Desenio Group AB (publ)

Welcome everybody to the Designing Group's Q2 results presentation conference call. With me today, as usual, we have our CFO, Anna Ståle. So we will start by presenting the outcome of the quarter and the Q&A session will follow at the end. The market developments for affordable ball art continue to be weak during the second quarter. Net sales for the Designing Group decreased by 10% to 166 million compared to the corresponding period last year. And as you can see, net sales decreased in all our markets. In addition to the weak market development, the lower sales is explained by the fact that we're still not getting full effective marketing efforts, which I will elaborate more on in the next slide. So we don't get high enough return on our marketing investments, at least not short term. However, during the quarter we reduced our marketing costs in relation to net sales to .4% compared to .2% in Q1 2024 and .1% in Q2 2023. And the work to achieve better impact on our marketing efforts available increased profitability continues. In addition, we managed to increase our efficiency in the organization. Both the cost ratio for fulfillment and admin costs were lower in the second quarter of 2024 compared to the corresponding quarter last year. So the cost ratio for fulfillment decreased from .6% to .8% and our admin expenses decreased from 38.2 million to 34.1 million. The data increased by .5% to 6.3 million, corresponding to an adjusted data margin of 3.8%. There were no items affecting comparability in the quarter. The fact that profitability increased despite the lower sales level is explained by the measures we've taken to compensate for the tough markets we operate in. The cash flow from operating activities during the quarter amounted to negative 48 million and cash and cash equivalents decreased by 51 million compared to the amount in the previous quarter. 26.3 million of the decrease is due to the decreased cash flow from changes in working capital driven by reduced current liabilities. And this is an effect of lower sales compared to the previous period, which is common in the second quarter of a year. In addition, net interest payments on the outstanding bonds amounted to 25.6 million. As of June 30th, the cash and cash equivalents amounted to 72.5 million. During the second quarter, we continued exploring different alternatives for refinancing. Our dialogue with the CENI Group's bondholders continued, while we also evaluated other strategic initiatives in line with our plan to arrive at a solution for the refinancing of the CENI Group's outstanding bond of 1.1 million SEC, which is due in December 2024. To move the discussions forward, it's been necessary to exchange certain information about the expected financial development. In summary, for the full year 2024, we expect net sales to decrease by -10% compared to 2023 and the adjusted EBITDA margin to be 11-13%. For the full year 2025, net sales growth of -5% and an adjusted EBITDA margin of -14% is expected. In addition, the board has decided to update the CENI Group's financial targets. The new financial targets are to achieve organic annual net sales growth of more than 5% in the medium term and to improve the adjusted EBITDA margin to more than 15% in the medium term. The dividend policy remains unchanged. So, to summarize the quarter before we elaborate further, net sales decreased in the challenging market, the gross margin slightly decreased, EBITDA increased as a result of higher efficiency despite lower sales, and the operating cash flow decreased compared to previous year. On this slide, we analyzed the difference in EBITDA margin in Q2 2024 compared to the corresponding quarter previous year. So, the product margin decreased slightly due to slightly different product mix, which was well compensated by the lower cost of fulfillment. The marketing cost in relation to net sales was, as previously mentioned, lower, and other operating here consists of FX effects, mainly on accounts panels. Now, let me comment more in detail on the development of the business in our markets. So, by looking at the search trends in comparison to our sales development in Germany and the UK, we can see that our sales continue to trend higher than the market search volumes in Q2. In comparing the CENI Group to a few of our biggest competitors, we see that the during Q2 maintained a share of voice in Germany and the UK. Here to the left, we see the share of voice development in the US for December only to the left. And then to the right, we compare that to the share of voice development for the Group, which means including PoserStore. And as you can see, Society6 is the largest competitors in terms of share of voice and brand search, but it's positive to see that we have a steady increase in share of voice in the US market and taking shares from our American competitors. It's also interesting that PoserStore's share of voice is around 50%, and the explanation is that it's a generic term, which gives opportunities for us, but also to others to leverage on search. The Group's gross order intake in Q2 was below both 2023 and 2022, but in relation, JUMO is stronger, just below last year, slightly higher than 2022. Still, Q2 was well above 2019. On this slide, we compared the development in the segments compared to last year. In the Nordics, net sales decreased by 4% in Europe and the rest of Europe by 10%, and in the rest of the world by 24%. In North America, which is included in the rest of the world, we're still struggling with sales growth, meaning also meeting strong performance in Q2 last year. So net sales decreased by 19%. This slide shows the customer highlights. We see that both our active customers and number of orders decreased compared to last year, and this is to some extent counterbalanced by our average order value increasing by 10%. So now I hand over to Anna for the financial update.

