Interim Report for New Wave Group AB January–March 2015

KUNGÄLV, Sweden--(BUSINESS WIRE)-- Regulatory News:

PERIOD 1 JANUARY – 31 MARCH 2015

• Sales amounted to SEK 1,096 million, which was 21 % higher than last year (SEK 909 million).
• Operating profit amounted to SEK 1.8 (-5.9) million.
• Result for the period amounted to SEK -10.9 (-11.3) million.
• Earnings per share amounted to SEK -0.17 (-0.17).
• Cash flow from operating activities amounted to SEK -28.9 (88.8) million.
• Equity ratio amounted to 45.8 (51.4) %.
• Net debt to equity ratio amounted to 79.1 (56.8) %.

CEO COMMENTS

Growth increases! For the first time in five years, it is incredibly enjoyable to be able to submit a report which I am pleased with, by and large, on all points. Growth in the quarter amounted to almost 21% including currency and turnover of SEK 1,096 million is All Time High for a first quarter.

CORPORATE PROMO

The segment grew by 29% and the sales channel by a total of 30%. Our actions in Corporate Promo has, to say the least, given effect, and today we can proudly say to our customers that we are their best alternative, irrespective of whether we are talking delivery, products, brands, quality, price or CSR, and keeping in mind that, for example, Cottover will be delivered first in May and furthermore some important new launches for customers in autumn. These new launches as well as continually winning back customers should actually imply that the growth of Corporate Promo could increase further, although even I find it hard to believe when looking at this quarter’s growth in the segment.

SPORTS & LEISURE

Sports & Leisure showed a growth rate of 19%, which is according to plan and that I’m relatively happy with, but I believe we should be able to do even better looking forward.

GIFTS & HOME FURNISHINGS

The segment was -2% during the quarter, which is one of the few disappointments but with the actions taken and the marketing plan we have ahead, I am quite sure that we will show growth in the third quarter of the year.

SALES CHANNELS

Promo showed 30% growth while retail showed almost 12% growth. Looking at countries and regions within promo, the Nordic countries grew by 17%, Central Europe by 25% and Southern Europe by a whole 37%.

RESULT FOR THE PERIOD

In view of the fact that we are still – and even for the remainder of 2015 —in an investment phase where we are increasing our costs in sales and marketing as well as taking one-off costs in the form of currency losses, then I am clearly pleased that we managed to improve operating profit by SEK 8 million. Excluding one-off costs, the period’s result is actually

SEK 16 million better than last year.

BALANCE SHEET

Despite conscious inventory build-up as well as a strengthening of the USD against the SEK, we have, for our industry, a very good equity ratio of 46%. Based on our 20 biggest competitors’ annual accounts for 2013 (in Sweden in Corporate Promo), there are only 5 of 20 competitors who have an equity ratio of 45% or higher, while 15 of the 20 are below this level. 5 of these 20 don’t reach an equity ratio of 25%, so compared to our competitors, we are very strong.

In the balance sheet we should also remember that we received a severe blow owing to the weakening of the SEK especially against the USD. For example, stock value increased by SEK 226 million and our net debt increased by SEK 279 million due to changes in exchange rates. Of course, even our assets outside of Sweden increased in value because of the conversion to SEK, but it’s worth mentioning as the numbers are so large.

THE FUTURE

I have not looked so bright on the future since 1997. We are taking market shares in almost all trademarks in most countries. We will have a good sales trend 2015, and sooner or later, I am totally convinced that the result will follow! Right now and the next few quarters, I want to ensure continued investment in products, sales and marketing that will give us a platform for growth for many years to come-above giving priority to profitability. However, I am convinced that we will see improved profit development within the coming quarters.

My management and all our staff are glad, motivated, passionate, hungry, well-armed and strong!

TORSTEN JANSSON

CEO New Wave Group

COMMENTS

SUMMARY OF THE QUARTER JANUARY-MARCH

The Group’s sales increased by 21 % (9 % excluding currency fluctuations) compared with last year. This is mainly due to our investment in better delivery reliability and new products within the business segment Corporate Promo. This segment increased its sales by 29 %. It is mainly within the promo sales channel and within the regions of Sweden, the rest of the Nordic countries and Europe that this growth occurred. Sports & Leisure increased its sales by 19 %. We see an increase in both sales channels and then mainly in the Nordic countries and Europe. Sales within Gifts & Home Furnishings decreased by 2 %. The decrease was related to the promo sales channel. Totally, the promo sales channel increased by 30 % while the retail sales channel increased by 12 %.

