Good morning, everybody, thank you for attending this conference call. This is our Annual Report 2022, well, hope you all have read it this morning. Nepa in brief, just so you know what we are doing. We help marketers to understand the high-level impact of marketing investment. What does that mean? We work mainly with what we call the upper funnel of marketing, which is the strategic decisions about what to do and we measure about 7,500 brands in 60 markets. We then help the brands to optimize their investments in the different channels and in how they express themselves in order to retain maximum effect in their KPIs and in as many consumers they can. How do we do that?
We work with three main pillars in our offer, which is Brand Tracking, Campaign Evaluation, and Marketing Mix Modelling. Brand Tracking is the base. That's our recurring business. Campaign Evaluation is a deep dive into every campaign in order to evaluate both the investment in media, but also in how the creative has worked or not worked, and what parts of the creative has been the success factors in order to strengthen them to further down the line. We combine these things, these three, by that we can help marketeers to improve their campaigns and also their strategic approach in conquering consumers and markets. Who do we work with? We work with about with more than 300 clients in, and in total on 60 markets.
The basis of our business are long-term contracts that are mainly around Brand Tracking. Our financial performance has been 9.2% CAGR from since we went on the stock exchange 2016 since, and a 9.4% adjusted EBIT margin for 2022. Operating cash flow, 15.9 million in 2022, and at the end of the year, we had SEK 63.8 million in the bank. When we are now executing on the expansion phase, meaning that we are tweaking our business more towards recurring and growing it with semi-global or global clients, which is our focus area, we are in a very good financial position to do so.
What we have seen in the last year was that our marketing optimization revenues were growing very good, and at the same time as our ad hoc revenue are going down, which is exactly in line with our strategy. We also see that when we compare quarter 4 2021 with quarter 4 2022, we see a slight growth in optimization and a downturn in ad hoc. You also need to remember that quarter 4 2021 was really a big difference in the economic outlook of the world compared to the economic outlook in quarter 4 2022. I feel that it was a quite okay performance given that situation, even if I would have liked to see other numbers, of course.
If we break down the profitability a little bit, we see that we have a lower gross margin in quarter four 2022. It was due to a lower proportion of high margin ad hoc revenues compared to quarter one 2021. That is the general trend we will see if we go for more recurring, because the relative part share of data cost in the recurring projects is higher, the same time as the workload on the organization is relatively lower. We will need fewer consulting hours to use the revenue. Then also of course, during quarter four, there started pressure on ad hoc prices, especially when it came to the large global consumer brands.
For us, strategically important to do these ad hoc because they often are our, or regularly are our entry point into selling larger trackers. Big brands like to test their suppliers with non-recurring projects before they give you the trust to run their core brands on a recurring basis, which is not strange. We have to live with that. We also see exchange rate effects from survey data purchased in foreign currency, of course, and it's impacting us. It's important to say though that the prices, the list prices have not changed significantly. Even though prices in our back, we see a lot of inflation elsewhere, so we haven't noticed, we haven't been hit by that.
Of course, the weak Swedish crown is a challenge for us in when it comes to data costs. On the other hand, the more we can sell in the future globally, of course, then we have lower cost of work, which then is positive. Yeah. Of course, during the quarter, we had a big a cost adjustment program. Totally it was SEK 31.2 million. We on an annual basis, which will be gradually visible from January 2023, basically. Also, it will be visible in quarter one because we felt that we had staffed for higher growth and that growth is not realistic with the market outlook we saw during the beginning, end of quarter three, beginning of quarter four.
We've done that now and it is showing effect. What we also have done during the quarter was what we already talked about in the last report, is that we have carved out finally the salespeople from the existing organization. Before we had like a unified sales delivery roles. Basically, our consulting organization was a blend of everything. Now we have made it very clear that we have one part which is sales, a little bit of marketing, and then we have what we call marketing science, which is all our That's our customer success/consulting team, helping our clients, which is what they have always done.
By doing so, this move and doing that very clear KPIs, we have a better control about what is done and how we resource our projects. With that new organization, we also have for the first time the possibility to focus on selling our core products within marketing organization. Because we have a more strategic sale, and that will show effect during this year. The main effort will be on Brand Tracking and complementing with campaign measurement and Marketing Mix Modelling. With the cost savings programs before, SEK 31.2 million, partly in November, was the easy cut, then the more the bigger one and more strategic one in December.
That amounts to about 11% of quarter four CapEx, when you analyze it. We had our, the restructuring costs were a bit lower than initially estimated, and it was around SEK 8 million estimate, and we ended up with SEK 4.5 million, which was the good work from the team. Now we are in a much, much better position for the current market conditions. Of course, if necessary, if the market condition should deteriorate further, we are both able and willing to take further measures. What we will do going forward is that we right now under quarter one and two will have a high focus on building the sales organization and get the, for example, our SDRs, those people that are using an extra layer of leads, up and running.
