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

Good morning, everybody. Thank you for joining our interim report. It is an intensive reporting day. So I'm really glad that you are all listening to us and Nilörn. To hear today is Maria Fogelström, the CFO of Nilörngruppen; and myself, Krister Magnusson, the CEO. And for your information, we will record this presentation so we can present that later on, on our website for them who has not the possibility to listen at this moment. So I will start by sharing my presentation. I will start off with the financial performance for 2025. The order income was quite strong, 15% up. And looking into the numbers and the different segments and so on, this is not specific clients or not a specific segment. So it's quite general all over the client side, where we see this increase of order income. And if you look at the sales, it is up 7%. And actually, this quarter was not any major currency effect in the sales numbers. I will come back later on to the currency effect because, as you know, Nilörn is a super international company relative to our size. So the currency will have an impact, especially on the balance sheet, and it will most likely also come later on in the year. But that's the way it's calculated. It's calculated average currency effect in the profit and loss accounts. So the impact in the first quarter was relatively low. And on the top line, there was actually no impact at all. Looking at the sales increase, it was also still a bounce back on the outdoor segment. You remember we had in 2023, very weak outdoor segment that bounced back in 2024. But in Q1 here, we still see an increase -- a big increase in the outdoor segment specifically. Operating profit of SEK 23 million, slightly more than last year and a net cash position of SEK 40 million. So a strong cash position for Nilörn, also taking into consideration the investment that we will do here in Bangladesh, especially. I will also come back to that later on in the presentation. Strong gross margin that is reflected by a lower purchasing price. Our sourcing organization has done a good job, but also that the packaging is relatively lower versus Q1 last year and packaging is a lower margin product that we have. Other thing I want to point out, if you take other operating revenue and other operating costs, these 2 has -- if you take them together, that's SEK 3 million lower, and this SEK 3 million lower is related to the currency effect. So it has an impact -- the currency has an impact on this level here. And it was that -- last year, we had a small currency gain and this year, we have a currency loss. So the difference between the 2 quarters related to the currency is SEK 3 million. And also the currency has an effect in the net financial items here. The increase here is also related to currency, the SEK 1 million difference between these 2 here is related to currency. And as I mentioned, Nilörn is a very international company. We are in 20 countries. We are 667 employees, whereas only 50 are in Sweden. And what we invoice in Swedish krona is almost nothing compared to what we do in other currencies. So it has an impact, especially now when the Swedish krona is getting stronger. Tax 24%, and we think that will remain that during the rest of the year. The taxes vary depending on what country we make the revenue in, and we are in all different countries from low tax to high tax countries. So depending on where we make the profit, the tax rate will vary over the year -- between the years. I may also mention that the profit and loss when we calculated the currency or converted that into Swedish krona that is made on an average Swedish krona rate during the first quarter. But the balance sheet, it is as per end balance sheet date at the end of the last -- end of the date last month. So it's end of March. So the currency has a big impact on the balance sheet that can be seen if you look into the equity where the translation of the difference during the period has been SEK 22 million, almost SEK 23 million, affecting only the equity. That comes from when we convert equity we have around in the group in the different countries or from Bangladesh, in Uzbekistan, Hong Kong, et cetera. So that has a negative impact. Last year, it had a positive impact in the equity of SEK 10 million. Split per product group. The main difference here we can see is in packaging now. We had decreased from 23% to 19%, and that is mainly in the luxury segment. We have some clients in the luxury segment that has been slow in the quarter, and that has especially been on the packaging side. It's not that we have lost them. It's not that they are doing something else. They will come back. It's just that they have too much of stock at the moment. So they're working on that. So expect that to come back later on. Packaging is also an area where we have -- where we spend the resources. We have invested, as I mentioned last time, in a technical packaging manager for the group. And we see already his contribution to the group and our knowledge in the group for new clients, but also especially for existing clients where we have labeling and so on, where we can add on more sales now, adding on the other product group like packaging. So this -- getting this knowledge into the group is super important. It is an investment in the beginning, but I'm sure it will pay off. Quarterly profit and loss. We had an operating margin of 8.9%. The goal is on the group level to have this between 10% to 12%. If you adjust for the SEK 3 million in currency effect, you're up to 10% here. You can also see here like in year 2022 and 2021, we had an operating margin of 16%, 17%. That is -- but if you look into historical numbers, this operating margin has been between 10% to 12%, and that is also our long-term goal to be there. Look at the quarter comparison in the sales numbers here. Q1 here is the best quarter 1 ever we have done sales-wise. So we -- and there was a relatively strong order income in Q1. So we will see what happens and the profit here quarter-wise. And as I mentioned, as you saw earlier, that these 2 in 2021 and 2022 was extremely strong operating margins like 17%, 16%, which was extraordinary, I would say. And the goal is to come back to the 10%, 12%. Balance sheet, strong balance sheet, and that is also to make further steps that the investments we are doing now, both in Bangladesh. Just to mention a few words about Bangladesh. We are still in the negotiation of the land. We expect that to close that within the coming weeks and from there on, really start the project. But -- and the goal is to be ready within Q3, Q4 2026 with the factory in Bangladesh, new factory. And from there on, we will have 2 factories in Bangladesh. One is the existing one, which we will keep, which is -- and that is in 2 different areas. That's why we want to keep 2 factories. One is inside an economical zone and one is outside, which gives us more flexibility. Other investments we are doing is in Portugal, where we will invest in more looms, and we will set up a lean production, change the existing one to lean production. We have employed a new production manager in Portugal, which has started off really well. Other investments we have done is in Vietnam. The production now is up and running. So it's more to come there. And we will also invest now in a small setup. It's not big money, but we will start also in Sri Lanka. And that why we're doing this investment is because we are following our clients around in the world. It's not us who decides if we should go into a country or not. It's our clients. We follow our clients and our clients, they are the brand owners. So if they decided -- and we have a big