Hello, and good afternoon, everyone. Thank you for calling in to this Nobia Q1 Results Presentation. Today, we will start with an overview by our President and CEO, Mr. Jon Sintorn, and then our CFO, Mr. Kristoffer Ljungfelt, will dig into all of the financial details. With that, I hand over to you, Jon.
Good afternoon, everybody, and again, welcome to this call. Some highlights from this first quarter. Starting off, I must say that this is quite a good quarter. I think this provides a really good start to the year. We are, in that sense, I think, in a good place to continue to propel the company for the rest of the year. We had growth and good results, specifically in the Nordics, a little shy of 9% up, and then the Central Europe region at 20% up. That was good, solid growth from the Nordics and from Central Europe. The U.K. was impacted by the retail lockdowns, having specifically an impact on the important winter sales campaign. The project market remained in recovery, rendering a - 8% growth for this first quarter. As you know, since then, the U.K. has opened up since the 12th of April.
All in all, that rendered 3% organic growth for the group and an EBIT of SEK 196 million compared to SEK 134 million of last year. Operating cash flow was SEK -69 million compared to SEK 212 million. The net debt decreased to SEK 293 million. Apart from doing a lot of business, running our factories, selling nice kitchens, and all of that, we also had a Capital Markets Day in the first quarter, which we in the management team really enjoyed. We were excited and glad to share with you guys listening in to this call, not least of all, our plans for the future. We also discussed or highlighted the financial targets. We were talking about the Tomorrow Together strategy with its headlines: Growth, Structural Efficiency, and People Engagement with Sustainability and Design at the heart.
If we look at the kitchen market development last quarter, we see in the Nordics a consumer demand benefiting from the stay-at-home trend, higher house prices, and better consumer confidence. The business-to-business was supported by a high level of new build projects, except for Finland. In short, where we are able to operate and be almost open, I would say, and not so restricted, we are benefiting from the stay-at-home trend. We have products that really cover that growth area really well. In the U.K., the project market is still in recovery, and social housing maintenance is delayed due to the pandemic. The underlying consumer demand is good. However, it was negatively impacted by the retail lockdown that was until two weeks ago, April 12th. We've seen the consumer demand through our digital channels and web connections that we have with customers.
again, stating that the first quarter was impacted by the lockdown during the winter sales period in time, and we're looking forward to having more open stores to really meet our customers. Central Europe. Consumer sales were really supported by pent-up demand following the lockdowns and, here again, the stay-at-home trend. Housing demand in the Netherlands supports new construction and project sales.
All in all, Central Europe had a really good growth of 20% and is doing well. Specifically in Austria, we've had a higher demand than we've seen before, which is good, also showing the management team doing a really good job in Central Europe as well. That was a little bit about the market. Going into some comments on the Tomorrow Together strategy and the priorities. Looking at growth, we can now clearly see inroads in the trade segment in the U.K. We are growing there, which is good.
The trade segment has not been as impacted as the retail segment has been in the U.K., and that's also something we can see and track. In terms of revitalizing consumer retail. I think it's also clear that the refurbishment that we've done in Denmark, the upgrading of stores, has had a positive impact on our sales. Another positive example is the Jordnära Färger campaign that we've had for Marbodal, where both the sales campaign and the product assortment really hit the hearts of the consumer, where we see good growth, which is also encouraging to continue developing products and concepts in this area. Moving to the structural efficiency, we are working on the product platform alignment, which we call K2020, having a dimensional platform that will streamline our product assortment. Moving well according to plan.
The same goes then for the manufacturing footprint transformation, where the big thing there is what internally we call the A2 project, which is the new factory in Jönköping. That project is progressing according to plan. We've reached the phase now for the second and third quarters of this year, we're going to start purchasing machinery but also purchase the building. It's moving along well in that area. In terms of people engagement, we have put an effort into further creating value in the Nobia, let's call it the Nobia brand.
