Interim Report New Wave Group AB (publ)

PERIOD 1 APRIL – 30 JUNE 2016

• Sales amounted to SEK 1,257 million, which was 6% higher than last year (SEK 1,191 million).
• Operating profit amounted to SEK 100.2 million (48.7).
• Result for the period amounted to SEK 67.0 million (27.8).
• Earnings per share amounted to SEK 1.01 (0.41).
• Cash flow from operating activities amounted to SEK 88.6 million (-55.9).

PERIOD 1 JANUARY – 30 JUNE 2016

• Sales amounted to SEK 2,388 million, which was 4% higher than last year (SEK 2,287 million).
• Operating profit amounted to SEK 108.3 million (50.5).
• Result for the period amounted to SEK 62.4 million (16.9).
• Earnings per share amounted to SEK 0.95 (0.24).
• Cash flow from operations amounted to SEK 152.5 million (-84.8).
• Equity ratio amounted to 45.8% (43.8).
• Net debt to equity ratio amounted to 75.2% (86.5).
    

CEO COMMENTS

APRIL - JUNE
Turnover amounted to SEK 1,257 million and the quarter goes down in history as the highest sales ever achieved in the period April-June. I am satisfied with the sales growth of 6% (8% in local currencies), although we can be even better! It should be kept in mind that the corresponding period 2015 increased by 21% (10% in local currencies), so it was tough to meet these figures. It was also historical, in a different way, that for the first time we surpassed five billion in turnover (SEK 5,065 million) for a rolling 12 months.

The promo sales channel developed strong growth of 11%. However, I am not satisfied with the retail sector which showed -2% but here intensive work is under way to increase growth. Geographically Europe with Sweden at the forefront is really strong while the United States was somewhat weaker than we expected.

Operating profit more than doubled to SEK 100.2 million which is the best since 2008, but even here we can be better which we will also show in the coming years. The operating margin shall be up at higher levels.

JANUARY - JUNE
The half year sales of SEK 2,388 million are also the highest ever. Operating profit at SEK 108.3 million is more than double compared with last year.

The operating margin should nevertheless continue to be improved.
Our cash flow from operations is also positive at SEK 152.5 million (-84.8) which continues to give us an extremely strong balance sheet. The equity ratio of 45.8% is well above both our goal (30%) and our covenants but it will be needed for our continued expansion.

THE FUTURE
I remain optimistic about the future. We can still have an individual setback but it certainly looks good for the next few years even if we continue to invest heavily in both product development and not least in marketing.

We have better service to our customers than ever before, we have a better range than ever, we have strengthened our brands significantly, we have taken a leading role within CSR in Corporate Promo with Cottover and we are ready to launch Craft Teamwear (football, handball, floorball) during the first quarter next year. We are also launching Craft shoes at the turn of the year 2017/2018 and we will be launching fantastic news in the promo sales channel and workwear in spring 2017.

I cannot, therefore, be anything but positive for the coming years, although any individual quarter could be worse than expected because of our continued high rate of investment in sales, marketing and product development.

TORSTEN JANSSON
CEO
    

COMMENTS­­

SUMMARY OF THE QUARTER APRIL - JUNE

The Group increased its sales during the second quarter of the year by 6% (8% excluding currency fluctuations) compared with last year. The higher turnover is mainly related to the segment, Corporate Promo, which increased by 12%, and the sales channel promo, where our investments in higher delivery reliability and new products has mainly occurred. The increase occurs in the regions of Sweden, the rest of the Nordic region and Europe. Sport & Leisure sales decreased slightly compared with last year. However, we have an increase in promo sales channel while retail decreased. Gifts & Home Furnishing’s sales increased by 7%. The improvement occurred in the Swedish market as well as in both sales channels. Totally our sales increased in the promo sales channel by 11% while retail sales decreased by 2%.

Our gross profit margin improved and amounted to 45.5% (44.7). We have a good level of service and the margin for each segment shows an improvement in Corporate Promo as well as Gifts & Home Furnishings and a slightly lower margin in Sports & Leisure.

