Verkkokauppa.com’s Interim Report for 1 January– 30 September 2020: Strong performance as e-commerce disruption continues to accelerate

INTERIM REPORT for 1 January – 30 September 2020: Strong performance as e-commerce disruption continues to accelerateVerkkokauppa.com Oyj – Interim Report (unaudited) 23 October 2020, 8:00 a.m.1 July – 30 September 2020 in briefRevenue 129 million euros (7–9/2019: 121), growth of 7.3%Gross profit 20.9 million euros (18.9), growth of 10.4%Gross margin 16.2% of revenue (15.7%)Operating profit 5.6 million euros (4.3)Operating margin 4.3% of revenue (3.6%)Comparable operating profit 5.6 million euros (4.3)Comparable operating margin 4.3% (3.6%)Profit for the period 4.2 million euros (3.2)Earnings per share 0.09 euros (0.07)Investments 0.3 million euros (0.03)Operating cash flow 5.5 million euros (11.4)On 24 September 2020, the company issued a positive profit warning and updated the financial guidance for 2020The Board of Directors has resolved to pay a quarterly dividend of 0.055 euros per share after the reporting period
 
             
1 January – 30 September 2020 in briefRevenue 378 million euros (1–9/2019: 344), growth of 9.7%Gross profit 61.8 million euros (51.7), growth of 19.5%Gross margin 16.4% of revenue (15.0%)Operating profit 13.4 million euros (6.8)Operating margin 3.5% of revenue (2.0%)Comparable operating profit 14.2 million euros (6.8)Comparable operating margin 3.8% (2.0%)Profit for the period 10.0 million euros (4.6)Earnings per share 0.22 euros (0.10)Investments 0.9 million euros (0.9)Operating cash flow 6.5 million euros (-2.0)BUSINESS OUTLOOKVerkkokauppa.com Oyj’s business operations are estimated to develop positively within a medium-term time frame. The company believes that it will succeed in further growing its market share in the chosen categories. The strong balance sheet enables the company to continue expanding its operations in accordance with its strategy.The company has benefited from the shifting consumer behavior accelerated by the COVID-19 pandemic, as the sales in the online sales channel have shown strong growth. The company expects this trend to continue the longer the COVID-19 pandemic persists and that the shift to online sales channels becomes permanent as consumers and businesses adapt new behaviors.At the same time, the prolongation of the COVID-19 pandemic continues to have a negative impact on spending on travel and service sectors. On the one hand, this has positively affected the consumer demand for goods, but on the other hand, it has limited the lower-margin wholesale business. The short-term risk of an acceleration or worsening of the COVID-19 situation in Finland has increased. This may have an impact on the company’s operations and its ability to safely serve customers in the brick-and-mortar stores, especially during the important fourth quarter.The uncertainties concerning the future business outlook remain significant and relate to macroeconomic developments and the prevailing COVID-19 situation. The pandemic may still cause unforeseen impacts on the overall economic development, consumer demand as well as consumer purchase behavior and B2B sales in the future. Nevertheless, the company believes that it is well positioned and will be a relative winner in the “new normal” business environment of the future.FINANCIAL GUIDANCEOn 24 September 2020, the company updated its guidance for revenue and comparable operating profit for 2020. The company estimates the revenue to be between 525–550 million euros (2019: 504 million euros) and comparable operating profit to be between 17–21 million euros (2019: 11.3 million euros) for 2020. Earlier, the company estimated the revenue to be between 520–545 million euros and comparable operating profit to be between 13–18 million euros for 2020.
