New Wave Group AB (publ) ($NEWAB)

Yes. Welcome to the presentation of Q1. I can start describe it 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 I thought that the market should improve in the last 3 years, but it's still not happening. And I think as long as we have all this unsecurity about the wars in Ukraine and in Iran now and also in [ Gaza ] before, together with politics that we have in U.S. right now with -- or have had for a while with heads and unsecurity and I don't think it will come a quick turnaround. But I'm happy anyhow that we continue to take market shares. We continue to grow. We have quite good growth in U.S. actually. I see that U.S., I would describe as a better market than Europe, which is a surprise in some ways because I was more worried for U.S. and Europe, if I go back. 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 3 segments as before. Yes, this year, all new, I think, corporate, sport leisure and. If I should comment the market 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 with the clothing retail was growing at 7%. So I thought 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 & Leisure and Gifts & Home is, of course, retail and clients then. If we look at the quarter, first of all, the currency still had 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 be -- 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 25%. So I think it's a record high gross margin if we consider that they are into the figures. And operating profit,[ SEK 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 and Nike and so on, it's far better figures. And the costs continue to be high, 2 reasons -- 2 main reasons, ERP systems that we changed, and that will go on for another year.

2 years.

For another 2 years. And a lot of this is, of course, extra cost because we're operating 2 systems right now. I don't know how many have we implemented in? How many companies are they new? France, Netherlands, -- 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 automatization. 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 investments for the future. We are not service South U.S. in a good way right now as we do in North since we are based with the 2 warehouses we have. We are based in Seattle and in Renton. [ -- no sorry, in Kentucky ]. And this is -- the investment in Texas is much, much bigger than the normal warehouse investment because we go for a full operation, same as Seattle within Brody and automatization from day 1 and everything. And it will cost some money in the beginning, but I'm very, very confident it will be a good investment. I think it's around SEK 200 million. 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 krona. Local currency is 13.2%. Promo channel increased 10.8%, retail down 0.9%. There 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, [ Avic ] Movement. And also cat is doing very, very good, both in U.S. and Europe actually. It's not so much to able to comment this. If we look geographically, in the U.S., it's minus, and that's only currency. Enter which one is Enter. Yes. you have an organic growth in U.S. by 7% in local currencies. So it's really affected the currency there. Sweden is nice to be back on a very small growth, which I think is a very, very strong sign in this environment. Benelux is doing well. Nordic countries, excluding Sweden, growth as well. Rest of Europe also and other countries is 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 costs up and there we should -- it's [ SEK 8. 92 million ] up. And there, we also have for us, positive currency effect. So actually, the cost increase are even higher if you look at local currencies there. Yes, that's mainly then operating profit we have talked about. If we look at the different segments then, Sports & 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 [indiscernible] , 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 in investments 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 worser cash flow in maybe in your eyes when Texas come through because it's not only the investments, we have also built up the stock there. It's no idea to have an empty warehouse. And that's quite a lot of money. So we 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 3 segments with an equity on over 55%. So it Yes, it's a good feeling. And also, it's nice to say it because even if the -- so to say, 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 are released in January. And now all those plus 3 new is in their main catalog, which comes out actually in mid-January and the road -- the road show 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 2, 2.5 months than 3 months. And was it 4% now? So already now 3.4% of their total sales is our brands -- in March, sorry. And interesting is also to see that the gross margin on our brands is between 2 and 3x higher than the gross margin that 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's basically that sense. I think we open up for questions.

Carl Johan Ban, DNB Carnegie. Looking at the global environment for the moment, obviously, stress in lot part of the system. And -- 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. But I'm -- 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 are as depending on China today as we were 3, 4 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 CDO and buying manager expect if the oil prices on this level, we expect a 20% decrease on raw material on polyester raw material within 6 months. So -- but again, also, we have -- I'm not nervous about that because we have always been able to change our pricing and not be so effective. In one way, it can be positive if the prices start to increase a little bit for the sales...

And obviously, fantastic gross margins in the quarter, particularly looking underlying. It seems like there is a big, say, craft and Cat 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 2 most obvious is Cat Back and Craft, of course. So I feel very, very confident and also the new collections like Anti 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 moment as merchandise to every club, whether they are contracted by Adidas, Nike, Firma or ourselves because those don't have the merchandise on stock. And now with the 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 6 to 12 months.

I pass that to you.

It's correct.

Yes. Now we are doing the implementation in the U.S. with Cutter & Buck, 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 changed the financial part. But it's an important step also doing 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 Cutter & Buck, was it 20 other systems that was affected? So it's not -- yes, you put in one thing and then you're ready.

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 retailer 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 unstability that creates in a politic way today and also all the wars that have or are going on. and the consumer are definitely holding back their spending's. And that, I would say, it's valid for, I would say, more or less all European countries, maybe Switzerland is an exception. They live their own life. But otherwise, it doesn't matter if you look at U.K. or Germany or also Nordic countries.

What was the gross margin for Cotton Classics in Q1?

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

We don't subsidiary.

You said that the rollout of the new ERP system will continue another 2 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 pass 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 Classic warehouse operations?

Definitely, but this 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 is -- 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 North Germany and then continue with old warehouse for distribution in the East and Austria and those countries.

Maybe you already answered this, but in Q4, you gave the underlying margin adjusted for Cotton plastics. Would you care to do that here also in Q1? -- [ underlying margin ].

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

Could I please ask what drives the weak Sports & Leisure margins?

What...

What drives the weak Sports & Leisure margins?

Very good question. But I think a lot of the investments we are doing there is hitting that area because the Cutter & Buck, where we do the new investments in Texas is belonging to that segment. Crafts establishment in U.S. 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 Cutter & Buck is a part of Sports & Leisure because that was classified that way when we acquired it. But today, the majority of the sales in Cotton Classic are corporate. So it's not 100% fair. But most of the investment is in Craft and Cutter & Buck.

And also regarding Cutter & Buck in Sports & Leisure, it's the big currency headwind. So it was minus 13% from currency really. So that, of course, affects Sports & Leisure most.

And we should remember that Cutter & Buck is one of the most profitable companies we have, both in operating margin and growth and so on that performed very well. So when you get a hit there, such a big on the currency, it's also hitting that segment.

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 focus. So I think we should dare to try. But then we should also remember it's not extremely much money, if it would be that we would have worse result last year, so to say. But we will try to recover what we can, but it's not much. And of course, it's depending on again that a lot of the goods we have taken in the U.S. the last 1.5, 2 years has been Africa, not the countries that have been hitting worse by the tariffs.

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

Yes, it's the toughest job we have is to turn around that part of the -- or 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 part in a way where I'm happy if it's a small part.

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 in the last years has been in the other areas because we are not happy at all ourselves with Gifts and Home Furnishing. Okay, thank you very much.