Verkkokauppa.com Oyj Half-year Report for 1 January – 30 June 2023: Solid implementation of profit improvement program continued
HALF-YEAR REPORT for 1 January – 30 June 2023
SOLID IMPLEMENTATION OF PROFIT IMPROVEMENT PROGRAM CONTINUED
Verkkokauppa.com Oyj HALF-YEAR REPORT 20 July 2023, 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. 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.
This is a summary of Verkkokauppa.com’s January-June 2023 Half-year Report. 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.
April – June 2023 in brief
- Revenue was EUR 112.8 million (125.7)
- Gross profit was EUR 18.8 million (19.4) or 16.7% of the revenue (15.4%).
- Operating profit (EBIT) was EUR 0.8 million (-0.9) or 0.7% of revenue (-0.7%)
- Comparable operating profit was EUR 1.0 million (-0.2) or 0.8% of revenue (-0.2%)
- The items impacting comparability include EUR 0.1 million (0.7) one-time cost related to the e-ville.com acquisition
- Net profit was EUR 0.2 million (-1.1)
- Earnings per share were EUR 0.00 (-0.02)
- Investments were EUR 0.3 million euros (4.3)
- Operating cash flow was EUR 3.2 million (0.3)
January – June 2023 in brief
- Revenue was EUR 234.8 million (250.4)
- Gross profit was EUR 39.1 million (38,6) or 16.6% of the revenue (15.4%).
- Operating profit (EBIT) was EUR 0.9 million (-0.2) or 0.4% of revenue (-0.1%)
- Comparable operating profit was EUR 2.3 million (0.7) or 1.0% of revenue (0.3%)
- The items impacting comparability include EUR 1.5 million related to restructuring and the additional purchase price of e-ville.com acquisition (EUR 0.9 million related to e-ville.com acquisition)
- Net profit was EUR -0.2 million (-0.9)
- Earnings per share were EUR -0.01 (-0.02)
- Investments were EUR 1.3 million euros (5.7)
- Operating cash flow was EUR -0.4 million (-16.5)
| KEY RATIOS | 4-6/2023 | 4-6/2022 | Change | 1-6/2023 | 1-6/2022 | Change | 1-12/2022 | ||
| Eur million | |||||||||
| Revenue | 112.8 | 125.7 | -10.2 | % | 234.8 | 250.4 | -6.2 | % | 543.1 |
| Gross profit | 18.8 | 19.4 | -0.5 | MEUR | 39.1 | 38.6 | 0.5 | MEUR | 80.6 |
| Gross margin, % | 16.7% | 15.4% | 1.3 | pp | 16.6% | 15.4% | 1.2 | %-pp. | 14.8% |
| EBITDA | 2.3 | 0.5 | 1.9 | MEUR | 3.9 | 2.5 | 1.5 | MEUR | 7.8 |
| EBITDA, % | 2.1% | 0.4% | 1.7 | pp | 1.7% | 1.0% | 0.7 | %-pp. | 1.4% |
| Operating profit | 0.8 | -0.9 | 1.7 | MEUR | 0.9 | -0.2 | 1.1 | MEUR | 2.3 |
| Operating margin, % | 0.7% | -0.7% | 1.4 | pp | 0.4% | -0.1% | 0.5 | %-pp. | 0.4% |
| Comparable operating profit | 1.0 | -0.2 | 1.1 | MEUR | 2.3 | 0.7 | 1.7 | MEUR | 3.5 |
| Comparable operating margin, % | 0.8% | -0.2% | 1.0 | pp | 1.0% | 0.3% | 0.7 | %-pp | 0.6% |
| Net profit | 0.2 | -1.1 | 1.2 | MEUR | -0.2 | -0.9 | 0.6 | MEUR | 0.3 |
| Investments | 0.3 | 4.3 | -3.9 | MEUR | 1.3 | 5.7 | -4.4 | MEUR | 9.3 |
| Operating cash flow | 3.2 | 0.3 | 2.9 | MEUR | -0.4 | -16.5 | 16.1 | MEUR | 1.5 |
FINANCIAL GUIDANCE FOR 2023 INTACT
In 2023, the company expects the revenue to decline (2022: EUR 543.1 million) and comparable operating profit (comparable EBIT) to improve (2022: EUR 3.5 million) compared to 2022.
