Hello, and welcome to the ITAB Shop Concept audio cast with teleconference Q4 2021. Throughout the call, all participants will be in listen-only mode, and afterwards there'll be a question and answer session. I'll now hand the floor to the ITAB team.
Yes. Hello. Welcome to the presentation of the year-end report and new financial targets for ITAB. My name is Mats Karlqvist, and I'm Head of Investor Relations. I'll try to monitor if you have any questions sent in by email. Otherwise, we will open up for a Q&A session at the end of the presentation. By that, we can go to slide two and present the presenters for today, Andréas Elgaard and Ulrika Bergmo Sköld, who will go through the report and the financial targets. I'll hand over to Andréas Elgaard on slide three now.
Hello, everybody. This is Andréas Elgaard. I would just like to, before we present the report today and our financial targets, I would like to just give you a quick context and a brief introduction to ITAB. Next slide, please. We are what we create together with our customers, and depending on which customer segment, depending on which unique brand it is, our efforts and our engagement looks very different. It spans from pharmacies to grocery stores to do-it-yourselfs to car outlets and cafes or restaurants, and pretty much every retail situation that you can imagine we are working with. Next slide, please. We, together with our customers, we co-create consumer convenience and inspiration, so the desired brand experience is very depending on the situation, the context, the channel.
Together with our customers, we create these experiences using our retail interiors, retail lighting solutions, and retail technology solutions. Next slide, please. Today, we are a European leader, and we have a global capability to support our customers across the globe. We, even if we are focusing mainly on Europe, we are also active in North America, in Asia, and as far away as Australia, supporting our customers. On this slide, you see very high level 2021 figures that are a little bit rounded off, but you can see that the grocery segment is our, by far, most important segment, followed by home improvement, do-it-yourself, and then comes fashion and then the rest of our customers segments. There we have things like pharmacies, home electronics, cafe, restaurants, and service stations, et cetera. Next slide, please.
This is a slide that now has two years in the making, and it's just to remind everybody that ITAB is in a state of transformation. ITAB found themselves a couple of years ago in a declining profit situation and very stable turnover. There was no true development you could see, and the underlying market had changed. The big expansion of many retail chains with long-term, large rollout programs had been replaced by smaller projects, and that's changed the underlying business and the underlying logic for all of us. This is driven completely by a changed consumer behavior that comes from new expectations on how to interact with the retail brands based on their online experiences from social media and through native players.
All of retail, as we know, is going through a transformation, which is very exciting because it's, it has been long due. In 2019, our SG&A ratio was historically high, and we set out to change and transform ITAB, and we set out a transformation plan. We started with some immediate actions by the end of 2019, but the actual kickoff of One ITAB was in 2020. Next slide, please. The strategy and our transformation plan is called One ITAB – Better Together , and this comes from ITAB's history of growing mainly through acquisitions and not really having any organic growth historically. All these acquisitions had never really been taken care of in a way that we were streamlined and scaled up to leverage all the synergies, and that is what One ITAB is all about.
Next slide, please. We have a number of strategic priorities that are aimed at transferring us into the leading retail solution provider. These are really built on the changing consumer landscape, the implications it has for retail, and then what it means for us, our industry, and of course for ITAB. It's mainly driven by the consumer changes and it means a whole lot for us. Those of you that follow us more closely, you know that we have been going through a period of heavy lifting where we have closed factories, we have moved factories, we have moved production, we have moved warehouses. We have really addressed our fixed costs and our variable costs.
We have mainly focused on sourcing our footprint and our SG&A, and we have the majority of the heavy lifting we now have behind us. We have more of a build and invest new capabilities that are aimed at making ITAB much more scalable and much more capable to be agile in the ever-changing retail landscape. This is what is helping us to transform into a more profitable, a more scalable ITAB. Based on that more scalable setup, we intend to continue our expansion and to grow organically and to grow through acquired growth. This will happen not only as before within the traditional shop fitting segments, but more and more within technology specialists and service specialists to accelerate our strategy and our strategic execution. Next slide, please.
This is just a reminder that we are moving from a product-based approach to a solution-based approach, where we, together with our customers, are trying to address the changes that retail are going through, and then we provide solutions and implement those and roll them out with our customers. This is helping us to expand our market position, and it's and we are doing that through expansion of our offer. The whole purpose is to really build on existing strengths in ITAB and then move forward in the strategic markets and strengthen our strategic offer. The aim is to increase the ratio of recurring services and more connected technology products. Next slide, please.
