This is a translation of the Swedish interim report. If there should be any discrepancies, the Swedish language version governs.
FOURTH QUARTER, OCTOBER - DECEMBER 2019
- Net sales increased by 12.0%, or 10.7% FX adjusted, to MSEK 70.5 (63.0)
- Gross profit increased by 7.7%, or 6.1% FX adjusted, to MSEK 54.0 (50.2)
- EBIT was MSEK -5.3 (-3.6)
- Earnings after tax was MSEK -6.2 (-2.9)
- Earnings per share was, basic SEK -0.79 (-0.40), diluted SEK -0.79 (-0.40)
FULL YEAR, JANUARY - DECEMBER 2019
- Net sales increased by 8.9%, or 7.5% FX adjusted, to MSEK 263.1 (241.5)
- Gross profit increased by 10.5%, or 8,8% FX adjusted, to MSEK 202.0 (182.9)
- EBIT amounted to MSEK -22.9 (-13.3)
- Earnings after tax amounted to MSEK -22.9 (-13.9)
- Earnings per share amounted to, basic SEK -2.91 (-1.94), diluted SEK -2.91 (-1.94)
IMPORTANT EVENTS
DURING THE PERIOD
- The global marketing function was moved from the US to Sweden.
- The Norwegian operations was combined with the Swedish organisation, leading to cost efficiencies and annual cost reductions of MSEK 2.8 from 2020.
AFTER THE PERIOD ENDED
- P-O Westerlund was appointed as new CEO on January 26.
- Global lifestyle and clothing brand GANT chose Nepa as brand tracking provider in all major markets
- Ann-Christine Fick was appointed new CFO and member of group management.
- Michael Wallin was appointed to the new role of Head of Investor relations.
- Based on our profitability focus and the recent outbreak of Corona virus we have taken action to addressing costs. This includes termination of employees under probationary period, ending consultant contracts, and a salary reduction of 20 percent for group management.
A WORD FROM OUR CEO
In the fourth quarter gross profit amounted to MSEK 54.0 (50.2), an increase of 7.7 percent. In the same quarter EBIT was MSEK -5.3 (-3.6). For the full year of 2019, the group's gross profit was MSEK 202.0 (182.9), an increase of 10.5 percent compared to 2018. EBIT was MSEK -22.9 (-13.3).
To summarize the outcome of the quarter and the full year of 2019 we had an organization that was set-up for a higher growth rate than we achieved. In the fourth quarter, we were also burdened by costs aiming at simplifying our organizational structure and adapting our cost base, for example by downsizing the US operations and by combining the Norwegian and the Swedish organizations.
Since I took over as CEO at the end of January this year, we have shifted focus from growth to profitability. We will, of course, continue to grow, but this will be done with profitability.
Action program
For some time, we have had a too large cost base in relation to our revenues. With the new shock of the Corona virus we are acting decisively and taking into consideration a changed market sentiment. As part of our adaptation, employees on probationary period have, sadly, been terminated and we have radically reduced the number of consultants. Our group management team has decided to reduce our salaries by 20 percent, in addition to the voluntary salary reduction of 10 percent that some of us took already in the beginning of 2020. Altogether, I estimate that these actions will reduce our costs by at least SEK 11 million on an annual basis, beginning in the second quarter.
I sincerely regret that we have to take these measures and at the same time I hope for understanding since conditions have changed dramatically in a short period of time. I would have preferred to keep our talented employees.
I am determined to achieve the goal that Nepa will be profitable this year. With the actions taken, I expect that we will have increased financial leeway. We are monitoring developments closely and further measures cannot be ruled out should the situation worsen.
Favourable conditions
As new CEO I really look forward to leading and developing this company. Being one of the larger shareholders and with extensive experience from working in the company, I know that we have fantastic conditions for both growth and profitability.
We have a strong market position, significant experience and expertise among our talented employees, and have some of the market's best tools. Together, we will now unleash the potential in this combination, and I feel a strong support for this internally at Nepa.
