Nelly Group AB (publ)

STO:NELLY

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, ladies and gentlemen, and thank you for holding. Welcome to the Qliro Group's Interim Report for the Qliro Group Third Interim Report 2018 Conference Call. [Operator Instructions] Today's conference is being recorded. I will now hand the conference over to Marcus Lindqvist, Chief Executive Officer, Qliro Group, who is joined by Mathias Pedersen, Chief Financial Officer. Please go ahead.

[Marcus Lindqvist, CEO & President]

Thank you, operator. Good morning, everyone, and welcome to this conference call regarding our third quarter results. Let's start by taking a look at our strategic direction as we communicated it in June earlier this year. We are making progress in building 3 strong and independent companies where we, from a business perspective, are focusing on external merchant recruitment to further strengthen our existing officer -- offering, sorry, and increase the scalability of the business in Qliro Financial Services. And as for CDON, we are accelerating our transformation to a marketplace, and at the same time, we are evaluating potential structural transactions. And finally, for Nelly, where we continue to focus on profitable growth, and at the same time, prepare and evaluate a potential listing or divestment. On a more granular level, we are also making progress on the separation process where we, besides from the operating the companies independent from the group, are separating joint IT systems, vendors and suppliers, as well as making sure to implement all necessary policies and processes that formerly was run by the group. We are also making progress in the reduction of overhead in the group, which already can be seen in the result from central operations in today's report.Moving then to last evening's communication regarding our financial targets. As we now are operating our 3 entities as independent companies, we have also started to take decisions based on what is best for each individual company. In line with this, we have also decided to update our financial targets. As for Qliro Financial Services being fully independent from the group and internal merchants, we have seen a need to further invest in our commercial capabilities. This is mainly around merchant recruitment and onboarding. This, in combination with the transformation of CDON that I will talk more about when we come to CDON, where we now are reducing low-margin own inventory sales, gives that we have targeted an EBITDA in the range between SEK 100 million to SEK 125 million 2019 in Qliro Financial Services. And also, given that we now are just a few weeks before our new CEO, Carolina Brandtman, will join Qliro Financial Services, we will come back at the later stage and complement with a long-term view on our targets in Qliro. Moving over to CDON. Our previous growth target were based on total gross margin value, which includes both our own net sales as well as external sales. And as mentioned, our strategy going forward will be to phase out our own inventory sales with low margins. Based on that, we will focus, and hence, apply targets on the growth of external sales, which is set to exceed 20% on a yearly basis. Following the exchange, we have also adjusted our EBITDA target to be measured against net sales and not total gross merchandise value as previously. We also believe that this better will reflect operating profit of the company, and our target is to exceed 3% next -- 3% on a yearly basis and reach positive results already next year on an EBITDA level. Finally, as for Nelly, given the tailwind and our plans to continue to accelerate our business, we have decided to increase our growth target to exceed 10% on a yearly basis with a capped EBITDA margin of 6%. With that, let's take a look at our businesses and how they performed during the third quarter. Starting with Qliro Financial Services, we continue to deliver strong growth in Qliro, where total operating income grew with 36% in the quarter, while total operating expenses grew with 32%. This gave an EBITDA of SEK 10.3 million, which is slightly down from last year, mainly driven by reserves for credit losses, which I will talk a little bit more about soon. Our loan book growth was 51% in the quarter and business volumes coming from merchants grew with 33%. As for the credit losses, as you know or might know, from January 1, reserves for credit losses are made directly at a time of lending as per IFRS 9. And during the quarter, provisions for expected credit losses amounted to SEK 14.2 million. This can be compared with SEK 12.6 million in the second quarter this year and SEK 5.6 million as per IAS 39 in the third quarter of last year. The increase is driven, of course, also by the growth of the loan book and effects on provisions for credit losses linked to the implementation of IFRS 9. The third quarter of last year also included some positive effects linked to improved agreements with debt collection partners, mainly in Sweden and Finland. In 2019, credit losses