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Verkkokauppa.com Oyj: Weak quarter in a declining market
INTERIM YEAR REPORT for 1 January – 30 September 2022
Verkkokauppa.com Oyj: Weak quarter in a declining market
Verkkokauppa.com Oyj – Interim Report 27 October 2022, 8:00 a.m. EEST
Verkkokauppa.com arranges two virtual news conferences on a result publication day. News conference in Finnish will be held at 10:00 am Finnish time. Another news conference for analysts and institutional investors in English will be at 11:00 am Finnish time. Details of the events and how to participate, can be found at the end of this release.
The complete report is attached to this release and also available at https://investors.verkkokauppa.com/en
Unless otherwise stated, the comparison figures in brackets refer to the corresponding period in the previous year (reference period). Figures are unaudited.
July – September 2022 in brief
Revenue was EUR 137.8 million (141.0)
Gross profit was EUR 20.1 million (20.9) or 14.6% of revenue (14.8%)
Operating profit (EBIT) was EUR 1.7 million (4.7) or 1.3 % of revenue (3.3%)
Comparable operating profit was EUR 2.1 million (4.7) or 1.5 % of revenue (3.3%)
Net profit was EUR 0.7 million (3.5)
Earnings per share were EUR 0.01 (0.08)
Investments were EUR 1.0 million (0.8)
Operating cash flow was EUR 2.6 million (7.6)
The Board of Directors decided, according to authorization granted by the AGM, to distribute the third installment of a quarterly dividend of EUR 0.063 per share. Dividend payment date is 7 November 2022.
January – September 2022 in brief
Revenue was EUR 388.2 million (405.6)
Gross profit was EUR 58.7 million (65.0) or 15.1% of revenue (16.0%)
Operating profit (EBIT) was EUR 1.5 million (15.0) or 0.4% of revenue (3.7%)
Comparable operating profit was EUR 2.8 million (15.0) or 0.7% of revenue (3.7%)
Net profit was EUR -0.2 million (11.1)
Earnings per share were EUR 0.00 (0.25)
Investments were EUR 6.7 million (3.0)
Operating cash flow was EUR -14.0 million (2.0)
KEY RATIOS | 7-9/2022 | 7-9/2021 | Change, % | 1-9/2022 | 1-9/2021 | Change, % | 1-12/2021 |
Eur million |
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Revenue | 137.8 | 141.0 | -2.3 % | 388.2 | 405.6 | -4.3 % | 574.5 |
Gross profit | 20.1 | 20.9 | -3.6 % | 58.7 | 65.0 | -9.7 % | 91.2 |
Gross margin, % | 14.6 % | 14.8 % |
| 15.1 % | 16.0 % | -5.6 % | 15.9 % |
EBITDA | 3.2 | 5.9 | -46.6 % | 5.6 | 18.7 | -69.9 % | 25.3 |
EBITDA, % | 2.3 % | 4.2 % |
| 1.4 % | 4.6 % | -68.6 % | 4.4 % |
Operating profit | 1.7 | 4.7 | -62.9 % | 1.5 | 15.0 | -90.1 % | 20.3 |
Operating margin, % | 1.3 % | 3.3 % |
| 0.4 % | 3.7 % | -89.7 % | 3.5 % |
Comparable operating profit | 2.1 | 4.7 | -55.3 % | 2.8 | 15.0 | -81.5 % | 20.3 |
Comparable operating margin, % | 1.5 % | 3.3 % |
| 0.7 % | 3.7 % | -80.7 % | 3.5 % |
Net profit | 0.7 | 3.5 | -80.9 % | -0.2 | 11.1 | -101.8 % | 15.1 |
Investments | 1.0 | 0.8 | 14.8 % | 6.7 | 3.0 | 124.9 % | 4.9 |
Operating cash flow | 2.6 | 7.6 | -66.1 % | -14.0 | 2.0 | 784.3 % | 6.7 |
FINANCIAL GUIDANCE FOR 2022 (given on 24 October 2022)
The company expects the revenue to be between EUR 530–560 million (in 2021: EUR 574.5 million) and comparable operating profit (comparable EBIT) to be between EUR 5–9 million (in 2021: EUR 20.4 million) in 2022.
