Welcome to the Embellence Group Audio Cast with Teleconference Q4 2021. Throughout the call, all participants will be on listen-only mode, and afterwards, there'll be a question and answer session. Today, I'm pleased to present CEO Olle Svensk and CFO Pär Ihrskog. Please begin your meeting.
Thank you. Welcome, everyone. Today, we have decided to call our presentation delivering on our strategy, and you will see why later on here. Presenting with me today is Pär Ihrskog, CFO, and my name is Olle Svensk. Next page, please. Before going into the results of the quarter and the year, I want to take you a little bit and tell you a little bit about the Embellence Group. As you know, we acquire, own, and develop brands in interior decoration. Our history and our strongest category is wallpaper, but we are in textile rugs and as you know now, also in other interior decoration. Next page, please. We have today a competitive brand platform of six brands. We love brands. We fill them with fantastic design and quality.
We want to also add superior service and customer support, and all this done by great people in our brand houses around the world. Next page, please. A little bit about the highlights of Q4 and a few words about full year, but Pär will take you through it in more detail. In the quarter, we reached an revenue of SEK 174 million, which was 4.7% ahead of last year. This we did in having a headwind of cost increases and energy increases, but also the fact that we had high comparable numbers versus last year. We're pretty happy with that, also delivering an EBITDA level of 17.5%.
For the full year, this means that we grew 13.5%, and our adjusted EBITDA was 15.4%. We were delivering, I would say, pretty much exactly what we talked about at the IPO here nine months ago. Other things worth mentioning in the quarter is that the decentralization that we've been working on for several years took another important step where we organized and did some legal changes in Borås with Boråstapeter, separating the factory into one entity with managing director and Boråstapeter as another. During the quarter, first of December, we also did an acquisition of two production facilities for Pappelina to continue to support the growth journey of Pappelina. This will improve our delivery performance, which was struggling last year, and will also over time give us better gross margins.
The two production facilities, one in Leksand and one in Estonia, are part of the group since the first of December. In the upcoming AGM here later on, the board will propose a dividend of SEK 0.80 or SEK 0.8 per share, which is in line also with our financial target or policy to make a dividend up to between 30% and 50%. This is 30% of net income. Pär will come to it later as well. During the quarter, I am also happy to report that we started also to further develop our patent portfolio with Boråstapeter launching interior decoration products for direct sales on our flagship store on the web in Sweden.
Another thing worth mentioning is that we started to see business in hospitality coming up with more and more, not only requests, but also deliveries. We delivered to the hospitality segment end of last year and a bit beginning of this year in Germany and Italy, France, Egypt, and also in the U.S. That tunnel has been quite dry for several months during the pandemic, but it's starting to be better and better business coming through there. Significant events after the quarter worth mentioning, obviously, what we published yesterday, that we're about to acquire Artscape. The deal will be finished here end of this month. It will be part of the group as of first of March. We're very happy about that.
I will talk to you a little bit about Artscape later on in the presentation. Another important milestone, I would say, for Cole & Son brand is that we are opening a flagship store in Chelsea, London, where consumers and customers and architects and designers will be able to experience the brand fully and live in a fantastic flagship store. Next page, please. Over to you, Pär.
Okay. Thank you. Yeah, some key figures for the quarter and the full year. Our net sales for quarter four in 2021 end up at SEK 174 million, which is up 4.7% compared to quarter four last year. Excluding Pappelina, our organic growth, it was -4.7%.
Which is explained by the high sales in quarter four last year when we released a new volume collection, which we didn't repeat this year. The next volume collection will come next fall. I will come back to that. For the full year, the net sales ended up at SEK 646.9 million, which is up 13.5%. Again, excluding Pappelina, the acquisition we made, the organic growth was 3.9% for the full year. For the result, SEK 30.4 million for the quarter and SEK 99.9 million for the full year. Last year, full year was SEK 82.5 million, so strong improvement on the result.