Furthermore, it is important that we have the market's confidence. Therefore, as part of a more investor-friendly approach, we will gradually increase the transparency of our financial reporting to make it easier to follow how we are developing. A first action is the segment reporting we are introducing, starting this quarter.
Outlook
Achieving growth by optimizing marketing investments is increasingly important for companies. Nepa are experts in transforming consumer data to growth generating actions for our clients and we have an important role to play. If we try to look beyond the current Corona-related concerns, Nepa has a fantastic potential to show both growth and profitability in the years to come. I look forward to leading the company to deliver our potential.
P-O Westerlund CEO
THE GROUP
DEVELOPMENT OF THE GROUP
REVENUES
Gross profit increased in the fourth quarter by 7.7 percent to kSEK 53,995 (50,155), and 6.1 percent currency adjusted. Net sales increased by 12.0 percent to kSEK 70,520 (62,972), and 10.7 percent currency adjusted.
For the full year of 2019, gross profit increased by 10.5 percent to kSEK 202,021 (182,880), and 8.8 percent currency adjusted. Net sales increased by 8.9 percent to kSEK 263,061 (241,485), and 7.5 percent currency adjusted.
The strongest sales growth in 2019 was in Marketing Optimization followed by Customer Experience (CX). It was primarily the result of strong growth of our core products Ad & Media Tracker (MO) and CX Tracker (CX).
In absolute numbers, the UK showed the highest growth, increasing sales by MSEK 8.0 equivalent to 33 percent (MSEK 6.8 or 26% growth currency adjusted). That is a result of the success of our product Path to Purchase, which helps companies understand the entire consumer journey until making a purchase decision and all touchpoint affecting this, both online and offline. This also contributed to the fact that our ad hoc sales grew more than our recurring sales, since we define all Path to Purchase revenue as ad hoc, even though we are working with the same clients over year after year. This increase is positive but that does not change our long-term target of increasing recurring revenues as share of total revenues.
Detailed information about segment are found in note 2 on page 11.
EARNINGS
The group's EBIT amounted in the fourth quarter to kSEK -5,305 (-3,605) and earnings after tax amounted to kSEK -6,230 (-2,949).
For the full year of 2019, the group's EBIT amounted to kSEK -22,921 (-13,251) and earnings after tax amounted to kSEK -22,888 (-13,941).
GROUP INCOME STATEMENTS
kSEK Oct Oct Full Full year 2018 -Dec -Dec year 2019 2018 2019 Net sales 70 520 62 972 263 061 241 485 Other external 861 926 4 827 3 788 income 71 381 63 898 267 889 245 273 Direct costs -16 -12 -61 041 -58 604 525 817 Other external -9 261 -7 502 -34 395 -27 761 costs Personnel costs -47 -44 -183 -162 784 359 885 887 Depreciations -2 176 -1 530 -7 546 -5 314 Other operating -1 365 -769 -3 940 -4 061 costs Earnings Before -5 305 -3 605 -22 921 -13 251 Interest and Tax Financial income 57 475 2 124 1 571 Financial costs -1 026 -308 -1 796 -1 273 Earnings Before -6 274 -3 439 -22 592 -12 953 Tax Tax 44 490 -295 -988 Earnings After -6 230 -2 949 -22 888 -13 941 Tax Profit -6 230 -2 949 -22 888 -13 941 attributable to the parent company's shareholders Number of 7 863 7 863 7 863 7 863 186 shares, end of 186 186 186 period(pcs.) Average number 7 863 7 303 7 863 7 187 520 of shares during 186 750 186 the period(pcs.) Earnings per -0.79 -0.40 -2.91 -1.94 share, basic (SEK) Earnings per -0.79 -0.40 -2.91 -1.94 share, diluted (SEK)
GROUP BALANCE SHEETS
