Welcome to the Embellence Group Q1 2026 report presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing #5 on their telephone keypad. Now I will hand the conference over to the speakers. President and CEO, Johan Andgren, CFO, Karin Lidén, please go ahead.
Thank you very much, welcome to Embellence Group's interim report for the first quarter of 2026. My name is Johan Andgren, I'm the CEO of the group, together with me today is Karin Lidén, who is our CFO. Today we will start by going through the developments in the first quarter and follow up by sales performance across our brands and our strategic focus areas. Since we are a group of several brands, we will look at some of the brand and product highlights for the quarter, after that Karin will go through the currency effects and cash flow in more detail, we will end up with a summary. Let's start to look at the business and what we achieved in the first quarter of the year.
Q1 was a quarter where we continued to deliver organic growth and execution of our strategic initiatives. We delivered a currency-adjusted organic sales growth of 3%. As we also highlighted in our last quarterly call, we continue to face currency headwinds, mainly from the U.S. dollars, but also from the British pound that negatively impact our top line by 4%. All in all, delivering net sales of SEK 201 million, which is down 1% versus past year. Our strategic focus areas of direct-to-consumer sales, internationalization, and the hospitality channels remain unchanged, and they are working well for us, and that's where we're mainly seeing the growth coming from. We have a few brands that continues to deliver well, where Boråstapeter continues to grow in the quarter.
The development is mainly driven by progress within our strategic focus areas, particularly direct-to-consumer and international sales, which is encouraging to see and confirms that we are in the right direction and we have set to deliver results. Both Pappelina and Artscape are delivering double-digit organic growth in the quarter, and as I shared when we delivered our Q4 report, we believed at that time that the D2C channel would continue the successful development. It's now encouraging to see that the development in the D2C channel has accelerated and delivers even higher growth numbers than we did in Q4 2025. This development is also something that we expect will continue going forward. We are seeing short-term challenges with the sales development for the Cole & Son brand, which we also communicated about when we delivered our Q4 report.
I was not satisfied with the development, and during the quarter, we made a change on the managing director position. Yelena Ford started last week and will now take on the new chapter for the brand with increased focus on international expansion and sales within the hospitality channel. During the transition period, I have acted as interim managing director, and during that period, I have decided to take proactive commercial decisions that will affect the net sales negatively in the short term, but which are right for the long-term development of the brand.
I shared this already when we delivered our Q4 report, and during the quarter, we have decided to end a few volume-driven activities with customers who have been good in the short term, but which affects the brand and the net sales development in the longer term, and instead focus on long-term growth with the partners we believe will strengthen the brand. We have also chosen to end a few distributors and agents and change distribution models in a few markets to gain better traction and development for the brand. All in all, these decisions are affecting the net sales in the short term, and we expect the transition to continue a few months into Q2. If we continue and look at our gross margin development for the group, we increased this margin to 62.8%, which is up 0.8 percentage points versus past year.
One of the drivers behind the increased gross margin is our strategic focus area of shifting sales to the D2C channel, which continues. In parallel, we're also working on product mix and introduction of new products and designs, which also helps the gross margin development for the group. This is something that is at the core of what we do, and we will continue to do, so we expect our gross margin to development to continue. Worth noticing is that with increased direct-to-consumer sales, the P&L will shift slightly since sales in this channel has a different P&L structure. Gross margins improves at the same time as freight to consumers and marketing cost increases, but overall, it will help our EBITDA margin.
We are continuing to invest in a limited number of strategic initiatives that are tightly linked to our strategic focus areas with a strong emphasis on platforms and systems that directly enhance the consumer experience. Roughly a week ago, we launched a new digital platform for Boråstapeter, with this rollout, we have now launched new platforms for four out of our five brands. We also continue to strengthen our capabilities and functionalities with subsystems to improve the consumer experience even further. All in all, these strategic initiatives, the negative effects, as well as restructuring costs at Cole & Son, contributed to a lower EBITDA margin, which came in at 14% compared to 16% last year.
The restructuring cost at Cole & Son will also partially impact our second quarter. We improved our financial position during the quarter, where our net debt in relation to EBITDA is 0.5x , and we also improved our cash flow to SEK 14 million, and Karin will share some more details linked to this later on. If we then move on and look at the sales highlights in the quarter. As mentioned before, it was a mixed quarter where some of our brands delivered good results and where we have challenges mainly linked to Cole & Son. Boråstapeter grew 4%, and the growth was mainly coming from our strategic focus areas of D2C and international sales.