demand, for example, for Sri Lanka, then we want to be there to serve our clients to be close to them. So it's -- we follow clients around the world. And our own production is approximately 20% of our total sales, which gives us a flexibility as we are not stuck with big productions around in different countries. Here, I will not go through all these in detail, but I want to mention this average number of employees. We are now up to 667 employees, which you can see we increased quite a lot. And the number of employees where we increased in -- it has been in Vietnam, where we set up a completely new production facility. It has been in Bangladesh, where we increased a lot. It's been in Portugal. Portugal, we are now 94 employees. And a few years ago, we were only 45. So we almost doubled the size in Portugal, which is -- it's great. We see more and more demand for European production following also, as I mentioned, our clients to be close to their production. And they have -- they're moving their production. China is still the biggest production country, and I think it will remain, but it's enough that if just a few percentage moves out of China, then it has a big impact on the other countries. Also, India is a country where we have employed and we also set up an IT support for Nilörn here in India. The advantage with that is that, of course, good knowledge about IT, but also time-wise, is they are in a different time zone versus we are here in Sweden. Otherwise, the IT Central is here in Sweden. And this, as you all know, is very -- with all these customers duties going on with the U.S. and I got used to get the questions and our sales into U.S., directly sales into U.S. is very, very limited. It's not much. We're having some sales to U.S. clients, but those clients we don't supply in U.S. We supply them where they produce the garment, which can be like in China, Bangladesh, et cetera. And then we, of course, we have what we call indirect effect. It is if we have European clients selling into U.S. And that it's for us almost impossible to predict how much that would be. But I would guess that it's not big, not huge at least. And then what I mentioned here also with the indirect effect, which I think could be some effect coming on. We don't see that effect at the moment, as you can see in the order income, but it might come. And that is more on the economical environment side. If we see a downturn on the consumer side in Europe and so on, for example, if U.S. buy less German cars and the German consumer feels that and start to buy less garment in Germany, that, of course, will have an impact on us as it will have for the whole economy. But the direct effect is very limited for Nilörn, which is good. But then, of course, indirect effect might have some impact. And that might come later on. We will see. You know that probably better than I do what happens here in the financial environment coming months. Outdoor segment, I mentioned in the Q1, we still see an improvement in the outdoor segment if you compare Q1 with Q1 last year. Outdoor luxury segment has been slow in the quarter, especially affecting the packaging, not any major things. It's just too much of stock that they are reducing. So we expect that to come back again. Mentioned last quarter, proposed dividend of SEK 1.5 per share remains. So that is what the Board will propose to the Annual Shareholders' Meeting. Bangladesh factory, we are very, very close now to sign the deal for land. It's not a purchase of land. It's a long-term 50 years lease of the land, which is paid upfront and then we will build a factory on that land. Portugal factory, I mentioned, we now will change the structure in Portugal. We will invest in more looms. We have a new production manager, which we feel very comfortable with. Vietnam, we have done investment. It's now up and running. Before all the clients and so on is fully up and running, it will take some time and also for them to trim in to be really efficient. Sri Lanka, it's on its way. It will be a very small operation, no own production. It will just be a logistics center where we will buy locally and sell locally with a warehouse. Nilörn Connect, we talked about that in the past, that has a digital solution, I will present that again here today, so you have an understanding that has been for us for Nilörn, a door opener for our salespeople when they are visiting clients and so on, that is a door opener for them. In the past, we used to sell labels only now and with design that has been and still is our strength is design, but now we see more and more interest of this Nilörn Connect and the digital product passport. Packaging technical manager and an area with packaging where we see big potential in and that will come. And we will not focusing on all different kind of packaging. Here, I think we can be really good in also matching the outdoor segment of all the underwear packaging and so on. So here, I think we can do really well in here. And with the strong balance sheet we have and with the investments we are doing, I think we are really well equipped for the future. Just a few words about the Nilörn Connect. The Nilörn Connect is the data carrier where we provide information to the end consumer and back to the brand owners. In the garment, if you have a QR code or an NFC ship or an RFID, but nowadays, RFID is mainly for logistics for the brand owners to know and handling the logistics side, and they will know exactly how much of different garments they have in stock. So that is more logistic. And this is more to the consumers where they can communicate with the end consumers, with the owner of the jacket, et cetera and where of the QR code is the most common one. And the chip is slightly more expensive. So QR code is the most common. And everyone who owns a jacket with the QR code and know how to scan that. And the chip is not that well known. So people sometimes don't know how to handle that. So that's why I think the QR code is the one to be. And why Nilörn Connect? There are 3 things. The first and the what has been the most recent to discuss with the client is the compliance side. This is what the clients now are stressed over. It is the digital product passport that is coming here in Europe that we need to provide information, legislations about where the garment contents and how -- what it's produced, et cetera. We also see an increasing demand of repair, resell and recycle of the garment, where the QR code will be really good to provide information how to repair, how to -- you can use that for reselling and recycle the garment, what it contains of. And the third point is consumer engagement. They can drive sales, they can communicate with the owner of the garment through this QR code. They can change. So when you scan the QR code, they can change so they can provide information directly to the end consumers and interact with them. And creative loyalty and acquire new customers. It can also be that we are looking into that they can talk to the consumers or the garment can talk to you, the owner of the jacket through AI where you can see where you need to wash it and so on, how to wash if you got some spot on the jacket, then you can talk to them through this. Financial target. The goal is to grow by more than 7%, have an operating margin of at least 10% and a healthy balance sheet. So this is our goal, and this is what we achieved in the coming years. And the goal is that all our customers are satisfied with our creativity, product and service, and we do everything we can here to make Nilörn strong and interesting investments for the future. That was my presentation. I will just stop sharing here. And I will ask Maria if we have any questions.

