Verkkokauppa.com Oyj Interim Report for 1 January – 30 September 2023: Focus on cost-efficiency in a declining market
INTERIM REPORT for 1 January – 30 September 2023
Focus on cost-efficiency in a declining market
Verkkokauppa.com Oyj INTERIM REPORT 26 October 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-September 2023 Interim 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.
July – September 2023 in brief
- Revenue was EUR 117.4 million (137.8)
- Gross profit was EUR 18.7 million (20.1) or 15.9 % of the revenue (14.6 %).
- Operating profit (EBIT) was EUR 2.1 million (1.7) or 1.8 % of revenue (1.3 %)
- Comparable operating profit was EUR 2.2 million (2.1) or 1.9% of revenue (1.5 %)
- The comparability was impacted by EUR 0.1 million (0.4) cost related to the e-ville.com acquisition
- Net profit was EUR 1.1 million (0.7)
- Earnings per share were EUR 0.03 (0.01)
- Investments were EUR 0.4 million euros (1.0)
- Operating cash flow was EUR 3.0 million (2.6)
January – September 2023 in brief
- Revenue was EUR 352.2 million (388.2)
- Gross profit was EUR 57.8 million (58.7) or 16.4 % of the revenue (15.1 %).
- Operating profit (EBIT) was EUR 2.9 million (1.5) or 0.8 % of revenue (0.4 %)
- Comparable operating profit was EUR 4.6 million (2.8) or 1.3 % of revenue (0.7 %)
- The items impacting comparability include EUR 1.6 million related to restructuring and the additional purchase price of e-ville.com acquisition (EUR 1.3 million related to e-ville.com acquisition)
- Net profit was EUR 0.9 million (-0.2)
- Earnings per share were EUR 0.02 (0.00)
- Investments were EUR 1.8 million euros (6.7)
- Operating cash flow was EUR 2.5 million (-14.0)
| KEY RATIOS | 7-9/2023 | 7-9/2022 | Change | 1-9/2023 | 1-9/2022 | Change | 1-12/2022 | ||
| Eur million | |||||||||
| Revenue | 117.4 | 137.8 | -14.7 | % | 352.2 | 388.2 | -9.3 | % | 543.1 |
| Gross profit | 18.7 | 20.1 | -1.4 | MEUR | 57.8 | 58.7 | -0.9 | MEUR | 80.6 |
| Gross margin, % | 15.9% | 14.6% | 1.3 | pp | 16.4% | 15.1% | 1.3 | pp | 14.8% |
| EBITDA | 3.7 | 3.2 | 0.5 | MEUR | 7.6 | 5.6 | 2.0 | MEUR | 7.8 |
| EBITDA, % | 3.1% | 2.3% | 0.8 | pp | 2.2% | 1.4% | 0.7 | pp | 1.4% |
| Operating result | 2.1 | 1.7 | 0.4 | MEUR | 2.9 | 1.5 | 1.5 | MEUR | 2.3 |
| Operating margin, % | 1.8% | 1.3% | 0.5 | pp | 0.8% | 0.4% | 0.5 | pp | 0.4% |
| Comparable operating result | 2.2 | 2.1 | 0.1 | MEUR | 4.6 | 2.8 | 1.8 | MEUR | 3.5 |
| Comparable operating margin, % | 1.9% | 1.5% | 0.4 | pp | 1.3% | 0.7% | 0.6 | pp | 0.6% |
| Net result | 1.1 | 0.7 | 0.5 | MEUR | 0.9 | -0.2 | 1.1 | MEUR | 0.3 |
| Investments | 0.4 | 1.0 | -0.5 | MEUR | 1.8 | 6.7 | -4.9 | MEUR | 9.3 |
| Operating cash flow | 3.0 | 2.6 | 0.4 | MEUR | 2.5 | -14.0 | 16.5 | MEUR | 1.5 |
FINANCIAL GUIDANCE FOR 2023
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
Market conditions remained challenging in the third quarter. The consumer market did not see a recovery after the summer. The subdued economy also affected demand from corporate customers. High season after the summer started with strong price-driven competitive campaigning in the market.
The profit improvement program is progressing as planned despite the difficult market situation. Streamlining of the assortment, campaign and price optimization as well as improved inventory management were reflected in improved profitability. Sales of own, high-quality brands increased by 21 percent in the third quarter, which had a positive effect on the margin. Our cost efficiency has improved, and, despite elevated inflation, personnel and other operating expenses were 12 percent lower than in the comparison period. Demand declined in all customer segments and revenue declined by 14.7 percent to EUR 117.4 million in the third quarter. Comparable EBIT improved to EUR 2.2 million, in spite of declining volumes.