This is despite the increase in cost we have seen for input materials, energy, and also the investment and activities we have around the e-commerce last year. This despite those costs, we can see an improvement both in the quarter's result, but also the full year result. On the cash flow, it was somewhat lower, SEK 62.1 million for the full year, compared to SEK 67.1 million last year. The reduction in the cash flow is explained that we were paying back the deferred VAT and employer contribution to the government, which was the COVID-19 support that we received, or we used, last year for 2020, and we paid that back 2021. Next page, please.
Here we have the two graphs showing the net sales development. As we have explained, a strong ending of the year, more or less in line with quarter, slightly better than quarter four last year. The 12-month rolling, it has a positive trend. On the result, we are well above the adjusted EBITDA, well above the target of 15%. You can see the dotted line there, which is the target. This improved margin, or EBITDA margin is explained by increased share of premium sales. This, for 2021, we ended up at 54% compared to 48% last year. In quarter four, we ended up at 51% premium sales compared to 47% last quarter last year. Next page.
Thank you, Pär.
Now I will tell you a little bit about the recent acquisition we have done here with Artscape. Here you see some pictures of installations that customers have done actually in the U.S. It is, as the brand says as well, art for windows, but it's also really, you could call it wall covering for windows as well. You can use it obviously for privacy, but also for decoration and/or the combination of them both. Next page, please. The rationale and the thinking that we were doing while looking at this more and more carefully during fourth quarter last year and beginning of this year, I mean, it is a pattern-based category, window films. It's artwork for windows.
We can see that we have actually some designs that are very similar to some designs that, for instance, Boråstapeter has here, but applied on a window. In its niche, it has a premium position, just as the acquisition that we did last year with Pappelina. Pappelina is in its niche in a premium position, and the similar logic apply here, I would say. It has a strong position compared to competition in the U.S. market. It's a profitable company. It will contribute from day one into our overall profitability, and it has been profitable since Thomas Hicks founded the company a little bit more than 20 years ago. The focus until now is on the U.S. market.
The sales is done in U.S., a bit in Canada and Mexico, but the majority of the business is, as I said, in North America here before. Very limited sales outside U.S., a little bit in U.K., but very small numbers. Annual sales, net sales a little bit above $40 million. The company is located in Portland on the West Coast with close to 14 employees, a little bit less actually. Regarding terms and financing then. As you could read, everyone could read from the press release yesterday, we are paying $20 million on a cash-free and debt-free basis.
Taking into account the 338 election and the tax relief there, that means that we are paying a multiple of around 5.1x EBITDA. Management has also an earn-out potential if the profit improves 2022 versus 2021. On the improvement, there is an earn-out potential 6x. The structure itself is that we are paying 70% in cash, 20% in newly issued shares in Embellence Group, which are subject to lock up for the ones who receive it. Then also a promissory note of 10%, which will be paid end of 2023. Artscape management, Thomas Hicks and Zurab Akhriev, they will remain in the company.
That is very important for us as well, as they are the one who have created it as it is today. We had the signing here, as we communicated yesterday, and the closing is foreseen to be 28th of February, so we will have access to the company and be part of the company as of 1st of March, this year. Looking at synergies and opportunities that we see. First of all, it's the company itself stands on its own merits, what it does today. It's a profitable company, very profitable company, well structured, under the leadership of Thomas Hicks and Zurab Akhriev. We see and they say that Artscape has continued growth potentially in Americas. With Americas, we include then Mexico and Canada as well as U.S.
Another observation, having studied the market, for now three-four months quite in detail, we are convinced that there is a big potential for this kind of pattern-based window films category in Europe, focusing on end consumer. The category of window films, it's a very large category, globally. The majority, a very large share of it obviously goes to automotive or to real estate and property developers. There is also an attractive segment focusing on the end consumer. What we can see in Europe, we believe that we have a position, there is a position to take care with this premium offering, in terms of product quality and design that Artscape is offering.
When we believe it's the right time, we see also that we can have cost synergies with the existing structure that Embellence Group has with warehousing and logistics and distribution center in Borås and within EU then. Design synergies, we believe we can have with Boråstapeter. We also see that the fact that Artscape is not having own production, but it's outsourced to several suppliers, is that it has a strong cash flow and attractive profitability. As I mentioned before, will immediately contribute to our overall financial performance and will help us to reach our target in 2025. Moreover, diversification of our product portfolio and product offering, we are now in wallpaper. It's our largest category, but we're also in rugs, in window films, in cushions, and other interior products.
