New Wave Group AB (publ)

Q2 was a bit less good than we thought. We knew before that it should be tougher than Q1. We had a positive calendar effect in Q1 due to Eastern and that came out negative in Q2 that we know from the beginning. Then we also have quite high effects on the currencies. So in the end, I was hoping for 3-4% organic growth in local currencies and we ended up with one point something. So it was less good than planned. The market was very tough, I have fought for a long time now. that the market will be better, but we still don't see any big signs on that. And I think that all these worrying things I use all the time about duties and tariffs and I don't know really what will happen and so on, put a wet blanket on the market. And I think that we will continue to see at least one or two more quarters with the tough market situation. We're pretty sure that we continue to take market shares and we continue to invest. We have the same speed investing in both sales, marketing and automatization and warehouse and IT and so on. And we will not pull on the brake because of this. We will continue the same way. One very good thing, hopefully, if you never know that before, of course, but one thing I'm very happy for is the acquisition of Cotton Classic that gave us a very, very strong position in several countries. So we've been the market leader in Sweden over Finland, Benelux, for quite a long time. Now we are very, very key market leader in Switzerland, also Austria after this. And we come in as number... between number three or four in Germany. And they also have quite a lot of activity in four Middle Eastern countries. So Czech Republic is a big country for them. We are not there at all. Same with Hungary. So it's also opened up Eastern Europe a bit for us, where we have been. And this is also much easier for us than it was to acquire BTC. BTC is a very similar operation, but since they were outside EU, it took us quite a long time before we could start introducing our own brands on the upside, both in BTC and Cosmoclassic. It's really to introduce our own brand that have more than double gross margin than they have on the distributed brands today. And here we could be much, much quicker. So we actually introduce not full collections, but partly of click and harvest and printer and cut them back already now in their September catalogue. We were quite time-pressed at the end of the acquisition because they released their collections twice a year on that September and January and if we wouldn't be ready for the first of September we couldn't have done anything before January. That was quite a lot of work but I think it's very important for the position in the future. So, better? Okay. I will not repeat this. Nothing has really changed here. You can say after the quarter is not a very big thing, but after the quarter we sign also an agreement now on a new warehouse in Ireland. So we will also... be much more active in Ireland. And I think it's also an important step for us because it's not a big market, but it's, again, inside the EU still. And the market in Ireland is dominated by companies in the UK, which give them a lot of problems with tariffs and duties and so on. So that will start hopefully in October. Yeah, nothing I've changed here really. So I jump in. Here I have a funny story. That or not, we should have that on photo, but I forgot that. You know, IFK beat guys on Monday, I think it was. And we produced a t-shirt with a big mackerel and wrote under a cod or a torsk. Cod is not so fun when you use English, but in torsk, that was very appreciated. And it's nice to see. Here you can also see the importance of speed and stock. Because the sales were starting directly after the game. And the day after they have sold, I think it was 2,300 shirts. So pretty nice. Yeah, this is insane. Second quarter then, as I already said, a very, very tough market. And I actually think it was developed in general in the wrong way compared with Q1. A quotation of Cotton Classic I talked about, and I think it's a very, very important thing for us, especially for future growth in Eastern Europe as well. Then we have one thing that we don't know where it will end and that the Department of Justice in the US have started an investigation where they claim we have done wrong or it's not any criminal investigation. But they count the number of employees in a different way than we did. So we have a possibility that we can be forced to pay back some or all or nothing. We actually don't know of the loans that was forgiven during COVID. And the total amount is 5.4 million euros. We have not taken anything into the P&L because, again, we don't know if it will be zero or if it will be all or if it will be in the middle. And we don't know if it takes three months or 12 months or two years. But we think it's such an important information. So we want to inform about it to be transparent. So it's not come as a surprise like this if something happens. And the currency affected us, of course, a lot, especially on the P&L this time. Last reported was on the balance sheet that had the biggest effects. But now it's on the P&L. a strengthened presence in Central Europe and I would say also Eastern Europe with Cotton Classic. And you can say right now we hope to have the permission from the competition authorities in Austria this week. 18th of August.

