Embellence Group AB (publ)

Thank you very much and very welcome to the Q4 report for the M-Balance Group. As you heard, I'm Michael Lander, the chairman, and I'm standing in today to ensure that Karin is also getting the support as you should as a CFO and interim CEO to be two people on the call. So let's look then at what we achieved during the fourth quarter of the business. It was a strong quarter with solid sales growth and a continued margin improvement. Net sales ended at 202 million Swedish krona, which was up 12 million krona versus the previous year, and an EBITDA of 28 million, which also was a growth of 5 million Swedish krona versus the previous year. And it was good to see that we continued our journey of improving our EBITDA margin at 1.7 percentage points higher than the previous year, ending at 13.9% for the quarter. So that meant a sales growth of 6%, the majority of which was from our organic growth. We did get some help from exchange rate with 1% growth. What is good to see is that our efforts over the last year or so of continuously working on efficiencies is paying dividends in terms of our gross margin improving. The gross margin, in fact, improved three percentage points in the quarter to 60.7. And that was a combination of efficiency improvements in our production part, as well as some product mix effects helping us to drive that improvement. You will see as we talk more about the segments that our manufacturing segment that has been performing very well with Lotta Samuelsson and her team winning market share in a challenge European wallpaper manufacturing business. and doing that with good margins. And then on top of that, we had Artscape, our window film brand that did have a very strong quarter in the US. It was partly helped by some earlier than expected big orders from one major retailer, but even without those orders, it was a continuous strong performance and a return after a slower Q3 for Artscape. What was not so strong was our three major wallpaper focused brands. They all have still a soft quarter in terms of the retail channel that continues to be important for those three brands of Brostapeter, Wall & Deco and Colon Sun. But their direct-to-consumer part showed good, promising levels of growth, despite being still, as we have communicated at our Capital Markets Day earlier this year, too small a share of our current sales. Totally, with big efforts continued to drive that future growth in all our brands, both in terms of how we structure our sales and also what we do in product development, we did see an EBITDA margin improvement, as I said. And we continued with a strong cash generation that mirrors the full year. So if we go then and look at the segments, Brian's segment did show a 2% growth, but that was really driven by the strong quarter from Artscape. And if you look at the Artscape order situation, You have been, if you've followed Emblem's group, you know that we have a number of large retailers in the US taking the lion's share of those window films, although we are growing direct-to-consumer fast also within Artscape. And one of those large do-it-yourself chains was placing an order earlier than expected and earlier than normal in historic years for the new season to come. We're very happy with that choice because of two reasons. One, it was a strong boost for our Q4 and it's always better to have a sale early than potentially not at all. But secondly, we're also happy that it came because as you are well aware, the world is in the US especially the US retailers are now generally worried about what will be the impacts on their business from various tariffs as implemented by the new government in the US and that means that that same retailer and other large retail chains and Q1 are very hesitant and therefore it was good to have already gotten this big order in Q4. Generally, we see continued strong mix driving improved gross margin in the brand segment. As I mentioned, the team in the manufacturing segment is doing a great job in winning market share in what is a tough market for various producers. We're also taking steps to continue to win for the future, both in becoming more efficient for our own brands, but also being an even better potential supplier to other brands by investing in both additional digital printing capacity in Borås for the Borås Tapetfabrik, but also in investing in more efficient and sustainable equipment that I will come back to later on. We are seeing efficient improvements. One part is, of course, as you would expect, some economies of scale of better utilizing the capacity we have. But the team is also working on both waste reduction and other efficiency measures. So that also continues to drive an improved gross margin. If we then look at the subsets of the brands part. You can see that the business development in many ways was similar to what we've seen in the rest of the year with Artscape being the winning player from our brands during 2024. But that's also as always compared to a relatively seen weaker 2023. Overall, an okay performance of the wallpaper brands and of Papalina, our rug company, and we are seeing some light in the end of the tunnel in the very soft Swedish retail market, hoping and seeing the signs of that improving. The UK home market, where we also have a listed peer competitor, the Sanderson Group, we can see on their numbers and our numbers that we are outperforming what is a very weak UK market. We have a lot of things to improve in our wallpaper brands in terms of which channel to win in, but we're taking those steps, and as I mentioned, our direct-to-consumer sales, albeit from a very low level, is showing very good growth, and that's something that we will continue to invest in and drive. And as you know, as we have communicated that in an official press release, we have a new CEO joining us in May who comes with a strong digital background. We're, of course, not waiting for him and his competence within a digital direct consumer, but we are taking a number of steps already since sometime in 2024. but dialing up those efforts now in the beginning of 2025 as well. If we then go and look at the full year and how we performed as a total for the full year, you can say that on the sales growth in the year was strong from seeing what we've