All of them based on attractive pattern-based surface designs. Last but not least, we do believe that there is a potential to develop a direct-to-consumer e-commerce offering here as well, as the product is very easy to apply for an end consumer. We believe that it ticked all the boxes that we were looking at or we are looking for in our journey to develop Embellence Group into a SEK 1.2 billion company. Next page, please.
Okay. Some more financial numbers then. Let's dig into the different regions we operate in. First, the Nordic region. The Nordic for quarter four represents 52% of the total sales and 51% for the full year.
The sales was down 2.6% in quarter four, and then that is explained by with what I explained before, that quarter four 2020, we had a new release of the volume collection that sold very strongly in the quarter. The next time we release such a volume collection is 2022. That makes the comparison tough for the quarter. For the full year, the Nordic region had sales of 328 million SEK compared to 306. The result ended up at for the quarter SEK 18.8 million , slightly better than last year, which is explained by despite that we had increased cost in input material and energy, we had this increase in premium sales with higher profitability.
Despite the lower sales, we increased the profit in the Nordic region. The premium share in the quarter was 30%. That should be compared to 23% quarter four last year. For the full year, it's 29% versus 22% premium sales. Next page. Europe. Europe represents 35% of the total sales. Here, the sales were up 5.7%. We saw in the quarter, lower demand in U.K. and France, but we saw a stronger demand in Italy, a very important market for us.
Of course, Pappelina contributes positively in the region. We also saw a supply chain disruption for Wall&decò. There were some components that they had to wait for for a long time, which is now sorted out, but that had an impact on the top line. Results wise, we had SEK 8.5 million compared to SEK 9 million last year, so a slight decrease in the profitability and that is also explained by the increase in cost for input materials. Yeah. Next page, please. The third region, rest of the world, we had a strong sales growth 4%-5% up in the quarter and the result 3.1 versus 3 million.
Here we have one part explaining the somewhat lower result is that we have this investment in the e-commerce business, but also that it's a very small region for us, and depending on what we sell, it can have a big impact on the profitability. It's a product mix and also a company mix, depending on who we're selling into that region. If it's a high margin business, we see high profitability, and if it's a more value sales, we see of course lower profitability. Rest of the world represents 13% of the total turnover, and the share of the premium sales in this region is 79%. Yep.
Next page, please.
Thank you, Pär. Repeating our three strategic areas, continued leverage on premium. Premium wallpaper is outperforming the value segment. Wallpaper now represent pro forma around 70% of our revenue, so it's still our largest category and will remain that. Secondly, further international growth, organic and through acquisitions that we've demonstrated last year with organic growth of 3.9%, adding acquisition of Pappelina and now also Artscape. We are continue on the journey that we have talked about before, and which is part of our one of our financial targets. Last but not least, develop close relationship with customers, architects, and designers, the key stakeholders that we want to come closer.
We are opening up now flagship store, physical flagship store in the center, in an important area in London, in Chelsea, exactly where we want to be, and I will tell you more about that later. As you know, last year, we also open up our direct consumer sales with Boråstapeter in Sweden, with Cole & Son in the U.K., and we will further develop that as we go forward this year. It's running according to plan, and I will talk to you about that in the coming quarterly reports, but not more today. Next page, please.
Okay. An update on where we are in our financial targets. The first target is the growth target. We should reach SEK 1.2 billion by 2025. That means on average since last year that we should grow approximately 15% per year. For 2021, we grow 13.5%, whereof the organic growth 3.9%. That is in line with our assumption and target, the target growth in 2021. On the profitability, our target is we should be at least on 15% EBITDA margin. The outcome for quarter four was 14.8% EBITDA margin, and for the full year, 13.7%. The adjusted EBITDA for quarter four was 17.5%, and for the full year, 15.4%. Also here we are close to our target.
On the leverage, we should not exceed 2.5 net debt in relation to EBITDA. At the end of last year, we were at 1.2. Some headroom there. For the dividend policy, we have said that we should have a dividend between 30%-50% of income after tax. The board has proposed to have a dividend of 0.8 SEK per share, which represent 30% of the earnings. Okay. I think that, yeah. Next slide.
