Welcome everybody to the Desenio Group's Q3 results presentation conference call. With me today, as usual, I have our CFO, Kristian Lustin. Presentation materials are available on our website. In the end, we will take your questions in the Q&A session. Today, we will start with the Q3 highlights, we give you a bit of a business update, a financial update. We summarize the call, and we have a Q&A session in the end. The highlights. In Q3, we saw clear effects of our previously announced cost savings. The operating profit grew slightly, despite decreasing sales, and the operating cash flow almost doubled. It was also very encouraging to see that net sales increased by 16% compared to the previous quarter, although it decreased compared to last year.
The investments and efforts were made over the past year in infrastructure and processes are largely completed. On September twenty-sixth, our logistics center in the United States dispatched its first orders. In doing so, we took a very important step towards creating an efficient infrastructure for sales in North America. In addition, as we previously communicated, we've launched a completely new web platform for Desenio's websites with new architecture and improved user interface. This change have had immediate effect already in the third quarter with higher conversion rate. Poster Store will migrate its websites also to this platform in Q1. Together with previous investments in and integration of our logistics in the Nordics and Europe, this means that we are now well-equipped for even more efficient order fulfillment in all markets.
It's also encouraging to see that we saw positive development in North America in the quarter. As we have communicated previously, we expect a break-even of cash flow in North America by Q2 2023. After completing the work on infrastructure and processes, our teams are now fully focused on marketing and sales. During the third quarter, we launched our Studio Collection, Wild West, which is primarily designed for North America, but also sold in Europe. In addition, we launched another collection in October, Studio Hollywood, in collaboration with Sofia Richie, who is the daughter of Lionel Richie, and she is one of America's most influential young women today. We believe that this will help us a lot in establishing ourselves in North America.
It's also very positive that despite quite large brand-building activities, we maintain marketing cost of sales at decent levels, especially considering the current quite uncertain consumer sentiment. Now let me turn more in detail to our Q3 performance. Net sales decreased 11% to 212 million. However, net sales, as I mentioned, increased 16% compared to the previous quarter. These numbers are not very impressive, but indicators at least that the gradual weakening of the markets we've seen for a long time have slowed down in the quarter. Gross margin is on the positive note, increased compared to the previous year, amounted to 83.8%. Adjusted EBITA , the margin here increased to 13.3% compared to 12.2% in Q3 last year.
Operating cash flow almost doubled compared to last year to more than SEK 40 million. This is a result of actions taken to improve working capital, but also increase as a consequence of reclassification of leasing and bond costs from 2020. Kristian will go into more detail of that later. The net cash flow for the quarter was 14 million. We move on to business update. By looking at search trends in comparison to the sales development of the Desenio Group, we see that historically in high season, our sales is higher in relation to search volumes. The Q3 development shows after the dip in Q2, that search volumes are increasing and our sales is increasing even more, especially in Germany, where we see big difference after the dip in Q2.
Here we are comparing Desenio Group to a few of our biggest competitors. What we see is the share of voice in Google in Germany and the U.K. In the right side of each picture here for Germany and UK, we can see the most recent quarter, Q3, and you can see here that this indicates that the Desenio Group is increasing market shares in this challenging market situations. Here we see our conversion rate and traffic. The conversion rate for the Desenio sites have stabilized in Q3 above last year, which we attribute to our improved user interface on our websites. Also, the traffic has increased during the quarter, even though it is still lower than last year.
The gross order intake increased in July but was flat in August and September. It's a bit hard to draw any further conclusions from this graph other than that the order intake should increase in Q4 based on the developments at the previous years. We performed in line with market development in the Nordic region. Net sales fell by 12% in our core markets, in Europe by 26%, largely driven then by Germany and the U.K., which are our two largest markets. However, net sales increased in the rest of Europe by 21% and in the rest of the world by 6%. Rest of the world is largely North America, and in North America, net sales increased by around 10%.
