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[Audio Gap] to the CDON audio calls with teleconference Q4 2021. [Operator Instructions] Today, I'm pleased to present Investor Relations. Please go ahead with your meeting.
Thank you, operator, and good afternoon, everyone. Slide 2, please. Today's presentation will be conducted by myself, Peter Kjellberg; and Eric Thysell, Investor Relations. I have been on Board at CDON for 6 weeks now, and this is my first quarterly report. I am very grateful for having this opportunity, and I'm really looking forward to meeting you all in the future.Slide 3, please. CDON Marketplace grew in the quarter despite a weak underlying market, showcasing the strength in our business model and the attractiveness of our offering. With further growth both in our merchant base and product assortment, we continue to establish CDON as the leading Nordic marketplace.Slide 4, please. In today's presentation, we will do a quick introduction to CDON, followed by a review of the Q4 highlights and then move on to the business update. Eric will cover the financial update, and I will end the presentation with our conclusions. After that, we will open up for the Q&A session.Slide 5, please. I would like to tell you more about the great opportunity that CDON is uniquely positioned to capture. Globally, more than 50% of all e-commerce goes through marketplaces. This has resulted that in Europe, the majority of the market-leading companies within e-commerce are marketplaces. As seen in Poland, France, and the Netherlands, local marketplaces have top positions coexisting with global marketplace companies. These players are following an established playbook that has led to tremendous growth and profitability. In the Nordics, established marketplaces are still rare, resulting in a low marketplace penetration. This represents a great opportunity to spearhead reintroduction of the marketplaces' value proposition to both merchants and the consumer.Looking at the numbers for the region, the Nordics inhabits 27.5 million people with a GDP per capita almost twice as high as European average. The region has high Internet penetration and well accustomed to buy products online. With an e-commerce market excluding food totaling SEK 243 billion, this leaves plenty of room for a marketplace player to grow. When a player in Nordics sees a similar market share as bol.com, the leading marketplace in the Netherlands, this would result in a GMV of SEK 55 billion. CDON is today the leading Nordic marketplace with an established consumer and merchant base. Together with a scalable technical platform and a high brand awareness, we are ready to seize the marketplace opportunity in the Nordics.Slide 6, please. CDON has the highest brand awareness in the Nordics compared to our closest marketplace competitor. Taking Sweden alone, as an example, we have 3x higher spontaneous brand awareness compared with the closest competitor. We have stronger overall levels throughout the brand funnel and manage to convert a higher share of consumers in the lower funnel. Extra positive is that we have the strongest spontaneous brand consideration, and for us, core categories such as Home Electronics and Home and Garden. We have the awareness. Now, it's time to increase the attractiveness. We are, therefore, improving our brand profile during 2022. And with that, we will further strengthen our position throughout the brand funnel. More about this later in this presentation.Slide 7, please. In the next slides, we will go through a summary of the quarter. Slide 8, please. GMV for CDON Marketplace increased 6% despite the weak underlying market and the indirect effect of the merchant issue affecting GMV during the period. Towards the end of the period, we finalized the acquisition of Xales and Commerce8, 2 companies that will primarily strengthen our offering to our merchants. In November, we relaunched our revamped version of our consumer membership program, CDON+. The new membership includes free shipping on the entire product assortment and exclusive deals, all for SEK 89 per year. The relaunch has resulted in approximately 20,000 new members, which is 105% increase compared with last year.Slide 9, please. During the quarter, we issued a trading update regarding fraudulent merchant behavior impacting EBITDA with a onetime cost reservation of SEK 20 million for the quarter in order to compensate affected customers. When the fraudulent behavior was discovered, the merchants were terminated from the platform. Unfortunately, the event took place just before and during Black Week, one of the most important sales periods of the year. We were affected on GMV level as an indirect consequence of the terminated merchants. With sizable merchants being terminated during this period, other merchants did not have time to relapse stock levels in time. This event has led us to further strengthen our KYC and the internal processes to prevent a similar event to ever happen again. Regarding the payout to affected customers, CDON, as of February 15, a total payout, which amounts SEK 14.6 million.Slide 10, please. Now I would like to present some of our business initiatives for the short and medium term. Slide 11, please. While we aim at creating an extraordinary customer experience, we still have work ongoing in achieving a basic level. This work of improvement is a continuously ongoing process. Areas involved are, for