You could say that to sum up the One ITAB strategy and what we're doing, it's all about rethinking retail and doing this together with customers, together across ITAB, and together with our suppliers, so we quickly can bring innovation to the market. Next slide, please. Here is a slide just to remind you of the guidance that we gave in 2020 when the market conditions were the most uncertain in a very long time, when we were in the beginning of the COVID pandemic and where things were not so clear. We gave a guidance for 2020, and we gave also a guidance for what the outcome should be after we had done the first stabilized phase of the program where we are addressing our cost structure.
It's just to remind you, and as you can see, we are well on our way to meet our targets. By this. Next slide, please. By this, we switch gear, and we go into the Q4 report and the financial report for the full year 2021. Next slide, please. I will just take a couple of highlights from the report and then hand over to Ulrika. Of course, we have seen a great recovery from the drop we had in 2020. There's been a lot of demand in the marketplace. We strongly believe we could have made even more sales and had even higher turnover if the supply situation globally and the freight situation globally had been more as normal.
All in all, we are progressing not just the top line, but our profit development and the underlying profitability has really moved in the desired and planned way. We have seen increased inventory levels, and this is of course due to very strong sales growth and also our focus to protect our capacity to deliver and to secure that our customers get the deliveries that they want. This has been in a very unstable supply landscape. We have deliberately increased our inventory level to secure our delivery transformation or delivery capacity. The transformation work, as I mentioned before, has really progressed according to plan, and this is something that is incredibly humbling because our coworkers have been doing some really fundamental changes in ITAB under the most difficult circumstances.
Change is always difficult, but change without being able to meet physically is really cumbersome. Really humble and proud over the efforts from the team. We have today, when we close 2021, a very strong financial position in ITAB, and if we just go back two years ago, we had a very different situation. This is also something that I must say is something that makes us really ready to gear up going forward with the aim to truly establish ITAB as the leading solution provider. Next slide, please.
Yes, good day, everybody. Looking at the high-level outcome of 2021, we have increased our net sales with SEK 900 million. Currency-adjusted growth is 19%, where we have a organic growth of 8% and also 11%, which is the contribution of the acquisition of the Cefla Retail Solutions. Our adjusted profit of the financial cost improved with 55% compared to 2020. We had a positive impact by increased sales, the continuous work with our transformation, and also our financial cost decreased as a result of the lower debt level. During the year, we also experienced negative effects, related to supply chain disturbances, the rapid increased cost of raw material price, et cetera, which put the pressure on our margins.
As Andréas mentioned, our working capital has increased during the year, related to the increased sales, also the buildup of the Cefla business and also the increased inventory levels. We had a negative cash flow for 2021 of SEK -160 million. Next slide, please. Compared to 2020, we had a stable growth over the year with a strong finish in the fourth quarter. We have seen a strong recovery in most markets during the year, but especially in our South region, where also Cefla contributing to the increased sales. Our grocery sector is a strong driver where we can see a 10% increase also comparing with 2019 before the pandemic, which is in line with our strategy.
We can also conclude that over the past three years, we have also continued to grow in our retail technology solutions. Next slide, please. Looking at the adjusted EBIT development over the years, we have an underlying positive trend from mid-2020 by increased sales and also margin improvements related to the restructuring and transformation. We have since 2019 reduced our SG&A costs significantly, and during 2021, we have continued our plan and executed on our footprint initiatives with closing and moving production to improve efficiency further. We had a negative impact during 2021 related to rapid raw material price increases, lack of components, and logistic disruptions. You can see that effect mainly in quarter two and quarter three.
We have continuously worked with the price increases and also other cost reduction activities to balance the effect, and we can see that this gradually has strengthened our gross profit. Next slide, please. Our cash flow for 2021 was, despite of the EBITDA improvement negative, due to the increased working capital. We have built up the new entity related to the Cefla acquisition during the year, and the market recovery was strong in South Europe, where we generally have longer payment terms. The main driver of the working capital was our increased inventory levels, where both volume and value has increased. We have experienced lack of raw material and components, and we have also driven up the inventory to secure deliveries to our customers.
We have had an unbalanced stock level during the year due to the supply chain challenges. We expect these effects to gradually normalize in the coming quarters and then reach a more balanced inventory situation. Next slide, please.