We are also increasing our product innovation and tech development efforts, but within the existing resources and within the existing activation or investments that you already have seen during the last year. When it comes to outlook, we see that we have a single-digit growth compared to the same period, 2022 when it comes to marketing optimization, which we are focused on, which is good because we meet the first quarter of 2022 was a really strong quarter, and we can still produce growth. At the same time, we see the group net sales going down a little bit and which is due to that the market ad hoc is quite dry, I would say.
It's not so much and of course, you know, we cannot sell at any price. We also have quite still a very good financial position, as the, I suppose, unchanged from the closing balance of quarter four 2022 as we speak. Yes, please, questions. I hope you heard me.
Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Jesper von Koch from Redeye. Please go ahead.
Good morning, guys, thanks for taking my question. Let's start with a broad question about your strategy. I mean, where is your current focus currently? Like, do you expect to be able to grow and cut costs at the same time? Like, what is the main priority of the business at the moment?
The main priority of the business is to grow marketing optimization and the further development of the product in that area, so we stay on top of the game in the competition. And, of course, we want to grow that part, but when we focus on that with our strategic sales, that has a consequence on our ad hoc business, which then will develop as it develops. Of course, that's not a focus area. You know, we of course still do the projects we can easily get, but there's those strategic efforts to. And we are by that risking that might slow down our sales growth or even that it is a little bit going down.
I don't think that we are talking about a very minor downturn, because, yeah, we don't focus on it. The focus is on the growing the MO and the tracking and the recurring business.
All right. I mean, you talk about growth obviously, but do you think in terms of like profitable growth? Because I mean, considering also today's market reaction and also like the last year's, I guess, disbelief from the stock market. I think what many investors lack is the focus on profitable growth that they saw during 2021. Like even if that period contained like too little investment. I think what people want to see is some kind of balance. Like, how do you think about the business in terms of profitable growth?
I think we will see profitable growth very soon again because, you know, there's no way, you know, you can change towards more strategic sales in the marketing optimization and recurring without giving up something else, especially if you don't want to spend a lot of money at the same time. I think we have done that change quite well, and I think the results of that will soon show. It would have shown earlier if we wouldn't have had got the recession against us in this move. Nevertheless, I think we will see very soon that it will change.
Okay. Okay. If we go more into detail. I mean, recurring revenues grew by approximately 2%, and marketing optimization by 11% year-on-year. What Could you say anything about, like, what was the growth of the recurring revenues in marketing optimization?
I don't think we published that number, Jesper.
Okay.
Yet.
Okay.
Not yet.
Yet.
Soon.
All right. All right. The outlook of single-digit growth in, like, marketing optimization in, like, Q1 so far, are we talking about, like, a high, mid, or low single-digit growth?
Just repeat it, please. I didn't really hear you.
In the outlook, you state that you've so far seen single-digit growth for marketing optimization in Q1.
Mm-hmm.
Are we talking about high, mid, or low single-digit growth?
I think we do not either publish that number yet. We'll get better soon with these details.
Okay.
You will see.
Okay
In the quarter one report, we will see more, those things will change a little bit. We are getting there, you know. We are trying now. This is the first time we give an outlook at all, closer to the report date, this time. We have billing this kind of reporting internally now, which will give us the possibility also to inform the market, hopefully much, much earlier, very soon.
All right.
about how it's going.
Okay. In your last conference call, it appeared as if there were many annual contracts that were about to be renewed with a positive price adjustment in Q4.
Mm-hmm
...this the case? If so, like, what was the impact on some kind of ARR equivalent?
Well, we have successfully renewed most of those contracts. I can't say exactly how much the price rises were, but they were substantial.
Uh-
They will help us to during this year to keep our margin okay.
Okay. like, as you say, you successfully renewed most of these contracts. You saw some churn, also, it appears.
No. I wouldn't say we saw some churn, but then, you know, like, sometimes, you know, when you have a contract that's annually, then at some point in time, maybe, clients choose that, "Oh, well, I don't want to have it, like, annually anymore. I will review. So I want to change every I have the ability to change every third month," or something like that. The contract is still there, but there's a little idea risk. We have lost, let's say, that. There's.
Okay
...really churn. It has, of course, the economic situation does affect even those things.
not really-
I would-
Churn. Go on.
No. No churn, but, and, not a higher risk now than it has been before. Yeah.
So, so some-
the session is... Please.
Yeah. like, not any churn, but some customers changing from annual contracts to, quarterly contracts, if I understand it correctly.
Yeah, exactly. Usually our contracts are written like that you have one year to two year, and then they go over If there's not a new yearly contract within there, automatically go to three months or six months periods.
All right. All right.
