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

Good day, and thank you for standing by. Welcome to Nobia Investor Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speakers today, Mr. Kristoffer Ljungfelt, CEO; and Mr. Robert Belkic, CFO. Please go ahead.

Thank you very much, and good morning to all of you, and welcome to this investor update with Nobia. Together with our Board, our main shareholders and our lenders, we are today announcing a comprehensive program designed to strengthen Nobia's position as the #1 kitchen company in the Nordics. These initiatives will not only cement our #1 position in our core markets, but also lay an exceptionally strong foundation for long-term growth and success. So let me jump into the presentation with the first slide. Again, this initiative, we will consolidate our business and our resources around our home market in the Nordics, where we have a portfolio of extremely strong brands with structurally high margins and well-invested production footprint centered around the state-of-the-art manufacturing facility as we call Nobia Park in Jönköping. Through the solid support and backing from our owners and lenders, we will also enhance our financial position, lowering our leverage and cut our lending costs, which again will help us focusing on delivering on our strategy and operational excellence in the Nordics. Consequently, we can announce the following actions today: the divestment of our U.K. operations to Alteri Partners, a fully guaranteed rights issue of new shares amounting to approximately SEK 1.5 billion, which is also a testimony of our main shareholders' commitment and belief in the strategy that we put forth, amendment and extension of the revolving credit facility with incumbent lenders to improved terms, which Robert will explain later on. We will also launch a new cost initiative and restructuring initiative to ensure that the organizational structure is aligned with the needs of the business going forward. Can we take the next page, please. So we will, by this, strengthen the focus on our core, the Nordic kitchen market. This market is structurally attractive with a projected market recovery and expected growth in the coming years. We are the leading kitchen specialist in this market with exceptional brands and extremely strong dealer networks that have been in partnership with us over generations. With the brand HTH, we have a Pan-Nordic kitchen specialist with high market shares in a profitable capital-light franchise model. With the brands Marbodal, Sigdal, Invita, we have country-leading brands with impressive partnerships in the construction industry developed over decades. With Norema, Unoform and Superfront, we have tactical kitchen brands with strong potential in the market. Over the last years, we have also invested in a unified, focused and scalable Nordic platform designed to drive competitiveness and deliver strong financial results. In October last year, we inaugurated Nobia Park. It's the group's automated state-of-the-art manufacturing facility that underpins the leading position in the market and in B2B in the Nordics, and it enables a new cost level for all our volumes. We have harmonized the product range with positive impact on both product design, sustainability, performance and thereby, we have also enabled consolidated sourcing across the Nordics. Despite market turbulence in the last couple of years and a very soft construction market, we have improved EBIT margin from 3% in 2023 to 6% in the last 12 months of this year -- or sorry, of 2025, obviously. If we are excluding the U.K., which serves as a good base for future potential. If excluding the U.K., we can also demonstrate a consistent EBIT margin above 10% under normalized market conditions. And now I will happily hand over to Robert to share you some light on the U.K. divestment and our new financing agreement. Please go ahead, Robert.

Thank you, Kristoffer. Yes. So looking at U.K. then and the divestment of the U.K. operations. As you are aware of, U.K. is a market with strong brands, but also high operational risk. Historically, we have had a clear agenda to convert U.K. to an asset-light operating model. However, it requires a large capital requirement to rebuild the store network. And a turnaround in a challenging market environment also demands a high degree of central resources and management involvement. We also see limited synergies with the Nordics. U.K. is largely a separated operations following the Nobia decentralization and the Brexit-related changes. Also, U.K. today has a lot of localized supply contracts following Brexit. If we zoom into the transaction then, no purchase price will be due, the buyer assumes the obligations related to the leased retail network amounting to a gross liability of SEK 746 million. The transaction may result in a consideration related to the buyer's future performance and successful turnaround related then to the U.K. operations. And Nobia finally then will retain the defined benefit pension plan reported in the U.K., which is recognized at a net asset value of SEK 80 million, so no change compared to today. If we move to the next slide then and looking at our financial position and looking at the rights issue. The rights issue is amounting to approximately SEK 1.5 billion. It's fully guaranteed by the main shareholders and it's expected to be completed during Q1 2026. Looking at our improved financial terms then, we have refinanced our existing revolving credit facilities amounting to SEK 2.5 billion with our current lenders, including then -- and an extended tenure of 3 years, significantly reduced margins and also then a normalized market-based covenant structure, including the net debt to EBITDA and interest cover. If we then look at the financial profile, on a pro forma basis, leverage would improve significantly and bring down net debt to more normalized levels. We will also experience a resilient funding structure and credit profile going forward when we operate -- to be able to operate the business efficiently also in a recession. And then finally, we'll also see a large reduction in the interest cost. If we move then to the next slide and looking then at the indicative timetable for the share rights issue, and this is then for your reference and your reading. It's a lot of dates and a lot of actions happening between 11th of February and 12th of March 2026. But if we are to single out one single date and one single event, it's the extraordinary general meeting then, which is expected to be held at 18th of February in 2026. So with that, I hand over to Kristoffer again.

