Good morning, everyone, welcome to Nobia's Presentation of the Q3 Results. We will follow the usual procedure this time as well. We will start with an overview by our President and CEO, Mr. Jon Sintorn, before our CFO, Mr. Kristoffer Ljungfelt, digs into all of the financial details. After that, we will do a Q&A session. With that, I leave it over to you, Jon.
Thank you, Tobias. Good morning, everyone. Again, welcome to this telco with regards to our Q3 results. I'm sure you all share with me this is the highlight of the day, almost as exciting as the presidential election in the U.S. election. Jokes aside, I think it's fair enough to say that we are still in a crisis managing the pandemic, as recent events show. I would like to take this opportunity to start out with a big thanks to all our employees, customers, and other stakeholders that have been able to manage these very, let's call them, erratic and strange and unprecedented times.
What we can see for the Q3 , it was characterized by overall stabilization and recovery if we compare it to the Q2 situation that we had. With that said, the segments and geographies were impacted by different phases of the pandemic. Overall, we had a strong situation in the Nordics, however, somewhat hampered by productivity and cost managing higher sick rates, working from home situations, some difficulties in installing machinery, those type of things.
Overall demand and performance from the Nordics were strong during the Q3 . Same goes for the U.K. in terms of stabilization and recovery from the Q2 , as well as Austria, where we had a complete lockdown coming back from that, especially by the end of the quarter, demand was again picking up. It is an underlying demand, which is fairly strong because of the strong stay-at-home trend that supports consumer sales in all of our markets. In terms of project sales, in the Nordics, it's been fair to good. However, in the U.K., especially social housing, but also projects like the big projects in the London area, as example, has been weak.
We have continued with this quarter with a very solid cash flow. Our immediate actions during the Q2 was obviously to safeguard our cash flow and optimizing a lot of our cash flow. We continued to perform well during the Q3 and built up a strong cash position, which is very nice and comfortable, so to say. It brings a lot of comfort, which is good to see. During the Q3 , we also had our new organizational structures, the structure put in place. We are far ahead on that one.
There is still some things going on further down in the organization, but at the top level, we are now complete and are able to start managing and start operating in this new structure, where we try to delegate some of the group decisions to the commercial regions, but also consolidate a lot of local operations to the regions as well, so we can leverage more on our scale for improving our local competitiveness, driving our strong brands in their respective markets. Let me go on to slide 3 in the presentation. As you can see, our organic net sales declined 2%.
It was a 3% increase in the Nordics, as I was referring to earlier, and 10% increase in Central Europe. It was a 9% decline in the U.K. region as segments of the market are still in post-lockdown recovery. As I mentioned, let's call it erratic.
It was very low early in the quarter and picking up quite significantly by the end of the quarter. It was lower EBIT driven by the U.K. sales decline. As I just mentioned, a continued solid cash flow, and as a consequence, a strengthened financial position, actually net cash position excluding IFRS 16 leasing and pension provisions. If we look on the right-hand side, the net sales, SEK 3.105 billion In net sales. Organic growth, as said, -2% compared to 3% up last year. Our gross margin, 35.7% compared to 37.6%. EBIT, SEK 195 million compared to SEK 67 million. Our margin at 6.3% versus 8.2% last year. I think the Q3 shows that we have built a stronger company compared to the crisis we had some years back.
We have been able to manage our balance sheet and our cash flow and to a decent degree, the profitability during this unprecedented time. Moving on to slide 4 , kitchen market trend, Q3 . The Nordic market is deemed to be in line with previous year market growth in Denmark, consumer demand benefiting from stay-at-home trend. I will probably, and I'm sure Kristoffer will repeat this as well in his presentation, the underlying demand has been good to strong during this period of time. It has been difficult with lockdowns, coming back from that, and more difficult to manage this situation as such. There is some cost related to that, the underlying demand has been good to strong during this quarter. We see that going forward as well.
