Welcome to Desenio Q4 Report. For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to CEO Fredrik Palm. This call is being recorded.
Thank you very much, operator. And sorry everyone for some technical hiccups, but here we are, I hope. Welcome everybody to Desenio Group's Q4 results presentation conference call. With me today as usual, I have our CFO, Kristian Lustin, and the presentation materials are available on our website. As usual Q&A session will follow at the end. In Q4, the market in Europe for wall art was stable, seasonally in line with the previous quarter. Demand, however, was at a lower level compared to Q4 2021. This was reflected in Desenio's net sales, which decreased by almost 12%. In the Nordics, net sales fell by 6%. Core markets in Europe fell by 8%, and the rest of Europe fell by 22%. The rest of the world increased by 4%. We operated in a market with increasing costs of marketing.
We do see signs that competition in online marketing is decreasing. At the same time humbled by the fact that it's too early to predict how it will affect the cost going forward. We navigate this changing landscape with cost control and daily tactical adjustments of our marketing. In North America, which still represents a fairly small part of our sales, net sales increased by approximately 7% compared to the fourth quarter 2021. It's positive to see growth as a change from our other segments. The investments in North America has limited impact on our cash flow and EBITDA. At the same time, we judge that long term the market has potential to stand for a significant part of our sales. In June 2022, we announced an annual reduction of our salary cost of SEK 32 million.
The lower cost level had a positive impact on our profitability already in Q3. More or less full cash flow effect from November. Fulfillment as a share of sales decreased despite lower volumes from 29.1% in Q4 2021 to 27.8% in Q4 2022. The improvement is explained by lower shipping costs, which despite higher fuel prices and wages decreased as a result of investments in efficient logistics structure with warehouses close to our customers. Cost per order for the warehousing part of fulfillment is at the same levels as 2021, but will decrease as sales volumes increase. Adjusted EBITDA for the fourth quarter amounted to SEK 45.6 million, corresponding to an adjusted EBITDA margin of 16.2%. The operating cash flow during the fourth quarter amounted to SEK 24 million.
Cash and cash equivalents amounted to SEK 156 million at the end of the year. In summary, we saw negative year-over-year net sales growth in Q4, a higher gross margin, a higher adjusted EBITDA margin, and an increase in net working capital. Here we analyze the impact of our work to decrease cost levels and increase efficiency. We see the lower salary cost and efficient fulfillment has had a positive impact of 4.5 and 1.3 percentage points respectively. While the marketing cost had a negative impact of 4.9 percentage points. Increased product margin is due to higher sales price than purchase cost increases and positive sales effect from the weakening SEK versus Euro. The negative effect of a weak SEK versus Euro and USD is reflected in other operating costs. Now, let me more in comment.
Sorry, more in-detail comment on the development of the business in our markets. By looking at search trends in comparison to sales development, we can see that historically, in high season, our sales is higher in relation to search volumes. This was also the case in Q4. The Q4 development shows that since the dip in Q2, search volumes have increased and our sales have increased even more, especially in Germany. In the U.K., the high season peak in search volumes has not reached Germany's levels, the past two Q4s. Comparing the Desenio Group to a few of our biggest competitors, we see that during Q4, slightly increased our share of voice in Germany and the U.K. This indicates that in this rather challenging market, the Desenio Group is still increasing its market shares.
Our conversion rate for the Desenio websites stabilized above last year during Q3 due to improved user interface on our websites. During Q4, our conversion rate increased from Q3 and improved slightly from last year's Q4. The traffic, however, continued to increase during the quarter, still lower than last year and more in line with 2019. The gross order intake followed the same pattern in Q4 2022 as in previous year. At a lower level in 2022 than in 2021. It's at the same time very encouraging to see that the level is higher than 2019. Our net sales followed, as mentioned, the market development in our focus markets.
In the Nordic region, net sales fell by 6%, in our core markets in Europe by 8%, in rest of Europe by 22%, and in rest of world, net sales increased by 4%. In North America, net sales increased by around 7%. This slide shows customer highlights, and we see that our active customers decreased slightly, as well as our traffic and orders compared to last year. The traffic decreased by 23% and the number of orders by 22%. I will now hand over to Kristian for the financial update.
In the following slides, we take a closer look at some financials. As Fredrik mentioned, net sales decreased 11.7% in line with the lower demand in our markets. However, during the quarter, we had an increased gross margin, 85.6% compared to 82.3% in Q4 2021. This is due to higher sales price and purchase cost increases, FX effects, and lower shipping costs. FX effect is approximately 25% of the improvement and lower shipping costs around 60%. We improved our EBITDA margin despite 12% lower net sales compared to Q4 2021. Adjusted EBITDA margin amounted to 16.2%. The improvement is mainly explained by effects from our cost-saving programs. CapEx in quarter refers to investments in our warehouses in Czech Republic and the U.S.
The development of net working capital was positive in the quarter, and we are now about the same ratio of net working capital to net sales as last year. Our operational cash flow was SEK 24 million. Here's a breakdown of the operating cash flow. The net cash flow for the quarter was positive with SEK 20 million, where our inventory decrease in quarter contributed with SEK 10 million. In addition, we received net tax payments of SEK 21.6 million. On the other hand, we reduced short-term liabilities with SEK 33.2 million, which impacted cash flow negatively. The overall picture of the quarter's cash flow is that the high short-term liabilities at the end of quarter 3 have been paid during the current quarter, and that we end the year 2022 with SEK 40 million lower short-term liabilities than previous year. I now hand over to Fredrik again for summary.