That's the last day when they need to inform that they want a deeper investigation. Yeah.

But we don't see any high risk that we haven't know about it. It also says a little bit about what kind of market shares we start to get to the point that they even should judge it. And Cotton Classic have a fantastic platform, actually. Much better than ours and also BTCs. So that will also be interesting if we can also take that the other way. And as I said, we're now working very, very hard to introduce as much of our own brands as possible, as fast as possible. And this is, again, much more easier than it was in BTC since we already have stocks in a lot of EU countries that we can use also for Cotton Classic. Otherwise, it's a very similar business to BTC. Maybe also I should add there that for sure they will take down our operating margin for a while because they come in on 5.5-6% in operating margin and it's such a big turnover on more than 1 billion SEK. So it will affect operating margin. So that isn't any surprise for you and it will not be for us either. And it will take a few years to take them up. Yeah, 1.3% in organic grow. Again, as I said, I'm not happy with it, but the expectation from my own side was more 3-4%. It was not very high that quarter during the Easter, but it's still a a little bit lower than than i thought and the currency we have talked about uh promo channel was down two percent retail by eight uh that was the in second yeah so it's not uh yeah and operating profit amounted 241 then and more operating more than 10.5 and i think that it's it's still an okay result actually because again we continue to investing and take market shares and spend money we were also affected a bit about in may first domain i think to us The first company in EUA Group that are quite big entity for us was the first company that installed high robotics, totally new picking and they had at the same time that was the first company out with a new ERP system. So that was quite a high risk. And it went okay, but it was affected in May, June, July. They were 100% up running everything. But now we're quite happy to have done it because now it will be easier to implement both iRobotics in other warehouses, but also the new ERP system in other companies. But I am very, very tired to say who they are. So... 2.3 billion, decreased in SEC 4.1%, but again, organic in local 1.3. Here's not so much to comment. I can say maybe that on the retail side here, especially... Retail is still a very very tough situation. You have a few clear winners the last quarters and that's for example Ullared and it's the low price chains. All other are struggling and struggling a lot when you talk sports and also when you talk home furniture gifts. So it's a quite tough situation in the retail side. And I would say that corporate is more stable than... The good thing, I think, on the retail side is that most of the clients have much lower stock positions themselves than they had one or two years ago. So when it starts speeding up, I think we will see quite high effect from it. There's not maybe so much to comment. Gross profit down a bit and it's not price decreases and not increased buying prices. It's a big effect there is the trading took a bigger part of the total turnover that quarter. And as you know, since before, trading is very up and down. So the gross margin and then the other business are stable as it is today. We were affected, I don't have any amount, but we were a little bit affected by tariffs in some of the US companies. I don't know, a couple of million cents maybe. So it was not a big effect, but even if we really have worked hard and fast to move production, we are not able to move 100% of it. so you have some effects but not any big ones and you will have some effect the coming quarters as well but again not huge amount but it's a couple of million i guess each quarter yeah and here yeah the only thing you can comment here is that that uh On the operating profit, I must say that corporate are very stable if you compare with the times of retail and gifts and home. And gifts and home is also a majority retail. Had much tougher quarter than corporate. Cash flow is not so much to say about. We have planned and I think now I'm sure I said already fourth quarter last year that we will go into a period with less good cash flow depending on that we're building up the stock and we continue the investment in warehouses and IT. So it was no surprise that either. If we look on half the year you had a sales increase by 2.3%. And that is in SEC. So I don't have that in my head. What was it in local currencies? Do you have a comment? Sorry, the growth in local currencies, the annual regime, because 2.4 must be in SEC.

Yes, 2.4 is in SEC. It's sort of for, is it a quarter?

No, half a year. The quarter I had.

Sorry, give me a second. I just lost it. Please.

Yeah, you can find. And promo then 3.9 and retail 1.4. And you will have soon local currencies, but I think five something.

4.8% is in local currency.

