Nobia AB (publ) (NI8.F) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Nobia Q3 Report 2025. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kristoffer Ljungfelt, CEO. Please go ahead.

Good morning, everybody, and thank you all for joining. We'll start with some key highlights for the quarter. And similar to our last quarter, we continued to improve operating performance and strengthen our EBIT and cash flow despite soft product markets. And even on these historical low levels, we have demonstrated that we can operate above 8% in the Nordic region also on a rolling 12-month basis. With regards to group net sales in the quarter, it declined organically by 3%, driven by volume decline in the product segment in both regions and especially in the U.K., which also led to further under absorption in our supply chain. However, and on a positive note, we had growth in region North for the first quarter since Q3 2022, which concludes a period of 11 consecutive quarters of decline in the Nordics. Also, our continued growth in the consumer segment is promising, and we are encouraged by the growth in store visits and kitchen design appointments. We also continue our mix up to higher value products, and therefore, improved average order values, which also strengthened gross margins. Gross margin of 38.6% in the quarter is 1 percentage point above last year, primarily driven by improvements in U.K., but also supported by improved average order values in the Nordics. Gross margin was then negatively impacted by the under absorption in supply chain across both regions. We continue to generate savings from our cost out programs, including the store closure programs in the U.K. We recorded another quarter with large improvements and the total savings from the programs now exceeds SEK 650 million. Having said that, the year-on-year effects will taper off from here, and we do not rule out that we have to introduce further cost initiatives as long as the market remains soft. Operating cash flow came in at SEK 102 million. We are pleased with that improvement versus last year, and this is something we have worked very consistently with over the past 12 months. So it's good to see that we get solid traction on our initiatives. On October 21, we inaugurated Nobia Park in Jönköping. And it was really a pleasure to see the huge interest in this new facility. We had over 1,000 customers visiting us over 2 days. And on the day, we also launched 2 new important trademarks, which I will come back to. And these trademarks also underline our commitment to product innovation and design for the future through these sites. As we pre-announced in last week, we made a SEK 1.9 billion noncash impairment of our U.K. operations, which mainly refers to intangible assets. And we are continuing our efforts to transition to a more asset-light operating model in the U.K., but we will also look for further strategic options for the U.K. operations. And Robert will come back here a little bit later on the impairment. Let's move to next slide, Slide #3, which is the Kitchen market development in the Nordic retail. So the gradual recovery consumer sales continued, and we are encouraged by the latest stats of housing transactions, growing consumer confidence in general and government grants that support home renovation, especially in Sweden. However, the consumer market only represents about 20% of our volume. With regards to the product market, where we have about 80% of our volume then, we experienced another soft quarter in Q3. And it is clearly so that housing starts have not yet increased materially. We are, however, seeing higher levels of activity in areas such as meeting with architects and quote revisions, et cetera, but it will take some time before this materializes into firm kitchen sales. In addition, we believe there is starting to be a significant demand across many parts of the Nordics, which should eventually translate into growth in this segment. Next slide, please, Slide #4. The kitchen market in the U.K. In the U.K., we have a similar pattern to the Nordics, where we're seeing some signs of optimism in the consumer segment. However, the product segment remained particularly soft in the U.K. We believe that high interest rates continue to burden housing starts and home renovation as many homeowners choose to delay products until financing conditions improve. It's also an ongoing uncertainty around government-backed initiatives, particularly for higher-value purchases and for residential property developers. And overall, we believe this has led to a more cautious market in Q3, even though we believe the underlying demand remains. Let's move over to strategic updates. Slide #5. We start on the top, again, we have had a very good return on our cost-out programs carried out the last couple of years, which together have rounded savings north of SEK 650 million. But given where the market is and our commitment to deleverage, we will continue to rationalize from where we are today with strong cost discipline. And again, we do not rule out that we need to take some larger steps also in the coming quarters to reduce costs. As stated already, we have had good improvements in working capital, and we are very pleased that our initiatives for the last 12 months have started to pay off. With regards to realizing Nordic potential, we need to streamline our supply chain, which is well underway. We successfully closed our Finnish factory in the quarter, well ahead of long-term planning, which will start to generate savings already in Q4. We are looking to close down processes in Tidaholm as we are transferring volume gradually to the new factory in Jönköping. And we also expect to start to generate savings from the new optimized K2020 platform as we go live in Nobia Park. With regards to transforming U.K., we continue to transition to an asset-light model by closing the large nonperforming stores, consolidated supply chain and sign up partners to distribute our Magnet products. And it's absolutely critical to get into this new operating model. And we believe that the team has done a really good job over the course of the last year, although there is still a lot more to be done. Foremost, it has been challenging to exit parts of the store network. And it has been taking longer than we were expecting. And we have now exited roughly 1/3 of the store space, but we still need to do more to get into the desired model. Given these challenges, coupled with soft market conditions and therefore prolonged financial recovery, we are impairing SEK 1.9 billion related to the U.K. business. And again, we have initiated further strategic reviews to strengthen profitability. Take Slide #6, please. The successful consolidation is ongoing in the Nordics. And as I referred to earlier, we closed the Nastola, the Finnish factory in Nastola in the quarter and took another important step on this consolidation journey. And apart from the cost benefits, by doing this, we also introduced a more competitive product range by using the HTH range, which the Finnish consumers have appreciated a lot, and it has also been important to our B2B customers. These products will be delivered from Denmark. Some of the B2B customers in Finland also have Nordic presence. So it makes a lot of sense for HTH to provide the same products and service levels across the entire Nordics to these customers. And again, we believe this transition will generate savings of about SEK 40 million annually. If we move into the next slide, please. The ramp-up of Nobia Park, the new Nordic manufacturing facility in Jönköping. First of all, I'd like to thank our customers and suppliers that participate in the inauguration of the new site. It was a very important day for Nobia where we had a chance to showcase the latest manufacturing capabilities in the kitchen industry, but also showcase our new products with outstanding quality, fit, fill and finish and also world-class sustainability credentials, which you know is with -- with really incredible performance and sustainability credentials and prime shell is the latest technology for selling products -- sealing products against moist and breakage. And we have already begun to distribute these products features across the entire Nordic network, and we'll continue to do so, seeing a larger scale in the coming year. As we currently have Nobia Park to manufacture and distribute components to about 30% of the network. So we have, in a way, already established this site as a central hub for Nobia. With regards to full kitchen assembly and distribution for Marbodal, we are in the midst of ramping up production with the first assemble kitchen being manufactured and distributed in August. There is, of course, a great deal of training and fine-tuning underway as we work towards industrial scale in this process over Autumn, so that we can -- or Nobia Park can effectively offload production from Tidaholm, which is a current site for Marbodal. With that, I kindly ask you, Robert, new on the job, to update us on the regions?

