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

Good morning, everybody, and welcome to the Nilorn Q2 -- Q4 Presentation. I will share my screen and I'm really happy to have so many on board, especially now as it is really intense reporting period. So a lot of reports released this week. I will go through the numbers as usual and then also little bit an update what's going on within Nilorn and the group and the market and so on. Just looking at the Q4 and the order income was down 7%, but as most of you hopefully remember we had a packaging order that came in in Q3 this year and Q4 last year. So if you adjust for that packaging order, it was actually an increase of 1% for the order income. Sales was up to 14% to SEK 232 million and adjusted for currency effect, it was almost the same, up 13%. Operating profit for the quarter is SEK 19.5 million versus SEK 9.2 million last year. And of course, volume matters here and we'll also see that later on in other slides that we will present. And just looking in the quarter, December was strong. It was a strong month and we will know that also Chinese New Year has an impact. Chinese New Year is early this year, 2025 was already in end of January, beginning of February. But what impact that has and how much it's on it's difficult to predict, but I think that might have some impact on the December numbers. Looking at the accumulating numbers, we had this cyberattack in Q3 that we managed to handle quite well. And then looking at the currency effect, that we have a minor currency effect that is quite well balanced even, because we are in many different countries, we have like in Turkey, we've had a very, very sweet Turkish Lira. And we also in countries where we have the Hong Kong dollars, where it's connected to U.S. dollars, which just has been strong and also euros. So even though we are in many different countries, most outside Sweden, the currency effect totally was very minor. Operating profit of SEK 82.9 million in the quarter, which is the SEK 8.8 million -- sorry, so 8.4% of the sales, operating margin is 8.4%. And outdoor segment has come back as predicted. In the beginning of year as you remember, that was very strong during COVID period. And then we had a week period to '23 and we predicted that will come back in '24 which has set down this especially in the last year, now is back as normal I would say. Luxury segment still slow and we were [ spoiled ] after the COVID and during COVID there with a very, very strong luxury segment and that is also a little bit slower now. So we will see what happens with that. Just looking into the market, what's going on and as you also can read in the newspapers, quite many brands goes into reconstruction or into bankruptcies. Nilorn has been lucky here. We have not had any major clients going into bankruptcies. So we are lucky in that sense. But there is also a consolidation going on in the market where companies big -- bigger play buys the niche players. So a lot of things going on in the market currently. And yes, the profit and loss, will not go through this in detail, but as you can see, volume matters. So we have here an -- tax rate for the quarter of 27.9% which is higher than the average for the year of 24.5%. The reason for the higher tax rate in the quarter is due to payment of dividend from Bangladesh, where we need to pay out the tax on the dividend that we receive. Also volume matters in terms of personnel cost and other external costs. So the higher volume, the more dilution we can have on that. So that is an important factor. And split per product group, you can see here that RIS product has gone up from 25% to 29%. That is in also in the RIS product, we also have this Nilorn:CONNECT. I will also present that in more in detail later on here in the presentation. Labeling percentage of the total sales is slightly lower and the other remains quite stable. Packaging is something that we will focus on even further, so I will come back on that. Here the gross margin, it's also depending on what kind of product group we're selling and to clients. It's not obvious that big clients has lower margin. Small clients has bigger margin. It's also depending very much on the product group what we are selling. Packaging has normally lower margin versus labels, but also in packaging and there's also bigger volumes. So the gross money is very much depending on the product group, but also that our sourcing team, since 2020 during COVID, we started to build up a central sourcing organization and that has also had impact on the gross margin, because they're doing a good job here negotiating, concentrating on suppliers and so on. So that is also an impact on the strong gross margin that we have seen here. Operating margin, we were spoiled here in the COVID. Historically, for you, remember the Nilorn, we used to be around 10% to 12% during COVID. We were up here 16%, 17% extremely high. And then we had slightly low in '23 and now we work in us back again. So the goal is to be above the 10% even though we're not that yet. And as I mentioned earlier, volume matters here and the Nilorn you see today is slightly different compared to the Nilorn in the past. And now also we went into other segments, like much more technical and support and compliance and so on to the client. Quarter comparison that is the same as the numbers. But here is more, a graph showing that because Q4 was strong in sales and that is also matter on the operating profit as you can see here, so volume matters. Balance sheet. Strong balance sheet often -- we have an equity of SEK 350 million and equity rate of 58.6% and the net cash position now adjusted for the IFRS 16 of SEK 60 million. We have cash in Nilorn Group and in countries like India and Pakistan, Bangladesh and that is not so easy to take back to Europe on a daily basis that we take back through dividends. So that happens maybe like once a year. So that is more rigid on that sense, giving us not that flexibility as it would be in other European countries. But we take out dividend and we normally do that once a year from those countries. We also going here, building up cash for the coming investment that we will do here in the group. But more about that soon. And the number of employees has increased. We are now 660 employees. The countries where we increased the number of employees is in Asia, mainly, I would say it's Indian. It's in Pakistan. It's in Vietnam, where we built up a new office, new production, where we now in Vietnam, we're around 20 employees and we continue to increase in Bangladesh, where we now also set up a