New Wave Group AB

Yes, welcome to the presentation of Q1. I can start describing this as a very stable quarter. We are a bit, or I'm a bit disappointed that we still don't see any better markets. I say that it's the longest period ever for me. And then we have been on the stock exchange for 30 years when it's weak markets and unstable every time. And fortunately, I can say that I'm not the only one that thought that the market should improve the last three years, but it's still not happening. And I think as long as we have all this insecurity about the wars in Ukraine and in Iran now, and also in Gaza before, together with the politics that we have in the U.S. right now, or have had for a while, with tariffs and non-security and this i i don't think it will come a quick turnaround but i'm happy anyhow that we continue to take market shares we continue grow we have a quite good growth in u.s actually i i see that u.s i would describe as a better market than europe which is a surprise in in some ways because uh i was more worried for u.s and europe if i go back We had 2,800, just about 2,800 employees, 28 countries now. And we're selling in a few countries more than that, where we have agents and distributors. And the same three segments as before. Yeah, this year, all new, I think, corporate, sport, leisure and gifts and all. If I should comment the markets a little bit, the corporate market is more stable. It's not good, but it's more stable than retail. I saw some statistic, I think it was last week, on clothing in Sweden. And that was actually growing, where the clothing retail was growing, it was 7%. So I thought maybe, maybe it will be a turnaround. And then come the e-commerce out today or yesterday, minus 90% in Sweden for March. So it was the worst month for e-commerce in a long, long time. But the corporate is more stable. The retail is more tough. And a big part of the distribution and clients in sports and leisure and gifts and home is, of course, retailing clients then. If we look at the quarter, first of all, the currency still have a very, very big impact. So the growth in local currencies was 13.2%, which is not really enough to really make good results. You can say we are close to, we need a 3-4% higher organic growth to really deliver good and improve net profits and operating margins again. But I'm quite sure and confident that sooner or later we will have that growth because we should remember that we are still in a tough market. Organic growth 2.9 and here we do everything we can to get that up to 5-6%. And if we succeed with that, it will come down to the last line as well. Gross margin very, very strong, I would say 50.4% or 50%, sorry. And that's part of the explanation is that we have lower volumes on trading. But we should also remember that Q1 last year, we did not have Cotton Classic that are around on 25%. So I think it's a record high gross margin if we consider that they were into the figures. And operating profit 200 million, just a little bit lower than last year. And I think it's a stable result. I think on most areas, we are delivering still much, much better than competition. If you compare the bigger retail brands like Puma, Nike and so on, it's far better figures. And the costs continue to be high. Two main reasons, the ERP system that will change and that will go on for another year. For another two years. And a lot of this is, of course, extra costs because we're operating two systems right now. How many have we implemented in? How many companies now than you? France, Netherlands? Yeah. So hopefully it gets smoother and smoother as more companies come through this. And the second thing is, of course... investments we are doing in new markets and also in new warehouses and automatizations. The really big one going on now is that we open up in Texas. Hopefully we're in operation 1st of October. And that is a pure investment for the future. We are not serving South US in a good way right now, as we do in North, since we are based with the two warehouses we have. We are based in Seattle and in Renton. No, sorry, in Kentucky. And this is the investment in Texas. It's much, much bigger than a normal warehouse investment because we go for a full operation, same as Seattle, with embroidery and automatization from day one and everything. And it will cost someone in the beginning, but I'm very, very confident it will be a good investment. I think it's around 200 million SEK we invest there now. And then we should not forget smaller investments like we opened up a warehouse in Ireland in January this year and so on. So we are on a pretty high cost level for the moment. Which will not be a problem actually if we just can get this 3-4% more growth. Sales plus 6.6 again in Swedish Kronosan. Local colors is 13.2. Promo channel increased 10.8 and retail down 0.9. Then we should also remember that Cotton Classic comes into the corporate. So that's what makes it such a huge difference between them. And the growth is in Promo. It's of course the acquisition, but also the new launch we did that you have behind you of Antec movement. And also Katrin Back is doing very very good both in US and Europe actually. It's not so much to maybe to comment this. If we look geographically in the US it's minus and that's only currency. Enter. Which one is enter? Forward. Yeah. So you have an organic growth in the US by 7% in local currencies. So it's really affected the currency there. Sweden, it's nice to be back on a very small growth, which I think is a very, very strong sign in this environment. Benelux doing well. Nordic countries excluding Sweden grows as well. Rest of Europe also and other countries. It's a little bit down and there you have the trading. So you can say in local currencies, all regions are growing, excluding than other countries that are mainly the trading business. Gross margin I'm very very happy with. I think it's very few companies and competitors that actually report higher gross margins in this environment. And we will try to keep it there. Of course it can be or will be in the future also if we have quarters where the trading comes up a lot. It can be down but I think it's very very stable due to all our own brands. external cost up and there we should it's 92 million up and there we also have a pos for us positive currency effect so actually the cost increase or even higher if you look at local currencies there yeah that that's mainly it and operating profits we have talked about If we look at the different segments then, sports and leisure are improving a little bit, corporate a little bit down, and gifts and home furnishing a small, small improvement. We should also remember that for some of the companies, Q1 is an extremely small quarter, not even at the time when, or the best years, for example, in Norfolk, Costa Boda, it was profitable Q1. So I think this picture will change a lot when we are at the end of the year. Cash flow I would also describe as very stable and that's good. I feel very happy for the balance sheet that we have today that give us quite a lot of space for continued growth and investment and also a lot of security. that we feel very very safe in this and now we probably will have a little bit lower cash flow or worse cash flow in maybe in your eyes when Texas come through because it's not only the investment we should also build up the stock there is no idea to have an empty warehouse And that's quite a lot of money. So you can be prepared on that. Balance sheet, again, very, very strong. I would say probably one of the strongest if we compare with competitors in all three segments with an equity on over 55%. So it's a good feeling. And also, it's nice to feel safe because even if the markets don't improve, if we can keep a decent profit level and this balance sheet, we are in an extremely strong position. And we are, I would say, one of few sometimes that could be really patient and continue also long-term investment in more tough times. Cotton Classic is, I would say, doing very good. And the implementation of our brands are doing well. We launched them first month in September, actually 15 last year, came the first catalog out. But then no of our brands were still in their main catalog. That's all released in January. And now all those plus three new is in their main catalog. which comes out actually in mid-January and the roadshow is from mid-January to mid-February. So actually if you look at the first quarter it's more fair to say that they have sold our brands for two and a half months than three months. And was it four percent now? So already now 3.4% of their total sales is our brands in March. And interesting is also to see that the gross margin on our brands is between two and three times higher than the gross margin they have on the distributed brands. As an outcome, actually, not what we think. So I'm happy with that and it's also a new CEO in place that we have a good feeling for. So that basically, that sounds, I think we open up for questions.