Thank you. That leads us to the end of the Q4 brief reporting and into that in ITAB we are about to communicate, or we have today published new financial targets. Next slide, please. I just want to begin with this slide because it's to put things in context and to remind everybody about that we are in a period of transformation where we are building new capabilities, and we are adjusting the company ITAB as we know it and preparing it to be better equipped for the future. We are very well on our way, and I see this a little bit like a halftime report, where we can see that our most important customer segment, the grocery segment, has been strengthened.
ITAB's position has truly been strengthened over these past two years, which is, I think, something that is truly important to keep in mind when looking into ITAB. We have managed to increase the ratio of retail technology solutions. As a percentage of sales, this is now more than a quarter of our sales, total sales. This is remembering that during 2020, we dropped a lot in sales, but we continued to grow within retail technology. That is important to keep in mind. We grew in 2021 on top of that growth. We have managed through the refinancing and through the work in the company to reduce our net debt. I think we were as high as SEK 2.7 billion in mid-2019.
At the end of 2019, we were at SEK 2.5 billion, and we are now at a much healthier level in 2021. Of course, our ambition is to continue to drive capital efficiency and to reduce our use of capital and continue to lower the net debt. Something that is also very important to kind of look beyond all the work that we are doing and to look at what is the improvement of the underlying profitability. Comparing 2019 to 2021, we have doubled our profitability when adjusting and looking at the EBT level. This is something that I think is important to keep in mind that the transformation is progressing according to plan, and we're not just transforming, but we are performing as we do that.
That leads me into the next slide, where we for the first time is then presenting our new financial targets. Just to set this in context, ITAB have a long period, before, I would say COVID, where we have been a growth company, but that growth has been fueled almost entirely by acquisitions, and there has been no or very low organic growth. Even if I go back as much as 15 years, the organic growth has been 0.1%. We need to put this in context. Our new financial targets are really set up to drive a sustainable, profitable growth and a sustainable efficiency in the way that we manage our capital. The growth figures and the CAGR is 4%-8% as an average annual.
On the profit level on EBIT, it will be between 7%-9%, and this is the average over a business cycle. On capital efficiency, we will be over the business cycle above 80%. Of course, if we are not doing any major investments, if we're not doing any acquisitions, et cetera, we will of course be higher here. If we are doing some major investments, then we will of course need to use some more capital. When it comes to dividends, we know that we have not had the opportunity to give dividends the last couple of years, based on the situation that we have been in.
We are keeping the dividend policy that we've had previously, and the aim is to be able to give out dividends of above 30%. Next slide, please. This is a slide just to put in context our financial targets. We are aiming to come back at the profitability on average that will be higher than what ITAB had performed historically. We are also indicating that we will come back to a growth on a substantially higher bigger base that will be almost in line with the situation that we came from before. One might argue that we should be even more ambitious when it comes to our growth, but we can always update our financial targets in the future.
For the current economic climate that we're in and the uncertainty, we believe that this is a very ambitious growth target for the coming years, especially with this sustained EBIT that we are giving out. Please note also that it's not the adjusted EBIT margin that we have as a target, it's the true net EBIT. As you all know, we have a guidance that we have communicated to all of you on what to expect. Remember that this is compared to the starting point in 2019, and it's the annualized effect. Right now, we have no signals that leads us to change our guidance.
We believe that by the end of 2022, we will be on the pace as we set out in our guidance in 2020. That is despite the challenges that we have seen and that was unforeseen, you can say, in, with the global supply disturbances, et cetera. This is, to the best of our knowledge right now. We really think that putting this in an historical context in the current economic climate, it's a clear step change to growth that is sustainable and that is healthy and that will be based also organically. Next slide, please. Big thanks, guys, for listening to us. Now we open up for the Q&A session.
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 your question has been answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question, excuse me, or zero two if you need to cancel. Our first question will be from the line of Gustaf von Sivers of Calgus Fond. Please go ahead. Your line is open.
Yeah. Thank you.
Good morning, and congratulations on a great report.
Big thanks.
I have a question on the grocery side, on the demand side. I saw on your presentation here that grocery grew by 10% last year. I wonder, how is that looking going forward? And were there any, like, pandemic effects on the grocery side when it come to selling glass fiber protection and those kind of things? How do you see that going forward? Thank you. That's my first question. My second one is, you seem quite confident, and that brings me to the pricing power. Do you see any lags, and how long are these lags in you implementing the price increases, looking at steel costs, cost of plastics, and so on? Thank you.