Verkkokauppa.com’s circular economy trade-in service “Vaihtokauppa” was one of the awarded services in an external Responsible Digital Act competition. This is a great recognition of our pioneering role in the retail sector. “Vaihtokauppa” is the first fully digital trade-in service for used electronic products, which lowers the threshold for placing used phones and computers into circulation and at the same time extends the usable life cycle of the devices. In October, we launched the first pilot on the market for one-hour deliveries of large household appliances and other large products, such as barbecues or televisions, in the Helsinki metropolitan area. Express deliveries thus cover even 99 percent of Jätkäsaari store assortment.
As previously announced, strategy work is progressing and updating of the current strategy to better respond to the challenges of the strongly changed operating environment continues. We will publish strategy update and financial targets by the end of the year.
FINANCIAL DEVELOPMENT
REVENUE AND PROFITABILITY
| EUR million | 7-9/2023 | 7-9/2022 | Change | 1-9/2023 | 1-9/2022 | Change | 1-12/2022 | ||
| Revenue | 117.4 | 137.8 | -14.7 | % | 352.2 | 388.2 | -9.3 | % | 543.1 |
| Operating profit | 2.1 | 1.7 | 0.4 | MEUR | 2.9 | 1.5 | 1.5 | MEUR | 2.3 |
| Operating margin, % of revenue | 1.8% | 1.3% | 0.5 | pp | 0.8% | 0.4% | 0.5 | pp | 0.4% |
| - costs related to comparable operating result | 0.1 | 0.4 | -0.2 | MEUR | 1.6 | 1.3 | 0.3 | MEUR | 1.2 |
| Comparable operating profit | 2.2 | 2.1 | 0.1 | MEUR | 4.6 | 2.8 | 1.8 | MEUR | 3.5 |
| Comparable operating margin, % of revenue | 1.9% | 1.5% | 0.4 | pp | 1.3% | 0.7% | 0.6 | pp | 0.6% |
Share of sales, %
| 7-9/2023 | 7-9/2022 | 1-9/2023 | 1-9/2022 | 1-12/2022 | |
| Customer segments | |||||
| Consumer | 72% | 70% | 69% | 69% | 69% |
| B2B | 21% | 21% | 24% | 24% | 24% |
| Export | 7% | 9% | 7% | 7% | 7% |
| Sales channels | |||||
| On-line | 60% | 58% | 61% | 61% | 61% |
| Off-line | 34% | 33% | 32% | 32% | 32% |
| Product categories | |||||
| Core categories (CE) | 88% | 86% | 85% | 85% | 84% |
| Evolving categories | 12% | 14% | 14% | 15% | 16% |
| Website visits, million | 16.7 | 19.3 | 49.8 | 58.0 | 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.
July–September 2023
In July–September 2023, Verkkokauppa.com’s revenue declined by 14.7 percent year on year, totaling EUR 117.4 million (137.8). Sales declined due to lower demand in all customer segments. Consumer sales declined by 11.1 percent, and sales for corporate customers by 14.5 percent from the comparison period. Export business declined by 37.4 percent from an exceptionally strong comparison period. Consumer sales share of total sales was 72 percent (70%), and corporate sales share was 21 percent (21%).
Sales of core categories declined by 10.8 percent and their share of sales was 88 percent (86 %). Sales of mobile devices and home entertainment appliances fell from the comparison period. Sales of evolving categories declined by 26.2 percent. This was partly due to assortment optimization measures. Evolving product categories’ share of Group sales was 12 percent (14%). Despite weaker demand than in the comparison period, gross margin improved in all main product categories. Sales of own-brand products were strong and increased by 20.8 percent.
Verkkokauppa.com’s online sales fell by 11.8 percent. Online represented 60 percent of all sales (58 %). The sales in stores declined by 11.9 percent and accounted for 34 percent (33%) of the company's sales. Export sales share of Group sales was 7 percent (9%).
The revenue from customer financing services was EUR 1.8 million (1,1), including interest income, fees and commissions.
Personnel costs declined by 17.6 percent in July–September and amounted to EUR 7.5 million (9.1). 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 5.9 percent and amounted to EUR 7.6 million (8.0). Expenses were partly reduced as a result of profit improvement program measures which can be seen, for example, as declined external warehousing costs.