new factory. Some comments here. Strong Q4, as you seen here. Also predicted from the strong Q -- order income we had in Q3 this has been affected by Chinese New Year or not? We are not sure. We will see that here what's happening in Q1. With operating margin of 8.4% in the quarter and 8.8% accumulated or the accumulated numbers is 9.3% if we adjust for the SEK 4.4 million in cost we had for the cyberattack. And the goal, as I mentioned, is between 10% to 12%. The question about the cyberattack, I would say that we are fully back now and no effect at all, I would say and we strengthened our security a lot since then. So in that sense, it was a tough period for Nilorn, but we come out even stronger from that. Proposed dividend by the Board to the share -- annual share meeting is SEK 1.50. And the total amount is SEK 17.1 million and that is 29% of the net profit. And for you who remember, the goal is to have 60% to 90% of the net profit to pay out the dividend, this time is slightly less. That is also to continue to have a strong balance sheet. At the same time, we will build the factory, both in Bangladesh and also in Portugal. Outdoor segment I mentioned. Luxury segment I mentioned about. We can see good development in these countries, which is good because they're relatively small, Spain, Switzerland and U.S. from the Nilorn perspective. U.K. is a big country for us, but it's really good to see that they have been strong and coming back well. And there's more to take care, I would say. And we investing even more now in U.S., employing more people here. Yes, the market and the constellation, I mentioned that already. The Bangladesh factory, we have now in the middle of going through a contract to sign off for land and we will continue to have our old existing factory that will continue to remain. So we're building a brand new factory besides the other one. It is -- will be in a zone called economical zone, which is the duty free zone, which is different to the other factory we have, which is outside -- or inside the country. This will be project and I think it will take approximately 2 years, but until we are up and running with that factory. We established a project team and once the contract is being signed, we will buy the land and from there, there will be a big project. And the goal is, as I said, to be end of '26 to have that up and running with production. Nilorn Portugal, we mentioned earlier that we should build a new factory here. We will not build a new factory. We will rebuild the existing factory to make it more compliant and more nice and we will move out the warehouse to get space in the factory, to have that externally. So I think by this, we reduce the risk to have 2 big [ protocol ] at the same time, but at the same time we can take step further here in Portugal. In Vietnam, we are now up and running. Clients are moving over and that is mainly transitional clients from Hong Kong, China into Vietnam. And here we have a lot of outdoor clients that wants to be in Vietnam. They have a lot of production there. So instead of shipping the labels and the goods from China, Hong Kong to Vietnam, Vietnam supply them internally. We will set up a company also in Sri Lanka that will not be with our production, that will only be sourcing an office and warehouse delivery. So that is not that big, quite small operation. It continues to be a big interest in the Nilorn:CONNECT. That is the main focus for us that we will continue to invest and be strong on that. Production is to strong development in the group. We see it's continued to develop well and that is something that we will -- that's what we are focusing on now, increasing the capacity with new factories. Packaging is an area where we have around 20% of the sales. We will and we think there are much more potential here. So we focus on that and just employed packaging technical manager, starting here on Monday this week, so that will support sales among the client, but also be the link between the sourcing in the group and the sales team. So here I think we -- that person can have a lot to contribute within the group, also making our sales team more secure when they are meeting clients. And yes, we do a lot of investments here, as you can see both in production, but also in Nilorn:CONNECT and also going into packaging and I'm sure that we are well equipped to meet both the challenge and opportunity that comes in the market here. And going just a few slides about Nilorn:CONNECT, we talked about that earlier, but for you, just to remind you what is Nilorn:CONNECT. It's a concept, I would say and more than a product and starting off with a QR code where we can feed this with information for you as the end consumer. When you scan this on your garment, you can get information about the garment, about where it produced and so on. So -- and as you know, there's a lot of legal compliance in Europe, where we -- where the digital product passport is to come and where we -- our client currently has a lot of headache. So through this and through the information carrier, which is the label and through our system, we connect data from different sources and provide to the brand owners. And they can provide it to different information, to the owner of the garment, with like, repay, resell, recycle and engaging customers engagement, drive sales, create loyalty with the client and acquire new customers. So even though it started here with the compliance side, very much compliance behind it, we see that we can build in so much more in this area. Nilorn will not go and build all these different things, but we will be -- the goal is to be in the center, in the network. We have the labels with the Q -- with the information carrier and through that we will have cooperation with the suppliers and of different systems and so on. So we can -- we will be in the center supporting our client with the information. Yes, this is our target is to have a growth with -- exceeding 7% and operating margin exceeding 10% and the net debt should not exceed 2x EBITA. And for 2024 we had a growth of 9% in operating margin of 8%, we didn't reach the operating margin of 8% and the dividend of group, as I mentioned earlier, should be around -- the goal is to be 60% to 90% this year, we increase the dividend to SEK 1.50 from SEK 1, though it's slightly lower than the goal we had set up, but that is due to continue to be a strong, healthy company and still be able to do the investment we are seeing in front of us. Yes, thank you. That was all regarding the presentation. And yes, time is running. But do we have any questions?