That was nearly 5.5, around 5%. There's not so much to say but the half a year figures of course looks better than the second quarter since we had a very strong first quarter. Yeah, gross profit 48.9 compared with 49.3. So as I said before, it's stable. External costs increase a bit and that's mainly again sales and marketing, but also IT is a quite huge investment to change all the ERP systems and everything. And of course, automatizations of warehouses and then operating profit on 453. And here you can say, not so much to say there. Balance sheet can come at 6.5 million in equity, which give a, it's a strong balance sheet, you can say. And then the first quarter was there affected by currency with, was it half a billion? If I remember correctly. So the big difference in equity now compared with end of the year is actually currency. Or it's the whole effect, you can say.

Yeah, and also we have a dividend.

Yeah, that's good. Yeah, and cash flow is still stable, I would say. Rolling 12 months then. 9.6 in sales and an operating profit just above 1.2, which is 12.8%. And we will, of course, work as hard as we can to get up. I'm not very happy with 12.8%, I must say, even if I know why. Yeah, I think I have said... And I think also the important thing for us to see, we will not put the brake on cost before, as long as we see that we take market shares, even if it continues to be a tough market, one or two or three quarters. Cotton Classic we've talked a lot about I think we have a very strong position for the future actually stronger than a year ago which will become even stronger with Cotton Classic so I think we have big opportunities both in retail and in promo the launch of team wearing US is still doing quite well and it's going I would say as planned or even maybe a bit better than planned I'm also very happy for our balance sheet because most of the competitors today have a much much tougher situation which means that they can't invest in the same way as we are doing and we will continue to look at more acquisitions as well That was basically Q2 and the first six months I opened up for questions.

Niklas Skogman, Nordea. A couple of questions, please. You mentioned that the gross margin was relatively strong. But if you look at Q1, you had an even larger impact from your trading operations. And then the gross margin was up 10 basis points. And now in this quarter, With a lower impact from the trading business, it was down 100 basis points.

But the gross margin in the trading business is variation a lot. So we take orders down to, I would say, 8-9%. And when we have really good gross margin... in the trading business can be up to 40. So it depends very, very much on that. You can say, for example, the biggest order, now it's a few years old, but worth 400,000 units of the same pool of BK to Costco. And then I'm very happy to close that deal on 8, 9, 10%. So it's a variation also inside there a lot. But in general, you can say that I think we end in general on a gross marginal, maybe 16, 17, 18% in average, but it's still very different in different quarters.

Okay. Thank you for that. And then on the, you mentioned that BTC had been more, a bit more tricky than you perhaps thought when it came to bringing on, bringing in your own assortment. So, What level of your own assortment do you currently have at BTC?

I assume it started from zero. Up to now, it's more or less only harvest printer and not full collections. And it will be full collections from mid-January next year. But I shouldn't say it has been more tricky, but it has taken longer time since they were outside EU. I mean, there's no idea for us to import from the warehouse in Netherlands to launch in the UK with double duties and so on. So it's more that than...

And where will you be in terms of share of volumes, you think, by June next year for BTC of your own assortment?

In the end of next year, I hope we can have up to 20%. Okay. But you can say today, the interesting thing is that printers that are the biggest brands there, they are brand number 10 today. If you look on all the brands they are selling in sales, but they are number four in gross margin in money. So it's a huge impact if we can move this.

Okay. Where do you need or where would you like to go with the Cotton Classics acquisition in terms of your own assortment?

I would say that that's the same in BTC and Cotton Classics. hopefully not up to maybe 40% because we should also remember that they distribute also low price brands that gives them a lot of clients and we don't have those products and we don't want to develop those products. So we will continue with that. And that's the string for example, Cotton Classic in future is that they have the full range. Now they are much more orientated to low price basics.

All right. Thank you.

Hand it over to... Emanuel Jansson, Danske Bank. So, staying on Cotton Classic then, in terms of profitability, I think you stated around 5-6% EBIT margin, right? And where do you think the potential is to raise the profitability over time? 15%.

They will never be the... neither them or BTC can come up to 20, 25 because to be up there, which we are with several of our corporate companies. For example, I think Netherlands has been on, can be in every 25 for a couple of years, but that we can't reach with an external brand standing for 60% or something, but I think we can get them up to 50.

