Doro AB
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Doro AB
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[Audio Gap] the introduction. And good morning, and welcome, everyone, to today's presentation of Doro's first quarter results. With me today, I also have our CFO, Linda Nilsson. We can move on to next slide, please, an agenda. In today's session, we will start by giving you some key highlights followed by results and business update from the first quarter. We will end the webcast with concluding remarks, including a question-and-answer session, as mentioned. [Operator Instructions]We move 2 slides ahead and into key highlights in the quarter. During the quarter, we improved both gross margin and operating margin compared to the same quarter last year, a good achievement given the continued challenges that we have faced from the pandemic even in the first quarter of this year. We have continued to strengthen our product offering, especially in Doro Care, in line with our ambition to have a market-leading portfolio with the launch of Doro 450, a new and stylish mobile social alarm, as well as continued improvements in our software platform to support new products and features. And in February, we communicated our ambition to separately list business area Doro Care in order to give both businesses the best foundation and setting to reach its full potential. We can move 2 slides ahead then move into the first quarter 2021 and give you some further insights to the first 3 months of the year for both business areas and the group, starting with business area Doro Care and business highlights. For business area Doro Care, the pandemic has continued to be a factor in the quarter both in terms of securing high-quality and safe service delivery, which we have managed in a continued, excellent way, but as well in new business opportunities being delayed. But we have, in the quarter, seen a positive trend with some increased activity in especially Sweden with a new temporary frame agreement signed in late of 2020. And we do believe we will see increased activities from other markets in the quarters to come. To continue to drive organic growth and sales effectiveness is a key priority and area to further strengthen in the quarters to come. As I mentioned previously in key highlights, we have taken important steps to further strengthen our product portfolio with the release of Doro 450 and also our new releases for our software platforms. We continue to strengthen our role in the U.K. market in the quarter with the acquisition of FirstCall 24/7. And especially towards the second half of the quarter, we have started to see increasing challenges in supply chain especially when it comes to component availability, and this is something I'll come back to a little bit later and a key focus area to ensure that we minimize the effects of the global supply chain challenges and that we can secure the demand that we see from our customers. Next slide. And speaking a little bit more about the sales and financials in the first quarter for Doro Care. Sales in the quarter for Doro Care increased with 6% to SEK 138 million. Organically, sales growth, adjusted for currency effects, was 0.4%, which shows some organic growth but is still an unsatisfactory level even in a pandemic-impacted market. The main challenge during the quarter was related to decreased product sales in especially U.K. as we did see services increase with close to 8% in the quarter. Gross margin in the business area improved to 41.5%, which is an improvement over last year as well as the fourth quarter. We have implemented efficiency measures in the quarter with alarm monitoring platform consolidation in the U.K. on the back of our acquisitions, and we will continue to drive service delivery excellence to continue to strive for improved gross margins going forward. Operating profit equaled SEK 7.7 million with an operating margin in line with last year. And the total number of subscribers in the quarter equaled 371,000, which is an increase from the same period last year but a slight decrease from the fourth quarter as a few lost tenders last year were off in late last year and beginning this quarter. But with a few contract wins, especially in Sweden but also in the U.K., we are expecting an increase as these contracts are being implemented throughout the year. Next slide, please. Looking into a little bit more regional highlights for business area Care. The Nordic region accounted for 49% for the business area in the quarter, with a total sales of SEK 67 million. We suffered from a few lost contracts last year as well as a slower market in Norway due to the pandemic, which resulted in a total sales decrease of 3.7% in the quarter in the region. But as I mentioned previously, we did see higher activity in the Swedish market on the back of the new temporary frame agreement from now called Addas, previously SKL Kommentus, which resulted in a number of new contract wins in Sweden in the quarter that will be implemented in the coming months. In the United Kingdom, sales increased by 15% and accounted for 45% of the total revenue for Doro Care. Despite the overall double-digit growth in the region, we are not satisfied as product sales was low in the quarter and continued to be impacted by the pandemic. With a few contract wins and signs increased activity during the year, we will focus to further increase our organic growth and market position. In our export business, sales was slow in the beginning of the quarter but picked up in the second half in the quarter, especially March, and we see some interesting opportunities ahead. So if we go to next slide and then leave business area Doro Care for a while and move into business area Doro Phones. In business area Doro Phones, we have strengthened our already market-leading position in France and in the Nordics during the quarter. And this is despite continued challenges from the pandemic, and we managed to maintain solid sales figures in the quarter for Nordics and France, especially. Our challenges in Germany have continued in the quarter, and we have, as a result, initiated the final major element of our restructuring program that we announced last year to ensure we improve our market position as well as our cost structure in the region. Profitability for Doro Phones continued to be strong in the quarter. Gross margin benefited from positive currency effects as well as more favorable sales mix especially from a geographical perspective. Good cost control, with effects from our