Swedish kitchen furniture group Nobia, owner of UK brand Magnet, has reported a decline in sales while confirming the completion of its Dewsbury divestment.
According to its latest trading update for the third quarter, total sales fell 11% to SEK 3,101m (3,480), with UK sales down from SEK 1,240 to SEK 1,126. Profit after tax amounted to SEK 40m (19).
On the UK, Nobia said sales declined 18% on an organic basis, mainly as a result of lower demand. The ongoing exit of certain unprofitable parts of the project business also impacted the results.
“The gross margin amounted to 42.0% (43.1). Operating profit increased to SEK 80m (-11) due to a capital gain on the sale of the Dewsbury factory amounting to SEK 112m, which is recorded as an item affecting comparability. Excluding this item, operating profit decreased to SEK -28m (-11). The corresponding operating margin amounted to -2.5% (-0.9).
“Operating profit was supported by impact from price increases and reduced headcount as well as lower expenses following the implemented restructuring measures. The restructuring measures realized savings of SEK 59m. This was however offset mainly by negative effects from the substantially lower sales volume. Changes in exchange rates had a neutral impact on operating profit.
“The divestment of Nobia’s factory in Dewsbury, a part of the consolidation of the manufacturing footprint in the UK, was completed in September 2023. The sales price was GBP 13.6 million, equivalent to approximately SEK 177m, as an all-cash transaction. Earlier in the year, it was announced to reposition part of the UK business to enhance margin performance.
“As part of this initiative, some unprofitable businesses are being exited, and manufacturing operations are being consolidated. Consequently, the production site in Dewsbury was closed and now divested. The sale resulted in a capital gain of SEK 112m, which is recognized in the income statement as other income.”
Jon Sintorn, President and CEO, commented: “Nobia delivers a profitable third quarter despite a weak market, meeting the macro headwind with cost reductions and taking steps to strengthen the financial position. In this environment it is important to remember that the kitchen market has had and will return to good growth long term, and that Nobia has a very strong position in this market.
“Group net sales decreased 18 percent on an organic basis, compared to the same quarter last year. The decline, however, reflects the market development and can thus be attributed to the macroeconomic situation. Both the consumer and project segments have been impacted, with a more pronounced effect for consumer sales. Despite the significant decline, our operating profit was similar to last year’s.
“Operationally, there are several positive developments to note. Firstly, we have decreased selling and administrative expenses in comparable currencies by SEK 140m in the quarter, whereof SEK 90m is related to the previously announced restructuring program. Year-to-date, the program has delivered cost savings of SEK 194m. At full effect in the second quarter 2024 the restructuring program will deliver annualized cost reductions of approximately SEK 350m. Furthermore, the cost of our input materials is starting to decrease slightly. Additionally, our manufacturing facility in Jönköping remains on track. We are already producing kitchen components there for assembly in the Tidaholm facility as well as starting the first flat-pack kitchen deliveries to customers. By the end of next year, we will have the full capability for kitchen manufacturing and order consolidation for complete kitchen orders.
“Group operating profit for the quarter was SEK 51m (78), excluding items affecting comparability. The gross margin remains at a level similar to the previous year, despite the volume decline. Operating profit was supported by the above mentioned cost savings, which however was offset by the negative impact of the lower volumes. The operating cash flow was positive when excluding the temporarily elevated investment level due to the factory investment.
“The Nordic region’s operating profit was on par with the previous year and the margins were higher, despite the sales decline and unfavourable currency impact. The higher margins were partly due to the supply chain inefficiencies from last year having been addressed, as well as cost savings.
“The UK’s performance has slightly decreased due to the substantial market downturn. Gross margin was positively impacted by our shift towards increased focus on the mass premium products and costs are being reduced following the restructuring program. During the quarter we announced the completion of the sale of the Dewsbury factory, which follows our earlier announcement to reposition and restructure the UK operations.
“We pursue with a sale and leaseback of the Jönköping factory as a prioritized activity. The main manufacturing building will be granted a formal approval of completion in November. We are in parallel reviewing other strategic options for strengthening our balance sheet including, but not limited to, sale and leaseback transactions.
“In summary, we recognize the challenges posed by the current market uncertainties affecting the demand for kitchens. Nonetheless, we know that, over time, the kitchen market is categorized by solid long-term growth. Nobia will be ready to capitalize on the delayed and new demand when it rebounds.”
