© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to Doro's first quarterly report 2023. Good day. Isabelle Senges.
Good morning.
I'm Jorgen Nilsson, and this is Doro's Q1 report. If we move on here, and we'll switch to focus for you guys. So we'll start off with some key highlights. Then we'll look at the first quarter and [ zooming ], and then concluding remarks, and we open up for Q&A. Given how Q4 was finishing with sky-high inflation rates, with energy prices, prices going through the roof, I think many of us was fearing that Q1 would be very abysmal. Normally, Q4 is a strong one; and Q1, the weak quarter. But actually, during the quarter, a number of indicators started turning in the right direction. We saw inflation in our currencies becoming much more stable. We also saw that our [ end ] prices, our COGS were beginning to stabilize and which we are very happy about. Our biggest customers started replenishing their previously very depleted inventory. As a result, we are happy to be able to deliver a solid gross margin and a positive EBIT. We will zoom in those numbers shortly. We also, during Q1, continue what we call our sales innovation. We're investing in various sales activities. We're rolling out what we call the Doro end-cap solution or the dedicated Doro corners, which is a separate section of our customer shops with only Doro products, and I think we'll be able to show you later. And we also started work on what we call the Doro pop-up store, which is a new concept that we were rolling out now in the autumn of 2023. Finally, we're very happy to say that we're now starting to get all the right people on board. We were going through a phase for a couple of years where we were downsizing the consumer section. But now in line with our strategy to broaden our portfolio, we've managed to recruit several key resources and also restarted our market research. And we feel with this reinforcement coming into place, we should be looking forward to accelerating our portfolio expansion. So if we look a little more detail on the first quarter of '23. As I said, there was a much uncertainty going into the first quarter of this year. Europe was, in general, plagued by the Russian war on Ukraine, energy crisis especially, sky-high inflation and very sharply high-rising interest and rates. People, therefore, basically refrained from any kind of consumer sales or consumer buying. We thought that COVID was tough. But actually, for our business, it turned out it wasn't so bad besides the fact that many of our customers' stores were completely closed. But as people were spending basically 2 years at home, they actually invested quite heavily in consumer electronics. So once the Russian attack on Ukraine came, the energy crisis had fell, people really stopped buying. Therefore, as Q1 is normally a weak quarter, we were really worried about this. But as I said, a number of indicators actually turn in a much more positive direction. And the biggest one was, of course, stabilization, both the inflation and, for us, the U.S. dollar and the euro. Then we saw some very nice decreases and stabilization still in the shipping fees from Asia and a much more stable component price situation from our sub-suppliers. The biggest up for us, of course, was that our biggest customers -- actually all of our customers began replenishing their inventories. And that was because they basically haven't bought anything during Q4. So at the very low levels in cautious ordering at the end of last year, we managed to increase our sales by almost 2% in the first quarter compared to the same quarter in '22. One of the reasons for also giving a very good gross margin was that not only did the freight prices become better, but we managed to achieve a much better sea-to-air transportation. During COVID, it was literally impossible from time to time to get containers from Asia to Europe. Therefore, we had to fly a lot, especially when we could not find components. Now when this thing has stabilized, we have had a much better sea-to-air transportation. Do you recall was [indiscernible]?
Yes.