A better level of service, but even the mix of customers and countries has improved the gross profit margin during the quarter.

The Group’s external costs have increased compared with the previous year, which is related to the increased investments in sales and marketing that we previously communicated. Both external costs and personnel costs will increase in the coming quarters as we continue to market our new products as well as expanding our sales force. Other expenses during the quarter increased due to one-time costs in the form of foreign exchange losses associated with the Swiss Franc as it abandoned its euro cap. Financial expenses were also affected by one-off costs during the quarter. These relate to an acquisition of the remaining shares in a Canadian company (formerly a minority company).

Operating profit grew by SEK 7.7 million compared to last year, reflecting the higher turnover. Increased interest expense due to higher net debt, as well as the above mentioned financial cost in connection with the acquisition, negatively impacted the financial costs and the profit after tax was on par with last year.

Cash flow from operating activities amounted to SEK -28.9 (88.8) million. The negative cash flow is mainly attributable to an increase in the purchase of goods compared to last year. Inventories increased by SEK 926 million and amounted to SEK 2,427 (1,501) million, of which SEK 226 million related to changes in exchange rates. Net debt increased by SEK 786 million and amounted to SEK 1,974 (1,188) million, of which SEK 279 million related to changes in exchange rates. Equity ratio increased to 79.1 (56.8) %, which is related to the aforementioned inventory build-up.

JANUARY-MARCH

SALES

Sales amounted to SEK 1,096 million, which was 21 % higher than last year (SEK 909 million). The currency exchange rates positively affected sales by SEK 108 million (12 %).

The operating segment Corporate Promo increased sales by 29 %, Sports & Leisure increased by 19 % and Gifts & Home Furnishings sales decreased by 2 %. Of the Group’s sales channels, promo increased by 30% while retail increased sales by 12 %.

Sales in Sweden increased by 7 %, which is related to the promo sales channel with an increase of 16 %, while retail sales were at the same level as last year. USA increased by 30 % which is primarily attributable to the positive currency change. Net sales in local currency was slightly better compared to last year. Other Nordic countries increased by 14 %, which is related to the Danish and Norwegian markets and occurs in both sales channels. Sales in Central and Southern Europe have increased by 17 % and 36 % respectively, and is related to the promo sales channel.

GROSS PROFIT

The gross profit margin was 45.7 (45.2 %). The increase is related to an enhanced level of service, as well as the mix of customers and countries. Last year was negatively affected by freight and more expensive substitute goods because of shortages in some basic articles of the promo inventory.

OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES

Other operating income increased by SEK 2.2 million to SEK 9.3 (7.1) million. Other operating income is mainly attributable to operating currency gains but also invoiced expenses and should be compared to the result row ”Other operating expenses” where mainly operating losses are reported. Other operating expenses increased by SEK 16.1 million and amounted to SEK -18.5 (-2.4) million. The net total of the above items amounted to SEK -9.2 (4.7) million, where the deteriorated earnings is primarily attributable to foreign exchange losses associated with the Swiss Franc as it abandoned its euro cap. Last year also includes a number of allowances and invoiced expenses which have not occurred during this year’s quarter.

COSTS AND DEPRECIATION

External costs increased by SEK 40.6 million and amounted to SEK -270.1 (-229.5) million. The increase is related to increased investment in sales and marketing.

Personnel costs amounted to SEK -205.3 million, which is SEK 25.8 million higher than last year (SEK -179.5 million). The increase is related to an increased number of employees, mainly within sales, customer service and marketing.

Currency exchange rates negatively affected costs by SEK 45 million.

Depreciation increased slightly compared with last year and amounted to SEK -14.9 (-12.4) million.

OPERATING MARGIN

The operating margin amounted to 0.2 (-0.7) % whereby the improvement is related to higher turnover.

