Interim Report for New Wave Group AB - JANUARY–SEPTEMBER

PERIOD 1 JULY – 30 SEPTEMBER 2015 · Sales amounted to SEK 1,272 million, which was 13% higher than last year (SEK 1,122 million). · Operating profit amounted to SEK 96.3 (95.7) million. · Result for the period amounted to SEK 65.1 (66.9) million. · Earnings per share amounted to SEK 0.98 (1.01). · Cash flow from operating activities amounted to SEK -161.2 (-290.7) million. PERIOD 1 JANUARY – 30 SEPTEMBER 2015 · Sales amounted to SEK 3,559 million, which was 18% higher than last year (SEK 3,014 million). · Operating profit amounted to SEK 146.8 (137.8) million. · Result for the period amounted to SEK 82.0 (85.0) million. · Earnings per share amounted to SEK 1.22 (1.28). · Cash flow from operating activities amounted to SEK -246.0 (-229.6) million. · Equity ratio amounted to 42.8 (45.9)%.. · Net debt amounted to 92.1 (76.0)%. CEO COMMENTS JULY - SEPTEMBER I’m quite satisfied even with our third quarter. Sales increased by 13% (of which 8% currency) but we should bear in mind that our growth began to take off in the corresponding quarter last year - when we had a growth rate of 8% (of which 4% currency). Sales of SEK 1,272 million is the highest ever for us during a third quarter. Most pleasing is the promo sales channel with a growth of 19%. It is also extra pleasing to see growth in this sales channel in Sweden, which amounted to 14%. Operating profit of SEK 96.3 million is fully approved as we still find ourselves in an investment phase. JANUARY - SEPTEMBER I can only say that our actions and investments have given the desired result on sales. A growth of 18% for the first nine months feels incredibly strong. Operating income is almost SEK 10 million better – in spite of major investments in sales, marketing and inventory. THE FUTURE We are in a very strong position in every way and I look forward to the next few years. The only thing that worries me for the fourth quarter is the weather – the incredibly warm October has not really given us the sales start I wished for. At the time of writing, and when I look at the long-term forecast for Gothenburg, it shows 10-12 degrees above zero for quite some time to come. However, as CEO it is still nice to feel secure with everything else – and no other concern than the weather. We are strongly equipped for the next quarter and year, and even if any individual quarter happens to be worse than your and my own expectations, I feel great confidence going forward! TORSTEN JANSSON CEO New Wave Group SUMMARY OF THE QUARTER JULY-SEPTEMBER The Group increased its sales by 13% (5% excluding currency fluctuations) compared with last year. The operating segment Corporate Promo had a growth of 17%, which is related to the promo sales channel as well as the regions Europe, Sweden and the USA. Sports & Leisure increased by 11% which is primarily related to positive currency changes. Gifts & Home Furnishings increased their sales by 15% and here the increase is in both sales channels. The promo sales channel increased by 19% as a result of increased marketing activities and product launches, as well as an improved security of supply. The retail sales channel increased by 9%. The gross profit margin was slightly higher than last year. Our planned investments in sales and marketing continued during the quarter and costs have therefore increased compared with last year. We intend to continue marketing our product launches as well as the expansion of our sales force. Costs will therefore be higher even in the coming quarters. Operating profit was slightly higher than last year. The improvement is mainly attributable to the higher turnover but our increased investments in sales and marketing have reduced the effectiveness of sales growth. Increased interest expense due to higher net debt had a negative impact on financial costs and profit for the period was slightly lower than last year. Cash flow from operating activities amounted to SEK -161.2 (-290.7) million, whereby the improvement is related to lower commodity purchases as we now have a good inventory and service level. Inventories, however, increased by SEK 674 million compared to 30 September 2014 and amounted to SEK 2,648 (1,974) million. Exchange rate fluctuations have increased inventory by SEK 101 million. Net debt increased by SEK 600 million and amounted to SEK 2,290 (1,690) million, of which SEK 128 million related to changes in exchange rates. The net debt to equity ratio increased and amounted to 92.1 (76.0)%, which is related to the above mentioned stock building. JULY-SEPTEMBER TURNOVER Turnover amounted to SEK 1,272 million, which was 13% higher than last year (SEK 1,122 million). Exchange rates affected turnover positively by SEK 89 million (8%). The operating segment Corporate Promo increased by 17%, Sports & Leisure increased by 11% and Gifts & Home Furnishings by 15%. Of the Group’s sales channels, promo increased by 19% while retail sales increased 9%. Turnover in Sweden increased by 8% and it is the promo sales channel that accounts for the bulk of the increase. The USA increased by 17%, which is attributable to positive currency changes. Net sales in local currency decreased by 4%, which is related to a major order last year which was not repeated this quarter. The order affected the region by 10%. Other Nordic countries decreased by 