CEO PANU PORKKA’S REVIEWVerkkokauppa.com’s revenue grew by 7% in Q3, amounting to 129 million euros. The company achieved the growth in Q3 with strong consumer online sales and growth especially in mid-sized and evolving categories, such as MDA, Sports, Office & Supplies and BBQ. The migration from offline to online in retail continues at a fast pace, with a growing number of new consumers showing preference for online shopping.The company succeeded in improving its profitability also during Q3. Gross margin in Q3 was 16.2% compared to 15.7% in Q3/2019. This was a result of strong sales increase in newer categories as well as strong consumer sales, while the market for wholesale is having headwind due to travel restrictions. Continued investments into technology led to operational improvements in several areas, such as performance marketing, which improved the gross margin. The development of data analysis generated faster inventory turn, which further improved the gross margin. The company also achieved an all-time high comparable operating profit of 5.6 million euros in Q3 (4.3 million euros).Verkkokauppa.com has continued to invest in customer experience in order to strengthen its position as the leading online retailer in Finland. For example, the company offers its customers the broadest delivery options in the industry, including same-day delivery in the Helsinki Metropolitan area. In addition to providing a better buying experience, the company has also invested in technology to automate more parts of the business. This will lower costs further and will allow the company to offer the Finnish consumer even better prices. The active work on communications and marketing has increased brand awareness and buzz, according to BrandIndex. As an acknowledgement, Verkkokauppa.com was once again selected as the best online retailer in Finland in a large consumer study conducted by Posti Group.The Company is working hard to further develop the product range in high-demand categories. For this reason, it is rewarding to see that new categories are showing good performance. Categories such as Sports, BBQ and Kitchen grew by more than 40% during Q3. It is an important part of the company’s strategy to offer the most comprehensive assortment in each product category. As part of assortment management, in selected categories the company supplements its offering with private label products to give the customer the best possible value-for-money options. This is a growing part of the business where even more emphasis will be put during the coming years. In addition, a new website verkkokauppa.fi was launched in September to attract the best new Finnish suppliers as part of the company’s continuously widening offering.The competition and price pressure will likely pick up as the main season for consumer spending is in Q4. Uncertainties regarding COVID-19 are taken into account in order to ensure safety of staff and customers. It is expected that the ongoing situation will continue to permanently migrate traditional brick-and-mortar sales to online shopping and home deliveries. Verkkokauppa.com is determined to continue to offer the Finnish consumer superior product assortment and availability with multiple delivery options. The company will continue to focus heavily on technology to further improve its strong market position and to strengthen its low-cost structure in order to deliver on its customer promise of “Probably always cheaper prices”.
REVENUE AND PROFITABILITY DEVELOPMENTJuly–September 2020In July–September 2020, Verkkokauppa.com Oyj’s revenue grew by 7.3% year on year. Revenue grew by 8.8 million euros, totaling 129.3 million euros (120.6). Sales increased particularly in MDA, Telecom, Sports, BBQ, Office & Supplies, and Home & Lighting.The company-financed customer financing proceeds were 0.9 million euros (0.8) including both interest income and fee income. The credit loss allowance was decreased by -0.1 million euros (0.0) in the third quarter. As of April 2019, Verkkokauppa.com has been selling past due receivables in a so-called continuous debt sales model, where receivables overdue more than 60 days will be sold to third parties. This decreases company’s accounts receivable risk.Personnel costs increased in July–September by 6.4% to 8.1 million euros (7.6). The increase resulted mainly from the growing personnel costs in IT administration, purchasing, B2B sales and the Pirkkala store. During the reporting period, other operating expenses increased by 4.3% to 6.1 million euros (5.9). The increase resulted mainly from increased telecommunications and marketing expenses and higher external logistics service costs.Operating profit in July–September 2020 was 5.6 million euros (4.3), comparable operating profit was 5.6 (4.3) and profit for the period 4.2 million euros (3.2).