In the U.K., governmental lockdown measures in the U.K. from end of March to June prevented markets from functioning normally. Consumer demand benefiting from stay-at-home trend. Repeating again, the underlying demand, specifically from the consumer and trade segments, are good to strong, whereas the project business in the U.K. have been significantly more hampered. Again, Central Europe demand increased due to the pent-up demand following the restrictions and lockdown measures, and that's specifically in Austria, where we had a complete lockdown during the Q2 , and then the pent-up demand really made Austria hit off well, so to speak, during the Q3 . It was nice to see.
Again, there is an underlying demand which is good to strong in our market. It is more difficult to manage the situations market by market, depending on where they're at in the pandemic and various situations, which is driving a bit more of cost and complications, but overall, a healthy market conditions. Moving on to slide 5 , and moving on to Kristoffer with some further details.
Thank you, Jon. Let me shed some more light on the market in the various markets where we're at, albeit it might be some repetition of what Jon has already said. Starting with the Nordics then, which now represents over 50% of the 12-month rolling net sales. Denmark had a very strong 12-month period with growth in all segments, and that continued into this quarter, to some extent driven by the strong market, but also gaining market share during this period of time. The launch of the new attractive product concepts have fueled the growth, but there's also been a strong trend in personalized kitchens and availability of color options, which is giving us some cutting edge in the market for the moment.
Sales in Sweden, which represent 13% in the 12-month rolling sales, was somewhat down. Also in Sweden, the kitchen trends and our strong campaign in Marbodal with the new color palette, which we call Jordnära färger, has spurred growth in the consumer segment, whilst the project segment was declining somewhat during Q3. On a positive note, also the Norwegian sales was coming back after a tough year with falling oil prices, weak currency, and quite extensive lockdowns. Both sales and order books in the quarter were growing in both segments. That's on a good note. In Finland, however, which now represents 7% of 12 months rolling, the project market remains very soft and has done so over this period. We believe it will take another six to nine months before the Finnish market will recover.
It's however hard to see that the market will return to previous levels as we had back in 2018. We also see a shortfall of profitability in Finland this last period, driven by its low pricing in the project market, which is something we will address during the next 6- 12 months. Judging from the order books we have in the Nordics after Q3 has been completed, we continue to believe in a strong consumer sales backed by the trends we see in the market and also the trends on the kitchen concepts that we can offer. However, the project sales would probably be declining to some extent, especially on the back of a soft market in Finland. Moving over to U.K. then, which is 37% on a 12-month rolling basis.
This is, of course, distorted somewhat by the factory lockdowns we had during the first half of the year. Retail sales in the quarter was down 15%, which was an effect of the lower order books we had going into Q3, driven by the Q2 lockdowns. However, and as Jon was stating many times, the order intake was strong in the period as we experienced large upswing in website visits, design appointments, et cetera, and we are therefore allocating more resources towards this segment to further drive the order intake. Trade had a strong quarter with double-digit growth, despite also here, a weak order book going into the quarter. We believe that we had a stable to somewhat growing market share in this segment.
It also suggests that our push in trade is paying off, and we will continue now to streamline the assortment to become even more relevant as there is still some adjustment to be done, and this will take some resources and cost to get this structure in place. Again, the project market, you see here it represents 25% of the U.K. sales over a 12-month period, has been extremely weak throughout the COVID-19 pandemic and also in Q3, where it has been declining by 30%, 40%, depending on the subset segment you look at. Property development in London, as well as social housing across the U.K., are lagging much behind. However, we are confident that the market will come back, not at least as a result of the pent-up demand for new housing.
Currently, we estimate that it will take up until Q1 or possibly Q2 in 2021 until this segment is back to normal. The large drop in turnover here is also one of the reasons why we have a quite bad drop-through in U.K. in the quarter. Oh, sorry. Let's move to page 6. Again, back to the Nordics. We had an organic growth of 3% and 6% if you exclude the impact from the conversion into franchisees in Denmark. Gross margin declining somewhat, you must remember that we also had a currency loss of SEK 15 million, representing almost a percentage point, and profitability or EBIT of SEK 183, which is equating to 12.3% EBIT margin. We had some effect also from lower productivity in the quarter, which we expect to remediate by later on this year.