Thank you, Kristoffer. So moving on then to Page 8. Starting with the Nordic region in the third quarter, and as highlighted by Kristoffer, we are pleased to see a positive, although small organic sales growth in the quarter of 1% versus minus 11%, the corresponding quarter last year. In the quarter, the average order value increased, supported by the continued shift in the sales mix between consumer and professional products, which helped offset some of the pressure on overall volumes. Looking at the individual countries in the Nordic region, we saw continued strong performance in Denmark, supported by strong and profitable mix across B2C, trade and social housing. In Norway, we saw a modest sales growth of 1%, while Sweden saw a noteworthy margin improvement, supported by higher average order values, operational efficiencies and lower SG&A costs. Looking at the gross margin then, it improved a bit, 36.7% versus 36.6%, explained by the positive segment mix and also the cost-out activities despite the under absorption and higher depreciation in the supply chain network. Looking at SG&A, it came in roughly flat at SEK 290 million versus SEK 288 million, the corresponding quarter last year, where inflationary pressure were mitigated by cost out activities. Adjusted EBIT came in a bit lower than last year, SEK 99 million versus SEK 104 million, primarily related to lower gross profit caused by lower nominal sales levels. On a currency adjusted basis, though, EBIT in the Nordics came in flat compared to last year. And then final remark on this slide. During the quarter, we recorded SEK 39 million as items affecting comparability, primarily related to the Nordic supply chain in particular, then the transition to our new factory in Jönköping. If we then move to next slide, Slide #9, looking at the U.K. region. The U.K. market continues to reflect the same underlying dynamics as we've seen in the Nordics, i.e., growth in the Consumer segment, offset by declines in the professional segment. Organic sales in the U.K. declined by 7% in the quarter. If we adjust for the store closures, sales decline was actually at 4% year-over-year. The Consumer segment continued to show growth but this was more than offset by double-digit declines in both the trade and project segments. Despite the supply chain, under absorption caused by the professional volume decline, gross margin actually improved by 280 basis points to 40.8%. This was driven by favorable sales mix and continued impact of our cost out initiatives. If we look then at the SG&A, on a currency adjusted basis, it decreased by approximately SEK 41 million. Noncurrent adjusted, it decreased by SEK 66 million. Our cost reduction efforts implemented last year are delivering planned savings. Looking at EBIT then, EBIT for the quarter came in at SEK 2 million compared to minus SEK 49 million last year. Despite the uplift in gross margin, the gross profit value decline on back of the sales decline, which, however, was mitigated by the lower SG&A in the quarter. As previously announced and as Kristoffer mentioned in his opening slide, in the quarter, we recorded a noncash impairment of the U.K. operation amounting to SEK 1.9 billion, largely related to intangible assets, which are then included -- this item is included in the items affecting comparability. SEK 0.3 billion is recorded in region U.K. and SEK 1.6 billion is recorded in Group. With that, we move to the next slide, Slide #10, looking at our financial position. In the quarter, we're pleased with the strengthening cash flow. Cash flow from operating activities was positive SEK 182 million compared to negative, minus SEK 20 million last year. And this was then supported by an increased EBITDA of SEK 53 million and then reduced seasonal impact from working capital. As previously communicated, a key component of our focus on operational excellence is our ongoing initiative to reduce inventory balances. These efforts positively impacted cash flow, primarily driven by the U.K. but also in the Nordics, offsetting then the planned inventory increase in Jönköping during the ramp-up phase of the new factory. Overall, our inventory levels have decreased by 11% year-over-year or SEK 128 million. If we look at the operating cash flow, including investments, it amounted to SEK 102 million compared to a negative minus SEK 154 million last year. Of this, investments in the quarter, mainly related to machinery for the factory in Jönköping totaled SEK 83 million, which is down from SEK 138 million last year. Finally then, if we look at net debt, excluding leasing and pension obligations, it increased year-over-year by approximately SEK 325 million to SEK 2.645 billion. Compared to the end of the second quarter, net debt increased by SEK 146 million. As mentioned in the second quarter call, in July, we received an additional SEK 70 million from the buyer of the factory building in Jönköping. And as Kristoffer said, there is approximately SEK 40 million outstanding before we have received full payment for the building we divested last year. With that, I hand over -- I return to you, Kristoffer, for going through Slide #11.