So we-
And-
Normally, we do write new contract, but then it's a little bit up to the customer, of course, because it's always a discussion.
Okay. Okay. Then regarding your cost base, like, including both OpEx and CapEx, what do you think would be a normalized quarterly level going forward? Also, like, when will the full effects of the cost savings program be in place?
Well, I think the full effect of the cost saving program, will be visible in. The full effect, 100% of it is visible in quarter two, start of quarter two, the first month of quarter, April. Sorry, April. Yeah. That will be the first month because, you know, like, that is how, you know, when you have, like, changes in personnel, that's how it takes. It takes usually three months at worst.
Yes. Yes.
Mm-hmm.
Yes. Just, just wondering about also, like, the average number of employees stood at record high 325 in the quarter. I know that you made, like, the cost savings, like, in the latter stage of the quarter, but could you just elaborate on the number of employees that you expect to have going forward? Also perhaps, like, because I know that you may have, like, some people in India and so on, like how you think of the distribution amongst these?
The cost-saving program was mainly focused on the non-Indian part of the organization, because that's where the costs are really high. That's where we saved the money. By that, the amount of people will be a little bit less, but the costs are higher. That's where we focused. Of course, you know, I think, if you look at Nepa, I think, you know, it'll be around 300. Sometimes will be a little bit more, sometimes less because, you know, of course you have people going in and out because they are on paternity leave and all this stuff, which we not really can control. That's about there.
We should be-
Okay.
Around.
All right. Good. I mean, also thinking like more like long-term and not only now, and you do this like cost cut and so on. Do you think that like around 300 full-time employees, that would be kind of a stable figure? That is like if we think about like Nepa as an investment case or like, yeah, whatever, like you should think about that as a stable level, you will, you will grow your revenues and start scaling your margins from that 300 full-time employees base. Is that, like how would you think of it?
Well, I would say that, you know, things like that, about 200 of the people we have, that's like central resources. That is our tech, that is our global delivery, which is basically the people working around our machines. You can say our production. They're very scalable. You have like around 100 or a bit, maybe a little bit less people that are customer success and consulting and sales. Of course, we will have to grow the amount of people if we grow. Then over time, we will need less and less consultants and hopefully our systems and the delivery in our dashboards to our clients will be better and better.
By that, we will also need less people working with customer success. There's also, but there's also a little bit of an insecurity, how our clients are, what they want because, you know, like when we have clients that absolutely do want our help all the time, and either we want to serve them or, with that help or, and that is like people helping them, you know, like holding their hand in doing research or, and doing analytics and, or we can't have them.
I think that when and that is like maybe companies that are less forward leaning in their way of working or they really want that kind of expertise and I don't know how that will develop over time, like in five years, what we can expect. I thought we would see that, for example, e-commerce companies would rather not want that kind of help, but they also want it at a certain point in time when it's getting, you know, when they are getting out of their comfort zone of their own data. I think reading the minds of consumers and gives the interpretation to, of what that means for and how you should behave isn't really something AI is really great at yet.
I think there's a need for that, but, you know, we are trying to move the needle towards making that more and more efficient at the same time as we deliver better products to our clients and that will make them more doing things themselves basically. Yes.
Okay. And then also, I think like connected to my previous question, like about your financial targets. I know that you currently have some quite vague financial targets like exceeding 20% EBIT margin, in the midterm or long-term, I think, and then like growing faster than, or fastest, in the industry. Do you plan to make any adjustments so that these would be more precise and more dedicated to a certain point in time? I think like this is what investors currently lack is that the current financial targets are too vague so that they don't view it as a strong indicators of what the future might be.
Mm.
If you could just-
How I-
elaborate on how you think about that.
I totally agree with the investors. With a view, and I think that, we should try to give these kind of targets at least shorter. I think this what would be so far have said is more our mid or long-term goals. Should of course, when you look at our performance now, then you see think, "Oh, like, where are we?" I think that we quite soon, maybe the end of this year, we will be able to, when we have, like, learned how our new sales organization is working and what is working well, what is not working well, what kind of.
We get a better understanding of what we can actually produce, then, I think we will be able to give these targets. Yes.
All right.
Right now.
Meaning new and smart financial targets by the end of 2023?
I think so. That should be possible, yes. You know.
Okay. Yes
... like, of course we have to learn that as well, but we will.
All right. good. Moving on, I mean, thank you for it. You said that, or restructuring costs amounted to SEK 4.5 million versus amount, SEK 8 million in December. Should we expect that no more restructuring costs in Q1, like if considering like, not any more costs, cost cuts being made?
In Q1, no. If we don't do not something in the next 10 days, no.
Okay, good. You said that like, your COGS, or like cost of goods sold, that was like negatively affected, or heightened by currency. Like how big was the currency effect on that?
