Nilörngruppen AB (publ) (NILB) Earnings Call Transcript & Summary

I will here just start to focus on the numbers and the report for the quarter and the year-end. And then I will go over and talk a little bit about the investments and what we are looking forward now to in 2023 and so on. And I just pick up here. Laser point, I think that is good to have here. Yes. As you've probably seen already, we released the reports and the numbers to the stock market, slightly weaker quarter versus we had in the previous year. 2022 has been a really strong year for us in the total. The Q4 was weaker. It's not that we have lost any clients, but we see a general decline generally for the most of the clients. It's slightly different in different countries. Order income decreased 18%, and the sales decreased by 15% and excluding currency effects, 17% with an operating profit of SEK 14 million versus SEK 40 million last year. And the general decline we see is mainly in the Nordic area and in the U.K. The U.K. market and retail market has quite tough at the moment with many of the big retailers suffers and that has affected us. We see a quite positive contribution, and we're looking forward to see what happened here in 2023 with the luxury segment. We're talking about France and we talk about Italy. We have made some good breakthroughs, and we really see some good numbers in these countries. These countries are both France and Italy and also Spain are relatively small in Nilörn, but they are growing good now -- the good numbers there. So -- and looking forward to see what comes out here. And as you can see, we have also now a less currency effect this quarter compared to what we have had in the past. Also, what we have seen during the year is that many brands that performs really well is the outdoor, the workwear, the sports and so on. And these are also down in the quarter. And I think talking to clients, the trend has been so strong in the beginning of '22. And so they have built up quite a lot of stock. And then now the sales has not been as strong as they thought. So they are sitting with quite some stock. And therefore, they are more careful now, which we have seen in this quarter. We accumulated numbers here also strong. This is the best year ever we have had in the group. We just -- was here announced in the press release that we increased excluding currency effect of 10% -- sorry, on 16%. We just sent out a new release, adjusted that to 10%. There was a writing here, miscalculation from our side. We are sorry for that, but that has been adjusted and the new release has been sent out. So the sales, excluding currency effect accumulated is 10%. And yes, this is the best year ever. The best year ever we have had before the pandemic was 2019, where the sales was SEK 718 million and now SEK 983 million and the operating profit was before the pandemic was in 2018, where the operating profit was SEK 85 million. Now it's up to SEK 136 million. So even though it's a lower quarter, but accumulated extremely good numbers, I would say. Looking at this income statement, a few things I want to mention. Here, we have an increased gross profit of -- sorry, decreased profit -- gross profit of SEK 25.8 million, where most of this comes from volume -- a small part comes from lower margin as well. And the lower margin is, I mean, we have seen in the past year higher energy prices, raw prices, but also product mix, but the main effect here comes from the lower volume. Looking at the cost side in the quarter, the personnel cost has gone up. This is -- as the year in full, in 2022, was such a good. The bonuses, both for salespeople, but we have bonus for salespeople and for the manager in the group have been on a very high level versus in the past. So that has also affected. And what we do is not that we book everything in the Q4. We try to book that accumulated during this year. But there will, of course, be some adjustments when you're doing the real calculation in the Q4. So that has also affected -- as the year has been strong and even though the Q4 was a bit weaker, that has been affected with -- as we normally spread out the bonuses during the year. That has also affected the Q -- or numbers relatively high. And there is an operating revenue and there is an operating cost here, other operating revenue, other operating costs. Most of these are currency effect, not all operating income, but like SEK 30 million of this is currency effect, but all of these operating costs are currency effect. That is when we have receivables and payables in foreign currency that we reevaluate and so on. And as we are in different countries all over the world that has a quite big impact. Tax rate is like 23% something. And going forward, I think we can expect a tax rate around 22%, 23%, 24% going forward. And as you know, the tax rate is very different in different countries like India, Pakistan, Bangladesh and Europe and Hong Kong. So it's a mixture of all this, depending on whether we get a profit, the tax rate will change. But I think it will be around this 23% going forward. Here is the income statement on a quarterly basis. And as you can see, it's quite volatile in the different quarters. And if you compare