We're not operating in the market as Nobia and meeting customers under the name of Nobia, but we do it in employee branding and those sorts of things, but also internal pride and having everybody working for the company of Nobia, which will be an asset and important when we are to execute and make progress in all these big, important strategic initiatives that we have. We have worked on things like core values and purpose and those sorts of things, which have been very well-received and appreciated. In terms of ensuring and winning capabilities, we have taken in some new competencies as well, and we are filling up our management teams, which is reflecting the organization that we put in place for the strategy execution. All in all, we're now well-positioned and have good people sitting around the table in the various management teams.
At the heart, we talk about sustainable design leadership. Already in the previous call, we talked about how we have science-based targets approved now, which is really great in the dimension of looking into the new factory in Jönköping. We are not only scrutinizing, but we are also making sure and are keen to make really good choices in terms of the sustainability perspective in mind. On the design leadership ambition, I think we can really see the first bigger things coming out of that ambition. I was just mentioning the Jordnära Färger campaign that we've been running in the course of this year. We just now, or very recently, launched something called Ton i Ton, which is also well received by consumers. There will be lots more exciting stuff coming out here. New concepts like something we call Nordic Nature.
Coming to a store near you soon. Go and have a look at it. It's going to be very beautiful. I think it's really nice to see how both the sustainability dimension, to further work on that one, and also the design and concept dimension are now coming across in the company in a more material and distinct way. Lots of hard work for a long time is surely starting to pay off, but also much more to come. Those were a few things to mention with regard to our Tomorrow Together strategy and our priorities. All in all , then, concluding on the group level for the first quarter, we did have 9% growth in the Nordics, 20% in Central Europe, and an 8% decline in the U.K., rendering an organic net sales increase of 3%. That means that our net sales rendered were SEK 3.373 billion.
We had a gross margin of 38%, a slight increase, and an EBIT of SEK 196 million, an improvement driven by the Nordics and Central Europe, rendering a 5.8% margin. We're in a strong financial position, meaning a net cash position excluding IFRS 16. All in all, also a solid and strong balance sheet. With that highlight for the first quarter, I hand over to Kristoffer, who will take you through more of the nice stuff in the financials.
Thank you, Jon.
Thank you.
Thank you. First, let's look at the breakdown of sales per market. If we double -click on the U.K., it represents now 35% of sales. We have retail at 43%, trade at 34%, and product at 23%. In retail, it has been a weak start of the year with a sales decline of about 15% on the back of the closed store network. Order intake in the very same period was down 20%. It does prove that it takes a little bit longer to build up the order books again. We believe that it will take yet another quarter before we're back to and exceed the 2019 sales levels when it comes to the retail segment. Having said that, trade, which represents one-third of the U.K. business, is compensating that to some extent with actually much improved order intake.
With that pattern continuing, we will see growing order books also for the second quarter of this year. The product market, as Jon was alluding to, has been very soft, especially in the social housing market and in the London property development market. We do not expect any major changes in this segment until the second half of the year. As you remember, we closed all the manufacturing sites in Q2 2020. For that reason, we will, of course, have a very high growth number when we enter Q2. However, as of Q2, we don't expect as of Q2 to reach the same sales levels as we had back in 2019 as yet. Looking at the Nordics, all in all, representing 54% of Nobia's sales.
Here we had a strong retail performance in the quarter, double-digit growth in retail in both Denmark and Sweden on the back of the product launches that Jon was mentioning. We had single-digit growth in retail in Finland and Norway, which we are also quite pleased with, especially given that in Norway we have had a store network that was closed for a period of time in Oslo and surrounding areas. Again, we believe the concepts have contributed a lot to the growth in Sweden and Denmark, and for that very reason, we also believe that we take market shares now in retail. Of course, the retail market was helped by the strong home refurbishment trends. Product sales were flattish across Sweden and Norway, however, growing in Denmark and contracting in Finland, as has been the pattern the last couple of quarters.
