Welcome to the Pierce Group Q1 2023 report. 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. I will hand the conference over to the speakers Acting CEO, Willem Vos; and CFO, Niclas Olsson. Please go ahead. Thank you good morning, everyone, and welcome to the first quarter Pierce earnings call. My name is Willem Vos. I'm the acting CEO, and I have Niclas Olsson, our CFO, here with me in the office at Pierce. In terms of the agenda, we'll start off with the Q1 summary, and then Niclas will provide a financial update. Then I'll finish off with some reflections on the way forward, then we'll be happy to take questions at the end. First, let's start with the summary for the quarter. During the first quarter, we were faced with challenging market conditions that put pressure on the results. Thanks to our strong liquidity position, we were able to increase prices in a weak market. By prioritizing margin improvements over volumes, we managed to strengthen the gross margin compared to recent quarters. Let me try to break this down a bit, starting with the operation section at the top. The market continued to be challenging in Q1 as consumer demand continued to be impacted by macroeconomic headwinds. Since the middle of Q1 2022, we have seen a decline in the online market, and our assessment is that the market was down versus last year by some 50%-20% in the first quarter. The general macroeconomic situation seems to have had a clear impact on consumer spending, and the demand was generally weak. From a geographical point of view, we saw that the Nordic market seemed to be impacted more by the weaker demand than the rest of Europe, so the markets outside of the Nordics. We still see some overstock in the market, even though the situation seems to be generally improving to previous quarters. We expect that the effects of the high inventory levels will still take some time to wash through the value chain as this has an impact not only on the retailers but also on distributors and manufacturers. The next point is that the gross margin improved versus previous quarters. Our strong cash position at the beginning of the quarter allowed us to prioritize margin over sales more than we did during last year. In the comparison quarter in 2022, we had a strong focus on pushing sales to generate liquidity and to reduce net debt. As a result of the rights issue in July 2022 and due to our ongoing efforts to reduce inventory, our financial position has improved significantly. The financial improvement program is progressing according to plan, and we expect to gradually see more impact from this program in the P&L over the coming quarters. The main focus of this program is to improve the margin, but we also aim to improve our overall cost efficiency and our net working capital. As a result of the financial improvement program, we saw that in Q1, margins started to improve versus previous quarters, and this was mainly from consumer price adjustments. We also saw that our variable costs were reduced from ongoing efforts to increase our marketing efficiency. We also made an extra effort last year to negotiate commercial terms with nearly all of our product suppliers, and we did this to preempt further price increases but also to lower purchasing costs going forward. We expect to see some further margin improvements towards the end of the year from this extra negotiation effort as the new commercial terms are gradually kicking in over the coming quarters. Moving on then to the next section with the financials at the bottom. Net revenue came in at SEK 345 million, which is a decrease of 18% versus the same quarter last year. Last year, we took a more aggressive approach to generate liquidity and to reduce debt, and this helped us to grow by some 10% in a declining market. This quarter, we've taken a more balanced approach and prioritized margin over sales. As a result, we saw the margins improve by 1.9% in Q1 compared to the previous quarter. Adjusted EBIT came in at -SEK 21 million. The EBIT decline was mainly driven by lower revenues and by a slightly lower gross margin as consumer price increases have not yet fully offset the increased purchasing cost. We continue to manage our cost base very carefully, not only in terms of our variable cost, but we also manage to keep administration costs flat year-over-year despite inflationary pressures. We have scaled back staffing levels that are directly connected to order volumes, both in customer service and in the fulfillment areas. We also have fewer staff across the other functions compared to the same period last year. The operating cash flow was -SEK 35 million for the period, and net cash at the end of the period stood at a solid SEK 105 million. Inventory levels continue to decrease, and we are gradually moving to a better inventory composition, although we still have pockets of overstock that we need to clear out. Despite the pressure on revenue and adjusted EBIT for the quarter, we do see a few positives, and let me try and summarize those. First of all, we have been able to increase consumer prices by some 5%-10% across the board compared to Q1 last year. The gross margin is improving from previous quarters, and we expect to see further improvements from lower container prices and improved commercial purchasing terms later in the year. We also continue to see good effects on our variable costs, and we have been