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This call is being recorded. Welcome to the CDON Q4 conference call. [Operator Instructions] Now I will hand the conference over to the speaker, acting CEO and CFO, Thomas Pehrsson. Please go ahead.
Thank you, operator. Good afternoon, everyone. Today, we'll be presenting the fourth quarter and the year-end report for CDON. Next slide, please. The presentation will be held by me, Thomas Pehrsson, acting CEO and CFO. Next slide, please. Earlier today, it was also announced that CDON will acquire Fyndiq, Sweden's largest marketplace for bargains and combine the businesses.
In relation to this news, the dedicated investor call will take place tomorrow, Friday at 1400 Central Europe time to present this agreement and answer questions. Today's call here now will focus on the CDON's fourth quarter '22 performance.
Next slide, please. After a very busy and intensive fourth quarter, we have summarized the previous periods of 2022 into these 5 key takeaways. We remain highly confident in our business model and our ability to swiftly adjust our business to acclimatize to the current market. We are proud to say that we have performed better than the market for the full year of 2022 and our commissions continues to grow through our work in optimizing our product catalog.
The restructuring program that was announced on the 8th of December was quickly implemented and has substantially reduced our cost level, which resulted in CDON generating a positive EBITDA in January '23. We continue to improve our profitable traffic while growing the organic traffic channels. Furthermore, we can proudly present a new CDON brand, which launched on the 31st of January. The development of the brand will continue throughout the coming quarters and will continuously improve the customer experience.
Next slide, please. Our agenda for today will be the following: Firstly, we'll present CDON, followed by a quarterly update. We will then take a look at our financial performance and how the work regarding our directives is progressing. Lastly, there will be an opportunity for you to ask questions at the end of the presentation.
Next slide, please. So this is CDON. Next slide, please. Let's start with a short recap of our business model. We have the right products at the right prices, which is enabled through our marketplace business model where we connect our 1,500 merchants with our customers in the Nordic markets. Our merchants provide an assortment of 12 million products in core categories from well-respected brands. We work through a well-built marketing system where we have integrated campaigns, focused messaging across multiple points of consumer contact.
Our brand is well recognized in the Nordics as a solid e-commerce actor. Our platform provides flexibility and scalability to grow our customers and merchants at the same time. We currently provide service to 2 million active customers and generate 80 million (sic) [ 90 million ] visits annually.
Next slide, please. The marketplace model is still under-penetrated in the Nordics. In Asia, 90% of all e-commerce comes from marketplaces and in the U.S., around 50%. And for the European markets, excluding CDON, it's between 25% to 40%. In the Nordics, it's mere 5%. This allows for a great growth opportunity for an already well-established Nordic actor such as CDON. The reason for the under-penetration is mainly due to it still being in the early phases and lack of knowledge among population.
CDON converted to a marketplace during 2019 and have become a market leader in the Nordics. The more mature markets in our regions such as Allegro in Poland has a head start of about 10 years and the current market share of 20%. Our ambition is, of course, to develop CDON in the same direction in the Nordic region.
Next slide, please. The total available market in the Nordics is estimated to SEK 415 billion. Our core categories represent approximately 50% of the total available market, which leaves us with a current serviceable market of around SEK 200 billion. The current market share of CDON is 1% of the current serviceable market, allowing for a great growth potential.
Next slide, please. Let's move into our next topic of discussions, the quarterly update. Next slide, please. The main results from the fourth quarter are gross merchandise value for CDON Marketplace decreased by 17% in the quarter. However, excluding sales from fraudulent merchants activity in 2021, the GMV decreased by 8%. Net sales for CDON Marketplace decreased by 7% compared to the same quarter last year. According to plan, we are phasing out our retail business, and as a consequence, the net sales decreased by 20% in the fourth quarter.
Due to the switch from sales from our own inventory to the marketplace business model, gross margin increased by 1.1 percentage points. The restructuring program, as mentioned before, and the write-down of our subsidiaries, Xales and Commerce8, have had a negative effect on our EBITDA, which amounted to minus SEK 48.2 million for the fourth quarter. However, adjusted for one-off related costs, EBITDA amounted to minus SEK 8.1 million. Profit and loss for the period amounted to SEK 64.9 million.