1%, which is related to Finland. Sales in Central and Southern Europe have increased by 20% and 22% respectively, which is related to the promo sales channel. GROSS PROFIT The gross profit margin increased slightly compared to last year and amounted to 45.1 (44.6)%. OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES Other operating income increased by SEK 17.0 million to SEK 22.1 (5.1) million. Other operating income is mainly attributable to operating currency gains but also invoiced expenses as well as capital gains. These should be compared to the result row ”Other operating expenses” where mainly operating currency and capital losses are reported. Other operating expenses increased by SEK 5.2 million and amounted to SEK -9.3 (-4.1) million. The net total of the above items amounted to SEK 12.8 (1.0) million. The improvement is mainly due to a one -time revenue in connection with a minor acquisition. COSTS AND DEPRECIATION External costs increased by SEK 56.4 million and amounted to SEK -273.0 (-216.6) million. The increase is primarily related to increased investments in sales and marketing. Personnel costs amounted to SEK -202.8 million which is SEK 28.0 million higher than last year (SEK -174.8 million). The increase is related to an increased number of employees, mainly within sales and customer service. Currency exchange rates had a negative impact on costs by SEK 42 million. Depreciation decreased slightly compared to last year and amounted to SEK -13.7 (-14.4) million. OPERATING MARGIN Our increased investments in sales and marketing have given a lower operating margin. The operating margin for the period amounted to 7.6 (8.5)%. NET FINANCIAL ITEMS AND TAXES Net financial items amounted to SEK -17.6 (-11.0) million. This deterioration is related to a worse net interest due to higher net debt. Tax on profit for the period amounted to SEK -13.6 (-17.8) million. The slightly lower percentage rate is related to a one-off effect due to a non-taxable other income. RESULT FOR THE PERIOD Result for the period amounted to SEK 65.1 (66.9) million and earnings per share amounted to SEK 0.98 (1.01). JANUARY-SEPTEMBER TURNOVER Turnover amounted to SEK 3,559 million, which was 18% higher than last year (SEK 3,014 million). Exchange rates affected turnover positively by SEK 305 million (10%). The operating segment Corporate Promo increased by 21%, Sports & Leisure increased by 19% and Gifts & Home Furnishings by 5%. Of the Group’s sales channels, promo increased by 24% while retail sales increased 12%. Turnover in Sweden increased by 7%, which is related to the promo sales channel. Retail is at the same level as last year. The USA increased by 26% which is primarily attributable to the positive currency change. Net sales in local currency increased slightly and was mainly in the promo sales channel. Other Nordic countries increased by 10%, this increase is took place in all countries and mainly within the promo sales channel. Sales in Central and Southern Europe have increased by 18% and 30% respectively, and even here it is mainly related to the promo sales channel. GROSS PROFIT The gross profit margin amounted to 45.1 (45.2)%. The slightly lower margin is due to the mix of products, customers and countries. OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES Other operating income increased by SEK 21.6 million to SEK 39.2 (17.6) million. Other operating income is mainly attributable to operating currency gains but also invoiced expenses as well as capital gains and should be compared to the result row ”Other operating expenses” where mainly operating currency and capital losses are reported. Other operating expenses increased by SEK 25.4 million and amounted to SEK -34.5 (-9.1) million. The net total of the above items amounted to SEK 4.7 (8.5) million, where the deterioration in earnings is primarily attributable to foreign exchange losses associated with the Swiss Franc as it abandoned its EURO cap. COSTS AND DEPRECIATION External costs increased by SEK 139.0 million and amounted to SEK -802.0 ( -663.0) million. The increase is related to increased investment in sales and marketing. Personnel costs amounted to SEK -620.1 million which is SEK 89.1 million higher than last year (SEK -531.0 million). The increase is related to an increased number of employees, mainly within sales and customer service. Currency exchange rates had a negative impact on costs by SEK 129 million. Depreciation increased slightly compared to last year and amounted to SEK -42.9 (-40.0) million. The increase is mainly related to currency movements. OPERATING MARGIN Sales growth resulted in an improved operating profit, while the operating margin was slightly lower compared with last year and amounted to 4.1 (4.6)%. The margin was negatively affected by our increased marketing activities. NET FINANCIAL ITEMS AND TAXES Net financial items amounted to SEK -46.4 (-28.7) million. This deterioration is related to a worse net interest due to higher net debt. Tax on profit for the period amounted to SEK -18.4 (-24.1) million. RESULT FOR THE PERIOD Result for the period amounted to SEK 82.0 (85.0) million and earnings per share amounted to SEK 1.22 (1.28). REPORT 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 17% and amounted to SEK 457 (392) million. The result (EBITDA) amounted to SEK 26.6 (40.4) million. It is the