Duell published its earnings report today, which, slightly departing from the calendar year, ends at the end of August, and we have the company's CEO, Tomi Virtanen, here for an interview regarding the earnings report. Welcome to the interview, Tomi.

Thank you very much, nice to be here.

Right, you took on the role of Duell's CEO mid-way through the past financial year. Yes. Before we dive into the details of the fourth quarter, could you paint a slightly broader picture of what the key actions were that you took during this financial year, and perhaps what new things you learned about the company's business? After taking on the CEO's boots.

Broad question, thank you for that. Well, let's say that this has been a busy half-year. And I was hired here to make a revision, and I have been making a revision. We have a lot of good things to build on: a vastly broad customer base, many strong brands. Skilled personnel. Especially if we talk about, say, our technical competencies related to our principals' products, I am truly impressed. I certainly don't measure up at all against our experts when we start talking about product features. And when I was at the dealer days in Sweden a couple of weeks ago, it was also great to see that there were many of our principals' own experts telling our customers at our joint event. And that is precisely when you think about our values. Passion and teamwork. And partnership, so this really demonstrates that way of doing things, really a lot of good things.

And then there have been these matters where development needed to be dug into quite quickly. So indeed, in the Nordics, even though it is our so-called home base and strongest region, we still have a lot of work to do in certain matters, in certain product segments and in certain countries. And we have strengthened and standardized that. Now that brings quite a lot of structure to how we operate in the Nordics.

The biggest disappointment has indeed been our French business, and as said, I am very fortunate in the sense that right after starting, I got to recruit Jean-Marc Cote-Man to head the French organization, who is very experienced in this industry. What has been a big lesson for myself regarding the company's business is that market areas vary considerably regarding the product assortment, so you truly have to have local expertise. So it is by no means the case that there is one universal portfolio that can be shoved everywhere, but you have to look very strongly at the fact that besides weather conditions, also quite things like consumer habits and others affect where the demand is for which products.

Then thirdly, which is a strategic focus area. As I have said, it has indeed been working capital and inventories, and in that, as I told earlier today, a big mindset revision has been made, that we focus strongly on the fact that when procurements are made, they are aimed solely and exclusively at that coming season and we ensure that we can deliver well for the season. But after that, when there is no demand, there should not be stuff in inventory either. So these have perhaps been the most important areas.

Yes, so precisely you have reshuffled the team a bit regarding appointments, and then these other reforms you mentioned were already partly visible in Q4. So if we start parsing Q4 through the top line, the preliminary conditions were quite intriguing. From the guidance, one could expect a fairly gloomy fourth quarter regarding net sales, but one can interpret that we hit pretty much the upper limits of the guidance. Regarding that net sales, France was weak, but nevertheless, the rest of Europe actually achieved a small growth in this. In Q4, whereas then the Nordics decreased slightly, how would you unpack the dynamics between these market areas?

Well yes, as said, when we revised our guidance in the spring, and as I stated here earlier, it certainly was. This guidance of ours was very realistic, and I am extremely pleased, of course, that we exceeded it in sales. But as said, in France we took a hit, and of course it could have gone a lot worse. And also the fact that how we got sales to take off in the Nordics after a bad winter season, that was good execution from our sales team. And I emphasize precisely that it was execution from the sales team. Help from the market certainly did not come. It was not easy, but. Good job from our guys. And that is why, since we are indeed not in an order book business, forecasting this sales is terribly difficult.

The guidance back then in the spring was precisely like that, meaning approximately, and it highlights just how challenging this is regarding margin. We hit perhaps almost too well. I would have naturally hoped for better margin, and that is a big challenge for us going forward. But. Hopefully now, when we have transitioned to this kind of range-type guidance, it gives people a good and realistic picture of what the forecasting challenges are, and then they can be confident that we will stick to what we have estimated.

Perhaps one-off items then came on the other hand more than you thought. Perhaps a follow-up question to that, that Duell has recorded quite a lot of one-off items during its stock market history, so is it starting to be the case that the one-off items are done, that we will return to, so to speak, completely normal business in the next financial year?