Trying to summarize the highlights here. We delivered profitable sales growth last year. We grew 13.5% and 3.9% was organic, which is in line with our targets to double our revenue between 2020 up to 2025. Our adjusted EBITDA for last year was 15.5%, which is just above the communicated financial target, as Pär said before. Yesterday, we published the information about the acquisition of Artscape. Artscape has net sales of $14.3, or had last year, and a very healthy EBITDA margin of 26%.
Even though we are making this acquisition, the board will still propose a dividend of 0.8 SEK per share at the AGM here later this year, which is around 30% of our net profit, or more or less exactly. So the bottom line, what you should remember of this presentation, that Embellence Group, we are on track to reach our target on 2025. We have one year down now, and we have four more to come. Thank you very much for listening. Now we are ready for any questions if there might be any.
Thank you. If you wish to ask a question, please dial zero, one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero, two to cancel. We have a couple of questions so far. The first is from Harry Wintner of Handelsbanken. Please go ahead. Your line is open.
Yes, thank you very much. I have a few, so I'll take them one by one. Firstly, about the hospitality segment that you mentioned. Can you remind us of what percentage of your sales came from this segment before the pandemic? Secondly, now that this segment seems to be recovering, so what kind of resources do you have in place to address this market opportunity? That's my first question.
I think we missed the first bit of your question, sorry.
Yeah. Okay, sorry. The first part of the question was that, how much was hospitality of your sales before the pandemic?
The share, I would say before the pandemic, it was between 10, yeah, around 10%. It was differing a little bit from quarter to quarter, but around 10%.
The second part was that, what kind of resources do you have in place now to go after this market aggressively or this segment?
We have the super COVID pass, so we are allowed to meet customers. That's one of the resources. We have also developed, you know, I would say we are. The resources, first of all, has been there all the time. We have not received the request. The balance sheet has been under pressure from the customers. Just the fact that we can be out and meet and discuss and also with the architects, and the architects are getting the questions makes us pretty comfortable, you know, that we knew how to do it before the pandemic, and we will continue to do it the same way. We have available capacity as well.
This is very much, I would say, referring to Wall&decò, but also to the other brands, but especially Wall&decò. We have the newly installed production facility in Savio since July last year. Production is available, and we have the resources in people and the networks as well.
Right. Good. About the bigger part of your business, the private consumers. You mentioned on one hand that you are taking further or you're planning further price hikes now in the first quarter to offset the cost inflation that you're seeing. At the same time, you mentioned these uncertainties that, of course, we all are seeing. How do you sort of balance increased prices with these uncertainties related to demand from private consumers?
Yeah, I mean, first of all, I would say that we see everywhere the cost inflation in many areas, be it energy or filling up your car with gasoline, if you have that, if you have not bought an electric yet, and in other areas. We are not alone in this aspect. We need to secure our margins and the price increases from our suppliers are quite big and coming again and again. One of the strengths or the many strengths that we have is that we are building a business around strong brands. We strongly believe that the consumers and architects and designers, they want to hang around with us even though we need to increase prices and others.
I'm grateful that the company for many years now has invested in building strong brands, and that helps us in the price increases. We did the Boråstapeter price increase here in October. Now, beginning of this year, all the other brands are doing price increases as well and have already communicated that. There is a probability that we will do further price increases as well in the second quarter. We can build on the fact that we have a strong brand portfolio.
All right. These uncertainties that you alluded to when it comes to what will consumers do now when society is reopened. More specifically, what have you heard from your retailer customers? And maybe even more specifically, have you seen anything in your own e-commerce channel that would suggest some sort of change that might be negative for you?
First of all, when it comes to consumers, I probably mainly refer to the Nordic region that there is, you know, there is an uncertainty. There are so many changes happening, and that are making customers or consumers a little bit uncertain what to expect. And that goes for us and for others as well. For the consumer, there is this uncertainty, but I think all of us are experiencing that right now, what is happening now. Just when we thought that the pandemic is going to, you know, sunset a little bit, there are other problems on the horizon that affects us with the geopolitical dimension. Then with regards to e-commerce, I mean, we are still, you know, in the ramp up phase.
