© 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.
Hello, and welcome to the Doro AB Q2 2021 results call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I am pleased to present CEO, Carl-Johan Zetterberg Boudrie. Please begin your meeting.
Thank you, and good morning, everyone. Welcome to Doro's presentation of the second quarter report. I will start by giving you a highlight of the quarter, followed by financial and business update, and then ending with some concluding remarks and opening up for the question-and-answer session. So we can jump directly to Slide 4, and I will give you some of the key highlights of the quarter. Next slide, as well, please. Perfect. So key highlights in the second quarter for Doro Group. We saw good sales growth in the quarter in both business areas compared to the second quarter last year but also compared to the first quarter this year. And it was also definitely a step in the right direction regarding the organic growth in Doro Care in the quarter. Margins improved significantly. Strong gross margins, where we see the effects of our implemented restructuring program, especially in Doro Phones. And operating margins also at a good level, also supported by good cost control from our implemented cost program that was part of the restructuring program. And our ambition and preparations for the planned separate listing, creating 2 strong and focused companies, continues as planned, aiming for a separate listing towards the end of this year. We can go 2 slides ahead, and I will give you some more details on the business and financial per business area in the second quarter. Next slide, please, and then one slide more. Perfect. So we start with highlights in the quarter for business area, Doro Care. We have seen continued increase in market activity during the quarter in all markets. Tender activity and tender preparations have increased. And we're seeing customers starting to engage in more activity. In Sweden, we have continued to win new tenders gaining market share during the second quarter and continued on a good trend from the first quarter. In United Kingdom, we finally started to see an increasing interest in starting a digital shift and engaging in those dialogues. In revenue, we have managed to limit the effects from the global component shortage, although we have had to make certain prioritizations in the business during the quarter. Gross margin was, let's say, one of few disappointments in the quarter in Doro Care and in the group, as gross margin was lower than expected and planned for. There are a few effects that have impacted this negatively in the quarter that we don't plan to see in the future. But still, this is an important area to give additional focus while maintaining our strong service delivery. Looking ahead for the separate listing and the strategy for Doro Care. We will continue to focus on organic growth, driving service delivery excellence, broadening our offering, developing new technology-enabled solutions, and continue with value-adding acquisitions is with the ambition to become European market leader in technology-enabled care. Next slide, please, and sales and financial highlights in Doro Care. Sales in Doro Care increased to SEK 147 million in the quarter, which is an increase of 17.4% compared to the same period last year. And it's also good improvement from the first quarter this year. The organic growth, adjusting for currency effects, was 9% in the quarter, also a clear improvement from recent quarters and definitely a step in the right direction. Both service sales and product sales increased in the quarter compared to last year and compared to the first quarter. Gross margin of 41.4% was on par with first quarter but not fully up to expectations, as I mentioned in the previous slide. Lower efficiency, partly due to connectivity issues in the Nordics and transition costs between systems in the U.K., have impacted negatively. And also, higher component and freight costs from post-pandemic effects have had certain negative effects on the gross margin in the quarter. But as I mentioned in the previous slide, this is still a little bit less than what we expected and what we planned for and an important area to give extra focus. The lower gross margin impacted operating profit negatively, resulting in an EBIT of SEK 8.1 million in the quarter. But as mentioned, we did have certain costs that were more of specific costs for the second quarter that impacted negatively and that we do not plan for going forward. The total connections at the end of the quarter was 368,000 which is, of course, a clear improvement from the second quarter last year, driven by acquisitions completed during the second half of 2020. It is a slight decrease from the first quarter, primarily from small contracts that we have not retained in the U.K. Next slide, please, and then we look a little bit more in detail on business per market in Doro Care. Sales in the Nordics increased to SEK 70 million, which is an 8% increase compared to last year and also a good increase compared to the first quarter. The tender activity in the Nordic markets have continued to increase in the quarter and we have gained market share in Sweden through new contract wins. We have seen a few opportunities in Norway that have continued to be delayed during the quarter as a consequence of COVID-19. In U.K. and Ireland, sales increased with SEK 64 million, which is a 13% growth compared to last year. The increase is primarily acquisition-driven, but we did see a slight improvement in sales in the second quarter compared to the first quarter of this year. Also, in the U.K., market activity have picked up during the quarter and we expect more tender activity in the second half of the year. We also see an increasing interest in the market to engage in the digital changeover plan. In our export-oriented markets, we have continued, in the quarter, to strengthen our position with a few key customers, which significantly increased sales in the quarter to SEK 13 million. We can take next slide, and then we go into business area, Doro Phones, and start with a few highlights in the quarter for Doro Phones. For Doro Phones, we saw a strong performance in all aspects in the quarter with sales growth in most markets, both compared to last year but also to the first quarter. Our restructuring program, focusing on phasing out less profitable markets such as North America and significantly reducing our cost base, have given the planned effects. We are now a more focused business with improved customer mix, resulting in a positive gross margin and operating margin