And perhaps difficult to estimate, but how long do you think that will take?

Three, four years, I guess. You know, it's quite a long process because first we should have the stock. Then we should sell in samples to all the clients so they have in their showroom. And then they should start selling. So, I mean, it's... And in the past, sometimes we have underestimated the time a little bit. So far, when we have established countries or made acquisitions, I think we have succeeded in all cases on corporate. It's 100% score. But quite often, it's one or two years longer time than we thought when we did it. And it's the same when we established from scratch. Hopefully, we have learned something about... Now we are a little bit more defensive in how long time it will take, for example, an island.

or more realistic great that's very clear and you think that you can use Canon Classic also to maybe find some synergies via the teamwork establishment in Germany for example yes but it's a little bit tricky because you can say that

the current distribution is mainly in mid and off Europe the sport chains like Inter Sport and Stadium and so on if you take Swedish examples and in Germany you have one big player or you have two big players you have 11 teams and one more and 11 teams but also belong to Inter Sport even if it's not a shop and it's not very very popular to put in 45,000 clients. They will not be extremely happy if 45,000 new clients all over Europe get access to the teamware, but we can do it partly at least. But I don't say we could introduce the whole teamware collection through them without negative effects on the chains.

Okay, great. And moving to the U.S. market still seems a bit uncertain how everything will develop in the near term. But would you say that this has postponed any of your investments in the U.S. regarding TeamWare? No, no.

I mean, we don't postpone and we don't put the foot on the brakes either. And we still have the same planning with establishment, one more warehouse in the U.S., South U.S., probably Texas, as soon as we can and so on. So I prefer, I mean, I think it's 27 years we've been public now. And I think the development during those 27 years is quite good. So it's better to take it easy. If we make a little bit less profit, we should still remember that we are quite profitable, even if this quarter was down. I prefer to have a few quarters that are tougher and standing very, very strong in the coming five, six, ten years. So it doesn't change our plan at all. As I said before, we have signed the new warehouse on Ireland. We will sign in Southview as soon as we find the right facilities and so on. So we continue the same speed.

And where are you now in your teamware establishment in the US, you would say? Still step one, I would say.

But we have gained some very good clients. One quite big is Challenger. for example and we start gaining more and more resellers but that's of course step one is really to gain our clients and then step two is that our client then should convince in this case the school I normally say the clubs but it's more school business in us here and most often they are under contract with some other brands down for in time the time is up to five years it was the same as the clubs here so i mean it it will take five years because we even have had the chance to offer everybody we want if you're talking land users and it's the same in in europe but then it's more sports club it's like for example that we I think our agreement with them now is to 20-30 if I remember correctly. So no one else can get in at that time and it's opposite with other clubs. So we have a long, long list in Europe for the first two free divisions in each country when their contracts are ending and we will try to do the same with the schools, athletic clubs and schools in the U.S.

Okay, great. And perhaps you were mentioning, I think, in the CEO wording that you are seeing some positive market signals. And we can also see that you're starting to also increase your inventory levels. Can you maybe give us some more colors on that?

I'm pretty sure it will turn around, but I have no clue. And I thought it should come quicker than it has done. And I didn't expect that we should thought that the second quarter in general in the market should be tougher than the first. But if you see that our clients don't have big stocks today, so as soon as the sales start for them, they need to start ordering better again or more again, which was not the situation if you go back for one year or something when A lot of them have two big stocks themselves, especially on retail. The only thing that we know now in Scandinavia is that it's a little bit too much winter garments also this winter on stock in the retail chains. But it's a much better situation. And then you can say also people start talking more positively. at least even if we don't see it in the in the figures and on corporate I think it has stabilized we were down two percent I think to us and that I think is quite good in this situation and the only public ones we we can see there in sweden is a league well that or a big line to us and i think they were down 3.9 or something in the last report if i remember correctly on the retailer it's much much tougher i I don't know the sales exactly, but I looked briefly on the stock value for Adidas, Burma, and Nike, and it was not such a good development this year. So it has been tough there.