CEO PANU PORKKA’S REVIEW
Verkkokauppa.com's business developed below expectations in the third quarter, while operating in a more challenging market. Uncertainty in the operating environment, inflationary pressures, and rising interest rates weakened consumers' purchasing power. Their confidence sank to a new low in September.
Verkkokauppa.com's July-September revenue declined by -2.3 percent and was EUR 137.8 million. The consumer market, which continued to be soft, played a central role in the overall sales development. Corporate customer sales growth slowed down compared to the beginning of the year, especially in the segment of small and medium-sized companies, and grew by 5.0 percent. Demand in several evolving categories continued on a positive note, e.g. in toys, bags, and home lighting products. In core categories, strong demand was seen in e.g. large household appliances and home entertainment devices such as tv’s and audio devices. The export business grew by 35.1 percent and returned to previous year level, and was 9% of total sales.
The sales margin declined due to the growth of low-margin sales, e.g. in wholesale and export. The cost level was too high given the lower volumes in the business. Higher inventory led to increased logistics and warehouse costs. In addition, talent investments related to strategic growth projects made during the year contributed to increasing personnel costs. Comparable operating profit (EBIT) for the third quarter was EUR 2.1 million.
In August, we carried out an extensive customer survey on the sustainability of electronics and online stores, to which we received more than 18,000 responses. We asked our customers e.g. about their electronics consumption habits and what kind of sustainability actions they expect from electronics manufacturers and online stores. The answers showed readiness to acquire used electronics and to recycle electrical and electronic waste. The results are now used to develop services and sustainability work.
In September, in Jätkäsaari store click & collect lockers were launched and a packaging automation system was introduced as a continuation of the automated small item warehouse. These investments significantly improve the customer experience by better availability and speeding up deliveries. In a continuously challenging market, we will focus on measures aimed at strengthening the core business and improving profitability. At the same time, we are determined to continue to implement strategic growth projects. Our full focus is to benefit the challenging times and to maintain our long-term competitiveness in key areas of expertise.
FINANCIAL DEVELOPMENT
REVENUE AND PROFITABILITY
EUR million | 7-9/2022 | 7-9/2021 | Change, % | 1-9/2022 | 1-9/2021 | Change, % | 1-12/2021 |
Revenue | 137.8 | 141.0 | -2.3% | 388.2 | 405.6 | -4.3% | 574.5 |
Operating profit | 1.7 | 4.7 | -62.9% | 1.5 | 15.0 | -90.1% | 20.3 |
Operating margin, % of revenue | 1.3% | 3.3% |
| 0.4% | 3.7% |
| 3.5% |
- Costs related to business acquisition | 0.4 |
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| 1.3 |
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Comparable operating profit | 2.1 | 4.7 | -55.3% | 2.8 | 15.0 | -81.5% | 20.3 |
Comparable operating margin, | 1.5% | 3.3% |
| 0.7% | 3.7% |
| 3.5% |
Share of sales% |
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| 7-9/2022 | 7-9/2021 | 1-9/2022 | 1-9/2021 | 1-12/2021 | |||||
Customer segments |
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Consumer | 70% | 72% | 69% | 72% | 72% | |||||
B2B | 21% | 22% | 24% | 21% | 21% | |||||
Export | 9% | 6% | 7% | 7% | 7% | |||||
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Sales channels |
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| 0% | 0% | 0% | |||||
On-line | 58% | 59% | 61% | 60% | 61% | |||||
Off-line | 33% | 35% | 32% | 33% | 32% | |||||
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Product categories |
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Core categories (CE) | 86% | 87% | 85% | 87% | 86% | |||||
Evolving categories | 14% | 13% | 15% | 13% | 14% | |||||
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Website visits, million | 19.3 | 17.6 | 58.0 | 54.4 | 79.6 | |||||
Sales include orders and deliveries in transit. On-line and off-line sales exclude export sales.