We move over to U.K., and organic growth here was - 9%. Again, the project market declining with big numbers, whilst the stay-at-home trend was supporting the consumer demand over this period of time. Gross margin declining to 34.1% with an EBIT of SEK 13 million. I should also add here that the gross margin was somewhat affected by the pricing coming in from the Q2 order book, where there had been substantial price pressure throughout the Corona lockdown period. The pricing is more or less normalized since August. We're also spending a lot of time and effort to safeguard an eventual Brexit transition, which we will see how that will go about in terms of communication in U.K. the following month to come. Moving over to slide 8 , which is the trend of the top line in U.K.
You can see back in April, where we had an 86% decline of top line following by May, -65%, and June, -28%. We still had a somewhat subdued order book coming into the Q3 where July, but foremost August, was still down, and especially again in the product segment, but recovering slightly in September. It's just to shed some more light on that development. The next slide, please. Slide 9 , Central Europe. Organic growth in Central Europe was 10%, and it was mainly fueled by the fact that we could keep the factory open in Austria in August, where normally we have a holiday. The new management team in Austria has done a great job there to drive growth, which also led to stronger profitability.
We were slightly worried that the social housing in the Netherlands will be equally impacted by the lockdowns as they have been in the U.K. However, we saw the social housing coming back very strongly towards the end of the quarter, and Bribus is doing a strong September result, driving the top line and also getting a good drop-through on the volume growth. All in all, EBIT margin of 11.9%. Jon also mentioned the strong financial position we have, and it's very nice to see that our cash flow continued to grow compared to last year. Operating cash flow improved to SEK 484 million compared to SEK 346 last year. We are doing well both in terms of working capital and lower investments during this period of time.
However, we believe that investment will start to slightly increase again, and there is a large effect on the timing for tax and VAT payments. Currently, we estimate that lagging effect to be almost SEK 0.5 billion , which will affect the cash flow starting from Q4 and then into Q1. Having said that, our net debt currently is net cash positive actually of about SEK 100 million, which means that we have a very strong position and are able to continue with our strategic investments. Now back to you, Jon.
Okay. Thank you, Kristoffer. Summarizing at slide 11. From this quarter, we can see that there is a market stabilization compared to the first half year, specifically the Q2 of this year, and our underlying demand is okay. I could say overall healthy business conditions. With that said, recent events add uncertainty and probably additional cost, we can see that, for managing the situation. The U.K. remains the largest uncertainty, both in terms of the lockdown situation just announced this weekend, but also obviously the Brexit situation ahead of us. With that said, we do deem the risk for temporary factory closures as limited. In the guidelines just sent out, we deem that we will be able to continue to operate our factories. We see limited risk there, which is obviously good.
As a summary, we do have a solid balance sheet to support our exciting strategic agenda. We were supposed to share this on a capital markets day mid-March of this year, but we were obviously caught up by managing the immediate pandemic crisis. During this time, at the same time as managing the crisis, we have also continued to prepare and work on our strategic agenda and projects. We'd love to share this with you, aiming, let's say, mid-March again.
Somewhere around the end of the Q1 would be a good approximate timing, because we would really like to share our direction of travel and the plans and strategy we have going on for the future. With that said, we have concluded the presentation for the Q3 , and we are ready for a Q&A session. Tobias? Operator, please open up for questions.
Our first question comes from Fredrik Moregård from Pareto Securities. Please go ahead with your question.
Good morning, everyone, thank you. First of all, obviously, you've been ramping up your production quite quickly since the lockdowns in Q2. Could you tell us something of any supply chain issues that you've been experienced that might have impacted your margins here in Q3?
Well, first of all, first closing and then ramping up is a difficult exercise with additional cost. Get the material flow to work on this rapid increase have been, I should say, difficult for us. Panels, white goods, and others.
