Westwing Group Se

Good morning, everyone, and thank you for joining us for our earnings call on the full year 2024. My name is Andreas Hörning. I'm the CEO of West Wing. I'm hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on our business for 2024, after which Sebastian will share the details of West Wing's financial performance. I will then outline the next phase of our path to full value creation and Sebastian will present the financial implications of it, including our guidance for 2025. After our investment highlights summary, we will be happy to take your questions. Let's take a look at West Wing's key achievements in 2024. I am pleased to report that we managed to deliver on all our financial commitments in a challenging market. We were able to increase revenue by 4% year-over-year and delivered an adjusted EBITDA of 24 million euros, both at the upper end of our guidance. Free cash flow was at 9 million euros, including our restructuring costs, and net cash amounted to 69 million euros after share buybacks. Net working capital stood at minus 10 million euros at the end of 2024. Beyond current financials, we again made good progress on our three-step plan to unlock West Wing's full value potential with measures related to our technology platform, the announced reorganizations, the switch in product assortment, our premium brand positioning, and the West Wing collection share. I will share details on these achievements in a minute. Last but not least, we made good progress on all our sustainability focus areas. Specifically, we published our first CSRD report. Let's now take a quick look at our 2024 financial performance. As I just mentioned, we kept our promises and delivered both revenue and adjusted EBITDA at the upper end of our guidance. Revenue grew by 4% year-over-year to €444 million. It is worth noting again that we achieved this while switching to a global and more premium product assortment and actively cutting back on non-premium products, which had a negative impact on our active customer base and subsequently also on TEP's top line. We believe that our growth in a still challenging market proves that we're right on track with our One Western commercial model and the business positioning of our brand. Besides top line, we also delivered on our profitability target. Cost savings and operational improvements paid off in 2024, leading to an adjusted EBITDA of 24 million euros or 5% margin while we continued to invest into brand awareness. This marks an improvement of one percentage point year over year. All of the above resulted in a free cash flow of 9 million euros after restructuring related one-off cash costs of €8 million. To have a look at what we achieved last year beyond financials, let's go back to the three-step value creation plan, which we've referred to numerous times in our earnings calls. The year 2024 was marked by the second phase of the plan, building a lean and scalable platform. We did this very successfully and achieved all of the operational targets we set ourselves. Let's briefly have a look into the details. The first lever was complexity reduction. We completed the reorganizations in Italy, Spain, Central and Eastern Europe, and at our headquarters. This included the consolidation of our logistics center footprint and the restructuring and consolidation of business functions, including the closure of offices. The total restructuring costs were lower than expected. Sebastian will share details on this in a bit. Equally aiming at lowering complexity and finalizing the One West Wing commercial model, the move to a largely SaaS or software as a service based technology platform was implemented across all countries and head of plan. Customers now have access to our newly designed website and app tailor-made for design lovers. Important e-commerce back-end systems were also subject to change, and we're currently finalizing the migration. The next lever, setting both top line and bottom line, is the Western Collection share. In 2024, we were very pleased with the performance with a share of Group GV growing further by 8 percentage points year-over-year to an all-time high of 55%. The last lever meant working on our premium brand positioning. Alongside the above-mentioned restructuring and closure of offices, we switched to a mostly global and more premium product assortment across all countries. This means that less premium and lower margin products were phased out, and customers with this preference can't find at West Wing anymore what they came for in the first place. As stated during our earnings call in August, This change not only had a negative top line impact in the second half of 2024, but the year-over-year figures will also be impacted this year, especially in the first half of 2025. We made this change because it will strengthen us in the mid to long term by allowing us to concentrate on our target audience, design lovers, and ultimately to maximize profitability and cash generation. At the same time, we continue to implement other premium positioning drivers, for example, through our iconic pieces brand awareness campaign in Germany. All of the above means we've completed the first two phases of the three-step value creation plan. Over the past two and a half years, we transformed West Wing from the ground up. We implemented one West Wing, a single site, single app commercial model across our shop and back then club, all accessible without subscriptions. We evolved our marketing model accordingly, from a primary focus on newsletter sign-ups to a comprehensive, full-funnel approach, actively managing the entire journey from brand awareness to conversion. We implemented a single and more elevated brand appearance through aspects like a refreshed premium brand and corporate identity, top-notch collabs, brand awareness campaigns, or the merge of our local Instagram accounts to an elevated global one with a following of 8.6 million. We changed the product assortment as explained. It is much smaller today and it is a lot more premium both in Western collection as in third party products. We centralized our offices logistics center footprint and business functions. This included the closure of three offices and several local warehouses. We replaced our in-house developed e-commerce tech stack with a mostly SaaS-based solution. We piloted the first permanent offline displays of our brand and products at our Hamburg store and Stuttgart store-in-store. Lastly, we piloted the opening of a new country, with Portugal being the first new geography we've served in 10 years. Overall, we transformed Westing to a premium design destination with a scalable high-margin business and a refreshed brand that is loved by customers and respected by opinion leaders. At the same time, and despite the heavy cuts in our non-premium offering, West Wing has been able to gain market share. I will elaborate more about what we are today and what it means for full value potential in the third section of this presentation after Sebastian's financial update on Q4 and full year 2024. Sebastian? Over to you.

