Westwing Group Se

Good morning everyone and welcome to our Q2 2021 earnings call. Today we will review our Q2 2021 results. With me in this call is Sebastian, our CFO. Before we start our presentation, let me remind you of our mission that guides us here at West Wing since the beginning, to inspire and make every home a beautiful home. As we celebrate now West Wing's 10-year anniversary this year, It's great to see how far we've come with this mission as we serve our 1.7 million active customers across Europe and provide an unmatched inspirational e-commerce experience day by day. Yet, we are far from being satisfied where we are. To live up to this mission, we will continue to improve every aspect of our business day by day, and we are extremely excited for the next 10 years of West Wing. I will now provide a summary on our Q2 results. and afterwards give a progress update on our strategic agenda, West Wing Customer Experience 2.0. Then Sebastian will provide the financial details for Q2. After a quick summary, we will then go into Q&A. Before I give you the details of our Q2 results, I would like to frame the bigger picture of where West Wing stands as of today. As the pandemic is continuing, yet our day-to-day lives are gradually normalizing, we were able to confirm that the top-line level shift we have realized in 2020 is structural and has not, as some had feared, been retracting. We have seen the same from the market and our competitors, so that's a really good sign both on the overall market environment and our specific performance at West Wing. Of course, as we had expected and flagged earlier this year, we have entered some choppy waters in Q2 and will continue to experience that in Q3. And because we had expected this, this is nothing that worries us too much. We are focused heads down on delivery of our business results. And to be more specific, much more relevant than the relative year-over-year growth is that we more than doubled our GMV in Q2 2021 versus Q2 2019, meaning the level shift is indeed confirmed. Growth rates year-over-year are very much distorted by baseline effects from the previous year's extraordinary Q2 and will remain distorted through the year. At roughly double the size from just a couple of years ago, we have expanded our strategic opportunities massively and have strengthened our position in the market. We're now able to take sizable strategic investments, and those investments will continue to strengthen our position as a leader in inspiration-based home and living e-commerce and will be the basis for sustainable growth for years to come while we navigate our business through these volatile times. We remain very upbeat on our long-term opportunities and continue to invest decisively to realize those opportunities. With that, let me summarize the strong results of Q2 2021. We realized revenues of 132 million euros that resulted in 19% revenue growth on top of the strong 91% growth baseline from previous year. Our profitability remains very strong. In Q2 2021, we generated €11 million of adjusted EBITDA profitability at 8.1% adjusted EBITDA margin. This adjusted EBITDA profit resulted in a positive free cash flow of €7 million. We are now at €44 million free cash flow for the last 12 months, which implies an 8% free cash flow margin, proving our best-in-class cash conversion. Our active customer base was at €1.7 million per end of Q2 2021, which is a plus of 47% versus the previous year. Our customer cohorts continue to demonstrate very healthy loyalty metrics, and our customer acquisition numbers are strong, although slightly below the extraordinary Q2 2020 levels. During our Capital Markets Day, we had presented our strategy and targets for the coming years. Today, we'll give you an update on the progress on this strategy towards €1 billion of revenues by 2024-25. The highlights in regards to the progress on our strategic West Wing Customer Experience 2.0 program include the launch of two new exclusive West Wing collections, an 80,000 square meter new warehouse building project, accelerated technology investments, and strong ESG results. Lastly, based on the strong first half of 2021, we confirm our guidance for the full year 2021. For the full year, we expect revenue growth of 18% to 27%, to 510 to 550 million euros of revenue, while realizing 42 to 55 million euros of adjusted EBITDA, implying an adjusted EBITDA margin of 8 to 10% for the full year 2021. Let me now provide you with some details. First, on the COVID situation. We have seen some positive developments when it comes to the COVID situation in Europe lately, greatly supported by recent successes of vaccination campaigns. COVID still does impact our employees, customers, and partners, and might do so for some more time. Therefore, health and safety remain our number one priorities, and we will continue to operate our warehouses and photo studios and offices with the highest hygiene standards and social distancing measures. By taking these comprehensive safety measures, we minimize the risk, especially of a temporary warehouse closure, yet the risk for this to happen remains for now. Additionally, our safety measures We have started our West Wing team vaccination campaign. With this, we want to further support the safety of our employees and provide an opportunity to get vaccinated in a very convenient and unbureaucratic way close to the workplace. Several hundreds of our team members has already been vaccinated by West Wing. As for now, our office teams continue to work mostly from home and we cautiously review how and when we will partially return to our offices. Coming now to our GMB and active customers. As mentioned in the beginning, the very positive aspect of our Q2 2021 results is not so much only the year-over-year growth, but that we were indeed able to confirm the top-line level shift. In Q2 2021 versus Q2 2019, we more than doubled our GMV. To be precise, we have seen a growth of 113% versus Q2 2019, so €139 million. This is an 8% GMV growth on top of the extraordinary 97% growth baseline, that we had in Q2 2020. It's important to note that the relative lower growth in Q2 2021 is very much in line with our expectations and guidance, and we're pretty happy about it. Our active customer base was at 1.7 million at the end of Q2 2021, which is a plus of 47% versus end of Q2 2020. It's a great characteristic of our loyalty-driven business model that we're able to maintain so many of those customers acquired during the extraordinary phase of strong growth. As part of this business update, let me now give you some insight on the supply chain challenges we currently face. Just like in other parts of the economy and for many businesses around the world, the aftermath of the pandemic has caused significant disruptions in our global cargo processes. This not only caused significantly increased cargo rates, especially for sea containers, but also capacity constraints for our supply from Asia. We expect that these challenges will remain into 2022. Due to the rapid increase in global demand, we also see a continuous raw material price inflation. We're especially impacted from price increases on timber, textiles, and foam as some of the main components of our products. In addition to this, the severe COVID situation in India has caused the lower production capacity in India. Since India is an important sourcing country for us, for instance, we get a lot of rocks from there. This caused subsequent supply shortages for several products. Since we had identified all these challenges early on, and have taken decisive mitigating measures, we were and will be able to limit the impact. The current situation certainly does make our operations more complex and hard to manage for our teams, but overall we're able to run our business without major disruptions or negative impact on our customer experience. As one of the most important measures, we intensified the collaboration with our suppliers to ensure a strong availability of our products to customers We have implemented more detailed forecasting processes with our suppliers, implemented stringent prioritization of purchase orders, took early reservations of production capacity with our suppliers, and many, many other measures. On the cost side, we mitigate the current cost inflation for containers as well as raw materials partially through price increases to consumers. As we will not be able to pass on 100% of cost increases to our customers, We expect that the gross margin impact of this situation will amount to circa 1% of revenue for the full year 2021. It's worth noting that this impact is already priced into our financial guidance for the full year 2021. We also expect that the current situation will impact our networking capital. To ensure a steady supply of our products, we have started to secure extra production capacity through prepayments and inventory buffers. Both will impact our networking capital, and we expect a higher working capital for the coming quarters with a subsequent negative impact on our cash flows. However, this impact is only temporary until the situation normalizes again. Overall, we continue to be committed to a negative networking capital business model, which is so attractive at Westling. With that, I would like to move on to the update on our strategic agenda. A quick recap of the strategy that we presented during our capital market stage. With our strategic West Wing Customer Experience 2.0 program, we have defined an operationalized growth initiative, which all aim on bringing our customer experience to the next level and strengthen all the elements of our business model flywheel. The West Wing Customer Experience 2.0 consists of four main topics. We'll double down on our creative and inspirational core. We'll set the next level of order and post-order experience. We'll scale up our business model and platform, and we'll deeply embed sustainability into our operating models. In Q2 2021, we've made significant progress on all of these topics. Let me highlight some. One highlight was the launch of two brand new exclusive West Wing collections in recent months. Our retro artsy and earthy boho collections combine perfectly what our West Wing collection stands for. The designs are unique and created by our creative team. The best sellers perfectly meet our customers' taste and the products are affordable at a very good value for money and at a high product quality. They're gorgeous.