Next slide, please. On December 8, 2022, a press release was announced regarding restructuring program, estimating to lower operational expenses by SEK 60 million to SEK 65 million to be able to achieve the financial directives of being at least EBITDA breakeven during 2023. The program itself contained cost reductions of both staff related and costs along with improvements of the commercial part of the business.
As mentioned before in the presentation, I'm very happy to say that the positive effect from the restructuring program has led us to be EBITDA positive in January, one of the weakest months of the year. Going forward, we estimate our operational expenses to be around SEK 150 million annually.
Next slide, please. During the past quarters, we have put a lot of time and effort into the new CDON brand with the ambition of providing an improved customer experience. The final touches before the launch was completed during the final quarter of 2022, and we excitedly launched a new website on the 31st of January 2023. The new website provides for an improved customer experience through its new look and feel and improved product discovery. The work will continue throughout 2023 to further enhance the experience for both our customers and merchants.
Next slide, please. On to our financial performance and directives for the past quarter. Next slide, please. Group income statement. As I said before, GMV decreased by 17% to the same quarter last year. However, excluding the activity from the fraudulent merchants, in 2021, GMV decreased by 8%. Our commission for CDON Marketplace increased to an all-time high of 10.2% for the fourth quarter. Therefore, the decrease of 8% in gross profit was less severe than the decline in GMV. Since we have had a lot of activities in the fourth quarter relating to costs such as restructuring of the organization, the bankruptcy of Xstra Digital, the write-down of our subsidiaries, Xales and Commerce8, as well as write-down in goodwill in our minority stake in Shopit, the total expenses amounted to minus SEK 137 million during the quarter.
This is an increase of SEK 60.7 million in compared to the same period last year. However, as a result of these activities, we remain confident in our ability to achieve at least EBITDA breakeven for the full year 2023. Group balance statement. In comparison to last year, the fixed asset decreased in the fourth quarter due to the write-down of our subsidiaries and the write-down of our minority stake in Shopit. As I said, we are phasing out our retail business and it leads to a lower inventory. We have now a cash balance of SEK 123.1 million.
Next slide, please. Group cash flow statement. The high cash flow for the period associated with a positive effect from the change in working capital. As I said, we had a cash balance of SEK 123.1 million. Because of the restructuring initiatives implemented during the quarter, we are confident in our cash level going into 2023.
Next slide, please. The financial directives announced in the press release before Q3 reports are that our 3P business shall continuously gain market share in the Nordic e-commerce market. Our 3P take rate shall increase over time. We shall enjoy strong incremental margin as a result of its high gross margin 3P business and the relatively fixed nature of administrative and general costs.
After the fourth quarter, we have the following comments. For the full year of 2022, we have performed better than the market by 2 percentage points. The market declined by 9%, while CDON Marketplace decreased by 7% for the full year. Adjusted for the fraudulent merchants, however, in 2021, we have a slight decline of only 1%. Both our take rate and gross margin from the 3P business increased by 1.1 percentage points.
We have had a substantial focus on optimizing our marketing spend through more efficient spend in the paid channels. As a result, we decreased our marketing cost of GMV in percentage by 0.2 percentage points in comparison to the last quarter. SG&A, excluding marketing costs, have been reduced continuously throughout the year. Excluding costs related to one-off nature, our cost level during the fourth quarter was lower than last quarter.
Next slide, please. Our target for 2023 remains the same, that we should be at least EBITDA breakeven unless we find growth investments opportunities where we believe that the internal rate of return significantly exceeds our cost of capital or the macro environment undergoes further material deterioration from the lower levels in Q4 2022. Our midterm target for 2025 is to gain a market share of at least 2.5% in the Nordics.
Next slide, please. To summarize, we can conclude that the Nordics is an under-penetrated market in new ways to marketplaces, which gives us, CDON, an attractive opportunity to gain market shares. We are uniquely positioned to rapidly scale the marketplace model. The strong working capital dynamics with a scalable GMV growth and relatively fixed OpEx base allows for rapid growth in profitability.
The broad assortment within CDON guarantees market relevance regardless of the economy in the market. We're also excited for the launch of the new CDON brand, which will aid in our work of providing an excellent customer service.
Next slide, please. So thank you for tuning in, and we will now move on to the Q&A session.
[Operator Instructions]
The next question comes from Nicklas Fhärm from SEB Equities.