Great. And maybe final, well, then you mentioning this high robotics, I think previously mainly have out-of-store solutions. Any particular reason or?

Can you help me on that? High robotics is a newer automation system and in existing warehouses it could be easier and more cost-effective to have high robotics. But we're also looking into having completely new warehouses. But we want to try both and compare and see which is the best on the long run.

But I think also that high robotics is a higher grade of automatization when we flow the goods in and out. Yeah, and it's also more flexible.

If you increase the warehouse and build it up so we have a larger area, then it's easier with high robotics to be doing more robots than extending an existing... out of store.

Okay, then we move on to the question that has been sent to us. It's a fair amount. The first one is, turbulence on tariff, has it caused any inefficiencies for you to change the overall sourcing landscape that is tougher or easier to get volumes from where you want them?

No, I wouldn't say that. But of course, it takes time to move so much production from some countries to other countries. But it has not been a huge problem for us. If it had cost something, it would have cost a little bit on the lead times. We have a little bit longer lead times right now than we had before in the production process. Because it's not easy for factories located in other countries either to suddenly have a lot of order that they didn't know about one year ago or two years ago.

Could you talk a little bit about the trend for craft and craft shoes?

Yeah, it's continued to increase. We knew that it will be a long race. But we continue to increase all the time. And now we also launch, I think it's 10 months. We also launch indoor, where we think we also will have easier actually to get in since we have a lot of teams and clubs in indoor in another way than you can create on... running so for example we have several teams in both basketball and handball in not only the Swedish league in Bundesliga in Germany and so on we just signed the basketball national team in Austria we have the Swedish handball team and so on so we think that that will be much quicker but we continue Thank you.

Is the Cotton Classic acquisition now closed? And if so, when will you consolidate it into New Wave?

It's closed in the way that we have made all agreements and that perspective. But it's, as Göran said before, it's 18th of August, where it's the last day that the competition authorities in Austria can protest. And if they don't, which we expect they don't, then we will take it in from 1st of September.

Thank you. Could I please ask for a bit more detail on why sports and leisure grow was weaker in its corresponding margin? How is it affected by Easter? I thought that was more of a corporate effect.

Yeah, definitely. Easter is more appropriate, but retail has been very, very weak. You can say now, I think in July is the first time where the sports index actually were a little bit up. Before that, I think it was down for 13 quarters in a row. So the environment on retail has been much worse than on corporate.

Thank you. Do you see any call for actions to improve the results from the gift section? How big a problem? Do you see any call for actions to improve the results for the gift section?

Yeah, we try to take action there every day. So, but not any big changes, but yeah. Yeah.

And a follow-up there. New Wave has increased the staff under the period. Will there be any change in number of employees in Sweden this year? Any change in? Number of employees in Sweden this year? Not much. Not much.

It's the increasing of number of people. For example, it's a big part of sales and that we don't need more sales people in Sweden or... in scandinavia we don't need more it's very focused on us and germany it will be on ireland and so on and then you can say that during this quarter we also have an effect on on warehouses where we have to take in more people when we're temporary when we make the automatizations we have to delivered to the clients in a decent way even if we haven't then you should fill up all the systems and so on so actually every automatization we do you've got the short term negative effect the number of employees before you reach efficiency and instead you you go the other direction less and less

Moving on to the last one here, you mentioned targeted one time campaigns impacting market spending in quarter. Does this type of investment pay off in the current market? And did you see the impact you were after? And will there be the same approach in the coming quarters?

It's not any big things planned the coming quarters right now, and it's mainly two bigger events. It was New York Marathon where we did a lot about Croft Shoes and it was Stockholm Marathon. uh and and they will not come back if they pay off or not we know three four years later i mean we don't run the marketing and the campaigns to increase the sales those days it's brand building more you can say so but but i think it does because if we i mean we have continued growth most years for a very long time uh but it's not the word i mean building brand is not working the way as another retail company that

can make an ad and give a discount and they sell day one this is more long-term marketing thank you that was all the questions we had so thank you so much for the presentation thank you all thanks