Liewood A/S

Ledelsesberetning

With a philosophy of creating fun, functional, and conscious choices, LIEWOOD is made for children tobe loved by parents.In our work with designing and producing toys, interiors, nursery, apparel, accessories, and footwearfor children we keep our strong values as our guideline in our everyday work - making durable safeproducts in a timeless design for the contemporary family.A strong position in a challenging marketAt LIEWOOD, we have experienced strong growth over the past years. A development we are verythankful for and proud of.2023 has been both a developing and challenging year. While we expected to grow further, macrodevelopments caused that we did not meet our financial expectations. Therefore, the financial resultfor 2023 is not satisfactory to the management, despite having achieved a continued high revenue of332 million DKK.We have achieved significant growth in our direct-to-consumer channel despite an overall decline incommercial activities in 2023. This underlines the continued high level of trust that consumers place inLIEWOOD and our brand. It reflects the enduring appeal and reputation we have built, highlighting thestrong connection and loyalty that end-consumers have towards our products and values.But operating in a changing market that faces financial difficulties and has a strong competition onpricing is challenging. It has resulted in a natural reluctance among retailers. And like many colleaguesin the industry, we experienced a lower demand due to a changed consumer behaviour and a decreasingcostumer confidence globally due to economic uncertainty.While the organization was geared for a higher growth, this resulted in a too high cost base whichis reflected in the results for 2023. This, alongside higher prices on raw materials, high inflation, andhigher freight rates, resulted in lower margins and net profit compared to previous years.In 2023, we have made great investments into the future: we have invested in the relocation of ourdistribution centre to Poland in late 2023 and a new ERP-system, which will further contribute toensuring operational efficiency and the company’s future growth. Finally, we have invested in a newand improved B2B shop platform. These investments have been resource demanding and capexinvestments are reflected in the net profit.In addition, following the COVID-19 pandemic, both LIEWOOD and retailers are facing challenges withexcessive inventory. Consequently, it was necessary to trim the balance sheet and sell out aging stockat lower margins. This exercise has had a significant negative impact on the result for 2023.The income statement shows a profit of -18 million DKK, and as of December 31, 2023, the balancesheet shows a positive equity of 43.5 million DKK. Sticking to the course by strengthening the financial positionAs a response to the current challenges, we have recalibrated our strategy and financial objectives forLIEWOOD towards 2028. We expect a greater gross profit in 2024 and improvements to networkingcapital.With a focus on continuing to strengthen our market presence, the past year has been prioritized tostabilize and invest in our core business; building a solid platform for the years to come.Additionally, we have strengthened the board and leadership team and made significant developmentsto our corporate leadership and strategic direction, as part of our journey of strategic realignment.This is not to change the core of LIEWOOD but to ensure the best journey for LIEWOOD going forth.We are proud of our vision and our values, and we remain in a strong position across markets, and weaim for growth in our key markets in the time to come.Making thoughtful choices on behalf of the futureAt LIEWOOD, we dedicate ourselves to creating high-quality products for families and children acrossthe world. We believe in being thoughtful and making responsible and conscious choices when creatingsafe and long-lasting products offering sustainable advantages to the consumer.Therefore, we use sustainable materials like organic cotton, recycled polyester, nylon, and plastic andother sustainable materials, as well as mono materials for a large part of textile production, for easierrecycling. The focus is continuously on sourcing responsible materials and suppliers.To ensure that all materials used in the supply chain meet the REACH standards and EU regulations,LIEWOOD has an internal RSL (Restricted Substances List). The Code of Conduct and Supplier Manualis updated twice a year to make sure LIEWOOD follows the updated requirements. To structure andfocus our efforts, we have adopted a systematic approach based on GOTS and GRS goals and wecontinue to expand and follow GOTS certification requirements in our growing supply chain.In addition, LIEWOOD has an Internal Compliance Team to ensure all products are being tested forboth safety and hazardous chemicals. All the production goes through rigid QC inspections from ourpartners.Global standards as a driving force in productionLIEWOOD has decided to align with the ten fundamental principles of the United Nations GlobalCompact for Corporate Social Responsibility. We are committed to integrating these principles intoour strategy and corporate culture, with a specific focus on human rights, labour rights, environmentalpreservation, and anti-corruption measures. For the upcoming years, we have planned to performmateriality assessment for materials within our value chain covering the areas of environment, humanrights, and corruption, among others.The value chain including raw materials through processing, transport, and the final presentation ofour products to end customers involves multiple stages, each with potential risks to people and theenvironment. Consequently, we consider it our duty to enhance our understanding of this process andcontinually improve transparency. Simultaneously, we strive to simplify and promote transparency forend customers, empowering them to make informed and responsible choices. Engaged employees as a core valueOur people are our most valuable asset and crucial for the future success of our company, as we dependon their knowledge and expertise. As a result, LIEWOOD’s Working Committee has been establishedto ensure that the organization focuses on maintaining a safe and healthy work environment. Thecommittee conducts regular employee surveys to ensure a proper work environment. The employeesurvey for 2023 was satisfactory.At LIEWOOD we believe we can enact change and positively impact our stakeholders. We are committedto being a responsible business and respecting fundamental human rights throughout our value chain– from our HQ in Copenhagen and through operations and those of external stakeholders. We respectand uphold all human rights stated in the International Bill of Human Rights, including the labour rightsexpressed by the International Labor Organization (ILO), and recognize the “protect, respect, andremedy” framework outlined by the UN Guiding Principles on Business and Human Rights. Likewise, wealso have a zero-tolerance policy for corruption and bribery.Financial RisksProduction and procurement take place outside of Denmark, and a considerable part of the revenue isearned outside Denmark and settled in currencies other than DKK. This exposes LIEWOOD to continuedfluctuations in exchange rates that affect both earnings and cash flows. To minimize risks, the companyconducts ongoing hedging. However, the USD had a negative impact on the annual result. LIEWOODonly hedges cash flows and not speculative transactions.Future ExpectationsLIEWOOD aims to continue its positive development, offering a core range of products to customers,strengthening the corporation with existing customers and continuing the growth within its own directto-consumer channel. Based on the current economic outlook and consumer behaviour trends, weproject that 2024 will mirror the challenges experienced in 2023. Specifically, we anticipate stagnantrevenue growth with a slight downturn in commercial activities. In response, we have continued ourfocus on cost optimization and COGS reduction with the aim of achieving an EBITDA margin of +8 %and realizing an improved gross profit by the end of 2024. Consequently, we expect our EBIDTA for2024 to be between 20 – 25 million DKK. Additionally, we will consolidate our operating platform andresources to scale our digital business model further in 2025.Subsequent eventsNo events materially affecting the assessment of the Annual Report have occurred after the balancesheet date.