ASSETS (kSEK) December 31, 2019 December 31, 2018 Intangible assets 31 618 25 939 Tangible assets 618 742 Financial assets 727 855 Sum non-current assets 32 964 27 536 Trade receivables 64 004 49 559 Tax receivables 2 026 2 349 Other current 2 697 2 638 receivables Prepayments and accrued 17 610 10 848 income Cash and cash 14 629 45 210 equivalents Sum current assets 100 966 110 605 TOTAL ASSETS 133 930 138 141 EQUITY (kSEK) Shareholders' equity 1 573 1 573 Development fund 30 892 24 253 Other capital 116 325 117 534 contributions Translation difference -820 -597 Retained earnings incl. -97 514 -67 987 net profit for the period Total equity 50 456 74 776 LIABILITIES (kSEK) Deferred Tax 540 540 Total long-term 540 540 liabilities Due to customers 26 381 18 044 Trade payables 21 083 15 961 Other current 12 197 9 579 liabilities Accrued expenses, 23 273 19 241 deferred income Total short-term 82 934 62 825 liabilities Total liabilities 83 474 63 365 TOTAL EQUITY AND 133 930 138 141 LIABILITIES Pledged (kSEK) Chattle 14 000 14 000 Total pledged 14 000 14 000
GROUP CASH FLOW STATEMENTS
kSEK Full year 2019 Full year 2018 Operating activities Profit before tax -22 592 -12 953 Adjustment of items not included in 6 091 6 433 the cash flow Income tax paid 28 -2 219 Cash flow from operating activities -16 473 -8 738 before adjustments of working capital Cash flow from changes in working capital Increase (-) / Decrease (+) of -21 318 -7 829 current receivables Increase (+) / Decrease (-) of 20 108 12 013 current liabilities Cash flow from operating activities -17 683 -4 554 Investing activities Acquisitions/divestments, tangible -394 -228 assets Acquisitions/divestments, intangible -12 679 -9 828 assets Acquisitions/divestments, financial 180 -427 assets Cash flow from investing activities -12 892 -10 482 Financing activities Rights issue -6 37 419 Cash flow from financing activities -6 37 419 Net cash flow for the period -30 581 22 383 Cash and cash equivalents at the 45 210 22 827 beginning of the period Cash and cash equivalents at the end 14 629 45 210 of the period
GROUP KEY PERFORMANCE INDICATORS
[] Oct Oct-Dec 2018 Full year 2019 Full year 2018 -Dec 2019 Net sales growth rate 12.0 2.5 8.9 13.3 (%) EBITDA (kSEK) -3 129 -2 075 -15 374 -7 937 EBITDA margin (%) Neg Neg Neg Neg EBIT margin (%) Neg Neg Neg Neg Profit margin (%) Neg Neg Neg Neg Total assets (kSEK) 133 138 141 133 930 138 141 930 Equity / Assets ratio 37.7 54.1 37.7 54.1 (%) No. of shares, end of 7 863 7 863 186 7 863 186 7 863 186 period (pcs.) 186 No. of shares, 7 863 7 303 750 7 863 186 7 187 520 average during period 186 (pcs.) Earnings per share, -0.79 -0.40 -2.91 -1.94 basic (SEK) Earnings per share, -0.79 -0.40 -2.91 -1.94 diluted (SEK) Equity per share 6.42 9.51 6.42 9.51 (SEK) Dividend per share n/a n/a 0.00[1] 0.00 (SEK) No. of employees, 272 263 274 253 average (pcs.)
Definitions
Net sales growth rate Percent of growth in net sales compared to a previous period.
EBITDA Earnings before interest, taxes, depreciation and amortization.
EBITDA margin EBITDA as a percentage of net sales.
EBIT margin EBIT as a percentage of net sales.
Profit margin Earnings before tax as a percent of net sales.
Equity / Assets ratio Equity as a percentage of total assets.
Earnings per share Profit attributable to the parent company's shareholders divided by average number of outstanding shares.
Equity per share Equity divided by number of outstanding shares.
Dividend per share Dividend for the period divided by the number of outstanding shares at the time of dividend.
No. of employees, average Number of FTE's on average during the period.
____________________________________
[1] Dividend proposed by the Board of Directors.
