Nobia AB (publ)

Good afternoon everyone and thank you for calling in today. The presentation of our second quarter results today will be conducted by our president and CEO, Mr. Kristoffer Jungfeldt and our CFO Mr. Hec Skogsfors. And with that, I leave it over to you, Kristoffer.

Thank you Tobias. Good afternoon everybody and welcome to this quarterly update. Let's start with a summary of the second quarter. The kitchen market remained very challenging in the product segment, it cost all our geography and we do not see any signs of short-term improvement. However, we continue to see an early recovery in the retail segment and judging from the growing number of web visits and designer points that we have had compared to the same period last year. Organic growth came in at negative 3%. There are some business units have done really well in terms of sales given the tough market situation and amongst others, it's good to see that the UK is growing again in the quarter by 5%. And it's driven mainly by a successful retail campaign where we also gain market shares with sustained gross margin. We also had a quite positive momentum in Denmark. On the opposite side, we continue to experience double-digit sales decline in the product segment in all geographies where we are present. Improved gross margin reported in the quarter with increase in the Nordics primarily. The improvements were related to higher share of sales to the retail segment. Although we are pleased with this performance, we still target share gains and growth in our product business which may moderate gross margins later in the year. It's also important to emphasize here that we remain committed to covering gross margins to the levels seen prior to the pandemic. As we work hard on improving our ranges, winning new customers in the mass premium segment and driving efficiently as always through our IJ network. FCNA was slightly higher in the quarter at the start year. Currently, it's just that the FCNA is actually flat. As we have reduced cost in the business, we also decided in the quarter to increase footfall driving activities throughout magnet stores and thus, FCNA in the UK is slightly up. And to mitigate lower project volumes in cost inflation going forward, we find it necessary to launch further cost programs which was also announced in June. EBIT came in at 42 million SEC compared to 36 million SEC per year. Operating cashflow came in at negative 53 million SEC which is an improvement compared to last year but driven primarily by timing of working capital from last quarter. In this amount, we have also taken an investment of about 230 million SEC mainly related to the young shopping investment. We have taken significant steps in the quarter on our strategic agenda. Amongst other, we closed the share price issue in April and announced further consolidation of manufacturing in the UK. We are gradually increasing production of components and flatback cabinets in Jönköping, our new factory in Jönköping. And we are igniting a new cost out program primarily targeted to adjust our fixed cost base and drive efficiency in both the UK stores as well as the Nordic supply chain. So the next slide please. Let me reiterate some actions that we've been taking to strengthen our balance sheet as of late. I already mentioned the share price issue that was completed in April. On top of that, we divested non-core assets in the Netherlands and Austria and made a sale and lease back arrangement of our buildings in Jönköping. In addition, we're driving towards a much more asset-like organization by reducing costs. In Q2, 2023, we launched a program to save 250 million SECs and this was finalized and delivered ahead of plan by Q1 this year. Because of the program running Q2 this year, we're also facing a bit tougher comparables from this quarter and onwards. And that's why we find it so necessary to drive further cost up and patient. And we will do this by launching the new program in the quarter to save the run rates, 200 million SECs. Primarily by consolidating manufacturing in the UK, closing unprofitable stores, drive efficiency improvements in the Nordic supply chain. And by delivering on this cost up program, we expect that we can mitigate volume decline in product business. But we also take a very important next step in our strategic agenda and driving towards a more asset-like operating model in the UK. The cost up program resulted in a plan cost of 130 million SEK in the quarter. And looking ahead of this, we also do not rule out further cost programs. And that's partly to save the profit in the soft market, but also to follow our strategy. Next slide please. The strategic priorities. First, the strategic priorities, the activities we have discussed already. Secondly, realizing the full potential in the Nordics. It's highly dependent on our Go Live in our new fantastic factory in Jönköping. We know our brands are very well positioned in the market with high awareness and high brand preference. Equipped with a -the-art factory, we truly set us apart from competition with regards to design, lead time, sustainability, cost position, and much more. And in June, we had a couple of great days where we did in the first experience, the -to-end trials that we did with the automated machinery when all of the machinery was running simultaneously. And that marked a very special moment for us at Novia. But a lot remains to complete the manufacturing and to ramp up the manufacturing in Jönköping and consolidate the volume into the factory. And having said that, I have full trust in our very competent team in place in Jönköping that to this point has been on time and on-duty during the entire project. As for the UK transformation, we are progressing at pace. There's a lot of work that has gone by to close unprofitable stores and factories. And at the same time drive sales in the midst of a challenging market situation. And for that reason, I think that the UK team spearheaded by George Diamond has done a great job in change management and still growing the business by 5% with stable gross margins. Average order values that is shown to us was up roughly 10% in the quarter, which is okay, but we had higher expectations. So we expect our consumer prices to come up slightly from current levels. Growth in both volume and average order values in retail is a testimonial that our magnet brand stands strong in the match premium segment, which is also nice to see. However, and as I have alluded to a couple of times already, the cost of doing business in the UK is still too high. And this is something that we then address going forward also with the cost program. So let's move to the next slide please on the market situation. And as you can see, obviously here we track the housing stock and early indicator to demand of kitchen. And as you can see from the graphs, it's still very low levels of housing starts. And even if Sweden and Finland have recovered slightly, the levels are unprecedented low and probably unsustainably low for that market and people need housing. And on the back of this market data, we don't expect the kitchen market for the project segment to come back short term. As I was alluding to before, the retail segment in the Nordics looks slightly more promising. If we then move over to UK on the next slide. And here, as you can see from the graph, the UK housing starts are currently also facing challenges and it even dipped below 20,000 housing starts by the end of last year, which is a very low level. However, since our share in the project segment is quite small in the UK, there is still ample business opportunities for us. There's also a significant pent up demand after years of under investment in new build. So we remain optimistic that there will be some new governmental backed projects that could start going about and they succeed with the promises of reducing bureaucratic hurdles for health developers. Let's see, and we will follow up on that obviously. In the UK retail segment, there are clear signs of recovery with consumer confidence rebounding from also very low levels. However, with high interest rates and among the highest interest rates in Europe, we don't expect significant improvement until financing becomes more accessible. And with that, I'll leave it over to you, Henrik, to address the different regions here.