The Group’s external costs decreased compared with last year, which is related to lower marketing costs. We have, however, continued high activity on our marketing operations, mainly in Sweden, but have savings within other areas. Personnel costs were on par with last year.

Operating profit increased by SEK 51.5 million compared to last year and amounted to SEK 100.2 million (48.7). The increase is mainly due to the increased sales and improved gross profit margin but also a decrease in external costs contributed to the improvement. Net financial items deteriorated slightly which relates to a non-recurrent income which had a positive impact last year.

Cash flow from operations was positive and amounted to SEK 88.6 million (-55.9). The improved cash flow is mainly attributable to lower purchases of goods compared to last year. Inventories decreased by SEK 18 million and amounted to SEK 2,468 million (2,486). Currency rate fluctuations have increased the value by SEK 17 million. Net debt decreased by SEK 177 million and amounted to SEK 1,910 million (2,087). Even the net debt in relation to shareholders’ equity and working capital decreased and amounted to 75.2% (86.5) and 71.4% (75.5) respectively.

APRIL - JUNE

TURNOVER
Turnover amounted to SEK 1,257 million, which was 6% higher than last year (SEK 1,191 million). Exchange rates affected turnover negatively by SEK 25 million (-2%). Of the Group’s sales channels, promo increased by 11% while retail sales decreased by 2%.

Turnover in Sweden increased by 12%. The promo sales channel increased by 24% and this is due to our focus on a higher level of service. Retail sales increased by 3%. The USA decreased by 4% and the decrease occurs in both sales channels. The rest of the Nordic region increased its turnover by 13% and the improvement occurs in all markets and in both sales channels. Sales in Central and Southern Europe have increased by 9% and 13% respectively, which is related to the promo sales channel. Other countries decreased by 6%.

GROSS PROFIT
The gross profit margin improved and amounted to 45.5% (44.7). The improvement has occurred in the segments Corporate Promo (product mix) as well as Gifts & Home Furnishings (new purchasing channels).

OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES
Other operating income increased by SEK 4.4 million to SEK 12.2 million (7.8). 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 currency losses are reported. Other operating expenses increased by SEK 1.4 million and amounted to SEK -8.1 million (-6.7). The net total of above items amounted to SEK 4.1 million (1.1).

COSTS AND DEPRECIATION
External costs decreased by SEK 9.3 million and amounted to SEK -249.6 million (-258,9) which is related to lower marketing costs.

Personnel costs is on par with last year and amounted to SEK -213.0 million (-212.0).

Depreciation was slightly lower compared to last year and amounted to SEK -13.4 million (-14.3).

OPERATING MARGIN
The operating margin amounted to 8.0% (4.1) whereas the improvement is primarily attributable to the higher turnover and the improved gross profit margin.

NET FINANCIAL ITEMS AND TAXES
Net financial items amounted to SEK -14.8 million (-13.7). The decrease is due to the fact that last year included a capital gain of SEK 1.9 million.

Tax on result for the period amounted to SEK 18.4 million (7.2) where the increase is related to the improved result.

RESULT FOR THE PERIOD
Result for the period amounted to SEK 67.0 million (27.8) and earnings per share amounted to SEK 1.01 (0.41).

JANUARY - JUNE

TURNOVER
Turnover amounted to SEK 2,388 million, which was 4% higher than last year (SEK 2,287 million). Exchange rates affected turnover negatively by SEK 34 million (-1%). Of the Group’s sales channels promo increased by 9%, while retail decreased slightly (-1%).

Turnover in Sweden increased by 7%. The promo sales channel increased by 18% while retail decreased by 3%. The USA decreased slightly. The decrease occurs in both sales channels. The rest of the Nordic region grew by 6% and this increase is mainly within the promo sales channel and occurs in all markets. Sales in Central and Southern Europe have increased by 11% and 12% respectively, which is related to the promo sales channel. Other countries decreased by 6%.