Well that is of course an exceedingly good question, and as a starting point I do not comment on history before my own time, so I do not know what the motives have been and what all has happened. As a main rule, the thing goes so that if skeletons are found in the closet, then you just have to react to them. And I firmly believe that all the closet doors have now been opened and nothing new will be found. And we are now on the path of good, so to speak, normal business, which you mentioned, going forward.

And. This is indeed what is quite fundamentally in business. One-off items are not in anyone's interests. Of course not the operative management, not the investors, nor anyone else. And the less? There are truly any old sins left in the closet, the better. Just to move forward.

Let's move on then to this net working capital and inventory, which you got down from inventory by almost 10 million euros compared to the comparison period. And to net working capital by around 9 million euros, if I remember correctly. And these have been in Duell's sights for a long time. These are the target to decrease net working capital intensity and reduce inventory levels, so how did you succeed in these now in the fourth quarter of financial year 2024?

Yes, we succeeded well, and there are perhaps a few things that are good to understand. One is that those activities did not start in Q4 nor even in Q3, but a lot was done already earlier. I have sharpened them in my opinion and precisely underlined this mindset revision that I described earlier. To how important it is that we plan only for the right need and not like just in case for something else. This kind of old Finnish saying that inventory is wealth no longer holds true. That the purpose is that we have a dynamic portfolio and we have precisely those items that our customers need. We do not want to be a technology museum, so this is very, very important in the basic mindset.

And the fact that these moves that have been made, they are not any magic tricks nor temporary things. But indeed this big thing is that overall how we approach the fact that what we set out to target good availability. And that is important of course. And that makes this precisely difficult, because if we were to give up this availability aspect, running down inventories would be very easy. The foundation there is good availability, good customer service. But for those items that customers actually need. And then a strong such seasonal focus.

Clarifications. Technology is utilized in timing to free up our product managers' time for thinking and for listening to those market signals in order to hit as correctly as possible. And then of course continuous dialogue with our principals. Also the fact that what is agreed upon holds. We understand their pain too. They have a vast number of customers and should deliver here and there, and then who they prioritize, of course we want to be that preferred partner for them as well, so that we would be at the top of the list then of who is prioritized when scarcity is being distributed.

Indeed it sounds almost too good to be true, so do you see that you wouldn't have to make any compromises to achieve this lower net working capital and inventory? Perhaps. As a preamble, if I have sometimes understood it this way, that sales happening during the season can be higher margin business, which maybe with smaller inventories it's not as possible to do. Do you see such margin dynamics here, for example?

Yes, that margin question is of course good. And if you look at this poor profitability of ours in Q4, I want to emphasize that we did not set out to sell fast-moving goods cheaply, but rather there are two things. One is indeed this general inflation, the rise of transportation costs, which especially in the short term cannot be fully baked into customer prices. That we operate in a world of market pricing, and the market dictates the price. And the fact that if the cost level rises, it does not automatically mean that then selling prices rise. This is one side.

Then indeed that this. Product mix affects a lot. And precisely this. For example, the impact of France. Meaning that when we have low-end brands, it is quite clear that the price level is not as good as elsewhere. And then of course right between product categories, what sells. So we know very well that even though in motorcycle tires the margin is considerably smaller than in some ATV implements. In ATV accessories, so this type of margin differences are really a lot. It doesn't mean that we set out to dilute our margins.

Now going forward. Then of course once again. It has a big impact what kinds of products sell. Well, as mentioned, we still have over 100,000 product items to offer, and customers can get all of them, so that's it. I think that's huge. At the same time, if you think about all the world's brands in powersport. New brands are coming in all the time. Existing brands are expanding their portfolio. It goes without saying that we cannot have absolutely everything in stock all the time, and we need to focus on areas with high demand and then look at different solutions. For example, potentially so that some exotic products. They are then made-to-order products. Or that customers can order directly from the principal from somewhere further away with a long delivery time and so on. So these are the solutions to keep customer service good.

Moving on now that your new financial year has gotten underway and you provided guidance where the midpoint for revenue points to slight growth and for adjusted EBITA points to EBITA practically doubling from the level of the ended financial year. So what are the underlying thoughts behind this guidance? How is such a large profitability improvement achieved with relatively small revenue growth?