Looking at Central Europe, we had another strong quarter there in Central Europe. Austria especially had strong year-on-year growth due to last year's temporary closure of the factory and also a strong underlying market, which is, we believe, quite similar to the Nordic pattern when it comes to the market characteristics as of now. Also, the Netherlands continued to perform well on the back of the improved private development market, whereas the social housing market in Holland is somewhat soft. Central Europe together now is 11% of group sales. Just to give some further highlights on the Nordics. The growth rate came in at 9%, driven first and foremost by retail across the entire region, but also project sales in Denmark. Again, good performance from the new product concepts, which also helps in operational leverage and increasing our gross margins.
As you can see, we have grown margins by a percentage point roughly. Solid performance also in the supply chain, although we have some capacity constraints in areas like customized painting. We have talked about that before. That trend continues. In Q2 and Q3, we will make investments in this area in some of our major factories in order to cater to the higher demand , especially for customized products, which in a way is a good trend for our business. Currency also contributed positively this quarter by SEK 20 million, mainly on the back of a stronger Swedish crown again compared to the euro. All in all, an EBIT of SEK 249 million with an EBIT margin of 13.6%, which we consider to be a good operating performance as well.
If we turn the page to the U.K., and sorry for repeating a little bit here, the negative 8% is a result of the retail network that has been closed throughout the majority of the period, compensated to some extent by trade. Again, a very soft product market. Due to the volume decline, we have lost some gross margin. We also have our factory, which is manufactured for the social housing market, standing, not completely still, but with very little to do, and which burdens our gross margin by roughly a percentage point. In terms of EBIT, negative SEK 47 million with a negative EBIT margin, then. The retail lockdown has ended as of April 12, and of course, we will see a completely different pattern now going forward for the U.K. business, and we should definitely be coming back to black numbers from Q2 and onwards.
In Central Europe, the growth of 20% has led also to a good volume performance, of course, and productivity improvements, which have supported a strong gross margin of almost 32%, which is historically very good for this region, and an EBIT of SEK 37 million with a 10.8% EBIT margin. If we look at the financial position, operating cash flow is negative, roughly SEK 70 million, quite a bit below last year. This is mainly related to the timing of accounts payable, given the very peculiar situation we were facing in March last year. We don't see that as anything other than a timing issue. There have been some postponed VAT and tax payments, which we have conducted now in Q1. Apart from that, it looks like a solid cash flow as well.
You can see from the financial net debt, which means our borrowing net pension and interest-bearing assets, which is SEK 300. If you back out also of the pensions from that, we're actually cash positive, which is great given the good initiatives we have now going forward. Leverage of about 6% only. Next slide, please. We added a slide that some of you might remember from our Capital Markets Day, where we tried to shed some light on our direct material purchases, and that's because of a lot of communication and questions on this topic concerning the inflationary pressure on direct material prices. Basically, we have a total direct material spend in the group of SEK 5 billion, of which sheet material, where we have the highest inflationary pressure, represents 17%. There is also price impact on the appliances business.
However, the appliances are an instant price going out to our customers and consumers, while the sheet material goes into our production. As we have stated before, it's very important that we carry on this on-cost that we will see in sheet materials to our consumers via the franchisees and dealer and construction company networks that we have. That is what we expect from this. We can, as of yet, not give any details on the eventual price increases that we will see in sheet materials, but we will have to come back to that topic in the Q2 report when we know a little bit more. It's clearly told that there will be upward pressure on that one. With those words, I hand over to you again, Jon, on the financial targets.
Yes. As we described and presented at the Capital Markets Day, we made some changes to the financial targets to even better reflect our way going forward. In terms of growth, the average organic growth target is to be 3%-5% per year. More emphasis on the organic growth. Profitability: operating margin to be greater than 10% over the business cycle. That's unchanged. The capital structure, in terms of having leverage instead, is defined as net debt over EBITDA. That shall be below or beneath 2.5x. Before, we had net debt to equity. The dividend policy states that the dividend shall comprise at least 40%, or a minimum of 40%, of net profit after tax. Before, we had a spread ratio. Those are the financial targets.
