CONTINUED GROWTH AND INCREASED FOCUS ON PROFITABILITY

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                                                                 

GROUP BALANCE SHEETS

GROUP CASH FLOW STATEMENTS

GROUP KEY PERFORMANCE INDICATORS

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

BALANCE SHEETS, PARENT COMPANY

Note 1: Changes in equity in summary

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.

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.