Okay. You haven't really experienced that much supply chain issues then in the past quarter? It's been mainly about you being able to ramp up your factories then?
Well, as I said, first closing and then opening and get started again is obviously a difficult exercise and gets everything to work, and then at the same time having people being very mindful on sick rates and whatnot. It's been a daunting task to manage that situation. The material flow has gone from very little to a lot, a high demand. Our sourcing team has worked day and night, basically, to manage that situation.
Okay. Sure. Can you provide some more comments on the order book for your various regions and markets? Also with regards to Austria, you said that you have seen some strong pent-up demand coming through this quarter. Have you seen that tapering off towards the end of the quarter?
Well, we normally don't comment on the order books, but I can repeat what I said earlier, that the consumer trends are bringing better order books to us, while we believe the project market would be somewhat lower. In U.K., it's very low activity within the project segment, and that will remain for yet some time. Concerning Austria and Holland, again, we kept the factory open for a longer period of time during August than what we normally are, and therefore we had plenty of more delivery days, so I would not extrapolate that growth into the future.
Sure. Thank you very much.
Thank you. Our next question comes from Adela Dashian from Handelsbanken. Please go ahead with your question.
Questions. My first one relates to one of your U.K. competitors that yesterday released a trading update stating that sales performance in the U.K. is down by about 7%, while your sales is down by about 25% year to date in the U.K., which implies a slower recovery pace. Could you please explain what drives this discrepancy? You mentioned double-digit growth in trade and solid consumer demand. Is it your exposure to the project segment, or is it something else that has hampered a faster recovery in the U.K.?
The very fast answer to your question, you just answered, yes. Projects.
Okay. Got it. Okay. If we could turn a page down to consumer sales in all the markets, specifically, in the U.K. The demand that you're experiencing from your retail customers, is it softer than the Nordic countries? Going forward, do you expect the demand within retail to be enough to offset the softer project sales in the U.K.?
Could you repeat the last question, please?
Sure. Will the demand within the retail segment in the U.K. be enough to offset the softer performance in projects?
No. On your last question, it will not be able to offset that. We see a pickup in orders in this quarter in the U.K. in the retail. In terms of revenue sales, the weak Q2 shows in those numbers.
Let me just clarify. The retail sales in the quarter was down 15%, mainly due to a soft order book coming into the quarter. The activity now in retail throughout the quarter has been considerably stronger. Trade, which is a shorter dispatch timeframe, has also grown in line with market, slightly better than market in Q3. We believe these two effects would help us gain better traction in Q4 than what you're seeing with a negative 9% organic growth in Q3. We believe that it's more reasonable that we can fend off or support growth in Q4 than what you have seen in Q3.
Are you experiencing stronger demand from your retail customers in the Nordic countries than in the U.K., or is it pretty similar today?
It's the same type of trend, then it depends, of course, in which segment of the retail segment you look at and so forth. The trend is the same across Europe. We believe that the demand for home renovation is picking up.
Okay, great. If I could also ask about the factory ramp-ups. You mentioned that all factories are fully operating, but could you tell us something about what levels they're running at the moment?
In the Nordics, we are pretty full-ish. There is still some headroom, but we're running at a pretty good load. In the U.K., it depends on which segment we are addressing. Whereas obviously project sales and social housing is not a very big load, and for trade and consumer, it's a better load.
Okay. That's all for me for now. Thank you.
Thank you. Our next question comes from Mattias Holmberg from DNB. Please go ahead with your question.
Thank you. First of all, on the new factory that you have in the pipeline in Jönköping, could you please provide us with an update on the progress that you've made so far and what's next ahead here?
What we're doing is obviously continuing to preparation work for that factory, going into various designs of the actual building and what type of machinery we need and those sorts of things, and also permits and other, let's call them certificates and other permissions that you need in order to do this project. We're also in parallel working with the MBL for handling with the unions, and also looking into the financing options that we have for this factory. All in all, in short, it's going well and in line with our timeline.
