Pierce; interim report January – June 2022

Net revenue holding up in a weak market

April – June 2022

  • Net revenues amounted to SEK 450 (451) million. In local currencies decline was 3%.
  • EBITDA totaled SEK 1 (42) million. Adjusted EBITDA was SEK 3 (43) million, equivalent to a margin of 0.6% (9.5%).
  • Operating profit (EBIT) was SEK -11 (31) million. Adjusted operating profit (EBIT) was SEK -9 (32) million and the adjusted operating margin was -2.1% (7.0%). The decline was primarily due to a lower gross margin level driven by continued high shipping costs from Asia and campaign activities to drive sales on a declining market.
  • Cash flow for the period was SEK -10 (-407) million. The comparative period’s cash flow was impacted negatively by the repayment of previous financing after listing.
  • Profit/loss for the period amounted to SEK -1 (21) million.
  • Earnings per share before dilution was SEK -0.01 (0.54) and SEK -0.01 (0.54) after dilution.

January – June 2022

  • Net revenue amounted to SEK 870 (820) million, a growth of 6%. In local currencies growth was 3%.
  • EBITDA totaled SEK 2 (61) million. Adjusted EBITDA was SEK 3 (72) million, equivalent to a margin of 0.4% (8.8%).
  • Operating profit (EBIT) was SEK -23 (38) million. Adjusted operating profit (EBIT) totaled SEK -21 (50) million and the adjusted operating margin was -2.5% (6.1%).
  • Cash flow for the period was SEK 4 (-62) million. Cash flow during the comparative period primarily comprised of proceeds from the new share issue executed in conjunction with the listing, less the repayment of previous financing.
  • Profit/loss for the period amounted to SEK -15 (22) million.
  • Earnings per share before dilution was SEK -0.38 (0.59) and SEK -0.38 (0.59) after dilution.

Significant events during the reporting period

On 28 June 2022 Pierce Group AB (publ) successfully finalized the subscription period for its preferential rights issue. As a result of the 100% subscribed rights issue, Pierce’s share capital will increase by SEK 793,741 to 1,587,482 SEK and the number of shares will increase by 39,687,050 shares. The number of shares in Pierce Group AB after the rights issue will amount to 79,374,100 shares.

Significant events after the end of the reporting period

On 6 July 2022, a total of 39,687,050 shares were registered through a new share issue. The number of shares in Pierce after the rights issue amounted to 79,374,100 shares and Pierce’s share capital increased by SEK 793,741 to 1,587,482 SEK.

On 7 July 2022, following a completion of the rights issue, Pierce received approximately SEK 337 million after deductions of issue costs. After receipt of the proceeds from the rights issue, Pierce repaid bank loans of approximately SEK 180 million. Moreover, the Company decreased its credit facility from SEK 300 million to SEK 200 million.

Considering the global uncertainty, the remaining proceeds from the rights issue will allow Pierce to strengthen the Company’s financial capacity in order to continue Pierce’s long-term growth strategy and to implement measures to increase profitability.

Apr-Jun Jan-jun Jul 2021- Jan-dec
SEKm (unless stated otherwise) 2022 2021 2022 2021 Jun 2022 2021
Net revenue 450 451 870 820 1,645 1,594
Growth (%) 0% -5% 6% 5% 5% 5%
Growth in local currencies (%) -3% -1% 3% 9% 4% 7%
Gross profit 178 209 350 385 693 728
Profit after variable costs 69 103 132 190 284 343
Overhead costs -66 -60 -128 -118 -249 -239
Adjusted EBITDA 3 43 3 72 36 104
Adjusted operating profit (EBIT) -9 32 -21 50 -13 58
Items affecting comparability -1 -1 -1 -11 -2 -12
EBITDA 1 42 2 61 34 93
Operating profit (EBIT) -11 31 -23 38 -15 46
Profit/loss for the period -1 21 -15 22 -10 26
Gross margin (%) 39.5% 46.3% 40.2% 47.0% 42.1% 45.7%
Profit after variable costs (%) 15.3% 22.8% 15.1% 23.2% 17.3% 21.5%
Adjusted EBITDA (%) 0.6% 9.5% 0.4% 8.8% 2.2% 6.5%
Adjusted operating margin (EBIT) (%) -2.1% 7.0% -2.5% 6.1% -0.8% 3.6%
Cash flow for the period -10 -407 4 -62 -5 -71


Continued weak market, strong balance sheet provides resilience and growth opportunities

The online market continued to be weak during the quarter with negative traffic growth. We continued to prioritize volume before profitability, at the same time the margins were impacted by higher costs for shipping, materials, and supplies. The successful preferential rights issue strengthens the balance sheet and our resilience in an environment which is, in the short-term, very uncertain. This provides a strong starting point for long-term profitable growth with the support of a structurally growing market, while, at the same time, we can focus on further enhancing operational efficiency.