10% basically only of our shipping to Europe was through air. We also managed to decrease our inventory because we managed to have a good sell-out of our older products. And therefore, we could lower the provision for inventory write-offs. As a result, we are happy to report that we can deliver gross margin of 36%, which we feel is a very good improvement compared to the same quarter last year. I think we all know that we are still about 75% depending on feature phones, senior feature phones, and that market is declining. But despite the market being declining both in volumes and value, we continue to gain our market share. And one of the reasons is probably because we started to roll out our new sales initiatives. We have what we call Doro dedicated corners in several of our stores in the Nordics, especially in Sweden, and we are to follow with more countries -- sorry, more shops in the other countries in the Nordics, Ireland and Germany and then, of course, our other regions. And then as I was just alluding to, we were very happy. We started very actively during 2022. But now in end of '22 and early '23, we've managed to recruit several of the key resources we need to go on to the next stage in our rolling out of becoming the sole senior provider for seniors. So in light of all these challenging market conditions, but also -- and the fact that we're now investing heavily both in products, people and marketing and sales, we're incredibly happy to continue to report positive operating profits, SEK 3 million, slightly over even, or 1.5% margin. And for us, this is a clear sign of strength, although, of course, it's still lower than what we think we should be able to reach. If we have a look at our different markets, the 2 biggest ones, Nordics and Western -- South Europe and Africa, they increased. In the Nordics, we increased by almost 10%. And the main reason here was that our customers started replenishing their previously depleted inventories. The interesting thing here is that most of the Nordic countries didn't do very well. It was Sweden went really well. Unfortunately, we also saw some of our biggest customers started closing down some of their stores. And we also see consolidation in the Nordic market where, especially in Sweden, MediaMarkt has now been purchased by the Norwegian Power Group. The big star of the quarter is our Frabel or West and South Europe and Africa region, which increased by 25%. Here, the main reason is that there's still a very strong demand from our French mobile operators, but there is also a continued good demand from, let's say, retail specialist electronic chains. But for general retail, the demand has been much weaker. The main reason for that is because the shift from 2G to 4G is now happening. And the general retail, and then we're talking about discount stores and food stores, et cetera, for them, it's less interesting to sell 4G than 2G. U.K. and Ireland basically became in flat, which seems a little bit down, but we're still very happy because compared to last year, we had one of our major 3G deals that year. As 3G is being shut down, our biggest customers in the U.K., they really restocked a lot. So compared to last year, we were fearing it would not go so well, but we basically balanced out this decline by increasing sales to new customers as well as online. The biggest problem we've had this quarter was our DACH region or Central and Eastern Europe. It's been quite a substantial drop, of course, 32%, but it's important to take into account here that last year, we still had deals with non-Doro-branded products, which were high in value, but very low in terms of margin. So that was a one-off deal that we did with PMRs or walkie-talkies, which we don't do anymore. And in general, we are still in a transition period in DACH, such we are changing our direction from being a previous distributor of everything to a Doro-focused senior products only. In terms of the division between the regions, it's quite the same as before. West-South Europe is still dominating, 40%. Nordics accounting for a fourth. And then Central Europe or DACH and U.K. and Ireland, is about [ fifth-ish ]. [indiscernible] Would you want to take over a little bit?
Yes. A bit more figures now. As previously said, the net sales for the first quarter landed at SEK 208 million, 1.8% better than the same quarter last year. As Jorgen mentioned, considering that Q1 last year included a significant one-off deal in Germany and nonrecurring 3G sales in U.K., I think it's quite such fine that we deliver an increase of the sales year-on-year. Sales were particularly good in France and Sweden with the launch of our latest smartphone in France and an overall good performance of our 4G category. Gross margin was at 8% in the quarter compared to 32% last year. The cost of goods sold finally got more stable, although it was still high during the quarter, especially compared to a rather weak Swedish kroner, but fluctuations are not as extreme as last year. We also start to see the effect of the very good work done by our purchasing department in negotiating prices with factories and the positive impact of our portfolio customer mix on the margin on products. Another major and very positive deviation compared to last year is the cost of freight, as Jorgen mentioned, not only the decrease in [ C&I ] costs, but also the lower -- the ratio -- favorable ratio of less shipment by air. EBITDA for the first quarter was SEK 15.2 million compared to SEK 14.8 million last year. The EBIT landed at SEK 3.2 million compared to SEK 3.0 million last year. Our EBIT in percentage of sales was 1.5%, similar to last year's, even though we have invested more in terms of operational costs to fulfill our strategy. The profit after-tax landed at SEK 3.6 million compared to SEK 3.5 million last year, [indiscernible] share of SEK 0.15 [indiscernible] last year. If we move on to the cash flow. Cash flow from operating activity was negative this quarter at minus SEK 10.6 million compared to minus SEK 9.4 million same quarter last year. The negative working capital this quarter is mostly due to lower trade payables and an inventory a bit higher than at the end of 2022, which is usually the case in Q1 due to Chinese New Year and leading to buy stock. Investment for the quarter were SEK 4.3 million versus SEK 4.8 million last year. And free cash flow for the quarter was minus SEK 14.9 million compared to minus SEK 14.2 million. On the liquidity side, we had a bad balance at the bank at the end of the quarter of SEK 125.1 million compared to SEK 91 million last year. During the quarter, we have lowered the utilization of our bank loan by SEK 15 million. The equity ratio is 54.2%. It was 49.9% at the end of Q1 last year. We finished the quarter in a net cash position of SEK 50 million, which is less than at the end of the year, where the net cash position was SEK 63.3 million, but it is much better than same quarter last year when we had a net debt position of SEK 1.8 million. This was my last number.
