Puuilo Oyj
Interim report (Q1 and Q3)

Puuilo Plc: Business Review Q3 2023: The journey continues at a good pace

PUUILO PLC, BUSINESS REVIEW, 13 DECEMBER 2023, at 8:30 AM (EET)

Highlights Q3/2023

• Net sales increased by 15.4% (+14.8%) and were EUR 92.3 million (80.0)
• Like-for-like store net sales increased by 5.3% (+10.8%)
• Online store net sales decreased by 10.3% (+18.4%)
• Gross profit was EUR 33.2 million (29.3) and gross margin was 36.0% (36.6%)
• Adjusted EBITA was EUR 15.3 million (14.9), which corresponds to an adjusted EBITA margin of 16.5% (18.6%).
• EBIT was EUR 15.0 million (14.6) which corresponds to 16.2% of net sales (18.2%)
• Operating free cash flow was EUR 14.0 million (16.0)
• Earnings per share were EUR 0.13 (0.13)
• Earnings per share excluding listing expenses were EUR 0.13 (0.13)
• One new store was opened during the third quarter (one new store)

Highlights February – October 2023

• Net sales increased by 14.7% (+9.8%) and were EUR 261.6 million (228.1)
• Like-for-like store net sales increased by 6.3% (+5.2%)
• Online store net sales decreased by 10.4% (+2.0%)
• Gross profit was EUR 95.7 million (82.4) and gross margin was 36.6% (36.1%)
• Adjusted EBITA was EUR 43.4 million (39.1), which corresponds to an adjusted EBITA margin of 16.6% (17.1%)
• EBIT was EUR 42.6 million (37.6) which corresponds to 16.3% of net sales (16.5%)
• Operating free cash flow was EUR 56.3 million (48.8)
• Earnings per share were EUR 0.37 (0.34)
• Earnings per share excluding listing expenses were EUR 0.37 (0.34)
• Three new stores were opened during the reporting period (one new store)

Figures are in millions of euros unless otherwise stated and have been rounded. Hence the sum of individual figures may differ from the total shown. Puuilo's financial year starts on 1 February and ends on 31 January the following year. The figures in parentheses refer to the comparison period the previous year, unless otherwise stated. The information in this report is unaudited.

Key figures

Puuilo's financial year starts on 1 February and ends on 31 January the following year
* Operating profit before the amortisation of Puuilo trademark

Outlook for the financial year 2023
Puuilo specifies the outlook for the financial year 2023 given in its financial statements release on 30 March 2023 and specified in its half-year financial report on 13 September 2023.

Puuilo now forecasts that net sales for the financial year 2023 will be EUR 330 – 350 million (296.4) and the  adjusted operating profit (adjusted EBITA) in euros will be EUR 52 – 58 million (48.8). Previously, the company forecasted that net sales would be EUR 325 – 355 million and that adjusted operating profit (adjusted EBITA) in euros would be EUR 50 – 60 million.

The specified guidance is based on the development in the first three quarters and the outlook for the rest of the financial year.

The forecast includes elements of uncertainty arising from the energy crisis, the war in Ukraine as well as decline in purchasing power due to rise in interest rates, inflation and general economic situation.

Puuilo’s long-term targets

Puuilo’s long-term targets for the financial years 2021-2025:

• Growth: Net sales above EUR 400 million by the end of financial year 2025 with annual organic growth in excess of 10%.
• Profitability: Adjusted EBITA margin between 17 – 19% of net sales.
• Dividend policy: Puuilo aims to distribute at least 80% of net income for each financial year in dividends, depending on the company's capital structure, financial position, general economic and business conditions, and future prospects.
• Leverage: Net debt to adjusted EBITDA below 2.0x.

Puuilo will achieve the long-term net sales target clearly before the end of the strategy period. Updated strategy and long-term financial targets will be published during the spring 2024.

CEO Juha Saarela’s review 
Puuilo’s performance was again solid. In August – October (Q3), our net sales increased by 15.4% and 5.3% in comparable terms. The growth is mainly supported by an increase in the number of customers in like-for-like stores, amounting to approximately 6%, but also net sales of new stores.