The large home market of Sweden grew a few percentage points as well, but we see a bit of a slowdown in the quarter, which could be linked to the fact that the Swedish Rut-avdrag was discontinued in December, so potentially that some orders were pushed to Q4 last year. Overall, the development for the past 12 months has been positive, and the brand has grown for the past five consecutive quarters. All major export markets grew except U.S., which is a rather of a phasing effect since sell-outs in the market continues to perform well. Norway is standing out on the positive side and has delivered two solid quarters with double-digit growth, which we also foresee will continue in Q2. Cole & Son, as I mentioned at the beginning of the call, is currently seeing a more challenging sales development.
The brand reported a decline of 19%, which is partly related to FX but also reflects underlying softness. We are in the middle of a restructuring the sales setup, which will continue a few months into Q2. This is mainly linked to the home market in the U.K. With that said, the actions we are taking are the right ones from a long-term perspective. They are aimed at building a stronger and more sustainable ground for the brand, even though they have a negative impact on sales in the short term. Wall&decò is also facing challenges, mainly from the negative FX effects. We also see that the Italian home market, in particular in retail, is currently weak. Italy is also one of the European countries with the lowest consumer sentiment. The market overall is challenging.
The quarter started on a softer note, and we did see an improvement in sales towards the end of the period, but it's also worth noting that the comparison quarter included a few larger hospitality projects that were more of one-off nature. Looking ahead, the hospitality channel remains a key priority for us, and we are increasing our focus here, both from an organizational perspective and commercially. We have started to appoint new agents in selected key markets to strengthen our presence and create a more momentum going forward. Pappelina delivered double-digit growth in the quarter and grew with 12%, and we expect this development to continue for the brand. The growth is mainly coming from our strategic focus area of direct-to-consumer, which is a channel that starts to perform very well for us and the growth has accelerated in the quarter.
Pappelina is the brand that has the highest share of online sales. We expect this development to continue in the coming quarters since we're actively working on refining our platform with new features and more content. This will build an even stronger connection with consumers and builds loyalty and ultimately a more robust business model. We are gaining market share with the brand and are also continued to expand internationally, adding new markets, including Thailand, Argentina, and Uruguay, to further strengthen our global footprint. Artscape delivered a solid quarter with double-digit organic growth. That doesn't fully come through in the reported numbers, mainly due to the negative dollar effect during the quarter. The U.S. market continues to perform well for us. At the same time, we did see a sharp and somewhat unexpected drop in consumer sentiment in March, driven by higher energy prices and increased geopolitical uncertainty.
We are monitoring this closely as Artscape is more exposed to these shifts compared to our other brands. The brand operates at lower price points versus our other brands, which means that demand tends to be more sensitive to changes in consumer confidence, whereas some of our more premium brands typically see more stable consumer purchase patterns when the macro environment is more unstable. Borås Tapetfabrik delivered a good quarter with sale increase of 20%. We are gaining market share in both digital and traditional printing, driven by continued strong demand across our core segments. Growth is coming from both existing customers, where we are deepening our relationships, and from new customers, where we are expanding our reach. At the same time, we are putting significant efforts into product development. The focus is on developing new materials and substrate, but also broadening our product offering overall.
This allow us to meet a wider range of consumer needs while also strengthening our brands portfolios with new and exciting products. Over time, these initiatives support the build-out of our broader brand portfolio and create a stronger foundation for continued growth across the group. If we move on to the strategic focus areas. These remain unchanged, and they are working well for us. If we start off by focusing on the D2C channel, the channel is strategically important for us as it delivers higher margins, act as a growth accelerator, and it enables us a closer and more direct relationship with our consumers. More than 50% of our growth in the next years should come from the channel, and we see that all brands are delivering double-digit growth.
For Pappelina and Artscape, who have been live with the new platform the longest, we see that growth rates are accelerating from quarter-to-quarter, which is encouraging to see. We expect this pace to continue since we're launching more and more activities to improve the consumer experience. In April, we also went live with a new platform for Boråstapeter, now we have four out of our five brands live with the same platform. This grants us easier systems to work with and more speed to market, we can also start to build capabilities within our organization on a deeper level. From a consumer perspective, these upgrades are not just technical, but instead they make experience more seamless, intuitive, and inspiring.
