Nepa AB (publ): FORIFYING OUR BRANDTECH POSITION

This is a translation of the Swedish interim report. If there should be any discrepancies, the Swedish language version governs.

The interim report for the third quarter 2022 is available at https://nepa.com/investor-relations/.

THIRD QUARTER, JULY – SEPTEMBER 2022

• Net sales increased by 4.2%, or 1.6% FX adjusted, to MSEK 69.5 (66.7)
• Gross profit decreased by 2.4%, or 5.3% FX adjusted, to MSEK 51.9 (53.1)
• EBIT was MSEK 4.9 (11.1)
• Earnings after tax was MSEK 5.5 (10.2)
• Earnings per share was SEK 0.70 (1.29)

NINE MONTHS, JANUARY – SEPTEMBER 2022

• Net sales increased by 8.8%, or 6.5% FX adjusted, to MSEK 235.9 (216.8)
• Gross profit increased by 7.6%, or 4.8% FX adjusted, to MSEK 181.0 (168.3)
• EBIT was MSEK 23.4 (29.3)
• Earnings after tax was MSEK 22.3 (28.1)
• Earnings per share was SEK 2.84 (3.58)

IMPORTANT EVENTS
 

DURING THE PERIOD  

• It was announced that Ferry Wolswinkel was recruited to the newly established role Chief Revenue Officer (CRO) starting in October.
• Ann-Christine Fick resigned as CFO on her own request.

AFTER THE PERIOD ENDED

• Sonja Thorngren was recruited as new CFO and starts on February 6[th], 2023. Current Head of Accounting, Elin Nordholm, will assume the role as deputy CFO after Ann-Christine Fick’s departure until Sonja takes office.

A WORD FROM OUR CEO

The demand for our cutting-edge brand and marketing insights improved during the third quarter, compared to the corresponding period last year. Net sales increased by 4.2 percent to 69.5 MSEK (66.7), or 1.6 percent in local currencies. Our third quarter is usually the weakest, and this year we met a tough comparable sales growth from the third quarter 2021. In addition, we experienced a more hesitant attitude toward marketing investments among our customers after the holiday season, and thus investment decisions for marketing insights tended to be postponed.
 

Strong growth for Marketing Optimization

Our single largest solution area, Marketing Optimization (MO), showed continued strength as it grew by 17 percent compared to the corresponding quarter last year. The rapidly changing world creates a great need for more precise and efficient measurement of marketing and media investments. This strengthens the case for our MO services including Brand Tracking, Campaign Evaluation and Marketing Mix Modelling, and indicates that we are on the right track with our long-term strategy. Year to date, MO accounts for 80 percent of our revenue. In addition, we continue to have a steady share of recurring revenue of 67 percent, growing 10 percent in the third quarter. MO is our focus area, mainly consisting of recurring revenue.

Our strategic expansion phase builds on transitioning the business towards Marketing Optimization and a recurring business model but implies a short-term drop in revenue due to fewer ad hoc sales. Despite this transition, we still generated a gross profit of 51.9 MSEK (53.1) for a margin of 74.7 percent (79.7). The operating profit (EBIT) amounted to 4.9 MSEK (11.1) for a margin of 7.1 percent (16.6). Operational personnel costs remained at a steady level in relation to sales, a cost level we expect to decline over the course of 2023 as a result of increased sales efforts coupled with OPEX scalability. During the quarter, we continued our brandtech investments in our Marketing Optimization platform, something that contributed substantially to the increase in personnel costs. Unfortunately, we were forced to make a client loss of 0.3 MSEK in connection with a bankruptcy proceeding. However, we consider the risk of further client losses to be negligible. Our net financial position amounted to 62.5 MSEK (78.5), a decrease mainly attributable to short-term working capital seasonality that we usually experience in the third quarter.
 

Award-winning brand technology

Our product development team attracted international attention and won the Insight250 award at the annual industry event ESOMAR in September. Together with IKEA Canada, we showed how they with the help of our proprietary technology, Brand Noise Reduction, can get a more accurate picture of consumers’ brand perception than ever before. Again, Nepa showed how we are leading the evolution of brand technology. Going forward, we will continue our product development towards a higher level of automation in our delivery process. The established investment level will continue in line with previous quarters. In the long run, we aim at providing more automated and AI-based predictive and prescriptive capabilities through syndicated data.
 

Outlook

We see that our investments in sales and marketing are yielding results in terms of leads and prospects, however, accelerating our efforts amid potential economic headwinds will require us to work even harder in order to reach success. Nevertheless, I want to reiterate the strength of our recurring business model in which we have proved our ability to bring in large international clients and build long-term relationships. Therefore, we continue to focus our work on profitable growth in the long term. This is widely in accordance with the establishment of our sales organization and investment in a more efficient delivery process. We have good cost control and have in the fourth quarter taken measures saving 7.2 MSEK of operational personnel costs on an annual basis to adapt our cost base and prepare for a potentially weaker market development. In addition, we have initiated the precautionary measure of a hiring freeze in Europe for all non-sales-related roles. Depending on how our sales pipeline develops, we will take appropriate action. All in all, we are well equipped to handle challenges but also to find and take advantage of the new opportunities. We stand firm in our long-term strategy and remain confident in the future growth prospects of brandtech, in which we are well-positioned.

Ulrich Boyer
CEO
 

For further information, please contact:

Ulrich Boyer, CEO                            Michael Wallin, Head of Investor Relations
+46 708 226 618                              +46 708 788 019
ub@nepa.com                                michael.wallin@nepa.com
 

This is a translation of the Swedish interim report. If there should be any discrepancies, the Swedish language version governs. The Swedish version is information that Nepa AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 08:00 CET on November 18, 2022.