The company's operating profit (EBIT) in July–September improved by EUR 0.4 million and totaled EUR 2.1million (1.7) and its share of revenue was 1.8 percent (1.3%). Comparable operating profit improved by EUR 0.1 million from the comparison period and was EUR 2.2 million (2.1). Comparability was impacted by EUR 0.1 million (0.4) related to e-ville.com acquisition. The result for the period was EUR 1.1 million (0.7).
Earnings per share in the third quarter were EUR 0.03 (0,01).
January–September 2023
In January–September 2023, Verkkokauppa.com’s revenue declined by 9.3 percent year on year, totaling EUR 352.2 million (388.2).
The revenue from customer financing services was EUR 4.9 million (3.5), including interest income, fees and commissions.
Personnel costs declined by 8.2 percent in January-September and amounted to EUR 26.7 million (29.0). Personnel costs include EUR 1.0 million in restructuring costs. Other operating expenses declined by 3.1 percent in the review period and amounted to EUR 23.8 million (24,6). The fixed costs increased by the general cost inflation, while the efficiency measures implemented in relation to the profit improvement program, declined the costs. Credit losses and related provisions increased due to the popularity of customer financing services. Credit loss provisions increased and amounted to EUR 1.0 million (0.6) at the end of September.
The company's operating profit (EBIT) in January–September improved by EUR 1.5 million and totaled EUR 2.9 million (1.5) and its share of revenue was 0.8 percent (0.4 %). Comparable operating profit improved by EUR 1.8 million from the comparison period and was EUR 4.6 million (2.8). Items impacting comparability in the reporting period were in total EUR 1.6 million, including a restructuring provision of EUR 1.2 million and the remaining related to e-ville.com’s possible additional deferred purchase price. In the reference period, comparability was impacted by EUR 1.3 million euros related to e-ville.com acquisition. The result for the period of January-September was EUR 0.9 million (-0.2).
Earnings per share in January-September were EUR 0.02 (0,00).
FINANCE AND INVESTMENTS
In the third quarter, the operating cash flow totaled EUR 2.5 million (-14.0). Operating cash flow before the change in working capital was EUR 7.9 million (6.2). Working capital was mainly impacted by the positive development of lower inventory levels and growth in customer financing accounts receivable.
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.
In July-September, investments totaled EUR 0.4 million euros (1.0). Investments were mainly aimed at the online renewal project and development of pricing optimization tool. During the third quarter, the company capitalized EUR 0.2 million (0,2) of wage costs in the balance sheet.
At the end of September 2023, Verkkokauppa.com group had a total of EUR 22.6 million (24.5) of loans from financial institutions. The company has revolving credit facilities totaling EUR 25 million, which have not been utilized and are valid until 2025.
PERSONNEL
At the end of September 2023, the total number of employees was 640 (761). This includes both full and part-time employees.
SUSTAINABILITY
Verkkokauppa.com invests in the personnel's job satisfaction and employee experience. We believe that a winning customer experience is created when employees experience feelings of appreciation and belonging. The company has a diversity working group that has developed short- and long-term plans to raise awareness of diversity-related issues. We draw up an annual work community development plan to promote equal treatment and fairness. Next year, we will develop the equality plan and reporting. We measure our success in diversity work, for example, through an employee survey. In our sustainability work, we will focus towards the end of the year on developing reporting in accordance with the requirements of Corporate Sustainability Reporting Directive (CSRD).
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 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 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 the Shareholders’ Nomination Board’s proposals concerning Board and auditor selection and remuneration. Also, the Articles of Association were amended such that the general meeting may be held as a so-called remote meeting.
Board composition in 2023
The AGM confirmed the amount of Board members to be seven. Johan Ryding, Kai Seikku, Samuli Seppälä and Arja Talma (Chairperson) were re-elected. Additionally, Robin Bade, Henrik Pankakoski and Kati Riikonen were elected as new members.
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 15 August 2023, Verkkokauppa.com announced that it concentrates its strategic and technological development into one function. The Company's Chief Technology Officer, Jyrki Tulokas, will, in addition to his CTO role, assume responsibility for strategic development and will continue as Chief Strategy & Technology Officer. Perttu Meldo, Verkkokauppa.com's Chief Strategy and Innovation Officer and member of the Management Team, decided to leave the company to join a new employer ending his employment on 18 August 2023.
