Desenio Group AB (publ)

Thank you very much. Welcome everybody to the Zenit Group's Q3 results presentation conference call. With me today I have our CFO Anna Storne. As you may have noticed we have postponed this report two times. The reason is our ongoing constructive discussions with the Zenit Group's bondholders to find a solution for the refinancing of our issued bonds. We believe the solution will include reduced net debt and the debt maturity is expected to be extended. but we have to wait for the outcome of our discussions. This outcome will be announced in a separate press release. Now to the Q3 report. So as usual, we'll start with presenting the outcome of the quarter and the Q&A session will follow at the end. The development in the quarter continued to be weak in all markets, although sales in the Nordics only decreased marginally. In total, this led to net sales for the senior group decreasing by 15.6% to 192.6 million SEK. However, the trend was positive during the quarter with weak sales in July, somewhat stronger in August and on par with previous year in September. The current market situation has forced us to gradually adjust the cost levels. We have also put a lot of focus on efficiency. This work has been successful and led to that adjusted EBITDA only decreased marginally to 23.4 million and that the adjusted EBITDA margin actually increased to 12.1% in quarter. In addition, the beta was positively affected by a higher gross margin than the previous year, which is explained by a favorable product mix. We also see that the ongoing improvements in our fulfillment operations continue to show results, which, even though volumes decreased by almost 20%, led to the cost ratio for fulfillment being at the same level as last year, hence 26.4%. However, we have not yet succeeded in our work to increase the efficiency of our marketing efforts. So during the quarter, our marketing cost in relation to net sales was on par with previous year and amounted to 30.6% compared to 30.4% in Q2. The operating cash flow of 2.3 million SEK during the quarter was lower than last year due to lower sales and the fact that we started our inventory build up for the high season in Q4 slightly earlier this year. During the quarter, net interest payments on the outstanding bond amounted to 24.8 million SEK. During the quarter, as previously mentioned, we continued the constructive dialogue with our bondholders to arrive at a solution for the refinancing of the sending group's issued bond. So the forward-looking information we shared with the bondholders and made public in the second quarter remains unchanged. However, given the development in Q3, we expect net sales for 2024 to be at the lower end of the previously communicated year end growth range of minus 5 to 10%. The adjusted EBITDA model is expected to be 11 to 13%. And for the full year 2025, as previously communicated, net sales growth is expected to be approximately 0 to 5%. and they adjusted the beta margin to be 11 to 14%. And today, Johan Roslund was appointed as new CFO for the Senior Group as of January the 13th, 2025. Johan Roslund is currently CFO at the software company Plant. In addition, Johan is chairman of the board of the Nordic Asia Investment Group, a board member of VIRB Group, both of which are listed on Nasdaq First North. He was previously fund manager at GP Bullhound and the CFO for the e-commerce company Lekmere, where I was CEO at that time. Anna Ståle is leaving her position as CFO in January, but stays at the senior group until the end of March 2025 to ensure a controlled handover. To summarize the quarter, net sales decreased in a challenging market while gross margin increased. The adjusted EBITDA margin increased as a result of higher efficiency, despite lower sales, and the operating cash flow decreased compared to the previous year. On this slide, we analyzed the difference in EBITDA margin in Q3 2024 compared to the corresponding quarter previous year. The product model increased due to improved product mix and improved efficiency fulfillment neutralized the effect from lower net sales. The marketing cost in relation to net sales was, as previously mentioned, unchanged, while our cost programs in our head office had a positive impact on profitability. Now let me comment more in detail on the development of the business in the markets. By looking at search trends in comparison to our sales development in Germany and in the UK, we can see that our sales continue to trend higher than the market search volumes in Q3, and it's slightly positive in the end of the quarter. Here we see that in Sweden, the S&U sales closely follow the market search volumes, which is a sign of our high market share here in Sweden. In the US, our sales development is far stronger than the overall market, since we are developing from rather low market share. Comparing the senior group to a few of our biggest competitors, we see that during Q3 increased our share of voice in Germany, but decreased somewhat in the UK. On this slide, we see that we, during Q3, also increased the share of voice in Sweden. Here we see the share of voice development in the US in relation to Postery, Fine Art America, All Posters and Society6. As you can see, we have a steady increase in share of voice in the US market, taking shares from our American competitors. This is Decennial Group's gross order intake development. As previously mentioned, Q3 started weak in July, but better in August and on par with last year in September. Here we show the development in the segments compared to last year. In the Nordics, net sales decreased by 4%, in core Europe by 19%, in the rest of Europe by 25%, and in the rest of the world by 13%. In North America, which is included in the rest of the world, let's say it's decreased by 10%. This slide shows customer highlights. We see that both our active customers, the number of orders decreased compared to last year. This is to some extent counterbalanced by our average order value increasing by 5%. And I now hand over to Anna for the financial updates.