Thank you, Andreas, and good morning, everyone. I'm Sebastian Westrich, the CFO of Westfring. Let me start with details on our top line. We achieved revenue growth of 4% for the full year 2024 and 2% for the fourth quarter of the year, despite a challenging market environment throughout 2024. As expected and communicated in our previous earnings calls, The fourth quarter so far has seen the biggest negative top line impact from the switch to a mostly global and more premium product assortment. As a result, growth in Q4 was lower compared to the previous quarters of 2024. On segment level, revenue in DACH grew both in full year 2024 as well as in Q4 by 7%. The international segment being impacted by the changes in the assortment to a much larger extent showed a minus three revenue decline in Q4 and a flat year-over-year development for the full year 2024. While top line growth was only moderate, we were able to significantly improve our contribution margin per order for two consecutive years with an improvement by 29% in 2024. This equals an increase in contribution margin as a percentage of revenue by 3.3 percentage points. This improvement in unit economics showcases the strength of our One West Wing commercial model and is driven by three main effects. Firstly, by higher average basket size as a result of a higher West Wing collection share and the premiumization of our offering. Average basket size increased by 16% year-over-year in 2024, allowing us to improve unit economics. Secondly, by improved gross margins, again driven especially by the higher West Wing collection share. And last but not least, by efficiency gains and cost reductions in fulfillment operations. These improvements clearly offset the higher container costs that we saw in 2024 compared to 2023. Looking ahead, we expect to be able to further improve this metric. Let us now move on to our P&L. Looking at our P&L, we see improvements across almost all P&L lines. I already commented on the previous slide about the significant increase in our contribution margin, which in the fourth quarter of 2024 was even higher compared to the full year average. Moving down the P&L, you can see that our marketing ratio increased by 2.2 percentage points in the full year 2024 compared to the previous year. This development was to a large extent driven by continued brand marketing investments that we saw throughout 2024, whereas back in 2023, we invested in brand awareness only in the fourth quarter of the year. Our G&A ratio, which also includes other results, slightly decreased by 0.2 percentage points to minus 18.3% in full year 2024. In Q4, the G&A ratio decreased by 1.1 percentage points to minus 15.7%, showing first visible effects of our implemented cost savings. This led to an adjusted EBIT margin of 0.8% in full year 2024, an improvement of 1.3 percentage points year over year, and 4.7% in Q4, up 4.4 percentage points year over year. DNA for the full year 2024 remained on the previous year's level and decreased by 1.2 percentage points in Q4. When comparing 2024 with 2023, please note that throughout 2024, we saw a significant increase in DNA due to the shortened lifetime of internally developed tech assets caused by the migration to a mostly SaaS-based tech platform. In addition, we realized in Q4 2024 a positive impact on DNA from the reclassification of sub-lease contracts from operating lease to finance lease. Overall, our full-year adjusted EBITDA margin improved by 1.2 percentage points year-over-year to 5.4%. In Q4, the adjusted EBITDA margin improved even by 3.2 percentage points year-over-year to 7.7%. To provide you with the full picture, let me also comment on the adjustments to our EBITDA in 2024. In total, we adjusted restructuring expenses of €8.5 million, while there was overall no effect in 2024 from the adjustment of share-based payments. The €8.5 million consisted of €7 million for restructuring, mainly severance payments, as well as 1.5 million euros related to IRF-16 accounting effects from the reclassification of sub-lease contracts. An overview of our adjustments as well as unadjusted consolidated income statements can be found in the appendix to this presentation and in our annual report. Let's move on to our segment reporting. In Q4, we saw a strong improvement in adjusted EBITDA margin in both segments. 9% adjusted EBITDA margin of the DAF segment in Q4 is the best result our company achieved so far outside of peak COVID times. Still, for the full year 2024, the DAF segment profitability declined slightly year over year, mainly driven by our brand awareness investment, which was focused on Germany and which was higher in 2024 compared to 2023. The international segment showed a significant improvement in adjusted EBITDA margin, both for the full year 2024 and the fourth quarter of 2024. The main driver for this positive development was the strong increase in Western collection share. We are very proud of this progress, which clearly demonstrates that the levers of our three-step value creation plan are delivering the intended results. Let us now take a look at our networking capital. By the end of 2024, networking capital remained clearly