Welcome to Desenio Q1 Report 2023. 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 and CFO Kristian Lustin. Please go ahead.
Welcome everybody to Desenio Group's Q1 results presentation conference call. With me today, I have our CFO, Kristian Lustin. Presentation materials are available on our website, and the Q&A session will follow at the end. Based on the previous quarter, the market during the Q1 of 2023 was stable, with customer behavior in line with our expectations. In this environment, it is gratifying to see how the measures to streamline operations that we completed in 2022 are now having a positive impact on profitability. Net sales decreased by 9.5% to SEK 260 million compared to the same period in 2022. The lower net sales is explained by the fact that the sales in January 2022 during the end of the pandemic was extremely strong compared to 2023.
During the latter part of the quarter, sales were at the same level as the year before. We invested in marketing in the quarter, which led to marketing expenses in relation to net sales increasing from 25.5% in Q1 last year to 28.5% in Q1 this year. The higher level is explained by our investment in marketing Europe, but also in North America, where we build our brand and continue developing the business. Furthermore, we are very pleased that Anna Ståhle has accepted a position as new CFO of Desenio Group. Anna will assume the position as of first of August. She has a broad experience from leading consumer companies as CFO, financial manager, and in addition with sales supply related responsibilities.
Profitability for the quarter was higher than in the same period last year, despite lower sales and higher marketing expenses. This is among others, because of warehousing and shipping costs being clearly lower than before as a result of our development of our fulfillment setup, resulting in increased efficiency. The cost for fulfillment decreased from 30% in Q1 last year to 26.4% in Q1 this year. In addition, cost for admin and other was SEK 7 million lower during the same period last year, Sorry, during Q1, compared to the same period last year, mainly due to staff reductions made in Q2 last year. Adjusted EBITDA for the Q1 therefore increased despite the lower net sales to SEK 42.1 million compared to SEK 36.5 million in Q1 last year.
This means an adjusted EBITDA margin of 16.2% compared to 12.7% in Q1 last year. This was the fifth quarter in a row with increasing margins. The operating cash flow during the Q1 amounted to SEK 42.6 million. In Q1 last year, operating cash flow was SEK -49 million. Kristian will in the financial section explain the large difference in cash flow. As of the 31st of March, cash and cash equivalents amounted to SEK 193 million compared to SEK 156 million at the beginning of the year. To summarize, we still experienced negative year-over-year net growth in Q1. On the other hand, higher gross margin, higher adjusted EBITDA margin, and strong operating cash flow. Here we analyze the impact of our work to decrease cost levels and increase efficiency.
We see that the improved efficiency in fulfillment has had positive impact of 3.6 percentage points, and that higher product margin, lower employee costs, and other costs in total also amounted to an additional 3.6 percentage points, well, pure savings compared to Q1 last year. Now let me comment more in detail on the development of the business in the markets. By looking at search trends in comparison to our sales development, we can see that our sales continue to trend higher than the market search volumes. This year's Q1 search volumes were lower than last year's, which also reflects in our sales compared to last year. However, coming into low season in Q2, search volume trend looks slightly more positive than last year.
Comparing Desenio Group to a few of our biggest competitors, we see that we, during Q1, slightly increased the share of voice in Germany and the UK, our two biggest markets. This indicates that in this still rather challenging market, Desenio Group is still increasing its market shares. Our conversion rates for the Desenio websites has in Q1 been well above 2020 and slightly above 2021. The traffic in Q1 was well above the 2019 and towards the end of the quarter in line with last year, but on a more positive trend going into Q2. As already mentioned, the gross order intake started the year lower than last year, but caught up towards the end of the quarter to be in line with last year. The trend looks much better than last year going into Q2.
It's also encouraging to see that this level is considerably higher than what it was in 2019 before the pandemic. Our net sales showed negative growth in three out of four segments. In the Nordic region, net sales fell by 11%. In our core markets in Europe, fell by 9%. In rest of Europe, it fell by 15%. Positive is that in the rest of the world, net sales increased by 9%. In North America, net sales actually increased by around 17%. Here we see some customer highlights. We can see that our active customers have decreased, as well as traffic and orders compared to last year. Both traffic and number of orders decreased by 19% each. With that, I hand over to Kristian for the financial update.
Yes. In the following slides, we take a closer look at some financials. As Fredrik mentioned, net sales decreased 9.5% in line with a lower demand in our markets. During the quarter, we had an increased gross margin, 84.3% compared to 83.2% in quarter one last year. This is mainly due to lower shipping cost and positive FX effects. Compared to the Q1 of last year, the EBITDA margin improved despite the lower net sales. Adjusted EBITDA margin amounted to 16.2%. The improvement is mainly explained by the effects from increased fulfillment efficiency and the cost saving program implemented in Q2 last year. No CapEx in the quarter, the CapEx last year was also on a low level.