When comparing customer behaviour in Q3 with the corresponding period last year, we can see that consumers’ needs have changed; A year ago, the customer needs were characterized by a focus on energy crisis  preparedness, while in the current year, the emphasis is more on ordinary day-to-day needs. Once again, we can be pleased to state that our defensive and comprehensive product range covers the customer's needs in various environments. We are satisfied with Q3 performance.

In Q3, adjusted EBITA was EUR 15.3 million, corresponding 16.5% of net sales. We are satisfied with the performance, even though it was affected by an inventory adjustment, which had 0.6 percentage points (EUR 0.5 million) negative impact on Q3 gross profit. The adjustment originates from differences in inventory balances that emerged in connection with preparations for the new automatic replenishment system (Relex). The adjustment mainly relates to products sold in meters as well as other products sold in bulk units. The differences have been corrected and recognised in Q3.

We have continued to open new stores. In Q3, we opened a new store in Kerava, followed by a Helsinki Konala store opened in November, which in our case falls in Q4. Both store openings once again broke the opening day sales record, which seems to rise trendily with each opening. We have one more opening for the financial year 2023 as we will open Vantaa Varisto store just before Christmas, thus the total openings for this financial year will be five.

However, the most significant event in Q3 was the acquisition of Hurrikaani discount store chain’s Nokia, Ylöjärvi and Forssa stores’ business operations. The transaction was announced in a stock exchange release in September. The acquisition will accelerate Puuilo's growth starting next year, and preparations for taking over the acquired stores are fully underway. The stores will be converted into Puuilo stores and opened one by one during the first half of the financial year 2024. Another significant event in Q3 was an additional EUR 20 million repayment of bank loans, for which we used company’s substantial cash assets. After the repayment, company’s bank loans amounted to approximately EUR 50 million. At the end of the reporting period, the net of financial loans and cash and cash equivalents was approximately EUR 21 million.

The operating environment is still challenging, but there is some light at the end of the tunnel. At the moment, it seems that interest rates are not rising as quickly anymore and there is some cautiously good news about inflation. Finnish industry, construction business particularly, is currently facing difficulties, but I would like to remind that Puuilo’s business is only little dependant on the construction sector. Puuilo's customer base consists mainly of consumers, whose everyday repair and maintenance needs are our main concern. This combined with sales of car accessories, pet supplies and household products make our business concept work in all operating environments.

Thanks to Puuilo’s solid growth rate, the company will achieve the long-term net sales target clearly before the end of the strategy period. Updated strategy and long-term financial targets will be published during the spring 2024.

With this strong business review, I want to wish our shareholders, customers, and personnel a happy holiday season!

P.S. Puuilo gift card is a quick and easy solution to Christmas gift problems!

Significant events of the reporting period 

Acquisition of Hurricane discount store chain 
On 19 September, 2023 Puuilo announced to acquire discount retail chain Hurrikaani’s Nokia, Ylöjärvi and Forssa stores and gradually convert them into Puuilo stores during the first half of the financial year 2024. In 2022, the net sales of the acquired business totalled approximately EUR 15 million. The purchase price will not be disclosed. Hurrikaani’s personnel (appr. 38 employees) will transfer to Puuilo as so-called old employees in the stores belonging to the transaction.

The acquisition is expected to be completed in stages during the first half of financial year 2024.The acquisition will not have an impact on Puuilo's net sales or adjusted EBITA for the financial year 2023 and it is not expected to have a significant impact on Puuilo's financial position. The acquisition is estimated to increase Puuilo's growth rate from the financial year 2024 onwards. The acquired three stores are estimated to generate net sales totalling approximately EUR 15–30 million annually starting gradually from 2024 onwards. Correspondingly, the impact on the adjusted EBITA is estimated to be EUR 3–5 million annually and gradually starting from 2024 onwards.

The completion of the transaction is subject to the fulfilment of other customary closing conditions. The acquisition was approved by the competition authorities in November 2023. The approval was not subject to any conditions (investor news 28.11.2023).

Performance matching share plan for key employees 
On 14 April 2023, the Board of Directors of Puuilo Plc decided to launch a new share-based incentive plan for the key employees of the company. The aim of the plan is to align the objectives of the shareholders and the key employees in order to increase the value of the company in the long-term. 

