Hello, welcome to the RugVista Group Q2 2021 report. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Michael Lindskog, the CEO, and the CFO, Henrik Bo Jørgensen. Please go ahead with your meeting.
Thank you. Welcome everybody. Hope everyone is doing well. We are happy to have you online, we are also pleased to present our interim report for the first six months of 2021. If we move to page number two, just to kick things off with a bit of a summary. The performance during the quarter was very much in line with our long-term financial targets, despite the tough comparables from Q2 last year, as well as the somewhat unfavorable market conditions that we experienced during especially the 2nd half of the quarter. If we look at some of the details, the growth continued, and it was growth across all of the segments. We continue to use or are still able to use the DACH region as the growth engine, and that's very much, of course, in line with our internal priorities.
Also noticeable is that we are seeing some initial signs of recovery within the B2B segment, which did experience a significant demand downturn during COVID. Margins continued to also remain at healthy levels. We managed to further improve our gross margin, which was again driven by category mix effects and lower average discount rates. We did have a slight offset from increased investments in growth, i.e., marketing investments. Third, we are very pleased that the efforts we executed end of last year, especially is when those efforts were initiated, in terms of restocking. We've previously communicated that our inventory levels have been on the low end of where we want to be, and now with the successful drive together with our partners, we managed to significantly rebuild or restock our inventory. We're well-positioned for the upcoming peak season.
Of course, we do have continued outstanding customer satisfaction, which is, of course, our number one priority. We, across the entire organization, to be fair, continue to focus on what's important, and that is ensuring customers are happy when they buy from us. As mentioned, we are progressing nicely on our strategic initiatives with the DACH region as the overall growth engine, and we see continued progress with our Amazon initiative. If we move over to page three and page four, just to look at some of the KPIs on page four. As we mentioned last time, we have a couple of selects, a couple of KPIs to track our progress towards our long-term vision. Number one, the customer satisfaction level continues to be at outstanding levels. We essentially had an unchanged Trustpilot rating, and our NPS is still at world-class levels of 66.
Order count is still growing, grew slightly above the total turnover, customer acquisition continues to be at about that level as well. Overall, we are progressing essentially according to plan on what we want to do long-term as well. A little bit of a different perspective or highlight in terms of the inventory topic. What the slide on page five shows is that we've, since actually end of last quarter, had a 60% increase on the number of items we have on hand. In the financials, of course, the focus is on the value of the inventory. We kind of wanted to also show you what it means in terms of the actual number of carpets or rugs that we have available. That has actually increased by, like I said, 60% during the quarter, which puts us well-positioned ahead of the upcoming peak season.
With that being said, I'll leave the word to Henrik to take us through the financials.
Thank you, Michael. If we move on to the next page, starting with our top line, on the left-hand side, you can see our year-to-date development, where we have reported revenue growth of 47% year-on-year. If we look at our like-for-like growth, excluding divested operations and currency effects, then we grew our revenue by almost 58%. Zooming in on Q2 in the middle of the slide. We had, as Michael mentioned, a more moderate growth level of just shy of 23% year-on-year, but still in line with our longer-term ambition of reaching organic growth of approximately 20% per annum. Compared to Q1, which was quite outstanding, the lower growth is driven by the fact that comparables in Q2 last year were tougher. We also have a seasonality effect where summer half of the year is the low season for us.
Last but not least, as Michael also alluded to, the second half of the quarter was impacted by warm weather in general in most of our European countries, as well as the easing of COVID restrictions. On a segment level, growth in our second-largest segment, B2B, which is approximately 10% of our net revenue in Q2 this year, was especially satisfactory, as Michael mentioned, given the fact that demand in general remains depressed due to the pandemic. We managed to grow in certain customer segments, such as interior designers, where we saw a noticeable increase in activity during the quarter. Our Marketplaces & Other segment, which is our sales through Amazon, was also satisfactory and grew at a strong pace of 54% year-on-year, that was against quite tough comparables as well.
We see that as a testament that our activities to drive growth on Amazon is continuing to be effective. If we zoom in on our largest segment, B2C, on the right-hand side, we see our development by geography. As Michael also mentioned, DACH continues to be our main growth engine there. However, we did also see strong growth in some other large markets in Europe, such as France and the U.K. In the Nordics, the picture was a bit more mixed, with differences between the various countries. We came out a bit lower there. If we move on to the next page, we can have a look at our margin development. If we start in the lower left-hand corner, you can see our Q2 development versus last year, where we managed to improve the gross margin by roughly 2 percentage points to 64.1%.
This was driven by a favorable development in category mix as well as a lower average discount rate compared to last year. Together with the strong development in margins in Q1 this year, we ended the first half year just shy of 65% and roughly 3 percentage points higher than last year, which is quite strong, we think. On a segment level, if we look to the middle of the slide, the development was strong across all our segments. I want to emphasize Marketplaces & Other, where we grew gross margin quite a lot. This is also due to a lower discount rate and a push in assortment towards a higher margin design rugs and fewer lower margin traditional rugs.
