Welcome to Embellence Group conference call. 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 the speakers, CEO Olle Svensk and CFO Karin Lidén. Please go ahead.
Good morning, everyone, and welcome to the presentation of Embellence Group's Q2 2023 report. My name is Olle Svensk, and with me today, I have Karin Lidén, who is the CFO. Embellence Group, we acquire, own, and develop strong brands in wallpaper, textile, rugs, and other interior decorations. Moving on to some highlights for the Q2. Needless to say, consumer demands remains very challenging, especially in the dealer and retail segment, and certainly in the northern part of Europe. Our net sales came close to SEK 170 million, which is down 10.5% compared to last year.
Thanks to, you know, being able to take down our fixed cost over the last years, we still achieved a healthy profitability, thanks to, as well, streamlining as well as price increases and, good cost control. Our Adjusted EBITDA amounted to SEK 18.4 million, which is equivalent to 10.8%. Inflationary pressure compared to last year, the same period, is of course, on a very high level. However, as we have indicated before, we do see input material prices going down, I would say in more or less all areas. As it will take a little bit more time until we can see it also in our gross margin. Having said that, our gross margins in the quarter was very strong, but Karin will cover that later on.
Going forward, continued focus on managing our cost base. The cost-saving program that we implemented end of last year is delivered now month by month, and we estimated it to SEK 9 million full year, and it's going on as planned. Further efficiency improvements have been made and, but we cannot rule out that there will be some more as well. Now over to you, Karin.
Thanks, Olle. I will talk a bit about the key figures of the quarter. As Olle said, the net sales was SEK 169.9 million during the period, compared to SEK 189.9 million last year. This corresponds to a decrease of 10.5%. The low demand is particularly visible in the Nordic countries, while Europe shows more resilience. The Adjusted EBITDA was SEK 18.4 million, and the margin 10.8%. As Olle said, we managed to defend the gross margin well, we actually had a level above 60% this quarter. The main reasons for this is the price increases we've implemented over the last 12 months, the cost saving program from last year, also continued cost control.
Of course, the cost savings and cost control also applies to the operating expenses. The operating cash flow was 12.2 million SEK in the period. This is a decrease compared to last year. Of course, the lower EBITDA level is a main reason. We have also seen an increase in working capital. The main reason for this increase is a higher inventory level. Most of it is a planned increase. It's partly a stock buildup to prepare for several larger launches in a couple of our companies. We have launches in both Nordics and U.K. during Q3 and rest of year, but it is also a seasonality to prepare for holidays. We close down a couple of our factories during the holiday period. We do that every year.
as we have said before, has been mostly impacted by the weak consumer demand. We see a decline in all Nordic countries, but the largest in Sweden, which is also our main market. The EBITDA is decreasing due to the lower sales volumes, and here, as for the group in whole, the cost savings program and cost controls compensate, but only partly. Nordic represents 35% of all sales in the quarter, and the share of premium is also 35%. Continuing with, sorry, too fast
Continuing with Europe, this is actually the largest region in the period, with 37% of the sales. Demand has shown to be more stable in Europe. Net sales is almost on par with last year. However, there is a mixed picture between countries and brands. We have a solid growth in Switzerland. U.K., Italy, and Poland are stable, while it's been a somewhat weaker performance in Germany and France. The Adjusted EBITDA holds well and is even higher than last year. The share of premium is 83%. If we look at the Rest of World, it's down 10.7% to SEK 48.3 million. Also in Rest of World, we have a very mixed performance between countries and brand.
We see a weak development in the U.S., our largest country in Rest of World. Also here, the development differs between brands. As we mentioned in the CEO statement of the report, one example is that Boråstapeter has developed very well in the U.S. during the quarter. Adjusted EBITDA is SEK 4.6 million, which is lower than last year and explained by the weaker net sales. Rest of World represents 28% of total sales in the period. Ninety-four percent of the sales is premium. Looking at our financial targets, we have a target to reach 1.2 billion in sales, maintain a margin of EBITDA above 15%, and a leverage below 2.5% long term.
We also have a dividend policy to pay between 30% and 50% of the net profit for the period, which we also did. We paid SEK 4.8 per share, which corresponded to just about 30% of the net profit 2022 as a dividend in May. Back to Olle for a summary.