related to the loan book are not expected to increase at the same rate as in this year, partly since personal loans are expected to grow fastest, and hence, give a different loan book mix compared to 2018. On a general level, personal loans have a lower reserve for credit losses than our payment product, even the risk profile of the 2 different businesses. If we move to the next slide, we can follow and look at the loan book expansion. As mentioned, we grew the loan book with 51% in the quarter to SEK 1,246 million, with the fastest growth in personal loans. Just about SEK 1 billion of the loan book was for invoices, part payments and installments, and SEK 245 million were for personal loans. And as previously, our loan book is financed through banks, savings accounts and equity. It's also pleasing to see that we continue in the same trend as previously, where the growth in personal loans are driven by our digital marketing to existing customers and above 95% of our borrowers for personal loans have had a previous relationship with Qliro Financial Services, and many of our borrowers apply through our app. Our credit scoring is fully automated and based on a combination of internal/external data, which we then, of course, analyze in real time using machine learning, which gives us a continued improvement when it comes to credit score. The personal loans granted in the quarter had the contractual maturity of just over 8 years, and we have an excellent opportunity to continue to grow this business cost effectively going forward. Let's move to CDON. Looking at the quarter, our external gross merchandise value, that is sales done by external merchants, grew with 22% in the quarter while our total gross merchandise value declined with 11%. And that is driven by the decline in net sales of 19% in the quarter. And as I mentioned earlier, we are actively pursuing and phasing out product and product categories of own sales or own inventory sales with low margins. And as a result of this, you can see a very strong gross margin improvement where our gross margin increased by 4.7% in the -- 4.7 percentage points in the quarter from 10.1% to 14.8%. And despite a net sales decline of 19% and a total gross merchandise value decline of 11%, we still increased our gross profits with 19% from SEK 36 million to SEK 42 million in the quarter. If we move to the next slide, we can look at the transformation in more detail on CDON. As you can see in the graph, we are making quite a step when it comes to the mix of sales in CDON. So if you compare it to this last quarter with the same quarter last year, own inventory sales have dropped from 65% to 54% of total sales. And this is, of course, driven by our strategy to reduce own inventory sales, but also the fact that we are increasing our dropshipment sales and external merchant sales. It is important to note that we, of course, do not aim to reduce own inventory sales completely. So over time, we believe that about 30% of total sales, total gross merchandise value, will be own inventory sales and the rest will come from external merchants and dropshipments. So expect that this transformation will be fruitful for our merchants and help us to shape profitability. The transformation to dropshipment and merchant sales will also have a significant impact on our cash flows as well as the amount of capital tied up in operations. And as mentioned, we believe that CDON will be a profitable company already in 2019 on an EBITDA level given this trend and the result developments. Finally, let's move to Nelly. Nelly had another strong quarter following a solid performance in the second quarter this year, where our focus on profitable growth led to an increase of 7% in the number of visits, 12% in the number of orders and 15% in the number of active customers. As a result, sales rose 11% in the quarter. It is also pleasing to see that Nelly's cost for marketing, IT and personnel decreased, which resulted in EBITDA of SEK 23.9 million versus SEK 23.7 million last year. It's important to know also that the underlying profitability showed a significant improvement versus last year since last year's EBITDA in the third quarter were bolstered by SEK 6 million through the divestment of Members.com to Campadre. Also worth noticing that our gross margin declined in the quarter to 28.3% compared with 32.6% last year, and this change was due to lower product margins that is coming from mix and strong clearance sales during the quarter to make sure that we have healthy inventories in a very weak season when it comes to fashion accounting overall, as well as higher cost of goods handling as a result of the higher proportion of returns that we see.We can also see that we, in the quarter, increased our inventory levels to be prepared for the winter season. Our view is that we have a sound inventory and that should support continued growth for Nelly. Okay, so that is my comments on the business. So Mathias, if you could take us through a little bit more of the results and the balance sheet, please?