GROSS PROFIT
Gross profit margin increased compared to last year and amounted to 45.5% (45.1). The improvement is related to the segments Corporate Promo and Gifts & Home Furnishings while Sport & Leisure is on the same level as last year.

OTHER OPERATING INCOME AND OTHER OPERATING EXPENSES
Other operating income increased by SEK 4.5 million to SEK 21.6 million (17.1). 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 currency losses are reported. Other operating expenses decreased by SEK 11.5 million and amounted to SEK -13.7 million (-25.2). The net total of above items amounted to SEK 7.9 million (-8.1), where the improved result is mainly attributable to foreign exchange losses last year associated with the Swiss Franc as it abandoned its EURO cap.

COSTS AND DEPRECIATION
External costs are on par with last year and amounted to SEK -529.4 million (-529.0). Personnel costs amounted to SEK -430.4 million which is SEK 13.1 million higher than last year (SEK -417.3 million). The growth is related to an increased number of employees, especially in sales, customer service and marketing.

Depreciation was lower compared with last year and amounted to SEK -26.6 million (-29.2).

OPERATING MARGIN
The operating margin amounted to 4.5% (2.2) where the improvement is related to the increase in sales and higher gross profit margin.

NET FINANCIAL ITEMS AND TAXES
Net financial items are on par with last year and amounted to SEK -28.6 million (-28.8).

Tax on result for the period amounted to SEK 17.3 million (4.8) where the increase is related to the improved result.

RESULT FOR THE PERIOD
Result for the period amounted to SEK 62.4 million (16.9) and earnings per share amounted to SEK 0.95 (0.24).
      

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 65 million and amounted to SEK 605 million (540). The result (EBITDA) increased by SEK 40.1 million and amounted to SEK 90.5 million (50.4). Sales growth was due to an improved inventory structure and level of service. It is the promo sales channel that has increased and in particular in the regions of Sweden, the rest of the Nordic region and Europe. The improved result is mainly related to increased turnover and improved gross profit margin.

Turnover for the first six months of this year increased by 10% and amounted to SEK 1,110 million (1,007). The result (EBITDA) increased by SEK 42.5 million and amounted to SEK 104.0 million (61.5). Sales growth was due to increased sales and marketing activities, as well as an improved inventory structure and level of service. It is the promo sales channel that has increased and in particular in the regions of Sweden, the rest of the Nordic region and Europe. The improved result is mainly related to increased turnover and improved gross profit margin.

SPORTS & LEISURE
Turnover for the second quarter was slightly lower than last year and amounted to SEK 515 million (522). However, the result (EBITDA) improved and amounted to SEK 24.0 million (10.9). Sales increased in the promo sales channel while retail sales decreased. Sweden and other Nordic countries increased while the USA decreased. The improved result is related to lower marketing costs.

Turnover for the period January - June decreased slightly and amounted to SEK 1,035 million (1,046). The result (EBITDA) increased by SEK 10.5 million and amounted to SEK 46.0 million (35.5). Sales increased slightly in the promo sales channel while it decreased somewhat in retail. The rest of the Nordic region and Europe increased while the USA decreased slightly. The improved result is related to lower marketing costs.

GIFTS & HOME FURNISHINGS
Turnover increased by 7% and amounted to SEK 138 million (129). Sales increased in both sales channels and the improvement is in Sweden. The result (EBITDA) was slightly lower than last year and amounted to SEK -0.9 million (-0.3). The segment has higher earnings due to increased sales and improved gross profit margin but has higher overhead costs for marketing activities.

Turnover for the first half of the year amounted to SEK 243 million (235). Sales grew in both sales channels. The result (EBITDA) amounted to SEK 15.1 million which was SEK 2.2 million better than last year (SEK -17.3 million). The improvement in earnings is primarily related to sales growth.
     