It would be you know a little bit arrogant of me of saying anything out of the numbers here because with the fact that beginning of last year, we didn't have the e-commerce with Boråstapeter or very small numbers with Cole & Son. Pappelina we did have. Overall it's running according to our plan and it's selling as we are expecting. Please remember our key e-commerce business that we are doing directly to consumers, that we are doing in conjunction with our existing distribution model through architects, designers, agents, and so on to build a strong brand. It's not either or for us, it's both. They have also helped us to build the strong brands that we have today.
Right. Great. Few questions about the acquisition that does seem v ery interesting. The company itself, was this on your radar screen even before the pandemic, or is this a more recent find?
It was not on the radar screen before. No.
Okay. All right. The shares that are included in the deal, that's purely to sort of incentivize the sellers to stay with the company, right? What is the length of the lockup that you mentioned?
The lockup is divided into two parts. Half of the shares until end of this year and the second half until end of 2023.
All right. Finally, both Pappelina and Artscape are not wallpaper companies. Is this a sort of a happy coincidence or is this more of a deliberate strategy to diversify outside the wallpaper category?
It is a deliberate strategy that we want to diversify our platform or our product offering. That it happened in this order that you could call it coincidence if you want to. I mean, we are also open and in discussion with wallpaper companies as well. When we find the right, you know, companies with the right prerequisites, we are open. As long as it's, you know, pattern-based surface design, whether it's in interior products, be it in window films or rugs or wallpaper or textile. These are the areas we are looking at.
Maybe I should also mention, in addition to that we see that we have a strong management in place, and it's a healthy profitability that contributes to our overall business, you know.
Thank you very much. Those were all my questions.
Yeah. Welcome.
Thank you. Our next question comes from the line of Alexander Siljeblad of Danske Bank . Please go ahead. Your line is open.
Hello, Olle and Pär. A few questions, beginning with Artscape. Can you say anything about the gross margins? Obviously, the EBITDA margins is quite healthy and on a high level. What would you say about gross margins?
Good question. I mean, it's I could guess, but it's better to check and come back to it.
Yeah. Okay. That's fine.
Hold your horses on that one.
Okay. That's fine. When it comes to share premium in Artscape, given your definition and how you apply that to your existing businesses, what would you say that the share premium in Artscape is?
All in the category they are in, they are clearly all in premium compared to competition.
Okay.
In their niche.
This is also obviously reflected in the margins and which are on a high level.
Yes. I mean, if I may come back to the first question. The company Artscape has a lower gross margin than our premium business in wallcovering due to the fact that it's they don't have their they outsource the production totally. So they don't have the production themselves. We will come back to the exact level, but it will be below 65%.
Right. Good. Thanks.
Yes.
When it comes to production, you mentioned it's outsourced. Is it production based in the U.S. or is it
Yes.
Okay, great.
It's all in U.S.
Great. I mean, given now that you are performing above your target level on the margins and obviously Artscape is coming in with a very healthy contribution here, would you see any reason to revise long-term EBITDA margin target?
Not at this stage. I mean, it's a question for the board, not for me. It will obviously create a good level. You know, the next acquisition we will do will probably or not probably, it might be on a lower level. The gross margins we have just found here was 55% in 2021.
Okay, great.
On Artscape.
Yep. When it comes to the design synergies, you primarily talked about Boråstapeter. Can you elaborate a little bit on the possibilities that you see and perhaps even with your other brands?
I mean, the areas, it's a bit early days to do that. I mean, one of the brands we have in our portfolio where we see a synergy and potential for going into these categories with Boråstapeter, where we have, first of all, we have some design synergies and similarities, but also the fact that you could potentially see that Boråstapeter also enter into window film segment for the Nordic area. So this is the area where we are investigating more and more and also bringing in the team from Boråstapeter to look into it. It's a bit early days, but this is where I don't see it coming into Pappelina or Cole & Son or Wall&decò.
Okay. This would imply sales on the European market, obviously in the Nordics. Would you see Artscape having any sales in the current year in Europe?
