Nobia AB (publ) (NOBI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Nobia Q1 Report 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tobias Norrby, Head of Investor Relations. Please go ahead.

Thank you, Heidi, and thank you, everyone, for calling in this morning to Nobia's Q1 results presentation. The presentation today will be conducted by our President and CEO, Mr. Kristoffer Ljungfelt; and our CFO, Mr. Henrik Skogsfors. And with those words, please, Kristoffer, the floor is yours.

Thank you, Tobias. Good morning, everybody, and thank you for joining. Let's start off with some key highlights for the quarter. In Q1, we're moving into a positive EBIT compared to a year ago and are taking a lot of important steps in the right direction, even if our core markets remain soft. To list out a few positives, we have done really well in generating cash in the period, which increased by almost SEK 0.5 billion compared to the same period last year. Cash flow from our operating activities was positive, whereas we normally have a negative cash flow in Q1 due to seasonality. And that is a testimonial to our efforts of driving improved working capital and liquidity, which is one of our main focus areas across all our business units. I'm also pleased that we see continuous improvement in gross margins across the Group for the fifth quarter. The gross margin came in at 38.6%, which is the highest gross margin since Q1 2018. And we will continue to mix up to mass premium and strengthen productivity to improve further going forward. Thirdly, we're materializing the savings up and above the plans that we have communicated and from the cost-out programs that we launched last year. In the quarter, we released SEK 70 million savings and the total cost-out programs have now generated over SEK 0.5 billion savings in the last 1.5 to 2 years. Finally, and as a consequence of the above mentioned, we continue to make good progress in the Nordic profitability where we steadily strengthen our EBIT margins through the improved consumer sales, gross profit and execution of our cost programs. With regards to the market then, the recovery continues in the consumer market in all our geographies, especially in Denmark and Sweden. We also experienced growth in the mass premium segment, which is most of our brands play and which is a positive for us. On the other hand, the project market continues to be soft, and we do not expect any significant increase during 2025. But the rate of the decline is gradually taking off. And in markets where consumers have been strong for a while now like Denmark, for example, we're starting to see much more activity with builders and tradesmen. Organic growth came in at minus 6%. The Nordics was flat, whilst the U.K. had an organic decline of 12%, but a negative 3% on a like-for-like store basis. In the Nordics, the consumer sales is starting to trend positively, which proves that our strategy of pulling resources into this much premium consumer segment is working. With a stronger average order values in consumer, we also mitigated the volume decline in the product business. In the U.K., we are building our order books in the quarter for dispatch during Q2, Q3. And as we have exited a large number of stores according to our strategy, we have fewer distribution points and lower sales, but the store closures will drive large cost savings throughout the next coming quarters, which Henrik will come back to as well. Operating income came in at SEK 16 million with a margin of 0.6%. And again, the improvement was related to the progress in the Nordics. However, the profitability declined in the U.K., where we took this extra marketing costs to drive sales during the important winter sales period. And therefore, we did not get the full impact of the cost savings this quarter, but expect to get the full savings from Q2 and onwards. Let me also add that we do not see any direct impact from the trade barriers as we do not export nor import anything from either U.S., nor China. If anything, we could be slightly helped by a weaker dollar, but that is marginal. We also have not seen any change in the consumer buying behaviors as of now, but we will, of course, continue to monitor the situation closely. That goes without saying. So if we move in to the next slide, please, [ Tobias. ] So the kitchen market development in the Nordic region. And as I just mentioned, we continue to see a recovery in the consumer market, which we believe is driven by a slight recovery of housing transactions and a pent-up demand for home renovations. We have continued positive momentum and improved footfall and design appointments. And we also foresee that various government grants in house renovations will support the demand for kitchen. We expect consumer growth to gradually also improve our business with the tradesmen, where we, in some markets, can see more activity, as mentioned just earlier. In markets with higher interest rates like Norway and U.K., we experienced a recovery in the consumer segment, but at a lower rate than in the rest of the markets. As for the project market, we still experienced volume decline in Norway, Finland and