able to improve our marketing efficiency. While the stock value is still impacted by the high shipping costs from last year, we do see that the stock has decreased by around 20% in units, and we are gradually looking at a more balanced assortment. Looking at the KPIs, the customer satisfaction scores continue to remain at a high level at around 4.3 out of 5, and that is across all stores and across Europe. We're pleased to see that we continue to provide an offering and a customer experience that seems to resonate well with our customers. We continue to drive improvements in the customer experience area. This quarter, we, for instance, finalized a big overhaul of our website structure to make it easier for people to browse around and to find what they're looking for. We are also currently working on an initiative to improve the delivery experience, so people have more options to select from to get their parcel delivered. Whether it's home delivery, a pickup point, or a locker, for instance, we can tailor the local experience based on what is available in each of the markets. The private brands have shown good resilience with steady sales in a declining market. Our private brand share was high this quarter at 44% of revenue. This is despite the price increases that we have applied to our private brand range. It shows that even at higher price points, we still have a compelling value proposition towards more price-sensitive customers that are looking for some good value for money deals. As you can see here on the chart on the left, the active customer base is down versus last year, which is mainly due to less demand and less activity in the market. Both organic and paid traffic were down significantly, and we saw less activity from both new and also from returning customers. On the right-hand side, you can see the number of orders last 12 months is down in line with the reduced revenue levels, but the AOV continues to increase. Despite the fact that there's less activity in the market and customers seem to have less money to spend, we have been able to keep the basket size up, and this helps to drive efficiencies in the supply chain. I'll now hand over to Niclas to do the financial update. Good morning. This is Niclas Olsson, I'm Pierce's CFO. During the first quarter, our revenue growth was negative with over 20% in local currency, and we estimated the market decline with around 15%-20%. As Willem said, last year, we drove a lot of sales with aggressive pricing as we needed to reduce our net debt due to the financing situation at that time. The effect was that during the first quarter of 2022, we grew year-over-year with 10% despite a negative market development. This year therefore met tough comparables. The Onroad segment developed worse than Offroad in revenue growth. The segment met significantly tougher last year revenue as we drove a very strong and price-aggressive campaign within the Onroad segment last year. The profit margin after variable cost increased by 0.6 percentage point in the quarter. Main driver for the improvement is lower cost for performance marketing. EBIT margin decreased by over 3 percentage points compared with Q1 last year. OpEx depreciation and amortization are on the same level as last year in SEK, despite cost increases driven by inflation and FX. Average number of white-collar workers in the quarter are 256 compared with 272 one year ago. We have also right-sized the number of workers within the distribution center in line with the lower order volumes. With the same cost in SEK, but with lower revenue in the quarter, the cost as a percentage of revenue increases and affects the EBIT rate negatively. If we focus on the development of gross margin, which will be the main driver for improved EBIT going forward, we can see that the negative trend line was broken in Q1 2023. Going back and looking at Q1 2022, we see that the margin decreased with nearly 7 percentage points versus same quarter 2021, which was a consequence of the focus to drive sales at that time. Throughout 2022, we focused on generating sales and reducing inventory to stabilize the cash situation. Even though we were able to increase prices during the second half of 2022, we weren't able to compensate fully for the increased shipping and purchasing costs. In the first quarter this year, we, despite a weak market, have been able to shift our focus more towards margin improvement. As a result, we have been able to increase customer prices with 5%-10% versus Q1 last year. Our plan is to continue to gradually improve the pricing, which together with decreased cost for shipping and the effects from supplier negotiations, should improve the margin going forward. To the right, we see that the shipping cost in the quarter, shipping cost in relation to revenue was 5.5% in Q1. This was 0.5% is more higher than Q1 last year, lower than the previous quarters. Container prices are back to pre-pandemic levels, but it will take some time to wash out all the shipping costs from past purchase from the inventory, which is why the cost will slowly but steadily decrease to pre-pandemic shipping markup levels. Net working capital increased in the first quarter compared to end of 2022. In the quarter, we have been able to continue to reduce the stock level, and compared to end of Q1 last year, the stock is down with SEK 47 million. In the quarter, the other liabilities