Thank you, Kristoffer. Nordic region, second quarter. Organic sales experience a double digit decline consistent with the first quarter of 2024. Although average order values continue to support the top line, the substantial decrease in volume negatively impacts the market. The second quarter saw a significant growth a significant sales performance across all countries in the Nordic segment. On a positive note, the retail sector showed low digit growth that was offset by a significant sales decline in the project sector and a smaller drop in the trade sector. Finland encountered the largest decline in sales traded by Sweden, Norway, and Denmark. The gross margin for the quarter showed an improvement of 6.3 percentage points reaching 38.2, which is satisfying given the significant decline in volume. The uplift in gross margin is explained by favorable segment, country, and product mix with consumer sales holding up better than the professional segment. The improvement was partially hampered by adverse currency effects. The strong performance in Denmark was a key contributor to this gross margin improvement. As outlined in the quarterly report, we accounted for 34 million shares as items affecting comparability in the quarter. These costs are associated with the transition to the new factory in Jönköping, as well as new measures to adapt to lower volumes, which was communicated to the market on June 27th. The favorable segment, country, and product mix development supported EBIT that increased from 101 to 113 million shares in the period with a strengthening of the EBIT margin to 7%. Over to the next slide, please. Quarter to region UK. Same underlying trends as for the Nordic region where retail show growth and product is declining. Organic sales in UK increased by 5%, as Christopher alluded to earlier. Following growth in the winter sales campaign, the retail segment displayed double-digit growth, which was partly offset by a single-digit decline in projects and double-digit in trade. The gross margin was close to par with the previous year, which is explained by the positive contribution from retail, which was hampered by the volume decline in primarily the project segment. Current adjusted S&A increased by 25 million SEK, which is to be addressed with the currently launched cost of program and one of the reasons why we move towards a more asset-like model. EBIT came in slightly below the previous year. As outlined in the quarterly report, we accounted for 170.9 SEK as items affecting comparability. These costs are associated with primarily the closure of the Halifax manufacturing as part of the transformation of the UK business, as well as further measures in the transition to an asset-like model in the UK by closing underperforming stores that are up for lease renewal and further decentralization of operations. Next slide, please. Financial position. Cash flow from operating activities was 165 million SEK for the quarter, an improvement of nearly 100 million SEK -over-year. The improvement was driven by timing of working capital from the first quarter, partly offset by lower cash tropics. The operating cash flow, including investments, amounted to negative 53 million SEK, where our investments in the quarter primarily related to the new machinery for the factory in Jönköping amounted to 227 million. In April, we particularly executed the right issue of close to 1.26 billion SEK combined with a net debt reduction activity completed during the first quarter. It is the property of the property in Jönköping and the development of EVA and Bribus. This has resulted in a decline in net debt. Net debt, excluding the pension debt, decreased -over-year by 571 million to ,000,000, and a decline by 900 million from end of the first quarter in 2024. Important note is that we still have approximately 650 million SEK in continued outflows before the investments in the factory are completed. Upon project completion, we will receive approximately 350 million SEK from the buyer of the property. Over to you, Kristoffer, and next

