Welcome to the Rugvista Q4 2023 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 pound five on their telephone keypad. Now, I will hand the conference over to the speakers. CEO Michael Lindskog and CFO Joakim Tuvner, please go ahead.
Thank you. Good morning, everyone, and welcome to our Q4 2023 earnings call. Happy to see so many participants today. So me and Joakim will, as usual, take you through two main chapters. First, a quick summary on the key events so far, and then the business update, and then the financial update. So to start off just with some of the highlights for both the quarter and the full year.
I think overall, we can say that it both in terms of Q4 and also for the full year, it was a relatively solid outcome, despite an overall challenging market and overall environment, both during Q4 as well as during the full year. What we can say and what I'm happy to report is that we actually, despite everything, did report or achieve an all-time high during Q4 when it comes to a quarterly net revenue number. So the number landed at SEK 233 million, which is an increase of about 14% versus the previous year's quarter. Organic net revenue growth was about 9%. We maintain a healthy profitability during the during Q4.
However, the overall profitability, compared to last year, was negatively affected by a rather intense market environment, the price sensitive consumers, as well as some of the investments that we made into our future growth and organizational development. With all those things combined, EBIT landed at about SEK 29 million, which is about 12.6% EBIT margin. When it comes to the full year, we see that that was also solid, where we grew almost 10% year-over-year. So we landed at SEK 702 million. Had about 3% organic growth compared to a -13% last year.
We grew both the absolute EBIT as well as the EBIT margin, and we remain very very strong from a sort of financial position perspective, with net cash of about SEK 86 million, which is something that we feel enables us to continue to invest into growth as well as future organizational development. The board of directors also propose a dividend for this year of 1.8 SEK per share.
Then I think finally, I want to highlight a few things when it comes to the overall achievements during 2023, where, as many of you know, we've invested during the past couple of years a fair amount of resources in rebuilding our e-com platform. That one is now live in over 20 of our European markets. We continue to invest in it, developing and our assortment to make it even more attractive to a broader selection of the European consumers.
We've initiated our brand-building journey, and also what we did during the quarter was to sign a lease agreement for a new warehouse and office facility. So with that being said, let us jump into some of the details. When it comes to the business update first, so I want to highlight a couple of things here, where number one, we maintain a very strong and high level of customer satisfaction, both when it comes to the Net Promoter Score as well as the ratings we have on the Trustpilot platform.
Second, the two next KPIs in terms of trying to increase the market penetration as well as attracting new customers. During Q4, we achieved all-time highs on those values as well, with 101,000 orders, as well as 74,000 new customers gained, almost 30% growth year-over-year on both of those figures. Moving forward to the sort of next point, I think keeping in mind with the overall macroeconomic environment is a-...
The fact is that it remains quite challenging and where the consumers are feeling the burden of inflation, higher interest rates, and a general degree of uncertainty. So, the Consumer Confidence is stable, but does sit at historically low levels. And there are, of course, differences between the different European markets that we operate in, but overall, the headline kind of gives the summary.
I think the next point, in terms of, one thing we've noticed here or sort of experienced over the past couple of quarters, is a decline in the average order value, which is very much driven, from our perspective, by the consumer behavior, where today, we or during the past couple of quarters, we've seen consumers being very conscious about price. Slightly more higher sort of interest within the category, but a very high focus on getting best value for money.
And that has been shown in terms of both higher share of discounted items being bought as well as category mix changes and to a certain degree also price point downtrading within the different product categories that we offer. Of course, we've done a slight change in terms of the assortment that we offer and the product mix that we offer, but that is relatively minor compared to the change that we see in how consumers select products. And then the final update, I want to give a little bit more flavor on the new warehouse and the office space.
So what we did was to sign a nine-year lease agreement for a new facility that would be constructed with the anticipated move in sometime summer 2025. The background to this, of course, is that our existing office footprint in Malmö had warehouse and office footprint in Malmö had terminating contracts within the somewhat near future from where we are today. And we needed to look at alternatives, either through extensions or finding a new facility. One of our current warehouses had an end-of-life date that has been known for a while since the area where it's located, it will be rezoned.
So with all of those things combined with the fact that both our office and warehouse space was not 100% optimized for what we see we need in the future, we've decided to look for a greenfield facility. Luckily, we were able to find that, and it will be a facility of about 10,000 square meters. We'll have actually more cubic meters because the ceiling height when it comes to the warehouse portion will be significantly higher compared to what we have today.
And the floor layout and the space layout, both on the warehouse side and on the office side, will enable us to build a much more efficient and scalable processes. And an additional benefit we see here or additional benefits we see besides the sort of fit for purpose and future-proofing is that we are spread on multiple locations in Malmö today, and we see that having the entire organization in one office or in one facility will have multiple benefits in the long term as well. So with that being said, I'll hand it over to you, Joakim, to take us through some of the more detailed financials.