Obviously, I think we need to start this Q&A session by asking a little bit about the proposed combination with Fyndiq. I realize that hopefully, we'll get to know the company much, much better in tomorrow's conference call. But I would like to ask you to give us a little bit of a preview and taste of what Fyndiq brings to life, please. And thank you for the pro forma statement included in the press release. But could you also touch a little bit about KPIs such as take rates, et cetera, in Fyndiq, please?
Thanks for asking the question. You can say that overall, not looking at the Fyndiq is that, of course, marketplaces enjoy significant benefits from scale. Combining CDON and Fyndiq strengthens CDON's positions as a leading marketplace and better positions the company to gain further market share and incremental profit. As a result of the similar business models, we will enjoy our commercial and operational synergies. The overlap of today and we look at that for the Nordic of course, currently untapped potential in both companies and help deliver value to our stakeholders. For the more KPIs that you're asking about for each of the company and what Fyndiq's are compared to us, I will refer to tomorrow's call where we will expand on that.
We'll be looking forward and very interesting. Okay. Can I ask you going back to CDON as a going concern and talking about Q4 results, you stated that you have increased your own take rate by about 15%. And I was just going to ask you whether there are any sort of early takes or learnings from you vis-a-vis the merchants from that action, please?
The increase and the higher take rates is -- it was all-time high, as you know, in the quarter -- in the fourth quarter. That is mainly due to the mix of categories and products. That will also probably -- you have read in the report, and we look for going forward. There has been a commission increase of 15%, not 15% in commission, but 15% on the percentage in commission that took place the 23rd of January, that will cater for, of course, an increased take rate during 2023.
Excellent. And final question, if I may, at this stage, and then I may come back. So I think reading up over the past hour, you outlining sort of you're taken operational expenses measures implemented already and sort of your best estimate for the restructuring impact in 2023. I think that comes across quite strongly and convincing. But my question is, would you like to share some thoughts on sort of the top-down outlook for this year and perhaps also add where you think your marketing expenses will go depending on the answer on sort of the first question. Just to get sort of a ballpark or base case, if you like, scenario for 2023, please. I'm talking about 3P GMV and...
Yes, I understand. We have been quite transparent of how we look at the operating expenses for 2023 and where they will land. When it comes to the marketing expenses, we continue to optimize the efficiency of the performance marketing and as we said before, also improving organic traffic. And we're optimizing the feeds to prioritize products with a high price and profit, which is a constant work, of course, to do that.
And that also means that we are eliminating unprofitable channels and products. All of this together will, of course, make us buy traffic, which is profitable. And so we have -- without disclosing any exact numbers, we are definitely looking for a lower percentage of marketing spend in relation to GMV because of those efforts that we are doing.
Right. So basically, what you're saying, Thomas, I guess, is irrespectively of where 3P GMV ends up, your marketing spend as a share of 3P GMV is likely to be lower than higher in full year 2023. Is that correct?
Yes, that's correct. You have followed us before, Nicklas, and you know that we spent quite a lot of marketing in the half 1 of 2022 because of the higher competition of buying traffic and also us not being as good as we are now in how we actually spend the profitable marketing. So that would mean that we will have a lower percentage marketing spend going forward.
The next question comes from Adam Wyden from ADW Capital.
Just a couple of logistical questions and nice work implementing the restructuring. Sort of along those lines, you guys -- I know you don't really give forward-looking guidance on GMV, but you said you were sort of EBITDA breakeven in January, and that's sort of your seasonally weakest sort of month.
I mean, you -- like that sort of augers well for the rest of the year. I mean is that because GMV was up a lot in January? Or is it because you're sort of seeing the benefits of sort of the economic model and sort of -- if you're profitable in January, it's sort of hard not to be profitable the rest of the year, barring something crazy. I mean if you could sort of comment on that and then I have a follow-up on that one.
As you know, Adam, we are not disclosing any figures exactly. January was a good month for us, as you know, because it was profitable. The GMV growth, I will not exactly disclose, but we will -- our aim is, of course, not to be worse than January going forward, but better.