have decreased, which will affects the Net working capital negatively. Liabilities related to purchases have decreased as the goods in transit is significantly lower compared to last year, and also the VAT liabilities are down due to the lower sales. During normal conditions, net working capital should be somewhat higher at the end of Q1 and at the end of Q3 due to seasonal effects. Both the cash and equity position was solid when we closed Q1, and we are well prepared to continue executing our plans for the rest of the year. I will now hand over to Willem to finalize the presentation. Let me come back to the key levers that will help us improve the company's profitability over time and share with you the progress that we have made over the quarter. Note that the picture that is shown on the slide is not an outlook or a forecast, but it's more of a graphical and conceptual illustration of the key profitability drivers. The starting point to the very left in the dark blue is the current situation with an EBIT loss in Q1. First of all, we believe that several of the negative gross margin drivers are temporary in nature, and the P&L will benefit from a normalization. We have already seen the container shipping prices normalize to pre-pandemic levels, and we also expect growth to return in the online market on the back of an online channel shift. The next bar on the chart is related to purchasing. In the last two quarters of 2022, we made a significant effort in negotiating commercial terms across our supplier base. We have done this additional push to preempt further purchase price increases and to improve the existing commercial terms. These commercial improvements from product suppliers will gradually add back margin into the P&L towards the end of the year. We also revisited our outbound freight suppliers to renegotiate terms and to optimize the transport carrier network across Europe. These implementations in the transport network have now been implemented. We will continue to fine-tune the transport network on an ongoing basis to drive further cost efficiencies and to improve customer delivery timelines. Let's proceed with the pricing and give you an update on the progress made so far. First of all, we have now completed the implementation of a new pricing engine. This pricing engine allows us to be more surgical in optimizing consumer prices across all stores and all markets compared to the manual processes that we ran before. We also still expect that we can pass on the cost increases more rapidly to our customers when the overstock situation in the market further normalizes. This quarter, we have already increased prices by some 5%-10%, but we now see more opportunity to refine and fine-tune our pricing approach on the back of this new pricing platform. Then we have marketing. As part of our improvement program, we have trimmed the marketing machine and revised the ROI targets in our performance channels to improve the overall marketing efficiency. In Q1, we saw that the marketing expense improved by some 2%. At the same time, we had to invest more to offset the further decline in our free channels, which is also related to the general slowness in the market. The efficiency gains do not yet fully show in the P&L. We have the economies of scale. Over time, we expect to continue reducing our overhead costs in relation to revenue. We have the organization and systems in place to handle larger volumes at low marginal cost. We still have potential to further digitize the backbone of our operation and to streamline our system landscape. We will also continue with initiatives to further improve the customer experience and to lower our operating cost. If we do this successfully, then this will clearly add further cost savings back into the P&L. Again, please note that this is a long-term illustration of our path back to profitability and not an outlook or a forecast. In the here and now, there is still a high level of uncertainty in the market. We do expect that the remaining quarters in 2023 will be challenging as well. Let me conclude this presentation by clarifying our main priorities. As we are now almost halfway through the second quarter, we can see that the market decline seems to be slightly improving. Our comparables are also somewhat less challenging than in Q1. Even though the market decline in Q2 so far seems to look slightly better than in Q1, the outlook continues to be weak. There are still quite some geopolitical and macroeconomic uncertainties that are affecting consumer behavior. In that context, we will continue with the following three priorities. The number one priority in the short term is to maintain a strong cash position in order to mitigate the uncertainty in the market. Given our solid cash position, we can continue focusing on margin improvement initiatives. We will manage our working capital carefully, and we will also take a cautious approach to purchasing new stock. The key here is that we try to accurately plan and forecast sales, and then our approach has been to purchase slightly less to what we forecast in order to protect any downward risk in market sentiment. This will also then leave us some room for clearance deal opportunities that we expect will be available given the general overstock situation in the market. Secondly, as we mentioned before, our program to improve the financial performance is progressing according to plan, and it remains a key priority to ensure that the actions that we have taken and the commercial improvements that we have negotiated start landing in the P&L over the coming quarters. Lastly, we'll continue with our daily work to improve the scalability of our fixed cost base by simplifying the business and by improving processes and systems. This will help contain our costs in the current market environment, and it will also solidify our position when the market gradually normalizes over time, as we can then drive further scalability improvements in the P&L on the back of larger order volumes. That concludes our presentation for today. Operator, let's open up for Q&A. 