Earnings call transcript: Nobia Q1 2025 sees positive EBIT, stock dips

Nobia AB reported a positive earnings before interest and taxes (EBIT) for the first quarter of 2025, marking a significant improvement from the previous year. Despite this, the company’s stock saw a decline of 10.58% in pre-market trading on April 29, 2025, following the release of the earnings call. According to InvestingPro data, the company has been facing significant headwinds, with revenue declining by 9.72% over the last twelve months and operating with considerable debt burden. InvestingPro analysis reveals several challenges ahead, with 7 additional key insights available to subscribers. The company also reported an improvement in cash flow from operating activities and a notable increase in gross margin. However, the stock’s performance may reflect investor concerns about organic growth and market conditions.

Key Takeaways

• Nobia reported a positive EBIT for Q1 2025, a turnaround from the previous year.
• Cash flow from operating activities improved significantly to SEK 28 million.
• Gross margin reached 38.6%, the highest since Q1 2018.
• The stock dropped 10.58% in pre-market trading, possibly due to market conditions and organic growth concerns.

Company Performance

Nobia’s performance in the first quarter of 2025 showcased a marked improvement in several financial metrics. The company achieved a positive EBIT, contrasting with last year’s figures. This turnaround is attributed to cost reduction initiatives and strategic operational shifts. However, organic growth remained negative at -6%, which may have tempered investor enthusiasm.

Financial Highlights

• Revenue: Not specified in the earnings call summary.
• Earnings per share: Not specified in the earnings call summary.
• Gross margin: 38.6%, highest since Q1 2018.
• Cash flow from operating activities: SEK 28 million, compared to negative SEK 258 million last year.
• Operating income: €16 million with a 0.6% margin.
• Inventory levels decreased by 10% year-over-year.
• Net debt decreased by approximately SEK 400 million.

Market Reaction

Nobia’s stock price fell by 10.58% in pre-market trading, reaching a value of €3.19, down from the previous close of €3.57. This decline places the stock closer to its 52-week low of €2.86, reflecting potential concerns among investors about the company’s organic growth and broader market conditions.

Outlook & Guidance

Looking ahead, Nobia plans to continue its cost efficiency initiatives, aiming for an additional €100 million in savings, split evenly between the UK and Nordic markets. The company is focusing on consumer sales and increasing average order values while optimizing its supply chain and operational efficiency.

Executive Commentary

• "We are moving into a positive EBIT compared to a year ago," said CEO Christopher Jungfeld, highlighting the company’s financial turnaround.
• "Cash flow from operating activities was positive," Jungfeld noted, underscoring improved financial health.
• Jungfeld expressed confidence in the company’s UK market strategy, stating, "We are confident with the turnaround that we’re doing in the UK."

Risks and Challenges

• Supply Chain Disruptions: Continued global supply chain issues could impact production and delivery.
• Market Saturation: The soft product market may persist until the end of 2025, affecting sales.
• Macroeconomic Pressures: Economic conditions in key markets like the Nordics and the UK could influence consumer spending.
• Currency Fluctuations: Changes in exchange rates may affect financial results.
• Competitive Pressure: Intensifying competition in the mass premium segment could impact market share.

Q&A

During the earnings call, analysts inquired about the performance of the UK market and the specifics of cost-saving strategies. Discussions also covered factory investments and the timing of cash flows, as well as store closure strategies and lease terms. These inquiries reflect a keen interest in understanding Nobia’s strategic direction and financial management.

Full transcript - Nobia AB (NOBI) Q1 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Nokia Q1 Report twenty twenty five Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Tobias Norby, Head of Investor Relations. Please go ahead.

Christopher Jungfeld, President and CEO, Nokia: Thank you, Heidi, and thank you everyone for calling in this morning to Novia’s q one results presentation. The presentation today by our president and CEO, mister Christopher Jungfeld, and our CFO, mister Henrik Skooksvosch. And with those words, please, Christopher, the floor is yours. Thank you, Tobias. Good morning, everybody, and thank you for joining.