U.K., but in Denmark and Sweden, it is tapering off in the quarter. Judging from housing starts, as I said, we expect the project market to remain soft until the end of 2025. Then if we move over to the U.K., it's quite similar to the Nordics with a recovery in the consumer segment, while the project market remains soft. On a positive note in the U.K., housing transactions have started to increase and mortgage rates have fallen since a year ago. It should also be mentioned as a positive that some major U.K. lenders have eased mortgage affordability rules to enable additional borrowing for home renovation as well. And we are also positive that more governmental-backed property developments are coming about and can therefore see some increased activity in that segment as well. So let's shed some light on our strategic priorities, which you have seen before, but we will reiterate these and give you an update on where we're at. First of all, maximizing cost efficiency. We remain steadfast to do this in current environment. And we are very pleased with the new organizational setup with decentralized operations where we can still extract the scale benefits that we get in the group for local competitiveness. We have had good impact from the cost reduction initiatives, as I said, and savings have now surpassed the 500 -- is up to SEK 550 million, and we have run rate savings of yet another SEK 100 million to materialize during the rest of the year. To realize the full Nordic potential, the next point here, we have come a far bit to strengthen Nordic supply chain. And I believe that, that team has done really well over the last 12 months. And now we have an important transition from Tidaholm to Jonkoping in front of us, which is progressing according to plan, and we will shed some light on that as well. Also in the quarter now to strengthen our Finnish business and lower our fixed cost base, we decided in April to close the Finnish factory to supply [ instead the ] products from Olgod in Denmark. And the Danish product range is very well suited for the Finnish market. So we also expect to be able to gain some market share with this setup over time. It's been a month in its making. And even though it is always hard to see some good colleagues leave, I'm really pleased about the progression made by our Finnish and Danish colleagues. In the quarter -- in Q2, sorry, we will take a cost of roughly -- or exactly EUR 6 million [ for sure ] and expect savings of about EUR 4 million per annum for this move. Finally then, the transformation of the U.K. business is progressing as planned, although the underlying market and especially so the project market is definitely challenging whilst we do this transition. And also the project market is giving us quite high underabsorption into our supply chain in the U.K. We continue to close the old store formats that are very capital intense and replace them with smaller city center stores for the mass premium consumer, moving into what we call the asset-light model as we have talked about many times and which is an important pillar of our strategy. We have also had some good progression with our new partnerships that are coming along nicely, especially those with the builder, merchant and franchisees. And we are consolidating the brand -- consolidating the brand Commodore into the Magnet business as of now, which is proceeding according to plan. We have also now exited the most unprofitable stores that were up for lease renewal. So we believe we are in a considerably better cost position now than a year ago. Our efforts to drive sales in consumer with higher average order value definitely is the right strategy, and we see good development in front of us and have seen good development in the consumer sales for the last 12 months. Then let's move to the next slide and talk more about Jonkoping and the state-of-the-art future-oriented factory we have there. It's extremely exciting what we're about to accomplish in the new factory in Jonkoping. The majority of the machine park is now in place, and we are every day making huge progression in the connectivity between systems and machines. Kitchen -- sorry, component manufacturing and distribution of the same throughout the Nordic supply chain has been more or less completed, and we are now optimizing those flows across the network. The next big step, which we have started now in Q2 is to industrialize the frontal manufacturing and to have the frontals assembled together with the kitchens and consolidation of the kitchen order. Then there will be the next important step to deliver the fully assembled and fully consolidated kitchens directly to end consumers. And that's something that we are ramping up now, and we're in the midst of ramping it up, and we do that in parallel to the other steps starting from May. As planned, we expect that the transfer of the Marbodal volume will be completed during this year. I should also mention here that the investments remaining in 2025 amounts to about SEK 200 million CapEx before we're done and a SEK 350 million cash flow impact of the same. With that, I hand over to Henrik to talk more about the financials by region.

