CEO comment Q2, 2024
The kitchen market remained weak in the second quarter, primarily due to a sustained decline in new build housing across our regions, with no signs of short-term improvement. In contrast, the consumer market looks more promising, with the number of consumer leads and design appointments gradually increasing throughout the spring and now exceed those from the same period last year, although last year's figures were historically low.
Net sales for the Group declined -6% organically, with growth in the UK compensating for a double-digit decline in the Nordics. The gross margin improved as a function of a higher share of sales in the consumer segment. Although we are pleased with this performance, we also need to win share and drive volumes in our project business which may moderate gross margins in the second half of the year. Operating profit increased to SEK 42m (36), excluding items affecting comparability.
This spring has brought significant changes in the Group as we have adapted to the challenging market situation. Amongst other we successfully completed a share rights issue to strengthen our balance sheet, enhanced our consumer offerings to drive growth and market share gains in retail, and downsized the organization where necessary due to falling volumes in the project business.
Despite these efforts, much work remains to align the business with current market conditions. We announced a second major cost reduction program this quarter, having successfully executed the first program that realized around SEK 350m in annualized savings as of the first quarter. The new program targets annualized savings of another SEK 200m as of the start of 2025. We still expect additional cost initiatives to be necessary in the fall. We also continue to reallocate resources toward consumer sales to capitalize on market momentum and increase our market share in this segment.
The UK transformation program continues. Following our strategy of a more asset-light business model, we closed manufacturing in Halifax and have reduced the footprint from 5 factories to 2 within a year. We also downsized our own store network further and channeled sales through new Magnet partnerships, primarily with builder merchants. Organic growth was 5% during the quarter on the back of stronger retail sales whilst project sales declined double-digit. The gross margin was on par with last year. We have further work to do to reduce our cost of doing business, but we expect it to improve as our restructuring efforts take effect.
In the Nordics, with the high exposure to the new build housing segment, net sales declined -14% organically. We continued to adjust our cost base in the supply chain and drove further gross margin improvements through consumer sales with higher average order values. Recent activities showed good performance in Denmark, particularly through the HTH brand, while the situation in other Nordic markets was more challenging. Even though our cost of doing business is decreasing slightly, we have more to do to improve our cost position in the Nordics.
The completion of our new state-of-the-art factory in Jönköping is progressing at high pace. In June we conducted our first trial of an end-to-end flow, with all highly automated machinery operating simultaneously. Witnessing this in action was truly impressive, and I am confident that this will represent a significant breakthrough in the manufacturing of sustainable, design-rich kitchens, providing Nobia with additional competitive advantages in the future.
As we continue to navigate a challenging market environment, including anticipated further declines in the project segment, we remain confident in our market position that features some of the industry’s strongest kitchen brands. We continue to work relentlessly on executing our strategic initiatives; improving cost efficiency, realizing the full potential of the Nordic region, and executing the UK transformation program, to mitigate headwind from the current challenging market situation.
Kristoffer Ljungfelt
President & CEO