also on a personal note.

Overall, these collections truly convey our love brand image and the feedback received from our customers, press and social media has been very positive and will continue to sell these for a long, long time. Also, the scale up of our platform is progressing as planned, especially the building start of our 80,000 square meter new warehouse needs to be highlighted in this regard. Together with the developer, we've started the construction of a new warehouse to create additional capacity for our growth strategy towards a billion euros in sales. With its 80,000 square meters plus the option to expand the warehouse by another 30,000 square meters, we will add capacity for around 250 million euros of GMV per year. And thanks to its location, also important to note, we actually put it near our existing warehouses in Poznań, Poland, and we'll be able to integrate this new warehouse very efficiently into our European logistics network. The warehouse plan to be open in the first half of 2022. And from an investment perspective, this warehouse also aligned with our low capex and cash efficient strategy. So our development partner who we built the warehouse with will take the major investments for the ground and the building itself. And then West Wing will solely need to take the investment into handling equipment and installations within the warehouse. Overall, quite exciting. We'll share photos and more impressions once it opens. An extremely critical enabler of our growth strategy are technology investments. In recent months, we've accelerated the investments into technology, and we were able to attract a great number of great new talent. Beginning of last year, put some numbers behind that, our technology team consisted of around 150 engineers, developers, product managers, DevOps, etc., And by now, we're already at 205 team members and plan to reach around 300 team members during the first half of 2022. So we'll almost double our resources in technology. With these investments, we'll be able to enable improvements of our customer experience and ensure that our platform remains scalable and future-proof. Focus areas, for instance, are mobile front end and app experience improvements, Augmented Reality and 3D, an updated ERP system, and state-of-the-art security improvements. To name just a few, there's of course much more. As mentioned in the beginning, let's talk about ESG. One of our goals and commitments is to deeply embed sustainability into our operating model. Sustainability has always been a very important matter for us for years. We've already done a lot of initiatives that aim at improving our sustainability and other ESG-related topics, and recent rating results confirm that we're on track and take the right actions. As an example, ISS ESG scored us within the top 30% of our industry, and MSCI rated us with an A ESG rating. Yet to be also very clear, we're only at the beginning. We will continue to improve all aspects of ESG and have a clear ambition to embed sustainability deeper and deeper into our business model. Before I hand over to Sebastian for the financial details of Q2 2021, let me summarize the targets we aim to achieve by 2024-25 based on our West Wing Customer Experience 2.0. We target 1 billion euros of revenue by 2024-25 and aim on increasing our market share from currently circa 0.4% to 0.8%. We plan to be highly profitable with more than 100 million euros in adjusted EBITDA by 2024-25 and maintain our best-in-class cash conversion, which will enable strong cash flows. And in addition, we have a very clear brand ambition. We aim to be the most desirable consumer home and living brand for home enthusiasts. I'll hand over to Sebastian and the financial results of Q2 2021.