Let’s start off with some key highlights for the quarter. In Q1, we’re moving into a positive EBIT compared to a year ago and are taking a lot of important steps in the right direction even if our core markets remain soft. To lift out a few positives, we have done really well in generating cash in the period, which increased by almost SEK $05,000,000,000 compared to the same period last year. Cash flow from our operating activities was positive, whereas we normally have a negative cash flow in Q1 due to seasonality. And that is a testimonial to our efforts of driving improved working capital and liquidity, which is one of our main focus areas across all our business units.

I’m also pleased that we see continuous improvement in gross margins across the group for the fifth quarter. The gross margin came in at 38.6%, which is the highest gross margin since Q1 twenty eighteen. And we will continue to mix up to mass premium and strengthen productivity to improve further going forward. Thirdly, we’re materializing the savings up and above the plans that we have communicated, and from the cost out programs that we launched last year. In the quarter, we released 70,000,000 savings, and the total cost up programs have now generated over SEK $05,000,000,000 savings the last one point five to two years.

Finally, and as a consequence of the above mentioned, we continue to make good progress in the Nordic profitability, where we steadily strengthened our EBIT margin through the improved consumer sales, gross profit and execution of our cost programs. With regards to the market then, the recovery continues in the consumer market in all our geographies, especially in Denmark and Sweden. We also experienced growth in the mass premium segment, which is most of our brands play and which is a positive for us. On the other hand, the product market continues to be soft, and we do not expect any significant increase during 2025. But the rate of the decline is gradually taking off.

And in markets where consumers have been strong for a while now, like Denmark, for example, we’re starting to see much more activity with builders and tradesmen. Organic growth came in at minus 6%. The Nordics was flat, while The UK had an organic decline of 12%, but a negative 3% on a like for like store basis. In The Nordics, the consumer sales is starting to trend positively, which proves that our strategy of pulling resources into this mass premium consumer segment is working. With stronger average order values in consumer, we also mitigated the volume decline in the product business.

In The UK, we are building our order books in the quarter for dispatch during Q2, Q3. And as we have exited a large number of stores, according to our strategy, we have fewer distribution points and lower sales, but the store closures will drive large cost savings throughout the next coming quarters, which Henrik will come back to and so on. Operating income came in at €16,000,000 with a margin of 0.6%. And again, the improvement was related to the progress in The Nordics. However, profitability declined in The UK, where we took this extra marketing cost to drive sales during the important winter sales period.

And therefore, we did not get the full impact of the cost savings this quarter, but expect to get the full savings from q two and onwards. Let me also add that, we do not see any direct impact from the trade barriers as we do not export nor import anything from either US nor China. If anything, we could be slightly helped by a weaker dollar, but that is marginal. We also have not seen any change in the consumer buying behaviors as of now, but we will, of course, continue to monitor the situation closely. That goes without saying.

So if we move into the next slide, please, please. So the kitchen market development in The Nordic region. And as I just mentioned, we continue to see a recovery in the consumer market, which we believe is driven by a slight recovery of housing transactions and a pent up demand for home renovations. We have continued positive momentum and improved footfall and design appointments, and we also foresee that various government grants in house renovations will support the demand for kitchen. We expect consumer growth to gradually also improve our business with tradesmen, where we, in some markets, can see more activity, as mentioned just earlier.

In markets with higher interest rates, like Norway and UK, we experienced a recovery in the consumer segment but at a lower rate than in the rest of the markets. As for the product market, we still experienced volume decline in Norway, Finland and The U. K. But in Denmark and Sweden, it is tapering off in the quarter. Judging from housing starts, as I said, we expect the product market to remain soft until the end of twenty twenty five.

Then if we move over to The UK, it’s quite similar to The Nordics with a recovery in the consumer segment, while the product market remains soft. On a positive note in The UK, housing transactions have started to increase and mortgage rates have fallen since a year ago. It should also, be mentioned as a positive that some major UK lenders have eased mortgage affordability rules to enable additional borrowing for home renovation as well. And we are also positive that more governmental backed property development are coming about and can therefore see some increased activity in that segment as well. So let’s shed some light on our strategic priorities, which we have seen before, but we will reiterate these and give you an update on where we’re at.

First of all, maximizing cost efficiency. We remain steadfast to do this in current environment, and we are very pleased with the new organizational setup with decentralized operation where we can still extract the scale benefits that we get in the group for local competitiveness. We have had good impact from the cost reduction initiatives, as said, and savings have now surpassed the 500 it’s up to $550,000,000, and we have run rate savings of yet another 100,000,000 to materialize during the rest of the year. To realize the full Nordic potential, the next point here, we have come a far bit to strengthen Nordic supply chain. And I believe that that team has done really well over the last twelve months.

