Embellence Group AB (publ)

Welcome to the Imbalance Group Q3 2025 report presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers, President and CEO Johan Angren and CFO Karen Ledan. Please go ahead.

Thank you very much and welcome all to Emberlands Group's interim report for the third quarter. My name is Johan Angren and I'm the CEO of the group. And together with me today is Karin Lidén, who is the CFO. Let's start to look at the business and what we achieved in the third quarter of the year. In the third quarter, the organic sales growth was 5%, and a positive development came from both brands and manufacturing, and we also grew in several of our key markets. However, and as we also highlighted in our last quarterly call, we continue to face currency headwinds, mainly from the dollar and the British pound, that negatively impacted our top line by 3%. This is something that we expect to continue in the coming quarters, driven by the stronger Swedish krona. All in all, our net sales increased to 174 million SEK, up 2% versus past year. Sales-wise, we delivered organic growth in four out of our five brands. The exception this quarter was Kohl & Son, which organically was basically neck-to-neck with last year's sale, but was impacted negatively by currency and by a weak UK market. The largest of our five brands, Bo & Stapeto, continued to grow for the third consecutive quarter and our long-term strategic focus centered on product development, new designs and initiatives in sales and marketing are continuing to deliver positive results for the brand. Artscape also delivered solid growth organically, but had a negative currency effect since most of the business is in US dollars, but all in all, good double-digit organic development for the brand. We also continue to grow in manufacturing. Our continued efforts in driving product innovation and developing quality products are paying off and the manufacturing business delivered 22 million SEK up 17% versus past year. We continue to take market share in a tough market and more and more collections and designs are placed in our manufacturing, which is a testament to the high quality work that we are delivering. In the quarter, our margin was stable at 60.6%, almost neck to neck with year ago. And it's the fifth consecutive quarter above 60%. In the quarter, we had a positive channel and product mix, which means that we sold more from profitable channels. And we also sold more products that were higher priced, but we also saw a slight negative effect from both brand and segment point of view, but all in all stable margins about 60, which we can expect also going forward. In the quarter, we continue to focus on a few selected focus areas that are both important and necessary for us to reach our long-term targets, and these focus areas are the D2C channel, international sales, and the hospitality channel. Within these focus areas, we have made a few selected strategic initiatives that have increased our operational expenses. These initiatives are necessary from a strategic point of view, and it can be summarized into three areas. Firstly, it's linked to organization. We have made a few selected recruitments, both on a group level and on a brand level. We have not had the right capabilities historically within the organization and are hence updating this to be better fit to the strategy and our objectives going forward. Secondly, it's linked to our systems and platforms. In order to grow, we need to have the right basics in place and we have taken the decision to implement new platforms to support our DTC growth. So far we have rolled out two new platforms and in Q4 we will roll out Coal and Sun and in first half year of 26 we will continue with Boas Tapeto. And thirdly we have updated and changed our go-to-market model in selected geographies where we have some key markets have changed the agent and distributor setup to better fit the market needs. All in all, these initiatives have increased our operational expenses by 3 million Swedish krona, in line with our expectations. The increases include some costs that are more of a one-time nature, as well as others that will be integrated into our base going forward, supporting us to achieve our long-term objectives. All in all, we delivered an EBITDA of 24 million Swedish krona and an EBITDA margin of 13.6%. And in rolling 12 months, we are at 14.3% EBITDA margin versus 14.0% a year ago. If we then move over to look at the brands in our portfolio. So in the quarter, our brands grew organically percent, but after currency effect, we were basically neck to neck with year ago at 152 million Swedish krona. We intensify our work on the three selected areas, which will help us drive growth going forward. It's the DTC channel. It is winning with our brands internationally, and it's the hospitality channel. If we're starting off with our efforts in the D2C channel, we anticipate that more than half of our growth over the next three years will come from this channel. This shift is not only about capturing incremental sales, but it's fundamentally about reshaping the nature of our relationship with consumers. The channel gives us better margins, is a growth accelerator, and it allows us to build closer connections with our consumers. As we continue to invest in digital infrastructure, content and talent, we are laying the foundation for growth that is both scalable and sustainable. We are right now working on setting the core fundamentals and basics in place. And in the quarter, we implemented a new platform for Papelena. And now both Papelena and Artscape are live on the new platform. And we will continue