negative at minus 10 million euros, an improvement by 2 million euros year over year. Although we improved networking capital, our inventory levels increased compared to 2023, but remained at healthy levels in line with our expectations. Reasons for the increase in inventories are higher average item prices, as well as improved product availability for Q1 and the introduction of new Western collection items. When comparing inventory levels year-over-year, prepayments on goods should always be included in the equation. Prepayments on goods, which are not part of inventory, were almost eliminated in 2024, while the amount of goods in transit, which are part of inventory, increased. On the next slide, you can see CapEx and CapEx ratio for the full year 2024 compared to 2023. CapEx year-over-year increased by 5 million euros. However, when comparing 2024 with 2023, it should be noted that in 2023, there was a positive impact on CapEx of €4 million from the reversal of the capitalization of internally developed TechEx assets. Like for like, the increase only amounted to €1 million and was mainly driven by investments in our warehouse for improved fire protection, which was a one-off investment, as well as automation. In terms of net cash, we are pleased to report a strong net cash balance sheet position of 69 million euros at the end of December, 13 million euros below previous year's level. The decline in our net cash position was primarily driven by one-time cash costs for restructuring expenses of 8 million euros related to our complexity reduction measures, as well as share buybacks totaling 11 million euros. In 2024, we originally communicated expected one-off cash costs of 10 to 12 million euros for implementing complexity reduction measures. With actual one-off costs of 8 million euros incurred during the year and additional 2 million euros in severance payments related to measures initiated in late 2024 but effective in Q1 2025, we successfully kept total one-off cash costs below the anticipated range. Free cash flow was positive at 9 million euros in 2024, including the above-mentioned restructuring expenses. In 2024, we had lease payments of 11 million euros, mainly for offices and warehouses, which are shown in the financing cash flow according to IFRS standards. This led to a slightly negative free cash flow after lease payments of minus 2 million euros. If you adjusted the one-off restructuring cash costs, then 2024 would have been clearly positive. Also important to mention is that we maintained a strong balance sheet with no debt other than the IFRS 16 lease obligations. We are not only pleased with our financial results, but also with the progress we have made in sustainability, our core pillar of our strategic development. In 2024, we reached important milestones across our three sustainability focus areas, people, products, and planet. In the area of people, we increased the proportion of suppliers ordered it for and trained on social and environmental standards. This supports our goal of ensuring good working conditions and promoting sustainable practices throughout our value chain. On products, we are proud to share that the share of We Care labeled products in the West Wing collection rose by 18 percentage points, reaching 66% in 2024. The We Care label highlights products made with responsibly sourced materials and enables our customers to make more informed choices, living beautifully and sustainably. A great example can be found on the right side of the slide with our award-winning lamp Kiani, which is a 3D-printed product made with 85% to 88% polylactic acid, a type of plastic made out of packaging waste from the food industry, such as blister trays and fruit bowl plastics. Let me now jump to the third category, planet. This is about greenhouse gas emission reduction, where we set ambitious science-based targets validated by the science-based target initiative. These targets include a 75% reduction in greenhouse gas emissions for scope one and two until 2030 compared to our 22 baseline and the commitment that 80% of our suppliers by spend will set their own science-based targets by 2027. Thanks to the consolidation of our operations and improved energy efficiency, we've already reduced our scope 1 and 2 emissions by 64% versus 2022, a major step forward. We also made progress on supplier engagement, focusing on suppliers, brand partners, and logistics carriers to expand the science-based target initiative and encourage them to set their own climate goals. By the end of 2024, we had initiated dialogues and trainings with 81% of our suppliers, brand partners, and logistics carriers by spend. If you would like to learn more about our efforts in sustainability, I invite you to read our 2024 sustainability report, which will be published on the 3rd of April in a few days' time. And of course, our non-financial statement 2024, prepared in line with the CSRD reporting guidelines. Those were our key financial and sustainability highlights for 2024. I will now hand over to Andreas, who will introduce the third phase of our three-step value creation plan to you, before we share our financial outlook for 2025 and beyond.