slide, please. Thank you. As you can see, there's some good momentum in part of the business, but clearly the profitability is not where we want it to be. So we have a lot to do, but the priorities going forward are very clear to all of us in the organization. First of all, given the recovery in the consumer segment, we would push hard for growth in that segment, and we know that we can capitalize on our brand strength. And we have a very strong sales organization to do so, so pulling investment into that area of our business. Further on, we deliver on our cost programs, and we also investigate in further opportunities for cost of measures in second half to compensate for weak product markets with no improvements expected in the short term. And thirdly, obviously drive efficiency improvements in our supply chain to compensate for low volume. And I think that that was the monial for the cost of program we did this quarter, and also the gross money improvement to some extent, despite the large volume reduction running through the factory. And then we're gonna focus on completing our strategic initiatives. We will maximize cost efficiency and reduction of net debt by evaluating further opportunities for cost reduction and efficiency improvement that I was alluding to. We will realize the full Nordic potential by completing our state of the art factory in Jönköping, and pushing product and process harmonization through that work as well. And finally, we have a clear sight of how we should transform our UK business into an asset-like business model, with strong partnerships and a strong decentralized organization built around strong brands and highly efficient supply chain to serve our partners and customers and consumers. So with that, we open up for any questions that you may have.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A roster. We will take our first question. Your first question comes from the line of Anton Lund from Kepler Chevrolet. Please go ahead, your line is open.

Hi, Christopher Henrik. A few questions from my side. First, in the work in capital, is there anything in there related to order intake or down payments at all?

I'm not really sure I understand the question. Can you repeat that one, please?

Yeah, sure. So the work in capital improves here in the quarter. Is it at all related to forward, like future down payments or anything forward looking?

A part of it is in the area, because that's the normal, the difference between UK debt and free payments. So it's nothing abnormal, it's normal things that we have in the world in capital. So nothing extraordinary in that one.

Okay, thanks a lot. And then you mentioned additional cost initiatives. What do you have in mind there?

It's too early to say. I mean, we are addressing our cost base in all parts of the business. And basically we have announced the Q2 program for addressing the UK store network and the supply chain in the Nordics. But again, we're looking into all parts of our business. To reduce costs.

Got it. And then one last question from our side. I don't know if I missed it earlier in the presentation. But the UK gross margin is stable year on year. Despite the better performance in the B2C segment, is that a result of orders taking Q1 at lower prices or what's the reason that we're not seeing an improvement here?

Well, primarily we have a huge drop in volume on the project and trade side to some extent, which is an impact of profitability in the supply chain network. There's a slight investment in the credit given to our consumers because of that cost basically going up from the credit insurance.

Got it. All right, that's all for me. Thanks.

Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. There are no further questions at this time. I would like to hand back to the speakers.

Okay, well then we conclude from our side and welcome everyone back on the 5th of November for the third quarter results.