Earnings call transcript: Desenio Group Q1 2025 sees sales drop, stock plunges

Desenio Group AB’s recent earnings call for Q1 2025 revealed a challenging financial landscape, marked by a 10% decline in net sales and significant shareholder dilution following a debt-for-equity swap. The company’s stock reacted negatively, plummeting by 23.41% in pre-market trading, reflecting investor concerns about ongoing market conditions and restructuring impacts. According to InvestingPro analysis, the company appears fairly valued at its current market capitalization of $20 million, with 14 key insights available to subscribers regarding its financial health and market position.

Key Takeaways

• Net sales decreased by 10% to SEK 200 million.
• Stock price dropped by 23.41% following the earnings call.
• Adjusted EBITA margin improved to 10.4%.
• Significant shareholder dilution due to debt restructuring.
• Weak market conditions persisted across regions.

Company Performance

Desenio Group faced a tough first quarter in 2025, with net sales falling to SEK 200 million from SEK 229 million the previous year. Despite these challenges, the company managed to improve its adjusted EBITA margin to 10.4%, up from 9.7% last year. The restructuring of bonds and a debt-for-equity swap, however, led to a 95% shareholder dilution, affecting investor sentiment.

Financial Highlights

• Revenue: SEK 200 million, down 10% year-over-year.
• Adjusted EBITA: SEK 21.5 million with a margin of 10.4%.
• Adjusted gross margin: 84.8%.
• Operating cash flow: Improved to minus SEK 17.7 million from minus SEK 19.1 million.

Market Reaction

The market reacted sharply to Desenio Group’s earnings report, with the stock price falling by 23.41%. This decline positions the stock close to its 52-week low, indicating investor concerns over the company’s financial health and future prospects amid ongoing restructuring efforts.

Outlook & Guidance

Desenio Group aims to reverse its negative sales trend by leveraging its improved capital structure, which is expected to reduce interest expenses significantly by 2025. The company plans to maintain its strong market share in key regions while focusing on efficiency improvements. InvestingPro analysts project positive net income growth this year, with revenue expected to grow by 16%. Subscribers can access detailed financial health scores and comprehensive analysis through the Pro Research Report, one of 1,400+ available on the platform.

Executive Commentary

CEO Fredrik Palm noted, "We still operate in a rather weak market. However, the measures we have implemented and continue to work on are gradually leading to increased profitability." CFO Johan Roslund added, "With the new capital structure, the cash interest will be around SEK 34 million."

Risks and Challenges

• Continued weak market conditions could further impact sales.
• Significant shareholder dilution may affect investor confidence.
• Regional market recovery rates vary, posing operational challenges.
• Competitive pressures in key markets remain high.
• Macroeconomic uncertainties could influence consumer spending.

Q&A

During the earnings call, analysts focused on the decline in European sales and the varying market recovery rates. The management highlighted Sweden as the strongest current market, while acknowledging ongoing challenges in other regions like the UK.

Full transcript - Desenio Group AB (DSNO) Q1 2025:

Conference Moderator: Welcome to Desenio Q1 Report 2020 Now I will hand the conference over to CEO, Fredrik Palm and CFO, Johan Rosland. Please go ahead.

Fredrik Palm, CEO, Desenio Group: Thank you, and welcome, everybody, to the Senvio Group’s Q1 results presentation conference call. So with me today, I have our CFO, Johan Roslund. We will today present the outcome of the quarter, the completed restructuring of the Senio’s bonds and capital structure and finish with a Q and A session as usual. The development in the quarter continued weak across most of the markets, which had a negative impact also on our sales. In total, net sales decreased by 10% to million compared to SEK229 million the corresponding quarter last year.

During the quarter, we continued to work to successfully increase signal efficiency. Adjusted EBITA amounted to 21,500,000.0, which means that the adjusted EBITA margin increased to 10.4 compared to 9.7% the corresponding quarter last year. The high profitability is mainly explained by the fact that our adjusted gross margin improved to 84.8% and that our adjusted admin expenses were 6,900,000.0 lower compared to last year. Our adjusted Filament cost ratio was in line with last year, while the marketing cost ratio was slightly higher. Adjusted operating cash flow improved to minus million in Q1 this year compared to minus SEK19.1 million in Q1 last year.

15,100,000.0 is adjusted due to the refinancing of the Decegnu Group issued bonds. During the quarter, the restructuring of the Senius bonds and capital structure was completed. The restructuring included a 75% write down on the bonds and a debt for equity swap through a set of issue of shares, which led to a dilution effect of 95% for existing shareholders. Twenty nine point four percent of the newly issued shares consist of new listed shares, while 70.6% consist of unlisted shares. So this means that around 33% of our shares are are now listed.

The unlisted shares can be converted into new listed shares under certain conditions, but no later than after four years. The previous bond was, in connection with this, replaced with two new bonds with terms of two and a half years and four years, respectively. The Senvius interest expenses are expected to be reduced by approximately 69,000,000 to 34,000,000 in 2025 compared to hundred and 3,000,000 growths in 2024. On April 23, an extraordinary general meeting of the Senate Group decided to dismiss the previous board and elect four new board members: Martin Weiss, Eric Flink, Andreas Otto and Steven Taylor Matthews. All four are very experienced in for the SENU relevant areas, and we will work closer together to develop the SENU going forward.