And now we have an important transition from Tidon to Johan Schapping in front of us, which is progressing according to plan, and we shed some light on that as well. Also, in the quarter now to strengthen our Finnish business and lower our fixed cost base, we decided in April to close the Finnish factory to supply instead the products from in Denmark. And the Danish product range, it’s very well suited for the Finnish market. So we also expect to be able to gain some market share with this setup over time. It’s been a month in its making.

And even though it is always hard to see some some good colleagues leave, I’m really pleased about the progression made by our Finnish and Danish colleagues. In the quarter in q two, sorry, we would take a cost of roughly or exactly €6,000,000 for sure and expect savings of about €4,000,000 per annum for this move. Finally then, the transformation of The UK business is as planned, although the underlying market and especially so the project market is definitely challenging whilst we do this transition. And also the project market is giving us quite high under absorption into our supply chain in The UK. We continue to close the old store formats that are very capital intense and replace them with smaller city center stores for the mass premium consumer, moving into what we call the asset light model, as we have talked about many times, which is an important pillar of our strategy.

We have also had some good progression with our new partnerships that are coming along nicely, especially those with the builder merchants and franchisees. And we are consolidating of the brand commodore consolidating the brand Commodore into the magnet business as of now, which is proceeding according to plan. We have also now exited the most unprofitable stores that were up for lease renewal, so we believe we are in a considered considerably better cost position now than a year ago. Our efforts to drive sales in consumer with higher average order value definitely is the right strategy, and we see good development in front of us and have seen good development in the consumer sales for the last twelve months. Then let’s move to the next slide and talk more about Yunschafing and the state of the art future oriented factory we have there.

It’s extremely exciting what we’re about to accomplish in the new factory in Yongschape. The majority of the machine part is now in place, and we are every day making huge progression in the connectivity between systems and machines. Kitchen, sorry, components manufacturing and distribution of the same throughout the noise supply chain has been more or less completed, and we are now optimizing those flows across the network. The next big step, which we have started now in Q2, is to industrialize the frontal manufacturing and to have the frontals assembled together with the kitchens and consolidation of the kitchen order. Then there will be the next important step to deliver the fully assembled and fully consolidated kitchens directly to end consumers.

And that’s something that we are ramping up now. And we’re in the midst of ramping it up. And we do that in parallel to the other steps starting from May. As planned, we expect that the transfer of the mommodore volume will be completed during this year. I should also mention here that the investments remaining in 2025 amounts to about $200,000,000 in CapEx before we’re done and a SEK $350,000,000 cash flow impact of the same.

With that, I hand over to Henrik to talk more about the financials by region.

Henrik Skooksvosch, CFO, Nokia: Very good. Thank you, Christopher. As you just highlighted, Christopher, we are pleased to see the gross margin improvement and the increased profitability for the Nordic Region. Organic growth was flat compared to the first quarter last year. Despite continued pressure on our overall volumes in the project market, we achieved significant improvement in adjusted EBIT.

EBIT increased by SEK 86,000,000 to 109,000,000, which is equivalent over 5.9 percentage points improvement to 7.5%. This improvement reflects the impact of several initiatives, including cost reduction efforts, improved supply chain productivity, and as communicated in previous calls, a continued emphasis on the consumer segment. These actions show tangible results and is a positive step forward. Our average order values in North increased, supported by the continued shift in the sales mix between professional and consumer products, which helped offset some of the pressure on overall volumes. Our gross margin improved by 2.7 percentage points, reaching 36.6 in the quarter despite the decline in the volumes and higher own costs from the ramp up in Janchapel.

The improvement is driven by operational efficiency gains in the Nordic supply chain, the favorable sales mix across countries, segments, and products with consumer sales performing better than the product side. Both gross margin and also gross profit increased year over year, together with cost savings in selling and admin expenses, on back of the cost out programs and the ongoing cost discipline improved the adjusted EBIT from 23,000,000 last year to hundred and 9,000,000 this year. The EBIT margin increased to 7.5%. A continued very strong performance in Denmark was a major contributor, helped by market share gains in consumer sales. Norway and Sweden also saw a gradual margin improvement supported by average higher average ore values, operational efficiencies, and lower SG and A.