Going forward, we will focus primarily on continuing developing our position on our core markets in the Nordics and Europe, where profitability is highest, and then, of course, also in North America. This slide is showing customer highlights, and we see that our active customers continued to increase slightly, even though both our traffic and orders decreased compared to last year. Traffic decreased by 28% and the number of orders by 20%. Now it's time for Kristian for some financial update.
Thank you, Fredrik. In the following slides, we take a closer look at some financials. As Fredrik mentioned, net sales decreased 11%, in line with a lower activity in our markets. However, during the quarter, we had an increased gross margin, 83.8% compared to 82.8% in Q3 last year. This is due to price increases, slightly lower shipping costs, and positive exchange rates. Adjusted EBITA margin amounted to 13.3%. The improvement is mainly explained by effects from our cost-saving programs. CapEx was higher in the quarter due to purchases of equipment to the warehouses in Czech Republic and U.S. The development of net working capital was positive in the quarter, and we have now the same ratio of net working capital to net sales as last year. Our operational cash flow was 40.5 million, almost doubled compared to last year.
On this slide, we show a breakdown of the operating cash flow. The graph is more detailed than the cash flow statement. For example, it's the interest payment on the bond separated. Adjusted non-cash item is larger than usual since we have changed the classification of IFRS 16 leasing related items to be in line with the accounting standards. This entails that the lease payments have been moved down to financing activities. The inventory increased by 23.7 million due to regular inventory increase in preparation of high season and for the new warehouse in U.S. U.S. stands for 5 million of the increase. An increase in short-term liabilities resulted in a positive cash flow from changes in working capital and a positive cash flow from operating activities of 40.5 million. I now hand over to Fredrik again for a summary.
Thank you, Kristian. All right. To summarize the third quarter of the year, we are still experiencing a weak consumer market, but the sales trend indicates that the gradual weakening of the affordable art market that we've seen for a long time have slowed down in the quarter. We do see clear effects of the cost savings we announced in Q2, including improved operating profit and operating cash flow. Cash by the end of the quarter amounted to 136 million, and we expect it to strengthen further during the fourth quarter. Our investments in infrastructure and processes that we made during 2021 and 2022 are largely completed. This means that we are now well-positioned to focus fully on driving sales and take advantage of the strong position we have in Europe and really explore our potential in North America.
In addition, we see a positive development in North America with an expected break-even of cash flow in Q2 2023.
That was all for today. Thank you for listening, and we will now be more than happy to answer your questions.
Yes, our first question comes from the line of Carl Dej-Freij . Go ahead, your line is open.
Perfect. Thank you. Good morning, Fredrik and Kristian Lustin. A few questions from my side. First, on the P&L and the cost side, maybe if you could give a bit of granularity, sort of the development in the quarter on the fulfillment costs, considering that it's actually down here sequentially in absolute numbers, Q3 versus Q2, while your volumes are up sequentially. Could you share a bit more color on what explains that?
Yes. As we previously communicated, the relocation of the European volumes outside of the Nordics to our new Czech warehouse gives us cost savings. The salary cost in Czech Republic is approximately 30% lower than in Sweden, and the same goes for the actual rent for the location. That is the cost saving. In the beginning of the quarter, we moved down all volumes for the Desenio to that warehouse. That gives some impact.
Okay. Very well. I mean, the levels that you are now in relation to sales here in Q3, do you think that's a fair level to assume also going forward? Or just to give an understanding, when we look into Q4 and to 2023.
I would say that short term now, when we open the U.S. warehouse, you can expect the fulfillment cost for the orders in the U.S. to, well, short term, actually increase a bit before the volumes comes up. Because the fixed cost is of course larger, when we have low volumes of orders. All in all, I would say the level we are at now is a level we expect going forward, largely.
Okay. Very well. I had a question on the cash flows here in Q3. You're talking about this redundant payment for employees of around 8 million of a negative impact of 8 million here in Q3. I'm just wondering, could you help us out maybe telling us sort of where in the cash flow statement or which item is that sort of impacting, just to understand the movements here?