Yes. In the following slides, we will take a closer look at some financials. As Fredrik mentioned, net sales decreased by 15.6% in Q3 this year compared to Q3 last year. Gross margin increased from 83.3% in Q3 last year to 85.2% in Q3 this year, driven by favorable product mix. Adjusted EBITDA in Q3 this year was 23.4 million SEK compared to 25.1 million SEK in Q3 last year. Although lower sales, we managed to improve our profitability through improved efficiency in fulfillment and administration costs. And consequently, the adjusted EBITDA margin was 12.1% in Q3 this year compared to 11% in Q3 last year. Capex in Q3 this year is related to smaller investment in our head office in Stockholm in connection with the move of the group's studio. Excluding the bond, which is, as of December last year, 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 Q3 this year compared to Q3 last year, whereas current liabilities have decreased. Our operating cash flow in the quarter was positive 2.3 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 positive 2.3 million. We had a positive adjusted EBITDA of 23.4 million SEC in the quarter. Items affecting comparability amounted to 1 million SEC for cost work for work related to the refinancing of this annual group's issued bond. So excluding the items affecting comparability and amortization, we are at a positive EBIT of 21.8 million in the quarter. Net interest payment on the outstanding bonds amounted to 24.8 million SEK, and non-cash items include the depreciation and amortization of fixed assets, leasing assets, and intangible assets, altogether 12.7 million SEK. Paid tax in the quarter was 4.7 million SEK and inventory levels increased by 11.3 million SEK. Changes in current assets and liability positively affected cash flow in the quarter by 11.5 million, mainly driven by increased current liability because of inventory buildup for the high season now in Q4. So in summary, operating cash flow during the quarter was positive by 2.3 million SEK, mainly driven by increased current liability offset by increased inventory and the net interest payment on the outstanding bonds. And I now hand over to Fredrik again for a summary.

So to summarize the third quarter of the 2024, we can conclude that we achieved increasing operational efficiency leading to relatively good profitability despite the negative sales trend. We had positive operating cash flow despite lower sales in combination with inventory build-up for the high season in Q4. During the third quarter, we continued the constructive dialogue with the bondholders to arrive at a solution for the refinancing of the seven new groups issued bonds. We operate in a market that continues to suffer from weak purchasing power among customers. It's probably only in the next year we will start to see some positive effects on consumption as a result of the decreased deflation and interest rates cuts that have been made so far. We are handling the challenge well on the cost side, but so far we have not succeeded in increasing our sales compared to the previous year. Now it remains to resolve the refinancing and to use the power we, as a dominant player in the European affordable art market, possess to reverse the negative sales trend and continue to take market shares in North America. Thank you all for listening. And we are now more than happy to answer your questions. So over to you, operator.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Okay, thank you operator, so we have a couple of. written questions coming in here. so so far this year you paid 21 million in income taxes but have a pre-tax profit of negative 33 million should we expect you to get a tax reimbursement from the authorities next year so Anna the we are in line or

Yeah, we will. For this 2024, we won't get a reimbursement because we are lowering now in Q4 the tax that we are paying, but we are in Q4 receiving reimbursement for 2023. So not for 2024 because that will be adjusted in Q4, but we will receive reimbursement for 2023 now in Q4. If that answers the question.

Yeah, so no reimbursement next year. It will all come this year.

Yeah, because we have adjusted the tax we're paying now in 2024.

Yeah. Thank you, Anna. And the next one is given the comment on product mix, what was the split between poses of frames in Q3 and how did that compare to last year? We're not communicating the exact split of all the different products we sell, but We can say that it was somewhat higher share of posters in Q3 this year compared to last year. And then the next question, so over the past year you have consistently used the term refinancing instead of restructuring regarding the bond majority situation. Is this a deliberate choice implying a repayment plan for the bond or does the current dialogue concern conversion of debt to equity? Well, we are in a dialogue that is, as we said, it's very constructive. Us using refinancing rather than restructuring. I don't think you should weigh too much into that. It might just be a language thing, us being Swedish. But we are discussing a solution, and I hope we are quite close to agreeing on the way forward. But as I said, we will press release the outcome as soon as we have one. So the next question, your new guiding indicator midterm EBIT margin of more than 15%. However, you've previously achieved higher margins on lower revenues before the COVID boom. Has the competitive situation changed or do you need a bigger open space now? If so, why? Yeah, good question. I would say that we have If you compare the company now, the P&L now, to let's say 2019, like before COVID, we have increased gross margin. But then we have in the actual operations of the business, when it becomes sort of more complex and we're expanding more outside of home markets, that gives us slightly higher shipping costs. But given that, we have actually reduced fulfillment costs as a whole together with logistics. But the big difference now compared to 2019 is the marketing cost. So the marketing cost of sale, that ratio is higher now than pre-COVID. And whether that has to do with increased competition, in a sense, yes. Competition has changed somewhat during these years, though. So in 2019, and let's say 2019 up until a couple of years ago, we saw a lot of smaller competitors each taking a little bit of share, each of them pushing up marketing spend. Most of them are actually gone now. But instead, we see the Chinese marketplaces like TMU pushing up prices for more or less everyone that is in the retail market. so i hope that answered your questions um we haven't had any more written questions coming in for a couple of minutes here so i thank you all for for listening uh thank you for your questions and uh well if if you have more questions coming up please don't hesitate to reach out And until then, speak soon and stay safe.