Welcome to the CDON Q1 2023 Conference Call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Fredrik Norberg and CFO Thomas Pehrsson. Please go ahead. Thank you, operator. Next slide. As the new CEO of CDON, I'm really happy and honored to welcome you to this quarterly presentation hosted by myself, Fredrik Norberg, and Thomas Pehrsson. Next slide. The agenda for today is to walk you through the Q1 results, introduce some future plans for you. We will update on the integration process and synergies around that. Thomas will guide you through the financial performance and directives. As usual, we end with some Q&A from all of you listeners. Next slide. The Q1 results. Next slide. For CDON, it was a weak top line that ended on minus 10% versus last year. This was mainly due to challenging and uncertain economic environment in the Nordic market for the first quarter that we all are aware of. If we're looking at the gross profit after marketing, however, it was increased with 8% versus last year, and this comes mainly from the commission increase that was implemented on the 23rd of January. All of this ended with a positive result of SEK +0.6 million. This is an impressive improvement from last year of SEK -27 million. This is due to the stronger gross profit after marketing, but also mainly due to the cost reduction from the restructuring that was implemented in December. If we look over to Fyndiq results also had a weak first quarter, but even weaker. It was partly due to the weak economic environment as well, but mainly due to the COVID-19 lockdown in China. They had a complete lockdown in January, February last year, we had to pause all the Chinese merchants on the Fyndiq site due to this. The Chinese merchants add up to roughly 20% of the total sales, this had really huge impact. This, however, turned around in March, just March by itself generated a positive EBITDA. For the whole quarter it was a SEK -500,000, an improvement compared to last year. All in all, CDON and Fyndiq combined managed to have a positive EBITDA for the first quarter. This is really something extra because the first quarter is the weakest quarter for the whole year. Given all the circumstances, I'm really impressed of both of the sites and companies who have managed to do this. Next slide. We have some future plans. Next slide. Our vision is that we want to unleash the power of the marketplace to give the best experience for customers and merchants across the Nordics. Next slide. In order to reach this vision, we have set up three long-term goals. The first one is to become the leading marketplace for the Nordics and fending off Amazon. The second one is a new, ambitious, new long-term goal for the company. That is that we're gonna increase the penetration of marketplaces and reach a double-digit market share in the Nordic e-commerce industry. The third one is that we're gonna leverage the scale benefits of the marketplace model to deliver reliable growth with expanding profitability. Next slide. We also have some short-term goals and focuses in order to deliver on the long-term goals. The first one is to increase quality supply, to provide more of the products that people want and utilize the low margin cost of bringing in more supply. We also gonna improve the customer happiness. This is really the base of everything. We need to get CDON to the high levels that Fyndiq can manage to reach the last couple of years and continue from there. Today in the internet economy, you can fool a customer once, but never twice, and we must make sure that we have a long-term customer happiness in everything that we're doing. The third one is to create distinct customer experiences for the two sides and leverage two brands with different value propositions to serve different types of customers and needs. These three different short-term goals and focus areas are intertwined with each other. In order to really improve the customer happiness, this could be derived from the different customer experiences. There could be a demand or a expectation to have different setups or customer service, delivery options and so on in order to fulfill the two brands' value propositions. The quality supply that we're talking about to get more of the products that people want will also, of course, affect the customer experience. We will make sure that we have a clear strategy when it comes of what products that we're gonna have on CDON and what products that we're gonna have on Fyndiq. By doing that's gonna be a base of creating a distinct experience from the two brands. Next slide. Why is the marketplace so good, and why do I love the marketplace model? If we start on the customer side, there is a superior shopping experience with a wide variety of products and the convenience of a one-stop shop. You have everything you want and need at one place. In addition to that, we have the merchant competition that are leading to lower prices. When we reach the marketplace mechanics, the competition starts between the merchants, which are pushing down the prices. On the