Thank you, Robert. So let me convey a little bit how these important changes will unleash the full brand potential, as we call our strategy through a dedicated Nordic kitchen business. If you go to Slide #8, please. The Nordics stands out as an attractive kitchen market with strong recovery prospects. And the slide in front of you is displaying housing starts in all Nordic countries between 2019 and out to 2027. And even though it's a somewhat busy slide here, it gives a good reference to the decline that has been, but also recovery that is expected on all the Nordic markets. Historically, housing starts convert into kitchen sales within 12 to 18 months, suggesting that improved volumes will start to materialize by 2026 following almost 3 years now of negative market growth. So with our high market shares in B2B and the strong relationships we have built up over a very long time with the builder and the customers, we believe we hold a strong position in an attractive market that is now on the path of recovery. Take the next one, please. As you know, we are the leading multi-brand kitchen specialist in the Nordics, and we are very well positioned to drive market share in the mass premium kitchen market with brands like HTH, Marbodal, Sigdal and Invita and an extremely solid customer base and franchise base. The mass premium is our core, where we will make further push for market gain. However, and in addition, by capitalizing on the group scale, we're also dipping our toes into adjacent segments of the market where we have large opportunities over time with brands such as Superfront, Norema and Unoform. The next slide, please. We are building our future on 3 strategic priorities and 2 enablers. As alluded before, we have extremely strong presence and performance with our Pan-Nordic brand, HTH. We will strengthen this proposition further and continue to roll out franchise stores in the Nordics. We will also gradually introduce HTH products in Nobia Park, primarily for the Swedish and Norwegian market to enjoy all the benefits with an automated manufacturing will bring. We will capitalize on our country-leading brands, Marbodal, Sigdal and Invita, with strong customer intimacy in B2B and make sure that we are properly prepared to capture market growth and expand the key account base with more builders and tradesmen. We will realize the potential of a consolidated Nordic supply chain network. With conversion cost improvements and the large number of benefits for design, quality, lead times, et cetera. We are drastically reducing complexity with the divestment of U.K. We also have a harmonized product range and the centralized operating entity, all of which in total will enable faster and more accurate decision-making in a simplified business model, which will be one of our core enablers. As another enabler of then, which we have already discussed is that we see a stabilized market after years of decline. And on the back of the leading indicators, we might even see signs of recovery coming through. Next page, please. So we are moving from a highly fragmented manufacturing to harmonized Nordic supply chain with manufacturing centered around the state-of-the-art manufacturing in Nobia Park. Our investment in this site creates a new foundation for Nobia to grow from, combining cost efficiency, mass customization at scale, superior quality and sustainability. We would also enjoy lower conversion costs in this site versus our legacy sites due to the automation and harmonized processes, and we have also enabled the harmonization of the product range once we have centralized this manufacturing. So let's move to the next chapter, which is looking at the financial pro forma for this business when excluding the U.K. operations. And we should be now at Slide #13, please. This slide is excluding the U.K., but incorporating the full group costs. And with this, we can demonstrate the business that consistently delivered an EBIT margin above 10% between the years 2015 to 2021. Though in recent years, the market has faced significant challenges in declines in demand, substantial inflationary pressure and the cost of living crisis that has heavily impacted margins. Since 2023, we have successfully improved margins despite this continued volume shortfall across all markets and segments. As we transition into the new Nobia structure, we are confident in our ability to drive further margin improvement, supported by our technology and disciplined operational excellence. Take the next one, please. So the slide in front of you should illustrate the CapEx profile here for Nobia Group, excluding the U.K. And between 2015 and 2020, Nobia maintained capital expenditures at approximately 2% to 4% of net sales. Following the 2019 decision to develop and consolidate the new supply chain structure, Nobia entered an investment cycle with a significant spike coinciding with a sharp market downturn. As we exit this investment cycle, as you can see from the slope of the curve, we expect capital expenditures to return to historical levels. With now a fully invested supply chain, strengthened margins and an improved financial position, we believe we are well positioned again to deliver significantly stronger cash generation in the years ahead. Then the last slide in this section, please, Slide 15. This one shows the net debt development, the leverage for the total group, and this time, it's including U.K., and it's showing this over the last 10 years then. And as you can see between 2015 and 2021, we operated with very low leverage and even maintained a net cash position. However, in recent years, again, coming back to the turbulent market, the lower earnings and temporarily high capital expenditures, this has resulted in net debt level that is high relative to our profitability. So today, we operate with a net debt of approximately SEK 2.6 billion from Q3 with a leverage of 6.8. The proposed rights issue of SEK 1.5 billion will, of course, significantly improve this position and put the financial position in a much better space also in terms of the different terms that we can get as the basis of this. This will also help us to bring us closer to our financial targets and then enable a considerably lower interest rate cost in the years ahead. Financial targets. We remain committed to our -- sorry, it's next slide here, so Slide #16. We remain committed to our financial targets and are confident that the major actions now underway will significantly strengthen our financial position. We expect to deliver growth above market, supported by our exceptionally well-positioned brands and a state-of-the-art supply chain. By focusing on -- solely on our core Nordic markets where we have our strength, we aim to consistently achieve profitability above 10%. The proposed rights issue will also improve our leverage and with a stronger balance sheet, our ability to generate solid earnings with lower interest costs will increase markedly. Ultimately, we believe these initiatives will eventually and over time, enable us to resume our dividend payments in line with our financial targets. So over to the last slide of this presentation. It's a summary. And the summary again is that we have very big news for Nobia today, where we, again will reiterate that we consolidate our resources and business around our profitable Nordic operations and our fantastic brands and our great business unit. We will also put ourselves in a considerably stronger financial position, creating this strong foundation for long-term growth and success. So consequently, again, I will reiterate that we have divested our U.K. operations to Alteri Partners. We are getting ahead of a rights issue of new shares, approximately to SEK 1.5 billion backed and fully guaranteed by our main shareholders. We have amended and extended our revolving credit facilities with incumbent lenders. And we have launched an initiative to ensure that the organizational structure is aligned with the needs of the business going forward. And with that, we are -- take any questions that might be.

