© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the RugVista Q4 Conference Call. [Operator Instructions]
Now I will hand the conference over to the speakers. CEO, Michael Lindskog; and CFO, Joakim Tuvner. Please go ahead.
Thank you, and good morning. I am happy to see all of the participants in the call. I'm also happy to be joined today with Joakim, who joined here for -- in about 4 weeks ago as the CFO. The focus today will be as we typically do to first go through a little bit of highlights then business updates on the strategic initiatives and then the financial updates and finish off with a summary and Q&A.
To kick things off, let me initiate just with a few of the highlights for Q4, where overall, we were able to achieve good profitability and despite the continued challenging market conditions. Our EBIT margin for the quarter was almost 18% to 17.8%. And then this was really achieved by the continued focus on efficiency and cost control. In addition to the strong operating performance, we also managed to release a total of almost SEK 62 million in cash, partly, of course, from the operating activities, but also a bit of working capital.
We do see that the market economic climate continues to be somewhat depressed. Consumer sentiment is -- continues to be low, and it did stabilize during the quarter but at a low level. We, of course, like we've discussed before, this puts a downward pressure on purchasing power across the households in multiple markets.
Our net revenue for the quarter was right above SEK 204 million, which was about 7% down versus last year and minus 13% in organic growth. The focus on profitability and the challenging macros are driving that result. However, we feel still very strong from a financial position perspective. Our net cash increase, we still carry no debt, and operational performance is profitable.
And finally, looking at our strategic growth KPIs, they had a bit of a challenging quarter. However, our NPS, customer satisfaction scores continue to be outstanding.
So moving into a bit more details on the business. I think let's start off with the with strategic KPIs. So starting off actually at the right, we see from a growth perspective, both customer acquisition and order counts are slightly down versus last year. The worth noting is, of course, that the decline year-on-year is slightly lower than the revenue decline, which, of course, would indicate a slight decrease in average order value. However, like I said before, looking at the left of the slide, we have continued very strong NPS ratings despite the decline year-over-year, but a 64 rating is still a very good number. And looking at the full year average, we ended the year at 68, which is an increase over the 67 we achieved last year. So we had a little bit of a challenge in certain areas during the Q4 on the satisfaction perspective. But the year as a whole was also very good on this dimension.
Moving forward a little bit in terms of just getting a sense on consumer sentiment. We've been using this throughout the year. But what we can see, and we're highlighting these three markets, Sweden, Germany and France as all of them are important to us. And what we can see is that things stabilized during the quarter, but at a very low level and even in both Sweden and Germany, we saw all-time lows essentially.
Moving on to some of the successes and highlights for the year. I think we've spoken about the RugVista Essentials earlier. I want to highlight that once again. So RugVista Essentials, if you remember, is the sub-brand where we have developed an assortment specifically targeting first-time homemakers. So those who we see are a little bit younger, a little bit more fashion forward and those who seek exceptional value for money. And that collection has -- or that part of the assortment has performed really well during the year, and I would argue slightly even above our internal expectations.
The next highlight I'd like to make is we've spoke a little bit about the -- before we've spoken about initiating the brand-building journey, and we've spent quite a bit of time during the course of the year getting ready for that. And our perspective when it comes to the rug, it is an item that really deserves to be in the focus that is -- that's an important aspect of the room and the home itself. It creates an arena for life. And as you know, rugs are very diverse. So with that in mind, what we actually created this communication platform, which will be the basis from where we start in terms of building the RugVista brand and what we call set the scene, really ties into how we see the importance of the rug in the context of creating beautiful homes.
And as part of this effort, we recently introduced our updated visual brand identity. And what you see here is, of course, are our new logo.
So with that -- and of course, there will be more efforts within the brand-building journey throughout -- or in the future, but we are now starting to see the initial steps being visible to all of you, so to speak.
So with that being said, I'd like to hand it over to Joakim, who will take us through the financials.
Thank you, Michael. So for quarter 4, we have a tough comparable with our all-time high revenue in Q4 of 2021. We also have a change in the macroeconomic climate that Michael mentioned and our focus has been on profitability. So it is in that context, we need to see the group net revenue that came in for quarter 4 at SEK 204.1 million, representing a decrease of 6.7%. The organic net revenue decreased by 12.7% when excluding the positive currency impact.
