -- how different you view [indiscernible] from the original one. But that project is going according to plan and is basically representing quite a high proportion of the CapEx you're seeing here. The repayment of financing is obviously a reduction in the revolver according to the improved cash flow. So that's basically fairly basic what is going between those 2 lines, and they're obviously not comparable to last year, where the NetonNet transaction was affecting both line items.
Inventory. Optimized and reduced. Yes, we're going down quarter-on-quarter. We are also going down year-on-year. But as Jaan Ivar alluded to, with a deliberate attempt to maintaining high availability, which we are now doing across all our brands. Here, you also see the effect of the tax deferment scheme in Sweden, which is then affecting the other assets and liabilities. Being the major factor driving it down in the quarter after we've seen the refinancing process last year, we've seen the factoring taking down the receivables and that basically this quarter, it's the tax deferment scheme.
Financial position. A fairly consistent improvement year-on-year on the metrics. You can see here that the net interest bearing debt is significantly down after a refinancing process last year. The liquidity reserve is accordingly quite good up and gives a very good headroom. And also, the leverage ratio is going down since last quarter and going down to 3.2%, partly supported, obviously, by the effects of the tax deferment scheme. It should also be noted that we are maintaining our extremely good relationship with our banks, part of whom is actually in the room today. And we have also amended the covenants for this quarter and next quarter put up to 4x net debt EBITDA.
So on that note, it's fairly stable. Some up pluses and minuses, some like-for-like effects, et cetera. But I think overall, we can basically state that it has been a fairly stable quarter in a very difficult environment. So on that note, I'll get on to Jaan Ivar again.
Thank you so much, Thomas. I'll be very brief with my summary. As I mentioned and also in Thomas presentation, we have soft demand expected for the remainder of 2023, but we have a positive gross margin versus last year, and we expect that to continue. Sales supported by careful investments in brand building and product availability, and we have actions during Q2 with the encouraging results.
Synergies are being extracted according to plan, but the cost base is impacted by inflation and currency. And I believe Komplett Group remains well positioned to capitalize on future market recovery. So with those words, we will open up for Q&A, and I'll give the word back to you, Kristin.
Thank you, Jaan Ivar and Thomas. I will now hand the mic over to Karina for the Q&A session.
Great. So before we start taking any questions from the web, we're going to see if there are any questions in the audience.
I was just wondering about the Swedish tax deferral. I believe you can postpone it another year. Are you planning on doing that?
We have not yet decided on that. We have basically reserved it now for the Q3 and we will decide at the later stage, how we're going to actually deploy that opportunity going forward.
One more question about the synergy run rate. Are you seeing any changes in the run rate that you first communicated now?
Depends on which synergies we're looking at? I mean if you look at the sourcing synergies, we expect them to increase in pace for the second half. If you look at the cost synergies, they have been to a very large extent, expected. So we expect the pace to go down, but there's still to be some positive effects in the second half.
And then one last question is about the consumer trends. Are you seeing any changes in consumer trends in the market? You say that it maybe hasn't bottomed out yet or -- are we seeing some improvements there?
It depends on what you mean about the consumer trends. As an avid reader of economic studies, we'll see I think both the [indiscernible] Institute and the Statistics Central Office in Norway has been more positive recently as have been the bank reports, in terms of how the development in the real income consumption and also the shift between goods and services looks like.
Are we seeing that in our statistics when it comes to production and sales in the market? No, we are not. The markets are -- it's still down just as much as it was in the last month and the month before. In our internal market research being collected through various agencies, we're also seeing a pretty stable negative development. So while some of the outlook may be brightening, we're not seeing that in any of the reported figures yet.
I could perhaps also add there that we are in an industry with lots of innovation, and that gives some opportunities, whether it's mobile phones, TVs or within gaming, computing, other areas. And I think that's also a positive in the sense that we are in an industry where people actually need our products and services. You cannot live without the mobile phone, for example, these days. It's as important as milk and bread.
So I think we are also well positioned when the market gets back, and we see that some of the B2B, small and medium-sized businesses, they are holding back, but at some point, they need to reorder and reconfirm their new computers, et cetera.
Yes. And I think if you look at also the statistics, the volume statistics indicate that we are at the level that is below what would be sustainable long term. So I do think we will expect it to come back. It's just that we're not seeing it in the figures right now.
Great. Any other questions from the audience? No? Okay. So we will move on to the questions from the web.
So the first one comes from Ole Martin Westgaard.
He's asking the OpEx to sales levels were slightly higher this quarter on increased marketing investments and general cost inflation. How should we think about this in the coming quarters? And are you planning for continued higher marketing investments? And are you able to mitigate the cost inflation?