We see that as a testament as well, or at least an indication that we are able to drive profitable growth through third-party channels, despite, in general, lower price points on Amazon compared to our own site. Ending up with the adjusted EBIT margin on the right-hand side. In the lower right-hand corner, you can see our Q2 development, where we landed at 17.6% this year, which is a bit down compared to last year. However, still above our mid to long-term ambition of having an EBIT margin of at least 15%. It's worth mentioning that in Q2 this year and last year, there were no one-offs. Year to date, our operating margin landed at 21.6%, which is a 4 percentage point improvement roughly compared to last year. If we move to the next page, we can look at the underlying drivers for the margin development.
Starting on the right-hand side with the Q2, as mentioned, our gross margin development was favorable. That, however, was offset by increases in other external expenses as well as personnel expenses, which grew by 2.5 and 2.0 percentage points relative to net revenue compared to last year. The development in other external expenses is to a large extent driven by higher marketing costs, where we saw an increased competition in the ad space. It's also worth mentioning that last year, Q2 activity was quite low. Comparables, you can say, were not too behind.
You look at the personnel expenses, we are up year-on-year, which is due to planned hires, the implementation of annual salary increase cycle between the quarters, and then obviously a reduced scale effect since our Q2 net revenue is lower than our high season quarters, Q1 and Q4. Actually, if you look on a quarter-on-quarter level, our absolute personnel expenses are down compared to Q1 this year. We look at the first half, just to summarize, our good improvement in goods for retail was partly offset by higher other external expenses driven by, as mentioned, the higher marketing cost in Q2, and then the IPO-related one-off cost of roughly SEK 10 million, which we had in Q1. Good. We'll move on to the balance sheet. On the next page, we have the development in our inventory value.
As Michael mentioned, we submitted several purchase orders in the second half of 2020 in foresight of the pandemic's negative impact on supply chain and lead times, not least in India. As goods have started to arrive at our warehouses during Q2, we have seen an increase of SEK 27 million in inventory value compared to Q1. This means that our inventory level now is more or less in line with the target range we have, if you look on the right-hand side, of being between 17.5% and 22.5% of last 12 months net revenue. That is quite satisfactory. Moving on to the next slide. Obviously, the investment in inventory had a negative impact on our cash flow, where we ended Q2 with a negative operating cash flow of SEK 17 million.
Year to date, we still are in positive territory, and our balance sheet continues to be in a very healthy state with a net cash position of SEK 120 million by the end of the quarter. I will hand it back to you, Michael.
If we do a little bit of a summary. Growth and profitability is in line with our long-term ambition and targets. As we've said, we are very pleased with our organic net revenue growth of almost 23%, despite the tough comparable and somewhat unfavorable market conditions. We continue to see the gross margin improvements. Even though the EBIT was marginally lower compared to last year, it was driven by the fact that we continue to invest in growth and that resulted in slightly higher marketing spend. Q2 also, as we said last year, was a bit of an outlier in terms of very low activity across different industries, and that situation has not been the same this year. We are very pleased to also report that we have managed to execute according to plan in terms of our restocking efforts.
That ensures that we will be in a much better position ahead of the peak season compared to last year. That has been a tremendous effort from both the purchasing department and our coworkers in the warehouses in terms of getting everything received and put on the shelves. Our outlook for the rest of the year continues to be cautiously optimistic. We are facing a tough Q4 comparable, where we did see some influence in terms of COVID, especially during the holiday period. We are also aware that the post-COVID era is, from my perspective, still not really here if you look at the grand scheme of all of the European countries. There is uncertainty what exactly consumers will do once all restrictions are over, and may or may not happen this year. That remains a little bit of an uncertainty factor.
Overall, we are well prepared as an organization to face any potential challenge we are ahead of us and capitalize on the expected high demand season, which typically happens during the Q4 and Q1 period. With that being said, we leave the floor open for potential questions. Thank you.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Fredrik Ivarsson of ABG Sundal Collier. Please go ahead.
Thank you very much. I have three questions. I'll take them one by one. First, a more general question. Michael, you've been taking quite a few measures to improve the conversion rate lately. Are you starting to see any results from that work?
It's still activities which are primarily going on in the background, to be quite fair, and we're still progressing according to plan in terms of the efforts to really ensure that we have a top-notch user experience when visitors come to our shops, and that's ongoing per plan, and we hope to announce that to the world within not too far of a distant future.
Excellent. Thank you for that. Second question, on the growth pace during Q2, it seems like it decelerated quite significantly over the quarter. Would you mind sharing what you saw in July and August? Was June the trough, or was July equally soft? What did you see in terms of that?
Last year, you mean, or this year?