In the table to the right, you can see the regional development in our B2C segment, whereas the DACH and the Nordics were more affected than the Rest of the World region. As Michael just showed, consumer sentiment hit all-time low since the financial crisis in both Sweden and Germany. These are the core markets in these two regions. A definite bright spot, though, is our B2B segment, which continued to grow. It grew by 7.9% versus last year, and it is the customer group interior designers that continue to drive the demand within these segments. MPO, they meet the same market conditions as B2C, but our focus on profitability had a larger negative impact on the Amazon customers when we compare it to our own web shops. So all in all, in a tough environment, we still manage to sell SEK 204 million, which is close to the Q4 number of 2020.
So moving on to the gross margins then. All in all, we had a stable gross margin compared to prior year when we adjusted for the one-off effects we had in Q4 of 2021. So gross margin declined by 3.1 percentage points versus last year, out of which 2.9 percentage point was this negative one-off effect that we had -- a positive one-off effect that we had in Q4 of 2021. The margin was also impacted by the continued high freight cost due to the fuel surcharges and also the high season surcharges in quarter 4.
Looking at the margins for the segments to the right in the slide, the B2B stand out with less decline. B2B, we had a favorable country and product mix and also the impact of bargain shopping or deal hunting, if we call it that, is less present in that segment. But the main explanation here to the drop in margin is the one-off effect of 2.9 percentage points in the comparable number for Q4 in 2021.
If we then take a look at some cost ratios after the gross margin, cost of goods, we have driven initiatives to lower the cost base and focus on profitability. If we move to the line other external expenses, these are down with 1.4 percentage points compared to prior year, mainly due to the focus on marketing spend efficiency but also down due to other cost initiatives. We see a stable personnel cost ratio, and it is stable despite the lower net revenue.
In the line other operating expenses, we have the foreign exchange effects on transactions and revaluation of assets and liabilities in foreign currency. This effect is slightly positive this quarter, 0.8% and slightly negative prior year 0.4%. So it sums up -- 3.6% sorry. So it sums up to a 1.4 percentage point improvement. The depreciation and amortization is mainly the amortization of our rights of use assets. So the actual amount is up just slightly. And as sales was decreasing, the percentage is slightly up with 0.3 percentage points.
So the bottom line is that we've almost reached our prior year EBIT margin coming in 0.6% below arriving at a 17.8% EBIT margin this quarter. So despite the drop in sales, despite the margin comparables, and thanks to the focus on profitability and a bit of help from the currency developments. We have, under the circumstances, a continued good profitability.
If you take a look at the year 2022, it started with a tough first half with macroeconomic headwinds, but we adopted in the second half. We realized the price increases in quarter 3. We focused on marketing efficiency, and we focus on driving the cost base down. So we still came out with an 11.7% EBIT margin for the whole year.
So next slide. So inventory, so the peak of our inventory in quarter 3 has come down in quarter 4 with SEK 12 million. And as a percentage of the last 12 months revenue, it has also dropped down to 27.3 percentage points. So in an uncertain external environment, we want to safeguard our service level to our customers. Still, this share is above the target range, which is to be within 17.5 and 22.5 percentage points of the last 12 months of sales.
I'd also like to make a quick comment here regarding the situation in Turkey. As some of you or most of you know and what we communicated before is that Turkey is an important production area for us, and we have many partners in Turkey that produces goods for us. The earthquake did happen close to one of the city where many of those producers are located. We, of course, very heartbreaking by the sheer number of lost lives due to the earthquake and our hearts really go out to those affected by this strategy.
We have been in trying to get in contact with all of our partners there. And so far, at least, we've not heard of any casualties within those organizations. But still the situation is very dynamic, and we don't have the full picture. So in terms of potential impact on our production that is something we're in the process of trying to fully assess. But it is something that we keep -- that we're monitoring. And of course, if there's something that we can do to help the human suffering down there, and that is something we'll try to do.