I think as we kind of alluded to in the presentation, most of the uplift you see year-on-year is actually driven by like-for-like elements, like the currency effect, i.e., translation effects like extraordinary project costs and also other kind of like-for-like elements. We do not believe they will actually continue. So we expect us to reduce kind of the lift versus last year. Do we see a need to continue the marketing? Yes, we've seen positive benefits from that. We also see a more difficult market environment in Sweden coming up with MediaMarkt going into power, et cetera. There will be some market situation there where we have to be flexible in terms of using our marketing. So are the levels in this quarter unusually high? Yes, they are. Are we expecting to be able to reduce costs further into the year with the cost inflation and the need for marketing? I don't think we do that.
And to add to Martin's question, I think also we do the marketing investments as long as we see that there is a good payback. So we have also provided for optionality during second half in terms of how to do the investments and when we do the investments. And I must say it's encouraging what we see in Norway because it's also a combination of volume growth and price growth. So a good mix there in terms of the growth, and it's rather broad-based as well. It's not just within one category.
So a couple of other questions from Ole Martin, in B2C, the performance in Sweden looks somewhat soft relative to Norway. Is this only due to macro? Or are there any other complex specific issues? How do you see the competitive landscape in Sweden relative to Norway?
No, I think there's no particular brand-specific elements to the Swedish numbers as we saw in Norway. We see a number of elements coming together, lifting the sales year-on-year significantly. We didn't have the same effects in Sweden, we are kind of more in line with the market. And so...
I think on the Komplett brand, I think the customer satisfaction rating is extremely good, but we were quite low on the top of mind with the consumer. So I guess that has had an extra effect specifically for Komplett -- for the Komplett brand from that perspective.
And can you comment on the level of factoring in Q2? And what is your expectation for working capital movements in Q3 relative to Q2?
I think we expect a fairly stable development going into Q3. That will always be a bit affected by the preparations for the autumn and also the Q4 segment. But we're managing to remain relatively stable. On the factoring level, we are running now at max capacity around NOK 400 million at the time being. Expect to be in a normal range between NOK 360 million and NOK 390 million.
Then we have a few questions from [indiscernible] you're seeing a healthier pricing environment. Are there any material differences between Norway and Sweden when it comes to the competitive situation?
I think, overall, the competitive environment in Sweden is a bit tougher from that perspective in the sense that, as we alluded to, we are seeing some mergers going on there. We're also seeing some reshuffling. So it is a bit tougher, but not materially.
I agree.
Could you share some reflections on the development for Komplett versus NetonNet?
Well, first of all, I would say that both NetonNet and Komplett are very 2 strong concepts. They are different in the fact that 50-50 share online, offline between in the NetonNet concept, where we have 27 very efficient stores, cash and carry in many ways. And we see that concept so attractive that we are also expanding that in Norway now. We're extending one of our stores there, Alnabru, with a 50% extension. So I think they are complementary from that point of view while Komplett is a pure online retailer. And then it's even more important, and we take care of the customer through our customer support center in some of [indiscernible] to solve also aftersales problems if they occur.
So I would say I'm fan of both of the concepts, and they work very well, and they seem to have a place in the market, not just short term but medium to long term. When it comes to customer ratings, when it comes to the way we operate, the cost base, it's a good formula, I believe.
But you might have something there...
That's fair.
Another question from [indiscernible]. Did you say that the covenants are lifted to 4x for Q3 and Q4? What is the covenant for the first half of 2024.
It was basically for Q2 and Q3 to 4.0. It remains 3.0 for Q4 and for the following period.
Question from Joachim Huse. Regarding the covenant amendment, is it 4x over for Q2 and Q3 or for Q3 and Q4?
And then from [indiscernible] thank you for the presentation. What is the like-for-like constant currency growth in Sweden within B2C?
That would be minus something like 7%, if I remember correctly.
Great. And Ole Martin is also asking how much was the project cost for Q2? What are these related to? And will the project continue in Q3 and Q4?
These costs relate to the synergy projects part of the NetonNet acquisition. The work has basically been conducted and completed. So we don't expect them to continue regarding the size. I think that is a matter that we haven't commented on.
And in terms of the synergies, he's also asking what level of synergies have been crystallized so far?
That I think is specificities, we will not comment upon. We can only say that they are in line with what we have previously communicated.
Good. That covers the questions from the web unless there are any other questions from the audience? No? Okay. That concludes the Q&A session.
Thank you, and have a nice summer, everybody.
And I hope you will join us on the 26th of October when we present our third quarter results. We wish you all a good day and a great summer.