Thanks, Michael. The fourth quarter is seasonally our strongest, and as Michael mentioned, our net revenue in quarter four was all-time high. Even so, if we adjust for the positive currency effects, we grew by 14.3%, and the organic growth, excluding foreign exchange impact, was 9.3%. So the segments B2C and MPO, they grew well around 15%, but in our B2B segment, we saw less demand from the smaller business customers. B2C grew well in Nordics, with strong performance in Norway, Denmark, and Sweden. DACH grew well with 70.2%, where we have our largest market, Germany. Rest of the world, which is mainly rest of Europe, had a tougher quarter in the southern parts of Europe, but performed well in some of the other markets. I'll move on to gross margin.
We dropped 1.5 percentage points in our gross margin due to consumers buying with a high price focus. Our discount offerings have been somewhat stronger and wider than prior year, and we also see that customers, to a larger extent, choose the products based on the discounted prices and also target the lower price points in our assortments. The cost for deliveries to customers increased versus prior year, partly due to the lower average order and also due to country mix. That is, that we are strong in sales performance in a couple of markets where we have an above-average cost to serve.
Looking at the total margin drop of 1.5% on the total, it seems lower than all three segments that you see to the right in the slide, and the gross margin includes the other operating income, which was higher than normal in the quarter. Due to that, we received a compensation relating to a settlement with a supplier during the quarter that isn't attributed to these segments. So all in all, we see a more intense bargain or discount-driven market, and this alone explains the full drop in margins. So moving on to the cost ratios and the EBIT margin. Just a reminder here, the goods for resale includes both the product cost and the cost for freight to customers and return, and we also include other costs like packaging and payment service providers. We disclose that a bit further in the report.
So, going through why the goods for resale increased in the former slide, so it's more about price-driven consumers. In other external expenses, the majority of this is marketing expenses, but these are on par with prior year or up 0.1 percentage points. So the main drivers of the increase here are consultant costs relating to design and setup of our new warehouse, that Michael mentioned, and also higher costs for IT services. Personnel expenses are up, on top of the normal salary increases. We've had peak season staffing costs, and as you can see, our orders count is up by almost 30%. In other operating expenses, we only record the foreign exchange effect from the revaluation of assets and liabilities in foreign currency.
So the SEK movements in prior year here generated an income of 0.8 percentage points that became a minus of 1.1 in the quarter. So there's a 1.9 percentage point difference, or in real money terms, it's SEK 4.4 million of negative impact. So all in all, we end up with a 12.6% EBIT margin, a decline of 5.2 percentage points versus prior year. So we had some consultant costs with new building, and the FX effects of the revaluation of assets and liabilities makes a large impact, and the gross margin was lower, caused by a much higher discounting impact.
If you look at the whole year, all in all, we summarize a fairly turbulent year for the consumers, with high inflation and increasing interest rates, with an improved EBIT margin from year to year, going from 11.7 percentage points to 12.2, or in real money terms, it's an improved EBIT of SEK 9.5 million, growing the EBIT by 14% versus last year. So I move on to inventory. The high level of sales also decreased our inventory. We have decreased with SEK 49 million from a year ago and SEK 35 million within the quarter. So we have been talking in earlier earnings calls about the target range for inventory of 17.5%-22.5% over the last 12 months of net revenue.
Now we have reached 17.9%, and that is at the lower side of the interval and where we want to be. Move on to cash. So the decrease in inventory has rendered cash flow. So although earnings were below prior year, we decreased our working capital and generate the cash flow from operating activities. That is SEK 22.6 million above prior year. Our net cash position has grown with SEK 73 million in the quarter, and we have no financing from financial institutions, so the interest-bearing debt that we subtract here from our cash and cash equivalents is the Right of Use Assets. That is mainly our lease agreements for our office and the warehouse premises. So that concludes the financial update, and I'll hand over to you, Michael, to summarize before Q&A.
Thank you, Joakim. So, again, I think as you all are aware of, the 2023 was quite a challenging year from geopolitically and also the overall macroeconomic situation. Overall, we've successfully managed to navigate that environment. We end 2023 with organic net revenue growth and a net revenue growth of about 10%. We improved the EBIT and EBIT margin compared to last year. We've increased and improved our already strong financial position. We've had many achievements in terms of our long-term strategic agenda and the initiatives associated with those ambitions.
With number one, I think it's, at the end of the day, we're trying to reach more customers and more consumers, and become a bigger and more well-known company and brand in Europe. We've had all-time highs in both order accounts as well as number of new customers during the year. We maintain a very high level of overall customer satisfaction. We've improved or rather launched our new e-commerce platform during the course of the year, which and that platform will be the basis of continued development and also the basis for many of our future strategic initiatives.