This year.
We've indicated that the second half of the quarter was negatively impacted by the unusually warm weather, and that holds true. Our growth rate was higher during the first half of Q2 this year compared to the second half of the quarter.
Right. I was more curious on July and August, actually. Was June the trough, and you saw an improvement in July, or was July equally soft?
We continue to work on all of the various initiatives, and our long-term ambition is around 20% net turnover or net revenue growth. We are still working on that. We know for a fact that Q3 last year was not as tough as Q4 of last year. Our ambition for this year and outlook for the second half of the year remains relatively unchanged versus what we previously communicated.
Okay, perfect. Last question from my side on marketing costs. I think the prices on performance marketing in the market has accelerated quite a bit lately, and curious to hear if you could give us an update on what you're seeing in that market at the moment. Thank you.
There are various sources, of course, in terms of tracking the general state of the advertising industry online. What happened, if we look at the two different effects that affected us this year, is number one, that Q2 last year, the relative activity within many industries was very low subsequent to the first wave of COVID shutdowns. That, of course, enabled us as well-capitalized and an online-only retailer to gain additional visibility at relatively lower costs. This year, that effect is not the same, or the situation is not the same. There is more players across different industries trying to grab the attention of people browsing online. We've seen that has resulted in increases in both CPCs in terms of the search channels, but also in other channels where the general cross-industry competition is also increasing.
Thank you.
Our next question comes from the line of Carl Deijenberg of Carnegie. Please go ahead.
Thank you very much, and good morning, Michael and Henrik. First, a follow-up question here on the sort of monthly comparisons you're facing in Q3. Could you elaborate a bit what you saw in demand last year in July, August, and September, maybe month by month? The comparison in Q2 last year, you had 48% organic growth. Q3 was at 24%. Could you elaborate a bit sort of what kind of monthly comparisons you're facing now going into Q3?
Yeah. What happened last year was that many European markets had a similar approach actually last year because the common approach within the EU was relatively coordinated. It was around the third week of July when many big markets in Europe opened up the COVID restrictions. That, in combination with the warm weather, resulted in a significant demand drop until people actually got back to work, which happened towards the end of September and things started to cool off. That's kind of the general outlook for the details of how Q3 developed last year.
Okay, perfect. Very well. A follow-up question here on the marketing. You mentioned price hikes or price increases in the AdWords market. That's also what we're seeing from some other players in the market here. Would you say that despite price increases, do you see conversion rates differ here in Q2, maybe sequentially from Q1? It seems that maybe traffic is down, but that conversion rates are up. Is that the pattern you're seeing here as well?
Yeah. We are continuously working on trying to buy traffic smarter and one of those levers in terms of are we doing things smarter is trying to buy high quality traffic that has high potential to convert. Both in terms of what type of traffic we buy, as well as how we develop the user experience once they get to our site, both of those elements work together in terms of our overall efforts to ensure that we get the most bang of the buck for the marketing investments we do.
Okay, perfect. Very well. A follow-up question on that one as well. The state that you're seeing also here in Q2 on the marketing cost, do you see that as a fair level going forward as well? Is it fair to assume that marketing spend going into Q3 and maybe also Q4 will be at this a little bit higher level as you saw in Q2 compared to last year?
Q2 last year was an outlier. The comparable for Q3 isn't as tough and that you can see in our report numbers. How the outlook for the rest of the year is of course uncertain. We do know that, of course, when consumers in general have a stronger purchase intent, which happens during the high season, that tends to enable everybody in a given industry to benefit from that with a slightly lower or relatively lower marketing spend ratio.
Okay, perfect. Very well. A final question from my side, a bit on the supply chain issues. You are mentioning here in the report potential supply chain issues from rugs produced in Afghanistan and could you say anything, a brief number of how much that stands for us in sales approximately? I think we said at IPO that around one third of your products sold are in the traditional category, roughly. Could you say anything, the share there which is related to Afghanistan?
It is something we have in our assortment, and that's also why we collected the results we needed to make sure that that information is available for everybody. We don't know yet what the mid-term or short-term impact of the Taliban takeover would be on our partners that source and produce in those areas. We are working closely and communicating with them and our other stakeholders in those areas. The Afghan share of our assortment is single digits, so it's not an enormous impact, but it is something that we do offer as part of our assortment.
Perfect. Thank you very much for taking my questions.
Thank you.
Just to remind everyone, if you would like to ask a question via the telephones, please press zero one on your telephone keypads. If you wish to withdraw your question, you may do so by pressing zero two to cancel. We'll now have a brief pause while any further questions are registered. And there are no further questions on the telephones at this time. Please go ahead, speakers.
Unless anything else, again, we want to thank everybody for your attention, and hopefully we'll meet you again when we present our Q3 numbers in October? November. October. Yeah. Next time. Thank you very much and have a great day.