Verkkokauppa.com’s Interim Report for 1 January – 31 March 2020: Strong profitability improvement while outgrowing the market

INTERIM REPORT for 1 January – 31 March 2020: Strong profitability improvement while outgrowing the marketVerkkokauppa.com Oyj – Interim report (unaudited) 24 March 2020, 8:00 a.m.1 January – 31 March 2020 in briefRevenue 125 million euros (1–3/2019: 116), growth of 8.2%Gross profit 19.4 million euros (17.4), growth of 11.6%Gross margin 15.5% of revenue (15.0%)Operating profit 3.4 million euros (2.3)Operating margin 2.7% of revenue (2.0%)Comparable operating profit 3.8 million euros (2.3)Comparable operating margin 3.0% (2.0%)Profit for the period 2.4 million euros (1.5)Earnings per share 0.05 euros (0.03)Investments 0.3 million euros (0.1)Operating cash flow 3.7 million euros (-11.2)The Board of Directors has resolved to pay after the reporting period a quarterly dividend of 0.053 euros per share             BUSINESS OUTLOOKVerkkokauppa.com Oyj’s business operations are estimated to develop positively within a medium-term time frame. The management believes that the company will succeed in further growing its market share in chosen segments. The strong balance sheet enables the company to continue expanding its operations in accordance with its strategy. Nevertheless, the uncertainties included in the business outlook have increased significantly especially due to macroeconomic developments. It is however too early to estimate the impact of COVID-19 on the economy and the consumer behavior.FINANCIAL GUIDANCEThe company’s outlook for 2020 expects revenue to be between 510–530 million euros (2019: 504 million euros) and comparable operating profit to be between 12–15 million euros (2019: 11.3 million euros).CEO PANU PORKKA’S REVIEWVerkkokauppa.com’s revenue in Q1 grew by 8%, amounting to 125 million euros. Drivers for growth in Q1 were strong online sales, marketing and positive performance in all major categories. The Finnish consumer electronics market continued to consolidate while consumer behavior kept changing with retail going rapidly online. This trend was further accelerated by the COVID-19 pandemic, which limited the mobility of consumers. Verkkokauppa.com utilized the competitive advantages of its online business model to outperform the market, which resulted in market share gains in almost all product categories according to the company. Leveraging its wider assortment and more competitive pricing than the competition, the company was able to increase customer visits  to website  and revenue by up to 90% in the best-performing categories.Gross margin in Q1 stood at 15.5% and was higher than last year (Q1/2019 15.0%), due to good sales improvement in higher margin categories and improvements in category management. The company achieved comparable operating profit of 3.8 million euros (Q1/2019 2.3 million euros), mostly due to a higher margin while maintaining the cost level. Operating profit in Q1 was 3.4 million euros (Q1/2019 2.3 million euros) including advisory costs related to entering to the official list of Helsinki Nasdaq announced on 13^th of February 2020.To improve profitability, the company has focused on category management and marketing performance. Efforts to optimize and automate supply chain management and category work will continue. The plan is to build up capabilities to further expand the assortment while improving the company’s cost structure. Verkkokauppa.com’s technology driven approach will continue to contribute to these initiatives. Wider and constantly renewed assortment will attract new customer groups and increase the frequency of visits to the webs and brick-and-mortar stores. The most recent subcategory launch took place in outdoor and garden products. To further strengthen its brand awareness, Verkkokauppa.com is increasing consumer exposure to its advertising. The company will continue to invest and to enhance the customer experience, in terms of  usability, and product information on its website.The consumer electronics market is expected to remain competitive and specialty retail store closings to continue. Verkkokauppa.com has taken a number of measures to ensure the adequate safety of our staff and customers during the COVID-19 outbreak. The ongoing coronavirus situation has brought a new disruption to the retail market, which will support digital channel development. Verkkokauppa.com is well positioned for the upcoming changes. Superior product availability, strong brand recognition, multiple delivery options, and a larger assortment than those of main competitors are the key competitive advantages for the future. Multi-year development of the omnichannel customer experience and focus on e-commerce gives the company a significant edge in the market.Verkkokauppa.com is determined to continue gaining market share to become the leader in the Finnish consumer electronics market. It is likely that the current pace of one percent of brick-and-mortar retail sales going online in Finland might accelerate in the future. The current share of e-commerce of the total retail market in Finland is approximately 12–13%, which is still lower than the average in Europe. The company’s preparations for entering the official list of Nasdaq Helsinki during 2020 proceed according to plan.