seen in historical past But really, 5% is not the levels we want to be. We expect to continue to grow that growth percentage as we win in more growing channels like hospitality and direct to consumers. But what was strong in the year was the gross margin improvement. So despite a moderate sales growth, we did pick up in gross margin with 1.9 percentage points, closing in on the 60% level. And I am convinced that all the efforts we are doing, we will be seeing a good economies of scale effect coming across also on our gross margin efforts with both a better efficiency in our plans and a well-invested setup. That meant also that we have for the year an EBITDA increase of 22%, which is very nice to see. So that despite efforts to drive future growth more consistently, we are being able to see the top line growth fall through on a bottom line improvement. And in fact, that bottom line improvement meant a two percentage point pickup to 14.4%, starting to move towards our long-term growth target of having a beta margin over 15%. As I mentioned, the full year had a very strong operational cash flow, which Karin later on will talk more about. But then let's look a little bit then on some of the most exciting things, because as a product company doing great interior decoration products, it's always good to get to see a little bit what we're doing. So in Artscape's reality, we continue to win market share in the window film segment. And in fact, in premium window films, we define the segment in the US. We're also seeing continued strong growth in direct-to-consumer, both directly from our own webpage, but also in an Amazon vendor direct model that we use. What we did mention, and I've already commented on it, but it's worth noting, is this US customer placing a large order, which will mean a softer start in a like-for-like comparison in 25Q1 than we had then previous year. If we move on to Colin Sun. Colin Sun participated just here some weeks ago at the important Paris Deco Off Fair. We did that in a very smart way. Marie Carlson, head of Cologne Sun and creative director of the team, made sure we were seen in the right place, connecting one of the big launches we did with the place we were at. So we had an apartment across the Jardin du Palais Royal where we, at the same time, in a very nice way with our long-term design partner, Ardmore, launched a new Jardin-related product, the Baobab tree collection. A number of designs based on the South African tree of life. And I know that Marie and Fi Hassed, the founder of them, Aardmoor has for many years thought about a collection like this where we truly celebrate the traditional African design with the skill set and artistry of those artists that work at Colman Sun. We're talking about several hundreds hours of hand-painted designs that have gone into creating this luxurious collection that will hit the market in Q2. If we then move on, because not only Kohl & Son was present in Paris, it was also the Boreas Tapeter team. And there the theme is with the fantastic heritage that we have with Boreas Tapeter. And maybe some of you who know me know that I'm from the very south of Sweden, so you might believe that my excitement over the Österlen collection, which is a region in the south of Sweden, is due to where I'm located. But I can assure you it is more due to the fantastic way that this collection that was introduced at the Paris Deco really captures what Borås Tapeter has done in defining Swedish Almöge, the typical style of Swedish homes, with a new collection to create future design icons for the Borås Tapeter brand. So that's the land collection, which has 12 patterns. Really, when I listened to the team that has brought it to life with Sissa Sundling and her team of skilled artists and designers, What they've done there is they've combined very colorful patterns with flowers like cress, clover, bluebells, and anemones, but also added in a smart way patterns with petite flowers and more traditional Alamogu-style striped patterns so that you can really capture an entirety of a home. One of my personal favorites is the crest design, which Sissa herself was inspired from her own garden. And I think there will be a lot of favorites. It's just hit the markets here since about a week and a half ago. And early indications are a very, very positive reception of these designs. If you then go to what has happened in Borreos Tapetrofei, So in our factory in Borås, we have over the last eight months, I would say, really dialed up some of those investments that we are convinced will bring those both efficiency gains and new technologies into the company that we need for the future growth. So what we have done is we've invested in a new paint mixing line, a color mixer, which enables much more speedy, but also much more sustainable handling of the mixing for traditional print. We've also increased our digital printing capacity and added additional capacity in that future also growth area. And in general, we will see that our CAPEX levels, which have historically been extremely low and in 2024 was around 2%, will for the year 2025 more go towards three percent as we dial up the focus on setting the factory up for the future and then to return back to low two percentage points type of capex with that i hand over to Karin who will walk you through some of the financials a bit more in detail