merchant side, there is an opportunity for additional sales and access to new customer groups and markets that the sellers usually don't reach. This is also at a lower cost and low financial risk due to the fact that we are charging the sellers when they are selling something. We have a reduced need for marketing or technical know-how. You don't need any marketing skills or developers and so on when selling at the marketplace. You pretty much need to be good at finding good products that people want at good prices and make sure to ship them to the end customer. Last but not least, the whole business model, why is it so superior? It's highly scalable. I cannot see there are few companies that are selling goods that from one day to another can double the sales and without adding pretty much no extra operational expenses. This is what both CDON and Fyndiq are doing each and every Black Friday. From one day to another, we double the sales, and we do not increase the personnel or other costs related to that. If you have a physical shop, you need to have extra staff in the stores. If you have a classic e-commerce site, you need to ramp up the warehouse staffing and everything around that. As a marketplace, we can scale instantly. We also have a low or no capital tied in inventory. We pretty much have a warehouse with plus 10 million products and not a single penny sitting in the warehouse. We have the ability to capitalize on any product trend and low product risk when the trend disappear. A great example of this is last quarter when we had this prepper trend, and we were selling a bunch of crank radios. I would guess that both CDON and Fyndiq together sold most crank radios in the whole Nordics. Crank radios are vevradios in Swedish. I would guess that no one in the organization knew really what the crank radio was and didn't know that that was part of the supply in both CDON and Fyndiq. From pretty much one week to another, this totally exploded, and we had such a huge sales impact from this product trend. After a couple of weeks, that trend disappeared, and we didn't have any product risk, no penny in the warehouses. Next slide. We see that there is a significant potential for the market takers in the Nordics with plus 10x higher penetrations in other markets. If we're looking to the left side, you can see that on average, there is a marketplace penetration of 50%. In the Nordics, it's 5%. It's really nothing. If we look to the right, you see the chart which displays roughly a ballpark, the revenue per capita per marketplace in their home market. You see in the top you have Amazon, and then going down, you have bol.com in Holland, Otto in Germany, and so on down to CDON and Fyndiq. The average spend per people living in these countries are tremendously higher than they are in the Nordics. To reach a 10x potential here, we see is a really achievable if we manage to set and reach our long-term and short-term goals as described before. Next slide. Just to illustrate the scalability of the marketplace, we have here a chart showing this. If we increase the GMV with +20%, we have a direct EBITDA effect of SEK 36 million. If we increase it by 40%, it's SEK 72 million. At +100%, it's staggering SEK 180 million. Just to emphasize also that the target CDON organization is designed now to generate and handle substantially higher GMV. We really see a high potential in this for the future. Next slide. The integration and synergies around that. Next slide. We will create one team, one merchant interface, while maintaining two offices and go to market with two distinct brands. Next slide. We have proposed a board with deep domain knowledge and experience with significant ownership incentives. Christoffer Norman have been nominated to become the chair of the board, who has an extensive marketplace experience from Avito and Fyndiq. We have Erik Segerborg, who have been nominated to become the vice chair of the board, who also have an extensive marketplace experience from both Avito, Hemnet, and Fyndiq. In addition to this, we will continue with three board members, which are Brad Hathaway, Josephine Salenstedt, and Jonathan Sundqvist. With this, we really have a perfect mix of a board of deep domain knowledge and also history from the both companies. Combined with the management, the board and the management represents 25% of the ownership. This will more and more become a owner-operated business. Next slide. We have appointed a new management team, and this management team have combined 40+ years of marketplace experience, which is really something extra. From left, we have Kattis Åström, who will be the Chief Experience Officer. We have Niklas Öhman, who will be the Chief Product Officer. We have Atra Azami, who will be the Chief Technology Officer. We have Thomas Pehrsson, who will become the CFO and Deputy CEO. We have Linda Andersson, who will become the CSO, Chief Supply Officer. We have Björn Idrén, who will become the Chief Commercial Officer. Next slide. We have a merger cost synergies of approximately 40 million