And with our cost base, we should actually be able to be EBITDA breakeven even if the market decline or we -- our sales development is declining. We will aim for being EBITDA breakeven anyhow to a certain extent, of course, there can be factors in the world that totally destroys the business. But if we disregard those kind of things like wars and so on, we are quite confident that we will be EBITDA breakeven even if the market declined somewhat or even if we decline somewhat. So I think that is the best answer I can give.
No, that's a good one. And if I just sort of roll forward the 15% sort of take rate or commission increases, which sort of drives your net sales. Just -- I mean, if I just sort of do back-of-the-envelope math on assuming GMV is flat, like from full year -- I mean, I'm just doing the marketplace, I'm not doing retail.
But just on the marketplace side, if you're at like 8, 3 or whatever, and I increase -- and I increased my net sales by 15%, dollar-for-dollar assuming GMV is flat, that's $30 million of effective take rate. Now you obviously are in almost 100% gross margin on that. I mean, is it fair to assume that you sort of achieved that EBITDA even before sort of the lion's share of those take rates? Because I mean I sort of do back-of-the-envelope math that assuming GMV is flat, like that alone is good for like $30 million of EBITDA. So I'm just -- if you can sort of explain sort of when you raised your take rates and sort of how we sort of think about that?
Or is that sort of -- is GMV sort of constructive of that? I mean, did you sort of achieve this before you sort of even got because the take rate is a huge sort of tailwind to profitability, not even sure that was in your original forecast when you gave EBITDA breakeven in November.
As you know, we are continuously working towards increasing the take rate and that we do through now this commission increase, but also adding on services. And also, we see that through the mix, as was mentioned before, between categories and products. But I cannot comment on the exact numbers of what we see that will lead to an EBITDA improvement. You are very good at calculating, Adam, and you know so well, but that has to stand for you.
Okay. That's fine. I just wanted to highlight that. And then on the balance sheet, I know you guys took some charges and that will result in a cash flow. But the cash balance looked a lot higher than I had thought. I know the EBITDA, I don't know how Swedish accounting is, the EBITDA looked negative, but I think, by and large, that's largely driven by the $40 million of write-downs from all of these sort of Zayos and all this nonsense.
And so you sort of had an economic loss of $8 million roughly EBITDA, which makes sense. But your cash balance is sort of high. I mean if I sort of wanted to -- which is great, I like more cash, but if I sort of wanted to adjust for sort of the restructuring charges that you talked, but cash is going out the door and sort of working capital. Is it just to have a sense of sort of how I should think about like sort of normalized sort of cash balance based on sort of what you know as of December, is the number looking instead of like 113 sort of more like 70? Or how should we sort of think about that?
I think we could say like this, the positive effect of that is, of course, the change in working capital and also through the restructuring initiatives because that cash effect will then come back in Q1.
No, I understand that.
Yes. And that total number of that is -- you can see that we have disclosed in the first page of the report that we had a one-off cost of around SEK 42 million in the whole year 2022. And a large portion of that is, of course, due to the restructuring. The major part is due to the restructuring.
I understand.
You're not totally off.
Well, I'm just trying to understand sort of on a combined basis sort of what your cash position is. It looks -- I mean, it's quite strong. I mean if you put sort of Fyndiq and CDON together, you're sort of -- if you're a profitable company, Fyndiq is profitable and CDON is a lot more profitable than I had actually expected.
You're looking at like $150 million of cash in the combined business that at least we estimate could be tens of millions of EBITDA sort of post synergy, if not nearly 100. So look, this is really exciting stuff and very -- I know you guys have been working hard and doing a restructuring and sort of working on this merger. And -- are you guys planning on having a separate call for the merger? I wasn't sure if I caught that, I got on the call late. Is there a subsequent call for the...
Yes, 02:00 Central European time tomorrow afternoon, there will be a call by myself and Josephine, the Chair of the Board; and Fredrik, the CEO of Fyndiq. Together, we have a call at 02:00 p.m. Swedish...
Okay, good. I'll save the rest of my questions around merger synergies and sort of EBITDA and stuff for tomorrow, but this is really, really good work, and we appreciate it.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you, operator. It has been an exciting start of this year and the end of last year, and we are very happy of being able to present the result of that, the restructuring program and also the positive result now in January. And of course, a major thing is actually the announcement of today with us combining our business with Fyndiq and that we will follow up tomorrow in a specific call. So thanks, everybody, for listening in and for the questions. Goodbye.