Earnings Call: Q1 2021

May 5, 2021

Thank you very much, operator, and welcome everybody to Fresenius' Q1 results presentation conference call. With me today, I have our Head of Investor Relations, Linda Riksdorn. So the presentation materials are available on our website as usual and a Q and A session will follow at the end. Next slide please. So Q1 was indeed a historic quarter for Decennial. So we managed to significantly grow our sales, profit and customer base, while at the same time making progress on our strategic agenda with key highlights such as the integration of the Post Store acquisition that closed at the end of 2020 and the successful listing of shares of Natak Stockholm. So I will go through many of these things in more detail in a few minutes. But before I do that, I would like to just give you a quick intro and overview of the Seniors again, Our story and the investment case. Next slide, please. Decenio is today the leading online provider of Affordable Wall Art. So we have successfully established ourselves in 35 countries, which shows that our data driven strategy and unique product offering sets us apart from competition. This expansion has been done, while at the same time growing our profits and generating great cash flows, which again demonstrates the attractiveness of our strategy and business model. And the key to the success There's also been a focus on not only growing our customer base, but also making sure that customer satisfaction is best in class. So our guidance remains unchanged, both for the current year and the medium term. We are in a great position to capture the enormous growth opportunities that lies ahead in the markets. Next slide, please. So now let me turn to our Q1 performance. Net sales increased by 127%, of which 61% for Decenio only. Active customers were at the same time up 97%. Gross margins were held stable year on year at 82.3%. And for Fresenius only, they increased to 83.4%. And adjusted EBITDA margin landed at 22.7%. Next slide, please. So net sales increased by 125% to €402,000,000 And that's representing a growth of, as I said, 61% for Fresenius only. As a reference, U. S. Net sales grew more than 300%, of which The Seniors U. S. Only grew 120%. And as I mentioned, gross margins were stable at 82.3%. But if we look at adjusted for postage stores, so Fresenius only, gross margin was up 110 basis points to 83.4%. So strong sales growth and stable gross margin mean that adjusted EBITDA was up 200 percent to €90,000,000 so representing a margin of 22.7%. And during Q1, we have made strategic investments into marketing but also in areas that bring value to our customers. And well, this slide really shows the positive trend that we've seen across all financial metrics. Next slide, please. So we have successfully expanded Our customer reach of active customers increased by 97% to 3,500,000 As site visits increased by 102 percent to over €35,000,000 Customers order more frequently than before and customer satisfaction hit an all time high. Both customers more customers than ever I have chosen Fresenius as the destination point for affordable wall art, which really shows that our continuous efforts to deliver best in class experience payoffs. The one clear success factor is that the vast majority of our wall art is developed in house based on our data driven creative approach that's being led by our design studio. A clear example of this in Q1 was the successful The success of colorful art in our latest design jobs. So at Post Store, it was, for example, Golden Days and Moonlight Magic. And at the Senio Studio Luxe, which is the latest design studio collection at the Senio. And the Senio's new Trends fees for spring summer 2021 were launched with themes in 4 directions. So it's base, balance, natural living, Cast in Paradise and Serene Spaces. Next slide, please. So to cash flow. So our cash flow from operating activities increased to SEK 30,500,000. Zenio, as usual, is capitalized also in Q1, very limited need for working capital or CapEx investments. So during Q1, we did make a 2.14 €1,000,000 cash payments related to the acquisition of Postal Store and therefore ended the quarter in a net debt position of NOK 905,000,000. Next slide, please. So this brings us to the Postal Store acquisition, which we closed on the 16th December last year. Postal Store generated net sales of NOK 340,000,000 with an EBITDA of the €69,000,000 in 2020. And this acquisition is expected to generate Annual synergies of approximately NOK 50,000,000 of which approximately NOK 25,000,000 will come already this year. And the plan is that both companies will continue to operate under their respective brands as they expand operations across Europe, U. S. And Asia. Still, this acquisition was strategically important as we see significant opportunities to share best practices when it comes to things such as Seeing and curating affordable and great looking art at