So to summarize the quarter. Net sales decreased in a challenging market, but at the same time, we managed to increase the adjusted gross margin. The adjusted EBITA margin increased as a result of higher efficiency and the adjusted operating cash flow, excluding the extraordinary costs for the restructuring of the bond, increased compared to the previous year. On this slide, we analyze the difference in EBITDA margin in Q1 twenty twenty five compared to the corresponding quarter last year. As you can see, several costs include one off elements related to the warehouse relocation and the refinancing of the bond.

The adjusted product margin increased due to improved product mix and the improved efficiency in fulfillment more or less visualized the effect from lower net sales. The marketing cost in relation to net sales was, as previously mentioned, slightly higher, while admin and other costs, excluding one offs, were 6,900,000.0 lower. Now let me comment more in detail on the development of the business in the markets. By looking at such trends in comparison to our sales development in Germany and The UK, We can see that our sales continue to trend higher than the market search volumes in q one, even though sales development in The UK has been has not been as close to search volumes in q one for many years. So this correlates to the previous slide.

Here we compare the Group’s share of voice compared to a few of our biggest competitors in Germany to the left and The UK to the right. We see a slight positive development with the Senu taking market share in Germany, while we see a slight negative development in The UK. Still, in both these important European markets, we have a strong 75% share of voice in search. In Sweden, we have even higher share of voice in search, close to 80%, which has been fairly stable over the past three years. Here we see the share of voice development in The US in relation to upholstery, Fine Art America, old posters, SS-seventy six.

As you can see, we have a steady increase still in share of voice in The US market, taking shares from our American competitors. And this is the Zeti Group’s gross order intake since 2019. In q one this year, we saw the the usual season pattern, but it was lower gross order intake than the previous year, but well above 2019. Here, we see the development in our different segments compared to the same quarter last year. In The Nordics, net sales decreased by 2%.

In Core Europe, it decreased by 12%. Rest of Europe and in rest of the world decreased by 13%. In North America, which is included in rest of the world, net sales decreased by 11% in local currency and minus 14% in SEK. And now it’s time to hand over to you all for the financial update.

Johan Roslund, CFO, Desenio Group: Thank you, Fredrik. Q one is typically the weakest quarter capital wise as both supplier as well as I can change this. Sorry. As both supplier as well as VAT payments are seasonally strong in q four, and they are being paid in q one. Adjusted for fees related to the bond refinancing, Desenios operating cash flow in the quarter improved to minus SEK 17,700,000.0.

Net working capital in relation to twelve months rolling sales is minus 4%, which means that we have a negative working capital position of 33,000,000 in Q1. We didn’t have any CapEx in the quarter if we exclude the effect of leasing. On the next slide, we have a bridge explaining how we go from adjusted EBITDA to operating cash flow in Q1. Starting from the left, we had 21,500,000.0 in adjusted EBITDA in Q1. ’1 time items amounted to 27,900,000.0, of which 6,100,000.0 was related to the warehouse consolidation and the rest 21,900,000.0, was related to the refinancing of the Senu Group’s bonds and mainly consist of lawyer fees and corporate finance advisory fees.

We have noncash items effects of 31,800,000.0, including, for example, deferred tax and some effect from the restructuring warehouse relocation. Cash flow from the decrease in inventory was positive by million. Cash flow from changes in assets and liabilities amounted to minus SEK 62,800,000.0 in the quarter. And here we also have some effects from the bond restructuring and warehouse relocation as well as from warehouse rent guarantee. In summary, operating cash flow was minus 30 2 point 8 million in the quarter.

This is how the group looks after the refinancing. Senjou Group has a new subsidiary called the Senjou Mikko, where the operating companies and the 150,000,000 super senior bond is. This bond will be repaid of two and a half years. In the same the senior group AB, there is a reinstated senior bond of 251,000,000 maturing in four years. And more interesting is to look at the implication of the financing cost with the new structure.

Besantner paid around 100,000,000 in interest last year. With the new capital structure, the cash interest will be around 34,000,000. Taking into account that the bonds were issued in March, the pro form a cash interest 2025 will be 43,000,000. Going forward, the additional cash flow can be used to reduce debt and provide more capital to support and develop the business. I now hand back to Fredrik again for a summary.

Fredrik Palm, CEO, Desenio Group: Thank you, Johan. So to summarize the first quarter of twenty twenty five. We still operate in a rather weak market. However, the measures we have implemented and continue to work on are gradually leading to increased profitability. At the same time, we’re still faced with the task of reversing the negative sales trend.

During the quarter, the restructuring of the seven years bonds and capital structure was completed. This means that we have gained a much healthier capital structure with the financial room for maneuver that we have not had in recent years. Given that we are now well financed and have a clear strategy, there are good conditions to succeed in this and thereby take advantage of the scalability that we built, and also further improve our efficiency. Thank you for listening, and we are now more than happy to answer any questions you may have. So over to you, operator.

Thank you. So we have one written question here. Why has sales decreased in Europe by 12%? What’s causing that trend? Well, if we dive down a bit in core Europe, we the largest markets are Germany, The UK, France.

And we’ve seen that there is a bit of difference in recovery in the markets. The largest market being Germany. We see clear recovery from Germany, while at the same time, The UK is still lagging and still struggling in terms of recovery. But we can also see that the further north we come, which means the Nordics done, recovery has come much longer. So our home market, where we also have the absolute highest share of the market being Sweden, is actually doing well, it’s the strongest market in Europe at the moment.

And we have no other written questions. So, well, again, thank you everyone for listening in. Thank you very much, operator operator. And if you have any more questions, please don’t hesitate to reach out to us. Speak soon, and stay safe.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.