PARENT COMPANY
INCOME STATEMENTS, PARENT COMPANY
kSEK Oct Oct-Dec 2018 Full year 2019 Full year 2018 -Dec 2019 Net sales - - - 73 Other external 813 556 2 170 2 018 income 813 556 2 170 2 090 Other external -769 -491 -2 552 -2 053 costs Personnel costs -568 -2 735 -8 175 -10 552 Depreciations - - - -3 Other operating - - - -3 costs Earnings Before -523 -2 669 -8 557 -10 521 Interest and Tax Financial income 393 244 901 492 Financial costs -1 - -2 -0 Earnings Before -131 -2 425 -7 658 -10 029 Tax Tax - - - - Earnings After -131 -2 425 -7 658 -10 029 Tax
BALANCE SHEETS, PARENT COMPANY
ASSETS (kSEK) December 31, 2019 December 31, 2018 Financial assets 89 361 63 137 Sum non-current assets 89 361 63 137 Trade receivables - 2 Receivables Group companies 3 569 4 095 Tax receivables 208 184 Prepayments and accrued income 393 78 Cash and cash equivalents 629 35 570 Sum current assets 4 799 39 929 TOTAL ASSETS 94 160 103 065 EQUITY (kSEK) Shareholders' equity 1 573 1 573 Share premium reserve 115 020 115 026 Retained earnings -17 201 -5 969 Net profit for the period -7 658 -10 029 Total equity 91 733 100 601 LIABILITIES (kSEK) Trade payables 244 421 Other current liabilities 391 359 Accrued expenses, deferred income 1 792 1 685 Total liabilities 2 427 2 465 TOTAL EQUITY AND LIABILITIES 94 160 103 065
Note 1: Changes in equity in summary
THE GROUP (kSEK) Shareholders' Other capital Development Translation Retained Total equity contributions fund difference earnings equity incl. net profit of the period THE GROUP 2018 Opening balance of 1 430 78 964 18 093 -545 -47 886 50 055 equity January 1, 2018 Net profit of the - - - - -13 941 -13 period 941 Translation - - - -52 - -52 difference Development fund - - 6 160 - -6 160 - Issuance of warrants - 1 294 - - - 1 294 Rights issue 143 37 276 - - - 37 419 Closing balance of 1 573 117 534 24 253 -597 -67 987 74 776 equity December 31, 2018 THE GROUP 2019 Opening balance of 1 573 117 534 24 253 -597 -67 987 74 776 equity January 1, 2019 Net profit of the - - - - -22 888 -22 period 888 Translation - - - -223 - -223 difference Development fund - - 6 639 - -6 639 - Issuance of warrants - -1 203 - - - -1 203 Rights issue - -6 - - - -6 Closing balance of 1 573 116 325 30 892 -820 -97 514 50 456 equity December 31, 2019
PARENT COMPANY Shareholders' Share Retained earnings incl. Total (kSEK) equity premium net profit of the period equity reserve PARENT COMPANY 2018 Opening balance of 1 430 77 750 -7 263 71 917 equity January 1, 2018 Net profit of the - - -10 029 -10 period 029 Issuance of warrants - - 1 294 1 294 Right issue 143 37 276 - 37 419 Closing balance of 1 573 115 026 -15 998 100 equity 601 December 31, 2018 PARENT COMPANY 2019 Opening balance of 1 573 115 026 -15 998 100 equity January 1, 601 2019 Net profit of the - - -7 658 -7 658 period Issuance of warrants - - -1 203 -1 203 Rights issue - -6 - -6 Closing balance of 1 573 115 020 -24 860 91 733 equity December 31, 2019
Note 2: Segment reporting
Nepa's business can be divided into three types of segments; either depending on what the revenue model looks like (revenue type), which solution the revenue stems from, or which country made the sales.
In revenue type, we separate project already sold, either through subscriptions or regular bulk purchases (recurring) and more project-based revenues (ad hoc).
Sales is also split according to the solution used. Nepa's solutions are Marketing Optimization (MO), Customer Experience (CX), Innovation Acceleration (IA) or Other revenues.
Finally, revenue is split after country.