[Mathias Pedersen, Chief Financial Officer]

Thank you, Marcus. So having heard about the subsidiary, let us take a look at the overall group, starting with the combined results on Slide 10. So on a total level, group sales marginally declined despite the underlying strong sales development. The strong sales within Nelly, Qliro Financial Services and as well as the external merchant volumes in CDON were offset by the decline in inventory base sales in CDON, which was continuing being phased out in the less profitable categories, all according to plan, as Marcus said. Net sales were also slightly boosted by exchange rate fluctuations. Gross margin increased by 2 percentage points, mainly driven by the great development within CDON. Moving on to the cash flow for the third quarter in the e-commerce business. So we had a seasonally negative cash flow during the third quarter of SEK 88 million. As the peak season is approaching, we have been building up higher inventory levels in Nelly, which affected cash flow negatively in the quarter. But this was partly offset by the decline in inventory in CDON, as mentioned. So net working capital also increased since other current liabilities decreased, and this was also seasonal effect resulting from lower sales in the third quarter than in the second quarter, where reserves for VAT returns and other items declined in nominal terms. Also, we spent SEK 6 million on capital expenditures during the quarter, most of it related to investments in further automation in CDON.Moving forward to the balance sheet on the next slide, starting with just the e-commerce businesses. The net cash position amounted to SEK 301 million at the end of the quarter. And other than cash, the balance sheet is dominated by the need for working capital. And just to repeat here, CDON decreased its inventory during the quarter, illustrating its transformation to more dropshipment and marketplace sales, while Nelly, on the other hand, increased inventory to meet peak season demand for its products. All in all, we have a very well-financed business with a strong cash position providing us with lots of financial flexibility.Finally, taking a look at the balance sheet of Qliro Financial Services on the next slide. This is also a strong balance sheet that puts Qliro Financial Services in a good position for further expansion. On the asset side, we increased net lending to more than SEK 1.2 billion as sales finance as well as personal loans continued to grow. In addition to small amounts of cash, we had a liquidity reserve, including municipal bonds, commercial papers amounting to SEK 140 million. On the financing side, the Swedish loan book was mainly funded by public deposits of SEK 845 million while the bank credit facility, as before, was used to finance the loan books denominated in other Nordic currencies, and this is to limit currency risks. We also had an additional SEK 362 million in undrawn commitments. Regarding regulatory capital requirements, the risk-weighted assets amounted to SEK 1.3 billion and the capital base or own funds amounted to SEK 238 million, all of which was Common Equity Tier 1 capital. And the corresponding capital adequacy ratio then was 18.6%, which is well above the requirements when we include all the needed capital buffers. So the third quarter, and as expected, and so before we entered into a consolidated situation in the quarter, this means that certain rules that apply to Qliro Financial Services now also apply to the parent company of the group, most significantly the capital requirements. And I can say that the consolidated situation is also well capitalized and meet those requirements. As before, Qliro Financial Services remained well positioned for further loan book growth supported by savings accounts, unused credit facility commitments, excess capital and a well-funded parent company who could supply more capital when needed.And with that, back to you, Marcus.

[Marcus Lindqvist, CEO & President]

Thank you, Mathias. So let's move to the final slide and summarize. So in the third quarter, we continued our work to build 3 strong independent businesses and showed strong underlying growth and improved profitability, which allowed us to close the quarter with a strong financial flexibility and balance sheet, as Mathias mentioned. And if we are looking a little bit ahead, the key focus on our 3 entities will be for Qliro Financial Services to continue its loan book expansion. This will be driven by an extra focus on merchant recruitment as well as launching or rolling out the current financial services offering that we have in Sweden in other Nordic countries. As for CDON, they will continue to focus on the transformation and rollout of their platform. And finally, as for Nelly, the focus is to continue to be driving profitable growth where the core of this is our brands and a market expansion with a focus on the Nordics. So with that, we are now ready to answer any questions. So operator, do we have any questions?

[Operator]

[Operator Instructions] We will now take our first question from Mikael Holm from Danske Bank.

[Mikael Holm, Analyst]

Yes. First, a question on Nelly. Just decent good sales growth in the quarter despite lower marketing, you mentioned, as a driver of earnings improvement year-on-year. Was it just on -- related to quarterly volatility of marketing spend so that this will, I mean, increase again in Q4 and into 2019? Or are you at the -- a level where you can -- where you should be long-term sustainable on the marketing side? That's the first question.

[Marcus Lindqvist, CEO & President]

What -- Mikael, well, we are on the level where we will be. So looking at the levels we are -- we're at in Q3, we believe that's the level we'll be moving forward. Of course, taking into account if you have a particularly strong or weak season, we will always adjust up or down on that depending on the market dynamics. But according to the kind of planning, where everything is equal going forward, this is the level we'll be at.

[Mikael Holm, Analyst]

Okay. And a question on the QFS side of the business. You're mentioning that you will have a negative impact in 2019 from when you phase out lower-margin categories at CDON. But I guess, we're seeing that already and still you grow the top line by 36%, if I remember correct, in the quarter. But will this negative effect be even larger in 2019? Is that what you're saying compared to this year?

[Marcus Lindqvist, CEO & President]

No, the effect is -- so you are absolutely right. We are already seeing that effect in the -- when it comes to kind of volume and income growth. So that this is already in the numbers for the quarter. You will have an extra effect as you always kind of build a loan book and that loan book matures over time, and then we kind of yields higher returns over time. But that loan book kind of expansion from a CDON perspective will be a little bit lower, so that we can accelerate that a little bit. But on a general note, you all -- we already have it today in the numbers that we released today in the quarter, to some extent.

