Embellence Group AB (publ)

Thank you very much, and welcome to Ambulance Group's Q2 report. My name is Johan Angen, and I'm the CEO of the group, and together with me today is Colin Lydian, who is the CFO. Let's start to look at the business and what we achieved in the second quarter of the year. During the quarter, we delivered increased sales and EBITDA, and we increased both our gross margin and our EBITDA margins. And we continued our journey towards our long-term financial goals and our focus on delivering profitable growth. The organic sales growth in the quarter was 4%, but it was negatively affected by exchange rates, with 3%. Hence, the overall group sales numbers came in at 193 million Swedish krona, plus 2 million Swedish krona versus past year. Exchange rates did have a negative impact on the business in Q2, and with the current trends, we expect that pressure continues in the coming quarters, which Colin will shed some more light on later on. We are continuing making progress towards our long-term EBITDA target of 15%, and in the quarter, the total group's EBITDA margin landed at 13.5%, up 0.5 percentage points versus past year. delivering an EBITDA of 26 million Swedish krona, up 1 million Swedish krona versus past year. Q2 is the quarter with larger marketing activities than thirds, such as Salona del Modena, which is why the EBITDA margin in the quarter is naturally lower in percentage than other quarters. The development is positive, and on a rolling 12-month period, our EBITDA margin increased to 14.6%, which is 0.7 percentage points up versus past year, and one step closer to our long-term targets. Our long-term strategy and focus to deliver profitable growth is paying off, and we continue to see gross margin improvements. The gross margin, in fact, came in at 61.9%, growing 1.8 percentage points versus past year, and this was driven by mixed effects between channels and products, by pricing, and by manufacturing efficiencies. During the quarter, it was encouraging to see that our largest wallpaper brand, Boråsafeto, continued its growth for the second consecutive quarter. Our long-term strategic focus centered on product development, new designs, and investment into sales and marketing activities is beginning to deliver positive results for the brand. We continued to grow the double digits in the B2C channel, which is a channel that is and will be important for us going forward. Artscape also returned to growth as anticipated during the last quarterly call, where Q1 was heavily affected by one-time effects and where we now gain back momentum for the brand and uptake in the market is solid. We also continue to grow in the manufacturing segment. Our continued efforts in driving product innovation and developing quality products are paying off, and the segment delivered record sales in the quarter with 26 million Swedish kronor. up 6% versus past year. The comparison numbers are now being tougher, hence we don't see the same levels of percentage growth as we've seen historically, but we do expect the segment to continue to grow in the coming quarters, but not with the same percentages as last year. What is also worth mentioning as well is the tariff situation, which brings a lot of uncertainty in the market, specifically in North America. Today, we only have a marginal direct impact. However, increasing tariffs means more risk and indirect impact as a result of increased costs for consumers and customers. We are monitoring the situation and will navigate this accordingly. If we then move into the segments, let's start with the brand segment. Overall, sales were in line with the comparison quarter. And we saw a mix between our different brand performances, where Boazapesto and Artscape contributed strongly, while the other three brands reported declining sales. Worth highlighting is that our brands have different FX exposure, and the brands with higher exchange exposure were of course affected by the strong sales, which means that the underlying growth is higher when looking at sales in local currencies. We are focused and disciplined to drive profitable growth, and our efforts in this area are starting to deliver results for us. This quarter, we improved our gross margin, as mentioned before, and we did this through favorable products and channel mix, where we, for example, grew our sales in the D2C channel, which is a more profitable channel for us. And we also managed to trade up consumers to buy more premium products than we did before. We're also starting to see the effects of pricing for a few of our brands, which all in all improved our gross margin as a group. If we look at the manufacturing segment, it continued to deliver profitable growth, with 6% increase in net sales for the quarter, delivering record sales as mentioned before. The growth was primarily driven by our existing customers, who are entrusting us with additional business, which is a clear testament to the high quality of our work. We are focused on continuously driving product innovation and product development, and in the quarter we launched an updated assortment for Bolsa Petra Rek with new products made from premium materials for some of our customers. The more premium products increased our offering and was very successful and worked as a good trade-off alternative for our customers. This means that they in their end can operate to consumers as a more premium product with different characteristics, which they in return can charge a higher price point for. making their business model even better. And this is one of the ways for us to deliver value to our customers. We have also continued our focus on efficiency improvements during the quarter, something that we want to build into our DNA and continuously work on. We want to make small adjustments day by day, week by week, month by month, to optimize our work and become even better than we were yesterday, all in order to continue with our focus on delivering profitable growth. If we then zoom into sales by segment and brands, overall, Borås Capetgold grew in the quarter. We have seen strength for the brand in many channels and geographies, and we are increasingly starting to focus on the markets outside of our home market, Sweden. So the larger markets in Europe, with Germany and France, are growing, yet from low levels, but we see that our focus on becoming more international is paying off. We continue to grow double digits in the D2C channel, which is a channel that will be important for us going forward, and I will shed some more light on this later on. Product design and development is at the heart of what we do, and then it's extra encouraging to see that some of our new anniversary collections are received well by the market. For example, the Valmo collection that I mentioned during the call last quarter has gone very well, and we've also seen new collections launched during the quarter which will get which we will get a glimpse of later on. With cold and sun, we are not satisfied with the development. We expect more from the brand, even though the important home market in the UK is tough, and we hear from other actors in the market that the overall market is challenging. Even though the quarter was negative, we are roughly flat versus a year ago in local currencies, but we believe that there is more upside. In order to build the brand and to increase sales, we have taken the decision to change the online platform for the brand. And this is a big change and a project that we just initiated and expect to launch in Q4 and see early effects of in 2023. Wall & Echo had a soft quarter and is suffering from slow retail market in Italy. On the other hand, we are increasing our sales in the hospitality channel, where there have been a few very nice projects materializing. And we will view one example of this in just a minute. Papalena, as we mentioned last quarter, is a brand where we see potential, but where sales were not satisfying in the quarter. And in the last quarterly report, we mentioned that we took a decision to change management. And now I can gladly announce that we have hired a new managing director for the brand to strengthen the commercial focus even more. Henrik Andersson will start