SEK with large additional top line and margin potential. If we start on the left, we have identified operational expense synergies to be realized over the coming 18 months. Such synergies include technology platform costs by migrating to one platform, consultant reduction, and overhead overlap. These synergies will gradually grow until its fully potential will be realized in 18 months. In addition to this, we have several high potential synergy areas to be explored. We have the merchant offering and acquisition with one team and one stronger offering to the merchant industry. We have take rate optimization, including advertising products and other value-added services. Last but not least, we have the traffic acquisition optimization by aligning, getting learnings between the organizations and by that, increasing the efficiency of the marketing for both sites. Next slide. I hand over this part to Tomas. Thank you, Fredrik. Now on to the financial performance and directives. Next slide, please. Group income statement. First off, total GMV for the group amounted to SEK 408.5 million compared to the same period last year of SEK 455.7 million, which is a decrease of 10%. For the 3P business, the decline in GMV was 8%. Net sales for CDON Marketplace amounted to SEK 49 million in comparison to SEK 44.7 million for the same period last year. The gross margin continues to increase and amounted to 56.8% compared to 47.7% last year. The increase is due to the combination of Marketplace being a higher share of total GMV and a higher take rate for CDON Marketplace. This resulted in a gross profit after marketing, which was 8% higher than last year. Total expenses for the quarter amounted to SEK 57 million compared to SEK 84.2 million last year. The drastic difference is due to our previous restructuring and the efforts in reducing overall costs. In line with our previous financial directives of achieving at least EBITDA breakeven for a full year of 2023, we are pleased to say that we generated a positive EBITDA of SEK 0.6 million for the quarter. Next slide, please. Group balance sheet statement. In comparison to last year, the fixed assets have decreased due to the write-downs of our subsidiaries and minority stake during the fourth quarter of 2022. Our inventory increased due to lucrative market opportunities and assures us that we have the supply to meet the market demand. We ended the quarter with a cash balance of SEK 55.9 million. Next slide, please. Group cash flow statement. Cash flow for the period amounted to SEK -67.2 million, which is mainly due to the seasonal variations in working capital. As said, we ended the quarter with a cash balance of SEK 55.9 million. The now implemented restructuring and cost-saving program provided with confidence in our cash level going into the second quarter of 2023. Next slide, please. Financial directives and targets. The financial directives announced in the press release before the Q3 report last year are our 3P business shall continuously gain market share in the Nordic e-commerce markets. Our 3P take rate shall increase over time. We shall enjoy strong incremental margin as a result of its high gross margin 3P business and the relatively fixed nature of administrative and general costs. After the first quarter of 2023, we have the following comments. During the quarter, our 3P business has performed slightly worse than the market, with a decline of 8% in comparison to the market decline of 6%. This is mainly due to the weak performance in our key electronics vertical. Our take rate increased to 1.9 percentage points, which is a result from the commission increase implemented in January and our continued efforts to diversify into higher take rate categories. Our total gross margin increased by 9.1 percentage points due to the already mentioned 3P take rate increase. Also, gross margin increased due to a higher share of our sales from our 3P business. We have had a substantial focus on optimizing our marketing spend through more efficient spend in the paid channels. As a result, we decreased our marketing cost of GMV in percentage by 0.1 percentage points in comparison to the last quarter. SG&A, excluding marketing costs, have further been reduced as a result of the previous restructuring and efforts in reducing overall costs. We are confident in our ability to reach our short-term target of being at least EBITDA breakeven for the full year 2023. Thank you, and over to you again, Fredrik. Thank you. This ends the presentation part, and now we open up for the Q&A part. