Nilörngruppen AB

Good morning, everybody, and welcome to the presentation of the NE-Learn Q3 report. Me and Maria here will do a presentation and present the quarter to you. It has been quite a volatile quarter. I will just start to share my screen first here. And what I mean by that is it was quite volatile. As we end on my holiday, I was still on holiday when I wake up and got a telephone call from our IT manager telling me that our IT system is most likely hacked. And the journey we started from there was quite stressful. But looking back in the mirror, it went quite well. If something like this can go well, we contacted a consultancy. They worked hard together with our IT team. So overall, I must say that the IT hack went well, but it was a quite shocking moment. So today we will do a presentation of the financial report and what happens during the quarter. The order income increased 41%, which is a lot in percentage. Taking also here into consideration, there is one packaging order that we last year received in Q4, but we already this year received in Q3. That adds 8%. So adjusted for that 8%, we're still making good, 33%. So the order can be still good. It's not as good as the 41, but still good with the 33, I would say. Sales is down 3% to $208 million. And adjusted for the currency effect, it's up 1%. And looking at the quarter, it's been quite volatile. July was quite okay, good, I would say. August was not good at all. And here is also a question of what depends on the IT cyber attack we had and what depends on the volatility in the market system effect. Here, but overall, so August was very bad, slow, but September improved quite a lot again. So overall, I must say I was quite satisfied with this quarter. Also knowing that we went through this cyber attack. Operating profit, 15.3 million. And as we write in the report, cost for the cyber attack is 4.4 million. Adjusted for that, we end up to 19.7 million. And the cost for cyber attack, that is included external cost and cost for internal staff during that period. Accumulated, up all income 22%, sales 7%. And here we have a minor cancer effect, not much at all. And the operating profit of 63.4 million. And if you add the Q4 last year to get the 12 months rolling numbers, we end up on 72.6 million Swedish. This is not a forecast, just a presentation of the fact that this is what, if you now perform in Q4 the same as we did in last year, that we will end up in the 72.6 million. And on this slide here, we present the quarterly numbers and six months is not, this would be nine months here. What sticks out is actually this gross profit. ending up here on 48%, which is extremely high looking at the historical numbers. I would say this quarter was extremely high due to a few reasons. One was the product mix. I will present that on the next slide. And the other one is release of some stock provision that we have had. That means that we have made provision on stock, and then we managed to sell it, and we could release the stock provision that we have made. So on those goods that has been sold or even though they've been selling with rebates, we made 100% gain on this as they were provided for in the past. And these operating margins, 7.3% of the operating profit, if you adjust for these 4.4 million IT tech, you end up on an adjusted operating margin of 9.5%. Tax rate is around 25% in the quarter, and I think we can see the last quarter. We are in this range, I would say. Split per product group, as I mentioned, the packaging has a much lower percentage. It's bigger volume, but lower margins on that. So that has impacted on our overall gross profit as the low margin packaging decrease. In the quarter, this is the quarter numbers are not accumulated in quarter numbers that affected also the gross profit margin, gross margin. And the same also the risk product increase, which where we have higher margins. Also within risk product is different product groups with different margins. But overall, this has impacted positively on us. This is the same numbers, but this is actually accumulated, not quarterly. This is accumulated numbers. But you can see now that the label has gone down to 45% versus last year, 49%, where packaging is up to 90%. Even though packaging was low in this quarter, it has been higher in the previous quarters this year. So the same accumulated as last year, accumulated. Yeah, and what you can see on this picture is where you can see that also the gross margin has been very high in this quarter if you compare to the historical numbers. Operating costs and so on, I think it's in line. Not so much to be mentioned about that. I can also mention that the Chinese New Year, this next year, 2025, will be in end of January. And in 2024, it was starting the 10th of February. So it's slightly earlier this year. That can have some impact, not much this year, I think. If it's early Chinese New Year, it usually turns up to be turnover more early or end of the previous year versus if it's late Chinese New Year. So Chinese New Year, as we're delivering much into China, has a big impact on the turnover.

Quarterly comparison.

Yeah, you can see here this quarter slightly lower than last year. And this year before that was extremely good. And we'll see what's happened here in Q4.

The same with the operating profit then. Balance sheet.