his position in mid-August, and Henrik brings a strong customer focus and commercial drive, combined with broad international experience in sales, business development and leadership. He has also held several senior management positions lately, and he will play a central role in the further developing Papalina's position in the market, by strengthening sales in existing markets and driving international expansion. We are, of course, not waiting for Henrik to join. They are taking decisions as we go. And we have worked on a new DTC platform for the brand. And we just launched it a few days ago. And we're still working to optimize it further, which we will continue to do in the next coming weeks. Overall, this new platform will help us deliver more profitable growth for the brand. ArchScape has had a good quarter. The business returned to growth as anticipated after the Q1 numbers, which were affected by the double one-time effects. ArchScape has strengthened its leading position within the segment in the U.S. and will continue to develop well. The business is, though, a bit lumpy, with big orders moving from quarter to quarter, as it did in Q4 last year, which was a quarter with unusually high sales for the brand. But the overall trend for the brand is going in the right direction. As part of our strategic direction, we will continue to prioritize profitable growth and the development of strong brands. In parallel, we have called out specific geographies and channels where we will allocate additional resources and targeted efforts to drive further impact. Two of these channels are the hospitality as well as the e-com channel, where I today will spend some additional time to walk you through the e-com channel and our thinking linked to this channel moving forward. There are a few reasons for our focus on the channel. First and foremost, we believe that there is a lot of upside in the channel. Today, 8% of the brand segment sales comes from B2C. This is something that we are not satisfied with and something that we will change over time. The channel will be our fastest growing channel and we believe that in the next three years it will stand for more than half of the growth. So all in all, the channel will be a growth accelerator for us. Secondly, the channel is margin-accreting for us, with higher margins and favorable product mix. When we sell directly to consumers, we charge a higher price point than we do to a retailer, and we will also see different pricing structure when some of our brands sell more internationally. What although is going to happen is that we're going to see a bit of a shift in the P&L because we will spend more on shipments, handling and payments and marketing than we do on our traditional business. But all in all, the channel will help us deliver profitable growth. Thirdly, the channel will help us build closer connections between our brands and our consumers and shoppers. The channel gives us a direct access to our consumers with no middlemen and no filters. Whether it's through Instagram, TikTok, Pinterest, chat or email, we will have a much closer link to our consumers. This will also help us ease your personalized experience based on what they browse, buy or click on, to then show specific recommendations tailored to just them. The online world also helps us build communities and a space where people can feel part of something, not just being a buyer, but being the brand advocate, sharing their experiences, reviews and content. The beauty of this is that it's not like a traditional weekend visit, but a touch point where we can build relationships over time. So all in all, the e-comm channel will be important for us going forward and a strategic focus area in order to help us deliver profitable growth and to build our strong plan. Now, this is the first time when we share our e-comm numbers, and as you can see, it's still a small part for us, and we have much room for improvement. Going forward, we will share our net sales in the channel as percentage of our brand segment sales, and we will do this on an annual basis, which means that the next time we share our numbers is when we summarize 2025. Looking at our focus areas right now for the channel, we are updating our DTC platforms. We are well underway with our facelift of Artscape, and we just launched a new platform for Papalena a few days ago. In parallel, we have taken a decision to change Coal & Pump's platform, which will be done before 2025, to help deliver profitable growth in 2026 and beyond. What I've also identified during my first month with the business is the need for increased e-commerce capabilities in the organization. Hence, we're both strengthening the organization with recruitments, as well as specific training programs to build capabilities in the current organization. We have hired Kajsa Hjelm as head of e-comm for the group, and Kajsa will be part of the group's steering team. Kajsa comes with extensive e-comm knowledge and experience that will help us on our journey forward. What we have done is that we've also made brand-specific recruitments within the e-comm teams to strengthen our focus on the channel within our brand. As you can see, we are taking small steps on our e-com journey, which will help us deliver profitable growth, and we will continue to invest both resources, systems, and content to fix the basics and get the fundamentals in place. We have underinvested in the channel for quite some time, and this we are now changing, but it will take some time since it's a rather large project that we need to roll out and implement. Now, let's move on and look at some of the amazing work done by our brands in the quarter. Let's start to look at Boho Tapeton. As we have mentioned before, we are looking to strengthen both the product offering and the design offering. And in the quarter, Boho Tapeton launched a new material called Peel & Stick, which is a self-adhesive material. This product was added to all the studio custom-made items to increase the trade-off alternative to consumers, driving a more premium product. We're also looking to expand the made-to-measure assortment over time, since we see an increased consumer demand for these products. During the quarter, we launched a few of the classical designs, such as Dahlia Gaben, Nocturne and Horentia, with a grand version, which is a larger version of the same design, which is specifically tailored for the online channel, even though it's also available for the retail channel. During the quarter, we also launched a new collection called Adore, a collection where classic elegance meets contemporary Nordic simplicity, and it offers a balanced mix of newly designed and vintage wallpapers in various styles. At Cologne Sun, they won a gold award at this year's Chelsea in Bloom Festival, inspired by their couture carousel collaboration with Harris. The installation was perfectly entwined with this year's Chelsea in Bloom theme, Flowers in Fashion. And at the same time, Cologne Sun globally launched a couture carousel collection, which is a wallpaper and fashion collection collaboration between Cologne Sun and Harris. which prior to this year only was exclusive to Harrods. Moving on to Wall & Deco, where I had a pleasure a few weeks ago sitting down with the managing director of the brand Gianluca and Valentina in his team to go through the impressive project we launched at the MGM Grand Hotel in Las Vegas. Wall & Deco decorated their walls in the pool cabanas with its lovely print-on-demand products made out of cartoon rendering together with an architectural firm. One example of how we managed to penetrate the hospitality channel with impressive projects and designs. Wall & Deco also had big success in the quarter where the AquaVault product won the Red Dot Design Award in July. The Red Dot is the award for high design quality, and the International Jury only awards products that feature outstanding design and quality, and we're very happy to have won this design award. And the AquaBot product is the product we use in all wet areas, such as showers, spas, etc. We've done over 25,000 installations in more than 80 countries on this product. Now, let's look at some of the numbers more in detail.