example, improved service level in customer service, closer follow-up on nonperforming merchants, better visibility in relation to the delivery options, improved navigation on the site, improved filtering options, updated payment offers et cetera. The first release based on Shopit technology was done during Q4, and we expect continuous releases based on their technology during the year.Next slide. As I showed in our previous slide, we have a favorable situation when it comes to the CDON brand awareness. It's very high and have a strong association and history with e-commerce. This is a position it would require considerable investments and time to acquire. We have a huge opportunity in further improving the perception of the brand to make it more attractive, modern and specially relevant, therefore, have started the work of repositioning the CDON brand. The clear ambition from our side is to develop a lab-banded Nordic market. And our brand has more loyal consumers, increased pricing power, more advocates, lower consumer acquisition costs et cetera, not to mention the ability to attract better talent.We have started this work. We have the same approach as when I personally have managed the successful transformation of [indiscernible] domestic brands. The aim is to be ready with the new CDON brand platform during the year. Assisting us in this work, we have partnered with one of the most awarded agency on the market. For the past 2 decades, they have been ranked as one of the most acclaimed creative agencies in the world.Slide 13, please. Branding plays a significant role in the purchasing decision for our consumer. Talents consider a company's brand strength when evaluating whether or not they want to work for a company. We want to increase our relevance and our part of helping people in their daily lives. The revenue growth of the most relevant brands outperforms the average ones. Our new brand platform will therefore be the frame for our strategy, activities and prioritizations going forward. Inside the brand frame, we focus upon the pillars of expansion. And I will give you some example that we already have initiated upon, innovation and cost optimization. Expansion, that is all about growth. Innovation is about enhancing the consumer experience, the brand perception, and our attractiveness as an employer, especially in the tech communique. The later fits our objective to become the best working place in Malma and it's the reason why we have put people and culture as a foundation for the business. And as you can see, we have also had sustainability as a foundation for us going forward. This is at the earliest of stages, but environmental, social and corporate governance will be a natural course of our future activities and investments.Slide 14, please. We are, as we are speaking, taking direct actions for increased presence in the Danish, Finnish and Norwegian markets. Well, one effect of this activity will be an increased merchant base during 2022. We want to grow within prioritized core categories. As a result, we are now establishing a new category division. We will increase focus on onboarding selective brands and products that support our brand positioning and consumer expectations. We also want to expand our online distribution channels. As a result, we started the development of our most wanted CDON App. We expect to launch the new app during the year. Parallel to that, we'll be looking to other possible consumer touch points like live and social shopping. We're also increasing our presence towards our merchants by launching a new business-to-business marketing program. The aim is to increase relevance and relationship towards our different merchant target groups, to attract non-yet CDON potential partners, to develop current active merchants and to activate nonactive CDON merchants.Slide 15, please. We aim to have the best leaders in our business. This is the case when it comes to the function of technology, merchants and category, where we have experienced leader with a long history within CDON. Magnus Nanne joined us as Chief People Officer in January. Magnus has a solid HR background from [indiscernible] Head of HR for Honda Europe. He has also worked with smaller startup-oriented businesses. A combination of structure, process together with entrepreneur spirit is the perfect mix for us and I'm very happy that he is on board.Thomas Pehrsson starts as a new CFO in March. Thomas is a senior CFO with an excellent track record from companies like Coca-Cola, Cap Gemini, HCC and latest Tunstall Health Group, which is a global technology company within digital healthcare. I think with his commercial mindset, the capability of creating very well-performing teams, he will be a great addition to the CDON business.Last, but not least, Madeilene Sodarv will start as Chief Customer Officer in April. Madeilene is the perfect match for us. She has an extensive experience from digital world with leading positions from companies like [indiscernible] Duni, E.ON and latest as Head of Consumer Experience at Ikano Bank. She will contribute with extremely valuable knowledge and experiences in growth marketing and optimization of the consumer journey. I'm very happy for her joining our team.With Magnus, Thomas, and Madeilene on board, we have a complete professional and skill management in place.Now I would like to give the word to Eric to present the financial update. Next slide, please.