Carl-Johan Bonnevier, D&B Carnegie. Looking at the global environment for the moment, obviously stress in a lot part of the system. But how do you see it affecting your sourcing opportunities? And have you been caught up in any of the flow problems that might be out there for the moment?

It's not really any very big effects, but the number of small delays and small problems have, of course, increased significantly. But as I said in the earlier report, I'm very happy that we also moved a lot of the production in good time to Africa. If we were as dependent on China today that we were three, four years ago, then it would be huge problems. And then we will see what's happening with the freight cost is, of course, a bit worrying. Oil prices, we talked about in the beginning, will probably, I mean, our CBO and the buying manager expect, if the oil price is on this level, he expects a 20% increase on polyester as raw material within six months. But again, also we have, I'm not sure, nervous about that because we have always been able to change our pricing and not be so affected. In one way it can be positive as the prices start to increase a little bit for the sales also.

And obviously fantastic cross margins in the quarter, particularly looking underlying. It seems like there is a big say craft and cut run back effect, as you mentioned. Could you describe a little what's going on underlying there?

But it's on record levels, and I'm very happy with it. But we have a very strong positioning for several of the brands. Like you mentioned, the two most obvious is Katram Bakken and Kraft, of course. So I feel very, very confident. And also the new collections like Antec Movement have been received very, very well in the market. And it also opened up new clients for us. For example, if you take... Theoretically, because we don't have them, but theoretically, we can sell under tag movement as merchandise to every club, whether they were contracted by Adidas, Nike, Fuma or ourselves, because those don't have the merchandise on stock. And now with a neutral label, it's opened up quite a lot of new markets.

And one last as well, looking at the ERP rollout, give us some idea of what you have learned so far from the countries where you have done it. And I understand now you are targeting some of the bigger countries in the next six to 12 months.

