Embellence Group AB (publ)
STO:EMBELL
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Welcome to the Embellence Group Q3 2024 Report Presentation. [Operator Instructions]
Now I will hand the conference over to the speakers, CEO, Olle Svensk; and CFO, Karin Liden. Please go ahead.
Thank you. Yes, welcome to Embellence's report for Q3 2024. My name is Olle Svensk, and I'm the CEO. And with me today, as usual, is Karin Liden, our CFO.
Well, needless to say, sales-wise, it was a weak quarter with reduced orders from a very cautious retail channel, but what's positive though was that our efforts to improve our margins are continuing to pay off. The gross margins reaching 60.7% in the quarter compared to 57.7% last year and our EBITA margin also improved and reached 15.1%. And our manufacturing unit, Borås Tapetfabrik, continues to win market share, almost double it's [Technical Difficulty].
Moving on to [Technical Difficulty], brand new [Technical Difficulty] reason a cautious approach and [Technical Difficulty] mentioned during our Capital Markets Day in May. We don't expect to see some mid-market growth until 2025. On the positive side though, we saw a strong product mix, and that was key in lifting the group's overall gross margin to 60.7%.
Manufacturing, well, we are winning market share in the Nordic market. The team's work to make our manufacturing offer more efficient. First and foremost, of course, to service our own brands but also external customer, and it is paying off. The progress shows that we are on a good track, but we have a lot of things to do still.
Well, now let's look into some of the exciting stuff that our brands have been up to in the quarter. First of all, Cole & Son. Well, Cole & Son previewed the Japanese inspired collection machinery Yoku in London during FOCUS/24. And we did that in the showroom, the brand has [Technical Difficulty]. This collection was introduced to media, interior designers and trade during an event in London. And FOCUS/24, it's important to know that it's a big happening in London. More than 600 brands showing their products at more than 130 showrooms in [Technical Difficulty] and with a very strong international media presence as well.
Moving on to Boråstapeter. Well, Boråstapeter showcased some of the iconic designed wallpaper, but also fabrics at Formex in Stockholm. This is also an important arena for Nordic interior decoration and with many, many visitors.
Another brand I want to mention here is Pappelina. Pappelina celebrates 25 years this year. And we did this by launching a limited edition of a rug, made 100% of linen. And linen is really an exciting material. It has a very low-carbon footprint compared to cotton or wool or anything else. So it's a very sustainable offer, and we're so happy to have that in our collection now.
Now over to you, Karin.
Thank you, Olle, and back to the numbers. A weak sales quarter with a decline of 7% in net sales. The main reason, as Olle pointed out, was the cautious approach and limited orders from retailers primarily in Europe.
Gross margin, 60.7% is higher than prior year when it was 57.7%. The main contributor was the strong product mix. EBITA is flat SEK 26 million in absolute terms, but it's an improvement in margin to 15.1% compared to 14.4% last year. Main reason for this is the improved gross margin and also lower operating expenses contributed.
The operating cash flow was SEK 17 million. This is an improvement compared to prior year, and the main reason is a better development of working capital compared to last year. We need to remember that accounts receivable due to sales pattern increased significantly [ during ] 2023.
Year-to-date, sales grows 5%. EBITA margin is 14.6% year-to-date compared to 12.5% prior year, which shows that we are on the right direction when it comes to our target level. The operating cash flow is SEK 74 million compared to SEK 28 million during the same period last year.
This slide summarizes the net sales and EBITA development over time in 12 -- sales is now at SEK 765 million. And to the right, we see that the EBITA margin trend is improving during the year.
If we look at the sales details by segment, we see it was a weak quarter for the brands that report 13% down. Boråstapeter experienced a weak retail sales in Nordics, while export continues to develop better. Cole & Son, Wall&decò and Pappelina all experienced soft sales to customers primarily in Europe. Artscape has varying trading pattern and met the tough comparison period due to timing of stock orders last year. Year-to-date growth of Artscape is still 18%.
If we look at the manufacturing, they continue to perform well and had a sales growth of 97%. That is almost double compared to last year. If we look at the full year to net sales growth is 5%. Brands are almost flat compared to last year and manufacturing growth above 80%.
With this, I would like to hand back to Olle for some final words.