To summarize the fourth quarter of 2022, we're still experiencing a weak consumer market, which is reflected in our net sales. We see positive development in North America that will take some more time to reach meaningful sales levels, as it often does in new markets. We do see clear effects of the cost savings we announced in Q2 and our investment in warehouses and operations, which had a positive effect on our profitability. Our cash and cash equivalents are in line with the beginning of the year, and we've handled this difficult market and made the necessary adjustments. The uncertainty we lived with during 2022 will continue during 2023 as a result of still rising interest rates, inflation, and the ongoing war.
We stand strong thanks to leading market position, well-invested operations, highly motivated employees, and the cost level that is balanced in relation to current sales levels and also for growth. Thank you all for listening, and we're more than happy to answer your questions. Over to you, operator.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Please go ahead.
Good morning, guys. I was wondering about the admin and other ratio. It seems that the savings were perhaps bigger than expected. Any additional favors here would be helpful. Thank you.
Yeah. You mean the savings in admin and other is larger than.
Than SEK 8 million per quarter. Yeah.
Yeah. Kristian, do you wanna answer that?
Yes. I mean, I mean, there are other costs in admin and other than just salaries. I mean, we have re-reduced, we had less consultancy costs, less other costs also, so which contributes to a lower level.
All right. These lower consultancy costs, is this something you expect to be able to keep up going forward?
Yeah. We believe the admin and other level that we have now is a level that we can keep going forward. Of course, I mean, we will hopefully get back to growth, and as that happens, we might also need more people.
Yeah.
For this level of sales, we believe that we can keep this admin and other level.
Perfect. Thank you. Could you also, perhaps share with us the share of the rest of the world segment, that is the U.S., please?
You mean the rest of the world contribution to sales?
No, the U.S. contribution to rest of world sales, if possible.
Oh, okay. Okay. Yeah. We don't communicate that, but you can count on that. That is the vast majority of that segment.
Perfect. Could you perhaps elaborate a bit on marketing costs in the quarter, please? What do you see in terms of CPC, for example, across markets?
Yeah. I mean, we saw during mid-2022 that the CPC went down. We saw weaker competition in online marketing. Always in Q4, CPC goes up because there's more retailers out there that wants to market themselves and increase sales. I mean, Q4 is after all high season for many retailers. What we saw this year, I would say there was a bigger difference in online competition overall. There was a bigger change from sort of Q2, Q3 to Q4. I think one reason for that is that it was lower than usual during sort of mid-2022. ...Also, I mean, we all know that the...
...there's a lot of retailers out there that has very high inventory. I mean, most of them were very aggressive in Q4. I think the higher CPC price was a consequence of that. I mean, as we said, we are very... It is very unclear which way the CPC prices are gonna go, now coming into 2023.
Yes, of course. You also comment that the marketing costs might be inflated due to increased investments into the North American market. Is it possible to quantify that further, please?
No, we don't communicate the marketing levels we have in North America. As you say, I mean, you can assume that they are considerably higher in relation to sales than in Europe.
Yeah, got it. Then finally, when you comment on the market being stable, in quarter, should we interpret this as a neutral sequential development from Q3, or should we interpret this as a flat development within Q4? That is, the entry and exit rates were roughly the same.
No. I would say it is stable in the sense that, the sort of normal seasonality from Q3 to Q4 is in place this year.
Perfect. I believe those were all of my questions for now. Thank you very much.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
Yeah. That's it.
There are no more questions from the telco, so I hand the word back to you, Fredrik and Kristian.
Thank you very much, operator. Benjamin, I can, well, extend the answer on the last question there, the quarter-on-quarter growth. When I say we're back on more normal seasonality Q3 to Q4, meaning that, in 2022, the increase from Q3 to Q4 was 33%, and that is basically what it was between 2017 and 2019, last normal years, I would say, in seasonality. With that, we also have some written questions here, so we'll go through them. One question is, could you comment a bit on strategy? It seems to me that Desenio runs a lot of offers all the time. Could this be because of data-driven strategy which might lead to short-term thinking?
Yeah, it's a good question. I would say that already since the start of Desenio, we have had a model which is very much driven by campaigns. But you're right that the campaigns have, well, are more intense now than they were five years ago. I would say that's also goes hand in hand with the whole retail industry. There are, of course, different strategies for building a brand, but the part of the strategy for Desenio has always been building on campaigns. The next question here, very strong gross margin development in Q4, also when comparing it to historical gross margins. Do you see this as a reasonable base going forward?
Well, as we have stated in previous quarters where we also had high gross margin, is that we don't believe that gross margin will stay at these very high levels long term. We believe that if you, if you want to model this long term, I would say it should be more in line with historical levels, which is more around 82%. Right now we have help from the weakening SEK on top line. Also that we have made during the past two years, some price increases to level out sort of purchase price increases. These increases haven't been quite as high as we've seen.
Also the timing effect of those will come a little bit later as we sell the inventory, first in, first out. Let's see. Yeah, we have one more question in writing, but I think we've answered that in the previous questions. If no further questions, I wanna thank you all for your time and questions here, and please don't hesitate, as usual, to reach out if you have any more questions or wanna discuss. Thank you very much.