Polygiene Group AB (POLYG) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation of Polygiene Group's first quarter. I am Ulrika Bjork, and I am the CEO of the group.

And I'm Niklas Blomstedt, and I am the CFO.

Yes. So I would like to summarize the quarter. I'm very happy with the results. Coming out from 2024 with a growth of almost 40%. We were not expecting that we can continue to grow on these high numbers. So with 18% growth, I'm really confident that this year will continue to be successful as 2024. So we saw continuous growth compared to last year. And as I said, that was really, really good to see that we can continue to grow. We know that the first quarter is always a smaller quarter because of the Chinese New Year. And the period was impacted by onetime expenses that Niklas will explain later on. We also introduced new technologies, both in Polygiene and in Addmaster. And we also had some discussions around the import tariffs and the volatile currency markets that I will just talk a little bit about in the end. And then the Board have proposed to pay out a dividend to the shareholders for the first time in Polygiene's history. And the proposed policy is that we will pay back 40% of the result after tax, and that resulted in SEK 0.05 per share for 2024. However, the Board also decided to propose an additional onetime dividend payout of SEK 0.22, which amounts to SEK 0.27 per share, and this will be decided on the AGM in 2 weeks. And then we've been out on the first investor road trip in Europe. It was the first part of two. And we think that this year will be a year where we will continue to approach the investors. We need to attract more shareholders, and we have planned another leg in -- later in August this year.

If we then take a look on the Q1 financials. Pretty high level. As Ulrika said, we had a growth of 18% from SEK 35.1 million to SEK 41.5 million. We have a gross margin of 67.4% versus 68.7%. We have operating cost of SEK 22.4 million versus SEK 18.1 million. And I think it's important to note that Q1 last year was really low. If you would take an average quarterly cost for the full year, that will be SEK 21.3 million. EBITDA was SEK 3.1 million versus SEK 4.8 million. In this year, we have an FX impact of minus SEK 1.4 million. EBIT was SEK 1.6 million versus SEK 3.3 million. The cash flow was negative with minus SEK 4.1 million versus a positive of SEK 2.5 million in last quarter -- last year first quarter. In this year, we had a bonus payout of SEK 3 million. And then also we had some sales end of the quarter due to the early Chinese New Year with [indiscernible] and then we have shorter payment terms. So in a normal case, those would have fallen into Q1 and not in Q4. Now Q4 was extremely strong, but it should have been -- in normal cases, that would have fallen into Q1. And at the end of the quarter, we had a cash of SEK 61.9 million versus SEK 48.9 million. If we then look a little bit more in detail on the sales side. As we said, we are up 18%. And in that increase, we see a positive FX impact of 2%. If you look at the shares of the sales, Polygiene increased with almost 42%, while Addmaster was flat. And then, of course, that will have an effect that the Polygiene share of the total increased from then 45% to 54%. This will also reflect in the sales per region. As Addmaster is really strong and have a big part of their sales are in EMEA, the increase in EMEA was fairly small, even if we saw a big increase in EMEA for Polygiene. And then on the same time, if you look at Americas and APAC, we saw a bigger increase there because that is very much related to the sales of Polygiene products. And then some details. As we said, gross margin of 67.4% versus 68.7% is driven by sales mix and FX impact versus last year. As we said, the cost has gone up if you compare quarters-to-quarters, it's not so much if you compare the average. But if you look at this year versus last year, we have cost for the company meeting that in '24 was the second half. This year is going to be the first half. We have much more customer testing and customer product development. We had some legal costs for setting up agreements. And as Ulrika said, we have spent quite a lot and invested a lot in the IR activities. And versus Q1 last year, we have 5 more people. EBITDA, as we said, SEK 3.1 million versus SEK 4.8 million, but this year, we have a negative FX impact of SEK 1.4 million. EBIT of SEK 1.6 million versus SEK 3.3 million. And the cash flow, the negative part was then explained by the bonus and the payments. And we had a strong cash of SEK 61.9 million. And as we said earlier in the presentation, we are proposing a dividend of SEK 0.27 or SEK 9.8 million that's proposed for the annual meeting on 8th of May and the payments will be done in 2 installments, one in May and one in Q3.