[Mikael Holm, Analyst]

Okay. Then finally, some questions on the cash flow. First, to reach the guidance on SEK 100 million to SEK 125 million for QFS, will you need to put in more equity into QFS to be able to reach that? And the second question regarding cash flow is on CDON. What do you think the cash effect from lowering inventories could be over the coming 12 to 18 months? And what will be a reasonable long-term CapEx level in CDON Marketplace?

[Mathias Pedersen, Chief Financial Officer]

Starting with the Qliro Financial Services question. Yes, we have a plan to put some more capital into Qliro Financial Services. We do that as needed as we go along. And there is some sort of investment for maybe the end of this year or next year. I don't like to quantify those numbers, but more capital will be moved into Qliro Financial Services. On CDON, the CapEx level, I think it's actually where it should be. We don't really foresee any largening. We are doing this, this transformation plan and the IT investment that we take in a pace which I think we will keep. And then this -- yes, and the third question, of course, the final effect on the inventory. Well, we will free up capital as inventory. I mean, firstly, it will stop growing with the speed of sales, but then it will also free up capital as the inventory goes down. So this is all about the speed of transformation. And I really wouldn't like to give you a forecast on the numbers, but you should expect capital to be freed up through this transformation. And the cash flow cycle in CDON could become positive in the sense that you can actually get paid before you have to pay in yet.

[Marcus Lindqvist, CEO & President]

Well, let me answer that, Mikael. The dropship business model, of course, gives us cash flow day 1 when we send the product and then we'll pay our vendors a little bit later. So typically, this business model itself will improve the cash flows, either through inventory reduction or just the business model itself allows for that. And then on top of that, as we are stating, we will have a company that should be positive on an EBITDA level next year and that, of course, indicates that you will see, when it comes to CDON, rather strong cash flows over the year to come.

[Operator]

[Operator Instructions] We'll now take our next question from Nick Fhärm from SEB.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

I'd like to start by asking you a few questions on QFS in Q3, but also carrying on to see what you have in terms of answers for sort of building the assumptions for the updated financial target for next year in QFS. And to start somewhere, how many employees did you have in Q3 in QFS? And how many employees do you expect to have on the rolls in next year, to reach the SEK 125 million, that is?

[Marcus Lindqvist, CEO & President]

I'm not sure if we communicated the number or placed in the report, right? So what the plan is, I can tell you a little bit more on the generic level. So in order to reach the SEK 100 million to SEK 125 million, we need to scale this. And looking at this quarter, we have an increase of 32% when it comes to operating cost. And it needs to be significantly lower in order to deliver on this, which is also in the plan when it comes to staffing. It should also be worth noticing that we, in the quarter, increased our commercial capabilities and the team around our sales and onboarding, which has an effect on the 32% growth of operating expense. But you will see much more scale when it comes to the difference between income growth and operating cost growth.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Also, on the same theme, what's your Q3 current funding costs on an annualized basis? And what's the deposit income rates on an annualized basis? And what do you expect -- what's behind your assumptions for next year, please?

[Mathias Pedersen, Chief Financial Officer]

The funding through public deposits, it's about 50-50 in the fixed rate that we offer and the 3 months' rate that we offer. So we end up in a funding cost of probably less than 1 percentage point. And you can really see, as we point out in the slides as well, that the total interest cost for the loan book amounted only to SEK 4 million while the interest revenue from the loan book was SEK 71 million.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

What's your offer right now? If I sort of do a price runner on QFS and the likes of deposit income, what are you offering right now?

[Mathias Pedersen, Chief Financial Officer]

We're offering 70 basis points and...

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

70?

[Mathias Pedersen, Chief Financial Officer]

70 -- 0.7 and then 1.20 for the fixed.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Right. Also, if I look at sort of net fee and commission income as a percentage of total lending, you've been between 1 -- say, 1 and 1.5 percentage points in this year so far. Do you expect that's a decent forecast level for next year as well?

[Marcus Lindqvist, CEO & President]

Sorry. I believe Mathias was saying, just our -- could you repeat the question, Nicklas?

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Of course. I was just looking at the net fee and commission income as a percentage of total lending. And my question is really, that has been between 1 and, say, 1.5 percentage points so far in this year in Q1, Q2, Q3. Do you expect that to be a good forecast rate for next year as well? Is there any reason for why fees and commission would increase or decrease as a percentage of leveraging? That's my question.