Very good. Thank you, Kristoffer. As you just highlighted, Kristoffer, we are pleased to see the gross margin improvement and the increased profitability for the Nordic region. Organic growth was flat compared to the first quarter last year. Despite continued pressure on our overall volumes in the project market, we achieved a significant improvement in adjusted EBIT. EBIT increased by SEK 86 million to SEK 109 million, which is equivalent of a 5.9 percentage points improvement to 7.5%. This improvement reflects the impact of several initiatives, including cost reduction efforts, improved supply chain productivity and as communicated in previous calls, a continued emphasis on the consumer segment. These actions show tangible results and is a positive step forward. Our average order values in Nords increased, supported by the continued shift in the sales mix between professional and consumer products, which helped offset some of the pressure on overall volumes. Our gross margin improved by 2.7 percentage points, reaching 36.6% in the quarter, despite the decline in the volumes and higher own costs from the ramp-up in Jonkoping. The improvement is driven by operational efficiency gains in the Nordic supply chain, the favorable sales mix across countries, segments and products with consumer sales performing better than the product side. Both gross margin and also gross profit increased year-over-year, together with cost savings in Selling and Admin expenses on back of the cost-out programs and the ongoing cost discipline improved the adjusted EBIT from SEK 23 million last year to SEK 109 million this year. The EBIT margin increased to 7.5%. A continued very strong performance in Denmark was a major contributor, helped by market share gains in consumer sales. Norway and Sweden also saw gradual margin improvements supported by average -- higher average order values, operational efficiencies and lower SG&A. Finland continues to be a difficult market, and we are actively working to adjust our cost structure. As part of these broader efforts, which I communicated in early April, and as Kristoffer has mentioned, we have made a decision to close our Nastola plant in Finland and move the manufacturing to our Danish factory in Olgod. This is a step intended to increase the profitability in Finland. In the Nordics, in the quarter, we took SEK 22 million as items affecting comparability, primarily related then to the Nordic supply chain and in particular, the transition to our new factory in Jonkoping. So if we go over to the next slide, please, U.K. The U.K. market continues to reflect the same underlying dynamics as we have seen in the Nordics. Growth in the Consumer segment offset by declines in the Professional segment. The organic sales in the U.K. declined by 12% in the quarter. If we adjust for the store closures, sales declined 3% year-over-year. The Consumer segment continued to show growth, but was more than offset by double-digit decline in the Project and the Trade segment. Despite the supply chain underabsorption caused by the professional volume decline, gross margin improved by 0.4 percentage points to 41.3%. This was driven by a more favorable sales mix and continued impact from our already initiated cost-out initiatives. On a currency adjusted basis, SG&A decreased by approximately SEK 12 million. Our cost reduction efforts implemented last year are delivering planned savings, although these are -- have been partially offset by inflationary pressures and increased spending on online lead generation during the quarter to drive the very important sales in the winter period. EBIT for the quarter came in at negative SEK 53 million compared to negative SEK 11 million last year. The impact from the sales decline despite the improvement in gross margin caused a drop in EBIT in the quarter. We are confident that the savings from the cost-out programs during 2024 will continue to contribute to a lower cost base during the coming quarter. So if we go over to the next slide, please, the financial position. We are pleased with the strengthened cash flow during the first quarter. Cash flow from operating activities was positive SEK 28 million compared to negative SEK 258 million last year. Slightly higher EBITDA was supported by improvement in working capital. The lower sales in the U.K. resulted in a positive impact on accounts receivable, but the payable increased [ on back of ] timing compared to last year. As previously communicated, we are intensifying our focus on operational excellence through the not-now-so-new operational structure that we implemented in August last year. A key component of this is our ongoing initiative to reduce inventory balance. And these efforts positively impacted the cash flow in the quarter, primarily driven by U.K. and Denmark, which also offset the planned inventory increase in Jonkoping during the ramp-up phase for the new factory. So on an overall basis, our inventory levels have decreased by 10% year-over-year. The operating cash flow, including investments amounted to negative SEK 85 million compared to negative SEK 574 million last year, as Kristoffer mentioned earlier. Of these investments in the quarter mainly related to the machinery for the factory in Jonkoping totaled SEK 139 million, down from SEK 324 million last year. The net debt, excluding leasing and pension obligations and also IFRS 16 decreased year-over-year by approximately SEK 0.4 billion to just short of SEK 2.5 billion. And those are, of course, driven by the measures that we took last year. We did a divestment of the subsidiaries in Austria and the Netherlands. We did the sale and leaseback of the property building in Jonkoping and the rights issue in April last year. The net debt increased by SEK 241 million compared to the end of the fourth quarter last year. The quarterly increase is primarily related to the normal seasonality of cash flow during the first quarter and continued investments in Jonkoping. That was all for me. So over to you again, Kristoffer. And next slide, please.