[Operator Instructions] We will now take our first question from the line of Marcela Klang from Handelsbanken.

I have a couple of questions. You mentioned in the announcement new covenants related to the new lending facility. Can you give us any more details regarding the covenants that you will be operating under when is the new loan agreement? Is it standard type of covenants or any kind of temporary as you had before?

Yes. Marcela, no, I can't comment on that. No, as we're expressing in the deck, we are now with -- I mean, with the new financing in place, we also have -- I mean we have normalized the whole structure also then including normal and market-based covenants. So we will not have any temporary covenants, which is -- which was the case historically. Instead, we will have the 2 covenants that are in scope is net debt-to-EBITDA and interest coverage ratio. So those are the 2 ones, which are, yes, market practice ones.

You also disclosed the levels?

No, the levels we will not disclose. We have not disclosed them historically, and we'll not disclose them going forward. But as stressing once again, they are normalized and market-based.

Okay. Could you also give us a little bit more details on the remaining cash outflows related to Jönköping and also maybe discuss the group costs going ahead? Will you be downsizing any kind of joint functions after the divestment of the U.K.?

Yes. So Marcela, we will come back to you also in the Q4 release in February to give you more details on this. But in essence, regarding the investment in Jönköping, we have about SEK 200 million left over time, not necessarily that everything will fall into next year. That's including also some double line costs that we will have regarding this project. . The -- can you please remind me on the second question, sorry, the group cost, right? Is it...

The group cost, yes.

Is it restructuring program that we do. We believe that we will get a run rate benefit of consolidating further functions, et cetera, to the magnitude of SEK 80 million run rate. This is partially also due to the fact that the U.K. operations -- take over some of the group resources as well, obviously. But also here, Marcela, we will come back with more details when we meet in February.

I also mentioned that you wrote in the press release that there may be a consideration related to the buyer's future performance and successful turnaround. Can you give us any more details regarding that?

Yes. We believe that -- we're very happy with the transaction should be said. And we also believe that Alteri we have the opportunity now to focus on U.K. and the business there while we strengthen our focus on the Nordics. And by that, they also take over our lease commitments, [ SEK 750 million ]. A lot of that is related to the store network that we have been discussing for a long time. There is a possibility for us or we will get a potential upside on the future value of that business to the magnitude of 20%. And again, we believe that Alteri is the right owner to do that transformation now.

And what type of time frame are we talking about here? When will you get more visibility on any kind of future upside?

We believe this should be seen as an option. We don't have the -- any time frame on that. It will now be up to Alteri to continue with the transformation and the great -- that we have in place there, and we strongly believe that they will be the right owner for that transformation. However, there's no time bar on that percentage.