The Performance Matching Share Plan includes one performance period, spanning approximately financial years 2023 – 2025. The performance criteria are the Total Shareholder Return of the Puuilo share (TSR) and the Adjusted EBITA of the Puuilo Group. The target group of the plan consists of a maximum of 80 persons, including the CEO, members of the Management Team, Store Managers and other key personnel. Primarily, the rewards from the plan will be paid partly in the company’s shares and partly in cash by the end of May 2026. The cash proportion is intended to cover taxes and tax-related costs arising from the reward to the participant. The rewards to be paid on the basis of the plan correspond to the value of an approximate maximum total of 678,000 Puuilo Plc shares, including the proportion to be paid in cash. The final number of shares will depend on the participants’ personal share acquisitions and the achievement of the targets set for the performance criteria.

At the end of the reporting period, the amount to be recognised as expense for the financial year 2023 for the plan 2023 – 2025 is estimated at a total of EUR 0.2 million.

Repurchase of own shares
On 14 June 2023, Puuilo announced that the company’s Board of Directors had decided to use the authorization given by the Annual General Meeting held on 16 May 2023 to repurchase the company’s own shares. 

The repurchases started on 15 June 2023 and ended on 27 June 2023. During this period, Puuilo repurchased 240,000 shares for an average price of EUR 7.0885 per share, corresponding to approximately 0.28% of the total number of the company’s shares, which is 84,776,953.

The repurchased shares are to be used for pay-outs under the share-based incentive plans of Puuilo Plc. The shares were repurchased through public trading on Nasdaq Helsinki at the market price prevailing at the time of repurchase.

Following the repurchases, the company holds a total of 555,000 shares.

Significant events after the end of the reporting period 

Members of Puuilo’s Shareholders’ Nomination Board
On 27 November 2023, Puuilo announced that representatives of the three largest shareholders registered in Puuilo Plc’s shareholder register as of 2 October 2023, are elected to the Puuilo’s Shareholders’ Nomination Board along with the Chairman of the Board of Directors, Lasse Aho, as an expert member. Puuilo Plc's Shareholders' Nomination Board is a body of the Company’s shareholders responsible for preparing proposals for the election and remuneration of the members and the Chairman of the Board of Directors as well as the remuneration of Board committee members to the Annual General Meeting 2024 and, when necessary, to the Extraordinary General Meeting.

The three largest shareholders have nominated following members to Puuilo’s Shareholders Nomination Board: Puuilo Invest Holding AB (Adelis Equity Partners), represented by John-Matias Uuttana, Markku Tuomaala, represented by Toni Kemppinen, Keskinäinen Eläkevakuutusyhtiö Ilmarinen, represented by Esko Torsti.

Next financial reports
Puuilo's financial year starts on 1 February and ends on 31 January the following year. The company publishes Business reviews for the first and third quarter, a Half-year financial report and a Financial statements release.

Financial Statements Release 2023                                                         on 27 March 2024
Business review Q1 February – April 2024                                            on 12 June 2024
Half-year Financial Report February – July 2024                                   on 12 September 2024
Business review Q3 February – October 2024                                        on 11 December 2024

The Financial statements and the Report by the Board of Directors 2023 will be published during week 16.

Puuilo’s Annual General Meeting is planned for Wednesday 15 May 2024. The meeting will be convened by the company's Board of Directors separately at a later date.

Conference call in English and webcast in Finnish
The report will be presented for analysts, investors, and the media on the publication date in English at 10:00 am EET (9:00 am CET) and in Finnish at 11.30 am EET (10:30 am CET).

The conference call in English can be followed live at https://puuilo.videosync.fi/2023-q3-results. Asking questions requires participation in the conference call. You can access the teleconference by registering on the link http://palvelu.flik.fi/teleconference/?id=10010327. After the registration you will be provided phone numbers and a conference ID to access the conference. If you wish to ask questions, please, dial *5 on your telephone keypad to enter the queue.

The webcast in Finnish will begin at 11.30 am EET at https://puuilo.videosync.fi/2023-q3-tulos.

Recordings of both events will be available later the same day at Puuilo's Investors website at https://www.investors.puuilo.fi/en/investors/reports_and_presentations.

For further information, please contact:  
Juha Saarela, CEO, mobile phone: +358 50 409 7641
Ville Ranta, CFO, mobile phone: +358 40 555 4995