Thank you, Michael, and we'll switch slide into the net cash position. So a good operational performance with an EBITDA of SEK 39 million and a working capital increase. We had a good cash flow from operating activities, and it grew well, although not entirely after the prior year numbers. Cash flow from investing activities is minor. And as you've seen in the prior quarters, this year, we are capitalizing the investment of the development of our new web platform, and this is what drives the investment here in quarter 4. The net cash position improved from quarter 3 to quarter 4 from SEK 55 million up to SEK 112 million. The decrease from prior year -- of quarter 4 of prior year, SEK 78 million is mainly driven by the dividend payout of SEK 52 million and also the working capital increase. So all in all, we have a strong balance sheet, sound finances, no interest-bearing debt to financial institutions, and we have a good position in cash.
So I hand over to you, Michael.
Thank you, Joakim. So just to do a little bit of a summary here. So I think the year, as we've said, was undoubtedly quite challenging. It was also a year where we really could prove the strength of our direct-to-consumer business model. We, despite the challenging macros, I'd argue that our performance was quite solid. Yes, we had a net revenue decline of about 9%. And that, of course, was driven by the -- by consumer sentiment and the general economic conditions with inflation and such, but also the fact we did take a conscious decision to really focus on ensuring a good and healthy profit level.
And as we said, achieving an EBIT margin of almost 12% in this type of environment, we see that, that is quite strong and that the actions that we implemented during the second half of the year did achieve the desired effects. We are also -- when looking into '23, we start off basis, especially during H2 for '22, we were able to really improve -- further improve our financial strength from an operating performance perspective, especially.
As part of that context, the Board of Directors will be proposing to the AGM a dividend payout of about SEK 1.5 per share, which represents about half of our earnings for the year. And all of the actions we've taken and implemented during the course of H2 really puts us in a position where we are quite comfortable in terms of facing the challenges that we undoubtedly will see in '23. But also puts us in a position where with the financial strength that we have to capture any potential opportunities. And once things change, I'm quite confident that we'll be able to capitalize on those -- on that changing market environments. We've also, throughout the year, had progress on several of our strategic initiatives, which are all designed to make our customer proposition even stronger, so we spoke a little bit about RugVista Essentials. We mentioned our work around developing and clarifying and making our brand position more crisp. Those are two very important initiatives. And also we spoken previously about the new freight booking platform we implemented earlier in the year, which really is the reason that we were able to introduce more than 10 or introduce local heroes or local suppliers in more than 10 markets during the second half of the year.
So we've also taken actions to adapt our fixed cost base to the current outlook. And with all of that being said, we are still very aware that the near term is uncertain, but we have a good starting point to navigate -- continue to navigate that environment.
So with that being said, we will open up for potential questions.
[Operator Instructions] The next question comes from Niklas Ekman from Carnegie.
A couple of questions from my end. Firstly, if we can start with the last topic you talked about here, the view on 2023. I realize that the visibility here might be very poor. You're talking about a challenging market. We know that the similar web data has continued down in January. But on the other hand, the energy price has turned out to be a little bit less severe from any households. You face much easier comparisons. You talk about the consumer confidence having bottomed a few months ago. What is your view here? Is there a worst behind? Or are we looking at continued declining volumes continuing throughout a long period of 2023? Any thoughts here would just be helpful.
I think number one is that the degree of predictability is probably less than most years. So we don't know what we can see, like you said, there are certain markets which are showing signs of let's say, bouncing back a bit. But with this unstable geopolitical situation, still a bit uncertainty regarding how the energy situation will pan out also into the future and then also the inflation average pressure, and maybe more so for Sweden with the interest rates. It's a lot of big macro topics, which are, yes, they are kind of stabilizing at a low level. But I think it's a little bit too early to sort of say that the worst is behind us.
What I think we can say is that we've prepared ourselves and I think also been able to show that we can -- we have adapted to this new reality, and we are now at a position where we can run and drive a very profitable business in these conditions. And then, like I said, once things are changing in terms of the economic situation, we've done a lot of work to prepare ourselves for the next phase of our growth journey.
That's as clear as can be, I guess, in this current environment. If you were to see further weakness and potentially significant further weakness, I mean fixed costs were much lower now in Q4. If markets would continue lower, what is your ability to do more cost reductions? And how quickly can that be done?
