Earnings call transcript: Desenio Q4 2024 sees EBITDA margin boost

Desenio Group AB reported its fourth-quarter 2024 earnings, showcasing a significant increase in its adjusted EBITDA margin despite a decline in net sales. The company’s stock showed a slight decline of 0.77% in pre-market trading, reflecting cautious investor sentiment amid challenging market conditions.

Key Takeaways

• Adjusted EBITDA increased by 43% to SEK 54 million.
• Net sales decreased by 8.6%, with a notable decline in key European markets.
• Improved operational efficiency and marketing strategies boosted gross margins to 87%.
• Desenio remains optimistic about 2024, expecting benefits from potential interest rate cuts.

Company Performance

Desenio Group faced a challenging fourth quarter with an 8.6% drop in net sales to SEK 268.8 million, largely due to decreased sales in Core and Rest of Europe regions. However, the company managed to increase its adjusted EBITDA by 43% to SEK 54 million, thanks to improved operational efficiency and marketing strategies. The EBITDA margin nearly doubled to 20.1%, highlighting Desenio’s ability to maintain profitability even in difficult market conditions.

Financial Highlights

• Revenue: SEK 268.8 million, down 8.6% year-over-year
• Adjusted EBITDA: SEK 54 million, up 43% year-over-year
• EBITDA Margin: 20.1%, nearly doubled
• Gross Margin: Increased from 84.2% to 87%
• Cash and Cash Equivalents: Increased from SEK 71.3 million to SEK 115.6 million

Outlook & Guidance

Looking forward, Desenio is cautiously optimistic about 2024. The company expects positive impacts from decreasing deflation and potential interest rate cuts. Additionally, Desenio is proposing bond restructuring to adapt its capital structure and focus on reversing the negative sales trend. InvestingPro data indicates analysts expect the company to return to profitability this year, with EPS forecasts showing potential improvement. Discover detailed analysis and comprehensive insights about Desenio’s future prospects in the exclusive Pro Research Report, available to InvestingPro subscribers.

Executive Commentary

Frederick Palm, CEO of Desenio, stated, "Our improved operational efficiency gives results," emphasizing the company’s strategic focus on enhancing profitability. CFO Johan Roslund highlighted the cost reduction achievements, noting, "With the new capital structure, the same cost had been 34,000,000 or a reduction of 69,000,000."

Risks and Challenges

• Market Conditions: Persistent challenging market conditions, especially in Europe, pose risks to sales growth.
• Customer Base Decline: A decline in active customers and order volumes could impact future revenue.
• Macroeconomic Factors: Changes in interest rates and inflation could affect consumer spending and cost structures.
• Competitive Pressure: Maintaining market share in key regions while expanding in the U.S. remains critical.

Desenio’s strategic focus on operational efficiency and marketing effectiveness seems to be paying off, even as it navigates a tough economic landscape. The company’s cautious optimism for 2024 hinges on favorable macroeconomic developments and strategic financial restructuring. With an overall Financial Health Score of 1.33 (WEAK) according to InvestingPro metrics, investors should closely monitor the company’s progress in implementing its strategic initiatives. For comprehensive analysis of Desenio’s financial health and growth potential, access the full Pro Research Report, which provides expert insights and actionable intelligence for informed investment decisions.

Full transcript - Desenio Group AB (DSNO) Q4 2024:

Conference Operator: Welcome to Desenio q four report twenty twenty four. 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 5 on their telephone keypad. Now I will hand the conference over to CEO Frederick Palm and CFO Johan Rosland. Please go ahead.

Frederick Palm, CEO, Desenio Group: Thank you. So welcome everybody to the Seniors Group’s Q4 sales presentation conference call. So with me today, I have our CFO, Johan Roslund. Johan is, as you probably know, our new CFO since mid January this year. So we will today start with the presenting the outcome of the quarter, and then continue with presenting the development regards to the bondholders and finish with the q and a session.

The development in the quarter continued to be weak in the markets, but better for The Nordics with sales where sales increased volume. In total, net sales decreased by 8.6% to SEK268.8 million compared to the corresponding quarter last year. In The Nordics, where brand recognition is higher, sales increased slightly in relation to the corresponding quarter last year. While sales in our other markets, including North America decreased. The market sentiment remains rather weak, but we continue our focused efforts to reach out to customer groups that gradually become more efficient in our marketing efforts.

During the quarter, we continued to work on successfully increasing our efficiency. So adjusted EBITDA increased by 43% to SEK54 million, which I think is a great effort considering the negative growth in net sales. This means that the adjusted EBITDA margin almost doubled compared to the corresponding period last year to just above 20%. And this improvement is partly explained by your favorable product mix that led to a three percentage points increase of the gross margin to 87% partly by lower cost ratio for fulfillment and marketing as share of net sales. Operating cash flow improved significantly in the quarter from just below 30,000,000 in Q4 twenty twenty three to just above 48,000,000 in Q4 twenty twenty four.

We had a net inventory increase and then we also had some changes in current receivables and liabilities. And those two together was zero. And then we received $13,400,000 preliminary tax paid back for 2024. And during the quarter, net interest payments on the outstanding bond amounted to SEK23.6 million. And as a result of this, cash and cash equivalents increased from SEK71.3 million in Q3 to SEK115.6 million in Q4 twenty twenty four.

During the quarter, we continued our dialogue with the bondholders and received approval to extend the maturity of the bonds on December 3. And on December 24, the Saudi Group entered into a term sheet for the restructuring of its bonds and capital structure, including a debt for equity swap implying 75% write down of the bonds and a 5% dilution of the shareholders. And on February 5, a written procedure was initiated to request necessary approval of the restructuring from the bondholders. The voting record date was 02/12/2025. And the last day for voting in the written procedure is February 24, which is on Monday next week.