Great. The 2023 timeline is still valid then?
The timeline that we have communicated is still valid.
Great. A second question from me. We're seeing some countries in Europe sort of reversing back into lockdowns, and I just would like to hear your opinion on sort of what you see is different this time compared to what we saw in the Q2 . You mentioned that you don't believe that there will be any imminent closure of factories. Do you see a similar trend in, say, the retail stores and such?
Our best assessment, and obviously this is our assessment at this period in time, is that last time it was, I think everybody felt a bit overwhelmed when the lockdown came, and it was a matter of interpretation on how to deal with this situation and what not ending up with not us being forced to close the factories, but at the retail level, there was expectations not to keep stores open and what not. We see a slightly different sentiment now, schools and universities being kept open. There is an essential list of essential stores, so to speak, being distributed, and it's clear guidance already from the get-go from the government on how to interpret this and add more.
All this together makes us pretty confident, if we can be confident in these times, that we will be able to keep our factories open. There will be pick and collect maybe situations for trade, design appointments or digital interactions with consumers and what not, those sorts of things. That would be a complete shutdown or that we're not be able to operate our factories, we see as unlikely at this point in time.
Thank you very much.
Thank you. Our next question comes from Kenneth Toll Johansson from Carnegie. Please go ahead with your question.
Yeah, thank you. You talked after the Q1 that you had made some changes in the U.K. manufacturing organizations, and that we would see savings of that in the second half of this year. I know that the world didn't turn out what we wanted it to be since then, Could you maybe talk a bit again about what you did back then and how it could sort of support earnings going forward?
Yes. As you said, the world didn't turn out the way we expected back then. One of the main initiatives was to invest in our core factory in Darlington in the U.K. to also take some volumes and panel manufacturing for the other factories. Since we came into lockdown and saw the huge volume decline in project sales, we have not been able to fully do this transmission, and also this transformation. We also sit with an underutilized factory in terms of the Rixonway and social housing. We still believe that the benefits will come in, hopefully as soon as we get stronger volume going for this, which will be again expected to Q1, Q2 in 2021, as I was alluding to before.
Will that mean that you have different products being made in the different plants in the U.K.? Do you still have investments left to do in the U.K. manufacturing?
We will have some investments to do in U.K., but not significant amounts. What it basically means is that our platform, as you know, it's the K20 platform. The Rixonway business and social housing will move over to the K20 platform. That's ultimately what we are doing.
When that is done, then you will have more flexibility between the plants. If the project business goes down significantly, you can manufacture for other segments and so on.
Exactly that.
Okay. Sounds great. Also when you talk about your strategic initiatives and so on, are most of the savings that you look for, are they related to these big plants that are planned for 2023, 2024? All the plans you have now for making the assortment leaner and moving to K20 and so on, are they being realized in 2023, or are there more savings coming sort of next year in 2022 as well?
We believe that we will have cost savings coming in way before the Nordic factory is ready. All the initiatives we do now with moving volumes over to K20 will give effect. During the time of the crisis, we have actually continued to do some changes to streamline the K20 platform as well. We still foresee that that will help to drive cost savings.
Sounds good. If I got it right, you are starting to invest according with the plans you had before again now, but will it take some time before you get those investments sort of back again, and will there be some extra costs? Just as when you stop production and restart it, there are some troubles. Do you foresee the same thing in investments in your plants?
Well, the way it is now is that we are ramping up and have been ramping up throughout Q3, and we can probably shed some more light on our CapEx profile when we go into the Q4 presentation. As we have, again, revised how that CapEx will pan out now when things are getting more normalized, so to say.
Okay, great. Thank you.
Thank you. Our next question comes from Adela Dashian from Handelsbanken. Please go ahead with your question.
Hi. Yes. I have two follow-up questions on the U.K. market. If you could first explain the margin difference in the different segments, and then also, I know you've answered this plenty of times before, but could you give us an update on the Brexit scenario and what it looks like for you?