Well, I don't remember. I think it was about 3%-4% was the exchange rate change, so that was quite substantial then when you look at the total data costs we have.
Do you mean like percentage points? Like instead of a 7%, a 6% or 75% the gross margin, it was now a 72%? Is that?
No, no, no.
... how good it is?
I mean that if you look at our data costs-
Yeah
They were like at least 4% higher because of the only the FX effect.
Okay. Okay. Taking that, taking those like SEK 21 million, I think it was in direct costs, like 3% or 4% of that was the FX effect.
Yeah, yeah. Yeah.
Okay, good. Then, could you also talk more about the, like the current environment for ad hoc projects? Like how big are the discounts typically? Also regarding the discounted projects, that you referred to in the report, is this only ad hoc revenues or also recurring revenues?
It's only ad hoc revenues.
Okay
It's only that. It's only big international projects and only big international clients.
Yeah.
Otherwise, we wouldn't do it. If they are not strategically important for us, we would not do that and reduce. Often it's more. For example, they do reduce the client's risks. They want a fixed price. We cannot like say that, "Okay, but if our data costs will be higher than expected," then they say, "Well, that's your, that's your problem." Instead of like before where we could say, "Well, we would charge you another whatever." That I think is a difference there.
Okay. And the strategic product, should we interpret that as it's an ad hoc project for now for like a very big probable client that you aim to move into like recurring revenues in like marketing optimization and the Brand tracker?
That is our target, and it's not that we always succeed with that, but that is the ambition. You know, like when you have a client, let's say Coca-Cola or someone which is not our client, but just from as an example, then we would, then we want to have a one-off project with us to see that, okay, how does it work? Do they like the people? Do they like the result, the work we do and this is good quality and all that, and before they even put us on the roster for their RFP, for the brand tracker, for example. That is.
Okay
that's how, that's why you do this kind of project.
Okay, good. Then, I mean, in your last report, you said that you had not been good enough in collecting your invoices, which meant that your like accounts payable was higher than you than you wanted. Looking at the accounts payable in this quarter, it's at a similar level as in Q3. Like, do you expect this to come down in Q1 and, like, be converted into cash?
As we stated in the report, you know, our cash position now is remain unchanged against the end of the quarter four. Something we have done better, obviously. We have a new CFO, Sonja, since I think three weeks back. I think that's one of her focus areas to get better cash management in the company.
Okay. You at least aim to bring the current, like, accounts, receivables. You want that to be reduced because it is higher than it was in, like, Q2…
Yeah
before.
Yes. Yes. Of course-
Okay.
We want that. Then you also must think about that, you know, in a recession and with higher interest rates in the bank or with interest rates in the bank for your cash, then both we and our clients try to pay as late as possible. You know, like, it's not an easy task, let's say it like that.
No. I. Yeah. I can imagine.
Everybody tries everyone, let's say it like that.
Yes. Yes. I see. I mean, you currently have a cash position of SEK 64 million, which is quite substantial in relation to, like, your market cap and so on. Looking at your net finance for Q4, which was negative, I mean, do you currently get any interest rate on your cash position? I mean, considering that it would likely boost your net profit margin by almost one percentage point. If no, do you plan to make this happen?
Of course, we have talked to our bank as they put it our cash, not all of it, but most of it into an account where we get interest. Yes. Of course, we always look at trying to improve that as well. That's.
Okay. Good. What was the reason for you having a net like a net financial like a negative net financials in the quarter?
I would say that we had a little bit too high costs. That's why we did the cost-saving program.
No, I mean a net financial cost, like, below-
Uh, I think-
like operating costs.
Okay. Now I get it. I think that must be exchange rate challenges.
Okay.
A loan. I think, maybe, Sonja or Elin can explain that to you. I think it is a loan to our US company. Depending on how the exchange rate changes, that always affects us a little bit.
Okay.
So I'm sure-
Sorry. Sonja and Elin here. I will hand over to the word to Elin.
Yeah. Those are unrealized exchange losses on loans, mainly intercompany. They're not really realized yet. It's just, mainly the US dollar fluctuation from last year.
Okay. Okay. While I have you on the line, so, like how much, like positive interest do you expect to get like on a quarterly basis from your cash position?
I'm not sure, exactly. We put some of our cash bases into savings account with interest rate, I think is at 1.6, but we're looking into if we should also place some more into even higher interest rates bank account.
All right. All right. Thanks for all the answers. That's all for me.
Thank you, Jesper. Very good question.
There are no more questions at this time, so I hand the conference back to the speakers for any questions from the web.
It's Edvard here, from Investor Relations.
Yeah.
It seems that we don't have any questions from the chat, so I hand it back to you, Ulrich.
Well, I thank everyone for participating today, and I hope we will present like better or a more financial, from a financial and success point of view, better report soon. We are working hard on that. Thank you very, very much.