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 Daniel Ovin from Nordea. Please go ahead. Yes, good morning, Willem and Niclas, and thank you for taking my questions. First, one question on the overall market improvement, the small improvement that you are seeing now in Q2. Perhaps you can elaborate a little bit more on this. What segment would that be? And also, is there any particular market where you see this slightly better development? And also perhaps mentioning a bit more on how you perform relative that market as it seems that you perform slightly worse than the overall market in Q1. Is that also continuing then in the beginning of Q2? That's the first question. Yeah, I think the, I mean, obviously the market in Q1 was down, as, you know, by our assessment 15%-20%, right? Then we only just started Q2, but what we have seen is that, you know, the decline in the market seems to improve a little bit, and it's a bit subjective, right? We don't really have very solid data points around it, but it is based on the information that we get out of the market, but also looking, for instance, at our tools like Google. We look at the impressions in the market that relate to the keywords that we that we are known for. In terms of a geographical area, I would say that the Nordics has maybe, you know, come to life a little bit more after Q1, maybe related to the weather, I don't know. Again, it's all very early days, and there's still a high level of uncertainty in the market, so it is just a first indication. When it comes to our performance, we don't really do any forecasting, I would say, or. I think we can also say around the market share, yeah, we probably lost a little bit in Q1, and that's we, if we compare to Q1 last year, as we drew quite a lot of revenue last year as we grew with 10% compared to market decline. I would say going forward, we don't expect to lose market shares. This is probably more a relation to the Q1 sales last year where we pushed a lot. Yeah. Yeah. Okay. That's very helpful. Another question on this freight cost situation where you have this quite long lag now. I mean, if you calculate 6% to 9%, that you would have been over that already in Q4, according to my calculation here. Now it takes longer. I guess it's also because inventories are taking longer to flush out, so to speak. If we look at it now, if we still go into Q2 then, I mean, is it fair to assume that in Q2 you will be quite a lot actually lower freight cost impacted versus Q2 last year? Is that a fair assumption or maybe you can comment a bit around that? Yes, it's a fair assumption. If we look at Q2 2022, we were at 6.6%. This quarter, Q1 2023, we are at 5.5%. Already there we have quite a decrease. The trend line going forward should continue going down. Yes, there should be a positive effect compared to Q2. Yeah. Okay, perfect. I have a last question on the different segment here. I was a bit surprised when I saw the Onroad channel being so much weaker versus the Offroad channel, you explained it now a bit in the call here that you ran pricing campaigns, aggressive pricing campaigns last year, now you've seen them to have been holding back a bit more. Even when I look at the, you know, the contribution after variable cost is down like 41% year-over-year. Do you think that was a successful move? Or has it been even worse, you think, if you went more aggressively on price? Maybe you can comment a bit around your thinking on the strategy and if that is something that you would be continuing to do going forward? That's the last question. If we take Onroad, that performed worse compared to last year, if I remember correct right now, I think that the growth in Onroad last year was over 30%. Yeah. We had a campaign, we call it the Mega Kit campaign. That was a totally new campaign last year in that segment, and we priced it really aggressive to drive both on sales and getting new customers. This year, we had continued with this campaign, but it was not then new, and we have also increased the prices to take care of the margin. I would say in general, Offroad and Onroad, there is a bit difference on the comparables, but they are performing more or less the same. There is not a big difference right now between Offroad and Onroad. Okay. Okay. All right. Great. Thank you for answering my questions. The next question comes from Carl Deijenberg from Carnegie. Please go ahead. Thank you. Good morning. A couple of questions from my side. First starting off here on the sales development. I mean, coming back to this, I guess, I understand that the comparison in Q1 last year is quite tough on the sales, but I think it's, at least in my calculation, and I mean, even if you