[Mathias Pedersen, Chief Financial Officer]

Yes. So there's no particular reason why that should be any different, no.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

No? Okay, perfect. And also -- yes?

[Mathias Pedersen, Chief Financial Officer]

The actual fixed interest rate right now we're offering is 1.30, the 1-year term, that's why. Immediately, that doubled.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Okay, okay, okay. Excellent. Can I also ask you, I know it's probably a very difficult question given your answer previously. But what do you expect to end up in terms of loan book in 2019 and perhaps business volume in marketplace, please?

[Marcus Lindqvist, CEO & President]

Nicklas, sorry, was that a question about CDON, or CDON and QFS?

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Yes, and QFS. So what do you -- on -- when -- I guess, if you don't disagree, I mean, a financial target is a target and it's not necessarily a guidance for next year. But nevertheless, what do you assume in terms of end-of-period loan book in QFS and the business volume in marketplace behind that financial target?

[Marcus Lindqvist, CEO & President]

Well, we don't want to guide or stare on the numbers development. It is reasonable to believe and look at the total operating income growth that we had this quarter, that, that will continue for a foreseeable time on that level. That's what is driving kind of our sound trust on profitability next year. And when it comes to sort of the established coming from CDON, not really in a place where I could deep dive on that, I believe. There's a kind of acceleration versus marketplace that we did in the quarter reducing own sales, growing external sales. I would say it is likely to believe that, that kind of delta will continue for the next year at least. And then, of course, as we reduce own inventory sales, that will flatten out over time to some extent.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

All right. Can we go back to Nelly again, please? If you look at Nelly Sweden, there's like no growth at all in the quarter year-on-year. Could you give us a brief status on your local operations in this market, please?

[Marcus Lindqvist, CEO & President]

Do we have that? It's true. So the revenue in Q3 last year is up a little bit from last year. So it is SEK 1 million of growth, right? The fastest-growing market, we communicated that earlier, today is the Netherlands. And we have strong growth in Denmark, Norway and Finland at the moment. And it is also a matter of making sure that you spend your marketing money wisely. So it is also a matter of how you calibrate and spend your online marketing investment in the quarter, and we didn't see a need to increase the marketing spend in Sweden as we had good tailwind in other countries. So that is one thing. Then there on a tactical level, there is an explanation also that last year, we participated and spent quite a lot of marketing efforts in some events in Stockholm actually, which we didn't do this year. So that had a negative effect on the sales compared to last year. So it's more on a tactical level how we spent our marketing efforts.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

But are you also saying then that under normal circumstances, seasonable weather, no particular changes in marketing, Nelly Sweden is sort of a 0 growth prospect for going forward?

[Marcus Lindqvist, CEO & President]

No, no, no. We will continue to grow Sweden. This was a tactical kind of how we run the business tactically in the quarter and also compared to last year, which I believe last year, we had some good growth in Nelly Sweden. So perhaps a little bit [ comparisons ], right? So you shouldn't assume that, that we will not grow in Sweden. In our plans, we'll continue to grow in Sweden as well.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Okay, okay, okay. Let's leave that. Let's look at the margin, please, in Nelly. Obviously, at 7.7% EBITDA margin, that's clearly a bit above the target level. And I was just wondering, should we now expect that margin to shrink towards 6% going forward? And implicitly, you will spend that on sales growth instead?

[Marcus Lindqvist, CEO & President]

Not necessarily. The thing to remember on Nelly is that it's -- you have some seasonal patterns in the business. And typically, Q2 to Q4 are the kind of easier sort of -- within brackets, I'd say, the kind of quarters for us, while Q1 is typically a very challenging quarter. So you would most likely see us coming in above the 6% in Q2 to Q4 and below in Q1. And that's why we're guiding that on an annual margin of 6%. So you should view it on -- from a seasonal pattern perspective.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Perfect. And final question. I -- you don't have to agree, but I thought the stock in trade position looked a bit excessive, at least compared to estimates. And I was just going to ask you if you think -- what you actually think about the composition in your stock in trade in the balance sheet, please?

[Marcus Lindqvist, CEO & President]

You're talking about Nelly?

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Yes. In particular, yes.

[Marcus Lindqvist, CEO & President]

You mean the stock levels that we exit the quarter with?

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Yes, please.