Thank you, Niklas. And now we just go into more details what happened in Polygiene and what happened in Addmaster during the quarter. Starting with Polygiene, we had a great momentum in 2024, and I would say it continues into 2025. As Niklas said, strong growth, 42% in this area. And as I also mentioned, the Q1 is historically a lower quarter due to the Chinese New Year, where we lose around 3 weeks of production. And I checked back 10 years in the history to see how much the Q1 normal is of the full year and around 21% to 22% is normally the share of the Q1 in the full year. Polygiene share of sales is now 54%, while it was last year around 50-50. But as Polygiene had a great momentum now, it has increased the total share of the sales. And the sales are mainly driven from EMEA and had a really strong growth this quarter, but also APAC showed a growth, and APAC is the biggest region in the textile side. If you go back 2 years, it's always been EMEA, but APAC driven by China activities has been in the lead now for being the biggest region in the textile side. The growth was mainly driven by existing customers, but we also signed up some new brand partners. We saw a new customer in Turkey with a quite big order. And we've also seen some new brands onboarded in Europe this period. And we also saw a lot of successful brand campaigns during this period. For instance, we have this CUBE, which is a German market leader in the bike industry, who launched this protection gear for mountain biking, and that launch was made together with CUBE and had a really, really successful reach. And this is the strength of working with Polygiene that we can support in these sell-through activities. We also are onboarding a new sales agent in China. We have seen the great success what the agents have been doing in U.S. the last 6 months. So now we actually onboarded a sales agent from the same group as the one we have in U.S., and they will start here in Q2. And then, of course, the biggest news from the Polygiene side was the successful launch of the highly demanded technology StayCool. And I will just explain a little bit what this technology is and what we see potentially what this could lead to in the business. So StayCool is the moisture activated cooling technology. It can lower the temperature up to 3 degrees on a fabric, which give you a cooling sensation while wearing these garments. We made a global launch in March, April. We had introduction at big trade shows in Munich and in Portland, U.S. and in Shanghai in China. And there have been a massive interest from both new and existing customers. And this is a technology that exists already out there. Many of our brand partners already use this. So it's a very easy switch from another supplier to Polygiene, since we're already working with these customers on the StayFresh. And good test results. We are working on the certificates. They got approval, the bluesign, who takes all these necessary certificates. It's in the process. And this is a nonregulated technology, which means that we don't have to follow any special regulations for these kind of technologies, which make it much, much faster and also easy for the brand partner to accept. And we have products shipped out to our distributors and trials are already starting as we speak. And we expect that this could generate sales already in 2025, depending on which customers and which collections they choose. So this is really exciting. We believe that this could be a very, very big part of our sales moving forward in the coming years. And I also would just give a short update on ShedGuard. I have promised before that we will have results ready by now, but it is delayed. So I don't have any results from Phase II today. It is expected any day. So as soon as we know more, we will let you know. But the ShedGuard is an innovation project that we started in 2024, and it's a technology that can reduce microfiber shedding and to protect clothes from pilling, which can prolong the lifetime. So this fits perfectly with the Polygiene portfolio. And there are some small updates on the project. We had the fabrics treated from Phase I. We have sent it back to the partners who are in trial with us, and they have approved the hand fee, which is a very good hurdle to overcome because we were a little bit afraid that the hand fee could be a deal breaker for some brands, but they have actually accepted that the hand fee is not changing that much. And as I said, we're waiting for the Phase II results. Any day, we will have them ready. And we also need to find out what is the good results because we know we had really good results in previous trials, but we need to have those results consistently good. And that is the challenge here, why do we get so different results. And we also need to find out what the brands believe is a good result. Is 15% shedding, less shedding okay to launch? Or do they want to have 30%. So this is something we find out with the partners we are working on this project with. And good news is that we have new brands coming to us and say, we would like to trial and we say it's not ready yet, but they say it doesn't matter. We would like to trial. We know it's innovation project. We know it could fail, but we would love to try and this is customers in both Europe and in Japan. And we actually think it's a good idea to let them try because if they are convinced, it's much faster than go through the mills and the distributors. So we are going to go into new trials with specific brands that are not in the initial Phase I and II. And then we're going to have Manchester of University visiting us in Malmo. So the project is absolutely still alive. And I don't expect any sales in 2025, but I'm sure we will get something ready to present to you latest in the Q2 report. Then moving into Addmaster for the first quarter. As Niklas said before, it's flat versus last year, and that could be alarming, but it's not. This is according to planned sales. And it's because some of the call-off orders we have, we know that they will hit later this year instead of the Q1 like they did last year. So we are still confident that Addmaster will continue to grow in 2025. We saw a slow start, but a very strong recovery in March. So March was actually the same amount of sales that we had both in January and February together. We also know that there is a challenge in the construction sector, which is one of the biggest segment in