NET FINANCIAL ITEMS AND TAXES

New Wave Group AB has during the quarter acquired the remaining shares in a Canadian company (formerly a minority company). The cash affect amounted to SEK -1.7 million. In connection with this acquisition emerged costs of approximately SEK 2.9 million.

Net financial items amounted to SEK -15.1 (-8.3) million. This decrease is due to the abovementioned financial costs associated with the acquisition as well as worse net interest due to higher net debt.

Tax on result for the period amounted to SEK 2.4 (2.9) million.

RESULT FOR THE PERIOD

Result for the period amounted to SEK -10.9 (-11.3) million and earnings per share amounted to SEK -0.17 (-0.17).

REPORTING OF OPERATING SEGMENTS

New Wave Group AB divides its operations into segments - Corporate Promo, Sports & Leisure, and Gifts & Home Furnishings. The Group monitors the segments’ and brands’ sales and profit (EBITDA). The operating segments are based on the Group’s operational management.

CORPORATE PROMO

Turnover increased by SEK 105 million and amounted to SEK 467 (362) million. The result (EBITDA) amounted to SEK 9.1 (1.4) million. The increased turnover is due to increased sales and marketing activities, as well as an improved inventory structure and level of service. The increase occurred in the promo sales channel and in particular in the regions of Sweden, other Nordic countries and Europe. The improved result is related to the increased turnover but has also been negatively affected by increased costs for sales and marketing.

SPORTS & LEISURE

Turnover for the first quarter amounted to SEK 523 (439) million. The result (EBITDA) amounted to <money>SEK 24.6 (18.9) million. Sales increased in both sales channels and mainly in the other Nordic countries and Europe. The segment has a significant portion of its sales in the American market and the exchange rates have affected turnover positively. The improvement in earnings is attributable to higher turnover but even here the result has been negatively affected by increased sales and marketing costs.

GIFTS & HOME FURNISHINGS

Turnover decreased by 2 % and amounted to SEK 106 (108) million. The result (EBITDA) amounted to SEK -17.0 million, which was SEK 3.2 million lower than the previous year (SEK -13.8 million). The decrease in turnover is related to the promo sales channel and the lower result is due to higher costs for sales and marketing.

CAPITAL TIED UP

The Group has continued its work to improve the level of service and product range. Capital tied up in inventories increased by SEK 926 million compared with last year’s first quarter, of which SEK 226 million is due to exchange rate fluctuations when converted into SEK. Total inventories amounted to SEK 2,427 (1,501) million. The increase is a planned increase and is mainly related to the promo sales channel and its supplemental purchases within its basic range of goods as well as its new base collections. The turnover rate in inventories is lower than last year because of our inventory build-up and amounted to 1.0 (1.3). The inventory value is expected to be on a higher level than before even in the coming quarters, mainly because of our extended promo range as well as new and upcoming base collections.

Inventories were written down by SEK 108 (104) million, of which SEK 11 (14) million is pertaining to raw materials. Impairment related to merchandise on stock amounted to 4.1 (6.1) %.

Accounts receivable amounted to SEK 778 (651) million, where growth is primarily turnover related. However, even currency fluctuations when converted into SEK increased this amount.

INVESTMENTS, FINANCING AND LIQUIDITY

Consolidated cash flow from operating activities was negative and amounted to SEK -28.9 (88.8) million. This is mainly due to increased inventory purchases compared to the same period last year. The cash net investments amounted to SEK -26.3 (-15.0) million.

Net debt increased by SEK 786 million to SEK 1,974 (1,188) million, which is primarily related to our planned build-up of inventories. Exchange rates have increased the debt by SEK 279 million. The increase in inventories means that our net debt in relation to shareholders’ equity and working capital has increased to SEK 79.1 (56.8) % and 72.9 (66.5) % respectively.

As a result of our inventory build-up, our equity ratio decreased by 5.6 percentage points and amounted to 45.8 (51.4) % as of 31 March.

The Group has a funding agreement which extends up to 12 November 2016. As of 31 March our total credit facility and principal agreement increased by SEK 300 million and at the end of the quarter amounted to SEK 2,482 million, of which the principal agreement amounts to SEK 2,387 million. The new agreement means a somewhat higher interest rate and that the covenants under the previous agreement remain unchanged. The principal agreement means that financial ratios (covenants) must be fulfilled in order to maintain the agreement. Interest is based on each respective currency’s base rate and fixed margin.