The worrisome external environment negatively impacts consumer behavior, and our online market of gear, parts and accessories continues to be weak, with negative growth also during the second quarter. Simultaneously, actual sales of motorcycles show good growth according to recent statistics. New motorcycle registrations in the five largest countries in Europe increased by 8 percent during 2021 and by 15 percent during the first quarter 2022.

Consumer prices are slowly and cautiously increasing in the market, but not on level with the rapid major cost increases in the value chain, which puts pressure on the gross margin. Continued high inventory levels limit the possibility of fully implementing price increases vis-á-vis customers. It is positive to see that the container shipping cost from Asia has decreased substantially during the recent months; however, it is expected to take a couple of quarters before this will be visible in the results.

In this weak market during the quarter, we continued to prioritize sales volumes and reduce the inventory and net debt. We drove sales through a continued high level of campaign activities and an improved offering within Onroad, which resulted in revenues on par with last year’s. In local currency, the decline was 3 percent. The inventory level decreased by MSEK 21, equivalent to 4 percent.

Continued growth within Onroad, decrease in sales within Offroad

In local currency, Onroad grew by 10 percent while Offroad decreased by 12 percent. Growth within Onroad was primarily driven by an increasingly stronger assortment, together with successful campaign activities. We launched our new “Mega” campaign format which contributed to an increase in the number of new Onroad customers by 11 percent during the quarter. At the beginning of the period, we implemented larger price increases within, in particular, Offroad but saw that growth was affected so we re-adjusted the prices. As a result, the sales development in Offroad improved at the end of the quarter.

Our focus on driving sales implied continued pressure on margins through increased campaign activities and cost increases which could not be fully transferred to the customers. Adjusted EBIT was, therefore, MSEK -9 for the quarter compared with MSEK 32 for the comparative period last year. The most important factors behind the decline were lower gross margins (from container costs, raw material, and price adjustments), higher shipping costs within Europe and increased overhead costs where last year’s figures were positively impacted by certain temporary items.

Focus on operational efficiency

We have since long prioritized operational efficiency. As a result, the number of employees, excluding warehouse personnel, decreased by 9 percent compared with the end of the first half year 2021 and is somewhat lower than in 2019 despite a volume growth since that time of approx. 50 percent. This shows the business model is highly scalable. During second quarter we prepared the next major stage in our efficiency improvement work, which includes several focused initiatives within purchasing, pricing, supply chain and overheads. We expect that this will impact the gross margin, shipping costs and overheads with a full effect in the second half of next year.

So far in the third quarter, the market shows marginal improvements, but the overall trends are the same as in previous quarters. The major uncertainty in the external environment is expected to remain in the near term and the challenges in recent quarters, with a weak market, cost inflation and supply chain disruptions, will continue during forthcoming quarters. We will continue our agile approach and find new ways to increase profitability with the market conditions at hand, and we will carefully prioritise purchase volumes. Our unique offering, with many strong and value-for-money private brand products, is a strength when customers’ financial situations change. Our customers are comprised, largely, of passionate motorcycle riders who will continue enjoying their hobby or travelling to work; however, inflation and uncertain purchasing patterns have an impact.

Sales channel shift to online and a strong balance sheet reinforces the long-term growth prospects

If we extend the horizon, a new and updated market study, which we commissioned, indicates that the market for motorcycle gear, parts and accessories is expected grow, in the long-term, by 11 percent per year between 2021-2026, primarily through the structural sales channel shift from physical shops to online. The total market, including physical shops, is expected to grow by 4 percent per year.

Our balance sheet was notably strengthened through the preferential rights issue, which we successfully completed in June and the beginning of July. Equity increased by MSEK 330, net of transaction costs. As a result, we paid off outstanding loans and secured a considerable net cash position which means we have a strong degree of resilience in the current uncertain external environment. The rights issue provides us with financial stamina and means that we can gradually shift focus towards also rebuilding margins and not only improving our cash situation. In conjunction with the rights issue, the credit facility was renegotiated ensuring, thereby, a greater freedom of action in the short-term.

We also welcomed a new main shareholder during the quarter, Verdane Capital, who has extensive competence and experience in successfully owning e-commerce companies.

Stockholm, 24 August 2022
Henrik Zadig
CEO, Pierce Group AB

For further information, please contact:
Henrik Zadig, CEO
Email: henrik.zadig@piercegroup.com
Tel: +46 73 146 14 60

Niclas Olsson, acting CFO
Email: niclas.olsson@piercegroup.com
Tel: +46 70 889 05 75

About Pierce Group
Pierce is a leading e-commerce company selling gear, parts and accessories to riders across all of Europe via some forty websites adapted to local markets. Pierce has two major segments, Offroad – sales to motocross and enduro riders, and Onroad – sales to high road riders. Pierce also has a smaller segment, Other, which primarily focuses on sales to snowmobile riders. With a large and unique product assortment, including several private brands, an excellent customer experience and attractive prices, Pierce is changing the motorcycle enthusiast market in Europe. Headquarters are located in Stockholm, the central warehouse is in Szczecin in Poland, and, in addition, the major portion of our customer support services is located in Barcelona. The Company has approximately 430 employees.