Thank you, Henrik. So looking at the priorities going forward, we are very clear with our agenda. First of all, we've continued to advance on the strategic plan that we have put in place. We have an important period in front of us ramping up Jonkoping factory. We are kicking on with the turnaround of the U.K. operations, as we have addressed, and we are also continuing to deliver well on our cost-out programs. And this remains definitely a very high focus for us. In terms of operations, we will continue to leverage on our strong brands and the new decentralized organization where we are to capture the growth that we see in the consumer sales. And as you can see, we have managed that well during the quarter. We have also, as we said in the priorities, managed to reach the average order values to a satisfactory level. We have increased our productivity and are continuing to launch productivity-enhancing activities. We have been very disciplined with cost control and we will continue to be so. And as both myself and Henrik has mentioned, we are very pleased with the strict working capital governance that we have had that has generated a lot of improvement in cash flow last quarter. So with that, we open up for questions.

Very good. Operator, please open up for questions.

[Operator Instructions] We will take our first question, and the question comes from the line of Sindre Sorbye from Arctic Asset Management.

Yes. Congratulations with the very strong results in the Nordic. But looking at the U.K., the losses are actually accelerating. And I mean, with a negative EBIT of around SEK 50 million, how sure are you that you will turn around this with the savings announced at this stage? I mean, you have cut a lot of costs during the recent year, and it still goes more into the red.

Yes. Well, first of all, we are, as you said, happy and pleased about the Nordic results and improvement, but we can't, of course, be happy with making losses in the U.K. In the quarter, we are building the order book because of the very important winter sales period, which is also impacting our cost base, obviously. And at the same time, we are pulling down our cost base quite significantly in the U.K. So just looking at the quarter in isolation, it looks like we don't have any cost-saving measures coming through. And therefore, I think that a quarter like this is not representative from where we believe we stand in the transformation of the U.K. And therefore, also, as I alluded to before here, we expect higher savings will come through the U.K. business going forward this year. And again -- yes, we're confident with the turnaround that we're doing in the U.K. and the fact that we have moved out of these very capital-intense stores that we have in the U.K.

Yes. Sure. So then it's partly seasonality because historically, first quarter has been quite poor. But what you're also indicating is that not all of the cost cuts are at this stage yet reflected in the P&L.

Yes. I think for the U.K., it's hard to look at the quarter in isolation because on the SG&A side, you don't see any marginal improvement. However, the underlying improvements in SG&A is much higher and is mitigated by our activity to drive more marketing to support the winter sales period.

Yes, sure. Just a final follow-up on that one. I think in -- earlier in the call, you said that there were approximately SEK 100 million more of cost savings to be realized during the course of 2025. Could you give a split between those SEK 100 million on the Nordics versus the U.K.?

It's around 50-50. A little bit more in U.K. than in the Nordics. We have done more restructuring last year in the U.K. than we did in the Nordics, if you remember the release we did in end of June last year. So more of it is more bias versus the U.K. of the remaining SEK 100 million that Kristoffer mentioned earlier in the call.