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Nicklas Fhärm from SEB. Please go ahead. Thanks, operator, good afternoon, everybody. I'd like to start this Q&A session by asking you a little bit more about the potential synergies and the SEK 40 million savings program as you combine Fyndiq with CDON going forward. Could you give us some sense of sort of the timeline towards achieving the full SEK 40 million at year-end next year in terms of the coming quarters? i.e., will it be back-end loaded or not, et cetera, et cetera. Also, I was wondering, you have not charged any acquisition-related costs in your operating profit before D&A, you write. My question is where can we find these costs, and where do you expect them to end up at? Thank you. All right. Hi, Nicklas, and thank you for your questions. Starting with the synergies, I just also want to point out that I am and we are nine days in from closing with this integration, so it's really early days. I'm really impressed with us even being able to present these type of numbers. As you say, we will continuously be able to get the upside on these cost synergies, where the end result is gonna be when the platform is totally migrated, which will happen by the end of next year. If it's front-loaded or back-loaded, it's a little bit too early to say, to be honest. What we though can say is that after 18 months, we're gonna have the run rate of SEK -40 million from that point on. When it comes to transaction costs, that's something that we're gonna add for the next quarter. Yes, Niklas, the acquisition costs are not realized yet, but will come in now in April and May. They will have an effect in Q2, and we will get back to those. They have a negative impact on our EBITDA in Q2, but it's too early to say the magnitude of it. I understand. Thank you very much for clearing these issues. May I just say before I forget it, a big kudos to you for disclosing the full pro forma P&Ls at this early stage. Thank you very much for that. Can I also ask, do you expect any specific costs relating to generate these SEK 40 million in savings? You mean additional cost in order to reach those cost synergies? Yes. Yes. It's hard to say, and roughly that's pretty much included in the total cost synergies, as we have calculated it. Okay. It's a net number as an ambition at least. Is that correct? Correct. Correct. Wonderful. All right. Final question at this stage, and then maybe I can come back later into the call. How could you just give us the backdrop to the fact that you have removed your recently set targets, which would have implied a doubling of GMV by the end of 2025? To start up, it's really hard for me to inherit a target so close. We have a year of integration and realizing synergies from the two organizations. Next year, we will really try to level up from that stage and hitting a midterm target already 25 is too early from my point of view. I also want to say that we are increasing and really putting a really ambitious goal here. I think this new long-term goal with a double-digit market share is even more ambitious than the last midterm goal. That's something that we strongly believe in. The board and me, myself, and the management, and the whole team behind us, all believe that we have high potential in this. For this year, it's gonna be a lot of restructuring and focus on that, of course. Yeah. Yeah. No, that makes sense, Fredrik. what, Can I just ask you, I mean, long term is everything from now to eternity, right? Yeah. Is this kind of five years out or 10 years out or 20 years out? I guess what I'm trying to get a feel for here is kind of your similar expectation for the overall marketplace market growth over the coming years, if that makes sense. Yeah, exactly. We can just see that if we look into Europe and rest of the world, as I said in the presentation, we have such a much higher penetration than in the Nordics, and it's easily a +10x. How fast we can come up to those levels, it's too early to say. Yeah, that's the only thing I can say about that. I strongly believe that in the future, we have the potential to reach these numbers. Very well. Thank you so much for taking all these questions. Thank you, Nicklas. Thank you. The next question comes from Adam Wyden from ADW Capital. Please go ahead. Hey, guys. Can you hear me? Yes. Yes. Good. Well, welcome, Fredrik, and congratulations, Thomas. You know, really, really exceptional results to be EBITDA breakeven in a tough economy and, you know, obviously the cost cuts have taken hold in the commission rates. I wanted to ask you sort of a housekeeping issue, just sort of bridging some numbers for me and then, you know, more of a qualitative question that maybe Fredrik, you know, can lead with. You know, CDON had targeted EBITDA breakeven in 2023, pre the Fyndiq merger, you know, based on sort of like the cost restructuring. You guys have taken commission rates up in January and, you know, I think, you know, based on our previous conversations, you know, you guys had anticipated a material decline in GMV or at least prepared for it in 2023. Doesn't seem that material yet. Like, when I sort of unpack the numbers, CDON was profitable in the first quarter of SEK 600,000. You only got two months of the three months of the increased commission rates. Like if I just sort of run the numbers out and assume a similar sort of GMV trend, even though PostNord, you know, says that it'll be positive in the back half, you know, you can see kind of core CDON doing anywhere from SEK 20 million to, you know, high, you