Finland continues to be a difficult market, and we are actively working to adjust our cost structure. As part of these broader efforts, which are communicated, in early April, and as Kusofia has mentioned, we have made a decision to close our national account in Finland and move the manufacturing to our Danish factory in Helgur. This is a step intended to increase the profitability in Finland. In The Nordics, in the quarter, we took 22,000,000 as items affecting comparability, primarily related then to the Nordic supply chain and, in particular, the transition to our new factory in Johan Sverdrup. So if we go over to the next slide, please, UK.

The UK market continues to reflect the same underlying dynamics as we have seen in The Nordics. Growth in the consumer segment offset by declines in the professional segment. The organic sales in The UK declined by 12% in the quarter. If we adjust for the store closures, sales declined 3% year over year. The consumer segment continued to show growth, but was more than offset by double digit decline in the project and the trade segment.

Despite the supply chain under absorption caused by the professional volume decline, gross margin improved by 0.4 percentage point to 41.3. This was driven by a more favorable sales mix and continued impact from our already initiated cost out initiatives. On a currency adjusted basis, SG and A decreased by approximately 12,000,000. Our cost reduction efforts implemented last year are delivering planned savings, although these are have been partly offset by inflationary pressures and increased spending on online online lead generation during the quarter to drive the very important sales in the winter period. EBIT for the quarter came in at negative 53,000,000 compared to negative 11 last year.

The impact from the sales decline, despite the improvement in gross margin, caused a drop in EBIT in the quarter. We are confident that the savings from the cost out programs during 2024 will continue to contribute to a lower cost base during the coming quarter. So if we go over to the next slide, please, the financial position. We are pleased with the strength in cash flow during the first quarter. Cash flow from operating activities was positive 28,000,000 compared to negative SEK $258,000,000 last year.

Slightly higher EBITDA was supported by improvement in working capital. The lower sales in UK resulted in a positive impact on accounts receivable. Decrease increased on back of timing compared to last year. As previously communicated, we are intensifying our focus on operational excellence through the not now so new operational structure that we implemented in August. The key component of this is our ongoing initiative to reduce inventory balance.

These efforts positively impacted the cash flow in the quarter, primarily driven by UK and Denmark, which also offset the planned inventory increase in Young Shopping during the ramp up phase for the new factories. So on an overall basis, our inventory levels have decreased by 10% year over year. The operating cash flow, including investments, amounted to negative 85,000,000 compared to negative 574 last year as Kisoft mentioned earlier. Of this, investments in the quarter mainly related to the machinery for the factory in Johan Schapping totaled hundred and 39,000,000, down from 324 last year. The net debt excluding leasing and pension obligations and also IFRS 16 decreased year over year by approximately 400,000,000.0 to just short of 2,500,000,000.0 siet.

And those are, of course, driven by the measures that we took last year. We did the divestments of the subsidiaries in Austria and The Netherlands. We did the sale and leaseback of the property building in Jan Schapping and the rights issue in April. The net debt increased by NOK $241,000,000 compared to the end of the fourth quarter last year. The quarterly increase is primarily related to the normal seasonality of cash flow during the first quarter and continued investments in young shopping.

That was all for me. So over to you again, Christopher. And next slide, please.

Christopher Jungfeld, President and CEO, Nokia: Thank you, Henrik. So looking at the priorities going forward, we are very clear with our agenda. First of all, we’ve continued to advance on the strategic plan that we have put in place. We have an important period in front of us, ramping up Young Schopping Factory. We are kicking on with the turnaround of The UK operations, as we have addressed, and we are also continuing to deliver well on our cost of program.

And this remains definitely a very high focus for us. In terms of operations, we will continue to leverage on our strong brands and the new decentralized organization, where we are to capture the growth that we see in the consumer sales. And as you can see, we have managed that well during the quarter. We have also, as we said in the priorities, managed to reach the average order values to a satisfactory level. We have increased our productivity and are continuing to launch productivity enhancing activities.