The net working capital was very high in Q1 last year, but has been improved every quarter thereafter, and it continued in Q1 this year. Compared to the year-end, the main change is due to decreased inventory levels. The ratio is now slightly above 9% on 12-month rolling net sales. The main difference between Q1 last year and Q1 this year is decreased inventory and less current receivables. One large explanation was the tax receivables that was paid out in Q2 and Q4 last year. Our operational cash flow in the quarter was SEK 43 million, which is further explained on the next slide. The operating cash flow during the quarter was positive with SEK 43 million. Bond interest payment was just over SEK 22 million compared to just under SEK 16 million previous year.
Non-cash item consists of depreciation and amortizations on fixed assets, intangible assets, and leasing assets. A reduction in inventory contributed with SEK 19 million in the quarter. Current liabilities increased by SEK 10 million, this was offset by tax items of SEK 12 million. The overall picture of the quarter's cash flow is that the low short-term liabilities at year-end had a positive effect on the quarter's cash flow, and last year it was the opposite. The focus on more efficient inventory management that started in 2022 had a positive effect in this quarter as well, with SEK 28 million less inventory than at the end of March last year. I now hand over to Fredrik again for the summary.
Thank you, Kristian Lustin. To summarize the Q1 of 2023, we are still experiencing a rather weak consumer market, which is reflected in our net sales. However, we are on a positive trend coming into Q2, which says in line with last year towards the end of the quarter. Cash position strengthened by almost SEK 38 million in the quarter. The uncertainty we lived with during 2022 will continue during 2023 as a result of hiking interest rates and inflation, leaving every consumer with a thinner wallet. This uncertainty becomes even bigger depending on how the downturn in economies will affect employment rates. Nevertheless, we see continued positive development in North America, but it will still take some more time to reach meaningful sales levels as it often does in new markets.
Thank you all for listening, and we are now 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 ABGSC. Please go ahead.
Good morning, guys. First off, quite an impressive inventory reduction here. How should we view the stock and trades or the inventories rather, going forward, would you say?
Sorry, I didn't quite get the question there. How we view the inventory levels if they are sustainable?
Yes, exactly. Yes.
Was that the question?
Yeah.
Yes. I think during the whole last year, we've had too high inventory levels due to the fact that we didn't really sell as much as we expected. We worked during last year and we're still working to reduce inventory levels. I think we're about to reach a balanced inventory level for the sales that we have now. Well, the answer is you shouldn't expect that the inventory levels will fall this much every quarter now.
Perfect. Thank you very much. I note that you don't report any organic growth this quarter. Would you say that 15% is a good or 15% decline is a good approximation?
I can't hear that well. Can you please repeat that? 15%?
Absolutely. Is a 15% organic decline a good approximation of the organic development in the quarter, please?
You mean going forward or in general?
No, in Q1. I couldn't find anything in the report for organic growth.
Okay. You mean, without the FX effects, for example?
Yes, exactly.
Yeah. Yeah. We can elaborate a bit more on that. Will you please do that, Kristian?
We estimate the FX effect to be 4.4% in the quarter.
All right. Yeah. 15% is not that far off then. Could you as well, if possible, discuss your development compared to the market overall if you have any understanding of peers' performance?
Yeah. I mean, what we basically look at that is the slides that I showed where we compare the search volumes for M&M share of voice in the marketing landscape for different brands. It's still the same as it's been during the whole downturn, that we believe even though search volumes in the market declines, we believe that we still take a bit of market share in those markets. We also see, I mean, already during Q2 last year, we saw that many competitors, well, were not as visible in the digital marketing landscape. That's also a sign that we are taking market share.
Perfect. On that note, could you perhaps discuss marketing allocations slightly? Marketing costs are up. Is this an effect of sort of reallocation, and then also increased marketing prices or is this just an effect of just adding on marketing spend in North America?
It's a bit of a combination. I would say in general, the search volumes are still down. We actually need to spend a little bit more to maintain volumes higher than the market, so to speak. We are actually investing a little bit extra in marketing to gain market share in this market. On top of that, we're also spending more in North America to build a brand and really grow.
Perfect. Thank you very much. That was all I had right now.
Thank you.
Mm-hmm.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for questions from the webcast or closing comments.
Okay. I don't think we have any written questions or, No? Thank you very much, operator, and thank you everyone for your time and questions. Please don't hesitate to reach out to us should you have any questions or requests. Speak soon and stay safe.