the customers' love. Next slide, please. Looking ahead, we are very happy that the strong trend seen in 2020 continues also into 20 And as we have previously communicated, comparison figures for Q2 are very difficult as we saw a boost in orders during the early stage of the COVID-nineteen lockdown last year. However, this is in line with our plan And our goal to grow net sales by 35% to 40% for 2021 with an EBITDA margin of approximately 25% remains unchanged. Our medium term targets are to deliver an annual organic sales growth of approximately 30% while maintaining our adjusted EBITDA margin of approximately 25%. And long term, we expect to reach up to 30% EBITDA margin. And our goal is clear. We intend to maintain and grow our position as the leading online provider for affordable wall art in Europe. And we see significant growth for continued expansion in Europe by also making inroads and accelerate growth in both U. S. And Asia. We continue to invest in new and innovative ways to build even deeper relationships with customers on existing markets across Europe, the U. S. And Asia. While at the same time preparing for expansion into new markets with Greece coming this year, for example. While still early days, the opportunity to accelerate the U. S. Is obviously very exciting. Next slide, please. So to sum up The presentation here. So Q1 demonstrates the relevance of our strategy and the strength of our execution capabilities. I think we had very robust performance in our customer metrics that translated into strong growth in sales, profits and cash flow. We also made important progress on our strategic agenda. And I must say I'm very proud of the work our teams have put in to achieve this. And I would also like to take this opportunity Thank you all of the call for your interest in Decenio and for the support you've provided us during our NASDAQ listing process. This really means a lot to us. So that concludes our commentary on the results. I will now be more than happy to take questions. So over to you, operator. Thank you. We have a question from the line of Johan Brown from ABD. Please go ahead. Thank you very much. Hi, Fredrik. Congrats on a strong Q1. I have a question regarding organic Growth in the quarter and obviously very strong. I was wondering a bit about the sort of month on month development here, sort of Trying to figure out the momentum going into April, would you mind sharing the organic growth rates for March in total and maybe also Sort of the last couple of weeks in March, which was when the sort of COVID effect started. Yes, that's correct. So we could see order intake demand Accelerating towards the second half of March already last year. And the Comparison numbers towards the end of March has been around what we have in target for full year, so around 40%. Wonderful. Thank you. And then regarding the synergies from the Posture Store acquisition, you mentioned that less of SEK 2,000,000 out of SEK 25,000,000 for the full year have been realized in Q1. How do you sort of in the short term, in Q2, how does this look? And what do you expect to materialize in during the next quarter, so to say? Yes. So if we only look at the supplier related of Synagis, which I would call the real synergies. That's very absolute the numbers. As we said, we have realized less than SEK 2,000,000 in Q1. But for the full year, We are confident those synergies alone would stand for SEK 25,000,000. And the reason is that The majority of the synergies are in COGS. And since Post's store, where we acquired them, had inventory for approximately a quarter, 3, 4 months. That hasn't really shown in the numbers yet. That will come in Q2. So for Q2, The synergy effect will be approximately SEK 6,000,000. Thank you very much. Very helpful. And I was also wondering about the U. S. And if it's possible to sort of give a status update there. How did the region Developed during the quarter and what's the status on setting up operations there? I know it's quite tough during COVID, but a status update would be very helpful. Yes, sure. So yes, I have to say, I mean, U. S. Is one of the main focus areas for us this year. And as I mentioned, we had really strong growth in Q1 in the U. S, so more than 300% growth. And the Zenio only grew 120%. And the status with The organization is that we're currently recruiting a general manager for the U. S. That will build up the team. But meanwhile, we are handling the U. S. From our Stockholm office as we do for all other markets. Wonderful. Thank you very much. Those were all my questions. We have a question from the line of Kristofer Liljeberg from Carnegie. Please go ahead. Yes, thank you. Continue with some questions. 