We have been very disciplined with cost control and will be continue to see be so. And as both myself and Henrik has mentioned, we are very pleased with the strict working capital governance that we have had that has generated a lot of improvement in cash flow last quarter. So with that, we open up for questions. Very good. Operator, please open up for questions.

Conference Operator: Thank you. We will take our first question. And the question comes from the line of Syndra Sorbai from Arctic Asset Management. Please go ahead. Your line is open.

Syndra Sorbai, Analyst, Arctic Asset Management: Yes. Hello. Good morning. And congratulations with the very strong results in The Nordic. But looking at The UK, it’s the losses are actually accelerating.

And, I mean, with a negative EBIT of around 50,000,000, how sure are you that you will turn around this with the savings announced at this stage? I mean, you you have a couple of customers during the recent year, and it still it still goes more into the red.

Christopher Jungfeld, President and CEO, Nokia: Yeah. Hi. Well, first of all, we are, as you said, happy and pleased about the Nordic results and improvements, but we can’t, of course, be happy with making losses in The UK. In the quarter, we are building the order books because of the, very important winter sales period, which is also impacting our cost base, obviously. And at the same time, we are pulling down our cost base quite significantly in in The UK.

So just looking at the quarter in isolation, it looks like we don’t have any cost saving measures coming through. And therefore, I think that a quarter like this is not representative from where we believe we stand in the transformation of The UK. And therefore, also, as alluded to in, before here, we expect higher saving to come through The UK business going forward this year. And, again, we are Yeah. We’re we’re confident with the with the turnaround that we’re doing in The UK and the fact that we’ve moved out of the very capital intensive stores that we have in The UK.

Syndra Sorbai, Analyst, Arctic Asset Management: Yeah. Sure. So so then it’s partly seasonality because because historically, first quarter has been quite poor. But but what you’re also indicating is that not all of the cost cuts are at this stage yet reflected in

Henrik Skooksvosch, CFO, Nokia: the P and L.

Christopher Jungfeld, President and CEO, Nokia: Yeah. I think for The UK, it’s hard to look at the quarter in isolation because, on the SG and A side, you don’t see any marginal improvement. However, the underlying improvements in SG and A is much higher and, is mitigated by our, yeah, activity to drive more marketing in the to to support the winter sales period.

Syndra Sorbai, Analyst, Arctic Asset Management: Yeah. Sure. Sure. Just a final follow-up on that one. I think in earlier, the call, he said that there were approximately a hundred million more of cost savings to be realized during the course of 2025.

Could you give a split between those hundred on The Nordics versus The UK?

Henrik Skooksvosch, CFO, Nokia: It’s it’s around fifty fifty. Okay. A little bit more UK than in The Nordics. We we have done more restructuring last year in The UK than we did in Nordics. If you remember the the release we did in June.

So more of it is more biased versus the The UK of the remaining hundred that Christophe mentioned on the end of call. Yeah.

Syndra Sorbai, Analyst, Arctic Asset Management: And in those hundred savings from the 4,000,000 from from Cloaking Dome Finland, it’s not included. That comes in addition. Right?

Henrik Skooksvosch, CFO, Nokia: No. It’s not. It’s not included in this the the cost of what when we are talking about what showed before, that was what we communicated last year. We did we had one communication in the second quarter and one communication in the third quarter. Mean, Kisofo presented earlier in the call, we were talking referring to those kind of those programs.

Finland was taken after the closing of the first quarter. So that is something that we would follow-up with the external market during the second quarter, third quarter going forward. So not including in that amount. No.

Unidentified: And that will be Thanks for clarifying.

Christopher Jungfeld, President and CEO, Nokia: Percent savings in gross margin.

Henrik Skooksvosch, CFO, Nokia: Yes.

Christopher Jungfeld, President and CEO, Nokia: Not in the

Henrik Skooksvosch, CFO, Nokia: yeah. Finland.

Christopher Jungfeld, President and CEO, Nokia: Yes.

Unidentified: Okay. Great. Thank you. Thank you. Thank

Conference Operator: you. We will take our next question. And the question comes from the line of Marcela Klang from Handelsbanken. Please go ahead. Your line is open.

Marcela Klang, Analyst, Handelsbanken: Good morning, gentlemen. I agree with Cindre. Great to see progress you have made. Well done. A couple of questions from myself as well.