Earnings per share were 0.09 euros (0.07) in July–September 2020. In January–September 2020 earnings per share were 0.22 euros (0.10).January–September 2020In January–September 2020, Verkkokauppa.com Oyj’s revenue grew by 9.7% year on year. Revenue grew by 33.4 million euros, totaling 377.6 million euros (344.2). Sales increased particularly in MDA, TV & Video, Telecom, Sports, Audio & Hi-Fi and BBQ.The company-financed customer financing proceeds were 2.6 million euros (2.4) including both interest income and fee income. To reflect the prevailing uncertainty related to customers’ payment behavior and changes in continues debt sales pricing, the credit loss allowance was increased compared to the end of 2019 and totaled 1.0 million euros (0.5). As of April 2019, Verkkokauppa.com has been selling past due receivables in a so-called continuous debt sales model, where receivables overdue more than 60 days will be sold to third parties. This decreases company’s accounts receivable risk.Personnel costs increased in January–September by 7.1% to 25.1 million euros (23.5). The increase resulted mainly from the growing personnel costs in IT administration, marketing and the Oulu and Pirkkala stores. During the reporting period, other operating expenses increased by 10.7% to 19.9 million euros (18.0). The increase was mainly driven by advisory costs relating to transferring to the official list of Nasdaq Helsinki, increased credit loss allowance, external logistics service costs and IT-related costs.Operating profit in January–September 2020 was 13.4 million euros (6.8), comparable operating profit was 14.2 (6.8) and profit for the period 10.0 million euros (4.6). Items affecting comparable operating profit totaled 0.8 million euro (0.0).FINANCE AND INVESTMENTSOperating cash flow was 6.5 million euros (-2.0) in January–September 2020. In the reporting period, the relative improvement of the operating cash flow resulted from improved sales margin and reduced working capital.Ordinary seasonal fluctuations are reflected in cash and cash equivalents, cash flow and accounts payable, which usually reach the highest point at the end of the fourth quarter and the lowest point at the end of the second quarter.Investments totaled 0.9 million euros (0.9) in January–September 2020. During the reporting period the company invested and capitalized 0.5 million euros (0.1) in salary costs and external technology consulting fees related to new IT systems and the development of new ERP features. Capital expenditures totaled 0.3 million euros (0.0) in July–September 2020.Verkkokauppa.com has revolving credit facilities totaling 20 million euros, which have not been utilized. Of these credit facilities, 15 million euros are for three years, and 5 million euros for five years as of 1 July 2019.SHARE TRADING AND SHARESDuring the reporting period,16,074,633 shares were exchanged until 4 June on the First North Growth Market of Nasdaq Helsinki Ltd marketplace and on 5 June onwards on the official list of Nasdaq Helsinki Ltd, representing 35.67% of all shares in the company. The highest share price was 5.86 euros and the lowest 2.49 euros. The average price in share trading was 4.32 euros. The total of the share trading was 69.5 million euros. The closing price was 5.00 euros, and the market capitalization of all shares was 223.5 million euros at the end of the period.The total number of shares in the company was 45,065,130 on 30 September 2020, including treasury shares. In 2020, the company has transferred a total of 23,230 treasury shares as part of the remuneration of Board members. The company held 357,986 treasury shares on 30 September 2020. These treasury shares accounted for 0.79% of all shares. The treasury shares have no voting rights and no dividend is paid on them.The Board holds a valid authorization to issue a maximum of 4,506,513 shares on a share issue by one or several decisions (share issue authorization of 2020). The Board has utilized its share issue authorization solely for transferring shares as part of the remuneration of Board members.LONG-TERM INCENTIVE PLANSVerkkokauppa.com has two share-based incentive plans for the CEO and members of the Management Team, the Matching Share Plan 2018–2020 and the Performance Matching Share Plan 2020–2022. The aim of the plans is to align the objectives of the shareholders and the management in order to increase the company’s value in the long term, to encourage the management to personally invest in the company shares, to retain the members of the Management Team at the company and to offer them a competitive reward plan that is based on acquiring, earning and accumulating the company’s shares.In the Matching Share Plan 2018–2020, the participant may earn a number of matching shares, determined by the Board of Directors, based on their investment in Verkkokauppa.com Oyj’s shares. The Matching Share Plan has two matching periods: 2018–2020 and 2019–2021. The rewards to be paid on the basis of the matching period 2018–2020 correspond to the value of maximum total of 50,000 