Nilörngruppen AB

And welcome to the NELEARN Q3 interim reports presentation. I know that today is a lot of presentation, a lot of companies. So I really appreciate that you take your time to join our presentation here. To myself, I am in Portugal at our factory here. We, as you probably know, we're doing quite big adjustments in the factory, uplift in the factory. So here to follow that. So it's an interesting project going on. So I think that will be really good for the new learn in the future. But I'm sitting here on a small laptop, so I think it will work out well. So I will start sharing my screen.

And put that on. Presentation mode here.

Yes, now we start the Q3 and we are quite pleased with the Q3. The order intake here was negative 13%, but if we take into consideration that we had a big packaging order in Q3 last year, on 18 million Swedish kronor and that will come now in Q4 instead that is around seven percent of the explanation we also have another currency effect explained another six percent so adjusted for the currency effect and the this packaging order is quite flat So in general, it's a difference between the segments. Luxury segments is still quite weak, though the outdoor and other segments are quite strong. So still weakness in the luxury segment, big improvement there. Sales up 10% and adjusted for the currency effect is actually up 18%. I think it's partly because we had a quite weak Q2, so it's a spillover from the Q2. Looking at the different months, it was quite strong both in July, August and September. So we're quite even throughout the quarter. And here we see also in the auto segment and the other segments, but still a bit weaker in the luxury segment. Operating profit. 26.3 million Swedish kronor versus 15 last year and that gives an operating margin of 11.4 percent in the quarter and as you probably know the goal has been or is should be between 10 to 12 percent that is the goal we have set so we in this quarter we target that Looking at the PNL here, also we have a quite strong currency impact on the whole PNL and not only the top line. As you know, most of our business is handling outside Sweden. In Sweden, it's mainly sales companies, but we don't do any invoicing from Sweden at all. And then we have the headquarters cost. So we have some cost in Swedish kronor, but the majority and all the invoicing is outside Sweden.

Yeah.