this Q4 number now with the previous Q4s, we can see that here, we have an operating margin of 7%. And if we have to go back to 2019, where we have also around 7%. But as you can also see these years -- this year have been like 16%, 17% the previous quarter, which is extremely high if you compare to the historical number that we performed. And if you look in 2020 or end of -- back to -- back like to -- and all to 2010, the average operating margin for our group is around 10% to 12%. So what we achieved here is we performed strong. Continue here with the graph where you will also see same as you saw in the previous picture, but here more on a graph level, we see the turnover -- the dark blue in 2022, very high in Q1, Q2 and Q3 and now a little bit slower here in Q4. And as I said, it's not one client. It's not that we lost any client. It's more a general trend for most of the clients. And I think they've been cautious to build up stock and so on and the uncertainty in the market, especially here in Europe. And that the volume is driven -- the volume driven is also affecting then the profit here. Balance sheet, we have quite a bit up the inventory level and that was the same trend also in Q4. It's come down a little bit -- sorry, Q3 come down a little bit. We have a big focus on that. I'm not afraid that of the valuation of the stock, we have a very conservative policy where we force also subsidiary to be conservative in the valuation. We try to get the client, the brand owners in Europe to guarantee all the stock where we have in the most cases, not all cases. And if we don't have a guarantee, we are very cautious in the way we evaluate the stock. And Maria, our CFO, has done a good job here, forcing all the subsidiaries being -- taking write-downs and so on. Cash and equivalents, we have quite some cash in the group, and we also have quite high equity level. The key financial indicators, we have gone through these slightly here with the growth and so on. What I want to mention is the average numbers of employees now is 587. That is the average number during the year. So this is average number, not actually at the year-end, but the average number. And then employees, what we increased most is in production. We increased quite many in Portugal. We increased in Bangladesh, and we have also increased in some central functions for the group like CSR sourcing, IT and so on. As I will come to that what we are building and building up the group now. So that is to strengthen the group and also adjusting for the bigger volumes that we are proceeding with now. And to be a good supplier, that is the most crucial, I think, Nilörn to be a good, reliable supplier. The Board has proposed a dividend of SEK 5 per share, which is equivalent to last year or same as last year. We have some investments that we will do and also -- I'm coming back to that. Yes, a little bit short summary. We acquired Bally Labels, that will be consolidated from 1st of January this year. Bally Labels has been a partner company to Nilörn. Partner company means -- what does that mean? That means that we -- they are treating them as a subsidiary, but they have been independent or externally owned. They have used our distribution units around in Asia, and we are paying our Asian distribution units pay commission to them in Switzerland. And so they've been like a subsidiary, but they have been external. And Martin, the previous owner, he wanted to -- he became to an age that he wants to retire. And so we decided that the best way is we take over it together with the 2 of the employees, which we think is a very good solution. They know the clients, they know the company well and -- but they didn't have all the funding. So we are part of that now. So Nilörn holds 80% of this company and the 2 employees hold 10% each. So this is not a big impact for 2023. Most of these turnover already is in our books as the way we operate is that the turnover happens in Asia, and we're paying out commissions. So the commission and the profit of this company will get into the group. But it's -- I mean, it's not having a big impact on the group. Yes, we already talked about that, a slow end of the year, but the best year ever. And we -- here is the numbers that we show already talked about the pre-pandemic numbers. We're up like 30% if you compare to that and operating profit now up SEK 136 million if you compare to SEK 85 million before the pandemic. High stock levels, we talked about already. Some clients with finished product, which makes them more careful when ordering new garment, which then affects our labeling. They don't need as much labeling in the Q4. Positive development, especially in Italy and France. Spain continued well as well and the U.S. And what we see, which I'm really happy to see is that in the luxury segment, both that we are getting more market share in these clients now. We started with the small volumes, but we see that we have performed well. They're happy with us as a supplier, so we can take a better grip on that. And I mentioned that we are looking to expand the production. We hit the roof now both in Portugal and in Bangladesh. So we're looking to expand in both these countries. In Bangladesh, we're