Nilörngruppen AB

First of all, a big excuse for the concern regarding the technical issue we had with the teams this morning. We're doing this completely ourselves, so we don't have an agency and so on. So I hope you – and I think it was some sort of update with what I heard regarding teams. So there was some concern there. But now I'm really glad that you all are on this call. And usually this call will be recorded. So we put that out on the webpage later on. And also, as usual, Maria Fogelström, our CFO, joined this call and will help me answer questions and so on, if any. And also, Maria, yes, for questions, how to do when you want to ask questions.

Yes, if you have any questions, please use the Q&A function. The chat is turned off during the meeting, but you can still use the Q&A.

Super good. Thank you. Thank you. And I will start by sharing my screen. And I hope you all see the screen now. Jumping directly into the numbers here for the Q1 reporting, and as you can see or saw that the order intake is decreased by 18%. We have a big currency effect in the quarter, and I will come back in a separate slide about the currency effect and how that is calculated and why and so on. That's been quite cautious. Also, the Q4 last year in order intake was quite strong. That also impacted the Q1 order intake this quarter. But as I said, big currency effect. Looking at the sales, sales number was down, actually, in consolidated Swedish krona numbers by 16%. And actually, the currency effect stands for... 10%. And sales, the calendar effect was minus 60%. And then there's also another specific order that last year came in in Q1 and this year it will come in Q2. So it's nothing that we have lost and so on. It's a calendar effect depending on if it comes in Q1 or in Q2. This year, it comes in Q2. And after all these adjustments, there was a quite set quarter. It's still a bit cautious out in the market, luxury and also outdoor, and I think what's happening in the Middle East doesn't improve the situation. So I think in general, the end consumer is a bit more cautious also affecting our first quarter. Coming back to the current effect, how that is calculated, there is a consolidation in financial numbers. And the balance sheet is consolidated using the balance sheet end of date and the 31st of March numbers. And the loss is calculated by using the average numbers for the quarter. And the way we calculated the currency effect, you know, we don't have almost no invoicing in Swedish krona. All invoicing is done abroad. either in euro or in Hong Kong dollar or in US dollar and so on. And the way we calculated the currency is the fact that we, first of all, of course, we're consolidating the group by using the average rate for the P&L and the balance sheet for the balance sheet. And then we got the consolidated numbers. And then we do the similar consolidation again, but using the rate we had end of March last year and the difference that we kept there. is the currency effect, the way we calculate it. That means that in Hong Kong, we calculate by Hong Kong dollar. In China, we change Chinese yen, and Bangladesh will be the key, et cetera. And on these slides, you can see here the big impact. If you compare first quarter last year with the quarter this year, and here on this table, you have the average rate, and the below table, you have the balance sheet rate. And the balance sheet is for the balance sheet at the end of date rate. And here is the average rate during the quarter. And as you can see, as you most likely know, the Swedish krona has been quite volatile during the quarter from being really strong in the beginning and getting weak in the end. So that also has a big impact if you take like Hong Kong dollar, 40% in average. And stronger Swedish krona and the Indian rupees and so on. And if you look at the balance sheet rate, the Hong Kong dollar here is 5.9% as per balance sheet date end of March. So these rates here impact the P&L and these rates here impact the balance sheet. So it's a difference. The reason I explain this is that I sometimes get questions how, because some look at only this end of the quarter rate can compare, but here is the average rate during the quarter, which has an impact on the P&L. We had an operating profit of 15.4 million versus 23 last year. We had some non-recurring cost. of 2.3 million, where 1.8 is related to structural projects cost. And what is that? It is, I mean, we want to grow, so we have taken cost for project. I'm not going into detail. I cannot do that now. And will something good come out of this? What will come out of this? It's too early to say, and I will come back on that if and when it happens. And if it happens, I don't know yet. But this is something we're working on, and we're taking calls for this project. But it is that we want to grow, so that is part of that. And then the other personal cause is that we want to move, and we need to have them focusing on the right things. So that means that we are... Decreasing costs in some areas, increasing costs in some areas, and during this change there will be one of costs, and that was here in the quarter. It was not much, nobody probably not would mention that, but these two together with this one make 2.3 billion. So I thought to be transparent for you, I think it was worth mentioning. And adjusted for this, the operating profit is 17.7%. This year, we also have some other costs, also, I would say, offensive growth costs that we've taken. Hopefully, the intention of this will bear fruit in the coming quarters. Holland, we started up a new company, taking the cost here. US, we employed three more employees last year. That was not in the Q1. And Sri Lanka, we started up a new company as well. So we are putting effort in for the future growth. We have a strong balance sheet with the net cash position of 56 million Swedish that we need for the growth and what we are aiming for. The income, as you know, most likely is very much volume driven. A quarter with lower volumes also gives less operating profit and operating margins. The goal here is to be between 10% to 12% minimum. So we have a way to go, and that is how to reach that is by both volume driven, but also looking at the cost side. So this is exercise we are working on. Looking at 2022, compare on product with 2026. There has been a decrease in packaging from 20 to 14%. At the same time, if you remember, I used to say that now we're putting more effort into packaging, so this is contradictory, but the order that I mentioned in Q1 that will come in Q2, that is a packaging order, so that will mean that this packaging will be stronger in Q versus the Q1. Look at it quarterly here. the Q1, we had a really strong gross margin. If you compare to the history, the last years, the strong gross margin depends on the things. One is the product mix, as we didn't get this packaging order. The packaging has, in general, lower margin. That will only be impacted on the Q2, lower gross profit in the Q2. But in Q1, that also made it opposite to the was a really strong gross margin. So the product mix has one thing. Also, the more in-house production we get, the higher gross margin we also get. So we had, yeah, especially in Bangladesh and Portugal. And then, of course, also that the U.S. dollar has some impact here. The weaker U.S. dollar, as we are selling some in euro, there will be some that we are buying in U.S. dollar. That has also some dollar effect cost side as i mentioned we are looking now to move costs from one side to another and we will do some sort of cost saving program but at the same time we will spend efforts in other areas as well so it's it's to be having having the right resources the right areas Operating margin, as I mentioned, we are not pleased with that in the quarter, and the goal is to be 10% to 12% in the future. This is showing the numbers, but in the graph with the lower sales in Q1, and also the lower operating profit here. Jumping further, and here is the balance sheet, Maria.