Okay. I'll try to start by answering the first question. I mean, of course, we have seen recovery in 2021 from the drop that we had in 2020, and I think that's quite natural. We have not seen in 2021 the same type of, you could say, one-off sales on rapid COVID protection like plexiglass barriers or these types of solutions. What we have seen is, of course, an increased awareness about public health and safety in the retail environment. We are selling queuing systems and different solutions to create a more, I would say, safe retail environment where customers are guided and where queuing or crowds are avoided as much as possible. I think that is not something that is unique for 2021.
It's not a major part of the turnover, but I think it's something that we're going to see for a very long period, that retailers will be mindful when they create solutions that they don't clog up the store and create crowds. Instead they manage the crowds in a more modern way, digitally and physically. I hope that answers the first question. When it comes to the second question, you could say the lag between our price increases and our ability to compensate for that with our customers, I would say that the starting point for ITAB is that we are many companies with different maturity, different market position.
Those companies that are dependent on quite large organizations that have a very long-term approach to our partnership, there's a bigger lag because we have regulated how quickly we are able to change the prices, et cetera. There I would say we are being a little bit. That is why it takes us some time to catch up to the wave. In other parts where the business is more truly project-based, then each project and each delivery is based on the market price, you can say. That's also, I would say, that's the reason behind or the explanation behind our lag.
It's natural that there will always be a lag, and that is also the lag is likely to be when prices, if they start to go down, we are probably going to see that lag also when we go down. We might be able to capture some more margin. At the same time, I would say that the market situation in the beginning of the year, of course, it was a lot about raw material shortages that led to higher prices and higher costs on key materials and electronic components that have been super scarce. We know that after that, everything has become almost more expensive. We are in an economy that is driven by inflation right now.
Let's hope it's something that is not going to continue for a long time, because I think it's a challenge for most organizations to get used to. It's many years since we in the western parts of the world were in this type of situation. Yeah, it's a long answer, but I hope it gives you some clarity on the way that we're thinking.
Okay. Thank you.
Thank you. Currently, we have one further question in the queue. Just as a reminder to participants, if you do wish to ask a question, please dial zero one on your telephone keypads now. Our next question is from the line of Örjan Rödén of Erik Penser Bank. Please go ahead. Your line is open.
Yes. Hi, everyone. A great report was really a pleasant reading. What do you see in terms of customer trends? I think we have a lot of what I would call conflicting messages. We have reopening on the way relating to the pandemic. On the other hand, we have some cost savings announced from players like H&M on a quite large scale closing down shops. We have energy prices going up quite a lot, which should be a hit to food retailers, et cetera. Great if you could elaborate on which trends you see right now going into 2022.
Okay. Thank you. I mean, I think each customer segment has its own logic. Depending on what type of player you are within that segment, it also has another logic. I mean, the true low price discounters, they have their own set of rules. If you look at companies like Lidl, Action, or Primark, they are continuing to expand as if there were no tomorrow, and they are not dependent on what's going on online. I would say the fashion segment have been most hit by the online development, and they are following a little bit the trend that we saw in home electronics a number of years ago. When it comes to the grocery segment or pharmacy do it yourself, they have had a boost by the pandemic.
They're spending more time at home, and they're attending more to their home, and they're investing in the environment close to them, which has been very positive. I would say, overarching, it is very important for retailers to stay relevant. This is increasingly difficult because the consumer expectations are not set by their physical retail experience. It is really set by the brand experience they have, which means how they interact with the brand over different or multiple channels. We have, through the pandemic, seen an acceleration of the trends that we saw before with e-commerce penetration. We've also seen a very strong trend that people don't just want to be in one channel. They want to use all their senses and interact in all types of retail channels.
Especially the physical shopping experience is very hard to replicate online. We have seen in each market when restrictions have been reduced, we have seen quite a flood of consumers that want to interact and engage. I think most retailers, they really need to reinvent themselves. They need to do this for two reasons. One is that the consumer expectation is there, that they expect more from the brands, so it's not good enough to do what you have done in the past. The second is that this drives a challenge operationally to the retailer. They need to invest in new experiences in the store. They need to invest in experiences online, which means that they need to become more efficient. That's really where ITAB's focus is.
We are trying to help our customers to create a better consumer experience, but also to drive operational efficiency. Everything from reducing shrinkage to improve the conversion or increase their operational efficiency and so on. That's really the trend that we see. More and more retailers are starting to look at the total situation and not just the purchasing of goods not for resale. A bit of a long answer, but I think it can be good to give you guys a bit of context on what's going on in the marketplace.