actually looking to move the whole factory and build up a new factory because it's not possible to expand the existing land there. So it will take -- we will see how quick it goes. Nothing will be ready this year. It will hopefully be ready by the second half '24, I think. We are working and we will continue to do so with this structural work within the group. We started here a few years ago, like 2, 3 years ago. That was -- is very much client-driven. We have invested in people, and we see that what we have achieved now is really something, I would say. Also, of course, our competitors is doing that. But I think the team we have and we built up now is doing a really good job. And we think here, we can have a competitive edge that we are -- can be proactive instead of reactive driven by the client. And so we support them with information instead of -- instead of they just asking. So that is our goal. Here, I just -- WOS, that is our web order system. We have a system where our customers can go in and see the stock and the ordering and the ordering process and so on. That is -- we are rebuilding that now to make it more modern. This has been something that has been a competitive edge for Nilörn for many, many years. But now the front end, the look and feel when you get into it feels old. So that will be ready and launched in Q2 this year. And Nilörn:CONNECT, I will come back to that in a slightly later slide what that means, but that is a new system that we have built, where the end consumers can read in the QR code so you can get a feeling of the garment. But I'll come back to that. Sourcing, we built up an organization, both in Asia and Europe, much more focusing and building a partnership with our suppliers together with the purchase size, and we have now a compliance. We have a material team -- material teams, very much also CSR-driven, sustainability-driven where the client wants to see alternative material that is more in line with sustainable and so on. So there we have a team working on that with 100% dedicated person. So this will also be in our collection that we show to our client, and we feel that it's a competitive edge as well for Nilörn. We are -- yes. And to feed all this, this is a lot of information they need to do a good job. So that also puts a demand on our IT. So we also employ people within IT to -- and we're also using external partners here to get out the information that we need. And I must say I'm really proud of the employees we have in the group. They've done a fantastic job. And I think we are really on to it and building something here for the future. And our vision is to be the best labeling branding company worldwide, not necessarily the biggest, but the best. We talked about the structure we're doing in all these areas, and that means that once -- and that also affected new offices we were looking here to open up in Vietnam. We will have more sales offices in Europe where we -- just, yes, Spain a few years ago and so on, U.S. And the goal with all these investments, what we are doing here, I will not go through this in details, but that is to come out as an innovative company to be transparent, creative and people. Our clients should feel that we are reliable and a modern company. And for that, we need to be fast as well. So that is our goal and to continue the nice growth we have had. And so we need to invest to be able to cope with the future. And that -- yes, we are investing. We have done that, and we will just -- the Q3 was a little bit weaker, but we will continue to build up the trust among the client. Sustainable journey is an extremely important part of our business. We have that in our sustainability report. We explained that quite well. So I think that is worth reading for everyone. This is in the label that we are here, we are by tradition, very, very strong and that where we have our home, you can say. We started and built up and we have seen growth in the packaging. We will continue to do so. We will also start to work harder in the heat transfer, an area that we are not that strong in, but we see big opportunities. We've been working with RFID. We are running that. And Martin here is running with his team, a good job. We are growing in this area, and we're taking a bigger part of the group's turnover in this. And RFID is more logistic part for our customers to know they can do the stock take and they know exactly how much garment they have on different items and so on, which is good for the retailers, but also for the e-commerce business. They know for sure [Technical Difficulty]... Sorry, I dropped out. I realized here. Sorry for that. I don't know what happened. Not exactly sure where I dropped that, but I think it was on this slide. And yes, what I said here was that the revenue growth should long term be exceeding 7%, and that is organic growth. And on top of that, we can add on with the acquisition we made...

You need to reshare the screen. The screen is not shared.

Thank you, Tobias. Thank you. I hope you can see it again. Yes. That was on the slide it was dropped out, Tobias, wasn't it?

Maybe the previous one, go back one and see.

It was this...

No. This one was also not with -- I think people didn't see this.