Thank you, Johan. In the quarter, we had a sales of 193 million kroners, which means a growth of around 1%. However, the underlying growth organically was 4%. The currencies were negative with 3%. And I will elaborate a bit more on the currency exposure on the next slide. We continued the gross margin expansion in second quarter. and delivered 61.9%, and it resulted in an EBITDA margin of 13.5%, which is half a percentage point above last year. Next profit for the period was 15 million kroner, and we generally deliver around 75% to 80% operating cash flow, and we are comfortable we will continue to do this. However, cash flow shifts from quarter to quarter depending on timing of customer and supplier payments mainly and this quarter cash flow was 14 million kronor. This is a natural effect of seasonality in inventory and timing of payments at the end of the quarter regarding supplier and customer payments. We should also remember that Kaya quarter two was very strong following the extraordinary artscape sales in first quarter of 2024. If we look at the year-to-date numbers, net sales was 396 million kroner. And in constant currency, we are almost flat since one percentage point is negative due to currency impact. Growth margin is strong also year-to-date, 62%. We are stabilizing well above the 60% and have 61% rolling 12. We see an improved product and channel mix in the brands, and we have efficiency improvements and economies of scale following in the manufacturing. EBITDA margin is 14.8% year-to-date and 14.6 rolling 12. We continue to develop towards our long-term target of 15%. We should remember, though, as Johan has elaborated on in his presentation, that we will continue to invest in our sales and marketing teams and resources to drive growth going forward. I would like to explain a bit more around our currency exposure and impact, especially in second quarter, since it is significant. First of all, we should remember we are a Swedish company and Sweden is our largest market state. 65 million of 193 million kronors was sold into Sweden. The recent strengthening of the Swedish krona has had a negative effect on group net sales and also EBITDA in the second quarter. If we look by currency, the U.S. dollar is around 10% weaker than the comparison period last year. And U.S. is our second largest market, where, of course, Archgate dominates. All other banks also export their products into the US. And much of our foreign exchange impact originates from the US dollar. And we have a negative impact of the low rate. Also, pound is lower compared to prior year, around 4%. And as UK is the home market for coal and sand, and we also have our brands exporting into the UK. Weak pound also means a negative impact on sales and EBITDA. The sales into UK this quarter was 17 million kroner. And then we look at the euro. The euro is down around 5% compared to prior year. However, we do purchase a significant share of the manufacturing materials in euros, which means that we have a net exposure of euro, which is almost zero. It's low. So to conclude, two-thirds of our business has a limited exposure, the Swedish krona and also euro, where sales is offset by purchases. However, should the current rates prevailed through the rest of 2025, we will see a similar negative impact from US dollar and pound as we have been seeing in the second quarter. Looking at the long-term trends, the net sales for rolling 12 have been stable around 770 million. The EBITDA increases compared to prior year both in million kronor and a share of revenue. So I hand back to Johan for a summary and looking ahead.