We will then hold a extraordinary general meeting on March 4 in order to approve the shareholders resolutions necessary to implement the restructuring. And Johan will go through this more detail, how it’s gonna work later in the presentation. And then as I already mentioned in the beginning of the call, Johan Rostand started as new CFO during, well, after the period, so January 13. And to summarize the quarter, net sales decreased in the challenging markets while gross margin increased. The adjusted EBITDA margin almost doubled as a result of higher efficiency and the operating cash flow increased compared to the previous year.

On this slide, we analyze the difference in EBITA margin in Q4 twenty twenty four compared to the corresponding quarter last year. The product margin increased due to improved product mix and improved efficiency in fulfillment neutralized the effect from lower net sales. The marketing cost in relation to net sales was, as previously mentioned, lower as was admin and other excluding one offs. So now, let me comment more in detail on the development of the business in our different markets. By looking at sales trends in comparison to sales development in Germany and The UK, we can see that our sales continue to trend higher than the market search volumes in Q4.

And comparing the semi group to a few of our biggest competitors, we see that we during Q4 increased the share of voice in Germany, but but we saw a slight decrease in The UK. In both these major European markets, we currently have a strong around 75% share of voice in search. In Sweden, on the other hand, we have even higher share of voice in search, close to 80%, which has been stable the last three years. Here we see the share of voice development in The U. S.

In relation to Postery, Fine Art America, All Post and Channel Society6. As you can see, we have a steady increase in share of voice in The U. S. Market, taking shares in search from our American competitors. And this is the Zener Group’s growth of reintech since 2019.

In Q4 twenty twenty four, we saw the usual seasonal pattern, but lower growth order intake than previous years, but well above 2019. And here we show the development in the segments compared to the previous year. In The Nordics, as mentioned, net sales increased slightly by 2%. In Core Europe, it decreased by 11%. In the rest of Europe, it decreased by 13%.

And in the rest of the world, it decreased by 15%. In North America, which is included in the rest of the world, net sales decreased by 15%. This slide shows customer highlights. We see that both are active customers and number of orders decreased compared to last year. So active customers is defined as a customer that has made at least one purchase the last twenty four months.

And therefore, it’s still declining. The negative growth in order volumes is somewhat counteracted by average order value growing by 6%. And now I hand over to Johan for the financial update.

Johan Roslund, CFO, Desenio Group: Thank you. As Frederic mentioned, net sales decreased 8.6% in Q4. Gross margin increased from 84.2% last year to 87% this year. This was mainly driven by favorable product mix. Adjusted EBITDA in Q4 was $54,000,000 compared to $38,000,000 last year.

Although lower sales, we managed to improve our profitability through improved efficiencies. Consequently, the adjusted EBITDA margins has stepped over the 20% line and reached 20.1%. We have to go back all the way to 2020 for Q4 quarter to show over 20% margin. On the next slide, we see that investments in material and immaterial assets amounted to 200,000.0 in Q4. Net working capital in relation to sales was minus 7%, which means that we can grow without tying up capital.

Our operating cash flow in the quarter increased to 48,100,000, which is further explained on the next slide. Here’s a bridge explaining how we go from adjusted EBITDA to operating cash flow in q four. Starting from the left, we had 4,000,000 in one offs related to legal cost for the bond restructuring and 23,600,000 net interest payment for the bond. Adjustments for non cash items were 9,300,000.0 and are mainly related to IFRS adjustments and depreciation of initial bond costs. We had a positive tax effect in Q4.

This is as Frederick explained related to preliminary tax. So this effect will balance out if we look at the full year. The inventory change of 10,200,000.0 is to a large extent counterbalanced by increased payables related to product purchases. In summary, operating cash flow was strong at $48,100,000 in Q4. After the bond restructuring has been completed, the Senio Group will have a new subsidiary called the Senio Midco, where the operating companies and the 150,000,000 super senior bond will be.

This bond will be repaid after two and a half years. In the senior group, there will be a reinstated senior bond of $251,000,000 maturing in four years. With the existing bond, we had 103,000,000 in gross interest payments during 02/2024. With the new capital structure, the same cost had been 34,000,000 or a reduction of 69,000,000. Going forward, this additional cash flow can be used to reduce debt and providing more capital to support and develop the business.

I now hand over to Frederic again for a summary.

Frederick Palm, CEO, Desenio Group: Thank you, Johan. So to summarize the fourth quarter of twenty twenty four, we can conclude that our improved operational efficiency gives results. The adjusted EBITDA margin almost doubled, and we showed strong operating cash flow. However, the market continues to be challenging. We see some positive signs and are carefully optimistic that this year, we start to see positive effects on the consumption as a result of decreased deflation and the interest rates cuts that have been made so far.

We have an agreed term sheet for the restructuring of bonds and the capital structure, including a debt for equity swap applying 75% write down of the bond and 95% dilution for the shareholders. On February 5, a written procedure was initiated to request necessary approval of the restructuring from the bondholders. An approval would be legally binding all the bondholders provided that the extraordinary general meeting to be held on March 4 votes in favor of the plan. The proposal means that the Senate Group will have a capital structure that is well adapted to today’s profit level. In addition, there is room for value creation going forward, provided that we reverse the negative sales trend we have seen during 2024.

And we’re already seeing how our work to increase profitability has a positive effect, which together with our scalability creates good conditions as consumer purchasing power strengthens from these low levels. Thank you for listening, and we are now more than happy to answer any questions you might have. So over to you, operator.

Conference Operator: If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. As a reminder, if you wish to ask a question, please dial 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Frederick Palm, CEO, Desenio Group: Thank you very much, operator. And, thank you everyone for your time, for listening in. And please don’t hesitate to reach out to us, should you have any more questions or any requests. Speak soon and stay safe.

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