We have improved the navigation, we have faster performance, and we have a more consistent presentation across our brands, which ultimately makes purchase decision easier and generates more sales. In parallel, we continue to invest in the consumer experience by adding and refining supporting systems and AI. The result is a more responsive, personalized experience for the end consumer, where relevance and ease of use are continuously improved. Overall, these investments enable us not only to operate more efficiently, but more importantly, to deliver a higher quality and better consumer experience. This positions us well to increase engagement, drive conversion, and build stronger long-term relationships with our consumers across all our brands. Our second focus area is to expand internationally, which is also an important growth driver. All our brands continue to focus on international markets, and in the quarter, we deliver growth across all major export markets.
At the same time, we do have currency headwinds, which continues to have a negative impact on the business. In parallel, we are actively working on optimizing our sales networks. This means that we are reviewing our current setup where needed. We are replacing selected distributors, retailers, and agents. The focus here is to ensure we have the right partners in place in each market, improving market coverage, strengthening customer relationships, and ultimately creating better conditions for sustainable growth and over time for our brands. The third focus area is to strengthen our presence in the hospitality channel, which is strategically important for us, both as a growth driver and as a way to brand visibility and long-term relationship with professional customers. Over time, this channel creates scale, repeat business, and stronger reference projects that also support growth in our other channels.
To support this, we have reinforced the organization with clearer responsibilities and dedicated resources. This allows us to work more proactively with architects, designers, and project partners, improving both our speed and quality of execution in projects. We are strengthening our networks to be more present in core markets and come closer to partners by adding more agents. We have strengthened our overall service offering. We provide better project support, clearer specifications, and a more professional approach throughout the entire customer journey. This makes it easier for hospitality customers to work with us and increase our competitiveness, particularly in larger and more complex projects. During the quarter, we also launched new products to further widen our offering, specifically for Wall&decò in the hospitality channel.
We launched two new products, one called Sound System Wallpaper and one called Rollover, which are tailored to fit different needs for the channel. The sound system contributes to an improved acoustic comfort within interior spaces. It allows for a significant reduction of reverberation and echo effects, while at the same time ensuring that decorative excellence of Wall&decò graphic designs. The sound-absorbing membrane and the fiberglass are combined into a single integrated layer and has an absorption Class E certification. The product is recommended for use in residential, commercial, and office interiors. We showcase the products at the big fair in Salone del Mobile in Milan in April. At the same fair, we also launched a new product called Rollover. It is designed as a solution for enhancing common areas and larger spaces with a curated and more harmonious overall look.
The idea is really to elevate shared spaces and create better continuity between architecture and experience, so both the visual expression and the feeling come together in a more cohesive way. It's suitable for indoor use, both in residential settings and in contract application, and it's built with a vinyl surface layer on a nonwoven fabric substrate, which also makes it durable and practical solution. On the picture to the right here, you can also see Villa Adele from the exclusive Dubai Hills community, which was developed by Palazzo Morelli. The villa represents the meeting point between Italian excellence and the contemporary vision of Middle Eastern luxury. The resident was honored at the Arabian Property Awards and is one example from the work we are doing in the hospitality channel.
If we continue and look at some of the brand highlights for Boråstapeter, the first quarter of the year is quite intense with multiple fairs and customer events. Boråstapeter participated in Paris Deco Off in January for the second consecutive year, where we met both existing and new customers and press. Paris Deco Off is held annually in January, it's a key industry event for textile and interior design industry. The event brings together brands, designers, buyers, and press from around the world and serves as an important platform for showcasing new collections, building relationships, and identifying emerging trends. At the fair, we held a dedicated press event that attracted strong attendance from leading magazines in France, Germany, and the U.K., the showroom was also visited by The New York Times.
During the event, our showroom was also recognized by the Paris Deco Off organization as one of the most notable. In Paris, we also launched a new collection called Scandinavian Designers with new designs and expressions from Swedish Lisa Larson and Norwegian Turi Gramstad Oliver, but we also complemented the collection with true classic design icons from Stig Lindberg, Alvar Aalto, Arne Jacobsen, Gocken Jobs, and several more designers and artists. Cole & Son also participated in Paris Deco Off in an exclusive apartment setting. Later on in the quarter, we also participated in the London Design Week, where we both presented a new wallpaper collection in collaboration with Vivienne Westwood. Westwood, known for her rebellious avant-garde style, was instrumental in bringing punk fashion to the mainstream and becoming a mainstay with British fashion and design until her death in 2022.