promo sales channel which has increased and growth occurs in Sweden, Europe and the USA. Sales growth is due to increased sales and marketing activities, as well as improved inventory structure and level of service. The deterioration in earnings is primarily related to increased investment and costs for sales and marketing as well as a slightly lower gross profit margin (mix of products). During the period January-September turnover increased by 21% and amounted to SEK 1,464 (1,208) million. The result (EBITDA) amounted to SEK 88.1 (96.5) million. Sales growth occurred in all regions and is due to increased sales and marketing activities, as well as an improved inventory structure and level of service. The lower profit is related to the projected cost increases in sales and marketing as well as a slightly lower gross profit margin (mix of products). SPORTS & LEISURE Turnover amounted to SEK 674 (608) million, which is 11% higher than last year. The result (EBITDA) amounted to SEK 77.8 (75.8) million. The segment has a significant portion of its sales in the American market and the exchange rates have affected turnover positively. Sales grew in promo sales channel and reduced at retail. This quarter last year included a major order which was not repeated in this quarter, which has had an impact on the segment’s net sales negatively by 6%. The improvement in earnings is attributable to higher turnover but even here the result has been negatively affected by increased sales and marketing costs. During the period January-September turnover increased by SEK 1,720 (1,450) millions, which is 19% higher than last year. The segment has a significant portion of its sales in the American market and the exchange rates have affected turnover positively. Sales increased mainly in the promo sales channel and in the regions of USA and Europe. The result (EBITDA) amounted to SEK 113.3 (102.6) million. The improved result is related to the increased turnover but has also been negatively affected by increased costs for sales and marketing. GIFTS & HOME FURNISHINGS Turnover increased by 15% and amounted to SEK 140 (123) million. The result (EBITDA) amounted to SEK 5.6 million which was a marked improvement on last year’s SEK -6.1 million. Sales growth is taking place in both sales channels. The improvement in earnings is attributable to the higher turnover but also a slightly improved gross profit margin. During the period from January to September, turnover amounted to SEK 375 (357) million. The result (EBITDA) improved and amounted to SEK -11.7 million against last year’s SEK -21.3 million. The improved result is related to the higher turnover and a slightly improved gross profit margin. CAPITAL TIED UP Capital tied up in stock amounted to SEK 2,648 (1,974) million and increased by SEK 674 million compared to the same period last year. Changes in exchange rates for conversion to SEK have affected the stock value by SEK 101 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 stock is lower than last year because of our stock build-up and amounted to 1.1 (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 Corporate Promo range as well as new and upcoming base collections. +----------------------------------------------------------------+-------+------ -+ |SEK million |2015-09|2014 -09| +----------------------------------------------------------------+-------+------ -+ |Raw materials | 25.3|     | | | | 21.8| +----------------------------------------------------------------+-------+------ -+ |Work in progress                           |     |     | | | 3.2| 1.8 | +----------------------------------------------------------------+-------+------ -+ |Goods in transit | 119.8| 181.2| +----------------------------------------------------------------+-------+------ -+ |Merchandise on stock |2,499.9|1,769.7| +----------------------------------------------------------------+-------+------ -+ |Total                                                           |2,648.2|1,974. 5 | +----------------------------------------------------------------+-------+------ -+ Stock was written down by SEK 118 (101) million, of which SEK 11 (13) million pertains to raw materials. Write-down related to merchandise on stock amounted to 4.1 (4.7)%. Accounts receivable amounted to SEK 921 (819) 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 operations during the quarter was negative and amounted to SEK -161.2 (-290.7) million. This is due to the seasonal build-up of inventories for the coming quarter. In addition to this normal build-up there is also an increase due to new products in our basic range of goods. The cash net investments amounted to SEK -15.1 (-12.2) million. The increase is related to tangible fixed assets. During the period January-September, the Group’s cash flow from operations amounted to SEK -246.0 (-229.6) million, where the increase is related to higher operating receivables. The cash net investments amounted to SEK -81.0 (-44.7) million. The increase is related to tangible fixed assets. Net debt increased by SEK 600 million to SEK 2,290 (1,690) million, which is primarily related to our planned build-up of stock. Exchange rates have increased the debt by SEK 128 million. The increase in stock means that our net debt in relation to shareholders’ equity and working capital has increased to 92.1 (76.0)% and 76.0 (72.6)% respectively. As a result of our stock build-up, our equity ratio decreased by 3.1 percentage points and amounted to 42.8 (45.9)% as of 30 September. The Group has a funding agreement which extends up to 12 November 2016. Total credit facility at the end of the quarter amounted to SEK 2,812 million, of which the principal agreement amounts to SEK 2,562 million. The credit facility amount is limited to and dependent on the value of some underlying assets. 