Thank you. Yes, of course, we're not happy with the overall net sales performance of the group in the quarter, especially in the Nordic, has been very challenging. I think I need to mention as well that from different, you know, reliable sources, we hear indications that the market is down in the dealer segment with somewhat, something between -20% and -30%. We are navigating in a very challenging market environment, I have to say. In addition to this, I also need to say that I am happy that we've been able to decrease our fixed cost base. We do defend our margins quite well, both in terms of Gross Margins, but also being, reaching an Adjusted EBITDA of 10.5%.
Good and healthy profitability due to the streamlining and price increases that we mentioned here before. Our own direct-to-consumer sales is continuing to grow with a high double-digit level. We will continue to manage our costs going forward as well. As I mentioned before, there might be further initiatives that we will implement going forward. Input material costs are of course, higher than a year ago, and we have compensated that with price increases. The good news is that we see that they are now coming down a bit. Going forward now in 2023, we will continue to focus on profitability, stable cash flow, and make sure that we have a good and resilient balance sheet.
We do see pockets of growth in the market where we will invest with focus in those areas. Streamlining and further cost control, we'll continue with that. Increased cooperation between our brand houses as well. We are undergoing a strategic review of our Italian brand, Wall&decò. Having said that, we are now open and willing and ready to take questions. Thank you.
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 Wallstedt from ABG Sundal Collier. Please go ahead.
Good morning, Olle and Karin Lidén. Olle, to follow on your final point there, the Wall&decò strategic review. I was wondering if you could perhaps elaborate on sort of conclusions drawn already and whether or not you've sort of realized any cost savings here already or anything like that would be interesting, please.
I mean, the start of this work, we was from first of June, so a little bit early, but it will relate to the product offering, but also the cost structure as such. It's a little bit early to give any more clarification on it. We're spending a lot of time right there now, and as I've mentioned before, with Wall&decò, we are increasing our efforts in the hospitality segment, where we see good growth, while dealer segment, there is a slowdown as well. You have to hold that thought, Benjamin Wallstedt, a little bit, and we will come back with it, with further details later on.
No worries. I can try to remember the question for next time as well.
You said that.
Yes. You comment as well on slower sales to retailers. Could you perhaps update us on your views of current retailer inventories or if you can comment on that at all, please?
I mean, on inventory level, I think they are as low as they ever have been right now. I don't see any retailer taking on inventory right now. They are rather, they order what they sell all the time, and that, so I don't see any further, you know, inventory reduction from retailers. We are on a very low level, and as we are, the retailer and the dealer segments out there, they are trying to manage their cash flow as good as they can.
On a similar note, to sort of better understand the sales growth figures here, are there any significant timing effects in major projects or similar that could have affected Q2 specifically? Or are we looking at run rate figures sort of in all segments here, please?
you mean if there are any delays in shipments or something?
Any major projects that were booked, sort of around quarter ends or beginnings or anything like that?
No, I wouldn't say so. Nothing that would is having an any significant effect, at least.
Perfect. Perhaps, a final question for me as well. If you could perhaps comment on the very high share of premium sales in the Nordics, what brands are driving this, please?
I mean, the two major brands that we have in the Nordics, that's Boråstapeter, and it's Pappelina. One of the reasons, it's a mix effect, I would say, that we have a relatively lower share of prof sortiment at Borås from Boråstapeter. That has certain effects, but we've been around 28, 29, around 30%. Now it's a little bit higher. At the same time, Pappelina has performed fairly well in the quarter as well, which also adds up to it.
Yeah. To sort of follow on that as well, would be interesting to hear if you have any thoughts on, sort of pro versus DIY development in the quarter or during the year, please?
Yeah. There is no, not more than I would say what we can read in the news as well. When it comes to the building segment and the building sector, it is a low activity level. There is a low activity level in our dealer, the dealers we sell to, especially in Sweden, who many of them are selling a lot of paint, as you know as well, and they have a very low footfall right now, or there is some kind of, it's a strong slowdown in the construction building segment. We are not supplying that much to new build, as you know, but also renovation is coming down.
Thank you. That was insightful. Those were all my questions for now. Thank you.
Thank you.
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 any closing comments.
Thank you very much, everyone, for listening in. We are now heading into the third quarter, which, as you know, especially in the Nordic, is typically quite soft, while activity level is still high in Europe. I look forward to speak to you in October again. Thank you.