know, nearly SEK 100 million of EBIT based on sort of the commission rates and the cost structure. You call it SEK 20 million, SEK 30 million, SEK 50 million, SEK 70 million. Fyndiq, you know, Fyndiq did SEK 7 million last year. They obviously improved. Before that, they were doing about SEK 30 million, SEK 40 million, back out the H&M sale. You know, some number, call it somewhere between SEK 20 million and SEK 30 million. You know, they did SEK 7 million last year, and this year, you know, improvement on the EBITDA. When I sort of unpack all of that, I sort of say, okay, you know, CDON is doing somewhere between SEK 30 million, SEK 40 million, SEK 50 million, you know, Fyndiq is doing, you know, SEK 20 million. When I add the SEK 40 million, I get to sort of a SEK 100 million number before GMV growth and before SEO and SEM and before take rate. I guess my question back to you, maybe this more Fredrik, is, you know, there was a recent article in ehandel.se that basically said that Amazon is almost entirely marketplace in the Nordics. They're not really touching the goods if they can avoid it. To the, you know, but to the extent that they are, they're capturing almost 50% of GMV, 25% in take rate and 25% in supply chain and logistics. When I just sort of run the numbers on core CDON of SEK 2 billion of GMV, if we get our take rate from 12.5% to 20%, that's 7.5% on SEK 2 billion of GMV. That's SEK 150 million of EBIT right there, even before you sort of start working on the SEO and SEM. I'm just sort of curious, Fredrik, how you approach this because I think previous management had sort of said, "Hey, let's grow at all costs." That resulted in Mobishop and a lot of low GMV merchants and a lot of losses. It seems to me that even if this business didn't get 10% market share, you know, there's really a clear defined path to hundreds of millions of dollars of EBIT. I'm sort of curious how you look at all this and, you know, if you could unpack some of this for us. I think that would probably be most helpful for most people. All right. Hi Adam, thanks for your questions. Yeah, in general, it's really hard for me to go into detail level and comment on your figures. What I can say though is that we see that the direct synergies which we have defined as the cost synergies is SEK 40 million. That we are really sure about. Then on top of that, which is now in our coming weeks and months to really understand better is the top three synergies as we see it, which concerns the merchant offering and acquisition. The second one is the take rate optimization as you're talking about, also adding value-added services to that, which is very interesting to get the learnings between the two sides. The third one, as you're also addressing, is the traffic acquisition optimization. It's really too early to say any numbers. Even if we have them, maybe I wouldn't address them anyways. Of course, there are really, as we are writing in the report, some large additional top line and margin potential in there. We are nine days in. After closing, we can disclose the data between the companies and so on. We are nine days in. It's... I mean, you're addressing the right areas, Adam. Yeah. I mean, look, I think I just would point out that, you know, Fyndiq's D&A has largely been around maximizing margin and gross profit after marketing. I think, you know, I think most people, you know, again, legacy CDON shareholders are sort of, you know, more worried or perhaps concerned about this idea of growth at all costs. You know, what I would say is that, you know, CDON obviously in the last, you know, call it since December, you want to call it five or six months, has taken a very, very hard look at, you know, doing commission rates and doing cost structure, and obviously it's manifested itself in a much more positive result. You know, I would just point out that, you know, growth is something that happens over time as people, you know, enjoy the offering. I think that, you know, if we can drive, you know, $200 million-$300 million of EBIT out of this, you know, with the synergies and the take rates, you know, that provides an enormous amount of value that you can build upon to grow. You know, that's the math that we're doing. I hope that you guys, you know, take the efforts and initiatives when you're ready to sort of be able to communicate this because, you know, to me, that's, you know, sort of that's the value in the merger. Got it. Okay. That's it for me for this moment. Thanks, Adam. As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Nicklas Fhärm from SEB. Please go ahead. Thanks, operator. I think it would be very interesting to hear you comment and elaborate a little bit on sort of current trading and the quarter. Obviously, you missed a few percentage points versus the market, and to be honest, the market estimate is what it is, right? It's an estimate. It's not a factual conclusion, I guess. Nevertheless, you mentioned, you know, a little bit of mix effects, et cetera. Could you give us an idea of how the quarter developed and perhaps