Moving in then to a brief summary here at the end of our presentation for this call before the Q&A. As I started out, and I think you could hear also from Kristoffer outlining the sales and the financial performance, I think this is a solid start to the year, with markets free from direct corona restrictions following the reopening, so to speak, or open doors of the U.K. on April 12th, which is good. With that said, as everybody understands, living in the pandemic situation, there is still a high degree of uncertainty. As Kristoffer just mentioned, there is a direct material inflation, and there is a direct material pressure on us. We are working to mitigate that by having higher average order values.
There is a potential direct material availability risk because of the high activity in the furniture industry, also on the back of the stay-at-home trend. We have indicators that tell us that the Nordics and Central Europe point towards a continued good underlying demand in these circumstances, and also the U.K. market continues its recovery. With that summary, thank you very much for listening, and I hand over to Tobias.
Thank you. Operator, please open up for questions.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you do wish to withdraw your question, you can do so by pressing zero two on your telephone keypad. Our first question comes from the line of Victor Hansen from Nordea. Please go ahead, your line is open.
Thank you, moderator, and hi. My first question, could you please add some flavor on what you are seeing in the U.K. now in April? Are you able to convert the digital bookings into sales?
Yes. We are.
Okay. Sure.
Just to add to Jon's comment there. It's been only two weeks into the reopening. It's a little bit too early to say, but to Jon's point, we can convert as we expected. Again, we need some more time to fully validate the situation over there.
Okay, understood. Thanks for the extra flavor. How have your sales volumes been affected by the lockdowns in Denmark and Norway? Do you expect there to be any pent-up demand here, perhaps?
Some effect, I'm sure on, let's call it, on the margin as such and in some segments. All in all, we don't expect a rush to have more kitchens. I think we've had a solid underlying demand that also has been translated into a solid order book.
Yeah. Our belief is that the lockdown has been a little bit more strict in Norway.
Norway.
The Danes have been able to operate, not normally.
More normal.
Close to normal.
Yeah. To your point, no, we don't expect a big rush in new demand because of that, but we have a good demand.
Okay, fair enough. Could you please tell us how you managed to mitigate the sales decline to just 8% in the U.K. in spite of the heavy lockdowns, which impacted several of your segments? How much did your U.K. trade segment grow, for instance?
We don't want to shed light exactly on the trade segment, but it's clearly so that the efforts that we have done in that segment is bearing fruit, so to say, but it's also a more positive underlying market. You have to remember also that the click -and-collect setup was possible to run over this period of time. It was just the retail stores that were fully closed. You could still use the trade backdoor. Now we only have trade backdoors in about 75% of our store network. Those were still able to operate, again, on a click -and-collect basis.
Okay, understood. A final question, please. Could you shed some light on how much of your organic growth can be explained by volume and price increases, respectively, please?
No, we don't want to go into details on that. There are both components in it.
Okay. Thank you very much. That is all for me.
Thank you.
Thank you. Our next question comes from Adela Dashian from Handelsbanken. Please go ahead. Your line is open.
Thank you. Hello, everyone. I want to firstly just congratulate you on a very solid report despite challenges in the U.K. Impressive. Onto my questions. Firstly, it actually relates to trading in the U.K., and at least I'm convinced that there's a lot of pent-up demand from the first and second waves, and then also increased demand due to underlying market conditions even in this market. How do you view the production capacity in the coming quarters? Is it sufficient enough to deliver on the demand and cater to all your customers?