Core categories includes IT (with sub product groups like computers, peripherals, components), Entertainment (TV and video, Audio and hifi, gaming and musical instruments), Mobile devices (telecom, cameras and watches), and small & major domestic appliances. Evolving categories are new and growing in our assortment, and include sports, home and lightning, food and drink, toys, baby and family, BBQ and cooking, pets and luggage and travel.
July-September 2022
In July-September 2022, Verkkokauppa.com’s revenue declined -2.3 percent compared to the previous year, totaling EUR 137.8 million (141.0). Revenue declined mainly due to weak consumer demand. Corporate customer sales slowed down from the first half and its revenue grew by 5.0 percent, while the customer segment was 21 percent of the company's total sales.
E-ville.com acquisition that was finalized in April increased Verkkokauppa.com's revenue for the quarter by EUR 2.4 million, e-ville.com had EUR 0.6 million negative impact on the operating profit.
Core categories (CE) sales declined -5,2 percent and their share of total sales was 86 percent. Within the core categories, computers and components sales declined, and sales of cameras, tv’s, and especially major home appliances increased from the comparison period. During the quarter, sales of the evolving categories improved +3.1 percent from the previous year, and its share of total sales was 14 percent. The product groups under the evolving category that sold better for consumer customers than in the comparison year, were travel & luggage, toys, and home & lightning.
During the third quarter, Verkkokauppa.com’s online sales declined -3.5 percent following lower total sales, and the share of online sales represented 58 percent of the total sales (59%).
During the third quarter, export sales increased 35.1 percent, and its share of total sales was 9 percent (6%). The increase in sales was mainly from the new sales channels and customers that came with e-ville.com acquisition. The export sales returned to the level before the beginning Ukrainian crisis in March (when we ended all business to Russia). Revenue excluding export declined -5,1percent.
The proceeds from consumer financing services were EUR 1.1 million (1.1) including both interest income and fee income.
Personnel costs increased in July-September +7.8 percent to EUR 9.1 million (8.5). During the reporting period, other operating expenses increased to EUR 7.7 million (6.8). The increase in other operating expenses was mainly due to the acquisition of e-ville.com and the increase in logistics and warehouse costs compared to the comparison period.
Operating profit (EBIT) in July-September declined EUR 2.9 million, totaling EUR 1.7 million (4.7), representing
1.3 percent of revenue (3.3%). The decrease in profitability was mainly due to the increased share of sales of low-margin product and customer segments (wholesale and export) in total sales. In addition, logistics costs were higher than in the comparison period, and general cost inflation weakened results. Comparable operating profit was EUR 2.1 million (4.7) and profit for the period EUR 0.7 million (3.5). Items impacting comparability relate to acquisition.
For the third quarter, earnings per share were EUR 0.01 euros (0.08).
January–September 2022
In January–September, Verkkokauppa.com’s revenue declined 4.3 percent year on year, totaling EUR 388.2 million (405.6).
The company-financed customer financing proceeds were EUR 3.5 million (3.1) including both interest income and fee income. The credit loss allowance decreased from the comparison period to EUR 0.6 million (0.7) at the end of September.
Personnel costs increased in January–September 8.2 percent to EUR 29.0 million (26.9). The increase resulted mainly due to talent investments in the IT and purchasing organizations in relation to enhancing long-term strategic growth projects. During the reporting period, other operating expenses increased to EUR 24.6 million (20.2). Increase in other operating expenses was mainly due to higher costs related to warehouse and logistics as well as technology development.
In January-September, operating profit declined by EUR 13.5 million, totaling EUR 1.5 million (15.0), representing 0.4 percent of revenue (3.7%). Comparable operating profit was EUR 2.8 million euros (15.0) and profit for the period EUR -0.2 million (11.1).
Earnings per share totaled EUR 0.00 (0.25) in January–September.