That was your last slide. All right. So some concluding remarks, and then we'll open up for Q&A.
On the positive side, continued positive operating profit. We sold a little bit more than Q1 last year. We're still investing a lot, I would say. And most of the investments for now have been in new resources. We will -- of course, as the new product will be launched, we'll be able to start writing off also the CapEx investments. But so far, we cannot do. Getting these new resources into the organization is very important for us in order to be able to expand to new product categories. Despite the senior market for senior phones in general declining, we continue to grow both value and volume-wise in all of our regions. We've been saying several times here now that the freight costs have stabilized, and especially from Asia coming in, in addition to having lower warranty costs, and we managed to reduce our inventory. And then our e-commerce continues to make good traction. We are focusing very much on that now. We have set together a special e-commerce team and also one new smartphone, which we just launched for Orange in France, the Doro 8220, has taken up very well there, and we are looking to roll out a Nordic model of it in May, I believe it is. In terms of challenges. Well, of course, even though we see the indicators turning in the right direction, there is still a continued economic challenges for many consumers in Europe because they're struggling with interest rates and inflation and energy prices. But obviously, we're now moving into a warmer part of the year. So maybe people will have a little bit more disposable. And of course, people are still postponing purchases in consumer electronics. They have to choose between buying a new phone, upgrading their existing one or paying their electricity bill. So I would say, in general, there is very much a wait-and-see behavior where people are kind of being very cautious [ in spending ]. And we saw there was a big consolidation in terms of our distributors in the Nordic markets. And now we're seeing something similar in terms of consolidation in the retailer market where, for example, Power Group was acquired MediaMarkt, and to our big suppliers, Elkjøp actually downsizing staff and a number of shops in the Nordics. Finally, the priority is ahead. Well, we want to continue rolling out what we call our new sales initiatives, store dedicated shelves and then the pop-up stores. The whole thinking behind this is that when people come in today and they see a range of, let's say, telephones in this case, 100 smartphones, I'm a senior. What you should I choose? Well, if you're a senior, they should go to the Doro corner of that shop, and you'll be introduced not only to a phone, but also their full range of Doro's portfolio. Then we are [indiscernible] the final parts of our conversion of the DACH region. As you know, we had a daughter company in DACH, a separate setup. And now we're making it a full-fledge Doro region because we really believe that there's a big potential for us to grow in Germany, the biggest market in Europe. And finally, we want to continue strengthening our 4G portfolio because now we're really seeing throughout basically all countries, except Germany and Europe, that 4G is taking over and 2G is being switched off. We've managed that transition very well so far, I would say, but it's super important for us to continue doing that because the money we make in our feature phone is funding our expansion into the adjacent product areas. I think that was pretty much that one. We'll switch on the camera, and we will ask our technicians to open up for Q&A.
Is that Fredrik who had the first question? Fredrik, go ahead.
This is Fredrik from Redeye. I have some questions for you here. First, I want to ask you about the recruitments you did during the quarter. Can you tell us how many headcounts this is?
That number I don't recall, but it's a number of product managers and project managers. And then we also were taking in 2 consultants who's helping out in the group management. We're looking to get permanent positions in this. So maybe 10 people almost, something like that.
Yes.
Look up the exact number for you, but I don't know [indiscernible].
Okay. And you think the net employees for the full year will increase then? I mean -- or are people leaving as well or...
For now, I will say that it would increase because you also have to remember that during the first 5 years, and especially after we -- the division with Careium, we lost a lot of people. A lot of people went over to the Careium side, I would say. So first, we had to restart those basic things like compliance and [indiscernible], et cetera. Now we're adding people. I think there were some newer product portfolio [indiscernible]
Someone in our department like product development, it will be also a switch between [ old ] people and consulting.