And what I want to say more here is also looking at the tax rate. The tax rate for the quarter is 24.6%, and that is in line also with the accumulated number. We see what happens with the tax rate in the fourth quarter. It's always adjustments, and everyone is doing proper calculation, really the proper calculation of the tax. But you think it will be in line with this 24.6% also for the full year. um personal cost um has quite been stabilized now on this level i would say also in currency impact on this level and other external cost but coming back to that a little bit later split by product group Not so big difference compared to last year. It's mainly in packaging. That has gone down and it's contradictory to what we do now. We're putting quite a lot of effort into the packaging. And the reason why packaging has gone down here is due to the luxury segment. We still have quite big packaging delivery to the luxury segment. But they are overstocked. So it will take some time. So I think it will take like in mid-2026 until we are back into normal deliveries for the luxury segment in packaging. And looking at the quarterly income statement and the gross margin, normally the Q3 is a quite strong gross margin. And so also this quarter, as you can see here, if you're looking at the historical level, the reason for that is we have less packaging. Packaging has a lower gross margin and less packaging in Q3 normally. It's also this quarter. Operating cost. It's also lower normally in Q3 and also this quarter and that is due to the holiday. Most countries take holiday in July, especially in Europe. So that's why that has a big impact on the Q3. Operating profit, as you see, it was a strong operating profit this quarter. And as I explained, it was not only one single month, I think it was strong all the July, August and September. And of course, you who have learned Nila now, it's very much volume driven. Once we get good volumes in a quarter or in a year, we also get a good profit. It goes a long way down. So we're very much depending on getting volumes. then if you look at this similar but in the graph and also as i used to say that in the past it was always q2 and q4 that was sticking out as the best quarter now nowadays we see it very much flat so the change of purchasing pattern from our customers so they even out much more buying much more into the season and much more shorter lead times and that makes our pattern different than it used to be And here is also following the profitability just in the graph. And you can see here now Q3 that was quite strong. Balance sheet, we have a strong balance sheet, an equity level of almost 350 million. And that is good because we're now taking more and more time to search and see for acquisitions and so on. And we'll come back on that. And we also will do, or doing at the moment, both in big investment in Bangladesh and also in Portugal. Also coming back to that later on in the presentation. Just want to raise here, as we are a super international company, relatively our size, we are in 19 countries and we're only the headquarters in Sweden. And therefore we have a big part of our equity abroad. And that also have a big, the currency has a big impact that when we translate the different, the equity in the different countries into the Swedish krona. And this now in 2025 has had a negative impact on the equity of 32 million. And of course, in the past, we also have had positive impacts. But now due to this strong, relatively strong Swedish krona, that has an impact. Financial indicators, I will not go through them indeed. Oops, sorry. So much, but I just want to mention here we are on almost 700 employees. And as you can see here over the years, we have increased that quite much. That is mainly in the production companies, mainly in Bangladesh, I would say. but also we have invested in other specialist areas where we employ people to be in front of the competitors and we also invested in countries like US also coming back to that later on where we're in US now we have four people This one is to explain the movement we have done between the year 2020 and today. ByHeritage has been really strong in design and we continue to work on that. So the design is a strong unique selling competence for Nila. We have in packaging started and done much more here effort. We have a really good collection. We have a category manager working with that. And so we're really taking a big step forward in packaging. Packaging, as I mentioned, we are delivering to the luxury segment, but we're also packaging for sports and for outdoor segment. We're talking here about the underwear packaging, sock riders and so on. So it's not packaging for corrugated standard brown packaging. It's more for the garments and for luxury segments. Financial strengths. We have had a strong balance sheet for many years, but we even now have even stronger. Sustainability, CSR and compliance is an area where we have put a lot of efforts and the employed people all around the world built up that. Which gives us also, in the past we were talking about design, but I would say now sustainability is another core competence that is unique. I will not say unique, but the selling points for Elan, what we push for and where the client appreciate our offer. Digital solution and Nealon Connect is something we didn't have. We had digital solutions like RFID in the past and so on, but now we're taking even more steps onto this. I will explain, coming back to Nealon Connect, what that is all about a little bit later. Bluebird deliveries. What I mean by that is that we're setting up distribution companies in new countries, like in Vietnam in the last year, and also now Sri Lanka, but also we have setting up a company in US. So we're getting more and more international. Yeah, big currency impact, both on the top line and in the balance sheet. And I used to say that we are quite well hedged. We match the cost with the income. So we take a country like Hong Kong, we have big income there and then we have all the costs matching that. And then in the end we have a net profit. So in the different countries we're matching quite well, but in the end we have a profit that will be converted back to Swedish krona. And in my example, that Hong Kong dollar will have an impact as we saw earlier on equity. As I mentioned, still volatility in the luxury market. And we see now less uncertainty due to the tariffs. We've learned to live and also, I would say it doesn't affect us directly. It's more indirect effect. It's our client that export to US that has been affected. And I think the uncertainty is most of the thing that, I mean, As long as you have the certainty, you don't dare to move, but now the certainty moves away. So it's more movement in the market. Operating profit we mentioned already, Portugal factory where I am at the moment. We have been here in Portugal for 40 years, so the factory needs an uplift. We looked at moving the whole factory, but we decided to stay. We think there is less risk in that, and we moved out the warehouse to get more space in the factory. And at the moment, we are changing the complete layout inside the factory to get much more flow into the factory and also implementing lean. So, that is good, I think, Nilön, Portugal, that has had tough times 10-15 years ago, but that is now also a competitive edge for Nilön to have a good factory in Europe. Building for the future, and that was where we now employed or built up this specialist we have within the group, where we have compliances, our packaging materials, and that is supporting sales. So I would say being a sales person in Nyland today versus five, ten years ago is a totally different story. In the past, we were out selling labels. Now it's all about selling a concept. The client is much more demanding now, as it has been in the past. Here is the specialist in different areas. We increased in production capacity. Here we also have Bangladesh. are currently, I mean, we got the land now and they're doing soil tests and we are working on that, but it will take some time. And we said earlier that it probably most likely will be ready by end of 2026, but now we say it will be ready. And that's in first half years, 2027. We've done geographical expansion, as I mentioned, we see a consolidation in the market. We've seen TeamCo, we've seen SML, we've seen AEV and all the companies taking part of that. And we also see companies now that are for sale and actively selling. Looking at the label market as such, there are a few big players. It's a mid-segment and there's quite a long tail of small niche players that is working in one market or with a few products. And for Nila, we come to the stage now that we're putting much more effort into this and we have a team dedicated to search for this. And what are we looking for? I think here we will search for companies that can contribute either geographical expansion in areas and countries where we are not that strong in. It could be like France, it could be Holland, it could be Spain, it could be US where we can take more geographical expansion or it can be vertical integrations in areas where we are not strong like in heat transfer or in RFID or in packaging. So we're not sure that we will succeed, but we now definitely take this seriously and put much more effort into that. Coming back to, I presented this earlier, there's some new slides, I will just add in quite quick here, what NilenConnect is about. NilenConnect is the QR code that you can see on the jacket here, where we have a system, it is the system behind that is NilenConnect. And it's a QR code and it's NFC chip or RFID. And why Neelon Connect? We see three reasons why people want to go into buying Neelon Connect. One is the legal compliance, the legislation, digital product passport that is here to come. I will also present that soon here. So this will be a must for our clients. So this is a headache and that we, through our Neelon Connect, can be part of solving their problems And then there are more nice to have for them. We can be part of the trend. Now we see repair, resell, recycle, where you have this QR code and the information carrier and consumer engagement. They, through the QR code, can have a consumer engagement and communicate with the end consumers. And that will drive sales, create loyalty and acquire new customers. Just the timeline regarding the DPP. It has been going on for some years and been a lot of discussions, a lot of preparation. Some clients are in this already and not in the DPP, but into the Nealon Connect and they have this providing information to the end consumers about the government and the sustainability. And in 2026, they really delegated the act expected for the first product groups. And the first is apparel and accessories. And in 2027, batteries will go full live with DPP. In the mid of 2027, we expect that DPP will be full common for textiles. And through this curriculum, when you scan it, you can have carbon footprint, you can have the different certificate they have on the garment, production history and the country where it's produced and so on. Recycling instruction, all that is within the DPP fulfillment. To the brand owners we provide them with information so they can see what countries they have been logged in. You can see how many scans they have had, what garments they are scanning. You can also see if they have a QR code outside the jacket and inside the jacket and they see the difference how that is scanned. So we also provide information to to the brand owners. And like this, they can see on the map here where it is scanned. and also what we have been working on is an AI now tool talking to the product and it's when you're scanning the QR code you get to the page where you can write and communicate with them through an AI tool and ask questions I got this spot on my jacket here I should have removed that and so on so And that we also do in the corporations with the brand owners. So we make sure that we provide the information that they want. We can go out widely in the internet or we can just provide in their database and provide information that they have in that database. And this, you have seen in the past, the financial target and so on. For Nylon, we have... Yeah, it should achieve 7% growth with an operating margin above 10%.