FINANCE AND INVESTMENTS
Operating cash flow was -14.0 million euros (2.0) in January–September 2022. Cash flow before the change in working capital was EUR 6.2 million (18.9). Operating cash flow was mainly affected by high inventories and development of EBITDA.
Ordinary seasonal fluctuations are reflected in cash and cash equivalents, cash flow, and accounts payable, which usually reach their highest points at the end of the fourth quarter and their lowest points at the end of the second quarter.
Investments totaled EUR 6.7 million (3.0) in January–September. The majority of investments were directed to the Jätkäsaari warehouse automation project and business acquisition. During the reporting period, the company capitalized 0.2 million euros (0.3) in salary costs.
At the end of June, Verkkokauppa.com group had a total of EUR 24.5 million (0.0) of interest bearing debt. The company has revolving credit facilities totaling EUR 25 million, which have not been utilized and are valid until 2025.
PERSONNEL
During the reporting period, the number of employees increased, and the total number of employees was 761 (736) at the end of September 2022. The increase in personnel mainly resulted from the acquisition. This includes both full- and part-time employees.
SUSTAINABILITY
In August 2022, Verkkokauppa.com carried out an extensive customer survey on the sustainability of electronics and online stores, with more than 18,000 respondents. The results of the study showed consumers' broad interest in consumer electronics sustainability issues, such as thoughtful consumption, product longevity and durability, maintenance and repair services, and energy efficiency. In addition, the answers showed readiness to acquire used electronics and to recycle electrical and electronic waste. Only a few respondents felt that they had enough information to identify sustainable products, and information about sustainability was needed more prominently in online stores. The results of the study will be used for the development of Verkkokauppa.com's offering and responsibility work.
Verkkokauppa.com has included used computers in its selection. These desktops and laptops have previously been in business use, then cleared, checked and serviced, and given the same warranty as new products. The company is actively expanding the selection of used products, with the aim of supporting its customers in making responsible choices and offering products and services that support the circular economy.
DIVIDEND
On 27 October 2022, the Board of Directors of Verkkokauppa.com Oyj resolved to pay the third quarterly dividend installment of EUR 0.063 per share. Dividend payment date is 7 November 2022.
Verkkokauppa.com Oyj’s Annual General Meeting resolved to distribute a dividend of EUR 0.060 per share to be paid for the financial year 2021 on 4 April 2022. In addition, the Board of Directors resolved to pay the first dividend installment of EUR 0.061 per share on 9 May 2022; and the second dividend installment of EUR 0.062 per share on 25 July 2022. The Board has now used its authorization.
OTHER EVENTS AFTER THE REPORTING PERIOD
Profit warning: Verkkokauppa.com lowers its financial guidance for 2022 and provides preliminary information on the financial development of the third quarter of 2022
On 24 October 2022, Verkkokauppa.com published a profit warning and lowered its financial guidance for 2022. At the same time, company provided preliminary information on the financial development of the third quarter of 2022. Weaker than expected consumer demand undermines outlook for the last quarter of 2022. New guidance for FY 2022 is as follows; the company expects the revenue to be between EUR 530–560 million and adjusted operating profit (adjusted EBIT) to be between EUR 5–9 million in 2022.
SHORT-TERM RISKS AND BUSINESS UNCERTAINTIES
Verkkokauppa.com’s risks and uncertainties reflect the operating environment and general consumer behavior, such as demand for consumer electronics, circumstances impacting export trade, the availability of products, and the competitive environment. In addition, the company's business operations involve risks and uncertainties, such as risks related to the business strategy, the execution of corporate transactions and investments, risks related to the sourcing operation and logistics, and risks related to information systems and other operational factors of the company's business. The risks and uncertainties described above may have a negative or positive impact on the company's business, financial position or performance.