Yes, we do. We are running out of time, but I think we have the time for 2 questions that are quite interesting. So the first one is, could you please elaborate on how you think about investments in OpEx going forward?

Yes. And it is mainly Bangladesh that is the biggest one. We said earlier that it will be like USD 11 million investments, where I would say Bangladesh is USD 10 million of them. Portugal is slightly more, yes, USD 1.5 million maybe. That is to come here. What I said now, we're doing now negotiating of the land. My expectation that this negotiation will be ready and we here in Q2 will pay up for the land, which is around USD 1 million. And then the rest will be -- then there will take some time to doing the design on the factory and so on and then the investment will be proportion over the next 1.5 years, I would say. So it is to come, but not over the time. And the investment is split in Bangladesh, the big investment split 50%, I would say, is the factory and land and 50% is in production facilities, machineries and so on. And those machineries, we will not invest in one shot. We will invest them once we get the demand for that. And also you got the question and what margin we are calculating on an investment like in Bangladesh. We have not disclosed that. But the reason for going into Bangladesh even more now is that Bangladesh is one of the most profitable companies we have in the group. And we see still demand -- big demand there and that we could fulfill. And then I'm not so afraid of the investment in Bangladesh as we -- there are clients that we can take on board for big retailers that we can fill a factory. And there's a demand for -- this factory will be a state-of-the-art factory. So there is demand in Bangladesh to have good factories with a good compliance and so on.

Thank you. And we also have one question, and I think it's more about understanding the business. Could you elaborate on the tariffs? It is related to U.S. Are your products being shipped to the U.S. through your customers?

Yes. That was what I tried to explain earlier that we almost have no sales at all directly to U.S. We don't invoice any clients in U.S. directly. We have clients in U.S., not many, but the clients we have, we deliver to their vendors, which can be like in China, India, Bangladesh, et cetera. And then they import their garment into U.S. And we also have European clients that are selling into U.S. for sure, but we don't know how much. So we don't have a direct impact. It's more indirect impact. And what we have seen so far, we have not seen an effect of that, not yet at least. But I think it will be a slowdown in the economy in Europe that will have a bigger impact on us due to the tariffs, but not -- so it's more -- the risk on the downside is more on an indirect effect than a direct effect, I would say.

Thank you.

Very good. Thank you very much, everyone, for listening and don't hesitate to come back if any questions at all. Thank you very much. Thank you.

Thank you.