I will come back to that. I can answer that question in December. Right now, I don't want to guess.
Okay. That's fine. Thank you.
Hold that thought.
Yeah. Sounds good. Regarding the report in Q4, just a few questions regarding non-recurring items of SEK 4.6 million and also the other operating income of SEK 3.1 million. Can you just tell me what those are? Sorry.
Sorry, can you repeat that question?
Yes. First of all, the non-recurring items of SEK 4.6 million in Q4.
Yeah. It's a combination of acquisition-related costs related to Artscape, but also to the legal reorganization for Boråstapeter, where we split Boråstapeter into two units. There were some restructuring costs related to that. Those two are the main issues.
Great. The other operating income of SEK 3.1. Can you say anything about that, please?
Hold on. I need to look into those details. I'll get back to you.
That's fine. Thank you. One or two follow-up questions. When it comes to working capital in 2021, contributes negatively about SEK 37 million. How do you see working capital going into this year? Any major sort of impacts to bear in mind?
Capital investment?
Yep.
No, we don't have any major ideas of changing anything there. We will keep on working on improving everywhere, but no major changes.
Basically the levels we have seen for the last couple of years. Is that a good assumption?
Yeah.
Great.
That's a good assumption. Yes.
All right. Okay. I think that covers it for me. Thanks a lot.
Thank you. Thanks.
Thank you. We have a follow-up question or questions from Harry Wintner of Handelsbanken. Please go ahead. Your line is open.
Yeah, just a few follow-ups. Firstly, about this sort of pilot that you're doing with your online sales of non-wallpaper products such as trays, tablecloths, and pillows. Do you have anything to share on that front? I mean, not numbers, but are you encouraged by the early.
Yeah.
drop?
I mean, we are encouraged. We received it a little bit later than we expected, but the sales of certain designs were really good and strong. We are now, you know, the Boråstapeter team is now analyzing or has been analyzing it, how we should take it to the next, you know, what learnings we can make, and we are encouraged, basically. Yes, we are encouraged.
Okay.
I will not share any numbers right now with you.
Okay. It's certain patterns, designs that have resonated with customers rather than a certain product group?
Yeah. That's absolutely right. I mean, we can see that some of the, if I remember correctly, it was six different designs. Some of them went really well, and we had good sales. Others has still to prove, to put it that way. But this is how it is, and this is a very good way of for us of also testing in short series different designs. What might work on the wall doesn't necessarily work on a pillow.
All right. Good. Wall&decò, can you give us an update of what were the sort of the major achievements for Wall&decò in 2021 and what are the key priorities for 2022?
In 2021, we did, first of all, we have Christian Tomadini in place since May, so he has now done eight-nine months. Wall&decò suffered a lot in 2020 in terms of revenue and all, and sales as well. Wall&decò is the company within or the brand house within our group, which has the highest share of project sales. Last year, I would say we managed to get all the things in order now to come back to strong growth. We are now consolidating the company into one place and one building where we have production in the ground floor and then administration and sales and finance on the second floor.
We have also now done together with Christian Tomadini some changes in certain key markets when it comes to agent structure in France, for instance, and some other countries as well. We are now, you know, I would say we brought the house into order now to be ready to capture the growth that is coming now in hospitality segment. We have seen very positive order intake beginning of this year with Wall&decò coming, as I said before, mainly from the hospitality segment. We are cautiously optimistic about that.
Great. Sounds very good. Thank you.
I can come back. While Olle explain that I managed to check this question for other operating income, and that is related to one part is a repayment from Fora in Sweden, where we paid too much earlier years. It was a repayment. Part of that is related to Fora, but we also have positive currency impact. We have some rental income for some space in Viareggio that we decided to rent out. In addition, we also have some government support, not that much, but some government support in Italy for Wall&decò.
Thank you. Once again, if there are any further questions, please dial zero, one on your telephone keypads now. Okay. There seems to be no further questions from the phones at this time, so I'll hand the floor back to our speakers.
All right. Thank you very much for listening in and for all the good questions, and I look forward to see and meet you and hear from you soon again. Thank you.