Thank you, Sebastian. Let's now look into our way forward to unlock Wofling's full value potential over the next years, as Sebastian said. For a better understanding, let me briefly state what West Wing is today. First, West Wing is, by now, a premium design brand. It has a distinct look and feel and a sizeable group of fans. Followers, 8.6 million on Instagram alone, and active customers, 1.2 million for the last 12 months. Second, the West Wing collection, our own product brand, is both fashionable and timeless, with diverse styles but recognizable and boasts increasingly unique designs. It provides for growth and for high margins. Both the West Wing brand and the West Wing Collection product brand, including its assortment, are assets that are hard to build or replicate. Beyond those two points, brand and product brand, West Wing's uniqueness for its target customers, the design lovers, Leiden offering a one-stop destination. It provides for well-known design brands and their products, for example, Gubi, Artemide, or Smeg, where the brand or the specific design is important to the customer. And it provides for beautiful, partially unique designs across all home categories, where the customer is not looking for a traditional design brand. Plus, the way West Wing presents its assortment is very inspirational and truly unique. In other words, West Wing is now clearly a specialized consumer goods company and by the way not just an e-commerce platform addressing customers who are willing to spend money on design. This is a global market segment of home and living with some local taste preferences and the size of the sector per country is influenced by purchasing power and other factors. That's West Wing in a nutshell. With this understanding of what West Wing is today and what its modes are, let's now look into the third phase of our three-step plan to unlock Westing's full value potential. This third phase of the three-step plan means growing the business both within and outside of our current geographies and maintaining cost discipline. That's what scaling with operating leverage is about. It will allow us to return to proper growth and to get to a 10% plus adjusted EBITDA margin. Sebastian will share more thoughts on this later. I will now outline four of the levers of this phase on the following slides. Brand positioning, Western collection share increase, share gains in existing markets, and country expansion. Number two and three will be elaborated together. Starting with brand positioning. Over the past month, we've created many important brand moments. Let me highlight some. In Q3 2024, we launched our iconic pieces campaign in Germany, which included out-of-home advertisement across major German cities. On the bottom right of the current slide, you can see an example of the brand campaign running in Munich. On the bottom left, we make reference to our collaboration with a renowned fabric house, Tedar Milano, which was launched customer-facing in January 2025. The product drop consisted of a range of seating furniture and cushions with extraordinary colors, exquisite patterns, and excellent fabrics. This very special collection is almost sold out. In Q1 2025, we also published a home story with famous actor Ed Westwick and his wife Amy Jackson Westwick in their charming home in the British countryside. It generated quite some buzz on social media. And during Paris Fashion Week earlier this month, we brought our beautiful West Wing collection to Victoria Beckham's showroom and Autumn Winter 2025 show space, we created an elegant inviting setting for guests to connect and experience both our contemporary decor and Victoria Beckham's designs. Our presence at one of fashion's most prestigious events reinforces our commitment to style, innovation and beautiful aesthetics in interiors and beyond. We will be creating a lot more brand moments like these going forward to shape our premium brand positioning further. Next, for share gains in existing markets, we will continue to, one, create the perfect product assortment, and two, offer more offline touchpoints. Let's now look into the two building blocks of our product assortment, Western Collection and third-party design brands. Before we go there, just a quick reminder that the top line dampening from 2024's change in product assortment will be felt throughout 2025, especially in the first half. So, starting with the Westlink collection. As stated above, we are very pleased with the performance of our gorgeous, sustainable private label product brand. As GMB grew double digit in the past years to 274 million euros in 2024, accounting for 55% of total Group GMB, a new all-time high. We will continue to grow the Westling Collection at double-digit growth rates by expanding categories, product families, and new desirable products. This strong development supports our top line as well as profitability