[][] REVENUE TYPE (MSEK) 2019 Share Growth 2018 Share Nepa Group 263.1 100% 21.6 241.5 100% Recurring 159.4 61% 9.6 150.0 62% Ad hoc 103.7 39% 12.1 91.5 38% Share of ad hoc 61.9 60% 12.2 49.7 54% from recurring clients Share of ad hoc 41.8 40% -0.1 41.9 46% from non-recurring clients Sales to clients buying 221.3 84% 21.6 199.7 83% both recurring & ad hoc[1] Sales to clients buying 41.8 16% 0.0 41.8 17% ad hoc only[2]
Sales of Recurring grew 6% to MSEK 159.4 in 2019. Ad Hoc grew 13% to MSEK 103.7 MSEK in 2019, driven by increased sales to clients that also buys Recurring solutions. The goal is to increase the share of sales of Recurring revenues in order to increase profitability.
Net Gross sales profit SOLUTION 2019 Share Growth 2018 Share 2019 Share Growth 2018 Share (MSEK) Nepa Group 263.1 100% 21.6 241.5 100% 202.0 100% 19.1 182.9 100% MO 186.7 71% 19.5 167.2 69% 134.7 67% 14.6 120.1 67% CX 24.7 9% 5.2 19.4 8% 22.3 11% 4.9 17.4 11% IA 31.6 12% 2.3 29.3 12% 27.2 13% 2.9 24.3 13% Övriga 20.3 8% -5.3 25.6 11% 17.3 9% -3.6 20.9 9% -0.2 0% -0.1 -0.1 0% 0.5 0% 0.3 0.1 0% Eliminations
In absolute numbers, our MO-solution grew the most in 2019 (MSEK 14.6 in gross profit). In relative numbers our CX solution grew fastest (28% gross profit growth). The goal is to increase the penetration of our solutions to current clients. It provides the benefit for clients with a complete view of their consumers and also gives the right conditions to create growth and profitability for Nepa.
Net Gross sales profit MARKET 2019 Share Growth 2018 Share 2019 Share Growth 2018 Share (MSEK) Nepa 263.1 100% 21.6 241.5 100% 202.0 100% 19.1 182.9 100% Group 168.8 64% 6.9 161.9 67% 131.9 65% 5.6 126.3 66% Sweden 33.9 13% 4.4 29.5 12% 25.9 13% 5.7 20.3 10% Finland UK 32.0 12% 8.0 24.0 10% 24.3 12% 5.2 19.1 13% All 28.4 11% 2.3 26.1 11% 19.9 10% 2.7 17.2 11% other markets
All markets grew in 2019, both in terms of sales and gross profit. The highest percentual gross profit growth was in Finland (28%) and UK (27%). Our ambition is to create profitable growth on all markets, where Sweden, Finland and UK are key focus markets.
THE BUSINESS
VISION
To become the world leading data-to-growth company.
The digital transformation of our society is pushing companies to become more customer centric. The need to listen to and to understand customers has never been more important for business success. Through innovative solutions and software, Nepa facilitates customer-oriented decision making in all parts of Nepa's clients' organizations.
BUSINESS CONCEPT
Nepa's business concept is to help companies become more customer oriented, by bringing the voice of the consumer into companies' business development and daily decision-making. Nepa combines consumer feedback data with actual behaviour data in order to transform traditional insights into financially quantifiable actions.
BUSINESS MODEL
Nepa is a ground-breaking growth company within the research industry that offers innovative solutions and software for delivering actionable insights to clients. Nepa has developed automated processes for continuous data gathering, data analysis and the distribution of actionable insights.
Nepa's sales strategy entails solving client specific business challenges by utilizing proprietary ready-made and scalable analytics modules that support cost effective customization. Nepa's revenues primarily stems from recurring revenues, ranging twelve months. More than 60 percent of the revenues stem these from subscription. In addition to that, 60 percent of the ad hoc revenues stem from the same recurring clients
Other revenues stem from solving client specific business challenges, always with the ambition to create a long-term subscription business model and/or to develop highly scalable products that can be applied to other clients and in other industry verticals.
The proprietary platform Consumer Science Platform® is sold as a combination of:
1. A platform license for managing customer feedback with an interface that automatically enriches clients' current IT infrastructure with behaviour data. 2. Standardized products - Consumer Science Platform® Applications Suite. 3. Solving client specific business challenges.
