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

Thank you very much, nice to be here.

All right, you took on the role of Duell's CEO in the middle of the past financial year. Yeah. Before we dive into the details of the fourth quarter, could you paint with a slightly broader brush about what the key actions were that you took during this financial year, and perhaps what you learned anew 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 an action-packed 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. Capable personnel. Particularly if we talk about our technical competencies regarding our principals' products, I am truly impressed. I certainly cannot compete at all with 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. Well and partnership, so this truly demonstrates the way of doing things, so really a lot of good things.

And then there have been these matters where development had to be dug into quite quickly. So indeed we have in the Nordics, even though it is our so-called home base and strongest region, still 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 regret has of course been our French business, and as said, I am extremely fortunate in that regard that right after starting I was able to recruit Jean-Marc Cote-Man to lead 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 need to have local expertise. So it is definitely not the case that there is one universal portfolio that can be pushed everywhere, but you have to look very strongly at how not only weather conditions, but also consumer habits and other things influence 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 major mindset shift of this kind has been made, that we focus strongly on the fact that when procurements are made, they are aimed solely and exclusively at the coming season and we ensure that we are able to deliver well for the season. But after that, when there is no demand, there should not be goods in inventory either. So these have perhaps been the most important areas.

Yes, so specifically you have shaken up the team a bit regarding appointments, and then these other renewals you mentioned were already partly visible in Q4. So if we start dissecting Q4 from the top line, the preliminary conditions were quite intriguing. One could expect a rather bleak fourth quarter in terms of net sales from the guidance, but one can interpret that we hit pretty much the upper limits of the guidance. In terms of that net sales, France was weak, but nevertheless, the rest of Europe actually achieved small growth in this. In Q4, whereas the Nordics decreased slightly, how would you unpack this cross-market dynamics?

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 sales exceeded it. But as said, in France we took a hit, and of course it could have turned out much worse. And also the fact that how we got sales flying in the Nordics after a bad winter season, that was good execution from our sales team. And I emphasize specifically that it was execution from the sales team. Help from the market certainly did not come. It was not easy, but. Good work 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 that specifically around, so approximately, and it highlights precisely how challenging this is in terms of profitability. We hit perhaps almost too well. I would have hoped for better profitability of course, and that is a big challenge for us going forward. But. Hopefully now that we have moved 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 stay within what we have estimated.

Perhaps one-off items then on the other hand came in more than you thought. Perhaps a follow-up question to that, that Duell has booked quite a lot of one-off items during its stock exchange history, so are the one-offs starting to be done now, so to speak, are we returning to fully normal business in the next financial year?

Well that is of course an extremely 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 general rule, the thing goes that if skeletons are found in the closet, then you just have to react to them. And I strongly 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-called normal business, which you mentioned, going forward.

And. This is indeed what is completely a fundamental in business. One-off items are not in anyone's interests. Not of the operative management of course, not of the investors nor anyone else's either. And the less? There are truly any old sins found in the closet anymore, the better. Just to move forward.

Let us move on then to this net working capital and inventory, from which you got inventory down by almost 10 million euros compared to the comparison period. And net working capital by I recall about 9 million euros. And these have been in Duell's sights for a long time. These are the goal to decrease net working capital intensity and lower 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 already done earlier. I have sharpened them in my opinion and specifically underlined this mindset shift that I described earlier. To how important it is that we plan only for actual need and not like just in case for something else. This old Finnish saying that inventory is wealth no longer holds true. So the intent 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 matter is overall how we approach what we start aiming for good availability. And that is important of course. And that is precisely what makes this difficult, because if we abandoned this availability aspect, driving down inventories would be very easy. Good availability, good customer service are the foundation there. But for those items that customers actually need. And then a strong seasonal focus of this kind.

Clarifications. Technology is utilized in timing to free up our product managers' time for thinking and listening to those market signals in order to hit as right 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 the preferred partner for them as well, so that we would be at the top of the list for who is prioritized when scarcity is distributed.