Yes. We have received questions from 2 persons. So we can take those. The first one is about the potential in the U.S. and a bit about that?

Yes, yes, good, good. We, just by the history, we started off in Europe and when I was starting in Nilorn 17 years ago, I've been there quite long now, we were very, very Nordic, very weak out in the Europe. We built up now in Europe. So we've been strong and stronger in -- so we covered most countries in Europe and quite stronger there. And 2020 we started off in U.S. We started very quietly. We just have 1 employee there and we have -- there was quite -- took some time until we had the breakthrough, which we have had now and we are profitable. And what we're aiming for now is to build up a small organization there to have a sales assistant and 1 or 2 more salespeople and build from there. But so we will continue not to do a big, big thing, but continue to build and make sure we are profitable and keep on that. But right on the way we have now where we are profitable and build up a local organization. The way we're doing now is that we have 1 salesperson in the U.S. that is served from the sales assistant in Europe and Asia. Now we will build up that in U.S. as well. So coming back to the question regarding potential, I think the potential is definitely there. We can see that our competitors is there, but we will take it step by step.

Yes. Good. Thank you. And then we also got 2 questions about the investments. When do you expect the new Bangladesh factory to be running at normal capacity? That is how long would it take from factory completion to business as usual? And also when can we expect the Portugal upgrade to be finished?

Yes, starting off with the Bangladesh first. Once the factory is running, we will invest. I mean, we feel this factory that will -- this factory will be much bigger in the number of square meters compared to the old one. I would say double size. But we will not fill up this one with machineries complete at start. We will take it step -- gradually as well. Once we see the volume comes, we will invest in machines and so on. And I think the factory will be ready in Q4 -- Q3 next year '26 and from then until the factory is up and running completely I would say another year.

Yes. And for Portugal?

And Portugal, yes. Portugal as well, yes. I would say end of '25, '26, I would say that is finalized. That is my best guess at the moment. We have not started -- not coming so far in the project. We just made a project plan there. And what happens now is that we just employed a new production manager that will be very into this project as well in Portugal. And so it will take some time before this person is up and running. But I [ respect ] -- but the big change is not that big change in Portugal as it is in Bangladesh, of course, as it -- we just change the layout of the factory and we will implement lien in this factory. And that will take some time, but -- and of course, during this period, we will not stop the production, we will continue at the same time we do the restructuring.

Thank you. Yes. And as we are running out of time, I think we unfortunately have to stop there.

Very good. Thank you very much for listening and taking your time and looking forward to meet you again in next Q1. Thank you. Bye.

Thank you.