And already one element that we've already seen is the improved visibility that the content we publish on the new platform is getting indexed and getting traction on the organic side within the search engines out there. We've also continued to improve our assortment, to ensure that we have the most relevant assortment for all customers. I think two of the highlights is number one, the outdoor selection or the outdoor assortment, outdoor rugs, which we've significantly improved during the year, as well as a much stronger selection within the kids room area.
We also initiated our overall brand building journey for the RugVista brand with multiple initiatives with the purpose to long term, of course, increase our growth, but more in the near term ensuring that we become a more well-known brand. And like I said earlier, looking at our physical office and warehouse space, we've taken not only the lease agreement on the new facility in Malmö, but also opened a small office in Berlin in order to have that also as a hub where we can attract future employees.
So with that being said, it's overall a solid year. And when looking into what 2024 will bring, it is a very uncertain outlook. There are differences across the markets. Some are performing slightly better, some are performing slightly worse. So overall, we see that the outlook for 2023 is uncertain, but also some early indications or some indications that 2023 was maybe the bottom.
But regardless of how the overall macros develop during the year, our focus will continue to be to successfully navigating those conditions and focus on what we can focus and impact, which is both on the short and long-term focus of improving ourselves to continue to drive profitable organic growth. So with that being said, I'll like to hand it over to any potential questions. Thank you.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Benjamin Wahlstedt, from ABG Sundal Collier. Please go ahead.
Good morning, Michael and Joakim. So a couple questions from me. First one, you mentioned the CEO statement, and again, in the presentation, that you see some indications that 2023 might have been a trough. What are you referring to here more specifically? Are you talking about interest rates or is there anything in consumer behavior that you're looking at here?
Yeah, I think the... I mean, of course, if you look at it from a, from a macro perspective, at least the indications that we did see in 2023, that a lot of the global central banks decided to not do any further increases on the interest rate is definitely one data point. I think when looking at Consumer Confidence, there are some indications that, yeah, it's not taking a major uptick, but it's at least kinda being at a stable level, especially during the second half of the year.
Some, of course, indications that search volumes in certain markets, not all, but in certain markets, for our product category are slightly up versus last year. So overall, little bit still very uncertain and we see regional/market differences, but at least there are some indications that maybe 2023 was the bottom.
Thank you very much. I also wanted to ask about the checkout solution. I noticed that it's not been implemented across websites yet. Could you perhaps give us an update on first the impact in Sweden, one of the upgraded, please, the Nordic segment continued delivering very strong growth. Is this connected in some way? And when should we expect the next tranche of upgrades to be completed, please?
I think the checkout... We didn't do a significant push on adding additional markets during Q4 beyond what we had already done sort of at the end of Q3, early Q4. And which essentially were three markets. And the background to that, of course, is that, like we mentioned, Q4 is our most important quarter, and the checkout is an extremely sensitive and also important portion in a web store. So we decided to wait with the rollout until after peak season.
Then when it comes to the performance so far, overall, we're pleased. And we see that a lot of the sort of improvements that we want to make have been implemented from a sort of pure technical performance perspective. It has been very stable, and in step one, that was our main goal.
In terms of looking forward, what are the next steps? I mean, it's not part of the report, but if one chooses to browse around our various European domains, one will see that a few additional markets are live with the new checkout, as of now.
All right. Perfect. That is good color. And then also a housekeeping question. This is a quick one. The SEK 55 million-SEK 60 million CapEx ahead of your move, could you give us an understanding of the timing here?
Not set in stone, as the sort of sourcing of materials and the other components involved in the project, machinery and furnishing, et cetera, is ongoing. Some of it will of course be once the, let's say, the production slash contract is signed, depending a little bit on what type of CapEx we're talking about. Typically, and there's sort of 3 or 4 steps in the payment.
One, when, let's say if we take production, when the production starts, when we talk about fiscal things, and then there's a second payment at delivery, and then usually a third payment when everything works as expected. So with that being said, it will be spread out until the move-in. And also, I'd say more backloaded for this year versus a Q1 impact in general.
Perfect. Thank you very much. Those were all of my questions for now.
Thank you.
The next question comes from Niklas Ekman from Carnegie. Please go ahead.
Thank you. Yes. Can I first ask on the top-line development? Very good to see a return to growth, but can you elaborate a little bit more on the difference here between Q3 and Q4? Q3, you had a much stronger sales growth. What caused that to slow sequentially in Q4? Is it all due to comparisons, any change in competition, and any indication here, what kind of run rate we can expect now when, as we're going into 2024?
Let's start sort of the first portion of that question in terms of quarter-over-quarter development, and the growth rate is seen there. I think what we did talk about during Q3 is that we did anticipate that the comparison for Q4 was likely tougher versus Q3, and that is a large explanation there when it comes to the quarter-on-quarter growth.
