Dadelo S.A. (DAD) Earnings Call Transcript

Hello, everyone, and a warm welcome to the Poland ON AIR conference. And this session is dedicated to the Dadelo SE, and we're truly delighted to have with us CEO, Ryszard; and Commercial Director, Jack. But before they share their insights in the presentation, let's look at a short video clip. [Presentation]

Hello? Hello, everybody seeing? Hello. My name is Ryszard Zawieruszynski. I'm CEO of Dadelo. I would like to introduce to Jacek Zieziulewicz, who is responsible for purchasing and selling department. As you know, Dadelo is public company listed on Warsaw Stock Exchange, belong to Oponeo, another company also listed since 2007. I run on the founder of Dadelo, also Oponeo. So I have 25 years' experience of e-commerce. Dadelo is e-commerce company. We sells bicycle, bicycles, bicycle accessories and clothing. So I'm -- I was professional cyclist in my youth. So cycling is my big, big -- how to put it?

Just as a hobby.

My big hobby. And it's something great to run such company when it's your hobby, of course. What is our strategy? The most important thing is revenue. So we just grew, we collect our products that we can sell well. We reduce product that we can't sell. So it's daily greed. We try to simplify everything, reduce our costs eliminate unnecessary products. So our strategy is also doing everything in-house, no outsourcing. So we have our own warehouse, our own web page, maintain, of course. We have our purchasing department, analyst department, even we try to introduce our parcel delivery in some extent. Dadelo has been growing 50% annually for six years. I'm not a big fan of generate big profit. It's e-commerce. In my opinion, we show we should grow as fast as possible. But on the other hand, you can't make IPO company in Poland because it's a natural Polish market. If you are not showing a gain -- a profit, it's difficult, you know this problem may be. But in Poland, it's very important. The funds always ask me about the profit, how much profit we will make. But for me personally, I think the grow and the revenue are the most important thing. On the other hand, this perspective pushes us to make and grow very healthy. What can I add? Maybe you will help me.

Yes, I think we can go through the presentation, then we will explain a little bit more. First of all, the Polish bike market in numbers. There is no such a precise numbers for the Polish market as you have it in Germany. All the other markets except the Dutch market and the German market, it's just estimation. So the annual bike sales is roughly 1.2 million bikes per year, and the value of the market is EUR 1 billion. It means that the market is sometimes smaller, of course, than the German market. And for sure, it's not so much as well. If you look at the average price bike, it's also much lower than the German market. But there's quite a big potential for the market. I mean the number of the bikes per capita and the dynamics of the growth it's much bigger than -- Can you go to the second slide? Okay. Here we are. Thank you. We are also quite big market for the producer. I mean there's a couple of middle size and small companies producing the bikes for some brands across the Europe. Some of them are Polish, some of them are just located there. So I think at the moment, we are top 1 producer in this region. The bike looks like you see on the right side of the slide. So it's mainly the IBDs, independent bike dealers and sport department stores. It's the biggest part of the market. E-commerce, of course, is growing every year. The hypermarkets or the bid portals, they are not so important for the bike market. However, the bid portals like Allegro, like Amazon, they are growing as well, but they are probably important only for the parts and accessories, the bikes are [indiscernible] to sell through these portals. So the major part of the market for the bikes are the physical stores at the moment. Can we go to the next slide, please? A couple of data about the company insght. So at the moment, we have roughly 80,000 SKUs on stock. For the last year, we made 650,000 (sic) [ 648,200 ] orders. The average basket value is, without VAT, it's roughly EUR 100. And at the moment, it's important at the moment, we have 265 employees until the end of the year, it should be over 300 people. Last year growth, it was 48%, but the average growth for the last six years, as Ryszard said, it's roughly 53% the public offer for the IPO, it was EUR 50 million, but the actual company capitalization, it's...

EUR 150 million.