Yes. And in those SEK 100 million savings from the SEK 4 million from closing down Finland, it's not included that comes in addition, right?

No, it's not included in this -- the cost-out. When we are talking about what Kristoffer has showed before, that was what we communicated last year. We did -- we had one communication in the second quarter and one communication in the third quarter. When Kristoffer presented earlier in the call, we were talking, referring to those kind of programs. Finland was taken after the closing of the first quarter. So that is something that we will follow up with external market during the second quarter, third quarter going forward. So it's not including in that amount, no.

100% savings in gross margin.

Yes. [indiscernible] Finland, yes.

[Operator Instructions] We will take our next question, and the question comes from the line of Marcela Klang from Handelsbanken.

I agree with Sindre. Great to see progress you have made, well done. A couple of questions from myself as well. You mentioned SEK 350 million cash outflows related to Jonkoping. Can you give us more guidance on timing of these cash outflows?

The timing, I would say that they are pretty evenly spread for the remainder of this year because, as you know, we -- the majority of our investments we have already done, and we have some remaining investments coming here. But it's approximately SEK 350 million and SEK 200 million more that will be booked as CapEx and SEK 150 million of them we already have as account payables. So it's evenly spread, I would say, if you're going to face it over the rest of the year.

And the remaining SEK 100 million that will be paid to Nobia, when do you expect those?

It's also coming here. The majority, I think we mentioned that in the last call also that what we have said is that we will get them during 2025. You mean from the buyer of the property, correct? That's what you're referring to.

Yes.

I would say that the money -- we have not received any money during the first quarter, which we knew we shouldn't. But we are expecting some money here in the second quarter, but primarily, it will be Q3, Q4.

And then a follow-up question regarding U.K. You mentioned store closures. Now you are at 170 stores compared to 191 a year ago. Do you have any lease expiries during 2025? Or the cost savings coming in the remainder of the year is related to the stores that you have closed?

Yes, we have leases coming up for renewal also this year. I think not an exact number top of my head, but it's around 10 to 15. The majority of the cost savings will come from the stores that we have already closed and basically walked out of now -- both in Q4 and in this quarter.

And on average, how long are the leases for your U.K. stores, the 171?

It varies, but between -- mostly around 5 years break.

5 years remaining from now?

No. The leases -- previously, our leases were written on much longer break clause. But nowadays, we have negotiated them to around 5 years break clause for the leases in U.K.

So the average remaining time somewhere between 2 and 3 years?

Yes.

Yes, we can say that. Yes, correct. But this is like Kristoffer said, that when we prolong a new lease, we usually own -- we have the possibility to break the contract in 5 years. So we are shortening it compared to the history when we had longer contracts.

Yes. And then a question on Jonkoping. You mentioned in your report and also in the presentation, complete kitchens in May. Is that the fully automated production process that you will also expect at the end of the year?

We will gradually have more and more automated flows. In the beginning, there will be a lot of manual supervision, let's call it, and some manual hands-on activities before we have fully automated all the flows and optimize. But the machines are running, and as I said, the system connection with machines is also working in a way that makes me very confident that we have invested in the right places.

Sounds good. And at the end of 2025, how many kitchens per minute will leave the Jonkoping factory?

That I can't -- I don't have the exact figures for that. I need to come back on exactly by minute on the volumes that we will have for just Marbodal. So this is the transition of the Marbodal volume into Jonkoping. But then when we also have ramped up, you remember according to the plan, we will then move in with some volumes for HTH as well that is to be delivered in Swedish -- Sweden -- HTH volume for Sweden and Norway. And when the flows are -- when all those flows are in place, we talk about 2 kitchens per minute roughly.

[Operator Instructions] There seems to be no further questions at this time. I will hand back for closing remarks.

Very good. Well, once again, thank you, everyone, for calling in, and see you next time on July 18 for our second quarter results. Thank you.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.