Geopolitical conflicts and economic sanctions, general economic uncertainty, and consequent uncertainty about the behavior of financial markets can have a detrimental impact on Verkkokauppa.com's business and growth potential. Inflation and tightening monetary policy have an increasing negative impact on consumers' purchasing power, the confidence of their own economy and, consequently, on consumer behavior. Potential impacts on Verkkokauppa.com's business may be visible throughout the product supply chain, logistics, product and service prices, and the consumption behavior of our customers.
The effects of the COVID-19 pandemic and the restrictions on people's lives have eased. New virus variants or re-intensification of the pandemic could have an impact on the company's business in the short term.
BUSINESS OUTLOOK
There is uncertainty about the future outlook in relation to geopolitical conflicts in the world, the crisis in Ukraine and the macroeconomics. The company's growth prospects for the current year are considered challenging due to changes in the operating environment. The strong acceleration of inflation and rise in the interest rates have further undermined consumers’ purchasing power and household confidence in their own economy. Due to these factors, we estimate consumer demand and business to continues to be challenging and we see it difficult to predict the development of our business environment for the remaining of the year.
The company believes that it will succeed in taking advantage of the online consumer transition and increasing its market share in its chosen product categories. The company estimates that the shift of customers to online is permanent.
FINANCIAL GUIDANCE FOR 2022 (published on 24 October 2022)
The company expects the revenue to be between EUR 530–560 million (in 2021: EUR 574.5 million) and comparable operating profit (comparable EBIT) to be between EUR 5–9 million (in 2021: EUR 20.4 million) in 2022.
Helsinki, Finland, 27 October 2022
Verkkokauppa.com Oyj
Board of Directors
NEWS CONFERENCES
A press conference for analysts, investors, and media will be held in Finnish over the Livestream webcast on Thursday, 27 October 2022 at 10:00 a.m. (EEST), in which Verkkokauppa.com’s CEO Panu Porkka will present the developments in the reporting period.
A press conference in English will be held over the Livestream webcast on Thursday, 27 October 2022 at 11:00 a.m. (EEST). Questions can be sent beforehand or during the presentation via e-mail to investors@verkkokauppa.com.
Presentation materials for both events are available at https://investors.verkkokauppa.com/en/presentations. For both press conferences, the Livestream webcast is available at https://vimeo.com/event/2548969 .
COMPANY RELEASES AND EVENTS
Verkkokauppa.com Oyj published its upcoming financial reporting and Annual General Meeting date for 2023 as follows:
Financial statements bulletin for the year 2022 will be published on Thursday 9 February 2023
The Financial Statements for 2022 during the week starting on 27 February (week 9) in 2023
Annual general meeting is planned to be held on Thursday 30 March 2023 in Helsinki.
Interim report for January–March 2023 will be published on Thursday 27 April 2023
Half-year financial report for January–June 2023 on Thursday 20 July 2023
Interim report for January–September 2023 on Thursday 26 October 2023
Financial statements bulleting for the year 2023 on Thursday 8 February 2024.
More information:
Panu Porkka, CEO, Verkkokauppa.com Oyj
panu.porkka@verkkokauppa.com
Mikko Forsell, CFO, Verkkokauppa.com Oyj
mikko.forsell@verkkokauppa.com
Tel. +358 50 434 2516
Marja Mäkinen, Head of Investor Relations, Verkkokauppa.com Oyj
marja.makinen@verkkokauppa.com
Tel. +358 40 671 2999
Distribution:
Nasdaq Helsinki
Main media
www.verkkokauppa.com
Verkkokauppa.com empowers its customers to follow their passion by providing a wide product assortment of around 90,000 products. Verkkokauppa.com Oyj serves its retail and corporate customers through its webstore, megastores, kiosk and network of collection points as well as fast deliveries and various services. As Finland’s most popular and most visited domestic online retailer, its deliveries cover around 75 percent of the Finnish population within the next day. The Company has four megastores: in Oulu, Pirkkala, Raisio, and Helsinki, where its headquarters is also located. Verkkokauppa.com employs more than 750 people and its shares are listed on the Nasdaq Helsinki stock exchange with the ticker VERK.
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