On 7 September 2023, Verkkokauppa.com announced that HR Director and member of the management team Saara Tikkanen had decided to leave the company. Tikkanen will leave Verkkokauppa.com at the beginning of 2024 to join a new employer.
On 28 September 2023, Verkkokauppa.com appointed Tatu Kaleva (M.Sc. Econ.) as the company’s Chief Commercial Officer and a member of the Management Team. Kaleva will replace Vesa Järveläinen, who will leave Verkkokauppa.com in October. Tatu started in his new position on 2 October 2023.
With the new appointments, Verkkokauppa.com's Management Team will consist of the following members as of 2 October 2023:
Panu Porkka, CEO
Mikko Forsell, CFO
Nina Anttila, Chief Supply Chain Officer
Tatu Kaleva, Chief Commercial Officer
Pekka Litmanen, Chief Experience Officer
Saara Tikkanen, HR Director
Jyrki Tulokas, Chief Strategy and Technology Officer
Suvituuli Tuukkanen, Marketing and Communications Director
PROFIT IMPROVEMENT PROGRAM AND CHANGE NEGOTIATIONS
On 16 January 2023, Verkkokauppa.com launched a profit improvement program to secure its profitability and initiated change negotiations. The annualized profit improvement goal is in 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 the change negotiations. 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
This year, Verkkokauppa.com has evaluated its current strategy in a strongly changed operating environment and has identified a need for updates. The company's management will continue to work on the strategy during the autumn and will publish strategy update and financial targets towards the end of the year.
EVENTS AFTER THE REPORTING PERIOD
Flagging Notifications
On 1 October 2023, Verkkokauppa.com Oyj received notifications in accordance with Chapter 9, Section 10 of the Finnish Securities Market Act according to which the legal entity exercising the ultimate control of the shares subject to the flagging obligation has changed from Sampo Plc to Mandatum Plc in connection with the partial demerger of Sampo Plc on 1 October 2023. Due to the partial demerger, Sampo Plc's holding in Verkkokauppa.com Oyj fell below 5% and Mandatum Plc's holding exceeded 5%.
Verkkokauppa.com’s upcoming financial reporting and Annual General Meeting in 2024
On 5 October 2023, Verkkokauppa.com Oyj announced its upcoming financial reports and financial statements publication dates. Financial statements bulleting for the year 2023 will be published on Thursday 8 February 2024, the Financial Statements for 2023 during the week starting on 26 February (week 9) in 2024, interim report for January – March 2024 on Thursday 25 April 2024, half-year financial report for January – June 2024 on Thursday 18 July 2024, interim report for January – September 2024 on Thursday 24 October 2024 and financial statements bulleting for the year 2024 on Thursday 6 February 2025. The annual general meeting is planned to be held on Thursday 4 April 2024.
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. As Verkkokauppa.com’s own consumer financing service is attracting new customers, the risk of company's credit losses is foreseen to increase. 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 on its operations and financial performance. For example, the number of distributed denial-of-service attacks against companies has increased. Uncertainties related to intensified geopolitical conflicts, the crisis in Ukraine, and global macroeconomic factors such as inflation and the development of financial markets as well as changes in the employment situation can weaken purchasing power and investment ability of consumers and corporates towards the end of the year 2023 and further into the coming year. 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, 26 October 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:
- Financial statements bulleting for the year 2023 on Thursday 8 February 2024
- The Financial Statements for 2023 during the week starting on 26 February (week 9) in 2024
- Annual general meeting is planned to be held on Thursday 4 April 2024 at 2 p.m. EET as a virtual-only AGM
- Interim report for January – March 2024 on Thursday 25 April 2024
- Half-year financial report for January – June 2024 on Thursday 18 July 2024
- Interim report for January – September 2024 on Thursday 24 October 2024
- Financial statements bulletin for the year 2024 on Thursday 6 February 2025.
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 (Nasdaq Helsinki: VERK) is Finland's leading online store, offering a wide range of products from home technology to leisure as well as business needs. Operating since 1992, the company is one of the oldest online retailers in the world, combining its online store and brick-and-mortar stores for an omnichannel customer experience. Verkkokauppa.com's four megastores are located in Oulu, Pirkkala, Raisio and Jätkäsaari, Helsinki. To provide a superior customer experience, the company delivers products as fast as an hour to your door around the clock, utilizing automation and robotics. Verkkokauppa.com employs around 700 people. The company is listed on the Nasdaq Helsinki stock exchange, and it has more than 21,000 shareholders.
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