It's great. We like long answers. Turning to the more short-term focus, it seems like in the report that in Q4 some of the supply chain issues and transport, et cetera, were easing up. Now in Q1, again, we have seen renewed restrictions taking place and we're hearing from a lot of places that goods are clogging up, et cetera. How do you view the kind of the Q4 trend going into Q1 as we speak here now?
I mean, I think all of us to begin with, I mean, in the autumn, I think all of us were really happy because we felt that life was starting to return to normal. Then in December, all of these restrictions started to happen again. Then, as quickly as they came in December, they seemed to go away again now in more and more countries. I would say if we talk about ourselves, we have seen, of course, that the most people we know or privately or in business have either had COVID or going through COVID or have somebody very close to them that is having COVID. Thankfully, most people have the very mild variant that we see now.
We have, before Christmas, when we have as much outbound deliveries, I mean, the most critical part of the year, we had in some factories 25% sick rates. That just tells us how proud you can be over the coworkers that are healthy, that are performing these results, despite the challenges. I would say, looking into Q1, we don't see that. I mean, we have seen a gradual normalization, a gradual stabilization, compared to Q2 and Q3 when it was more chaotic. We're not through the woods yet. It's still not the stable, predictable landscape that we're used to, but it's more manageable now than what it was a couple of quarters ago. That's. We don't right now seeing a trend that is changing that.
As we all know, these things need to be discussed almost on a daily basis. It requires a lot of you when it comes to being operational and reactive, which is one of ITAB's strengths, that we are super reactive and we can adapt. Of course, it hurts you when it comes to discussing what's around the corner, what's beyond the horizon, and you want to have that type of dialogue with your customers and with your suppliers, because it's not good if too much time is spent on reacting on issues that are created out of your own control instead of being able to invest in the future.
I think we're going to see a continued mix of ITAB, our whole industry, and many other industries where you need to balance being reactive and being investing in your future.
Okay. Great to hear. You discussed a bit on price increases before. Do you think that the price increases you have implemented, that they will be sticky going forward? Or is it kind of, you know, with raw material prices or freight prices fall back? Do you see a risk that also your prices will take a hit on that?
I mean, it's a very dynamic landscape when it comes to price increases and/or cost increases, and we need to be agile and adjust in the front end of our business. I mean, by the end of the day, the cost of doing business is changing more rapidly right now than what it has done in recent years. Our ability to adapt to that is what is crucial if we're going to be able to protect our margin. At the same time, I would say it opens up the market because it's testing your relationship. It's also testing some of our competitors' relationships with their customers. We think that this will lead to a more open climate once we're through the most heavy period of COVID.
We think it's going to be a more open retail landscape where new alliances can be built. That's what we are preparing for on our end.
A question on your financial targets. When you think of acquisitions, you're speaking about technology and service companies. Do you think of large acquisitions, or is this rather smaller links you have in mind?
I think we're going to acquire companies that fits with ITAB strategically. It's going to be companies that either cover white spots on the markets that we're active in, so we strengthen our position in key markets. It's going to be key competences that are, as you say, within services or more technology solutions. I think it's going to be a mix of small and larger companies. I think whatever we do going forward, we are determined that we're going to keep our strong financial position. We're not prepared to jeopardize that because I think we fought hard to create it and it's something that we're going to keep.
We also see that ITAB has a history of being the consolidator of industry and being the thought leader in our industry. We see no reason for why we shouldn't be able to continue that. I think that the market is still very fragmented. There are plenty of small companies, but there are also some larger companies out there. We are expanding our view on what the market is, so we're not just looking at traditional shop fitting companies or adjacent technology and services. We are looking at a wider view on how you create solutions for the retailer, because we believe that most retailers are going to go through a transformational change or they're going to have to fight for their survival. They will need a mix of different competences.
It will not just be that ITAB delivers on these needs on our own. It will be a mix of the capabilities we have today, acquired new competences or capabilities, and an increased and deepened partnership with select partners. I will not answer if they are smaller companies or bigger companies. That we will when the time is right and an acquisition happens, then that will be communicated.
Okay, thank you very much.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. Okay. As there are no further questions from the phones at this time, I'll hand the floor back to our speakers.
Well, we don't have any questions over the web. From our side, from ITAB, Andreas and Ulrika and I just want to say thank you for participating in this conference. Please do not hesitate to reach out to us if you have any further questions or things you want to discuss with us. We're available for your questions. Okay, thank you very much.
Thank you.
Thank you.