Desenio Group AB (publ)

Thank you very much. Welcome everybody to the Center Group's Q3 results presentation conference call. With me today, I have our CFO, Anna Ståne. As you may have noticed, we have postponed this report two times. The reason is our ongoing constructive discussions with the Center Group's bondholders to find a solution for the refinancing of our issued bonds. We believe the solution will include a reduced net debt and that 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 again. The development in the quarter continued to be weak in all markets, although sales in the Nordics only decreased ordinarily. In total, this led to net sales for the Center Group decreasing by .6% to 192.6 million SEC. 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 .1% in the quarter. In addition, EBITDA 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. During the quarter, our marketing cost in relation to net sales was on par with previous year and amounted to .6% compared to .4% on Q2. The operating cash flow of 2.3 million SEC 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. During the quarter, as previously mentioned, we continued the constructive dialogue with the bondholders to arrive at a solution for the refinancing of the Stalk 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 margin 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 the adjusted EBITDA margin to be 11 to 14%. And today, Joel Roslund was appointed as new CFO for the SSENU Group as of January 13, 2025. Joel Roslund is currently CFO at the software company Plant. In addition, Joel is chairman of the board of the Nordic Asia Investment Group, a board member of the BIRB 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 Lekmir, where I was CEO at that time. Anna Ståle is leaving her position as CFO in January, but stays at the SSENU Group until the end of March 2025 to ensure a controlled handover. To summarize the quarter, net sales decreased in the 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 of previous year. The product margin 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 turn 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 SSENU 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 SSENU group to a few of our biggest competitors, we see that the 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 Postre, Firenout 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 the SSENU 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 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, net sales decreased by 10%. This slide shows customer highlights. We see that both are 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 Frederick mentioned, net sales decreased by .6% in Q3 this year compared to Q3 last year. Gross margin increased from .3% in Q3 last year to .2% in Q3 this year, driven by favor of product mix. Adjusted EBITDA in Q3 this year was 23.4 million SEC compared to 25.1 million SEC 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 .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 Groups 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 related to the refinancing of the senior Groups issued bond. Excluding the items affecting comparability and mortization, we are at a positive EBITDA of 21.8 million in the quarter. Net interest payments on the outstanding bonds amounted to 24.8 million SEC. Non-cash items include the depreciation and mortization of fixed assets, leasing assets and intangible assets, all together 12.7 million SEC. Pay tax in the quarter was 4.7 million SEC and inventory levels increased by 11.3 million SEC. 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 build-up for the high season now in Q4. So in summary, operating cash flow during the quarter was positive by 2.3 million SEC, mainly driven by increased current liability offset by increased inventory and the net interest payments on the outstanding bonds. And I now hand over to Fredrik again for a summary.

So to summarize the third quarter of 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 San-Yu Group's issued bond. 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 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.

As a reminder, if you wish to ask a question, please dial pound key five 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 far this year you've paid 21 million in income taxes but have a pre-tax profit of negative 33 million. Should we expect you to get tax reimbursement from the authorities next year? So Anna, we are in line. So yeah,

we will. For this 2024 we won't get a reimbursement because we are lowering now the tax that we are paying, but we are in queue for 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.

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 posters and frames in Q3 and how did that compare to last year? We're not communicating the exact split of 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 maturity situation. Is this a deliberate choice implying a repayment plan for the bond or does the current dialogue concern the 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 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 OPEC space now? If so, why? Yeah, good question. I would say that we have, if you compare the company now, the PDEL 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 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 then 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, well, more or less everyone that is in the retail markets. So I hope that answered your questions. We haven't had any more written questions coming in for a couple of minutes here. So thank you all for listening. Thank you for your questions. And well, if you have more questions coming up, please don't hesitate to reach out. And until then, speak soon and stay safe.