Thank you, Peter, and good day, everyone. Moving onto the next slide, we will take a look at some of the key numbers for the quarter. Starting out with GMVs CDON Marketplace, we have registered a 6% increase year-on-year for the fourth quarter of 2021, amounting to SEK 678 million compared to SEK 640 million last year. We started off the quarter, as stated in Q3 2021, with a strong growth of [ 36% ] in October. As previously mentioned by Peter, the underlying market was weak in November and December, which together with indirect effect of merchant issue impacted GMV for the quarter. Despite this, we continued to show growth, and according to market estimates and reports, we are taking market share. Our ambition is to continue this trend at a higher pace to become a dominant marketplace player in the Nordics.Regarding our 1P business, CDON Retail, we continued our strategy to phase out 1P sales and prioritize our 3P business. This, together with a continued decline within traditional media products resulted in a decline of 44% compared with 2020. Finally, the number of selling merchants on the platform increased 22% compared with last year. As mentioned in previous quarters, we are working more strategically and selective with regards to merchant onboarding. This approach of the year has strengthened our product offering, increased availability of best-selling SKUs, which increases the competitiveness within core categories for CDON. We are as well working more proactively in Q1 with our current merchant base reaching out through our account managers and thereby increasing activity on our platform. Together with our expansion initiatives for an entire Nordics, we have high ambitions for further development of our merchant base.Next slide, please. Here, we will take a closer look at the income statement for the Group and our business segments. As the result of our 2 acquisitions of Xales and Commerce8 during the quarter, our Group formation took place towards the end of the quarter. The Group formation has only led to only minor adjustments with regards to the financial statements. Net sales for CDON Marketplace decreased 5%, amounting to SEK 71.8 million compared to SEK 75.9 million in 2020. The decrease in net sales is mainly related to the shift in product mix since the Home Electronics category, which has a lower commission structure increased its sales share of total 3P T&D. This is in line with our strategy to establish top position in a high-demand category and thereby expose new customers to more products on our platform.Looking at CDON Retail, net sales decreased 42% and gross profit amounted to SEK 14.5 million compared to SEK 19.6 million last year. Strong gross profit margin is the result of a slimmer drop-ship operation and higher sales share of traditional media products, which has a higher gross margin compared with other SKUs. EBITDA for the Group amounted to minus SEK 10.4 million for the quarter, which was impacted by the lower gross profit and a onetime cost reservation of SEK 20 million booked during the quarter.Next slide, please. Taking a look at our Group balance sheet for the period ending. Our fixed assets increased by SEK 51.1 million, which is mainly due to our acquisition of shares in Shopit and the acquisitions of [indiscernible] Xales and Commerce8. Looking at inventory, as of the result of our strategy to phase up CDON Retail, inventory decreased compared with last year. It now totals SEK 19.3 million as compared with SEK 25.2 million in 2020. During the quarter, we ended the period with a higher inventory level as compared with the ending of Q3 2021. This is mainly due to our acquisition of the e-commerce company Discshop's inventory, consisting of mainly traditional media products. Also, we ended the quarter with higher levels of Home Electronics SKUs in our inventory that got shipped in Q1 2022.Short-term liabilities are lower this year due to our earlier payout of merchant liabilities and lower supplier liabilities due to the phasing out of CDON Retail. Equity amounts to SEK 199.7 million due to the rights issue conducted in Q3 2021.Next slide, please. Here, we will take a look at the Group cash flow for the period. Starting out with cash flow from operations, it amounts to SEK 24 million compared to SEK 130.4 million last year. Decreased short-term liabilities, lower operating result, payout to customers affected by merchant issue and lower inventory effect due to the phase-out of CDON Retail, are main reasons for the lower operational cash flow. The investments in Xales and Commerce8 during the quarter affected cash flow from investing activities with SEK 4.2 million. CapEx amounted to SEK 5.6 million compared with SEK 6.3 million in 2020. The positive cash flow for the period of SEK 13.9 million resulted in cash holdings at the end of the period at SEK 202.9 million.With that, I would like to give the word back to Peter for closing remarks. Next slide, please.