Summarizing Q2, it was a quarter where we continued to deliver profitable growth. We grew net sales and EBITDA and improved our gross margin and EBITDA margin in the quarter. We took additional steps towards our long-term financial targets, and our rolling 12 EBITDA margin is now 14.6%, moving closer to our long-term target of 15%. Although we grew 4% organically in the quarter, we had a negative sales effect of exchange rates, which we present, and we believe the exchange rates will continue to affect the business negatively during the rest of the year. Now, looking ahead at the reminder, the remaining quarters of Q3 and Q4 consist of net sales that are a bit unevenly distributed. And the Q4 was affected by a positive one-time effect from Artscape's Q1 order that was pushed to 2024 Q4 versus Q1 2025. We are continuing to build our strong brands, and in the quarter, we have several new products and design launches. We also implemented a few really nice hospitality projects for Wall & Deco, and we viewed one of them from the MGM Grand Resort in Las Vegas, and we have more in our pipeline for the coming quarters. And on this picture, you can also see another of the fantastic projects done from Wall & Deco, which is very inspiring. During the quarter, we also won a few prizes, both the gold medal in Chelsea in Bloom, but also the Red Dose Design Award for Wall & Deco's Aqua Bout product, which we're very proud of. We shared that our rolling 12-month B2C share as percentage of our brand segment sale was 8%, and that we see a loss of opportunity in the e-commerce channel, where we believe that more than half of our growth in the next three years will come from. The channel is a growth accelerator for us. It is margin-accretive with more favorable product mix, and the channel helps us build the connection between our brands and consumers. Looking ahead, we are focused on and will continue to deliver profitable growth and continue to build our strong brands. In the coming quarters, we're focusing on growing our e-com capabilities in organizations as well as rolling out new platforms for several brands. These investments are necessary to do for us in order to build a foundation for growth and to keep us with the speed needed and the sales will come in 26 and beyond. We are also continuing our effort to drive product and design innovation, and we have more news coming already in Q3, which is exciting. That was it for us, so we open up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. There are no phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

No questions. Summer time, so we wish everybody a good summer holiday and hear back from you when we present the Q3 numbers. Thank you very much.