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. Work on a new funding agreement has begun. Based on the present forecast, management estimates that the Group will be able to meet these covenants. PERSONNEL AND ORGANISATION The number of annual employees as of 30 September 2015 was 2,361 (2,186) of whom 50% were woman 50% were men. Of the total number of employees 589 (513) 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, Termo and Toppoint. INTANGIBLE ASSETS AND IMPAIRMENT TESTING The breakdown of intangible assets between segments are based on the ratio as of the acquisition date for each company / brand and assigned to the operating segments as it is considered to belong to. New Wave Group monitors cash -generating units on a segment level. Goodwill is based on local currency and in the consolidated financial statements give rise to currency translation effects. The value of goodwill is reviewed annually to ensure that the value does not deviate negatively from book value, but can be tested more frequently if there are indications that the value has decreased. Write-down of operating segments containing goodwill and brands is based on the calculation of its value in use. This value is based on cash flow projections for the next five years and a terminal period. The segments’ cash flows are influenced by commercial factors, including market growth, competitiveness, cost developments, levels of investment and working capital. When discounting, an assessment of financial factors such as interest rates, borrowing costs, market risk, beta values and tax rates will be carried out. Assumptions made in the test are the Board’s best estimate at this stage of the economic conditions expected to prevail over the forecast period. Current market conditions and the economic situation make forecasting for future periods difficult to predict. Furthermore, it is the fourth quarter that is historically the most important in terms of earnings for the group and is an important indicator of how the market develops. The first five years 2016-2020 are based upon the Board’s established internal forecasts and for the subsequent periods an average growth rate of 3 (3)% for the terminal period has been used. Sensitivity analyses have been made of all operating segments. In calculating the present value of expected future cash flows, a weighted average cost of capital (WACC) of 11.2 (11.2)% before taxes is used. Discounted cash flows are compared with book value per cash generating unit / operating segments. Based on the tests and analyses carried out, there is, in the current situation, no write-down requirement. RELATED PARTY TRANSACTIONS There are lease agreements with affiliates. Affiliates of the CEO have bought merchandise and received payments for consulting services performed. All transactions are on market terms. THE PARENT COMPANY Total income amounted to SEK 96.5 (72.1) million. Result before appropriations and tax amounted to SEK -2.7 (-33.8) million, which includes dividends paid by subsidiaries of SEK 77.3 million. Income was negatively impacted by SEK 64.6 million and relates to the write-down of tangible assets. This is attributable to a capital injection into a subsidiary to cover losses. This capital injection is not considered to add any further value to the subsidiary and thus burdened the result. Net borrowing amounted to SEK 2,136 (1,532) million, of which SEK 1,947 (1,184) million relates to the financing of subsidiaries. Net investments amounted to SEK -20.9 (-20.1) million. The balance sheet total amounted to SEK 3,852 (3,083) million and shareholders’ equity, including 78% of untaxed reserves, to SEK 1,253 (1,071) 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. NOMINATION COMMITTEE The nomination committee for the board election at the 2016 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.html. CALENDAR · 11 February 2016: Year-end report 2015 · 21 April 2016: Interim report for the first quarter · 11 May 2016: Annual general meeting 2016 · 18 August 2016: Interim report for the second quarter · 10 November 2016: Interim report for the third quarter The Board and the CEO certify that the financial report gives a true and fair view of the company’s and the Group’s financial position and results and describes the principal risks and uncertainties that the Company and the companies included in the Group face. GOTHENBURG 12 NOVEMBER 2015 NEW WAVE GROUP AB (PUBL) Anders Dahlvig Christina M Johan Widerberg Bellander Chairman of the Member of the Member of the Board Board           Board Helle Kruse Nielsen Mats Årjes Torsten Jansson Member of the Board Member of the Board CEO FOR MORE INFORMATION, PLEASE CONTACT: CEO Torsten Jansson Phone: 031–712 89 01 E-mail: torsten.jansson@nwg.se CFO Lars Jönsson Phone: 031–712 89 12 E-mail: lars.jonsson@nwg.se 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 12 November 2015.