EVENTS AFTER THE END OF THE QUARTER
A new top management was appointed. P-O Westerlund was appointed new CEO on January 26 and Ann-Christine Fick as new CFO and member of group management. Michael Wallin was appointed to the new role as Head of Investor relations.
In order to reduce costs, an action program has been completed, involving termination of employees under probationary period, a reduced number of consultants and a salary reduction of 20 percent on group management level.
Global lifestyle and clothing brand GANT chose Nepa as brand tracking provider in all major markets.
Towards the end of February 2020, the new Corona virus caused a dramatic change in sentiment world-wide. For Nepa it has meant that a few clients have reduced their business volume while others have postponed ad hoc projects. It is still too early to be specific about the full effects. However, with the cost cutting measures that has been taken and the company's stable base of recurring business, these challenges should be manageable.
ACCOUNTING PRINCIPLES
The Group accounts have been established according to Swedish GAAP (Årsredovisningslagen and Bokföringsnämndens allmänna råd 2012:1 Årsredovisning och koncernredovisning (K3)). The Group consists of the parent company Nepa AB (publ) and nine subsidiaries, seven of which non-Swedish. Accounting principles and valuation principles correspond to the ones used in the latest annual report.
RISKS AND UNCERTAINCIES
Nepa faces several business risks and market risks, including the dependency of qualified personnel, the ability to handle growth and technological development.
The outbreak of the Corona virus has caused a dramatic change in sentiment world-wide which may affect clients' willingness to invest.
AUDITING
This report has not been audited by the company's auditors.
THE SHARE
The share capital of Nepa AB (publ) amounted, on December 31, 2019, to SEK 1,572,637.20 divided into 7,863,186 shares, each with a nominal value of SEK 0.20.
Nepa AB (publ) is listed on the Nasdaq First North Growth Market stock exchange since April 26th, 2016 under the ticker NEPA. A trading unit consists of onehundredandten (110) shares. All shares are of the same series and have the same voting rights and dividends rights.
Ten largest shareholders as of December 31, 2019 Number of shares Share/Votes
Ulrich Boyer 1,492,624 19.0% Swedbank Robur Fonder 873,352 11.1% Elementa 698,128 8.9%
Fredrik Östgren 696,178 8.9%
Humle Småbolagsfond 673,329 8.6%
P-O Westerlund 416,169 5.3% AMF Aktiefond Småbolag 366,430 4.7%
Handelsbanken Fonder AB 305,185 3.9% Hans Skruvfors 225,000 2.9%
Niclas Öhman 177,481 2.3%
Ten largest shareholders 5,923,876 75.3%
Other shareholders 1,939,310 24.7% Total number of shares 7,863,186 100.0%
CERTIFIED ADVISER
Erik Penser Bank is Nepa's Certified Adviser.
Phone: +46 8-463 83 00
E-mail: certifiedadviser@penser.se
FINANCIAL CALENDAR
Interim report January 1[st] to March 31[st], 2020 May 20[th], 2020
Annual general meeting 2020 May 20[th], 2020
Interim report April 1[st] to June 30[th], 2020 August 21[st], 2020
Interim report July 1[st] to September 30[th], 2020 November 20[th], 2020
Year-end report 2020 March 19[th], 2021
CERTIFICATION
The Board of Directors and the CEO certify that this interim report provides a correct depiction of the Group's and parent company's businesses, standings and results, and that it describes the relevant risk factors and uncertainties the company is facing.
Stockholm, March 20[th], 2020 The Board of Directors of Nepa AB (publ)
Ulrich Boyer Bo Mattsson Kristin Luck Simon Hay
Chairman of the Board Board member Board member Board member
Jan Carlzon Fredrik Östgren Niclas Öhman P-O Westerlund
Board member Board member Board member Board member, CEO
For further information, please contact:
P-O Westerlund, CEO Michael Wallin, Head of IR +46 706 404 824 +46 708 788 019 p-o.westerlund@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 March 20, 2020.
Published on: 20TH MAR 2020