1st, So when it comes to the growth rates, you mentioned the strong growth in the U. S. Could you say something also about organic growth in the other Geographies, it was a little bit difficult to see that because of the post store Acquisition, but I'm interested in the underlying growth, if that's possible. Yes, sure. The I would say in general, both bands have shown high growth and Very similar growth rates relative to each other, which means that If you look at absolute numbers in growth, but I actually haven't I don't have it compiled here. I can actually come back with the actual numbers for that, if you want. Okay. Yes. Okay. That's fine. And also, is it possible to say anything about how sales have developed in April? Have you seen negative organic growth now in April? Yes. As we have previously communicated, we expect Slightly negative organic growth in Q2, and we've seen that in April. So far in Q2, we are delivering according to plan. Okay. And which month in Q2 is the most Difficult comparison. Is it April or May? I would say it's the second half of April and the first half of May. That was the peak last year. Okay. That's very helpful. Thank you. Also, I was wondering, post store growth in the Q1, maybe I missed that in the report, but is that something I've kind of done? Now I mean that's nothing that we have commenting on, but It's we actually don't have exactly the deposit or number, but Let's say it this way. The pro form a growth, if you like, if you compare If we would compare post its own plus the Seniors Q1 last year with the same this year, it's above 80%. Okay. So the poster store is actually growing even faster than the Seniors? Yes. So in percentage, yes, also it's going faster. Okay. And then on the one related to the cash flow, you had high paid tax in the quarter. Is that the seasonal thing or in any way related to the Post Store acquisition or the IPO or something? Now it's a seasonal thing. It's 2 things. 1 is the company tax where we, of course, every month pay tax based on a forecasted revenue sorry, profit, which, of course, is less than the actual most of the time since you're going so fast. So we need always in Q1, we would pay Company tax and also from the strong sales in Q4 every year, we pay VAT, for example. Okay. Makes sense. And then last question from me. You mentioned a lot of marketing activity in the Q1. Would you say that Marketing spending or marketing activities were higher than normal in the Q1? Yes. We did spend slightly more marketing than planned in Q1. And the reason for that is that we saw strong momentum, And we wanted to enhance that even more, which you can see in the top line. But it also meant that we spent a bit more on marketing that we planned previously. And that's because, I mean, we saw the great momentum in Q1, and we wanted to maintain that into Q2 as we know we have tough comparison numbers from last year. And are you happy with what you have seen? Of course, It's a difficult comparison and you did see negative organic growth, as you said, maybe here in April. But are you happy with maintaining the momentum In the Q2. Yes. We're very happy with that. We saw the Q2 starting very strong actually, above expectation. And then as the well, as April went by, We did meet stronger numbers from last year. So it's all up for the plan, I would say. Great. Thank you very much. Thank you. We have a follow-up question from the line of Johan Brond from ABG. Please go ahead. Thank you very much. Just wondering about freight costs as well as we've seen impacting a lot of industries Leit, have you seen any impact of this during the quarter? And how do you see this progressing forward? Yes. So the freight costs to, for example, shipping or container costs Has gone up. As you all know, I think it's roughly 5x higher now than it was pre COVID. And it hasn't it didn't affect us last year Since we have supplier agreements regulating that, but we do expect Freight into warehouse from suppliers effective of slide 2 this year. So On an annual basis, it could be around SEK 5,000,000, SEK 6,000,000, which which to put into perspective in our call, that's 8.3%. Wonderful. Thank you very much. Thank you. We have a question from the line of Christophe Lilleberg from Carnegie. Please go ahead. Yes, sorry. Just one more on the tax this time. Reported tax rate 21%, do you think that's a good Indication for where the Zenio should be in the near term? Yes, definitely. I mean, we have Swedish companies to pay Swedish company tax. Great. Okay. Thank you. There are no further questions registered. So I hand back to the speaker for any closing remarks. Again, thank you very much, operator, and thank you, everyone, for your time and questions today. So we'll be hosting virtual digital roadshows over the coming days, and we look forward to speaking with as many of you as possible during this time. So please don't hesitate to reach out to us with any questions that you may have. And I just want to So if you have closing words here, I believe we do have a unique story to tell. So Thank you for your time and for your interest. And that's it for this call today. So goodbye for now. Speak soon and stay safe.