Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Embellence Group AB (OSTO:EMBELL, Financial) reported a strong second quarter with a sales growth of 13%, of which 12% was organic growth.
- The EBITDA margin improved significantly from 8.9% to 13%, indicating better profitability.
- The company held its first Capital Markets Day and presented an updated brand-focused strategy and long-term financial targets.
- The manufacturing segment recorded a sharp increase in net external sales, more than doubling the revenue.
- Artscape continued its strong development with 19% growth, taking market share in a growing US market.
Negative Points
- Cole & Son is experiencing sluggish consumer demand in its home market, the UK, which is also their biggest market.
- The retail channel continues to see soft demand across all brands.
- Pappelina's performance was unsatisfactory, although new management and initiatives are in place to improve the situation.
- The inventory increased by SEK12 million, partly offsetting the positive development in working capital.
- The UK market remains challenging with no immediate signs of recovery, impacting overall performance.
Q & A Highlights
Q: Can you provide more details on the sales growth and the factors contributing to it?
A: Olle Svensk, CEO: We delivered a strong second quarter with sales growth of over 13%, of which 12% was organic growth. This growth was driven by solid performance in our strategic growth channels, hospitality and direct-to-consumer, which helped mitigate softer demand in the retail channel. Additionally, our brands like Boråstapeter and Artscape stood out with solid growth, while Cole & Son faced sluggish demand in the UK.
Q: What were the key highlights from your first Capital Markets Day?
A: Olle Svensk, CEO: During our first Capital Markets Day on May 21, we presented an updated brand-focused strategy and long-term financial targets. We emphasized our focus on organic growth and set a new target to reach SEK1 billion in sales by 2028. We also updated our segment reporting to focus on brands and manufacturing.
Q: How did the manufacturing segment perform this quarter?
A: Karin Liden, CFO: The manufacturing segment, particularly Boråstapeter, showed strong performance with sales growing from SEK12 million to SEK24 million. This growth was a mix of increased sales from existing customers and new customers acquired during the year.
Q: Can you elaborate on the performance of your key brands?
A: Karin Liden, CFO: Boråstapeter performed well in Sweden and saw growth in exports, especially to the US. Cole & Son managed relatively well despite a sluggish UK market. Wall & Decò remained flat but saw positive development in the hospitality sector. Artscape continued its strong performance with 19% growth, gaining market share in the US.
Q: What are your updated financial targets and how are you progressing towards them?
A: Karin Liden, CFO: Our updated financial target is to reach SEK1 billion in sales by 2028. Currently, we report rolling 12-month net sales of SEK778 million and an EBITDA margin of 13.9%. Our leverage stands at 1.2 times EBITDA.
Q: How did the company's cash flow and working capital perform this quarter?
A: Karin Liden, CFO: Operating cash flow for the second quarter was SEK43 million, a significant improvement from the previous year. This was due to a solid operating result and an improvement in working capital by around SEK20 million. Accounts receivable returned to normal levels after high figures in the first quarter, although inventory increased by SEK12 million due to seasonal stocking before the holiday period.
Q: What were some of the key marketing activities during the quarter?
A: Olle Svensk, CEO: We participated in major international events like Salone del Mobile and HD Expo. We also held targeted brand events, such as Boråstapeter's launch events for Orangeri and Cole & Son's Salon at our flagship gallery in London. Pappelina held PR events in Paris and Stockholm in preparation for its 25th anniversary.
Q: How is the UK market performing and what are your expectations?
A: Olle Svensk, CEO: The UK market remains challenging with sluggish consumer demand, particularly affecting Cole & Son. We believe it will take longer for the UK market to recover compared to other regions.
Q: What are the main challenges and opportunities you see in the current market environment?
A: Olle Svensk, CEO: The market remains soft, but we are gaining market share and performing better than our peers. Our strategic growth channels, hospitality and direct-to-consumer, are expected to outperform the total market. However, the UK market remains a challenge, and we are working on initiatives to improve performance in underperforming areas like Pappelina.
Q: What are your expectations for the rest of the year?
A: Olle Svensk, CEO: We expect the market to remain challenging but with signs of recovery. We will continue to focus on our strategic growth channels and brand-focused strategy to drive organic growth. We aim to maintain our strong sales growth and improve our EBITDA margin.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