since the products are very desirable and they allow us to achieve a higher contribution margin compared to third-party products. On the right-hand side of the slide, you can see some of the products we launched over the past 12 months. Then, over to the second pillar of our assortment, third party design brands. On the slide, you can see some of the brands we've onboarded over the past 12 months. We're incredibly proud to partner with them and to be able to offer their stunning, partially iconic products to our customers. West Wing is a place where these partners and many others find new fans for their brands in an elevated, inspiring environment. We will continue to shape the perfect product assortment for design lovers by onboarding more design brands which will help us to gain market share in our existing geographies. Besides improvements in product assortment, we also see offline store expansion as a lever for share gains in existing markets. As you may know, We opened our first offline store in 2022 in Hamburg and a store-in-store with our partner Breuninger in Stuttgart in 2024. We are very pleased with the development of both. That's why we plan to open a mid-single digit number of offline stores in 2025, building upon the learnings from these two pilots. Just last week, we opened our new store in Leipzig, Germany, which marks the first opening of 2025. Lease agreements for Munich, Berlin, Cologne have already been signed, and we will soon open a store-in-store with our partner Printemps in Paris at their prestigious Haussmann flagship store. Let me show you some impressions of our new store in Leipzig. Our store in Leipzig is located in the historic Speckshof, Leipzig's oldest preserved shopping arcade from the early 20th century. The store seamlessly integrates with the elegant architectural elements of this iconic building. It spans over two floors with a retail space of approximately 250 square meters. The store offers customers the opportunity to experience the West Wing brand and our beautiful West Wing collection alongside designs from selected partner brands. And that's what offline stores at West Wing are about. They help us to further increase brand presence and positioning and connect with customers, and by providing a holistic shopping experience across the multi-touch customer journey, West Wing will also gain market share. In home and living, many customers combine online and offline experiences in their journey, especially for large furniture purchases. the latter mostly for the touch and feel and simply because basket sizes and furniture are often very large and require many touch points for conversion. Let's move on from gaining market share in existing geographies to entering new ones. In 2025, West Wing will launch online sites and apps in 5 to 10 new countries. We've already expanded to two new countries so far this year, Luxembourg and Denmark. On the slide, you can see a list of countries we are preparing for short-term expansion, many of them still to come in 2025. In the mid-term, we aim to be present in approximately all European countries. The rationale behind geographic expansion is to offer our existing global product assortment to customers in the corresponding market segment for design lovers in other countries and sell more of the same products. All continental European countries follow the same logic with low marginal costs of serving them. Translations supported by AI, onboarding of last mile delivery providers, local influencer marketing, and performance marketing with attractive returns within a few months. This recipe has worked perfectly in last year's country pilot, Portugal, but we have been very pleased with the results. Now we're looking forward to the next launches. Going back to our three-step plan, what will all of this lead us to? Sebastian will talk about what to expect financially. From a customer and design market segment perspective, we have the vision to create something very special. We want to go from being the leader, leading one-stop destination in premium home and living, to the super brand in design, the ultimate aspiration in home and living. We will not only be selling products, we will be enabling our customers to design their lives. Every product, every brand experience, every story will be driven by this vision. We won't ever settle for the ordinary. We will create moments that resonate deeply and leave an unforgettable mark. How will we achieve this? We will merge old premium aesthetics with accessible exceptional designs and we're working on delivering excellence across all touchpoints design lovers have with our brand. By staying true to our values, we will inspire and engage design lovers everywhere, leaving a lasting impact on the industry. This is what we will be, the super brand in design. I now hand over to Sebastian for our financial outlook. Thank you, Andreas.