Thank you, Magnus. I believe Magnus already covered sales in great detail. We had a growth of 6% and I will therefore focus on the profitability. The gross margin improved to 60.7%, three percentage points during the fourth quarter. Part of this is product and channel mix, but we also see improvements in operational efficiencies primarily from manufacturing. The EBITDA margin was 13.9% and the operating cash flow 38 million. Looking at the full year, we have a gross margin of almost 60%. This is an improvement of one and a half percentage point. in 2024 and an EBITDA margin of 14.4% compared to 12.4% last year. And you can see that we are delivering profitable growth. As we said during the Capital Markets Day, we add and we will continue to add resources in primarily sales and marketing. However, we also drive operational efficiencies in our OPEX that contribute. We're driving efficiency improvement actions in several important back office areas, for example, IT and finance. And the purpose with this is both to step up quality and at the same time increase productivity. One of the most recent example is consolidation of finance for all the Swedish legal entities into one site. We generate cash and we doubled our operating cash flow in 2024 to 113 million compared to 65 last year. Looking at the long-term development, it's good to see that we are back after the weaker Q3 on our growth journey towards our financial targets of delivering 1 billion in sales in 2028. We also deliver one of the strongest quarters ever when it comes to actual EBITDA that is reported to 28 million SEK in the quarter. And looking on the operating cash flow and balance sheet a bit with the operating cash flow best ever of 113 million kronor we have doubled it since 2024 and the main contributing factors is an improved EBITDA of course we also paid less tax mainly due to we made a higher share of the profits in entities with lower tax rates in 2024 compared to 2023. In 2023 the working capital development was not as good and we are now back on a better level compared to prior year. We recommend a dividend of 1.25 kronor per share in 2025. This is in line with our policy of paying a dividend between 30 to 50% of our net income. Or if you actually do the math, it's slightly above, but we rounded it to a good number. The leverage has improved during the year from 1.7 to 0.7 of net debt to EBITDA. We chose not to do a dividend in 2024 and have, among other things, utilized our improved financial position to repay the costly outstanding loan in US dollar from a couple of years back. This will give us lower interest expenses and reduce currency fluctuations. This was also the first step in our ongoing plan to improve the total group financing. We want a better flexibility, efficiency and cost level for the total group financing. And with this, I hand back to Magnus to summarize and conclude.

Thank you very much, Colin. As you understand from current, we are working on our total balance sheet set up and we will come back with news on what that will look like in very close future. If you look at them, what we've done in the last few years as a company and also reminding ourselves of what we presented at the capital markets day in May, you can see that since 2020, the company has had a cargo growth of 8% per year. Of course, that means that you could consider the target of hitting the one billion sec as almost conservative, but we have wanted to reestablish the fact of having a mental mindset of beating our targets rather than not reaching them. If you look at the EBITDA development, a 58% growth over these four years with a cargo of 12%, you clearly, as you will also see on the next slide, that we are in a good momentum to be able to achieve the long-term target of above 15% EBITDA. So if we go to the next slide, you can see that after a dip during the late 2022 part and early 2023, we have been moving the company in the right direction and we feel very confident that the direction that we will continue to move our EBITDA will be continuing in the trajectory as you see. So then in closing and summarizing what has been an eventful year with significant building blocks. One of the bigger steps was the clarity that we hopefully created and will continue to try to reiterate and make even clearer is the brand focus strategy that we have as a group and how we truly want to make the brands we own today five brands and in the future more. We have brands that have fantastic legacy history with strong design skills and a driven setup where we do need to improve our sales efforts in the more growing channels of direct to consumer and hospitality as our historical legacy channel of traditional retail is under pressure. But with that brand focus strategy, we also clarify that there will be a number of things that we want to create, as Karin was mentioning, some strength in efficiencies by utilizing a better and stronger group wide back behind the scenes setup. And that will continue as we now roll into 2025. We did show a solid sales growth and nothing amazing, but still nice to see after a weaker 2023. What it was very good to see was the continued journey of efficiency improvement and better economies of scale delivering a gross margin improvement. And also that this totally fell down to a good EBITDA margin of 14.4, taking steps towards the above 15% EBITDA margin target. These investments that we're doing in our plans and improving them is a focus and also a commitment on delivering those growths in a cost efficient way in the future. And as I've already mentioned, the focus on the winning in winning channels and growing channels is increasing significantly in the company. uh if we look at 2025 we definitely have a very exciting year ahead we have very strong motivated brand teams and they have some very exciting new product launches to roll out we are adding staffing and funds into our d2c and hospitality efforts and we have a number of efficiency improvement projects underway both in the back end and in production as well as in sales We then, although Karin is doing a fantastic job as interim CEO, we are convinced that the strength of two leaders together with the brand management will be even stronger. So we have a new CEO, Johan Amgen, joining us May 1st. And all of that means that the board is very convinced of the direction the company is taking with firm and clear steps. We will see a slower Q1 if you compare it in the quarters over the year. It's the Q1 that will be slower than the average of the quarters due to the big facing of the artscape order that was in Q4 rather than Q1. But we remain very confident on the journey and our growth plans for 2025. And with that, I also want to pass on my thanks to everybody in the company that now, as we are undertaking quite a big shift in focus, clarifying the strategy since the capital markets day in the spring, and then moving with a lot of improvements in both back end and front end. Everybody is doing that in a very good way. I also want to pass on my thanks to Ole Svensk, who has been the CEO for many years, as he has now decided to do other things. We wish him all the best in his future endeavors. And with that, we open up for questions.