look on a two-year stack, I guess it's fair to assume that the market has contracted or maybe let's call it worsened sequentially here since Q4. Could you say anything? I mean, you talked about a 15%-20% contraction here in Q1. Could you remind us of what your assessment was for Q4 and, maybe, you know, the start here of Q2? Are we talking 10%-15% contraction or 5%-10% or what's your assessment there? Yeah, I think in Q4, we said around -10%, right? That was the assessment. Again, it is not so easy to get these numbers right. It's a bit of a range around that. You're right in that, from Q4 to Q1, we saw further contraction. When it comes to Q2, it's a bit hard to say. We don't really have the data points, I would say right now to, you know, we're only just into the quarter, so I think we need to wait a couple of months to see how it really pans out. There's still a high level of uncertainty. Take into account that the Q1 is typically, it's a bit of pre-season. In Q2, normally the season has started. There's also some dynamics around that maybe people have waited a bit to make their purchases at the beginning of the season. Q2 is a bit hard to estimate what the, what the range is. Yeah. Yeah. The level of improvement in the range. Yeah. Yeah. Okay. Then I wanted to ask a bit on the inventory composition here. You're talking a bit about it still, that you maybe have a bit of overstock, but that the situation is gradually improving. I just wanted to ask if you know, if you could share any sort of target that you have by the end of the year, your inventory level, for example, in relation to sales or, you know, any figure on that just to understand the ambition on the cash flow development here, going forward throughout the year would be very helpful. I think we have actually hard to give that because it's very dependent on the market development going forward. Yeah, we have an ambition, of course, to improve the stock situation. I think I don't can give you anything more there. I mean, practically, right, it's difficult to really have a long planning horizon. What we're doing is that we almost do on a rolling wave basis, we look at how the sales evolves and what our forecast is for the coming months. That defines the budget that we allocate for the procurement, and we look at the stock consumption. It's more on a rolling wave basis. We're trying to manage it, so it's not so easy to give an outlook for a number at the end of the year, I'd say. As Niclas was saying, clearly the ambition is to try and reduce the overstock levels in the pockets that we still have. Okay. Yeah. Maybe, I mean, it would be interesting to hear also what kind of pockets are you still overstocked in? What kind of categories are still, you know, struggling a bit, or I guess that has to do also with demand being weaker in those categories as well? I'm not sure if it's specific to any type of category. It's also, it's not bad stock either, right? They're good products. It just takes longer to sell them out. We're also keen not to price them too aggressively and find the right balance there between getting a reasonable margin for these products and having the pace of clearing out these stock items. It is a bit across the board, maybe a little bit more in gear, but I would say it's across the board, to be honest. Okay. Then finally, I wanted to ask on the OpEx development here. Cost control is good here in Q1. OpEx is down quite significantly here. I'm just curious sort of on your initiatives or let's call it maybe cost savings here going forward by the remainder of the year. I guess maybe not the same amount here as you reported in Q1 in absolute numbers, but do you still have an ambition? You know, I understand that this also has to do with the market development, but from what we know now, are you aiming to lower costs from an absolute level year year-on-year on a quarterly basis going forward in 2023? I think in general terms, I think we have had a strong focus on the whole OpEx already since 2019, right? If you look at the evolution, I think we came from a level of around 20% to down to 15%. This quarter we managed to keep OpEx flat, we now have also less staff than what we had in the same quarter last year. At the same time, we're also working on a couple of initiatives to drive more sort of scalability and efficiency in the operation. We don't have any sort of major plans to. I think we're gonna try and keep OpEx obviously as low as possible. The real opportunity I think now is more higher up in the P&L and focus on the margin and the sales. Okay. I think that was all from me for now. Thank you very much. Thank you. As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. Okay. We have also received a couple of questions, from mails. We'll go through them now. We have one from Tommy Saarinen. The question is, when do you expect the overall market overstock situations to normalize? Yeah, I think it's a good question. Not so easy to answer, but, based on, you know, some information that we get from, and that we see from other retailers, we look at the promotional activities that they're doing. We also from time to time get some input from suppliers and distributors. I think realistically, it's probably gonna take the rest of the year to sort of clear out the overstock in the market. Yep. Yep. Another question from Tommy is that in Other segment, you continue to refer to