Now led by Westwood's husband, the design house continues to pioneer sustainable manufacturing and ethical craftsmanship. The collection's eight designs contain large scale panels and hand-painted squiggles alongside bold florals, leopard prints, stripes, and tiles. The tile-like Vivienne Loves Andreas features Westwood's own hand in graffiti scribble hidden within the design repeat in one of the patterns. The collection has received widespread acclaim for its bold use of colors and patterns, and it will be exciting to see how the collection will perform over time in the market. Pappelina has also had an intense quarter with three important international fairs: Maison&Objet in Paris, Ambiente in Frankfurt, and Shoppe Object in New York. These fairs have been valuable for strengthening relationships, increasing visibility, and supporting our international brand presence.
We started the quarter with a strong focus on our spring/summer 2026 news and then transitioned into a full outdoor focus across all channels. This has given us a clear seasonal direction and helped create consistency in both communication and campaign work. During the quarter, we increased our activity level with marketing, content, and brand activation, which strengthened our visibility across channels and supported a more active and consistent brand presence. We also strengthened our PR efforts during the quarter, including press days in Stockholm to present upcoming autumn news, while also attracting architects and interior professionals. In parallel, we increased visibility in selected magazines and started working more actively with gifting and seeding in our focused markets, creating strong content opportunities going forward. A few exciting highlights. Now I'll hand over to Karin for some more information about cash flow and FX effects.
Thank you, Johan. The operating cash flow in the first quarter was SEK 14 million compared to SEK 8 million last year in the same period. Working capital always increase in the first quarter due to the sales seasonality. This year, working capital increased SEK 19 million compared to SEK 24 million last year. One thing I'd like to highlight is that the inventory ended at SEK 155 million, which is an increase compared to last year with SEK 5 million. The reason behind this is a decision to increase the raw material inventory in Borås as a preparation for replacement of a major supplier. This additional inventory is SEK 7 million. You do not see this increase yet in the working capital as the accounts payable that comes from it has not yet been paid.
The inventory will return to normal level in second half of this year. Our financial position is strong. The leverage 0.5x EBITDA end of March. Looking a bit more into details on the currency development, as we talked about in our last call, we have a significant share of sales in foreign currency. Euro represented 20%, pound 21%, and US dollar 17% of total net sales in 2025. As the Swedish krona remained strong in the first quarter, the translation effect was negative minus 4%, and we have now had a significant negative impact from currencies between 3%-4% during the last year. Swedish krona is still stronger than one year ago in April and early May.
As you can see in the graph, the current impact of exchange rate in the second quarter, should the FX rates remain stable, is lower compared to the losses we've had over the last four quarters. Now I hand back to Johan for a summary and looking ahead.
Thank you, Karin. In Q1, we delivered organic adjusted sales growth of 3% at the same time as we continued to have negative effects from FX. In the quarter, we continued to invest in our strategic initiatives with emphasis on our focus areas. These are now starting to deliver results. For the D2C channel, we see accelerated growth from the brands who has been on the new platform the longest, which is encouraging to see. Majority of our brands are growing. We face short-term challenges with specifically Cole & Son, where we are working on restructuring the sales channel. In the quarter, we have also changed managing director. Yelena Ford is now in place since end April. She will lead Iconic Brand with increased focus on internationalization and the hospitality channel.
Q1 is a quarter with high activity levels, both new collections for all our brands, as well as multiple fairs in both Europe and North America, which provides us with a platform to increase our relationships and generate future sales. If we look ahead, we will continue to focus on our three strategic focus areas, accelerate direct-to-consumer sales, continued international expansion, and increase our presence in the hospitality channel. End of April, we launched our new digital D2C platform for Boråstapeter, and now we're working to optimize this platform and the new algorithms that will start to learn and soon come up to speed again. We continue to see short-term impact on the sales channel restructuring for Cole & Son, which will continue a couple of months into Q2, where also some of the transition costs of the managing director will fall through.