To start with, I deem that we will have the capacity to cater to the demand. The doors were open 12 of April, but it wasn't that everybody was just dashing, running into the kitchen stores and converting all the digital experiences we've had into concrete orders. What we see is an increased week-by-week increase in footfall and people coming into stores and converting as such. It's not going to be like two weeks from now we're going to have full factories, by no means. It's going to be a gradual increase of deliveries in the course of Q2 and running into Q3 for the business that we have ongoing in various stages in the sales funnel, that's going to be more of a gradual ramp -up than a big steep. We deem the capacity as we look at it positively.
I'm sure we're going to have lots to do, but we don't see that as the biggest risk. It's more what we mentioned, the pressure on direct material and availability, rather than the capacity in the factories.
Okay. Are you seeing the same underlying market trends in the U.K. that you are seeing in Central Europe and the Nordic region, just with the consumers that you're having discussions with on the digital side?
I think there are two trends. One is that we're doing a better job today in trade than we did historically, so to speak, which we benefit from . We have had good interactions with customers in the digital space for some time, and that's going to gradually convert into business in a positive fashion, but not from one day to the next, massively.
To reiterate what Jon said, we only have two weeks open, even though we love our products and our business, but that's not the first thing that came to top of mind for some of the customers. We see the gradual increase now coming in. It's really too early to say.
It is too early to say to what magnitude that will get in.
I think it's fair to also add to that. We've been saying all along that the underlying or the early indicators are all speaking positively to our business and to our products because there is high web traffic, et cetera, and that continues.
I think the stay- at- home trend positive effect is similar in all the markets where we operate, and then it kind of materializes in a slightly different fashion depending on which country we're talking of.
Yeah.
The underlying macro trend, stay at home, is pretty much the same.
All right. Makes sense. Then on the inflationary pressures that you're seeing on direct material prices, obviously there probably will be a lag until you're able to pass those costs over to the end customer. Do you expect to see some negative effects on the margins in the coming quarters due to this?
As of now, we don't expect that. We think we will be able to cater for the inflationary costs.
Okay, and maybe a follow-up on that. Historically, when these types of things have happened, how fast have you been able to pass the cost over to the end customer?
I think historically we've been quite good at it.
Yeah.
There's some lag, absolutely, in certain areas. Historically, we've been good at passing it on.
All right. That's all for me. Thank you.
Thank you. Our next question comes from the line of Mattias Holmberg from DNB. Please go ahead, your line is open.
Hi, thank you. You mentioned briefly making some investments in your factories in the Nordics, I think. Could you elaborate a bit on this and what that will mean in terms of cash outflow for the rest of the year?
Yeah, it won't nudge the underlying CapEx budget that we have anyhow. The big-ticket item you will see come in later on in the year is the investment in Jönköping. This is rather to put the flavor on the fact that we are investing in some of these capabilities that we need right now, which is painting, which is customized type of products. Again, investing in an area where we believe already that we are quite good compared to the rest of the market. It won't be a big change in the underlying CapEx stretch, so to say.
Great. I heard your comment there that you don't believe Q2 sales in the U.K. to be able to reach 2019 levels, and I think that sounds reasonable. I'm just curious if you feel differently about the second half of the year, if that's a possible outcome or if that's still sort of far out of reach.
A possible outcome to reach 2019, was that question.
Yes.
For the second half?
For H2. Yeah.
I don't think I'm too bashful to say that that's probable.
Good. That's all for me. Thank you.
Thank you. Our next question comes from the line of Frederik Moregård from Pareto Securities. Please go ahead, the line is open.
Thank you, operator. Good morning, everyone. First off, just to follow up on the previous questions on raw materials. Just briefly, do I understand it correctly that you have been seeing some inflation already in Q1, but that you have already now started offsetting that with prices? Is there a net negative impact in the Q1 numbers from cost inflation?
We have seen some impact in Q1, but quite little. It will mainly be from now onwards, or end of Q1, beginning of Q2, and onwards.