It's always -- I think if you look at sort of the structure of our overall P&L or income statement, the biggest line items are, number one, of course, the marketing expense ratio and then number two, the product cost ratio. On both of those key line items, we have a very high degree of flexibility in terms of adjusting and adapting to changing conditions. So if we start off with marketing and that we kind of did during the second half of the year, especially is we really looked at making sure every single euro that we spent was being spent at the right marginal cost. And that is a big reason why we were able to achieve that improvement.
And when it comes to the article COGS or article cost ratio, with the market we're in, where we offer items or an assortment that is mostly developed by us. So it's only available from us, that gives us a high degree of pricing flexibility, which, of course, has a large impact in terms of the cost ratio that products constitute of sales.
That's very clear. We talked about Turkey here before. Can you elaborate on how big share of your production is in the area impacted by the earthquake in Turkey as a whole? How big of a production market is that for you?
I mean we don't share specifics in terms of sort of exact sourcing split but what we have said historically as -- and can I reiterate that we have the two major portions of assortment, which, number one, is the good design portion of the assortment and then number two is the traditional. So within the design portion of the assortment, we do Turkey and India as the two main production sources. And Turkey is an important sourcing geography for us.
The situation on the ground as you probably know, looking at the news, it's chaotic and things are -- people are, of course, focusing on trying to save lives and all of those things. And once we know more in terms of how this affects our business, of course, we will take appropriate actions in order to ensure that the potential impact is limited, but it is an important area that we need to, of course, put a plan in a right form.
Okay. And just a final question. What do you see in terms of competition? Are you seeing competitors going out of business? And given the strong net cash position you have, do you have any updated view on M&A?
I think throughout the -- like we said before, #1 in terms of the potential M&A topic. We continue to sort of be open to looking at opportunities. The focus during the past 6 months, of course, has been to ensure that we, in our core business, our current business achieve the operational performance we wanted to achieve. But we're still open in terms of people going out of business, et cetera. And just looking at some of the data points that we have available doesn't seem to be a strong indication that at least among the somewhat larger players that we face across the different European markets we operate or sell in that year-on-year, the number of players participating in auctions, et cetera, haven't really changed that much.
The next question comes from Benjamin Wahlstedt from ABGSC.
Congratulations on a strong report. Conversion, I know it is still at record high levels at 0.9%. How do we sort of understand this figure going forward? Is there like -- is there additional upside here? Or what do you think is a mature conversion rate?
The conversion rate itself is impacted by a lot of different factors. And if we just take it from sort of the -- from the start of the consumer journey, it's very dependent on the type of traffic that you get to your site or to your web shops, so that's kind of step one. And then once a visitor gets to the shop, then you have, of course, the assortment, how easy it is to find what you're looking for, the pricing of the products that a given person is interested in, in addition to the overall ease of completing a purchase. And of course, the overall trust that a given user has in that retailers or web shops brand and et cetera.
So with that being said, the improving conversion rate by itself is not necessarily an objective. It depends very much on the type of traffic you buy and all of those things. But what we've seen throughout the year, of course, is that we focus on driving more high-quality traffic because that high-quality traffic does convert better, and that's part of the reason why it's high quality. And of course, that also means that we've reduced some of the less high-quality traffic. But then there's always a limit in terms of the total volume of that type of traffic available. So it's always going to be a balance in terms of how we try to improve the conversion rate versus also driving top line.
Then the final point I think worth mentioning is part of the reason or a major part of the reason why we initiate the rebuild of our web shop is, of course, that we want to ensure that our digital experience. So the visiting visits to our web shop is able to better cater to different user needs. And of course, if we're able to cater to more users more efficiently that over time should improve conversion rate as well.
Are there -- is there anything you want to share regarding like early learnings from the Austrian and Croatian web shop like on that note?
We are still very early in the life cycle where we continue to add small features and building on the entire sort of e-comm platform because it's different. The web shop is only one portion of what we're developing. It's progressing, but we are sort of monitoring and trying to add features incrementally. And once we feel that the sort of entire infrastructure is at a maturity level. We'll, of course, start rolling out more and more.
Loud and clear. Could you perhaps talk a little bit about and quantify may be as well, what portion of marketing improvements is a general CPC decline in the market? And what part is on your redistribution of the marketing spend on your end, so to speak?