CAPITAL TIED UP

Capital tied up in inventory amounted to SEK 2,468 million and has decreased by SEK 18 million compared with last year (SEK 2,486 million). Changes in exchange rates for conversion to SEK have affected the stock value by SEK 17 million. The inventory level and the level of service are good. The inventory value is expected to be at a higher level during the next quarter, which is primarily seasonal related but also because of our extended Corporate Promo range. The turnover rate in inventories is at the same level as last year and amounted to 1.1 (1.1).

SEK million	06-2016	06-2015
Raw materials	32.2	23.2
Work in progress	5.5	2.6
Goods in transit	83.6	126.8
Merchandise on stock	2,346.3	2,333.4
Total	2,467.6	2,486.0

Inventories were written down by SEK 111 million (110), of which SEK 7 million (11) relates to raw material stocks. Write-down related to merchandise in stock amounted to 4.2% (4.1). 

Accounts receivable amounted to SEK 817 million (784). The increase is turnover related.
     

INVESTMENTS, FINANCING AND LIQUIDITY

The quarter’s cash flow from operations improved and amounted to SEK 88.6 million (-55.9). The improvement is primarily related to lower inventory purchases. The cash flow from investing activities amounted to SEK -21.2 million (-40.7). Last year included investments in new facilities in a number of companies which will not take place this year.

Cash flow from operations for the first six months of this year amounted to SEK 152.5 million, which is an improvement by 237.3 million against last year (SEK -84.8 million). Last year we increased our inventories in the promo sales channel. The reason was mainly to improve the level of service but even an extended product range in this channel.

Net debt was reduced by SEK 177 million to SEK 1,910 (2,087) million, which is related to the above mentioned improved cash flow. Exchange rates have increased the debt by 26 million. Net debt in relation to equity and working capital has decreased and amounted to 75.2% (86.5) and 71.4% (75.5) respectively.

The equity ratio has improved by 2 percentage points and as of 30 June amounted to 45.8% (43.8).

The Group signed a new financial agreement on 10 February. The total credit facility as of 30 June amounted to SEK 2,614.1 million of which SEK 2,250.0 million has a term of three years and USD 43.6 million has a term of eight years. The credit facility amount is limited to and dependent on the value of some underlying assets. The funding agreement means that financial ratios (covenants) must be fulfilled in order to maintain the agreement. Based on the present forecast, management estimates that the Group will be able to meet these covenants with sufficient margin.

PERSONNEL AND ORGANISATION

The number of employees as of 30 June 2016 amounted to 2,391 (2,308), of whom 51% were female and 49% were men. Of the total number of employees 591 (589) work in production. The production contained within New Wave group is attributable to Ahead (embroidery), Cutter & Buck (embroidery), Dahetra, Orrefors Kosta Boda, Paris Glove, Seger, Termo and Toppoint.

RELATED PARTY TRANSACTIONS

There are lease agreements with related companies. Related companies to the CEO have bought merchandise and received payments for consulting services performed. There are transactions with related parties for insignificant amounts. All transactions are on market terms.

THE PARENT COMPANY

Total income for the first half of the year amounted to SEK 60.8 million (67.4). Result before appropriations and taxes amounted to SEK 406.7 million (69.8). The improvement in earnings is related to dividends from Group companies. Net debt amounted to SEK 1,799 million (1,960), of which SEK 1,915 million (1,785) relates to the financing of subsidiaries. Cash flow from investing activities amounted to SEK 29.8 million (-3.8). The balance sheet total amounted to SEK 3,644 million (3,664) and shareholders’ equity, including 78% of untaxed reserves, to SEK 1,555 million (1,324).

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 2015; 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 2016 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 2015.

CALENDAR

• 10 November 2016: Interim report for Q3
• 9 February 2017: Year-end report 2016
• 26 April 2017: Interim report for Q1
        

GOTHENBURG AUGUST 18 2016
NEW WAVE GROUP AB (PUBL)

Olof Persson	Christina Bellander	M Johan Widerberg
Chairman of the Board	Member of the Board	Member of the Board
Elisabeth Dahlin	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 18 August 2016.