All right. Thank you, Karin. Well, to summarize, and from a sales point of view, it is a weak quarter and a weak sales quarter with minus 7%. However, I'm pretty certain -- I'm certain that with our updated strategy that we are on the right track by focusing to increase our share of sales into hospitality and direct to consumer.
We have continued to make our company efficient. And 9 months into this year, we registered a 5% sales growth, stronger gross margin, EBITA margin to 14.6%, a better cash flow and we have reduced our net debt ratio to 1. So we are well underway versus our long-term target to reach SEK 1 billion in 2028, and with an EBITA of at least 15%.
With this being said, we now move over to questions.
[Operator Instructions] The next question comes from Marcela Klang from Handelsbanken.
Maybe starting with the improved gross margin. You mentioned that it is due to strong product mix. Which products are the most positive for your margins? Or was that manufacturing since all brands were down year-over-year this quarter? Can you guide us a little bit more on the product mix and the effect of it?
Well, from a product point of view, it is the pattern that we have seen for several months that we have been better in mixing up and selling more premium products. In the quarter, it's worth to mention that we have less sales of marketing materials that improves as well. But wallpaper from our brands is performing very well. Regarding manufacturing to external customers, this is, of course, a lower gross margin business. And still, even though that is growing, it is pretty strong, I have to say, to grow with 3 percentage points.
And the next question, during your Capital Markets Day and even after that, you mentioned the focus on hospitality and direct-to-consumer sales. Can you give us an update on how these initiatives are going?
Well, the direct-to-consumer sales is performing well and in line with our plans. Hospitality is also growing during this quarter. And we see a good activity level in terms of requests and, what you call it, interest as well. So it is moving, as we're saying and developing as we talked about at the Capital Markets Day. But it's important to remember that the majority, more than 2/3 of our retail -- drive to retail, so that this is what is challenging part during the quarter as we see very low activity level. We also get reports from low footfall in showrooms and retail stores in Sweden, Italy, U.K. and other [Technical Difficulty] countries.
And in this challenging market, you had the minus 7% in sales. How is the market developing? What is your view? Are you decreasing less than the market, maybe take your market share from somewhere in certain countries? Or what is your development compared to competitors...
Our view is that we continue to take market share -- in a very soft market, we continue to take market share.
And the final question, can you update us anything on how the recruitment of the new CEO is going, when can we expect any news?
I cannot and I'm not the one to answer that, right? You have to ask the Board. But having said that, I'm here and I will continue to be here and leading and driving the company until a new person is appointed. So you will not get rid of me that easy.
The next question comes from Alice Beer from ABG Sundal Collier.
This is Alice filling in for Benjamin at ABG. Just you talked a bit about the gross margin improvement, but is there any part of the jump that can be attributed to price increases or similar initiatives?
Karin here, no, there has not been any significant price increases implemented recently that impact gross margin in this way. It's primarily product mix where we see that more exclusive and more premium products [Technical Difficulty] better than the basic assortment.
All right. And then just the sales decline is said to be due to soft retail channel primarily, do you see any signs of this trend turning around anytime soon? Or how should we think about that? I'm not asking for explicit guidance, just your thoughts from speaking to wallpaper retailers all day.
I will go back to what we communicated at the Markets Day. We don't see the market coming back until next year. It will remain soft. It's most likely what will happen as well. So that's the only kind of outlook we can give right now.
[Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions.
Thank you. We have received a couple of questions which are written. One is referring to the relatively high interest costs we have had during the first 9 months. And part of the financial net is a debt in [Technical Difficulty], which impacts the level of interest we have. But the financial costs are going down, and we are working to further reduce them and to make our cash management more efficient.
The next question is to elaborate a bit more on the future growth of manufacturing, what we foresee in the future from manufacturing. Olle?
Well, to start with, it is obvious that we are manufacturing high-quality products in a very [Technical Difficulty] that is looked, I mean people or other companies are looking for. So we have a very strong portfolio platform there. And I mean, it takes time to find new customers. The results we see now is the customers that [ we came in on that were ] during '23, but we expect our manufacturing entity Boråstapeter to continue to deliver on a good level. Actually, anyone else is also welcome as well. But having said all this, primarily focus of Boråstapeter is to service our own brands first. But then if we can add other brands of other companies we are happy to do so.
I don't think we have any more questions. So with that said, we will close this call, and thank you for listening in.