CEO PANU PORKKA’S REVIEW
During the first half of 2023, we focused on strengthening competitiveness amidst weak demand in the market. Solid implementation of profit improvement program continued. Improved operational efficiency, changes in the assortment and other numerous measures to improve profitability all contributed to a positive impact on earnings performance.
The market environment remained challenging in the second quarter and price competition intensified compared with first quarter. High cost inflation and interest rates have clearly reduced purchasing power and kept consumers more price-conscious and prudent in their purchasing decisions. The economic uncertainty also had a negative impact on demand from small & medium-sized corporate customers. Summer season sales got off to a rather sluggish start, and the hoped-for pick-up in sales during the season was largely not realized.
Group revenue in the second quarter declined by 10.2 percent and was EUR 112.8 million. Both consumer and corporate sales were lower than in the comparison period. Online sales fell by 9.9 percent and accounted for 62 percent of sales. Within various product categories, home appliances and gaming sold well, while demand for computers and phones was weaker than in the comparison period. The company's comparable operating profit improved during the second quarter and stood at EUR 1.0 million, corresponding to 0.8 percent of net sales.
Despite the declining demand, we managed to control stock levels while ensuring efficient goods flows. In the spring, we further improved delivery speed to customers. Thanks to logistics automation, we are the only e-commerce operator offering 600,000 Helsinki metropolitan residents delivery of more than 30,000 products within one hour from ordering to customer doorstep.
Developing online customer experience and extensive renewal of functionalities of our online store have proceeded according to plan. Significant improvements supporting sales have been tested during the spring and are now fully applied. During the reporting period, we implemented a dynamic pricing tool covering a part of the assortment. This ensures that prices remain competitive at all times.
During the first half of the year, we have been evaluating current strategy in a strongly changed operating environment and identified needs for updates. We will continue to work on selected themes during the fall and publish an update on strategy and financial targets during the second half of the year.
FINANCIAL DEVELOPMENT
REVENUE AND PROFITABILITY
| EUR million | 4-6/2023 | 4-6/2022 | Change | 1-6/2023 | 1-6/2022 | Change | 1-12/2022 | ||
| Revenue | 112.8 | 125.7 | -10.2 | % | 234.8 | 250.4 | -6.2 | % | 543.1 |
| Operating profit | 0.8 | -0.9 | 1.7 | MEUR | 0.9 | -0.2 | 11 | MEUR | 2.3 |
| Operating margin, % of revenue | 0.7% | -0.7% | 1.4 | pp | 0.4% | -0.1% | 0.5 | pp | 0.4% |
| - costs related to comparable operating result | 0.1 | 0.7 | -0.6 | MEUR | 1.5 | 0.9 | 0.6 | MEUR | 1.2 |
| Comparable operating profit | 1.0 | -0.2 | 1.1 | MEUR | 2.3 | 0.7 | 1.7 | MEUR | 3.5 |
| Comparable operating margin, % of revenue | 0.8% | -0.2% | 1.0 | pp | 1.0% | 0.3% | 0.7 | pp | 0.6% |
Share of sales, %
| 4-6/2023 | 4-6/2022 | 1-6/2023 | 1-6/2022 | 1-12/2022 | |
| Customer segments | |||||
| Consumer | 69% | 68% | 68% | 68% | 69% |
| B2B | 25% | 26% | 25% | 26% | 24% |
| Export | 7% | 6% | 7% | 6% | 7% |
Sales channels | |||||
| On-line | 62% | 63% | 62% | 62% | 61% |
| Off-line | 32% | 32% | 31% | 32% | 32% |
Product categories | |||||
| Core categories | 83% | 82% | 85% | 85% | 84% |
| Evolving categories | 17% | 18% | 15% | 15% | 16% |
| Website visits, million | 15.4 | 18.7 | 33.1 | 38.7 | 82.4 |
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 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.
April-June 2023
In April–June 2023, Verkkokauppa.com’s revenue declined by 10.2 percent year on year, totaling EUR 112.8 million (125.7). Sales declined due to lower demand than in the previous year in both consumer and corporate customer segments. Consumer sales declined by 10.3 percent, and sales for corporate customers by 14.8 percent from the comparison period. Consumer sales share of total sales was 69 percent (68%), and corporate sales share was 25 percent (26%).
Sales of core categories declined by 10.0 percent and their share of sales was 83 percent (82%). Especially sales of small household appliances and gaming increased, while sales of mobile devices and IT categories fell from the comparison period. Sales of evolving categories declined by 16.0 percent, and their share of Group sales was 17 percent (18%). Among the evolving categories, sports and travel categories sold better than in the comparison period.