Verkkokauppa.com Oyj’s shares, and on the basis of the matching period 2019–2021 to the value of maximum total of 45,000 Verkkokauppa.com Oyj’s shares, including also the proportions to be paid in cash.In the new Performance Matching Share Plan 2020–2022, a person may earn a number of matching shares based on their investment in Verkkokauppa.com Oyj’s shares and the Total Shareholder Return (TSR) of the share. The Performance Matching Share Plan includes one performance period, calendar years 2020–2022. The reward to be paid to participants is based on the achievement of the required TSR levels set by the Board of Directors. A maximum of three performance-based matching shares is paid for each allocated share. The rewards to be paid on the basis of the plan correspond to the value of approximately 540,000 Verkkokauppa.com Oyj shares in total (gross amount).PERSONNELDuring the reporting period, the number of employees increased by 1.7%, and the total number of employees was 700 (688) at the end of September 2020. The number of employees includes both full- and part-time employees.SHAREHOLDERS’ NOMINATION BOARDOn 22 September 2020, Verkkokauppa.com announced that the Shareholders’ Nomination Board had been appointed, based on ownership on the last banking day in May. At its organizational meeting on 22 September 2020, the following members of the Nomination Board were appointed:Samuli Seppälä, Founder of Verkkokauppa.com, representing himself,Peter Lindell, Partner and Chairman of Rite Ventures, appointed by Rite Ventures Finland AB,Erkka Kohonen, Senior Portfolio Manager, appointed by Varma Mutual Pension Insurance Company,Christoffer Häggblom, Chair of the Board of Verkkokauppa.com OyjThe Chair of the Nomination Board is Peter Lindell.Verkkokauppa.com’s Shareholders’ Nomination Board was established in 2020 by the Annual General Meeting. Its duty is to prepare proposals on the number, election and remuneration of the members of the Board to the General Meeting.RISKS AND UNCERTAINTIESVerkkokauppa.com Oyj’s risks and uncertainties reflect the market and general economic trends, for example, demand for consumer electronics, wholesale trade business, the business environment and competition. The company’s business operations are also influenced by risks and uncertainties relating to, for example, business strategy, investments, procurement and logistics, information technology, and other operative aspects of the business. The aforementioned risks and uncertainties may affect the company’s operations, financial position and performance both positively and negatively. Risks and uncertainties have been presented in more detail in the Annual Report 2019.Uncertainty in the development of the economy and the financial markets in Finland, Europe and the world may have a negative impact on the business and growth opportunities of Verkkokauppa.com. The COVID-19 pandemic affects people’s lives and the operation of businesses in Finland and globally alike. The COVID-19 pandemic continues, and its overall impacts on the Company’s business are difficult to assess.LITIGATION AND DISPUTESVerkkokauppa.com has no open litigation issues nor any significant disputes.ANNUAL GENERAL MEETING 2020The Annual General Meeting was held in Helsinki on 31 March 2020. The financial statements for the year 2019 were approved, the Remuneration Policy was considered, and the Board members and the CEO were discharged from liability with respect to financial year 2019. It was resolved to pay a dividend of 0.052 euros per share, totaling 2,339,612.96 euros.The Annual General Meeting authorized the Board of Directors to decide in its discretion on the distribution of dividends as follows: The total amount of the dividend distribution based on this authorization shall not exceed EUR 0.162 per share (the instalments may differ from another). The authorization is valid until the opening of the next Annual General Meeting. Unless the Board of Directors decides otherwise, the authorization will be used to distribute dividend three times during the period of validity of the authorization and the payment dates of the dividends will be on 6 May 2020, 4 August 2020 and 3 November 2020. The Board of Directors will decide on the record date in connection with each dividend payment decision and the company will make separate announcements of Board resolutions.The number of Board members was confirmed as six. All current Board members, Christoffer Häggblom, Robert Burén, Mikael Hagman, Kai Seikku, Arja Talma and Samuli Seppälä, were re-elected. After the meeting, the Board elected Christoffer Häggblom as the Chair of the Board and resolved to continue with an Audit Committee and Remuneration Committee. The Audit Committee consists of Board members Kai Seikku (Chair), Arja Talma (Vice Chair), Christoffer Häggblom and Samuli Seppälä. The Remuneration Committee consists of Board members Christoffer Häggblom (Chair), Samuli Seppälä and Kai Seikku.The Authorized Public Accountant PricewaterhouseCoopers Oy was re-elected as the auditor, who has notified the company that