REVENUE AND PROFITABILITY DEVELOPMENTJanuary–March 2020In January–March 2020, Verkkokauppa.com Oyj’s revenue grew by 8.2% year on year. Revenue grew by 9.5 million euros, totaling 125.3 million euros (115.8). Sales increased particularly in sports, Audio & Hi-Fi, TV and video, watches and major domestic appliances (MDA).The company-financed customer financing proceeds were 0.9 million euros (0.8) including both interest income and fee income. The credit loss allowance increased to year end and totaled 0.6 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-March by 11.2% to 8.6 million euros (7.8). The increase resulted mainly from the growing personnel costs in IT, retail stores and purchasing. During the reporting period, other operating expenses increased by 0.8% to 6.3 million euros (6.2). Other operating expenses includes 0.3 million euros advisory costs related to transferring to the official list of Nasdaq Helsinki.Operating profit in January – March 2020 was 3.4 million euros (2.3), comparable operating profit was 3.8 (2.3) and profit for the period 2.4 million euros (1.5). Items affecting to comparable operating profit totaled 0.3 million euro (0.0)Earnings per share were 0.05 euros (0.03).FINANCE AND INVESTMENTSOperating cash flow was 3.7 million euros (-11.2) in January–March 2020. In the reporting period, the relative improvement of the operating cash flow resulted mainly from improved 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.During the reporting period, the company invested in new IT systems and in the development of new ERP features, and as a result capitalized 0.1 million euros (0.0) in related salary costs and external technology consulting fees. The company also invested in ordinary store equipment and furniture. Capital expenditures totaled 0.3 million euros (0.1) in January–March 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, 5,000,413 shares were exchanged on the First North Growth Market of Nasdaq Helsinki Ltd marketplace, representing 11.1% of all shares in the company. The highest share price was 4.15 euros and the lowest 2.49 euros. The average price in share trading was 3.49 euros. The total of the share trading was 17.5 million euros. The closing price was 3.475 euros, and the market capitalization of all shares was 157 million euros at the end of the period.The total number of shares in the company was 45,065,130 on 31 March 2020, including treasury shares. In 2020, the company has transferred a total of 8,723 treasury shares as part of the remuneration of Board members. The company held 72,573 treasury shares on 31 March 2020. These treasury shares accounted for 0.16% 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 PLANSOn 16 May 2018 Verkkokauppa.com Oyj established a share-based incentive plan for key employees. The aim of the incentive plan is to increase the value of the company in the long term by aligning the objectives of the shareholders and key employees, to encourage key employees to personally invest in the company’s shares, to retain key employees at the company and to offer them a competitive share plan.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 includes three matching periods: 2018–2020, 2019–2021 and 2020–2022. The Board of Directors will resolve annually on the commencement and details of matching periods. The prerequisite for receiving a reward is that a person participating in the plan allocates freely transferable company shares, held by them, in the plan, or acquires company shares up to the number confirmed by the Board of Directors. Furthermore, the payment of reward is based on the participant’s valid employment or service upon reward payment.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. The target group of both matching periods consists of approximately ten persons, including the CEO and members of the Management Team.The Board of Directors of Verkkokauppa.com Oyj has on 13 February 2020 resolved to establish a new share-based incentive plan for the CEO and the members of the Management Team. 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 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 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 prerequisite for participation and receiving of reward is that a participant allocates freely transferable company shares, held by them, in the plan, or acquires the company’s shares up to the number determined by the Board of Directors. Furthermore, payment of reward is based on the participant’s valid employment or service upon reward payment. As a rule, no reward will be paid if a participant’s employment or service ends before the reward payment.The target group of the plan consists of eight persons, the CEO and all other members of the Management Team. In accordance with the terms of the plan each participant is entitled to get a gross number of shares. However, a net number of shares will be paid to the participant after the company has withheld and paid the value of a part of the shares to cover the employee’s tax obligation. The rewards to be paid on the basis of the plan correspond to the value of maximum total of 540,000 Verkkokauppa.com Oyj’s shares (gross amount).The last Matching Period 2020–2022 of the company’s Matching Share Plan 2018–2020 will not be implemented at all because it will be replaced by this newly established Performance Matching Share Plan 2020–2022.PERSONNEL AND MANAGEMENTDuring the reporting period, the number of employees increased by 5.5%, and the total number of employees was 693 (657) at the end of March 2020. The number of employees includes both full- and part-time employees.Verkkokauppa.com Oyj’s Management Team:Panu Porkka, CEOMikko Forsell, CFOHenrik Weckström, CTOMiika Heinonen, Logistics DirectorVesa Järveläinen, Commercial DirectorSeppo Niemelä, Marketing and Communications DirectorTaina Suorsa, HR DirectorKalle Koutajoki, CSORISKS 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 coronavirus pandemic has affected and continues to affect people’s lives and the operation of businesses in Finland and globally alike. The coronavirus pandemic is still spreading, and its final impacts are difficult to assess at this point.