Thank you, Eric. To conclude, CDON Marketplace continued to grow despite a weak underlying market. The full management team is now in place, and we look forward to further develop CDON as the leading Nordic marketplace. Our plans are set for further growth during 2022 with an increased presence in the Nordic countries. We will, during the year, increase the number of consumer touch points, for example, through a newly developed CDON App. We are working with some of the greatest minds within brand development with results expected during 2022. Tthank you all for listening. And with that, I would like to open up for the Q&A, which will be joined by our Chairperson of the Board, Josephine Salenstedt.
[Operator Instructions] the first question is from Nick Fharm.
Thanks, operator, and good afternoon, everybody. So my first question to you, Peter, is quite obvious since you're newly appointed and new to the company. If you could just share, I think your key priority at this stage for CDON. I know you just went through quite a bit of things and issues that you want to address that you hope to achieve in this year. But nevertheless, what's perhaps a bit surprising joining the company as a new CEO? And what is your key priority? That's my first question, please.
Thank you, and good afternoon. It's about growth, expansion that is part of my DNA. So we have already taken considerable steps. It's only gone 6 weeks, we are already in now for expansion in the Nordic markets. We are refocusing on our categories. We are opening up our distribution channels, and we are repositioning the brand. So a lot of core work streams that already has been then acted upon. And [indiscernible] culture, and I would like to focus further then on increased internal work efficiency, faster decision processes, higher paces of execution. We also find that balance between process structure and keeping the entrepreneurial business mindset here. So I think that is what I'm focusing upon right now. And then we have day-to-day business that needs to be conducted. So at the same time, we have to, like you always have to do, have to improve on your KPIs, it's traffic, it's conversion across category purchasing, buying frequencies and so on, together then always updating on navigation, filtering, payments, whatever it is to have them consumer experience that is the best that we can achieve at that given moment. At the same time, as if I repeat myself, also then work with a mid- and long-term perspective.
So the natural follow-up question would, of course, be -- so do you think, by and large, you have the right people at the right place to sort of execute on your thoughts on your initial force for starting with 2022? Or should you -- should we expect that you need to take some investments and drive some costs throughout this year to get to where you need to be at the end of 2022, please?
I'm very happy and I'm very impressed with the people working here at CDON. I've had some really, really talented and good people here. And then we have areas where we need to strengthen or add. So I think that will -- as long as it's with the good results in mind, we are on a growth path. We can grow faster. We can grow -- we can execute a lot, and that will require resources in terms of the right people on board. I think we have a very solid basis and we need to add some functions.
And just since the Chairman of the Board is also on the call, from that perspective, obviously, in hindsight, how have you gone about to actually implement changes to your onboarding and compliance task which is quite obvious, has to change? How can you reassure the market that hopefully at least this will not necessarily happen again?
Hi, everyone. Great to be here, and thank you for listening today. I assume your question referred to the merchant incident that we had a couple of months ago, right?
Right. Yes.
This is a very unfortunate event. We were not prepared for that and our processes were not where they should be in order to be able to first of all prevent it, but we didn't. Would we have been better prepared, we would potentially have detected it earlier, so we could have had got away with a smaller cost for it. And what we did -- just when it happened, we did a lot of actions to limit the cost at that point and to make sure that the customers were properly treated. And then in parallel with that, we took several actions to make sure the exact same thing could not happen exact same way. This is also a sign for us or a warning that you need to be improved a lot in a broader perspective in how you work with your KYC for merchants and how you educate your staff internally and how you work with whistleblowers and how you follow customer, how you detect when customers are not happy earlier on and so forth. And some of these things have been quite easy to implement and to change and some of the changes take longer time, and we need to build up stronger processes and do some recruitment. So we have been -- become a lot better already, but we are also working very very structured to improve along the way. But having said that, we are on an aggressive growth journey here, and we have a very high ambition. And we are, to some extent, like even though we have existed for quite a long time, as a marketplace, we are, to some extent, a startup. And that means that we will have to learn on the way. So even though we want to improve all the time, we will prioritize growth and then unexpected things will happen. And then what is important is that we learn all the time and that we get better. So I also want our investors to be prepared for that this is going to be a bumpy ride. And what is important is that we improve all the time.
