Nilörngruppen AB

Good morning, everybody, and welcome to Nilen Gruppen's Q2 interim report presentation. And as usual, we will record this presentation and share later on with our website. So hope that is OK with everyone. And together with me today is Maria Fogelström, Nilen Gruppen's CFO.

So I will start sharing my screen and also we'll take that into

Yeah.

Nyland Q2 presentation, and starting up with the financial performance of the quarter. It has been a quarter with ups and downs. So coming back to that a little bit in the reporting here. First of all, the order income was down 1% in the quarter to 205 million Swedish, and the sales was down 10%, 237 million Swedish. It's a big currency effect in the quarter, standing for 24 million or 10 percent. There's a big impact of the currency effect, and that is, as you probably already know by this stage, All sales are outside in Sweden. It was nothing in Swedish krona, everything else in US dollars, Hong Kong dollars or in Euro and other currencies, and so on. But all the invoicing is done outside Sweden. It has been a quite volatile market. We've seen a still comeback on the outdoor segment going really well. But the luxury segment is suffering. And for luxury segments, they're mainly in the packaging of the luxury segment. They can also be seen in the different categories that we are selling. We've also seen that European clients are a little bit hesitant. Especially the clients that are exporting to the US. Due to the tariffs and uncertainty in the market. Some clients are more cautious. That means that they are placing the orders later in the season to be more strict. So we also see a change in the ordering pattern to be more later in the season. We also have had in the quarter a few clients that have gone into administration.

So we've been cautious and made provision on that. All this has been affecting the operating profits.

This quarter operating profits was 16 million compared to 25.6 last year, same quarter. We continue to do investments, but I'm coming back to that. To show what kind of New Zealand we are building and going forward.

And the strength that gives us in the future.

Accumulated numbers, order income up 7%. It was a really strong order income intake in the Q1, as you remember. Sales down 1% and adjusted for the currency effect, the accumulated sales is up 3%. Operating profit 39 versus 48. And the big why it's So big impact in the currency effect is that in the profit and loss, you calculate the currency effect with the average rate. What happens in the end of Q1 was that the Swedish krona strength and a lot, but the impact of the Q1 was low due to the way it's calculated with the average. Even though the Swedish currency strengthened at the end of Q1, the impact was low. But as also mentioned in the Q1, there would become a big impact in the Q2, which we have seen as well. So even though there would be no turnover at all in one quarter, and the whole P&L is recalculated based on the average currency effect that quarter. And as I mentioned, as all turnover is outside Sweden, That has a big impact when the Swedish kronor strengthen.

Here's the P&L.

As you can see, the gross profit is strong, still strong. The gross profit is a mixture for nylon. I must say that our sourcing operation has done a good job. We set up a global sourcing team since 2020. That means that we are much stronger now when we have global tenders. Instead of each local sales company going out and doing the sourcing, now we have a global tender sourcing, so much stronger on that, impacting and making sure that we have consistency in pricing and so on with the different sites. But also impacting the gross profit makes the product group and the clients. So if product group like packaging and so on has low margin, another program has higher. So it's also the different product mix that affects the gross margin. And then the third one that affects the gross profit or gross margin is own production. The more own production we have, the higher gross margin. Of course, higher investments and so on. There should be a higher margin on that one. The big two sites we have production is Portugal and Bangladesh. Those are going really well. We can also see that personal cost has gone up in relation to total sales. depends on the own stuff that goes in production here we increase the stuff in a lot of them Bangladesh but also Portugal we're also going into new countries like Vietnam where we know now have 22 employees relatively low production so far but it is to come and here is when you moving as we are doing now, moving volumes from one country to another. We're moving from China, Hong Kong into Vietnam and other countries. That takes time also to adjust the costings because we increase in one country and it takes time until we decrease in other countries. We also employ people now in the US. So coming back to that also, I think we have seen a really nice trend in the US and therefore it's worth investing more in that to ride on the trend there. We are now 681 staff, so the number of staff has increased, but as I mentioned, the big increase in number of employees is in Vietnam and in Bangladesh. Tax rate is 24% for the quarter, and that is depending on the different countries where we make the money. so many countries and some are high taxed and some are very low taxed. So this is the mixture. And this is booked tax. And at the year end, we will see the actual tax rate coming up. Split of the product group, 24 and 25. And as you can see here, packaging has gone down from 21 to 18%. Even though packaging is an area where we spend resources now, and we think there is a good potential for Nilen to go in. Remember, we have now our own packaging manager for the group, and we see big efforts going in here, though the packaging is going down. The reason why packaging goes down is linked to the luxury market where we have and big sales in in packaging so and that is not that we have lost any client or anything like that but it's just that they are overstocked so we we've been told that it will be slow this year and for the election market and we will come back 2026.

Gross modern as i mentioned uh

has gone up, so we see quite strong gross margin. But the operating margin is not that strong. The aim is that we should be back on 10-12%. That is the goal. And so we will look into that. We've done some investments coming back to that later. And so the aim is to be back here and 10-12%.

Do you have advice?

slightly lower turnover as you already know now about the numbers, but also here in the graph for the Q2. We can also see the trend that in the past always Q2 and Q4 was the strongest. Now the trend is that it's even out very much, and that is due to the change on ordering pattern. The season change

And that's also the quarterly comparison of the operating profit.