Thank you, Robert. So the priorities going forward is to continue to advance on our strategic agenda, obviously, where the ramp-up of Nobia Park in Jönköping is critical to us. We will also continue with the turnaround of U.K. operations, where we will include further strategic reviews, and we need to continue to deliver on our cost out programs. We will also leverage on our strong brands, as communicated before in the operator -- to strengthen the operational leverage and EBIT, capture growth in consumer sales with the proven model where we also have shown that we can increase our shareholder values. We will continue with our [indiscernible] financing activities, disciplined cost control and, of course, the strict working capital governance. . And with that, thank you, and we open up for any Q&A.

[Operator Instructions] Our first question comes from the line of Adrian Elmlund from Nordea.

Adrian here from Nordea. A couple of questions from my side, please. So firstly, regarding the strategic review here of the U.K. business, are there any additional cost savings programs that you can and believe that you can benefit from? If so, what numbers are we talking about here? Like what more could you do to reduce the cost base in the U.K. And also in regards to the strategic review, is there any possibility of just spinning off the U.K. business? .

Okay. So if I start and then you fill in, Robert, if you may. When we are in the midst of the strategic review, obviously, it's very difficult or if not impossible, to answer on that right now. But what I need to say is that we continue with the efforts towards this asset-light model, and that's hugely important for us and also to come out of more cost, which we certainly believe is possible. But again, we are conducting, at the moment, further strategic reviews for the U.K. business. .

Okay. Second question here then. Could you give us sort of an updated time line here on completing the transition from Tidaholm to Jönköping? And kind of what efficiency gains are we expecting here? Are those still the same as previously expected? And kind of when do you expect to have sort of filled the production capacity in the new factory? .

Yes. So with regards to the return for this manufacturing facility, we still believe that we will achieve the desired returns. And they are obviously based on the scale. And we are now ramping up the Marbodal production. And the next one to go live is the parts of the HTH brand in Sweden, Norway and Finland. We have started gradually to look into exactly how that transition will be done, and I have to return with more details on that. . On a positive note, we believe that we can manufacture more of the components from Jönköping than what we previously have said. And also in the beginning of this program, we did not have really in the plans or in the calculations to close the Finnish factory. So from that, there will also be some benefits coming through in Jönköping, not at least on the component side. So we are confident in the long-term kind of achievement of the targets with Jönköping.

Last question here. Could we also have an update kind of on the cash position here? You have some, what, SEK 750 million left in the credit facility. You guided for some SEK 150 million in cash outflow in the remaining of the year, but also some gain to be withheld of some SEK 40 million from the sale leaseback transaction, right? But when heading into next year, kind of what CapEx needs or cash outflows are you expecting?

But again, we don't give any guidance as such, but we feel comfortable with the cash position we have now. And also for the remainder of the year, I mean, you can look at the past years as well. And I think we're in a good place for that. Even if we have some outlays for the Jönköping factory, which is about SEK 60 million more for CapEx and about SEK 150 million for -- from a liquidity perspective. .

Next, we have Sofia Sörling from DNB Carnegie.

So perhaps maybe a first question about this SEK 70 million that you received from the buyer of the Jönköping property, can we see in the cash flow statement, where is it recognized? Is it in the net working capital? Or if you can just give some details on that.

I think, Sofia, we have to come back to you on that specific question. I will, together with Robert, look into exactly how it's been recorded. .

Okay. But just to confirm, it's not -- it's through the balance sheet and not through the operating profit. .

Yes, yes, yes. It's through the balance sheet. Absolutely. .

Yes. Okay. Great. And then just another question on items affecting comparability. So you mentioned that the major part is noncash impact. But how much is cash impacted by the items affecting comparability?

So you mean the SEK 1.9 billion impairment we did?

No. I mean like -- items affecting comparability. You mentioned that the major part is noncash impact, but I would assume the -- perhaps the transition cost to Nobia Park, maybe cash impact? Or should we view that about SEK 40 million or SEK 50 million is impacting cash flow?

Yes. Regarding the rest of the items affecting comparability, that is not the impairment, then about SEK 30 million of that is cash. .