improvement. In the quarter, we continued our restructuring that we initiated towards the end of the first quarter of our German entity, and in the latter half of the quarter, we started to see a positive sales trend in the region as well. Towards a separate listing and from a strategy point of view, Doro Phones will continue to manifest its position as market leader in senior mobile phones. But we will also leverage our market experience, strong customer relations, and significant senior knowledge to broaden our offering, continuing to make technology usable and accessible for seniors. We can jump into next slide, and I will give you some more details on sales and financials in the quarter for Doro Phones. In the quarter, we saw good sales growth in Doro Phones, growth of 26%, up to sales of SEK 260 million. This is a clear improvement also from the first quarter as we see restrictions have been lifted and vaccination rates increases. Sales developed positively in most of our markets, with increasing activity from both customers and consumers. Gross margin increased significantly to 35.2%, maintaining the high level from the first quarter. A positive product and customer mix as a result of our strategic restructuring program as well as favorable exchange rates contributed to the strong gross margin. And the strong gross margin is also despite that we also, for business area, Doro Phones, have suffered from increasing component costs and freight costs in the quarter. Operating profit increased to SEK 25 million with strong gross margins and good cost control as a consequence of the restructuring program, which resulted in a very good operating margin level in the quarter for Doro Phones. We can take next slide, please, and I will give you a little bit of details on business per market for Doro Phones. In the Nordics, there was a strong quarter with sales of SEK 71 million, a general good demand in all markets in the region as restrictions was removed. Sales in the quarter was also clearly above the same quarter of 2019, so pre-pandemic levels. In the quarter and in the region, we conducted a major campaign with one of our larger operator customers from where we experienced great success and that impacted sales of feature phones positively. In region West, South Europe, and Africa, sales increased with 89% compared to last year, up to SEK 96 million. This is also an increase compared to the second quarter of 2019. Demand was good in all countries in the region with restrictions being eased especially, we saw a very strong demand and very strong success in the French market where the second quarter 2021 was the best quarter ever for us in the French market. Also, U.K. and Ireland bounced back significantly in the quarter, reaching pre-pandemic levels of sales. Central and Eastern Europe continued to be soft in the quarter. But our restructuring of the region, we have continued with during the quarter, and we did start to see positive sales development in the last month of the quarter, both as restrictions were lifted and as our restructuring effort starts to pay off. We can move to next slide, please, and to give you an update on the restructuring program that I mentioned a few times in previous slides in my presentation and where we are close to being able to deliver on our program and sort of put this behind us. So as we mentioned a few times, and we initiated a restructuring program about a year ago, we have, during the last year, successfully restructured our business, creating a solid foundation to manifest our market-leading position and develop new offerings. In the second quarter, we continue with the restructuring of region DACH, as I mentioned, which have resulted in restructuring costs of SEK 9 million in total with the restructuring of DACH being the major element. During the second half of the year, we will finalize the last steps of the program. We have to date implemented SEK 105 million in lower operating expenses compared to 2019 levels. And in the second half, we will finalize the remaining steps, reaching the communicated and committed savings in operating expenses of SEK 110 million to SEK 130 million, as I said, compared to 2019 levels. In total, restructuring costs for the program is to date SEK 24 million, and we are confident that we will stay within our communicated target of SEK 20 million to SEK 30 million in the restructuring cost for the program. I must say that the team have made a great effort in executing the restructuring program, and we have now, in this quarter, start to see the effects of the restructuring we've made. And we are today a more focused and more profitable business as a consequence. Next slide, please, and we look into profitability for Doro as a group for the second quarter. Adjusted for currency effects, sales increased with 26.4%, up to sales of SEK 407 million with -- as we've mentioned in previous slides, a good growth in both business areas and in most markets. Gross margin increased to 37.4% in the quarter. Excluding restructuring costs and costs for the separate listing of Doro Care, operating profit was close to SEK 31 million, which is a strong operating profit and a strong operating margin, both compared to second quarter of last year but also comparing to other previous quarters. Including the restructuring costs and costs with the separate listing of Doro Care, the operating profit totaled SEK 21.5 million. EBITDA was SEK 51.6 million in the quarter and positively is that both EBIT and EBITDA have increased more than sales increase in the quarter. So we have, for every sales -- extra sales we've had, more have -- have came all the way down to operating profit, which is positive. Next slide, please, and looking into cash flow for the group. The free cash flow before acquisition was SEK 4.9 million. The lower cash flow compared to the second quarter last year is mainly a result of negative change in working capital. In the quarter, we have also settled pension liability from one of the acquisitions in the U.K., which impacted cash flow from investment activities with close to SEK 40 million. But of course, to a large extent, this is -- this was part of the acquisition. And this means that we've set the pension liability, and we don't have any further uncertain pension liabilities left in the group. Net debt in the quarter was SEK 73 million at the end of the quarter and equity asset ratio of 56.2%. We can move 2 slides ahead and into concluding remarks. So positive aspects in the quarter. I think, as I said, there was a lot of good things in the second quarter for Doro. We saw an increased activities -- activity in most markets with positive sales growth and good margins. We have successfully handled the challenges that we've seen as a result of COVID-19 in the last 15 to 18 months, but we now hope that we can start to look forward and leave the pandemic behind us. Good organic growth in business area, Doro Care, in the quarter of 9%, adjusted for currency effects, which is definitely a step in the right direction and a clear improvement from previous quarters. And we've also seen the positive effects from the restructuring program during the quarter, impacting gross margin and gross profit in a good way. And we will achieve the communicated savings of SEK 110 million to SEK 130 million compared to 2019 levels. But of course, there's been a few challenges in the quarter that we need to focus on. The challenge when it comes to supply chain regarding component shortage, increased lead times, and higher freight costs have continued in the second quarter and we expect that to continue also in the third quarter. Gross margin, as I mentioned, in business area, Doro Care, decreased in the quarter compared to last year and was stable compared to the first quarter of 2021. But it was not up to expectations, and we did see slightly lower efficiency and higher costs for freight and components. So looking ahead and priorities -- ahead for us in the second quarter of the year -- sorry, second half. Second quarter is behind us, but priority for the second half of this year. Of course, we need to continue to work hard to limit the effects from the component shortages to ensure that we can continue to meet customer demand. We'll continue to push and drive organic growth and service delivery excellence in Doro Care. We are increasing our activities in expanding our offering in Doro Phones, leveraging our strong senior and technical know-how. And also, we continue the preparations for a separate listing of business area, Doro Care, enabling both businesses to deliver on the strategy and meet customer needs. So with that, I thank you very much for listening to Doro second quarter report. And I now leave for question-and-answer session. We can go to next slide, please.
[Operator Instructions] The first question comes from the line of Niklas Sävås from Redeye.
I was wondering if you can give us some more color around the number of subscribers within Doro Care and -- I mean, considering you don't seem happy with the development. How do you aim to -- how to change it?
No, of course, I think there's 2 aspects of it. Number of subscribers is, of course, important metric for us and a metric that we would like to grow. Then, in combination, of course, that we want to have the right mix of connections. So to some extent, it's important to have the right connections than to have a lot of connections to ensure that we have sort of the right revenue and profitability in the connection that we have. But yes, we want to grow number of connections as well. I think the reason for slightly lower connections this year, or this quarter, compared to the first quarter was a few smaller contract that we did not retain in the U.K., and I would say, maybe not the most revenue-generating and profit-generating contracts. But -- and it's been a slow market in the last 4 quarters, you can say, as local authorities, housing associations postponed tender activities due to pandemic as they needed to focus elsewhere. But now, we start to see a clear increase in sort of tender activity and tender preparation activity. I think sort of from a material aspect, Sweden was first. That's where we see sort of the activity earlier as the new tenders. And we have successfully won a number of new tenders in Sweden, gaining market share. So from that perspective, I think we've shown in Sweden that we can grow market share and can grow a number of connections. And that's, of course, what we aim for and hope for that we will do also that we see tender activity picking up in Norway and the U.K.
Great. I was also interested about the -- what you mentioned about the digital shift in U.K. starting to -- starting to happen.
Yes, I think as we talked about previously and it's been, I will say, it's been a long story, you can say but the U.K. needs to go through a digital shift. Most of the solutions in -- that we and our competitors and that our customers asked were, have the analog solutions up to date? And there needs to happen a digital changeover, especially since the PM announced that the analog network will be shut down by 2025. So a shift needs to happen. Historically, I think everyone knows that, okay, this will come. But local authorities and housing association has sort of pushed it to the future. But now, we start to see that, one, there's an appetite for digital changeover because they're starting to look for new type of services that digital can enable that's not a possibility with analog. And of course, they start to see something that they thought were very far ahead in the future is suddenly coming closer and closer, and they need to start to plan for the digital changeover.
And lastly, I just wonder if you can say anything around the spin-off and if there are any major obstacles left? You said that it's in progress and it's -- I mean, no problems at this time. But I just wonder, are there any major obstacles left for the preparation?
Good question. I would say like this, Niklas, one, of course, we continue to plan and prepare for the separate listing, that one of the first steps is to ensure that we sort of create a separate entity of Doro Care that is a possibility to list. Those activities has run according to plan, and we are, I would say, spot on schedule in the preparations for the separate listing. Then, of course, that doesn't mean that everything is complete. So we still have a number of activities that we need to finalize in third quarter and in fourth quarter if we are to list as planned towards the end of the year. So far, so good. But of course -- and I -- we're in the right position, I would say, from where we can be right now. So we feel confident about the plan. But I'm sure that we will run into obstacles that we need to overcome in the last part of the process as well.
[Operator Instructions] We have no further questions, so I will pass back for any closing comments.
Okay. Thank you very much. I think as I said before, thank you very much for listening in. I think in very many aspects, this was a good quarter for Doro with clear improvement, both in sales and in operating profit. I wish you all a fantastic summer. Hope the good weather continues. And see you soon again. Thank you.
Thank you for...