And here we can say that volume is important. Volume matters. If the volume goes down, the profit follows with that. So we have the cost now for the different departments and so on. So when the volume comes, we also see a big increase in profit and vice versa.

Balance sheet is strong.

We have, as you know, we have done... The dividend this year was relatively low compared to what it used to be. We are now being prepared to do the investment in Bangladesh. We got everything formalized to take over the land in Bangladesh. That will be the next step. The investment in Bangladesh will start from now on. The goal is to have the Bangladesh production up and running by the end of 2026. Also here in the equity, there's a big impact of the currency. Translation differences during the year, 28 million almost. That is from all the equity we have around in the group. When we convert that into the Swedish krona, we get less than we would get in the past due to the strong Swedish krona. So this is just the translation differences. where we are in 19 countries.

Very international. Key financial indicators.

In the bottom here you can see the number of employees. We announced 681 from the year 2020. We were worth 500, so we increased quite a lot. I would say mainly number of employees is in Bangladesh here. We increased also in Portugal and in other countries as well, but the main is in Bangladesh.

And also mentioned like Vietnam.

As some of what said in the report is that as predicted in Q1, big currency impact. as we knew that in Q1, that was a big, the Swiss crown strengthened, but that was not seen in the P&L as much at that time, but that has now come. Volatile market, luxury is down, but the auto is still strong. Uncertainty due to tariffs, a couple of clients in administration, We don't see, we still see strong sales in US for US clients and that's why we spend even more, doing more investments now in staff there. But we see uncertainty from European clients selling into US. Operating model 7% in Q2, the goal is as I mentioned 10 to 12%, so the 7% is below what we are talking towards. We're done in a quarter cost savings in Turkey. Turkey is a country where we still have a super high inflation, even though it's coming down, but it's still very high. And then there's a market that we have been suffering and also the whole textile market in Turkey is suffering at the moment. So we decided to size down in Turkey in order to save cost. The concept and we have seen this and we're building it for the future. It's all about selling a concept in the past. It was all about selling a labels. Now it's so much more about supporting clients in CSR, in compliance. and new material and for packaging and so on so it's so much more nowadays than only selling a label so i what we see is that the small players are tough in the market and the gaining on the big place are gaining we've done investments to be in the forefront and it's but it's also as you can understand important for us to monitor the cost levels And here is some areas where we've done big investments in. Bangladesh factory, as I mentioned, we now signed a contract and that will be starting now to do all the groundwork and architect and so on. So that is really good. We reached an agreement. It would take a long time to go through the agreement for the land, but now we are finally there to be signed within a week or two. Portugal factory, we're going in for the lean production. We also expanding with more looms and moving out the warehouse to get more space in the factory. So that is also good according to the plan. Expanding in the US, we employed initially two more people in the US, and now this quarter we also employed a third one. We think we find the right people, also catch the momentum here, and we have the momentum in the US. We just said that this is the moment where we should expand. We know that it's not cheap, it's quite expensive in the US to expand, but we think the market is huge. We have so much more to be done there. Sri Lanka, we signed up and just employed persons there to set up. It will be a very small operation in the beginning, but we need to be there to serve our clients that are now going into Sri Lanka as well. The Nilo Connect, we've done quite a big investment in Nilo Connect. I will just show you a few slides about that. It is the door opener for the client and we're supporting clients on the DPP journey. Production is still strong and Nile is well equipped to handle both challenges and opportunities. So for us, it's a matter of opening the throttle and also pushing the brakes at the same time, finding what we should invest in. See, the time is flying, but I will just mention here I mentioned this in the past, but I want to make sure that you understand the need to connect. We see the three different areas. One is the legal compliance, where we support the client now, where we have the challenge and where we can support them. The other one is circular solutions, repair, resell, recycle. to be more sustainable and the other one the third one is the consumer engagement to drive sales where they can have a loyalty program and acquire new customers through the QR codes and so on so this is an area where we have invested quite a lot in I think we are there now we don't need to invest that much but it has it is for us a really good door opener to be

and getting a recent token to the client. Yeah, the financial targets.

Yeah, it's still then 10 to 12% operating margin. We are aiming to come back to that. Good, I see the time is flying.

How do you see, do we have any questions?

Yes, we have received two questions. I think we can take them. The first one is, could you please provide some color on the clients that have entered restructuring? Which segment are they related to and which countries are they from?

Yeah, of course, we will not release any clients' names or so on. It's in the UK market and it's also in Germany.

And it's brand owner and retailer.

Yes, thank you. And the second question is, does the market momentum for packaging versus other product groups differ?

It differs and I think here with the beauty with the packaging is that we have a client. And we are selling very little packaging. Can we be strong here? We're talking to the client and we can help them also with the packaging area. But the momentum in general for packaging is that the reason why we start for packaging would lower is mainly due to the luxury segment where we have been selling quite a lot of packaging and that has decreased now in this quarter. Not that we have lost any clients, but it's a slowdown and we expect that to come back again in 2026. So for us, I think packaging is a nice area for us to expand in. And instead of just chasing new clients, we can also add that packaging into that.

So that is a good view for us, a good momentum, I would say.

Thank you. And as we are running out of time, I think we will have to leave the questions.

there very good thank you all for listening thank you and see you next quarter thank you bye thank you