to take Kolen Sun live in Q4 and then follow up with Borås Tapeto in the first half year of 2026. During the third quarter, we also made targeted recruitments in the D2C international sales and hospitality channels, ensuring that our teams have the expertise and capacity to deliver on our objectives. Our head of e-comm joined in September, and we also strengthened the organization with selected recruitments in some of our brand teams, all to support our focus on the channel. International sales is another area of great importance for us and we deliver growth in almost all of our biggest geographies, including the important market United States, which is a sign of strength for us and it perfectly fits with our strategy. We are actively refining our go-to-market models in selected regions and in some areas this involves direct engagement with key accounts and deploying dedicated sales representatives, while in others we are evaluating and restructuring distributor or agent relationships to enhance the market success. If we turn to manufacturing, we continue to make progress in the quarter. Our ongoing commitment to product innovation and quality development has yielded positive results with manufacturing generating 22 million Swedish krona representing a 17% increase compared to previous year. We continue to take market share in a tough market and more collections and designs are placed in manufacturing, which is a testament to the high quality work that we are delivering. If we then drill further down and look more in depth for our brands, we grew organically in four out of our five brands. So let's then look a bit closer at Borås Tapeto, where we grew for the third consecutive quarter. This is mainly driven by the Swedish market, but we also saw increases from both UK and Germany, where we have made a strategic decision to change our go-to-market model and where we now go direct to retail versus handling the markets through distributor, which we see positive effects from. If we then move over to Coal & Sun, which was the brand that didn't grow organically, even though it was basically neck to neck with last year's numbers. What is important to understand with Colon Sun is that we do see that the UK market is more challenging than other markets. When comparing to other listed companies in the market, we see that they are decreasing their brand sales by almost double digits and we perform better, meaning that we are gaining market share in a tough market. Markets outside of the UK, such as Italy and US, are performing well for the brand. Even though the brand grows organically year to date, we are not satisfied with the development and are working on several initiatives to accelerate growth. We're both working on new collections, which we launched already in the end of this quarter, which I will share some examples of later on. And we will also launch the new DTC platform during Q4, among other things. Wall & Deco returned to growth in the quarter, supported by hospitality projects and positive sales development in the Italian retail market. During the quarter, we rolled out several projects, including a project in Children's Hospital in Rimini in Italy, where we remade several different rooms in the hospital with impressive children's graphics. The prominence of projects such as this demonstrates our ability to win and execute on high-profile contracts, reinforcing our reputation Papelena recovered from last couple of quarters with negative sales development and grew slightly in the quarter. We launched a new website in July, which already shows good development, and we are constantly working to improve the experience. In the middle of the quarter, our new managing director also joined the company and is now starting to get up to speed and are working on several promising initiatives linked to mainly distribution setup and go-to-market model. Artscape had a quarter with double-digit organic growth, but almost all sales are generated in US dollars, hence had a big negative effect from currency and adjusted the growth was 4%. The sales lift was driven by recovery from one of the larger do-it-yourself customers. And in the quarter, we also updated our website platform and we see positive trends from this, although from low levels. Worth noticing about Artscape when we move into Q4 is that last year's Q4 numbers were positively affected by a large order from one of our big customers, leading to those numbers increasing by 51% in the quarter. Now we're seeing a more normal order pattern from our customers, so the comparison number in the quarter are significantly larger than where we expect to land this year. If we then move on to look at some of the brand initiatives, we'll start off with Borås Tapeton, where we in the quarter have strengthened our offering in our direct-to-consumer digitally printed on-demand portfolio that we call Studio. We launched some of our most iconic designs in grand versions, which is a larger scale pattern that suits more types of rooms and homes. And in parallel, we also launched new materials for consumers to choose from. And now we offer four different versions of materials, which provides good trade-off alternatives for consumers. So we launched two new materials where one is a more textured version than a normal one. And one has extra durable surface called pro surface. In the quarter, we also know two, which is a collection that highlights 300 years of Swedish pattern traditions from gilded leather designs of the 18th century to Jugend side florals of the 1930s. All wallpapers have been carefully recreated from archive materials using hand-drawn originals and