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 2019. Due to the current COVID-19 situation, strict precautionary measures were taken to ensure safety at the meeting while at the same time ensuring the shareholders possibility to exercise their rights. In total 22 shareholders were represented at the Annual General Meeting. The number of persons physically present at the Annual General Meeting was in total less than ten, including participating shareholders, representatives from the Company, the chairperson and the secretary of the meeting, as well as technical staff. The financial statements for the year 2019 were approved 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.At the Annual General Meeting held on 31 March 2020, all Board members were re-elected until the end of the next Annual General Meeting. Christoffer Häggblom, Robert Burén, Mikael Hagman, Kai Seikku, Arja Talma and Samuli Seppälä were elected as members of the Board of Directors. The Board elected Christoffer Häggblom as the Chair of the Board.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 of Directors 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 includes the right of the Board of Directors to decide on all other terms and conditions of the repurchase of the shares, including the repurchase of shares in another proportion than that of the existing shareholdings of the shareholders (the directed repurchase). The shares can be repurchased on the trading venues where the company’s shares are traded at the market price of the time of the repurchase, or at the price otherwise established on the market at the time of the repurchase.Shares may be repurchased for the purposes of improving the Company’s capital structure, financing or carrying out corporate acquisitions or other arrangements, implementing prospective incentive and remuneration schemes, or to be otherwise transferred further, retained as treasury shares or cancelled.
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 Board of Directors may resolve to issue either new shares or transfer the treasury shares held by the company.The Board of Directors decides on all the terms and conditions of the share issue, including the deviation from the shareholders’ pre-emption rights for a weighty financial reason. The authorization may be used to improve the Company’s capital structure, to finance or carry out corporate acquisitions or other arrangements, to implement prospective incentive and remuneration schemes or to be used for other purposes decided by the Board of Directors.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 Chairperson 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.After the Annual General Meeting Verkkokauppa.com Oyj Board of Directors held an organizational meeting, where it resolved on the Board committees. It decided to continue with the following board committees: Audit Committee and Remuneration Committee. The Audit Committee consists of Board members Kai Seikku (Chair), Samuli Seppälä, Arja Talma (Vice Chair) and Christoffer Häggblom. The Remuneration Committee consists of Board members Christoffer Häggblom (Chair), Samuli Seppälä and Kai Seikku.DIVIDENDAnnual General Meeting 2020 resolved to pay 0.052 euros (2,339,612.96 euros in total) per share as dividend.
The record date for the dividend distribution was 31 March 2020 and the dividend payment date was 9 April 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.The Board resolved on 24 April 2020 to pay a dividend of 0.053 euros per share (2,388,451.89 euros in total).OTHER EVENTS DURING THE REPORTING PERIODOn 13 February 2020 Verkkokauppa.com announced that the company is currently evaluating the possibility of transferring to the main list of Nasdaq Helsinki during 2020.On 13 February 2020 Verkkokauppa.com announced to establish a new share-based incentive plan for the CEO and the members of the Management Team.SUBSEQUENT EVENTSThere are no other 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, 24 April 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, 24 April 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 www.verkkokauppa.com in the section Investors > Presentations. For both press conferences, a LiveStream is available at www.verklive.com.COMPANY RELEASES IN 2020Verkkokauppa.com Oyj will publish its financial reports as follows:Half-year report January–June 2020, Friday 24 July 2020Interim Report January–December 2020, Friday 23 October 2020
Helsinki, Finland, 24 April 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 5555Certified Adviser Nordea Bank Abp
Telephone +358 9 5300 6785Distribution:Nasdaq Helsinki
Key media
www.verkkokauppa.com

VERKKOKAUPPA.COM OYJ INTERIM REPORT FINANCIAL INFORMATION 1 Jan – 31 Mar 2020Income statement