Rugvista Group AB (publ)

Thank you and welcome everyone to our earnings call presentation for the first quarter of 24. Myself is Michael and then Joakim is also joining. So let's kick it off with a few highlights in terms of the first quarter. I think overall, it is a quarter where we've shown a lot of strategic progress on our initiatives, but that the overall market remains challenging. We continue to be excited about the fact that our customers love what we're doing. We're reaching more of them, and we continue to develop our customer proposition according to the strategic agenda that we've set forth. However, of course, the consumer sentiment in many of our larger European markets is challenging where the average order value has contributed to the decline in the net revenue and the lower AOV is very much an indication or a consequence rather. of a continued price sensitive consumer. We are also pleased to see that the investments that we've done over the past few years in number one, the developing the new e-commerce platform has enabled us to really start to see traction in our efforts to also create content. and thereby getting more organic traffic onto our platform, which contributes to the marketing efficiency gains. So a little bit more about the numbers. We landed on 176 in terms of the net revenue, a slight decline or a couple of percent down versus versus last year. I think the highlight here is also that we're seeing differences across the regions and markets. And of course the decline is very much driven primarily by the lower average order value. On the main items when it comes to the profitability, I think it's important to to highlight the aspects that the major variable cost items, which is, of course, the product cost, the freight to and from customers, and the marketing line item, marketing spend line item. We are continuously working on those and are showing progress on all of those line items, even with the lower AOE. However, the EBIT margin is down both from a sort of absolute level as well as percent versus last year and very much also driven by the lower scale effects on the more fixed cost base due to the lower turnover. in addition to our investments into organizational development and preparations ahead of the move to the new warehouse. So that's kind of what I wanted to highlight there. If moving on a little bit to the business updates, I think we talked about the order count. So we increase our orders by 15%. The number of new customers we acquired was 16% higher versus last year. And we continue to maintain very high customer satisfaction ratings, both in our net promoter score survey as well as on Trustpilot. The consumer sentiment or consumer confidence is slightly improving in some of the markets we operate in. Some markets remain very challenging, but the overall picture is that there are some positive signals, but the consumer confidence is still at very low levels overall. When talking a little bit about the average order value and the price sensitive customers, and also the items that we can actually control, and yes, we have ensured that we have a more appealing offer on the slightly lower price points, and that's kind of what we can see on the left-hand side of the graph. where our offer to the customers is slightly higher in the lower price brackets. But overall it is a relatively minor increase in that share of our assortment. So what's really driving the AOV is the fact that customers here during the past few quarters have really down traded, which we've seen in terms of selecting slightly smaller rugs. We've seen that they're taking or choosing to buy the discounted items and that type of behavior versus a major change in terms of how we have constituted or developed our offering. Also want to highlight a little bit about with our outdoor assortment, even though the weather can be what it is, but Q2 especially is the season for outdoor rugs. We've, over the past years, continued to develop that offering. to ensure that we're also relevant during this period. And what we've seen is that we continue to see progress in this subcategory and then also what I want to highlight here is with the new platform we're able to really highlight and present new introductions in a very different manner or enhanced manner compared to what we were able to do historically. So with that being said, let me hand it over to Joakim to go into some of the deep numbers in detail.