After a year as CEO of Embellence Group, I can say that I'm even more convinced of our strategy and our potential. Over the past year, we have gained expertise in direct-to-consumer sales and launched new technical platforms for four out of our five brands. The strong SEK is continuing to impact us negatively in the short term. This does not mean any change in our strategy, where the goal is to continue to grow organically with good profitability in our iconic brands. At the same time, we have now strengthened our commercial organization and are open for the right acquisitions of other design-driven brands in interior design. We remain well prepared to take the next steps in our journey and are continuing to build an Embellence Group that is stronger in every aspect. With that, I leave it open to questions.
The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Please go ahead.
Good morning. In the report, you note that you are changing a large raw material supplier, I was wondering if you could speak a bit more about what this is about and whether or not you know, you've already transitioned to the new supplier to sort of judge the risk from making this move.
Thank you very much, Benjamin. We are working with multiple different raw material partners. This is one of them that we are replacing. We have not done it yet, but we will do it in the second half year, and that's why we're building up a bit of raw material linked to that. We always have dual sourcing on everything. It is something that we have in plan for.
Perfect. Thank you. You speak also about the gross margin being driven by a higher share of DTC sales. For example, is it possible to give an indication on whether or not this is the most important driver or anything to give sort of an indication of how significant this mix effect is?
What I did say was that DTC was one of the drivers. We also had, we're working constantly with both new products and new designs. There is always a bit of a mix effect, both from a channel and from a product perspective when it comes to the gross margin development. We're not sharing exactly how much is coming from which one, but both are helping us to higher gross margin. Over time, when we see a shift to the DTC channel, the gross margins will continue to improve. Both, of course, are very important, and we're working on everything in order to improve our gross margin. Also, the raw material.
It's a mixed effect when it comes to the gross margin effect of the business.
Thank you. I was wondering as well if you could say anything about the level of costs that some other companies would probably classify as one-off costs, such as, for example, anything related to the management changes in Cole & Son. Put differently, I guess, your margin contracted close to 2 percentage points year-on-year. What share is attributable to Cole & Son's management changes, please?
Yeah. Thank you. No, for us, it's of course, very important that we have the right management in place for all brands. That's why we made this change, since we believe that Yelena is the right choice to lead this iconic brand on this new journey with focus on internationalization and the hospitality channel. We're not disclosing any exact figures linked to this change. There are costs related to this transition that it's included in the Q1 numbers. Some costs will also be linked to the Q2. The cost is basically including lawyers, recruitment, and severance, which is normal when you see and do these changes.
All right. Perfect. Finally from my end, you spoke quickly or briefly about what you've done in Cole & Son as well. You spoke about taking decisions with a negative short-term sales impact and that you expected this to weigh on near-term growth as well. Could you speak a bit about the timeline of this transitional period, if possible, and if you expect the, let's call it the headwind, will be similar in coming quarters as in this quarter?
Thank you. For Cole & Son, I think it's important for us that we have a robust foundation when it comes to delivering the growth for the brand over time. That means that when I was interim managing director, I went in and took some proactive commercial decisions linked to this. Some of them has already taken place, and some will happen in Q2, and we expect the transition period to last a couple of months into the Q2 numbers.
All right, no sort of effect from Q3 then, I take it. Could you speak a bit as well? I mean, you mentioned briefly an added focus on, hospitality, for example, for Jelena. Could you, I guess, paint that picture some more? What, what do you hope will change in the direction of Cole & Son, in the coming quarters and years, please?
I think if you look at our long-term strategy, we have called out a few channels and geographies that we believe are important and that will help deliver our growth targets in the next few years. DTC and internationalization are two of them, we of course have the hospitality channel. This channel is a bit harder to measure since it sometimes falls into different channels depending on the setup and where project goes through. Some come from interior designers, some come from architectural firms, and some comes directly from the retail channel. All in all, the channel is working for us. To strengthen this channel further, we are optimizing our workflows. We have tailored organization focus to focus more on the channel with also specific key account managers.
We have also developed new products and materials such as the sound system that we talked about for Wall&decò, for example, and we are constantly looking at product development for all our brands to strengthen the channel. Mainly it is Cole & Son and Wall&decò that plays within the hospitality channel. Of course, we're also having some opportunities with Boråstapeter and Pappelina, but mainly it's Cole & Son and Wall&decò that plays within the channel.
Perfect. That's all I had for now. Thank you very much.
Thank you.
There are no more phone questions at this time, so I hand the conference back to the speakers for written questions, any closing comments.
No questions linked to that. We thank you very much for this time, and we see you again when we present the Q2 numbers. Thank you