There was a few questions on the chat.

Okay. Oh, sorry. We saw there are a few questions on the chat, so let's take those. I have a couple of questions from Maritela Klang, Handelsbanken, that would like us to update on the M&A agenda and also talk a bit about the hospitality, Johan.

Yes. So if we start off with a question on the M&A agenda, as we talked before, this is part of our strategic focus area. We have six of them, and this is one. We are continuously looking at the market of what is available, and it's not like there are hundreds of different companies available, but we are looking in the market. Nothing to talk more about in this call, but we are constantly looking. When it comes to the ambitions in the hospitality segment, it's of course one of the focus areas that we are looking at. So we have different geographies that we've called out, and we have different channels that we've called out. So the e-comm I just mentioned a bit about. The hospitality channel is another one that we are looking closely at. Some of our brands are more exposed to this channel than others. Wall and deck, of course, is one of the larger ones. We believe that there is a lot of upside in the channel. What is a bit unique with the channel is that projects take a bit longer than normal retail projects. So one project can be anywhere from a few months to several years in order to do So we are constantly working with this channel to improve our sales.

And a third question from Maricela. What is your ambition for share of e-commerce? How fast can you get there?

So when it comes to the e-commerce business, we believe that it's 8% of our brand segment sales today. We believe that more than half of the growth in the coming three years will come from the e-commerce channel. So it's a substantial part. We think that there is a lot of upside in the channel. It will be a growth accelerator for us. It will be a margin accretive for us. And it will help us build a closer connection between our brands and our consumers. So it's definitely a channel that we believe strongly in.

Then a couple of questions from Benjamin. Are there any larger orders that disturb the growth figures, Johan?

In Q2, there are no larger orders that are disturbing the growth figures, although there are orders coming in and out from the different quarters, but Q2 is a relative normal quarter in this stage.

And the Covenant Fund e-commerce platform, can you give any other information on this?

Yeah, so we have done a big review together with the teams on how the e-commerce situation is for all our brands. We've seen where we're basically going out for where we have the most bang for the buck at the moment. And we believe that Toll is one of the platforms where we have the biggest opportunity to do changes. So that is one of the Before we did the Tapalena, which was the first one, then we do Kohl, the next one up. So we believe that it will be done sometime during Q4 and be ready to help us deliver profitable growth during 26 and onwards. Lots of opportunity for Kohl and the Ecom channel.

And then I add a question from Adam. The DTC initiative you presented today with the new platforms and recruitment, what should we expect in terms of additional costs for the upcoming quarters?

Yeah. So, I mean, what I tried to explain when it comes to the DTC channel, it is more than accretive and it will be a bit harder to follow this in the overall P&L since we will have a higher gross margin for the channel. At the same time, we will have more costs on the operational extensive side. So we'll have more handling costs, more pick and pack fees, payment fees, and also marketing investment that we'll do to drive traffic. All in all, the channel will be accretive for us, and it will be investment that we need to do over time in order to be able to build a foundation and also start the acceleration phase for our brand in the coming future.

And I can answer a question from Benjamin regarding the Papelina restructuring. We have absorbed additional costs, both when it comes to the restructuring, the recruitment, and also the move of the head office from Falun to Borås. However, the costs have mainly been absorbed in the second quarter, and they are not significant enough to call out as a restructuring, in my opinion. So almost all calls are absorbed as we speak, but are not big enough to call out. And final question from Linus. You will have a net cash position excluding liabilities in the not too distant future. What are your position? when it comes to future M&A. And I think that we have a good situation from a net cash perspective. We have also recently signed a new bank agreement, which gives us enough room and flexibility to do an M&A when the opportunity arises. In other words, you have to live with the answer Johan gave.

few minutes ago yeah no and i think on the test position i mean we've seen over the past years when uh macro trends go up and down with uh you know first it was a pandemic then it was the war in in ukraine that things are fluctuating a bit from the market and it's of course better to be in a good cash position than in a backup cap position uh with that said as corey mentioned we have m&a on our strategic focus areas and we are scanning the market to see what is available and what fits within our group. And we're not just going to go out and buy a company for the sake of buying a company. It needs to have a perfect fit within our strategy and within our portfolio and help us build our group's numbers.

So with this, all questions have been answered. And thank you so much for today.

Thank you very much.