Authorized Public Accountant Ylva Eriksson will be acting as the Principal Auditor.The Annual General Meeting authorized the Board to decide on the repurchase of a maximum of 4,506,513 shares in one or several instalments using the unrestricted equity of the Company, however taking into account the provisions of the Finnish Limited Liability Companies Act on the maximum number of the treasury shares held by the company or its subsidiaries. The proposed number of shares represents a maximum of ten (10) per cent of the total number of shares in the company. The authorization is valid until the close of the following Annual General Meeting, however, no longer than until 30 June 2021. The authorization revokes previous unused authorizations for the repurchase of the company’s own shares.The Annual General Meeting authorized the Board of Directors to decide on a share issue by one or several decisions. A maximum of 4,506,513 shares may be issued on the basis of the authorization. The proposed maximum authorized number represents ten (10) percent of the company’s entire share capital. The authorization is valid until the close of the following Annual General Meeting, however, no longer than until 30 June 2021. The authorization revokes previous unused share issue authorizations.In addition, the Annual General Meeting resolved to establish a Shareholders’ Nomination Board, to prepare proposals on the election and remuneration of the members of the Board of Directors for the Annual General Meeting as well as confirm the charter of the Shareholders’ Nomination Board. The Nomination Board consists of four members, three of which represent the Company’s three largest shareholders, or the representatives nominated by such shareholders. The Chair of the Board of Directors shall be the fourth member of the Nomination Board. The right to nominate members to represent shareholders rests with three shareholders who are registered in the shareholders’ register maintained by Euroclear Finland Ltd or another operator on the last business day of May in the year preceding the Annual General Meeting and who hold the largest number of votes conferred by shares according to the shareholder register.DIVIDENDThe Annual General Meeting 2020 resolved to pay 0.052 euros (2,339,612.96 euros in total) per share as dividend. The dividend payment date was 9 April 2020.The Board resolved on 24 April 2020 to pay a dividend of 0.053 euros per share (2,384,605.52 euros in total). The dividend payment date was 6 May 2020.The Board resolved on 24 July 2020 to pay a dividend of 0.054 euros per share (2,413,923.34 euros in total).
The dividend payment date was 4 August 2020.The Board resolved on 23 October 2020 to pay a dividend of 0.055 euros per share (2,458,892,92 euros in total). The dividend payment date is 3 November 2020.Verkkokauppa.com’s Annual General Meeting authorized the Board of Directors to decide in its discretion on the distribution of dividends not exceeding 0.162 euro per share to be paid in three instalments during 2020. Following the distribution of dividends resolved on 23 October 2020 by the Board, the Company does not have any valid authorizations for distribution of dividends.OTHER EVENTS DURING THE REPORTING PERIODOn 1 July 2020 Verkkokauppa.com published a share repurchase announcement.On 2 July 2020 Verkkokauppa.com announced that it has completed the repurchase of the company’s own shares.On 21 July 2020 Verkkokauppa.com provided preliminary information on its second-quarter revenue and comparable operating profit and issued a positive profit warning.On 24 September 2020 Verkkokauppa.com issued a positive profit warning and upgraded its guidance for 2020.SUBSEQUENT EVENTSThere are no subsequent events that differ from usual business events, after the reporting period.
PRESS CONFERENCESA press conference for analysts, investors and media will be held in Finnish by LiveStream webcast on Friday, 23 October 2020 at 10:00 a.m., in which Verkkokauppa.com Oyj’s CEO Panu Porkka will present the developments in the reporting period.A press conference in English will be held by LiveStream webcast on Friday, 23 October 2020 at 11:00 a.m. (EET). 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, a LiveStream is available at www.verklive.com.COMPANY RELEASES IN 2020/2021Verkkokauppa.com Oyj will publish its financial reports as follows:Financial Statement Release January–December 2020, Friday 12 February 2021Annual Report 2020 will be published online during week 9, 2021Interim Report January–March 2021, Friday 23 April 2021Half-year Report January–June 2021, Friday 16 July 2021Interim Report January–September 2021, Friday 22 October 2021Helsinki, Finland, 23 October 2020Verkkokauppa.com OyjBoard of DirectorsMore information:Panu Porkka, CEO
e-mail panu.porkka@verkkokauppa.com
Telephone +358 10 309 5555Mikko Forsell, CFO
e-mail mikko.forsell@verkkokauppa.com
Telephone +358 10 309 5555Distribution:Nasdaq Helsinki
Key media
www.verkkokauppa.com

VERKKOKAUPPA.COM OYJ INTERIM FINANCIAL INFORMATION 1 Jan – 30 Sep 2020Income statement