I mean, the reason why we wrote it is that, I mean, we have a reserve for it, so we don't have any costs, but we still have to pay it out, since they have to receive their salaries. I would say that it might be seen in that case. In fact, we have eliminated that in Q2, as we wrote in the report, we eliminated the reserve too, just so we took it away. I would say that, no, you cannot see it in the cash flow because it was not there from the beginning.
No, I mean, it's part of the operational cash flow. It's salaries, salary costs. Right?
Yeah, yes.
It's not specified especially.
It's not specified.
Okay. I guess it's, is it included in the P&L also then?
No.
No.
No. The difference is that we took the full cost of the redundancy payments in June.
Okay.
We're still paying out salaries in Q3. It's still in the cash flow. It affects the cash flow negatively, but not the result in the P&L.
Okay.
The provision that was made in Q2 was eliminated on two rows in the cash flow to have it net instead of gross.
Okay. Fair enough.
Well, basically the
It's not cash.
Cash flow effect, you will see in Q4, 'cause the majority of the salaries are the last payment is in October.
Yeah. If we would
Okay.
If we would have shown it gross in Q2, we would have adjustment non-cash, 10.7 higher, and current liabilities, the same amount higher.
Okay.
Equivalent in Q3.
Yeah. Understood. No, I think that was.
The operational impact.
Yeah. Yeah. I think that was all from me, so thank you.
Well, thank you.
Thanks. I didn't mention the call is from Carnegie. The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Go ahead, your line is open.
Thank you very much. Good morning, guys. A couple of questions from me as well. First of all,
Just, could you give us the approximate split for rest of world? Like, what is organic and what is an FX effect, in terms of sales growth, please?
Selva?
The overall FX effect is around 5%-6%. I included U.S. in that one. U.S. is not included in core Europe. I mean, U.S. is so small, so I would say around 5-6% is FX.
For rest of world?
Yes, since that's.
Okay
I mean, the euro. You only have the euro impact.
Yeah.
The question is how big is it for. The dollar effect basically for rest of
Yes. Yes, that is right. Yeah.
Okay, I was in Europe. The dollar effect is the majority since U.S. is.
Yes.
Yes. Right now I don't have the such detail on a specific country.
All right. That's all right. If we could continue talking a bit about rest of world and more specifically North America. If we could get a bit more color on sort of entry, exit rates for sales. I'm thinking about like what effects have you seen after the warehouse opening and the shorter lead times that implies?
It's very early days. The warehouse has been in operations for well, exactly one month now today. So, we can't say that we've seen any sort of changes in sales from that yet.
All right. Yes, I understand that it's very early still. Another question on the North American side then. Could you please remind us what we can expect in terms of further inventory buildup for that warehouse specifically going into Q4?
Yeah. I mean, during Q3 of the inventory buildup of 23 million, was it?
Yes.
Around 5 million is for the U.S. Warehouse. That warehouse is now sort of fully filled with products. We don't expect any further buildup. That stands out. The U.S. warehouse will sort of follow the rest of the inventory movements.
All right. Perfect. Thank you very much. One last question. For the segment Europe, you grew quite significantly above, I believe both the market and all other segments. Could you just talk us through why that might be the case?
Sorry, I didn't quite get the question.
For the segment Europe, if my calculations are not way off, you grew very impressively above 20%. For this geographical market, rest of Europe, could you just give us a bit more color on that, please?
I think the biggest explanation in the difference between growth rate between core Europe and rest of Europe is really last year. During COVID lockdowns, Germany, France and the U.K., which are three of the four countries in core Europe, were really strong, which means that the sort of opening post-COVID effects of those countries have been higher negative growth than other countries in Europe. Still, of course, rest of Europe has shown strong results. It is a bit funny because those are the countries that we, since the cost savings in Q2, are focusing less on.
Still they have performed due to the marketing activities that we do, that we also have changed a bit since Q2.
All right. Perfect. I believe those were all of my questions at this point. Thank you very much.
Yeah, we have no more questions at this time, so I hand the word back to you, Fredrik and Kristian.
All right. Thank you very much, operator, and thank you everyone for your time and questions today. Please don't hesitate to reach out with any further questions you may have.