Okay, that's helpful. Just when it comes to discretionary spending, clearly you're investing in the new product concepts, and so on. At the same time, I guess you made some significant reductions when it comes to discretionary spending last year. Could you just tell us something about where you think you're running at? Is the current cost level in terms of discretionary spending, marketing, and so on sort of normalized, or do you still think you have some cuts you have to do from the 2020 cuts?
Well, it's clearly so that to cater to the growth that we have in the Nordics, we had to take back some of the resources that we had back in 2020, before the corona crisis hit. That is coming back. Meanwhile, we have also made some cost adjustments in all parts of the group. On a run rate basis, I think we're net better off as of now. Again, it is a little bit tricky to cater for the growth here as well. We will need to increase it in certain areas. For example, the Nordics in Denmark sales and possibly also in the U.K. eventually in trade.
Okay, that's related also to marketing and product development and so on—
Yeah.
...design and so on.
With all these great initiatives we do in design, sustainability, et cetera, these are initiatives that we are prioritizing. We're not adding—
We stopped.
...we'll have to give, and we stop to reallocate to this area. We don't expect our costs to increase on the back of those, on that agenda.
Okay. Thank you.
It will more be market and sales related in that sense, if there's any cost increases.
Yeah. A final question. You mentioned that you're seeing indicators in the Nordics and Central Europe pointing towards continued good underlying demand. Just curious if you could elaborate on what those indicators are and how you view them.
Again, we see the early indicators in terms of web traffic, digital design appointments, footfall, where we have had the chance to keep open, and other things as well. I think just to mention those three.
Okay. Sounds perfect.
Clearly coming back to that again, our customers are much more active today. We have much more digital interaction with our customers today than two years ago.
Yeah.
Sure. Thank you very much.
Thank you. Once again, if you do have a question, please press zero one on your telephone keypad now. Our next question comes from the line of Sindre Sørbye from Arctic Asset Management. Please go ahead, your line is open.
Yes. Hi, thanks for taking my questions. I think I got answer on the market question. Two other things. First, were there any full payments in the first quarter of this year?
Any what?
Furlough.
Can you repeat? Furlough. Okay.
Yeah.
Very little. Very little in U.K. social housing.
Yeah.
Okay, good, thanks. Are you being hit by delays in the value chain? More specifically, within white goods, as I hear, there are a lot of people saying that there are a lot of delays and problems with that.
It has, in all fairness, the players in the white goods area have had big demands and have had difficulties in supply. We have faced challenges as well in this area to get all the white goods that we need.
Basically, we are still selling the product and retrofitting whenever we are able to get the machines, with the support of the supplier, I should add.
Yes. In agreement with.
Okay.
Yeah.
Yeah. It means that you pay some additional cost, but that the white goods supplier takes most of that cost.
[crosstalk]
Okay, the situation, is it getting worse or better?
In our particular case, we had one supplier that was very difficult, that has improved. The other supplier now has worsened a little bit, but we are in a better situation now than we were some months back.
Okay.
All in all.
Thank you.
Yeah.
Thank you.
Thank you. Our next question comes from the line of Julius Rapley from SEB.
Hi, guys. It's Julius from SEB. Thanks for taking my question. Just one follow-up on the raw material prices. Historically, you've been quite good in passing on the raw material prices in the retail affair. My question relates to the project markets, and how dynamic are you with pricing in the project markets when you sell to large construction companies and the like? Thank you.
We can't really go into details with the contractual arrangements and so on that. It's clearly so that retail is easier from this perspective, or I should say, faster from that perspective. There could be a little bit of lag when it comes to the construction companies or larger customers. Again, historically, and they also know it. They buy these materials themselves for housing buildings, et cetera. They know the underlying pressure as well. They're committed as well to pass it on to the consumer at the end of the day. That's how it goes.
All right. Perfect. That's all from my side. Thanks.
Thank you. We have no more questions from the line. I will hand it back to our speakers.
Okay. Well, that's it from our side. Thank you , everyone, for calling, and welcome back on the 19th of July for the half -year numbers.
Thank you.