preserving the character of printing rollers, fragments and sketches. This historic collection features a wide variety of patterns, including small motifs and large floral designs in styles from Baroque to Art Nouveau, all expertly surface printed. I've selected two different wallpapers to showcase today from the collection. And if we start off with a picture in the top right corner, this design is called Schöninge and is based on an 18th century design and is a reprint of Sweden's oldest paper printed wallpaper found in the collection of the Nordic Museum. If we look at the image to the bottom right, that design is called Tullgarn, which is printed using the Borås Tapetfabriks more than 100-year-old surface print machine, a traditional technique that requires true craftsmanship, making each roll beautifully unique. This pattern also carries a remarkable story. Originally, it adorned from the servant's room at Tullgarn Palace, carefully chosen by Crown Prince Gustav and his wife Victoria in the late 19th century. The wallpaper is believed to have been purchased in Victoria's home region in southern Germany. And with permission from our Swedish King, His Majesty King Carl XVI Gustav, our design team has faithfully recreated the pattern, allowing a historic treasure to be experienced in today's homes. Truly amazing to see, and this is just two designs of the Anno II collection. Moving on to Kohl & Son, our brand from 1875 that celebrates 150 years during this year and to this celebrates the launch of two new collections that captures the heritage and the future. We launched these two at the London Design Week where visitors are arriving from all over the world to the Design Centre in Chelsea Harbour. The Classic Collection Volume 2 is the second volume in Colin Sun's anniversary collection of classics celebrating the artistic heritage. It consists of archive artworks brought back to life through fresh colors and patterns that captures the brand ethos of living art and living history. The second collection is the collaboration between Colin Sun and Ardmore with a baobab collection. This design meets art wallpaper collection pays homage to South Africa's majestic baobab tree, affectionately known as the tree of life. The wall coverings are vastly detailed and immersive and inspired by the rich nature that surrounds the Ardmore's home in South Africa with both giraffes, cheetahs, and much more. And when I visited our office in London this summer, our senior designer, Chase, showed me the full process of developing these designs and where she had made 10 different drawings of the same giraffe in order to make it look absolutely perfect. Truly amazing work and good to see that it's now available in the market. If we then move to wall and deco. During the quarter, we launched new design collections in the AquaBout wet system and in the out system. So the AquaBout system is the new frontier of waterproof wallpaper, a patented waterproof wall covering dedicated to bathrooms, kitchens, swimming pool areas, spas, and any wet environment. The system is perfectly fit for the hospitality channel since you can remake a bathroom in just 72 hours, helping hotels not to shut down rooms for long, but rather keep a high occupancy rate. The out system is the wall covering that is resistant to rain, yellowing, and has anti-smog properties, bringing the great decorative power of wallpaper outdoors, giving past shows and terraces a new look. And you can see one of our recent examples here in the middle of the slide called Cinnamon Shadows. Now I'll hand over to Karin, who will dig a bit deeper into the numbers.

Thank you, Johan. And here are some more details of our financial numbers for the third quarter. The net sales of 174 million compared to 170 million last year represent a 2% sales growth. Currencies are strongly negative this quarter as well, minus 3%, which represents around 9 million Swedish kronor. Underlying organic growth for the quarter is 5%. Gross margin was 60.6%, which is on par with prior year, and the fifth consecutive quarter above 60%. EBITDA was 24 million, and net profit was 13 million. For the year to date, the period January to September, net sales is 569 million kroner, The organic development is 1% positive and currencies are negative 2%. Gross margin is 61.5% compared to 59.6% prior year. And this is an improvement with 1.9 percentage points thanks to product mix, channel mix and efficiencies in manufacturing compared to last year. EBITDA is 82 million and the margin is 14.4% year to date. Net profit is stronger than last year, 52 million kronor compared to 45 million kronor. The main reason for this is lower finance costs and we have lower interest expenses, which are primarily due to lower leverage, of course, but also better interest rates. The new financing agreement we signed in April is both more flexible and have better terms than the prior one. Rolling 12 EBITDA is 14.3%. The operating cash flow in the third quarter was 30 million kronor compared to 17 million last year. The stronger cash flow is a result of better working capital development. Inventory has been reduced with 10 million kronor to 144 million. This is in line with our plans where we build inventory ahead of the summer to secure delivery service during the holiday period. Our leverage is 0.7 times EBITDA compared to 0.9 times last quarter. We continue to pay off our debt with the cash we generate. And this slide shows you the net sales and EBITDA development over time. We have a rolling 12. Net sales of 771 million and a rolling 12 margin of 14.3%. And with this, I hand back to Johan for a summary and look forward.