Thank you, Fredrik. In the following slides, we will take a closer look at some financials. As Fredrik mentioned, net sales decreased by 10% in Q2 this year compared to Q2 last year. Gross margin decreased from 84% in Q2 last year to .6% in Q2 this year, mainly driven by product mix. A visa in Q2 this year was 6.3 million compared to 4.8 million in Q2 last year. Although lower sales, we managed to improve our profitability through improved efficiencies in fulfillment, marketing, and admin costs. Consequently, the visa margin was 3.8 in Q2 this year compared to 2.6 in Q2 last year. Capex in Q2 this year is related to smaller investments in our warehouse in the Czech Republic, however offset by a reclassification from tangible assets to intangible assets in the quarter. And excluding the bond, which is as of December 2023, classified as current liabilities, the net working capital in relation to the net sales for the last 12 months is minus 4%. Current assets are flat in Q2 this year compared to Q2 last year, whereas current liabilities have decreased. Our operating cash flow in the quarter was negative 48 million, which is further explained on the next slide. Here is a breakdown of the operating cash flow. The operating cash flow during the quarter was negative 48 million. We had a positive EBITDA of 6.3 million in the quarter, and there were no items affecting comparability in the quarter. So excluding amortization, we are at the positive EBITDA of 5.7 million in the quarter. Net interest payments on the outstanding bonds amounted to 25.6 million, and non-cash items include the depreciation and amortization of fixed assets, leasing assets and intangible assets, altogether 8.7 million. Pay taxes in the quarter was 7.6 million, and inventory levels increased by 0.9 million. Changes in current assets and liabilities negatively affected cash flow in the quarter by 25.4 million, mainly driven by reduced current liabilities because of lower sales in Q2 compared to Q1. So in summary, operating cash flow during the quarter was negative 48 million, mainly driven by reduced current liabilities and the net interest payments on the outstanding bonds. I now hand over to Fredrik again for a summary.

Thank you, Anna. So to summarize the second quarter of 2024, we continue to operate on a weak market during the second quarter, combined with weak performance and marketing, which explains the negative net sales development. On the positive side, we can conclude that we achieved to increase our operational efficiency, leading to relatively good profitability despite the negative sales trend. We have negative cash flow, which is explained by decreasing accounts payable and interest payments. During the second quarter, we have continued to explore alternatives for refinancing or debt, which involves continued discussions with the group's bondholders, as well as other strategic alternatives. And last but not least, the group's expected future financial development was made public yesterday and the board decided on updated financial targets for the group. In the short term, we're operating in a market for home decor that continues to be under pressure due to low purchasing power among customers. However, we have a leading position in the fourth-largest sector in Europe, which gives us good opportunities, partly due to economies of scale and partly in our potential to create and take advantage of the demand in the market. We have implemented and continue to implement a large number of changes, which already now start to be seen in the margins, and we are convinced of our ability to also reverse the negative sales trend. Thank you all for listening, and we are now more than happy to answer your questions. So, over to you, operator.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much, operator, and thank you everyone for your time. So, as usual, please don't hesitate to reach out to us if you have any further questions or requests. So, hope we speak soon. Stay safe and have a great summer.