Yes. And as Krista mentioned, we have a strong balance sheet with enough cash of 56 million Swedish crowns. As you can see here, we have cash amounting to 102 million Swedish crowns, which is quite much, but we have also chosen enough to kick it out as we have upcoming investments in Bangladesh. So we have, in fact, left money in Bangladesh to be able to finance the investments there. I also want to highlight the inventory levels because I see that we already have received a question about the inventory levels and that is a constant focus area for us and the levels we have now are reasonable but of course they will depend on the sales as well but we keep focusing on the inventory level and the levels are reasonable for now and as you can see they have decreased compared to q1 last year and on the cash flow side some short comments as well and as you can see there is quite a big effect in the accounts receivables during the period we have that in Q1 2025 as well. And that is mainly related to seasonal effects within the quarter, where, for example, March was a stronger period than January. And it is also related to specific clients with different payment terms, which can have quite a big impact on the council's viewable levels. There is also quite a big for the other liabilities. But a big portion of that is also related to timing differences between other liabilities and account tables.

Very good. Thank you. Key financial indicators, we must go through these in detail. I just want to mention then every number of employees that has gone up since 2021. As you can see, mainly in Bangladesh and Portugal. And at the moment, I don't foresee that we will increase the number of employees until the new factory in Bangladesh is ready. We have increased number of employees in... for existing production both in Bangladesh and Portugal. And we also build up the new factory in Vietnam and so on. So here we will be relatively stable until the factory in Bangladesh will be ready, which we predict to be in the middle of next year sometime. Some comments. Coaches market in Cuba, we talked about big cash effect. we have talked about yeah the proposed dividend is still the 150 that we said in the last interim report we have managed to succeed with the science-based target something that is to be approved here so that is really good and also good for some of our clients are asking for that so We are one of the few label companies that has been approved for this now. So that is really good. Also in terms of marketing, we show that we are a reliable supplier. In Portugal, we have now a new managing director with a long international experience. I'm really happy to announce that, to have that managing director on board. At least that the previous MD is now retiring. So there will be a period of overlapping. But I'm really confident that this new MD will make Leland Portugal take the next step. So really good on that. Leland Bangladesh Factory, the new project is ongoing. It's a lot of getting... all these designs and so on so when we have the land now and we have not started with the building project not yet so it's a lot of getting all the compliances on in place so not so much more to update on that but we expect it to be ready to move into the factory like in middle of 2027 And then, of course, it takes time until the factory is up and running full. We have expected the half of the investment of this $10 million to be machineries. Machineries will be invested, not all at once. We will invest during a period once we get the orders and so on. But, of course, we will need to have an original setup of machineries and so on from the start, and then we will add on more as the ordering comes and the turnover starts. We have done quite a big investment in the past. Now, what I meant is that we are really strong in these areas, and we can see that if we compare needle with other smaller competitors, the market is quite fragmented with a few really big players and smaller ones. And this is also why we see that more and more smaller companies are up for sales. And this is also the demand from our clients. That's also why we're focusing on all this with the specialists and the booths, sustainability, CSR compliance, sourcing, material specialist and packaging. So we will have a much stronger offer towards our client. We increase the production capacity. That is also in terms of the higher margin once we will do this. But also in terms of our clients to be a more relevant supplier. And also in terms of CSO compliance, it's more easy when you have your own production. We must strengthen in the U.S. We are now established in Holland, and we are still not employed exclusively. commercial officer, that is something that we will continue to work on. We are quite picky on this one to find the right person here, and we still have not found it. So we're still looking for that. Consultation in the market, we want to take part of that, so we are working on that. Here, I showed this also earlier, this is where we were five years ago, and this is where we expanded, and we have always been strong in design, We have had a strong balance sheet, and we have a strong balance sheet. We can take the next step. We have moved out in the packaging, having in our category managing to be able to support and take the next step. We have been really strong, moved out in the sustainability employing units, and I don't know if you've seen, give you an advice, look at the Nealon annual report, where he also has a sustainability report. It's really impressive, I would say, the job we are doing here. It also says quite much about Nealon and the steps we have taken. Nealon, the connected digital solution, coming back to that a little bit later. Here is a move that we want to take the coming five years. We want to be stronger within RFID. We want to be stronger within heat transfer. Heat transfer, we have many clients. working with heat transfer in the outdoor industry. And here we are not strong in that. We have so much to be done here. And also the packaging, we will continue to move out, digital solution, and increase our own production to move that out. And why heat transfer? What is heat transfer? Heat transfer is when it's pressed with heat and it's not... printed into the text about it. We deliver these and it's printed or pressed on the garment in the factory, in the garment factory. So this is heat transfer. And why we have not been strong in that in the past is that heat transfer is a very technical product. So we need more knowledge in-house. So this is an area if we can make some sort of acquisition, so I think heat transfer would be really suitable for us. We have a client and the But we are not strong in this, so the synergies, as I see it, is good here. Dealing Connect is our digital solution, and this is something that is a demand from our client to help and enable them to connect with end consumers and to fulfill the DPP and the legislation within that. So this is mainly through QR codes and connected through that. And then we have RFID. It's with antenna inside, as you can see down here. It's an antenna in these labels. And this is more on the logistics side. And this we also have, this is started with the really, really big retailers, and then it's moving down, down for the medium and small clients as well. So this is becoming much more frequent. also for us and this is now that we will and here it's super volume driven and you need a big volume to have a good margin because it's a quite low margin product so here we will work on getting the bigger volumes in here as well i can see that time is running we aiming for the operating volume of at least 10 so that this is what we should get back to and when we will do that i think We will look at the cost side, but also once we get more and more in-house production, we will come up here again. Will it be this year or will it be next year? I cannot say, but this is clearly a goal for us to work on that. So that was very much on the presentation side. Sorry for rushing at the end, but I see the time is flying, and I have also a presentation for the staff coming up here very soon.