Addmaster. We have a lot of flooring companies, and they have been struggling a little bit with the repeating orders. So we are following that very closely. EMEA is still largest region, 67%. And last year, we had 70%. So it's still the biggest region, but we are continuous to try to develop business in China and in the U.S. even more in the future because we believe there is a big potential in this market. Biomaster U.S., the distributor we acquired a couple of years ago, they have continued to show strong growth. Even if the numbers are still small, we saw almost like a double sales in the Q1 this year. So it is positive, and we hope that it will continue to grow. Addmaster also expand the product portfolio with 2 new technologies. So one is a medical grade for PVC, which we didn't have before, and this could open new doors in this health care sector. And the other one is enhanced and better performance of the Verimaster technology, where we now can apply new services that we couldn't do before. So this is also very positive. And the new website that we launched last year is continue to generate leads. We also see a lot of other interest coming in. So to handle this in an efficient way, we have onboarded a new internal sales support in the office in [indiscernible]. And this is because we want to free the time from the sales guys to be out there visiting customers to go to trade shows, to generate sales for us. So we think this is a good setup to free time because we know when we visit the customers and working closely with them, we know that business will come. A good example, we were in Portugal visiting the distributor there and key customers, and they brought orders with them back home. So it is key to be close to them. And this is why we decided to take on this internal sales support role. And then, of course, we have the 25-year celebration of Addmaster this year. We had a ceremony in the office where the founder Paul Morris and the [indiscernible] from the Royal family and the staff and the Board and other invited people were there, and it was a very nice and yes, very positive event. And then last, I would just like to comment on the import tariffs and how this could affect or if there is a risk that this could affect the Polygiene Group. And as you know, there is still no definitive decision made. It's still very uncertain how this is going to end. So what we could say today is that there is no direct impact on the proposed tariff today because Polygiene Group is not exporting to U.S. It's very limited. It's less than 5%. This means that there are not a lot of production in U.S., even if we have a lot of U.S. customers, they are producing overseas, mainly in Asia, China. So directly, there is no impact on our business. But of course, indirectly, there could be a risk if our customers are decreasing their production volumes. And as an ingredient brand, we can't survive without our partners' products. So if they decrease their production volumes that they treat today, of course, our volumes will go down if that happens. However, we have a global distribution setup and that could mitigate the risk because we can easily move with the customer. If they are moving production to a country with lower tariffs, we move with them. We have a global setup. We have availability all over the world. So that is the good thing with Polygiene Group's business setup that we have this flexibility. So our strategy for now is to follow the development very closely and also, of course, stay in very, very tight dialogue with our customers to know what their next move is. And what we experienced so far by talking to a lot of customers, there are no changes. There's no impact in the short term. There is nobody who have canceled orders or alert to us that they will decrease their volume for the coming period. So we will update you when we know more. But for now, we are quite confident at this stage that this will not impact 2025 so much. I still believe that Polygiene Group will continue to grow this year and to show the scalability that we have in the business model. And just a short slide for the new investors, I know is listening now. Very short, we have main owners that are strong and long term. As I said, the model is scalable. We know that the Q1 now, we have some extra costs that we have planned for. And if we take the full year, I believe we can keep the level of cost base that we had last year and still grow the sales quite a lot. Asset light, we don't have any production in-house. We are not fixed to special countries or products. We are very flexible how we operate, and this is a very good benefit these days. We have high margins, and that enables that we have a profitable business. We have positive cash flow. And even if Q1 wasn't a positive cash flow, for the full year, we expect positive cash flow as last year. And this, of course, limits the financial risk. It limits that we have to raise money. It gives us a safety to operate this business in a good way and a healthy way. We still don't have any debts. We have a very strong financial position. The balance sheet is looking very excellent. And as Niklas said before, we still have good strong cash. And that is also one reason why the Board decided to start to pay out dividends, and that is the first time in Polygiene's history that, that happens. I think that was all. Thank you. So do we have any questions?

Let's see if there's been any questions as such raised during the presentation.

No, we did a very full presentation.

No questions. We had the one a little bit question about ShedGuard before the meeting.

And I mentioned about that. I also -- people ask about StayFresh Bio. It's still there. It's ready to go. We have customers interested in this. And we're also waiting for a permission to be able to treat fabrics in Europe, and that will take another 6 months, but that's ongoing. Yes. Also in Polygiene, I mentioned in the report that we also launched a wash-in technology together with Storm. So Polygiene is delivering chemistry to Storm Aftercare, who are selling a wash-in to end consumers that you can treat with OdorCrunch in your washing machine at home. And this is a great complement, but it's not under Polygiene's business. We are just delivering the chemistry. But we have a very good partnership with Storm Aftercare, which are doing a really, really good job. Okay. And we're done and see you in July next time. Thank you.

Thank you.

Bye.