Yes. Since we are very geographically diversified, right, the situation will depend on which market you look at and also with the two brands that we operate. But I'd say the majority of the reason we are achieving the improvement is driven by a conscious decision in terms of where to invest the money versus the market itself going overall being, let's call it, less expensive.
Perfect. One final one. Is it possible to comment on the number of rugs in inventory year-on-year to get a feel for the change less FX effectively?
Yes, that accounts as a number we haven't shared -- so historically and not a public number. I think what we're trying to ensure in a little bit what we've spoken about is that ahead of the peak season that can we see the sort of high season for us starting in September/early October, in a typical season is that you typically build up inventory ahead of that and then what we did with the effort to improve our assortment at the end of last year. Of course, we put in a fair amount of purchase orders in order to have them delivered prior to this year's peak season. And that, of course, we invested in new designs and new qualities and such.
So on an absolute count, yes, we're up for sure, compared to last year, and of course, with the monies in inventory that is quite obvious. But it's also a bit of a conscious choice in terms of making sure that we continue to put the best possible product out there. And I think it's important to keep in mind also that during the start of the COVID years for about a year and a half almost, we had very limited activity in the product development area because of the fact that we couldn't travel and you really need to travel to our producers when doing new product development.
So let's call it, a little bit of a catch-up effect or whatever in terms of us introducing newness was part of the reason the things look the way they look. But it is still -- like we said before, that our inventory has a very low degree of fashion risk. And when we look at the different, let's say, purchasing cohorts when we bought stuff, all of our entire assortment is moving. Of course, there is certain articles, which are moving less fast versus others. But overall, we're quite comfortable having inventory because that ensures that we have stuff to sell. And at the end of the day, we need to sell stuff in order to drive top line.
[Operator Instructions]
This is Emanuel Jansson from Danske Bank. Congratulations on a strong report. I think most of my questions already been answered. But yes, coming back to the tragic situation in Turkey. And as we already talked about the design carpet rugs, how easy is it to redirect the sourcing for design rugs from India instead versus Turkey?
In terms of us buying from one region versus the other that is very easy for us to adapt to be quite fair. However, the type of products that we buy from each region is very different. So with India, there we source the handmade design rugs. So it's actually produced by hand, whereas Turkey primarily has factories and machinery that produces the rugs. So that's the big difference between Turkey and Indian production.
Okay. Perfect. That's clear. And maybe can you comment anything on the lower NPS score in the quarter? Is it anything specific the customers have experienced or?
Yes, like we said a little bit in the report, we did the reorganization of course, which was announced early in the quarter and then with the high -- quite high demand in terms of parcel deliveries across all industries. Some of the carriers had challenges in terms of keeping delivery promises and those things. So those are kind of the primary reasons for the slight decline in the satisfaction level during the quarter.
Okay. And is that situation better now going ahead?
Yes. I mean -- so we -- November, of course, for all retail in general is quite a strong month. Many product categories are very dependent on the Christmas and pre-Christmas period, that is slightly less important or it's definitely less important for our product types since it's not really a gift-giving type of products. And with that being said, the sort of total volumes, I would argue, in terms of total volumes of parcels that are being sent across Europe at the moment is less than, of course, it was pre-Christmas. So that portion is, of course, easing and then our internal operations are stable.
Okay. Yes, perfect. That makes sense. And maybe a last question from my side regarding market shares, which we've already been looking a little bit about, but if you're looking at the different regions here, you can see that Nordics have the biggest decline in the quarter. Do you feel that you are maintaining or gaining market share? Or is the marketing environment -- competition environment is it more difficult in Nordics compared to other regions? Or how should we view it?
I think the pandemic, of course, did change sort of the competitive set to a certain degree, where you had quite a few, let's say, multichannel interior -- those selling home interiors with an off-line focus historically, they, of course, had to become more focused on online. And I think we continue to see that. So that has been one portion of what's been going on in the Nordics. And then of course, when we've seen that we can get better ROI in our markets and in other regions. That, of course, is a decision that in certain areas, we've taken during especially H2.
There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions.
Thank you. We have no written questions. So then again, we wanted to thank everybody for listening, and appreciate the attention. And by -- with that, we also will end today's call. Thank you, and have a great day.