It sounds to me like you may have to take some further cost action to sort of implement what you think is necessary on sort of the KYC theme. I'll -- I have a few more questions, but I'll thank you very much for now, and perhaps I can come back into the call later on.
Now we go to the next question. It is from David Li.
I have a question first on the weak underlying market. We see some of the other peers in different verticals. It's been pretty difficult, starting November, December. May I ask how much is it driven just by sort of the Delta, Omicron -- or how much of it just in general, the business has not come back or just having a difficult comparable against last year? And that's the first question. Second, on the commission level. I know you guys are going through a little bit of mix shift. When should we think about that commission level sort of stabilizing? Or any thoughts on improving that going forward?
I think I can answer at least for the first part. And at this point, that -- I mean most businesses are kind of have -- when it comes to comparable figures, we did last year, we'll face a problem because it was only the year before it was extraordinary circumstances during the pandemic. So comparable figures towards that period is hard to beat at this point. So I think when we go in -- when we start to compare with the next year and going with these figures, we will see a completely different situation.
David, with regards to the merchant commission levels, one has to have in mind that we are following an established playbook here, which has been seen across Europe with regards to winning core categories. And as we mentioned, the sort of shift within product mix is the main reason for the lower commission income during the quarter. And we see that we are very confident in that strategy in order to grow within that area. But one should also have in mind that we are introducing new revenue streams as we go along. We have ads, for instance, we have the CDON [indiscernible] launch now, and those things also add to the general take rate. So one has to mind that we are a growth-oriented company. We are going to take market share aggressively. And one of those things are within the high-demand category such as Home Electronics.
And maybe talk about the SEK 20 million that one merchant, I'm not quite understanding like what was the exact issue? And like was this something where you guys feel like you guys have completely mapped out now under control? Or I mean, it seems like just really caught you guys by surprise?
Yes. During the quarter, we discovered that a sizable merchant basically has stated that they have delivered products to customers as ordered. But when we saw at the later stage was that the consumers said they haven't received their product as stated. Instead, they have basically received some sort of an envelope containing some sort of a discount code linked to the site. And that is a direct fraud when you're looking at our terms and agreements. So we basically, as fast as we found this, we shut off those terminated those merchants and demanded validation that they had delivered those products and they didn't. So then we started to look at how many customers were affected by these said merchants. And we estimated at the time that was between SEK 15 million and SEK 20 million that were -- when it comes to costs related to this. And as we stated during the presentation, we have made continuous payouts compensating the customers. So they know that when they shop on CDON, they will always have a safe experience. And we have, at this stage, paid out SEK 14.6 million as stated as per yesterday. And should we make any sort of revisements to the reserve, we will inform the market.
The next question is from Brad Hathaway.
One quick one to start. Is there any way to estimate the impact on GMV from this merchant order magnitude how much that hurt?
We can't state it as we don't comment like specific merchants, how much their GMV is, but it was a sizable merchant, and it had an indirect effect on our sales during November and December since we couldn't stock up on those important SKUs, particularly in the Home Electronics category.
Got it. And obviously, Home Electronics being a big category for you and this being a big merchant. It was okay. Great. So switching over to the merchant acquisition. Peter, I know that was a focus of yours during the call. I'd love to kind of hear a little more of your thoughts on how you want to go about adding merchants. And then specifically with the Decathlon addition, kind of -- I'd love to just hear a little more about the process from when they piloted last year into kind of putting their whole assortment on CDON very recently.
Brad, I can give you just an insight of where we are right now. So the idea is, since we have an established very well-working merchant team. They work on a more qualitative basis. So it's like key accounts taking personal discussions then with the potential merchants. And that works very, very well. It's a good way of creating good relationship long term. problem is that there is -- it's a big pond to fish in. So the universe of potential merchants are much, much bigger than they can actually then handle. So the idea is to put up on a more business-to-business oriented way, a structure where we can have more frequent dialog with both potential new merchants. At the same time, with the merchants we have increased our offering towards them. So Eric told about -- before about revenue streams, I see a lot of potential here of creating more revenue streams to them. But that also then requires time. So I think this is a very efficient way of being able then to communicate that and implement that in that -- to that base. At the same time, also, which is a minor one, we also have merchants that are less active than all these already have had the relationship with us and then is to deactivate them again. But I think the big upside is there is a lot of merchants that we don't have today the capability or possibility to actually communicate with or interact with this program will give us that possibility.