Verkkokauppa.com’s online sales fell by 9.9 percent. Online accounted for 62 percent of all sales (63%). The sales in stores declined by 14.5 percent and accounted for 32 percent (32%) of the company's sales. Export sales was in line with the comparison period and its share of Group sales was 7 percent (6%).
The revenue from customer financing services was EUR 1.6 million (1.1), including both interest income and commissions.
Personnel costs declined by 16.7 percent in April-June and amounted to EUR 8.3 million (10.0). The decline was mainly a result of the change negotiations carried out in the spring and the successful adaption of store and logistics personnel to quieter demand. Other operating expenses for the review period declined by 8.7 percent and amounted to EUR 8.3 million (9.1). Expenses were partly reduced as a result of profit improvement program measures. In the comparison period other operating expenses included e-ville.com acquisition costs.
The company's operating profit (EBIT) in April-June improved by EUR 1.7 million and totaled EUR 0.8 million (-0.9) and its share of revenue was 0.7 percent (-0.7%). Comparable operating profit improved by EUR 1.1 million from the comparison period and was EUR 1.0 million (-0.2). Operating profit was improved by numerous measures implemented within the framework of the profit improvement program. Comparability was impacted by EUR 0.1 million (0.7) related to e-ville.com acquisition. The result for the period was EUR 0.2 million (-1.1).
Earnings per share in the second quarter were EUR 0.00 (-0.02).
January-June 2023
In January–June 2023, Verkkokauppa.com’s revenue declined by 6.2 percent year on year, totaling EUR 234.8 million (250.4).
The revenue from customer financing services was EUR 3.0 million (2.4), including both interest income and commissions. Credit loss provisions increased and amounted to EUR 1.0 million (0.8) at the end of June.
Personnel costs declined by 3.9 percent in January-June and amounted to EUR 19.2 million (20.0). Personnel costs include EUR 1.0 million in restructuring costs. Other operating expenses in the review period amounted to EUR 16.2 million (16.5). The fixed costs were increased by the general cost inflation, while the efficiency measures implemented in relation to the profit improvement program, declined the costs.
The company's operating profit (EBIT) in January-June improved by EUR 1.1 million and totaled EUR 0.9 million (-0.2) and its share of revenue was 0.4 percent (-0.1%). Comparable operating profit improved by EUR 1.7 million from the comparison period and was EUR 2.3 million (0.7). Items impacting comparability in the reporting period were in total EUR 1.5 million, including restructuring provision of EUR 1.2 million and the remaining related to e-ville.com acquisition. In the reference period, items impacting comparability were EUR 0.9 million euros related to e-ville.com acquisition. The result for the period was EUR -0.2 million (-0.9).
Earnings per share in the first half were EUR -0.01 (-0.02).
FINANCE AND INVESTMENTS
On 30 June, the operating cash flow totaled EUR -0.4 million (-16.5). Operating cash flow before the change in working capital was EUR 3.7 million (3.2). The operating cash flow was mainly impacted by the positive development of EBITDA and working capital.
Ordinary seasonal fluctuations are reflected in cash and cash equivalents, cash flow and accounts payable, which usually reach their highest levels at the end of the fourth quarter and their lowest levels at the end of the second quarter.
Investments totaled EUR 1.3 million euros (5.7) in the first half of 2023. The investments were mainly aimed at the online renewal project and business analytics related development. During April-June, the company capitalized EUR 0.3 million (0.1) of wage costs in the balance sheet.
At the end of June 2023, Verkkokauppa.com group had a total of EUR 22.6 million (25.0) of loans from financial institutions. The company has revolving credit facilities totaling EUR 25 million, which have not been utilized and that are valid until 2025.
PERSONNEL
At the end of June 2023, the total number of employees was 695 (815). This includes both full and part-time employees.
SUSTAINABILITY
In April 2023, Verkkokauppa.com launched a trade-in Service, which promotes the circular economy, allowing customers to sell their used electronic devices back, receiving a credit corresponding to the value of the device to their customer account. The service operates entirely online, which lowers the threshold for recycling functional used devices and promotes the extension of the life cycles of electronic devices. During the launch phase, the service will cover smartphones, smartwatches, tablets and laptops, and the company is actively developing the service to expand the range of tradeable products. After the trade-in, Verkkokauppa.com will take care of the used device based on the condition inspection either for sale to a new user or, alternatively, for its correct recycling. The trade-in service is part of Verkkokauppa.com's responsibility program to support its customers in making responsible choices and to offer products and services that support the circular economy.