It's triple, yes. It's triple. Next slide, please. As you see on the slide, we are growing every year. So it doesn't matter if it's COVID times, which were really boom for the bike industry or it's normal times. However, we cannot say it's a normal times. You see for sure that all the bike markets in Europe are in the crisis at the moment since 2, 2.5 years. There is a lot of bankruptcy. There is a lot of financial problem, all the banks they are looking very carefully for the bike industry. It's really tough to get a credit for the bike companies at the moment. But we see -- you see that we are growing still. It's not only thing that we are growing. It's a couple of things. It's, of course, very good logistics, which is in-house, as Ryszard mentioned. It's a part of the Oponeo logistic, same with the IT department, same with the marketing department. And what is crucial also for us, it's really probably the best team in the country according to the, shall we say, this core of the bike business. I mean, we built a really good team with the bike enthusiasts, they are responsible for the purchasing for the analysis, all these operation things, which makes us really strong for buying, selling, understanding the market. We are really agile as a company. I mean it's roughly -- it should be roughly 300 people in the end of the year. But the core of the company, except the shops, except the warehouse, it just 25, 30 people which are responsible for the purchasing for the managing of the company. And this is the crucial part of the company, which help us really, really to have a good reaction for the market possibilities. It depends on the period. We do all the things in the right time, right way, and I think so fast as possible. Okay. Next slide, please. We have three in-house brands. The Eyen, is a brand for the clothing, cycling, cycling shoes, accessories, all these, shall we say, parts and accessories and the Oxfeld and Unity brand for the bikes, two different type of bikes. Oxfeld, it's a -- this major part of the bikes. And we start to build the portfolio of these bikes even for these hard times for the bike industry with really huge overstock over all markets. Next slide, please. As you have seen at the movie, we operate up to 5,500 orders per day. The warehouse is roughly 22,500 square meters. And what I have say, it's not big enough at the moment. So we started to build a new warehouse for the next two years. We have something like four pillars. One of them is the bikes. The second is the clothings or the soft goods, the parts and the accessories. And it's really important to grow up with the bikes. We cooperate with over 300 service points across the country, so we can deliver the bikes to the service points. So the customers, they can pick up at home or at the service point. It's crucial also with our logistics. Over 95% of our all shipments we deliver within 24 hours. So it's really fast and it's really accurate. And yes, I think it's one of the key factor of our success. Next slide. Three years ago, we started also to build the omnichannel model to grow up with the bikes with all these things which are quite difficult to sell only online. So we opened the first one shop in Warsaw after a short time of checking how it works. We decided to open the next one shop in Wroslw, then Gdansk, then Poznan. Kraków is planned for the October of this year. And the next one shop will be opened in Silesia region the beginning of the next year. A couple of new locations are on the way. So we plan to open up to 20 shops within the next 2, 3 years, more 3 than 2, of course. It's, of course, quite difficult to open all these shops like that, not only because of the money -- of the investment we have to put in every location, which is quite huge, but also because of the lack of this, shall we say, retail space, it's important for us to find the right location, the right size of the shop and even the right place in the shopping mall. Next one slide, and this is the goals for the coming years. It's, of course, the -- shall we say something like a minimum goals. It's in Polish zloty. So you have to divide it by 4.2 to have it in euro. So for this year, the goal was PLN 389 million. So -- but I think we should reach, yes, something like a 10% more. And within the next 4 years, we would like to get PLN 1 billion. So it should be something like PLN 250 million, yes.

24% for the market. It's our goal.

Something like that. Okay? The market, of course, is quite promising. If you look at the market, it's growing since, I don't know, 20 years, 25 years. It's a part of leisure, part of sport, part of the healthy style of life. So it's stable growth a couple of percent, 2%, 3%, 4%, 5%, depends on the year. But it's a mega trend for the many years. So it's, of course, not booming market, but it's a promising market for the future.

Promising.

Yes.

All right. Thank you for your presentation. [Operator Instructions] And let's have a look. By now it seems there are no virtual hands in the queue but we received questions in the Q&A box. So let's move over and start with the shorter one. So a question, I guess it's a question one for you, Ryszard. Please elaborate more about why revenues, not earnings.

Okay. It's very simple. Because we need just [ traction ], how to put it. We have a stable costs. The company for me should be grown and grown. And then you will be reduce the cost and you can boom -- booming this company. So it's specific nature of e-commerce. If you start from looking for the costs, you will be probably not successful. It's my idea to run e-commerce business. So on the very beginning of the company, you have to take care about revenues, revenues and revenues and then about the cost. So first point, what I looking for, it's revenues. Second is margin, okay?

I think it's also important to explain a little bit that we are not planning to lose the money. We just tend to be focused on the turnover. For the e-commerce, especially for the e-commerce companies, you have always some kind of balance between the turnover and the margin. And they are connected. So you are -- if you want to increase the margin means increase the profit, you have to decrease the turnover. And for us, it's quite important to take a market share. And the market share it's a key point for our future. And if you are -- same situation is for Oponeo probably or it was for Oponeo, it's quite important -- easy to increase the profit when you have a really big market share also because of the purchasing power.

All right.

Okay. Second one, do you want to answer?

Yes, I can do that. First of all, we are growing with the shops. Every shops has about 40 people working on the floor. So it's quite a lot. So for sure, we will growing with the people working for the shops. And should I say that -- yes, of course, and the logistic, it takes also some people to grow up, but the next warehouse should be at least partially automized. So we don't plan to grow up with the people there. And the rest of the company, it's not significant grow because there is a limited number of the categories we are able to buy, then you have to just grow up with this, shall we say -- I think we -- maybe. We already built the core of our team. It's ready. It's ready for the future.