Intangible assets is now 52 million, got up 8 million since last year. This is mainly on what we've done building up Nylon Connect. I will come back to that later in the presentation as well. And our efforts to be really good in supporting our clients in the sustainable challenges that we all have. but also implementing our ERP system and PIM system we have in the group now. Inventory levels, we are comfortable in this level. They come down. We made a big effort last year to take that down after the pandemic, and we are now on a comfortable level. The CPV has gone up slightly, as I mentioned in the report. That is mainly that we see volumes moving into countries where we have much longer payment terms, credit terms, like in Bangladesh, much longer than in China and so on. Equity on a comfortable level, which is good because we are looking into, as we mentioned in the previous report, also that doing quite big investments both in Bangladesh and in Portugal. We are not ready with this investigation and we have not done any investments. We have not bought any land or anything. We have lands both in Portugal and in Bangladesh we are looking into. And hopefully we can come back with a more clear picture on that in Q4, more precise. Key performance indicators. Just wanted to mention here, the average number of employees has gone up. It's mainly in Bangladesh where we increased the number of employees. And that is also why we need to increase the capacity there. We need a new factory. And we're also looking into the group here of success and planning to do that work. So we need to be in forefront to make sure we have a younger generation meeting the demands from clients and so on in the future as well. So that is a job we started with. Short summary from here, order income, we mentioned that as well. The packaging affected 8%. Operating margin 7.3, adjusted for the cyber attack 9.5. And the group goal is to be between 10% to 12%. Cyber attack, we've been through that now. That was not nice. It was really stressful for the whole group. And I must say that all the employees within the group has done a fantastic job. Also, when we were in the middle of it, we couldn't utilize our systems. We still managed to do deliveries, manual deliveries through the system, manual deliveries, and then the entry into the system later on. So a really good job here. And how much that has impacted the quarterly, it's hard to say. And I must say, all systems is up and running now. There are some minor things that still remains to be worked on. Some small system that is not 100% back on track. And why take it so long? And what we learned from this lesson is that... And if this happens again, we are not much better prepared to go back on track much quicker. Things like this really stress the organization and make us much more prepared for the future if this ever happens again, to be back on track again. And why it's taking so long to be back on track is that we increase the security level extremely high. We really need to make sure that no one could get in. And if we ask our consultants, the way they went in is probably if someone within the group has the same password as they have to the group, as they have to some other Facebook or whatever it can be. And then if that was hacked and that they would randomly check that and they could get into Nelon. What we now implemented all over the group is double authorization, so that needs to have mobile authorization to get into the system. And all the firewalls and so on is much more secured now. That is also why it takes such a long time, because we have a lot of systems talking to each other in the group. So once the firewalls are so strictly regulated and we have systems needed to talk to each other, To open that up, they need to open port by port, and that takes a lot of time to get that back again. But now, I would say that we are 100% back, except a few minus, but that will come. At those segments, if you're looking at the client during the quarter, they are back in full swing, I would say, as predicted earlier. We still see slightly softer in the luxury segment, also as predicted in previous quarter. Pakistan has grown. We started there a few years ago and it's been quite small in the beginning, but now we see it started growing and we now move to a more bigger premises where we can have a better warehouse and more efficient. And we also see as U.S., we've done quite good still, small numbers, but good growth in U.S., and we are profitable in U.S. now, which is good. As same as the previous quarters, production is strong area, and we still see that it's delivering good profit to the group. Opening in Vietnam, we have now moved into the warehouse and we'll start up a printing shop there as well. And there will be an opening ceremony in the beginning of December in Vietnam. Yeah. We see a big interest for the Nealon Connect. And we're supporting our clients on the DPP journey. That is a headache for most of the textile companies nowadays. And here we use our digital tool to support them. And there's a demand both for us to supply on the label side, but also for us to support. So you can see this is... like a new business idea for Nealon. I will present that soon here. And I would say that Nealon, with a strong balance sheet and so on, and lots of things happening in the group, a lot of investments in factories, Nealon Connect and so on, So it's both challenges, but it also creates big opportunities for the group handling this right. And I think we as a relatively small company are quite quick, can catch the opportunities there are in the market. And there's some slides about Nealon Connect, just to present what that is. We are selling labels. We continue to sell labels. Labels will still be the main thing we are doing. We have in the past been really strong in design. Design has been one of our core competencies. Now Neelan Connect and supporting our client in their DPP journey will be an additional add-on that we can gain clients from. And what is good with this is that we have the label with the QR code where the end consumer can scan the product here and they got the information. So it can be a QR code, it can be an NFC chip or an RFID chip.

And why?

We have the legal compliance. This is a headache, not only for Nilen, but also for our clients. A lot of regulations in EU coming up here that we need to fulfill. And so... Through our experience and our system, we can support our clients. And we have the data carrier as the care labels with the QR code in. So we provide our clients. Through this, our clients can provide with a circular solution for repair, resell, and recycle garment, and also consumer engagement. You can have a discussion with the clients about, and to drive their sales. So all this is where Nealon Connects comes in and we provide a system where they can receive information about the U.S. energy consumer can receive information about the carbon footprint certificates that goods has history with the product if it has been reselled how to reuse it recycling instruction production country etc and And the brand owner can see where all this has been scanned and where the interests are and he can have a communication with the clients. Financial targets, we still have this 7%, 10%, and 2% EBITDA, and we're aiming for that still. So this is set by the board, and this is what we're aiming for. Yes, and we used to say that the goal is to satisfy our clients and through our creativity, product and services. Services now is also the Nealon Connect. And to make a good return on investment for our owners through hard work and stability and growth. Thank you so far. Maria, do we have any questions? Pam is running, I can see. But yeah, any questions here?

Yes, we have received questions here from one person. So we will take these, even though we are running out of time. But as they ask the questions during the presentation, I think it's good to mention them. So the first question is that you mentioned that the gross margin was strong due to the sourcing organization performing well. Could you perhaps provide some more color on what that means?

Sure.

Yes, and that is also part of, I would say, two things. Both that resourcing, we are working more as a group now regarding 10 big tenders. We have established a sourcing organization, group sourcing organization in 2020 that we worked on more on global tenders. So we can see much more power behind, but also that we increased our own production where we have higher gross margin. The utilization in our production, both in Portugal and in Bangladesh, but also at the other sites where we have printing facilities, is high.

Thank you for that. The second question is, have you seen any decline in the luxury segments order intake, or is the growth simply lower?

Yes. Yes, the order intake has been lower in the luxury segment, I would say. Also reflecting in the turnover there, so it goes hand in hand. If I understand the question right there, but yeah, it goes hand in hand. And what we now see is also the smaller clients picking up, which is good.

Yes, absolutely. And so the last question here. Did you make any price adjustments within the sports and outdoor segment while the volumes were declining significantly?

No, I cannot say so. I mean, we don't do any... As every client is treated differently with salespeople and each product is unique for each client. If you compare us with a retailer where they have it. So for us, every client has a unique product. So it's hard to say. So we don't do that for specific segments like that. So I cannot say no.

That sounds reasonable. And that was all of the questions we have received, actually.

Thank you very much and thank you all for listening and have a great weekend. Thank you. Bye. Thank you.