Verkkokauppa.com has expanded its range of second-hand products to more than a hundred items. The range marketed under the FWD logo covers used computers, tablets, phones, and laptop docks. Used products are sourced as close as possible, from the Finnish and Nordic markets.
FLAGGING NOTIFICATIONS
26 April 2023, Verkkokauppa.com published a flagging notification of a change in shareholding according to Chapter 9, Section 10 of the Finnish Securities Market Act. Mandatum Life Insurance Company’s holding in Verkkokauppa.com shares have been transferred within the Mandatum Group from Mandatum Life Insurance Company to an UCITS fund under Mandatum Fund Management S.A. As a result of the transfer, Mandatum Life Insurance Company's holding in Verkkokauppa.com Oyj declined to less than 5 percent. Despite the flagging notification, the total ownership of the Mandatum Group has not changed as a result of the transaction in such a way that the ownership would have exceeded or fallen below a flagging threshold.
LONG-TERM INCENTIVE PLANS
Verkkokauppa.com have had share-based incentive plan for the CEO and members of the Management Team, the Performance Matching Share Plan 2020–2022. The program ended in 2022, but the last payment installment was made in the second quarter of 2023.
On 11 May 2023, The Board of Directors of Verkkokauppa.com Oyj decided to establish a new share-based incentive plan (Performance Matching Share Plan 2023–2027) for the CEO and the members of the Management Team of the company. The Board will decide annually on the commencement and details of a performance period. The aim of the new plan is to align the objectives of the shareholders and the management in order to increase the value of the company in the long-term, to encourage the management to personally invest in the company’s shares, to retain the target group at the company, and to offer them a competitive incentive plan in which the participants may earn shares as a reward for performance and their personal investment.
For more detailed information on the share-based incentive plan, see Note 1.11.
ANNUAL GENERAL MEETING 2023
The Annual General Meeting of Verkkokauppa.com Oyj was held in Helsinki on 30 March 2023. The AGM adopted the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial year 2022 and approved the company’s remuneration report for governing bodies as well as authorized the Board of Directors to decide on a repurchase of the company’s own shares and the issuance of shares. PricewaterhouseCoopers Oy was elected as the Company’s auditor and as the auditor-in-charge will serve Mikko Nieminen. In addition, the AGM approved shareholders’ nomination board’s proposals concerning Board and auditor selection and remuneration. Also, the Articles of Association was amended such that the general meeting may be held as a so-called remote meeting.
Board composition in 2023
The AGM confirmed as the amount of board members to be seven. Johan Ryding, Kai Seikku, Samuli Seppälä and Arja Talma (Chairperson) were re-elected for the next term. Additionally, Robin Bade, Henrik Pankakoski and Kati Riikonen were elected as new members for the next term.
The compositions of the Board committees were decided to be as follows: members of the Audit Committee are Kai Seikku (Chairperson), Arja Talma (Vice Chairperson), Henrik Pankakoski and Kati Riikonen. Members of the remuneration committee are Arja Talma (Chairperson), Robin Bade, Johan Ryding and Kai Seikku.
Verkkokauppa.com’s stock exchange release published on 30 March 2023 on the decisions of the Annual General Meeting, is available on the company’s investor website.
DIVIDEND
On 30 March 2023, Verkkokauppa.com Oyj’s Annual General Meeting resolved that the Company deviates from its dividend distribution policy and that no dividend be distributed from the profit of the 2022 financial year.
CHANGE IN VERKKOKAUPPA.COM'S MANAGEMENT TEAM
On 2 May 2023, Verkkokauppa.com announced that Vesa Järveläinen, Commercial Director of Verkkokauppa.com and a member of the Management Team, has decided to leave the company. He will continue with Verkkokauppa.com approximately until the autumn.
PROFIT IMPROVEMENT PROGRAM AND CHANGE NEGOTIATIONS
On 16 January 2023, Verkkokauppa.com launched a profit improvement program to secure its profitability and in connection to that the company initiated change negotiations in January 2023. The annualized profit improvement goal is in a total of approximately EUR 10 million, of which around EUR 5-8 million is expected to be realized in 2023.