Got it. And maybe, Josephine, you can give a little more color then on Decathlon?
Actually, no, this is part of Peter's accomplishments. So I'll give that back to Peter.
And this is -- how can I clarify to Brad better?
I think he refers to Decathlon.
Decathlon. Yes, that's -- I mean that is one of those you accomplish then on what we are doing today with qualitative peer-to-peer discussions. So Decathlon is, of course, a fantastic achievement for the Group. It's the world's biggest sports company with a global presence. And they have 40,000 SKUs in their portfolio that they are now -- we now sell the most part of it through our marketplace. So that's a fantastic contribution to our sports offering, which we will, going forward, also trying to expand in a structured way during this year already.
Yes. I mean, I guess the question is, obviously, they are a huge company. They have the capabilities to do their own e-commerce. So I'm curious more going why they made the decision to join with you?
Well, if you go -- we have -- if you are in Nordics, CDON is the obvious choice, isn't it? We have 2 million customers, we have a fantastic consumer experience that we will develop even more. And we have the highest awareness among this. So it's just a natural choice, I would guess, for the most to use CDON as the starting point for that kind of shopping. And since you are in marketplace also, it's about convenience, I guess. You buy that and then you also want to buy other things while you're shopping at the same time.
I think I will add a little bit. I think this is a very good point, Brad. I have talked quite a lot about the Board and the team eventually want to become the deferred distribution online channel for big brands. And even though this is Peter's and the team's accomplishment and not mine, I'm super happy about this because this is a sign and a proof that we are actually already a relevant partner for these type of players.
Understood. No, I think it's a huge accomplishment, and that's obviously what needs to happen going forward for CDON to be what we hope it can be in a few years. Switching gears, Peter, I'd love to touch a little bit more and understand a little more of your history. You mentioned kind of experience with brand transitions in the past. I guess I'd love to hear a little more about what those were and kind of a little bit more about what attracted you to joining CDON?
I can -- I mean, working with strong brands. I have been fortunate to do that my whole life on a global basis. And the last 2 transformational journeys, which I think is proxy the most relevant was the one before, then the last one was to take a business-to-business company that was OE-driven, transforming that to a global lifestyle brand in a couple of years and then changing. So be interesting, I think, with that one and to try to keep this short since this could be a long story. I think the interesting thing is that more or less the same organization, the same products, the same markets, but changing the perception of the products gained then an extremely value increase for that company. And we -- at that point, I think coming back to the Decathlon, Decathlon is one of those that opens doors for other one. It's a very good achievement of the team to bring them on. We were able at that point also to partner up with some of the strongest brands in the world that open then the doors for others. So that journey has been then awarded the best brand transformation. It has been a lecture at Harvard and so on. So that was a really good and very efficient. That took then -- that may then -- I got asked to do the same for another company with the same starting point, very unclear positioning, OE-based. And now we have transformed that one also to a global lifestyle company starting with a SEK 10 billion turnover today a couple of years later, it's closer to SEK 30 billion. But that journey was also quite fantastic.Why I want to do the CDON journey is I think this is a gem to be very honest. It's a diamond. Coming back to what I said before, it's -- we have an established because customer merchant base were -- have a wider product assortment. There is a scalable technical platform. We have the highest awareness, the brand awareness, all those things. The pieces of the passes are there, we now just have to change the perception of the company. And that is what we are doing right now. So I think the new other task was much more complex than were global and you have to take 100 markets into consideration. This is Nordic and the team is here. So -- and I think we will do this one. You cannot be sure that this will be a much, much faster journey than the previous ones, less complex.
Thank you. There are no further questions at this time. [Operator Instructions] There are no further questions. I hand back to you, speakers.
Thank you, everyone. It was great to meet you. I hope you enjoy the presentation. And I really looking forward to see you all again in the next quarter. And hopefully, we'll bring you some good news also there. Thank you.