You mentioned €350,000,000 cash outflows related to Jan’s shopping. Can you give us more guidance on timing of these cash outflows?

Henrik Skooksvosch, CFO, Nokia: Yeah. The timing, I I would say that they are pretty evenly spread for the remainder of this year. Because, as you know, we the majority of our investments, have already done, and we have some remaining investments coming here. But it’s approximately 350, and 200 more that will be booked as CapEx, and a 50 of them we already have as account payables. So it’s evenly spread, I would say, if we’re gonna face it over the rest of the year.

Marcela Klang, Analyst, Handelsbanken: Thank you. And the remaining hundred million that will be paid through NOVIA, when do you expect those?

Henrik Skooksvosch, CFO, Nokia: It’s also coming here. The majority, I think we mentioned that in the last call also that what we have said is that we we will get them during 2025. You mean from the buyer of the of the property. Correct? That’s what you’re referring to.

I would say that in the middle of money. We have not received any money during the first quarter, which we knew we shouldn’t, but, we are expecting some money here in the second quarter. But, primarily, it will be q three, q ’4.

Marcela Klang, Analyst, Handelsbanken: Thank you. And then a follow-up question regarding UK. You mentioned store closures. Now you’re at 170 stores compared to 91 a year ago. Do you have any lease expiry, during 2025, or, the cost savings coming in the remainder of the year is related to the stores that you have closed?

Christopher Jungfeld, President and CEO, Nokia: Yeah. We have leases coming up for renewal also this year. I think not not an exact number, top of my head, but it’s around ten ten to 15. The majority of the cost savings will come from the stores that we have already closed and basically walked out of now both in q four and and in this quarter.

Marcela Klang, Analyst, Handelsbanken: And on average, how long are the leases, for your UK stores, the 70 ones?

Christopher Jungfeld, President and CEO, Nokia: It varies, but between mostly around five years break.

Marcela Klang, Analyst, Handelsbanken: Five years remaining from now?

Christopher Jungfeld, President and CEO, Nokia: Oh, no. No. The lease the leases. Previously, our leases were written on much longer, break clause. But nowadays, we we we have negotiated them to to around five years break clause for the leases in UK.

Marcela Klang, Analyst, Handelsbanken: So the average remaining time somewhere between two and three years?

Henrik Skooksvosch, CFO, Nokia: Yeah. Yeah. We can say that. Yep. Right.

But this is like the stuff that said that when we when we prolong a new lease, we usually return it on as we have the possibility to break the contract in five years. Yeah. So we are shortening it compared to the history when we had a longer contract.

Marcela Klang, Analyst, Handelsbanken: Yeah. And then a question on yum shopping. You mentioned in your report, also in the presentation, complete kitchens in May. Is that the fully automated production process that you will also expect at the end of the year?

Christopher Jungfeld, President and CEO, Nokia: We we will gradually, you know, have more and more automated flows. In the beginning, there would be a lot of manual supervision, let’s call it, and and some manual hands on activities, before we have fully automated all the flows and optimized it. But, the machines are running. And as I said, the system connection with machines is also working, in a a way that make me very confident that we have invested in the right places.

Marcela Klang, Analyst, Handelsbanken: Sounds good. And in the end of twenty twenty five, how many kitchens per minute will leave the Yum Shopping factory?

Christopher Jungfeld, President and CEO, Nokia: Oh, that’s I I I can’t I don’t have the exact figures for that. I need to come back on on exactly, by minute on on the volumes that we will have for just Marlboro. So this is the transition of the Marlboro volume into into Yarn Shopping. But then then, you know, when we also have ramped up, you remember according to the plan, we will then move in with with some volumes for for HGH as well, but it could be delivered in Swedish, Sweden HGH volume for Sweden and Norway. And when the flows are when all those flows are in place, we talk about two kitchens a minute roughly.

Marcela Klang, Analyst, Handelsbanken: Sounds good. Thank you. That’s all for me.

Conference Operator: As a reminder, if you wish to ask a question, please press 11 on your telephone. There seems to be no further questions at this time. I will hand back for closing remarks.

Christopher Jungfeld, President and CEO, Nokia: Very good. Well, once again, thank you, everyone, for calling in, and see you next time on July for our second quarter results. Thank you. Thank you.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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