Yes.
Okay. That makes sense. And you write in the report that you're going to invest more in R&D. Historically, you invested around 7% of sales. What level do you think you will end up during 2023? Will we see like 7.5% or up to 8%? Or how aggressive are you going to be then?
[indiscernible]
[indiscernible]
SEK 80 million, I think we have.
For the full year?
Yes.
Yes.
In terms of CapEx. But then, I mean, I would say that we are investing -- it's not the same kind of investing, write it off. But as we're getting the right people in, that's also investing for us, of course.
Yes. So I guess OpEx will continue to stay above 30% of sales going forward. It was slightly below in 2022.
Yes.
We were running very low at the end of Q1 -- of 2021 and slightly higher in 2022, but the budget we've made obviously shows that we would increase OpEx in '23.
Okay. And your EBIT came in at SEK 3.2 million in the quarter. I mean, looking back, I think you more or less never lost any money on the EBIT. Is -- I mean with the growth initiatives, is the risk that you're going to run into red going forward?
No, I don't think so. I mean we don't like that, so to say.
No. We would only -- of course, we have made a budget, and there is no planning turning red.
No.
So there is a plan in growing. So...
There is a plan in growing, definitely. So EBIT might suffer a bit, but not going red.
Okay. That's good. So I mean you're talking a lot about the growth in the report, and you've done it for quite some time. And with all these initiatives you're launching, what is your growth prospective for 2023 and 2024?
I would say, I mean, in terms of feature phones because -- or let's take phones. There, we need to start growing again. We hope that first, the 2 years of COVID and then let's call it the Russian year or Russian and Ukraine year -- so we still believe there is numbers to be taken and grow in phones. Eventually, there will be a last man standing in feature phones. And if you look at feature phones in general, the normal traditional feature phones, very few people buying them. So the few people who do buy feature phones today are mainly for seniors, that we really would like to take. Over and beyond that, of course, we are now expanding into new categories. I would love to say that we're going to grow that super fast this year, but let's be a little bit cautious. We see now that when we came up with a watch and a tablet, people are very positive. But obviously, they are not at all connecting Doro at this point in time with a watch and a tablet. So it's been quite of an, aha, do you guys do that as well? So yes, I do definitely hope, and we have plan to grow this year in terms of sales. But will most of it come from the new categories? Not yet, I think, although we are rolling out 2 new categories as well at the end of this year at IFA, hopefully. So as we stock up with more categories, we should be able to grow even more.
Okay. But no hard figures then? I mean could we expect like 1%, below 5% or...
I think we should make these [indiscernible].
No. And we really invest for maybe more midterm than very short term because these things take time, and the feature phone market is declining. So even if we grow, it might not make a huge growth overall. So we really need to expand the portfolio, and that takes a lot of time. So I think we'll see more effect probably next year on top line.
Okay. Makes sense. I have one question regarding the gross margin, and you talked about it as well. But the increase is only this year shipping costs? Or is anything else there?
Price in general of transport [ from Asia ] has gone down. Then the ratio between sea and air, the prices are in prices -- let's say, the costs that we're paying to our suppliers have stabilized. The warranties continue to be lower or very low, [ if you put that way ].
I think we also see the result of a change in portfolio.
Absolutely.
You have to understand if you take the one-off deal in Germany, on top line, of course, it's very negative. But margin-wise, it's quite positive because those deal were not very [ huggable ] in terms of margin. So -- and also the move to 4G, we have -- the latest generation have a good margin. So that helps us as well.
And then we've been very successful in our renegotiation of our licenses and IPR contracts. So our CTO and the guys working on that has done a very good job on that one. So it feels positive. No questions. I'll just ask, at least if you can see [indiscernible] users there. We do not see any raise hands, so I guess...
Looks like there is no more question.
So we'll just open up for anyone here. [Operator Instructions] So if there are no further questions, we'll -- thank you for today. We will be seeing some of you I think now at the Annual General Meeting, 1 hour's time. Then the Q2 report will be coming mid-July. Thank you very much. Have a nice day.
Bye.
Bye-bye.