I'll pass that to you. Yes, now we are doing the implementation in the US with Katrin Back, which will be made step by step, so we don't implement it in one time. So we start with implementing one of the warehouses, then the second warehouses, then we also change the financial part. But it's an important step also during the development of the template that we use. And after that implementation, it will be smoother and more cost-effective when we continue the rollout.

But if I remember correctly, when we changed the ERP system in Katron, was it 20 other systems that was affected? So it's not... Yeah. You put in one thing and then you're ready.

We have a lot of questions for you. When you speak of weak market, what exactly is weak and what is driving this? Grateful for more color on this and how it affects New Wave's business.

The retailing market is, as I said before, especially weak compared with the corporate that are more stable. You have a quite, I would say, weak market and negative, best case neutral consumers. in most of the European countries. And I think the reason for that is again the instability that creates in a political way today and also all the wars that have or are going on. and the consumer are definitely holding back their spendings. And that, I would say, it's valued for, I would say, more or less all European countries. Maybe Switzerland is an exception. They live an own life, but otherwise it doesn't matter if you look at UK or Germany or also Nordic countries.

Thank you. What was the gross margin for Cotton Classics in Q1?

I don't think I have that figure even, but they were in the post on 25, I think, 24.

You said that the rollout on the new ERP system will continue another two years. Will the quarterly costs related to the implementation go up or down in the coming quarter? And what was the impact on Q1 EBIT?

I pause that to one of you.

We don't give details about how much the cost was in Q1, but the cost will decrease in the future when we continue the implementations and rollout of the system.

Thank you. Do you see any potential to improve efficiency in Cotton Classics warehouse operations?

Definitely, but it will take some time and I think the best thing to do is to actually, which we are looking into, establish a totally new warehouse. Because going with automatization in the current one would be... maybe not a nightmare, but very difficult at least. So what we see in forefront is a new cotton classic warehouse, probably in the North Germany, and then continue with the old warehouse for distribution in the East and Austria and those countries.

Thank you. Maybe you already answered this, but in Q4, you gave the underlying margin adjusted for cotton classics. Would you care to do it here also in Q1? Underlying margin.

The same question, but we don't give specific margins for specific companies, but undiluted from the acquisition of Cotton Classic, it was 52.5.

Thank you so much. Could I please ask what drives the weak sport and leisure margins? What drive them? What drives the weak sports and leisure margins?

Very good question. No, but I think a lot of the investments we are doing there is hitting that area. Because the Katranback, where we do the new investments in Texas, is belonging to that segment. Kraft's establishment in the US that are quite loss-making in the beginning is that segment and so on. So it's much more investments and costs going on there than it is in corporate. But it's also interesting because, you know, cut from back is a part of sports and leisure because that was classified that way when we acquired it. But today, the majority of the sales in cotton classes are corporate. So it's not 100% fair, but most of the investment is in craft and cut and back.

And also regarding cut and back in sports and leisure, it's the big currency headwind. So it was minus 13% from currency, really. So that, of course, affects sports and leisure most.

We should remember that that cut from back is one of the most profitable companies we have both in operating margin in growth and so on that perform very well. So when you get to hit there such a big on the currency, it's also hitting that segment.

Thank you. How do you view the possibility of obtaining a refund on tariffs in the United States?

Good question. We discussed that yesterday, actually, and I think we will try. I read now that some of the biggest corporations are avoiding it because they're scared of Trump. but i don't think we are so big so we will be in focus so i think we should dare to try but then we should also remember it's not extremely much money uh if it would be that we have would have worse a result last year so to say but we will try to recover what we can but it's not much uh and of course it's depending on again that a lot of the goods we have taken into us the last one and a half to two years has been Africa not the countries that have been hitting worse by the tariffs.

Thank you. How do you view the declining gifts and home furnishing linked to the fact that the overall retail share has decreased for several years?

Yeah, it's the toughest job we have is to turn around that segment. And it's still very, very tough. So, I mean, we try to continue to decrease costs. We try to have higher efficiency in the production. And we try to find new distribution channels. But it's a headache. That's the only port in the way where I'm happy if it's a small port. Thank you.

I think that was it.

I maybe can add also to this question about gifts and home that if you look at all big acquisitions we have done the last years has been in other areas because we are not happy at all ourselves with gifts and home furnishing. Okay. Thank you very much.