Thank you, Michael. I'll start with the top line. So like Michael mentioned, we had a good 15% order growth despite the decline in sessions. So as we had an improved conversion during the quarter. However, the change in average order that we saw starting in the second half of last year still persists in all regions. Actually, in total, our net revenue declined by two point four percent. If you look at the regions, we had a big difference between markets also within the regions. So that declined by four point six percent. The decline coming from Germany, Nordics, where we have the majority of sales in Sweden, Denmark and Norway. It grew by 13.1%. And rest of the world, which is mainly rest of Europe, we had a decline of 6.1%. But also there, some markets performed well, like UK, but in the southern parts of Europe, we had larger drops. So I move on to gross margins. So going back to quarter four of last year, we reported 60.3% gross margin, and in quarter one this year, we have 61.6. So quarter on quarter, we have improved by 1.3 percentage points, mainly due to less discounting. Versus last year, quarter one, our gross margin was down one percentage point, and also that is then due to higher discounting than previous year. MPO improved 2.1 percentage points from a level margin prior year that then was related to a less favorable geographical sales mix. So in B2B, where we also have the smaller businesses and also in B2C, the margin drop was driven again by higher discounts and the customers to a larger extent opted for the discounts that we offer. So to the big picture, we have an EBIT margin decline driven by investment into the organizational and business development. And I said earlier, the larger discounted share of sales rendered a higher product cost percentage. The freight costs, which is included in the goods for resale, was somewhat lower than prior year and also prior quarter, despite the lower average order. So we have decreased the cost per order. In other external expenses, the next line, we have the marketing expenses, which were decreasing versus prior year with 1.1 percentage point. So the increasing costs in this line were consultancy costs like we have in Q4 for our new warehouse design and also IT costs, the split in between them being about 50-50 of the increase. Personnel costs increased due to the general salary increases and also due to the higher number of FTEs from the recruitments that we made in the second half of last year. Other operating expenses contains the FX effect on the revaluation of assets in liabilities in foreign currency, and this is 0.8 percentage points lower than last year. Depreciation and amortization in this line, we have the right of use assets for IFRS 16. So this is increased due to the inflationary adjustments of our lease agreements or the indexed leasing agreements, and also for the new warehouse that we took on in quarter four of last year. So in total, this then sums up to a 2.8 percentage points lower EBIT margin as explained above, and also due to a minor negative scale effect due to the decline in sales. So I move on to inventory. So we ended the quarter four last year with 126 million in inventory, and this was a low number at the bottom of the target range we have provided, equivalent to 17.9% of the last 12 months of net revenue. So we increased our inventory with 7 million during quarter one, and that gave a total of 19.1% of the last 12 months. So this is still in the lower side of the target range, and we can expect this to gradually grow as we approach the next season, the next peak season in quarter four. Last but not least, cash. So at the top left on this slide, you see your cash flow from operating activities have improved over last year. So in last year, we had an extra tax payments due to the then releasing the formerly deferred taxes. The positive changes is net in networking capital this year mainly derives from the increase in credits from suppliers. Cash flow from investing activities mainly consists of intangible investments from the development of our e-commerce platform. And this was slightly up versus prior year, 0.3 million. So our net cash being then the cash they have at hand, minors are leasing debt for the right of use assets, landed at 209 million. which is then up 93 million from previous year quarter one, and it's up 23 million versus the last quarter. So all in all, we have a solid cash position, no interest bearing debt to financial institutions. And hence, we are prepared for the inventory build up for the peak season that I mentioned, the dividend that the board of directors has proposed, and that is subject to a decision in May at the AGM. and also for the investments that we will make related to the new warehouse. So that sums up to the financial update, and I hand over to you, Michael, to sum it up.

Thank you. So just a little bit of a summary and a quick outlook for the rest of the year. So I think we continue to focus on really realizing our strategic initiatives and of course navigating the market conditions. Q1 is a quarter where we have seen progress on multiple of our strategic initiatives and that of course continues to be a large portion of our focus. because that will really ensure that we continue to develop, we continue to improve our proposition for our customers and positions us for continued profitable growth. The Q1 numbers, of course, are a bit challenging where we did see a bit of a decline, a couple of percent decline in the net revenues. That is, of course, something we're not super pleased with. And we have also, as mentioned, taken actions to to improve that overall position and trend. However, our gross margin did improve quarter on quarter. We continue to see improved marketing efficiency and we continue to optimize our freight costs to and from customers. In addition to the fact that I think it's important to mention that we We deliver a relatively healthy EBIT margin, despite the fact that it is a decrease versus last year. And then, as Joakim also mentioned here, our financial position is very healthy. We have a strong net cash position, and we are still in a position where the board can suggest a dividend of 1.8 SEK here at the upcoming AGM. But looking a little bit ahead towards the rest of the year, I think the outlook, of course, remains quite uncertain, both from this sort of global security aspects with the situations we have still in Ukraine and now also down in the Middle East. We have an overall macroeconomic climate that continues to be challenging, which has impacted the European households in terms of cost inflation over the past few years. And of course, in the near term, we expect the situation to to gradually improve, hopefully, but it is very uncertain. And also considering these conditions, we did initiate some specific actions to improve our margin position, which included some price adjustments. We also initiated and focused on cost optimization in terms of operating our new e-commerce platform. Both of these initiatives have given positive impact since being implemented. And that is, of course, something we'll reap the benefits of moving forward. But overall, I think I want to reiterate the core business in terms of us improving our proposition to the customers is on track. We're growing our traction with customers. We will continue to, of course, focusing on navigating the current conditions as well as building and preparing for the future. So with that being said, I'd like to hand it over to the audience for any potential questions.