Yes, and... Good.

I was... So sharing this and coming back to you and see here. And Maria is also with me. I forgot to mention at the beginning, Maria, the CFO for Nila. And Maria, do we have any questions for us?

Yes, actually, we have only received one question. And that is the question about the sales split between outdoor and luxury. Yeah, percentage for each segment.

Yes. Outdoor is still the biggest, absolutely biggest luxury segment we started off with a few years ago. And we see that the luxury segment is coming and we think we can do much more there. And the split here, I don't have the exact numbers, but I would guess that outdoor is between 25-30% and luxury is between 5-10%. But what's interesting with luxury is that we can do much more luxuries in the countries. France, it's in Italy. Outdoor, it's mainly in... And outdoor, I would say outdoor sport, it's mainly in Scandinavian countries, in Germany and in the UK.

Thank you for that. Now we received some more, so I will continue here. We also got a question about the EBIT. Could you elaborate on how much of the EBIT that comes from operating leverage and how much that is due to recent efficiencies?

I think most is, I mean, as I mentioned, that is the volume is met a lot. I talked also last time, we tend to do cost savings. We have a program here. We are not launched all of that yet. And cost is, but we're also taking on cost here, moving into new countries and so on. So for me, and this quarter is volume driven, I would say.

And continuing on the cost savings, because actually we got the question about that as well. And the question is, you previously commented on reducing your cost base in Turkey and doing similar analysis on other parts of the group. Do you have any updates on that front?

Absolutely, we have done that in Turkey, so that has been implemented and we are now working on other countries and this is partly, but also that we are moving now volumes from a country like Hong Kong, China into Vietnam, Sri Lanka, so that's a moving cost. and at the same time doing cost savings. It's mainly in the Asian area, but partly also in Europe. But at the same time, we're also taking on more and more employees in the US. They are expensive and so on. But my goal is that we can be more clear on that once we have done the instruction that we are in the middle of.

Thank you. And now we got a question about the outlook for 2026. Has anything happened during the quarter that changes your view of the market outlook for 2026, specifically regarding different product groups?

I cannot say. I think there's nothing new regarding the product group. I hope and think that the luxury segment will be back in swing again. But I think it will take until mid-2026. For other product groups, I don't see any major change. Not the cities at the moment, at least. We had, as you know, the outdoor was peaking during the pandemic and then was really bounced back. But that is back to normal now.

Thank you. And the last question that we have received is, are there any ongoing discussions to include segment reporting in the quarterly reports?

Segment and maybe qualify, because we do segment reporting in the interim report with Countrywise, but I assume here is more on program group levels, isn't it? Yes, I would say so. Yeah, and absolutely, that's a good point. I think that is something that we should consider maybe and see what we can do there. We have not done that in the past, but it's a good point.

Thank you. And that was all of the questions we have received.

Super good. Thanks very much for participating today. I know that it's a super hectic day with a lot of companies presenting. And thank you very much and have a great weekend.

Thank you.