Pierce Group AB (publ)

Welcome to the Pierce Group Q4 2024 presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers, CEO Yoran Dahlin and CFO Frederick Eydestrom. Please go ahead.

Good morning. This is Göran Dahlin, CEO of Pirs Group, and with me is Fredrik Idiström, our CFO. So before we go into the results of the quarter, I would like to spend a few minutes on Pirs and the market we're working in. Pirs is a leading e-tailer in the European market for gear, parts and accessories for motorcycle riding. The total European market was estimated some 100 billion Swedish SEK in 2021. The market is fragmented, mainly served by traditional offline retailers while well suited for e-commerce. And we judge that it's highly likely that the market will consolidate as there are significant economies of scale. Peirce is a clear leader in the off-road segment and one of the larger e-tailers in the on-road segment. We're also the only true pan-European company in the industry with a local presence in 16 markets. And we have a uniquely attractive assortment, offering a wide range of top brands with the largest range of own brands in the market. We have a turnover of approximately 1.6 billion SEK and have 320 employees across Europe. To the right, you can see some basic information about us. Two-thirds of our sales are outside the Nordics. Almost two-thirds is off-road, one-third is on-road, and five percent is other, which is primarily sled stores. Parts and accessories are each roughly 20%, and a little more than half of the sales is gear. Own brand share is approximately 40%. Next slide, please. The market is divided into three segments. Gear, which is everything that you have on the body when riding. Parts, which is anything installed on or in the motorcycle. And accessories, products used with the motorcycle that are not mounted. We also sell streetwear, which is motorcycle themed clothing from motocross and motorcycle brands. The online market in 2021 was estimated to 19% of the total 100 billion SEK market. Since post-COVID, the market has declined in size, but there is no official market data available. The products we sell are well suited for e-commerce, which is one of the reasons why online is expected to grow faster than offline. Another important growth driver for the online is that online can offer a much wider selection and better availability, which provides superior convenience for the customers. Also, a growth driver for the industry at large long term is that the base of motorcycle riders are increasing. Next slide, please. The competitive landscape is fragmented and constituted of five different segments. Leading online retailers such as ourselves, 24MX and ExxonMoto. General diversified online retailers and marketplaces such as Amazon and eBay. Leading European omnichannel retailers which have their sales split in similar portions between physical retail and e-commerce. The traditional brick and mortar, typically small local physical players, many of them have since COVID online presence. And direct consumer, a small segment where the brands in the market that mainly sell to distributors also have a direct to consumer channel. Our main competitors are eight. I will not go through all of them, but state some of the key points for Peers. Peers is the largest e-commerce player in the market. We are the champion in the Nordics and we're clear leaders in off-roads across Europe. Peers is also the only pan-European player with local sites in 16 countries with local language, local payment options, customer service, and local delivery partners. We're also the only player with a pan-European long-haul logistics setup. with peers dedicated long-haul transportation across Europe that delivers product into the local injection points. The other players are primarily local champions in the main European markets, most of them on-road. Several of the direct competitors or the major players have financial owners, which we believe will facilitate the future market consolidation. Next slide, please. And now going into the results. Looking at 2024, this was the year where we took the first transformative steps in adjusting our strategy and business model to enable future growth and profitability. We had three targets for 2024. Number one, get back to profit. Number two, get back to growth. Number three, make significant progress in the transformation of the company. And I must say that the team is just as proud as I am that we have succeeded with all of these three objectives. And it's with great pleasure that I present a quarterly report once again shows a positive adjusted EBIT, albeit at a very modest level. Having said this, the road ahead is still long and it's bumpy. It's fair to expect that we will suffer from temporary setbacks due to the current accelerating uncertainty driven by the geopolitical situation, as well as our very ambitious change agenda. Turning into Q4, Q4 is a very campaign intense quarter, and the result depends heavily on the performance of the Black Week and Christmas campaigns. The consumer sentiment was still weak in Q4. Our growth was primarily related to a different approach to purchasing and campaigning than last year's Q4. We were able to show a good growth in spite of a weak consumer sentiment and the lack of snow, which made our snowmobile segment very challenging. And the bad snow situation in the Nordics continues. In Q4, we gave priority to gross profit in absolute terms and to reverse the trend of declining customer base. This was successful, but as a consequence, the gross margin in percentage decreased versus last year with 1.5 percentage points. Our adjusted EBIT improved from minus 7 million SEK last year to plus 1 million SEK this year. A transformation of our magnitude comes with numerous turnaround initiatives, such as a new leaner organization and operating model, a consolidation of our plan portfolio, a massive upgrade of our tech stack, and a strong push to improve the health of our inventory. Such initiatives are associated costs that are non-recurring or have associated costs that are non-recurring in nature. This makes the life-to-life comparisons to past performance more complex. Obsolescence, transformation cost and brand depreciation are impacting our adjusted EBITDA Q4. Our overhead cost for the quarter increased from 72 million SEK to 76 million SEK. And Fredrik will go through this later in the presentation to create clarity of the underlying profit for peers. The outcome of the efficiency program from end 2023 mitigated the effects from underlying inflation, which has been quite significant, especially in Poland with very high minimum salary increases and the investment in modernization over IT infrastructure. We are today 200 white collars versus 250 one year ago. We have during the quarter also had some one-time costs related to some role adjustments in the quarter. At the end of the quarter, our cash position stood at 297 million SEK. This is a quite high amount of cash for our size. However, this will change. We are very seasonal and we are now building up stock for the high season. This includes stocking up to mitigate some of the availability issues we had during Q2 last year, together with building stock for the largest private label launch we've done probably ever in peers. Looking ahead, we see that the accelerating uncertainty of the global geopolitical situation risk to further weaken the consumer sentiment, which makes forecasting very difficult. Next slide, please. Looking at some of our key performance indicators, we have a strong own brands offering. Our LTM private brand share was 39% compared with 40% in Q3 last year. And looking at the Trustpilot scores, which we use to track customer satisfaction, this continues to be on a high level across Europe. And we even show a slight increase, which is very satisfactory. Next slide, please. As you can see here from the chart on the left, the active customer base showed an increase in Q4 LTM for the first time since 2022. I must say that this is very encouraging as this has been our top priority to turn around the declining customer base. Having said that, this is promising, but we still have a long way to go. To the right, the AOV decreased a few sec LTM as a consequence of the more ambitious growth approach in Q4. I now hand over to Fredrik.