When it comes to also a little bit the market conditions, I think overall, yes, we were a bit more forward-facing or a little bit more bullish in terms of trying to drive top line still compared to last year. Still, of course, with a very high degree of focus on profitable growth. However, what we did see is that the overall competitive environment was more intense this year versus last year for Q4.
Both in terms of players who've been involved in selling rugs historically, as well as some new market entrants that made the paid marketing area very intense. And then, like we said, with consumers being quite focused on price and the market overall picking up on that, and the various discount offers that were out there were more aggressive versus last year.
Then, in terms of the outlook, yeah, like we said, the outlook for 2024 is still very uncertain, and we'll come back to sort of Q1 results once we report that. But our focus is trying to maintain a profitable growth and successfully navigating the conditions in the market.
Superb. Superb. Very good. Can I also ask about the consultancy fees here? Firstly, if you could quantify them, both related to the move, and you mentioned some IT consultancy fees as well. Are these temporary nature or will they continue in 2024?
Yeah, they are not one-off costs, you can say, but they are neither recurring costs. So the consultancy costs are for the general design of our new office and warehouse. And when we come closer to a concrete project, as those costs will be capitalized if it's related to a design of an asset, a warehouse management system, et cetera. It is not the lion part, but the consultancy costs are about half of this deviation. The IT costs, the extra IT services, that is more of a recurring cost and the costs that are related to running and driving our new platform.
Maybe one addition to that, which I think is important to mention. Our new platform is, as you know, relatively or is very new, and what typically happens and what one does when it comes to continuing to developing and making the sort of entire platform more mature is looking at how do you run that platform more efficiently moving forward. That work is yet to start, but so we'll see sort of how that portion will develop over time, but that is the typical life cycle of any major tech products to be quite fair.
Very good. Also, final question, just on the inventory. As you said, you're unusually low here in at the end of Q4. Are you expecting to rebuild inventory here at the start of Q1 or, or start of 2024?
I mean, it is on the lower end, but it's also relatively, if one looks at sort of an ideal cycle in terms of how one distributes inventory over the year. Of course, one should build up a little bit of stock ahead of peak season and hopefully use that stock to have successful peak seasons and then build it up again until the the next high demand seasons. And then whether it will all happen in Q1 or gradually until the next peak season, of course, we have a plan there, but there will not be, they're not expect to have a dramatic absolute number increase quarter-over-quarter.
I think, Niklas, you can also add in that generally, we don't see a high inventory as a risk as you would in many other companies. We have just given a range to give some ideas to analysts and investors where they can expect us to be. But when we start to see a bit of stock outs, and in particular, if there are best sellers, then we need to adjust and move up the inventory, and we have the cash to sustain that.
Very clear. Thank you for taking my questions.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.
Uh-
There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions.
Okay, so I can read out the first question. It comes from Sebastian: So how satisfied are you with how you could compensate the more expensive paid marketing with organic traffic?
So still very early in terms of that, but of course, one of the major goals of the new e-com platform that we did develop was to enable all of the content that we published to get more visibility in the various search engines when it comes to the organic search results. And that is something that we were already now seeing the benefits from. So that is promising.
Yeah. Sebastian, the second question here that was answered. The third one is from Sebastian: could you, could you talk a bit freely about how the organic traffic has developed since the launch of your new websites?
I guess that it's become a more important source for traffic and, of course, turnover, as a second step in that customer journey. Since the launch of the new platform, of course, when we talk about content marketing or SEO, search engine optimization, it is a long-term journey in terms of going from a low level to being market leaders, which is definitely our ambition within this sort of product category that we operate within. It will take time, but we see promising results already.
We've, of course, identified the keywords that we see are the most important within the product space, and continuously monitor our organic visibility on those keywords.
Mm-hmm. And here we have the last question, and it's also from Sebastian. You mentioned that the new platform will act as a base of your long-term strategic directions. Could you please elaborate a bit on this?
So we've talked, if I can referring back to a couple of our strategic pillars, me being showcasing our assortment and winning the key European markets. The showcasing, if we start with showcasing the assortment, that is not only about refining and developing the actual products that we sell, but also how we merchandise and storytell during the purchase experience around those products. And that is something that the new platform enables us to do to inspire, inform, educate the customers during the purchase both the discovery and purchase journey of our products.
That was something that was difficult on the old platform. I think one of these key second elements, when it comes to doubling back on the strategic pillars, is the key markets, where the new platform that we developed enables a much higher degree of localization in our go-to-market strategy, as well as the on-site customer experience. Where most, if not all elements, that are consumer-facing can be localized and tailored to each individual market, and the exact needs of those customers. That is something that today you...
is maybe not being executed, but over time, is something we see is the next level of what we want to do, when it comes to ensuring that we are relevant for the local customers in the key European markets.
That was the last question we got from the audience.
Unless there are additional questions, we then want to thank everybody for the attention, and hopefully we'll see all of you next time. Thank you, and have a great day.