Based on the present forecast, management estimates that the Group will be able to meet these covenants with sufficient margin.

PERSONNEL AND ORGANIZATION

The number of employees as of 31 March 2015 amounted to 2,264 (2,159), of whom 51% were female and 49% were men. Of the total number of employees 566 (533) work in production. The production contained within New Wave group is attributable to Ahead (embroidery), Cutter & Buck (embroidery), Paris Glove, Orrefors Kosta Boda, Seger, Dahetra and Toppoint.

RELATED PARTY TRANSACTIONS

There are lease agreements with affiliates. Affiliates of the Managing Director have bought merchandise and received compensation for consultancy services rendered. All transactions are on market terms.

PARENT COMPANY

Total income for the first quarter of the year amounted to SEK 31.5 (23.0) million. Result before appropriations and tax amounted to SEK -5.3 (-3.3) million. Net borrowing amounted to SEK 1,913 (1,227) million, of which SEK 1,707 (957) million relates to the financing of subsidiaries. Net investments amounted to SEK -1.7 (-6.6) million. The balance sheet total amounted to SEK 3,576 (2,827) million and shareholders’ equity, including 78 % of untaxed reserves, to SEK 1,314 (1,166) million.

RISKS AND RISK CONTROL

New Wave Group’s international operations mean that it is continuously exposed to various financial risks. The financial risks are currency, borrowings and interest rate risks, as well as liquidity and credit risks. In order to minimize the affect these risks may have on earnings, the Group has established a financial policy. For a more detailed description of the Group’s risk management please refer to the Annual Report 2014; www.nwg.se.

The Group’s policy is to have short fixed-interest agreements resulting in quick effects on the Group’s net interest as the short-term interest rate changes.

The Group’s reported risks are deemed to be essentially unchanged.

ACCOUNTING PRINCIPLES

This report is prepared in accordance with IAS 34 Interim Report and the Annual Accounts Act.

No new or revised IFRS which came into force 2015 has had any significant impact on the Group.

The interim report for the parent company has been prepared according to the Annual Accounts Act as well as the Swedish Financial Accounting Standards Council’s recommendation RFR2 - Accounting for Legal Entities. Applied accounting policies are in accordance with the Annual Report for 2014.

ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 4 May at 13.00 in Kosta. The annual report is available at the company’s headquarters in Göteborg, as well as on its website www.nwg.se

DIVIDEND

The Group’s dividend policy is that 40 % of the Group’s net profit will be distributed over a business cycle. The Board has decided to propose a dividend of SEK 1.00 (1.00) per share, amounting to SEK 66.3 million. This proposal corresponds to 38 % of the profit for the year 2014.

NOMINATION COMMITTEE

The nomination committee for the board election at the 2015 Annual General Meeting is:

• Johan Ståhl, representative of Lannebo Fonder and Chairman of the Nomination Committee
• Torsten Jansson, CEO and representative of Torsten Jansson Förvaltnings AB
• Arne Lööw, representative of Fjärde AP-fonden

For more information about the nomination committee and its work, please see www.nwg.se/en/investor-relations/corporate-governance/nomination-committee.html

CALENDAR

• 4 May 2015: Annual General Meeting 2015
• 20 August 2015: Interim report for Q2
• 12 November 2015: Interim report for Q3

GOTHENBURG29 APRIL 2015
NEW WAVE GROUP AB (PUBL)

Anders DahlvigChairman of the Board

Christina BellanderMember of the Board

M Johan Widerberg
Member of the Board

Helle Kruse NielsenMember of the Board

Mats Årjes
Member of the Board

Torsten Jansson
CEO

The information in this report is that which New Wave Group is required to disclose under the Securities Market Act and/or the Financial Trading Act. The information was released for publication at 7 am (CET) on 29 April 2015..

This information was brought to you by Cision http://news.cision.c

CEO

Torsten Jansson, 031–712 89 01

[email protected]

or

CFO

Lars Jönsson, 031–712 89 12

[email protected]

Source: New Wave Group