On 9 March 2023, Verkkokauppa.com completed change negotiations that were started in January. Change negotiations were initiated in accordance with the Co-operation Act in order to reform the organization’s structures and align the number of personnel and costs to the prevailing demand situation. The negotiations covered the entire personnel of Verkkokauppa.com. As a result of the negotiations, the workforce in Verkkokauppa.com was reduced by 75 employees. In addition to personnel reductions, the company will temporarily lay off all company officers, senior officers and management, for a period of 14 days. The planned measures aim to achieve annual savings of EUR 6 million in personnel costs. Of the savings, EUR 3-4 million are expected to be realized in the second half of 2023 and in full in 2024.
The planned restructuring is estimated to result in costs of approximately EUR 1.2 million.
COMPANY STRATEGY
During the first half of the year, Verkkokauppa.com has been evaluating current strategy in a strongly changed operating environment and the company has identified needs for updates. The company's management will continue to work on the strategy during the autumn and will publish an update to the current strategy and financial targets during the second half of the year.
COMPOSITION OF THE SHAREHOLDERS’ NOMINATION BOARD
At its organizational meeting on 27 June 2023, the following members of the Nomination Board were appointed: Samuli Seppälä, Founder of Verkkokauppa.com, representing himself; Erkka Kohonen, Senior Portfolio Manager, appointed by Varma Mutual Pension Insurance Company; Jukka Järvelä, Head of Equities, Mandatum Asset Management, nominated by Mandatum Life Insurance Company Limited. Arja Talma participates as an expert member in the role of the Chairperson of the Board of Verkkokauppa.com Oyj. The Chair of the Nomination Board is Erkka Kohonen.
The Nomination Board consists of three members, which represent the three largest shareholders and who hold the largest number of votes of all votes in the Verkkokauppa.com on the last banking day in May preceding the next Annual General Meeting. The chairperson of the Board acts as an expert member of the Nomination Board.
SHORT-TERM RISKS AND BUSINESS UNCERTAINTIES
Verkkokauppa.com's business operations involve risks and uncertainties related to its overall strategy, execution of corporate transactions and investments, sourcing operations, logistics, information technology, compliance and other operational factors. These risks can impact the company's operations, financial position or performance and may require the company to make changes to its business model.
The demand for consumer electronics, availability of products, and competitive environment are factors that impact Verkkokauppa.com's business. The company faces risks related to changes in both consumer and corporate customer behavior and preferences, supply chain disruptions, and intensified competition from other players in the market.
Verkkokauppa.com is also subject to macroeconomic and geopolitical risks that could impact its operations and financial performance. Uncertainties related to geopolitical conflicts, the crisis in Ukraine, and global macroeconomic factors such as inflation and the development of financial markets can weaken purchasing power and investment ability of consumers and corporates during the latter half of 2023. Slowed economic growth in Finland can also impact the company's operations and financial performance. At the moment, the visibility of economic development is limited.
FINANCIAL GUIDANCE FOR 2023
In 2023, Verkkokauppa.com expects the revenue to decline (2022: EUR 543.1 million) and comparable operating profit (comparable EBIT) to improve (2022: EUR 3.5 million) compared to 2022.
Helsinki, Finland, 20 July 2023
Verkkokauppa.com Oyj
Board of Directors
NEWS CONFERENCES
A press conference for analysts, investors and media will be held in Finnish over Livestream webcast on Thursday, 20 July 2023 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 Livestream webcast on Thursday, 20 July 2023 at 11:00 a.m. (EEST). Questions can be sent beforehand or during the presentation via e-mail to [email protected].
Presentation materials for both events are available at https://investors.verkkokauppa.com/en/presentations. For both press conferences, the Livestream webcast is available at www.verklive.com or https://investors.verkkokauppa.com..
COMPANY RELEASES AND EVENTS
Verkkokauppa.com will arrange events and publish its financial reports as follows:
- 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
[email protected]
Mikko Forsell, CFO, Verkkokauppa.com Oyj
[email protected]
Tel. +358 50 434 2516
Marja Mäkinen, Head of Investor Relations and Corporate Communications, Verkkokauppa.com Oyj
[email protected]
Tel. +358 40 671 2999
Verkkokauppa.com empowers its customers to follow their passion by providing a wide product assortment of around 75,000 products. Verkkokauppa.com Oyj serves its retail and corporate customers through its webstore, megastores 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 around 700 people and its shares are listed on the Nasdaq Helsinki stock exchange with the ticker VERK.
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