Yeah, well, of course, we must remember that growth is the goal of all companies. And as you mentioned, revenue growth. Whether we are talking about the midpoint or whatever. Of course, the low end is slightly below this year, but in any case it is. It is conservative and reflects precisely this difficult operating environment and that. The fact that this situation is not easy for anyone in this industry.

As for profitability, as said, the starting point is poor, and the fact that we are now significantly improving it in percentage terms is still much smaller in absolute figures. And as I referred to there perhaps for example, there are also many tricks whose earnings impact only comes with a delay. For example, closing the Tampere warehouse, closing the second warehouse in France, so these have then of course generated, for example, warehouse notice period costs, and then when they drop from the cost side, it improves profitability. So there certainly are. As I have already said many times, we need to get our profitability level to a completely different place, and there are no quick tricks in that, because once again we cannot worsen our availability and we must be able to serve our customers. But in the long term, of course, there is a lot that can be done.

You also mentioned, and you mentioned in the interview earlier too, that the price level of oil and inflation weighed on profitability. So what can be done about this now in the started financial year? How much can be tackled through pricing, and what other tools do you have in your toolkit?

Well yeah, of course visibility to customers is the alpha and omega. Everyone naturally understands that when costs rise, you cannot simply swallow everything. And then there are of course many ways to communicate better and justify, for example, the price increases of transport costs. Another is simply rationalizing the logistics chain overall, so what? Naturally fewer things are transported by trucks back and forth. And the more directly deliveries can be made, the better. Of course also, if we can deliver in larger batches, that is always more efficient. However, things have many sides, so in the same breath it does not make sense to deliver in large batches if it leads to oversized inventories. So in that sense these are always trade-offs then.

What happens to logistics costs, we cannot influence that, and it is pointless to start speculating on it now. The price of oil is up now, it can rise further from this or then it can decrease, so it is. That is then in the hands of other fellows. Those decisions. We will do our best regardless of what the so-called world situation is.

Exactly. You often say that you are not in the order book business, and especially now at the start of a fairly short CEO tenure the focus has probably been on short-term matters, but if we try to zoom out a bit further, what things inspire confidence over a 3-5 year horizon? For the business outlook of the company? And on the other hand, are there any threat scenarios that keep you awake at night?

There are always threat scenarios, but. If we start with the positive ones, as mentioned, we have long-term evidence from way before the listing that we have unique expertise in this market and we are genuinely able to help our customers, dealers, define a lucrative portfolio for them and help them in that sales work. So, as said, our justification, the justification for our existence is based on the fact that we can serve our customers, dealers, better than anyone else, and we can be the most desired distribution channel for our brands, from which they get the best end result. And we cannot compromise on this. And this has been true in history, and it is true today, and it must be true in the future as well.

We will hold on to our strong Nordic position and ensure that we have a sufficiently broad portfolio so that we can satisfy customer demands in the Nordics. Especially if we look at the customer profile, they usually have a terribly wide product assortment. If we go to Central Europe, you can find dealers there who might specialize purely in motorcycle accessories. There is hardly anything like that in the Nordics, but typically a dealer has motorcycle accessories, but may also have motorcycles that come from the manufacturer. And there might be snowmobiles and a really, really rich portfolio, in which case having a one-stop shop like Duell, where they get a large part from like one place, naturally helps their efficiency immensely. Instead of having to buy from a hundred or a thousand places, we are able to help.

In Central Europe we have a lot of potential. At the same time we must remember that the market is huge. At the same time the market is very competitive, and there are certainly parts of the market where we have no business, so to speak. If you look at for instance, Chinese motorcycles are coming in strong, very cheap spare parts and everything else. It is questionable in Eastern Europe what our added value could be in that setup. But then we have good, respected brands where I certainly believe we can be a viable distributor and supplier there. And I believe growth will stem from this. If you look at our UK market for example, which indeed was a record year there. Naturally in the big picture not such a huge unit, but really good execution and a really good continuation and strong relationships with both customers and brands has produced good results.

Yeah, perhaps we won't dig into those nightmares any further. Let's leave this interview on a positive note. Thank you for the interview, Tomi, and good luck for the started financial year!

Thank you very much!