Okay. I start with the first question. We often get this question. Basically, in retail, you probably have the highest gross margin, but you also have a high cost to serve the market, right? Whilst in trade, the gross margin is slightly lower, but also slightly lower cost to serve. In project market, you have the lowest gross margin, but also very low cost to serve. At the end of the day, we should be able to drive the same profitability in the various channels, albeit the structure of gross margins and SG&A is somewhat different. I hope that answered your question.
It does, yes. Thank you. Then on the Brexit scenario.
Yeah. In terms of Brexit, I think we know as much or as little as everybody else in the U.K. on what's really going to happen. As it looks now.
Have you stocked up on supplies to prepare for a situation?
Yeah. No, we're working obviously with the tariffs and customs and paperwork and admin and all of those sorts of things that we need to do. We are working on them. We're also trying to, as everybody else in the U.K. market, there's no one self-sufficient, if I put it that way. Everybody has to import quite a lot of components in order to run their factories and fulfill the demand from customers. That's, for the industry, a common challenge that we are facing, and we are now trying to fill our warehouses with these sorts of components to get back to our Brexit stock, as we called it a year ago, as much as we can to prepare.
Okay. Thank you so much.
Thank you. Our next question comes from Victor Hansen from Nordea. Please go ahead with your question.
Hello. Thank you for taking my question. I'm wondering if you could please elaborate on the dampened productivity in the Nordics, which you describe in the report, and also if we should expect this effect to continue significantly into Q4? Thank you.
Well, I start with two things. One, obviously being more mindful on the health and safety of our staff. It's still higher sick rates. People being even more mindful with those sorts of things. That is a challenging situation for us. Then with the type of demand where we have a drive for color and those sorts of things, for example, we need to expand, extend machinery, those sorts of things. Suppliers could be anything from Germany to Italy, and it's been more difficult to navigate in this when you can't really travel, and you have quarantine situations and those sorts of things. It's just more difficult to navigate in this environment.
To add to that, you've had a high volatility as well in the demand where it's gone high and low between different months, et cetera, and the seasonality, which we are not used to, so to say. Then it drives cost. Looking into the future, I would say, even though we mention here productivity, it's not been a big problem for us, so to say, and it's more of a temporary nature, I would say, driven by the corona effect here. We don't foresee any big cost moving on the Nordic supply chain. Then again, to what Jon was alluding to, there are certain areas within the manufacturing, like the color schemes, for example, where we need to expand our capacity to some extent.
I should, as Kristoffer was mentioning, I should underline that as well, going from a negative something one month to a plus something very high the other month, it's obviously, in terms of productivity, difficult to manage with this short period of time. It's not a long-term effect that we see. It's very pandemic-related productivity issues.
Thank you very much. That's all from me.
Thank you. Our next question comes from Fredrik Moregård from Pareto Securities. Please go ahead with your question.
Thank you. Just a follow-up for me. On the franchise conversion in the Nordics, could you please provide us with an update on where we are in that process and what sort of impact we could expect for the top line going forward, as well as the shift in your cost base from fixed cost to more variable cost base?
We have more or less completed that transition. There will be a couple of percentage points difference in Q4 as well. Year-over-year effect will be less. There will be some also during next year, but less effect than what you've seen this far. I wouldn't make too big of an adjustment on the cost position. We have also the various streams growing in various ways. Net on that, not a huge difference.
Okay. Perhaps the shifting some of the cost from the SG&A to cost of goods sold, I would assume.
It's a very small effect, and it's mainly related to the smaller stores which we have franchised, about 15 of them now, which would be the end of that program.
Okay. Very good. Thank you.
Thank you. Just as a quick reminder, if you wish to ask an audio question, you may do so by pressing 01 on your telephone keypad. Once again, it's 01 on your telephone keypad if you wish to ask an audio question. Okay. There appears to be no further questions, so I will hand back to the speakers for any other remarks.
Thank you very much. With that, we conclude today's call and welcome you back on the 4th of February for our full-year results. Have a nice day. Thank you.