So next one about -- maybe about current level of sales. So we are satisfied. It's -- our mega stores help us to be absent or -- present on the market. This is kind of marketing for us. It's a way to increase our business. We set up not to be profitable too much, but we are satisfied. So all of mega stores are not in red. So positive, not too much, but good enough to be growing, yes, to be -- to run our strategy. You want to add something?

Yes, I can say that going back to this question, we don't share the detailed information about the sales in the shops. I can say that the shops are zero plus according to the direct cost. They are earning some money for the direct cost. And we don't count still the -- shall we say, the headquarter overheads for the results or for P&L for the shop because, yes, I mean, this kind of business, it helps us also to get some kind of market position, some kind of marketing, some kind of, shall we say, the brand recognition as well. It's not only the sales. We see a big consignation between the shops and the online sales. It means that the shops, they are not only for selling the product inside the shops, they are also for selling the products online.

Okay. Next one?

No, it's not a unique business model. I mean, there is a lot of, shall we say, chains of stores across the Europe, especially in Germany, there are a couple of such chains. But all of these chains are the -- shall we say they are offliners. I don't know any online companies building the shops, brick-and-mortar shops across the Europe. I think this is the unique. It means that our offer in the shops, it's dedicated to the shops. It's just a part of the online offer. So it means that we are quite flexible with our, shall we say, their offline offer. So we can change it quite fast, and we can do much more things than other offliners can do.

So in the meantime, we are focusing on the Polish market. We want to be a leader. And then after we will be a leader, strong leader we will begin to international expansion. In my opinion, it will be soon. We start thinking about 2 countries. So we will announce it maybe on the end of this year.

As soon as it will be possible for us.

Do you want to talk about CapEx?

Yes. To open one shop, we need something like EUR 1.5 million. It's a net price, plus VAT, of course, because you have to invest also the VAT to build the shops. And this is the CapEx for one shop. And to fulfill with the assortment, it's necessary to have a double digits. So it's all together EUR 3 million for one shop.

Okay. When do you plan international expansion? As I said before, probably next year. And to some extent, of course, as I said before, we want to be a leader in Poland and then start to international expansion.

Okay. It's a good question because there is no one big competitor here in Poland. It's a couple of hundreds small competitors. They are really strong in some small categories, and we have to compete with all of them. They do the direct business. They do the business through the, shall we say, Allegro and Amazon platforms. And I think this is the crucial competitor. Of course, we are here part of the Europe. So we have to compete also with the foreign stores like T Buy 24, like yes, all these shops that you know from the Europe, Bikeinn, et cetera, they are selling also directly to Poland. So -- and the market is quite tough. I mean, it's a lot of competitors. It's a lot of companies trying to go in, yes.

To some extent, Decathlon is also our competitor.

Of course.

Because some people are buying...

Especially with entry-level bikes and all these things, yes. And they do as well the web platform for the other companies. So they are quite strong online as well.

Margin. Okay. I said before that the margin.

It's not -- I can say it's not true at the moment. I mean the margin is roughly the same since, I think, 5 years.

Yes, the cost.

I mean, the margin is always the same, I think, 29%, 31%. And yes, it's our strategy to keep the margin at this level, as Ryszard said before, to keep the right, I mean, the right dynamic of the sales and of course, to not lose the money.

Okay. For me, I said before, 28% will be enough, good enough to run this company to make the company bigger. This is also important question, what is the contribution factor? We launched our private label. There is a point where can we build our margin. Maybe you know the Decathlon has almost private label.

No, 100%. Decathlon is Decathlon -- and but Decathlon is a platform. It's, of course, a lot of brands.

Yes. But I can -- we can increase our margins through build our private label.

Yes. Absolutely.

There is really something for us because we operate in private level for about 50% margin.

A little bit less at the -- over 50%, of course, but the share for the private level is.

Only 4%, 3%...

A little bit more, maybe 6% at the moment, but we are growing with that.

Yes. But it is our future, I think. Mobile app. I don't think it's needed. Difficult to say. Some people use it very often. Some people -- I mean our shop. Some people make purchasing every week. I think we are focusing on mobile telephone on mobile devices and with our web page working very good. So -- we didn't see the problems with purchasing.

Quite often, we monitor our customers how often they do their purchases. So at the moment, the mobile application, the cost of the mobile application is significantly higher than the profit from the applications.

We monitor...

So there is no plan for the moment for the mobile application.

Okay. Do you plan to grow with the [indiscernible] own brand? About our own brands, we discussed.

We have already answered the question.

Yes, we have private label. We're working on it. We have a special department, 6 people working there, and we plan to develop this department. It's all. Until the results are so good, we...

Of course, it always depends.