Indeed it sounds almost too good to be true, so do you see that you would not have to make any compromises to achieve this lower net working capital and inventory? Perhaps. As a premise, if I have sometimes understood it this way, that sales happening during the season can be higher margin business, which is perhaps not as possible to do with smaller inventories. Do you see margin dynamics of this kind 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 start selling fast-moving goods cheaply, but rather there are two things. One is indeed this general inflation, the rise of transport costs, which especially in the short term cannot be fully baked into customer prices. So we operate in a world of market pricing, and the market determines the price. And the fact that if the cost level rises, it does not automatically mean that sales prices then rise. This is one side.

Then indeed that this. Product mix affects a lot. And precisely this. For example, this impact of France. So the fact 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 quite between product categories what sells. So we know very well that although in motorcycle tires the margin is considerably smaller than in some ATV implements. In ATV accessories, so margin differences of this type exist a lot. It does not mean that we set out to dilute our margins.

Now going forward. Well, of course, once again. It certainly has a big impact what kinds of products are selling. As I said, we still have over 100,000 product items to offer, and customers can get all of them, so that is. I think that's huge. At the same time, if you think about all the brands in the world in powersport. New brands are emerging all the time. Existing brands are expanding their portfolio. It goes without saying that we cannot have absolutely everything in stock at all times, and we must focus on areas with high demand, and then look for alternative 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 solutions are indeed available to keep customer service good.

Now, looking ahead now that your new financial year has gotten underway and you provided guidance where the midpoint for revenue indicates slight growth and for adjusted EBITA indicates practically doubling EBITA from the level of the ended financial year. What are the underlying thoughts behind this guidance? How can such a large profitability improvement be achieved with relatively minor revenue growth?

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

As for profitability, as I said, the starting position 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 alluded to earlier, for example, there are also many measures whose impact on earnings comes with a lag. For example, the closure of the Tampere warehouse, the closure of the second warehouse in France, meaning these have naturally generated costs such as inventory notice period expenses, and when those disappear from the cost side, it improves profitability. So there is indeed. As I have said many times already, we need to get our profitability level to a completely different place, and there are no quick fixes for that, because once again we cannot impair our product 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 an earlier interview as well, that the price level of oil and inflation weighed on profitability. 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 yes, of course, transparency to customers is the alpha and omega. Everyone understands that when costs rise, you cannot simply swallow everything. And there are then of course many ways to communicate better and justify, for example, the rise in transport cost prices. Another is simply streamlining 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 are able to deliver in larger batches, that is always more efficient. However, there are two sides to every coin, 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.

As for what happens to logistics costs, we cannot influence that, and it is pointless to start speculating about it now. The price of oil is high right now, it could still go up from here or it could drop, so that is. That is in other people's hands. 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 beginning 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? Regarding the business outlook for the company? And on the other hand, are there any threats that keep you awake at night?

There are always threats, but. If we start with the positive ones, as I said, we have long-term evidence from well before the listing that we have unique expertise in this market and we can genuinely help our customers, the dealers, define a lucrative portfolio for them and assist them in sales work. So, as I said, our justification, our right to exist is based on the fact that we can serve our customers, the dealers, better than anyone else, and we can be the most desired distribution channel for our brands, where they get the best possible outcome. And we cannot compromise on this. And this has been true in the past, 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 to meet customer demands in the Nordics. Particularly if we look at the customer profile, they usually have an extremely wide product assortment. If we go to Central Europe, you can find dealers there who might specialize exclusively in motorcycle accessories. There is hardly anything like that in the Nordics, but typically a dealer has motorcycle accessories, but may also have motorcycles coming from that manufacturer. And there might be snowmobiles and a very, very rich portfolio, which means that having a one-stop shop like the company, where they can get a large part from one place, naturally helps their efficiency tremendously. Instead of having to buy from a hundred or a thousand places, we are able to help.

We have a lot of potential in Central Europe. 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 how strong the influx of Chinese motorcycles is right now, very cheap spare parts and everything else. It is questionable in Eastern Europe what our added value could be in that picture. 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 was indeed a record year there. Of course, in the big picture not such a huge unit, but really good execution and a very good continuation and strong relationships with both customers and brands have yielded 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 with the financial year that has begun!

Thank you very much!