[Marcus Lindqvist, CEO & President]

Yes. Well, we believe that we need to increase the stock levels in order to support continued growth. We also believe, given that we managed a very challenging quarter, actually, Q3, from a fashion and apparel perspective in a very good way, so we have very sound inventories. We don't carry with us excess stock from previous quarters in a big way. We believe we have the inventory levels that we should have and that we need. And of course, as always, if you have the weather phenomenon in this, you can always have too much. But the plan that we have to sell and increase sales is supporting the inventory levels that we have. And it's very important to know also that the inventory is sound today. So it's not consisting of old seasonal products that has been left over, so to say.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

That's very clear. And my final question. I have to admit, it's a bit difficult to forecast the group tax cost, on my behalf at least. And I was just wondering if you could give us some -- a bit more firm guidance, actually. I guess, I'm asking for Q4 implicitly or for the full year. You should know fairly well where tax cost should end up by, I suppose.

[Mathias Pedersen, Chief Financial Officer]

Yes. Given the history of the group, where we have built up some losses, we will not pay tax anytime soon. We still have more than SEK 100 million in deferred tax assets to utilize. So of course, you calculate the tax and put that into the P&L. But the cash tax effect is that there will be no tax paid within the next year or 2.

[Nicklas Fhärm, Country Head of Sweden Research & Analyst]

Yes, yes. No, sure. But for example, last year in Q4, you paid a deferred tax rate of close to 40%. Is that a number that we should put into Q4 this year as well? In Q4 in 2016, it was 21% of your revenue. So it's a big difference.

[Mathias Pedersen, Chief Financial Officer]

Yes, you should just assume the regular tax rate.

[Operator]

We shall now take our next question, a follow-up question from Mikael Holm from Danske Bank.

[Mikael Holm, Analyst]

Yes. I want to follow up on the return ratio in Nelly, which on the 12-month trailing basis has been increasing for many quarters now. Do you see this trend leveling off anytime soon? Give some flavor on that.

[Marcus Lindqvist, CEO & President]

Well, we foresee it to be on this kind of -- there's a kind of delta versus last year for the year at least, and then we believe it will level off. So you will not see the increase as much as it has increased this year versus last. So that's basically kind of how we look at it. So it will level off by going into '19.

[Mikael Holm, Analyst]

As all -- I mean, basically, this is a, yes, a trailing metric. But what's the return ratio in the quarter, I mean, if I was definitely. Is it above 40, or...

[Mathias Pedersen, Chief Financial Officer]

You're really asking whether we see an end to the trend?

[Mikael Holm, Analyst]

Yes.

[Mathias Pedersen, Chief Financial Officer]

And I think it's -- we can't really say that yet. This is -- it's either a shift, right, which is sort of taking us from a base level where we were before to a new base level and -- or this is something that continues. And we will just have to wait and see on the final outcome of that. Hopefully, it's more of a onetime shift than the last to stabilize where we are. But I wouldn't go so far to claim that, that is the case.

[Mikael Holm, Analyst]

But there is no risk -- there's -- you don't see any risk that you, for example, have provisioned too little on the sales in the quarter as you did in Q4 last year and it has happened at some occasions historically as well? Well, you have these...

[Marcus Lindqvist, CEO & President]

Yes. No, no, no. We are accounting on an increased trend, as I mentioned. So going kind of all the way into '19. And we are expecting the increase in returns to continue to go up, but not on the same level as this year. So no, that's not really built into our forecasting model. So really, we, as far as we can kind of see it today, we don't see that risk. And we believe we have taken room for that.

[Mikael Holm, Analyst]

Okay. And my final question, just on CDON Marketplace, and Q4 was normally the, by far, strongest quarter during the year. Do you believe that the inventory-related sales in Q4, I mean, will that sales decline accelerate as it has been during, yes, the 3 quarters into this year so far?

[Marcus Lindqvist, CEO & President]

No. I don't see that it will accelerate. Not to claim that it will come back, but that is then driven by that we have still, there is a delay effect. So when we are phasing out our own inventory sales, we always have a lag when it comes to inventories. And that inventory, we are planning also to utilize during Black Friday and Christmas season. So we don't see that will accelerate, at least stabilize or might actually be that it will decrease. But that is the attitude, it's kind of the same when we are through the season, but we don't see it accelerate.

[Operator]

As there are no further questions in the queue at this time, I would like to turn the call back for any additional or closing remarks.

[Marcus Lindqvist, CEO & President]

Thank you, operator. So thank you all for participating today and for your interest in Qliro Group. I look forward to seeing and speaking with all of you soon. And may I also remind you that our year-end report will be announced February 5, 2019. And with that, thank you and goodbye.

[Operator]

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.