Thank you, Christopher, and we have received some questions. Some of these have already been addressed during the presentation, so I will pick the ones that I think are the most relevant and that we haven't discussed so much in detail. So we have received one question about the volumes, and it is, can you raise your volumes significantly by bringing in new customers? Yes. Or are you dependent on your existing customers?

Good question. We are now focusing more and more on the bigger clients, getting bigger clients on board. And we have some, but that is the beauty. The advantage and disadvantage with this business, I would say, it takes time to get new clients on board, but the client you have is also very loyal. But We're waiting for getting new clients on board. At the same time, we're also working on getting a wider range of the product range on the existing clients. So we're working actually on both things. But getting more focused on that, focusing on the big clients and less on the small. We have quite a long tail of small clients, but we are shifting focus now within the group.

Yes, thank you. We also received a question about the luxury segment. Do you still expect normalizing in luxury during summer?

Good question. We see some uncertainty in that, so I'm a little bit more hesitant about that. I think maybe more towards the autumn time now than in the summertime, as we predicted in the past.

Thank you. I see the time is running out, but there are two more questions I would like to ask, so we will take these two as well. The first one was about the ordering take. You mentioned a strong pipeline, but can you give us any concrete metrics on pipeline size and conversion timelines to help us gosh where orders are hanging in Q2 and for the half year?

Yeah. The biggest impact between the quarters is the packaging one that I declared that will come in Q2. That was in Q1 last year. It is a certain uncertainty in the market. We especially think what's going on in the world at the moment. It's not one client. It's more a general trend. But we foresee that we are in the market and we think that it will come up again here. We also, as we mentioned earlier, there's a big currency impact on this. But we don't, no lost client and things like that. It's more time-like.

And one final question that I thought was interesting. How are customers reacting to Neal & Connect? Do the customers want to have their data in your system or can it be integrated within the company's own data system?

Absolutely. Good question there. And it is, I would say that our is the name in the center. where we're collecting data from the client system, and we can share with end consumers, and we collect data from different systems, and so we are not owner of the data, we are owner of the statistics, and then we package it in a nice way that we present for the end consumers, but also back to the brand owners. we can take data from different systems, different sources of systems. And we will be there in the center helping our clients out with this. And also for them to fulfill the legislation. I think it starts off very much to fulfill the DPP regulations and then also supporting for them to have the possibility to talk with the end consumers through the QR code mainly.

That sounds good. And unfortunately, I think that was all for today. But for you, who feel that you haven't really got any answers to your questions, please feel free to reach out to me or Christopher, and we will come back to you separately.

Thank you very much for listening. And sorry once again for the hassles we had in the beginning. And hopefully we'll be able to next time so we can start on time. But thank you very much for being with us.

Thank you. Thank you.