Thank you, Johan. Good morning. This is Fredrik Edelström and I'm the CFO of Peers. So Q2 and Q4 are seasonally the largest quarters for us. Q4 showed strong growth as we took a much more ambitious approach to purchasing and sales versus last year. when we were conservative ahead of the campaign season with declining year-over-year revenues of 10% as a result. As Johan mentioned, including Q4, we also see that our LTM net revenue grew with 6%. Looking at quarterly development back to 2019, which by many is considered the last comparison point prior to the pandemic, we can see that we have had a fairly even 6% CAGR across the quarters. Margins have further improved versus the low point in 2022, as focus has shifted from cash towards profit. Growth in on-road was clearly higher than off-road in Q4, and from a market perspective, Sweden was the weakest market and outside the Nordics, the strongest in the quarter. We continued also in Q4 to improve profit after variable cost versus previous year, which grew 16% year over year. Q4 in both years were positively impacted by obsolescence provision effects of approximately 5-6 million sec. To explain further developments and unusual items, we turn to the next page for a deeper look at the key components. As Göran mentioned, adjusted EBIT increased from minus 7 million in Q4 2023 to plus 1 million in Q4 2024 and from minus 69 million to plus 25 million for the full year. Adjusted EBIT in Q4 was impacted mainly by three unusual items compared to last year, as Göran mentioned in the summary. The first one is the is the changed assumptions in our model for calculating provisions for obsolete stock. This resulted in a significantly increased provision for slow moving inventories of around 44 million in Q3 2023. In Q4 2024, the positive effect was 5 million and 19 million for the full year. Amortization of trademarks of the discontinued boom brands we announced in Q3 2023 also impacted adjusted EBIT. The effect in Q4 was 2 million and the full year effect was 7 million SEK. We will continue to amortize these brands until the second quarter of 2026. The third item is the estimated transformation cost. So as Göran mentioned, the transformation we are in is driving additional cost. And looking at the estimated cost attributable to external consultants and costs for systems not yet in use, we estimate the impact to be 6 million SEK in the fourth quarter and roughly 10 million for the full year. And this does not include own personnel, but only external resources. So to the left on the slide we illustrate the adjusted EBIT also excluding the three effects I mentioned to better explain the development and what profit looks like excluding these unusual items. And adjusted EBIT excluding the items was approximately 4 million SEK for Q4 so slightly above the reported adjusted EBIT and 23 million SEK for the full year which is more or less the same as the reported adjusted EBIT. Looking at the gross margin trend to the left on the slide, we see that our gross margin declined slightly in Q4 versus the previous quarter and versus the same quarter previous year. As Johan mentioned, in the Q4, we prioritized maximizing gross profit in absolute terms and turning our customer-based development positive, which led to higher revenue growth, but a slightly lower gross margin. 2024 has also, as I mentioned, been positively impacted by obsolescence provisions reversal, which are explained in the slide. Shipping cost in relation to revenue was half a percentage point higher than one year ago in the quarter and 0.9 percentage points higher than the previous quarter. This is related to a mix of the products sold where we sold a higher share of products with high in freight costs, as well as the higher shipping rates in the market. As we have mentioned in previous calls, we have seen a higher volatility and higher shipping costs during 2024, which have now materialized in the P&L in the fourth quarter. There is a risk for potential further volatility and increases in the market, given the geopolitical situation, and we continue to monitor this closely. Overhead costs increased in the fourth quarter versus previous year. Although the efficiency program we initiated at the end of 2023 has mitigated effects such as underlying inflation and transformation costs, the net impact in the fourth quarter was an increase of OPEX. And as I mentioned, quantifying transformation costs can be done in many ways. And we are looking at the cost for external consultants and costs associated with systems not yet in use. We estimate these costs to be around 10 million SEK for the full year and 6 million SEK in the fourth quarter. And this does not include costs for own staff. We expect the transformation and costs associated with it to continue throughout 2025. Networking capital at the end of the fourth quarter was at a similar level as the same quarter last year and slightly lower than Q3. And as Johan mentioned, we expect stock and networking capital to increase going forward due to seasonal effects and to ensure availability before the season start and capture growth opportunities. Our financial position remains strong with close to 300 million in net cash at the end of the quarter. I will now hand over to Göran again for some final remarks.