negative impact of availability issues. What drives the availability issues, and what kind of snowmobile related products are we talking about? It's has not too much to do with the market situation here. It's we had one of our main private brand biggest seller product, where we have some production issues during summer last year, so we didn't receive this product in stock, and that had quite an impact on sales. It's also that we had some external brands where we did not have a contract this year. These are more business related, if we can call it that, the issue. We our ambition is to, when the snow season start next year, that this should be solved. Another question from Tommy is, in Offroad, you were able to increase profit margins significantly despite clearly weaker gross profit. What drove the increased average order value? Why did we not see similar development in Onroad segment? Are the marketing cost cuts temporary in Offroad segment? The thing was that during Q1 last year, we, as we said, we pushed a lot, and we had a lot of overstock in private brands, and that push affected 24MX, the Offroad a little bit more, we, where we also pushed at some marketing. I would say that it's more normal marketing levels right now between the Offroad and Onroad. It's also here on the marketing side, it is about improving the marketing efficiency. It's not like we have taken a temporary cut. It's more, I would say, we're trying to make that more structural by being more efficient in how we allocate our marketing funds and how we try to optimize that across the different channels and across the different markets. That is what the team is working on. We have another question here. Are you downsizing the staff to match the current turnover? 400 + seems a bit much for the volume you are doing, especially 195 for white-collar workers. I think as I mentioned before, there has been a strong focus on keeping OpEx down, and we have initiatives in play to drive further scalability across the organization. Keep in mind, we are down in terms of FTEs in comparison to the same quarter last year. In that sense, I think we have the right team and the right organization in place to make sure that we can achieve our plans. There's no specific restructuring initiatives that we have in the plans right now. Okay. We have a question from Atte Hietanen. You commented that the market development going into the second quarter has been slightly better versus first quarter. If the market decline was 15% to 20% in Q1, how do you see it in Q2? How large share of your current inventory is inventory that has been purchased with elevated logistic cost? How do you see the price increases across the supply chain? Do you see further price increases from distributors and manufacturers? How do you see the inventory levels across the supply chain, where the inventory level are the highest? We start with the first question, I think we answer it, the market, how do we see it in Q2? It's, we have already answered that one. Yeah. How large share of your current inventory is inventory that have been purchased with elevated logistic costs? It's actually as the decline of shipping costs, we were down to pre-pandemic levels end Q4, so still, a large share of the inventory are bought with the higher than pre-pandemic level shipping prices. As, but it has not been bought with on the top level, so to say. As I said, we think that the share of shipping costs in the inventory and therefore the shipping cost in relation to revenue will decline continuously right now, and it was 6.2% in Q4 and 5.5% in Q1. I can take the next one if you like. How do you see the price increases across the supply chain? Do you see further price increases from distributors and manufacturers? As we mentioned in the presentation, we, you know, in the last two quarters of 2022, we did an extra effort to renegotiate commercial terms almost with all of our suppliers. That was basically to preempt price increases going into 2023, but also to try and improve our commercial terms. I think that really helps to mitigate some of these increases that we see, and we still expect to see the benefits of that effort that we did late last year to come into the P&L later in this year. It takes some time to start ordering new products, and then we need to sell them before the numbers show up in the P&L. Okay. We have a last question from Tommy here. Okay. Yeah. Both geographical market segment decreased in sales. Do you see any differences in different countries, in Nordic, Finland versus Sweden, or outside Europe, Italy, Germany or Spain? Do you see any changes in the market looking forward versus the reported quarter? As said, we said in, we think that Q2 is some better than Q1, as we said previously. Yeah, we have noticed that Sweden have been more effective than most of the countries of the market decline. Other than that, there is no major differences between the different countries. As we can see, it's the market. It's also depending, of course, on competition and so on. Yeah. That, I think, was the list of questions that were published in the chat function here. Unless there's any other-. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Well, thank you, for listening in to the Q1 earnings call. We'll be back with a new update on the Q2 in August. For now, I wish you all a good rest of the day, and thank you very much. Thank you.