touch a little bit on maybe April if you like to at this stage, from this perspective, please. Shall we start with the quarter, Nicklas? Excellent. Yeah, we can do that. We have to remember that we are comparing us with a quarter in 2022, where electronics was the category with the highest growth all over all categories. Now we're up against that, which is rather tough for us, of course. For instance, the Q1 is also we are up against other segments that have been growing a lot, like pharmacy products. Those together actually makes up for us not being able to increase versus last year's quarter. Mm. When it comes to April, we don't, as you know, we don't predict on any future numbers. Sure. I can't really go into exactly what April looks like, right now. Yep. fair enough. thanks for that. Can I just also ask you sort of the same question on Fyndiq? Yeah. You. May I add, you write that typically a Chinese vendor contributes about 20% to total GMV. Is that for the period that in discussion, i.e. January and February every year, or is that on a full year basis for that matter? That is on a full year basis. It was no difference in the first quarter. We have the seasonal effect from the Chinese New Year's, which happens every year. This part with the Chinese lockdown pretty much came as a surprise for, I think, the whole world and for us also, of course. It had a big hit for us. For us, we turned it around. I'm gonna stop saying for us. For Fyndiq, we saw a turnaround coming back where we're supposed to be in March and looking good forward looking also. Can I also follow up? I mean, obviously the platform integration, or migration or the term we should use. Yeah ... very important. What's on the very top of the agenda for your new CTO of the CDON group right now and going into the coming summer period? What's the first thing that needs to be addressed or will be addressed? Yeah, exactly. First up, we call it migration. We're gonna migrate. We have two platforms, and we're gonna migrate it to one platform. We have a migration team in place, and that's the first thing to get in place during these nine days that have passed now. The next step is to set the plan for the whole migration, which parts and in what order, and so on, and what needs to be rebuilt and what not. much details that I'm not into the details enough to speak about here. I would say that is gonna get, of course, a lot of attention from us. We must make sure that the sites are up and running and that the running business are continuing as it should during these 18 months, but at the same time as that we can do this migration as fast as possible in the most controlled way. Just for me, because I'm rather a financial analyst than a technically experienced platform builder, would it be fair to say that you're gonna try to combine the best of sort of the two separate platforms into one new, or is it so that one or the other is actually sort of the base case from which you will build and add going forward? If you see what I'm trying to get at. Yeah, I understand. It's a little bit too early to answer on that, to be honest. There's a lot of discussions around that, and we're gonna do it in the best possible way for the both companies. Either way, it's gonna be a lot of cost reductions, and we're gonna increase the efficiency on our developing output when we have everything more centralized. Yeah. Yeah. All right. That's it for me. Thank you so much for taking all these questions once again. Thank you. Thank you. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments. Thank you. First question from Simon Bodecott. It's about cash. You only have SEK 5 million in cash excluding merchant cash. Do you believe this is sufficient level, or do you need any external financing in the near future? The answer to that, yes, we have implemented the restructuring cost savings program, and that provide us with confidence that our cash level going into second quarter for 2023 is enough. Also I would like to say that you have to bear in mind that the marketplace model creates variations in merchant debt period between periods. Needless to say, it will fluctuate between periods. However, we are confident in the cash position and the dynamics of our working capital. Thank you. We have a second question also from Simon. Why did you increase inventory and spend time on 1P business, when you are going to focus on 3P business? Yes, you're right. We are phasing out the 1P business. There is a part left of that is lucrative. We're not going to comment on our marketing opportunities more in detail due to competition. Over time, we will phase out the 1P business. The last question is, how much of the 40 million SEK in synergies are related to the overhead and overlap? Yeah, we are not gonna disclose those numbers, and we're gonna keep it on the high level of direct cost synergies of a total of 40 million SEK. All right. I think that was the last question. No more questions. Thanks a lot for calling in and for asking all the good questions. Thank you. Thank you, everybody.