restructuring program, further supported a solid profitability in the quarter for Doro Phones. Next slide, please. Looking into sales and financials for business area Doro Phones. Sales in Doro Phones equaled SEK 199 million, which is a clear decrease from last year, but the decrease is especially an effect of strategic decisions to focus on business -- to focus the business on our core markets as well as continued negative effects from the pandemic as even in the first quarter, a majority of our markets and regions have been in severe restrictions or lockdowns due to the pandemic. But positive is that we've seen strength in market position in some markets and increased sales of smartphones as well as increased sales in online channel. The gross margin increased to very strong level of 35.1% in the quarter which, as mentioned, is driven by favorable exchange rates and positive geographical mix effects. Supported by the strong gross margin as well as good cost control, the operating profit equaled SEK 12.7 million, which is a 28% increase over the same period last year despite the challenging market environment and lower sales number. Next slide, please, to give you some highlights on sales per market for business area Doro Care. I think as we mentioned, in the Nordics as well as West and South Europe and Africa, sales declined slightly in the quarter as we experienced continued restrictions and lockdowns in certain markets in those 2 regions. But positively, in our 2 largest countries in the region, Sweden and France, we performed strongly and manifested our market-leading position. In these markets, we also saw an increased sales of smartphones. In U.K. and Ireland, we maintained our market position despite the very challenging quarter from a sales perspective. Sales decreased with 48% as we experienced continued significant restrictions and lockdowns in the quarter as well as we did see some effects early in the quarter from Brexit, where a number of customers increased their stock levels ahead of Brexit at year-end. But as restrictions have eased the last 2, 3 weeks, we have seen a good initial improvement in sellout, which gives us positive signs and hope that this will continue and the recovery in the U.K. market. Our Central and Eastern Europe market declined with 36%. Especially, we continue to perform below expectations in Germany, which is our largest market in the region. As a result of, I would say, slow performance in the region and especially Germany in the last quarters, we have initiated restructuring of the organization in the region to ensure that we improve our development and increase our market share. And as you can see, North America, of course, was significantly lower in the region compared to last year as we took the strategic decision, last year, to focus on our core markets. And as a result, North America is one of the markets that we have exited during 2020. We can take the next slide, please. They give you an update on the restructuring program that we communicated and initiated summertime last year. We continue to deliver on our restructuring program to ensure a more competitive cost base and long-term profitability. To date, we have implemented SEK 96 million of the communicated and committed savings of SEK 110 million to SEK 130 million, and we continue to be confident that we will reach our target during the year. In the quarter, as I mentioned before, we have initiated a final significant part of the program when we started the restructure of our DACH region in Doro Phones to ensure that we both regain our market position and improve our cost structure in the region. Since we initiated the restructuring program, we have taken restructuring costs of SEK 15 million, all of those costs in 2020, and we expect that we will not exceed the communicated SEK 30 million in total restructuring costs. So we continue to be confident on the restructuring program that we initiated last year and that we will reach the figures that we communicated when we initiated the program. Next slide, please. And we go over to look at the numbers for the total group from a sales and profitability perspective. Net sales in the quarter was SEK 337 million, which adjusted for currency effects is a decrease of 16%. The pandemic effects that continued in the quarter impacted our business especially in Phones but as well strategic market phaseouts such as North America, which are the 2 main reasons for the lower sales number. We see signs of increased activity as restrictions are removed, but the market is still uncertain from a COVID-19 perspective for our business as well as the supply chain challenges that we are facing in both our business areas. The gross margin as well as the operating margin increased in the quarter despite the lower sales level. Supported by good sales mix, efficiency improvements, a favorable FX effect as well as good cost control contributed to the good margin improvement. In summary, this resulted in an EBITDA of SEK 47.9 million and EBIT of SEK 18.4 million, excluding initial project costs for the separation and listing of Doro Care. Both the EBITDA and EBIT levels are an improvement from the same period last year. Moving into next slide and cash flow for the first quarter. Our free cash flow in the quarter was minus SEK 47.6 million, which is a result of -- especially a negative change in working capital. And the negative change in working capital is explained mainly as we have returned to standard payment terms with the majority of our suppliers after receiving what we call pandemic release and longer payment terms during part of last year. But our financial position remains very strong and solid with a net debt of SEK 32 million, which is equaling a net debt-to-EBITDA ratio of 0.15, and this is an improvement in net debt level from SEK 130 million the same period last year. And we can move forward 2 slides into concluding remarks before we start with the Q&A session. So the first quarter positives, as I -- in the quarter, we have announced that we intend to separately list business area Doro Care to ensure that we give the best foundations for both businesses to reach their full potential and their ambitions. And the work with the separate listing and to separately list business area Doro Care during the year is proceeding as planned, and we continue to be committed to that. We have seen some positive development and increased activity in some of our core markets, and our expectation is that activities will continue to increase in certain markets during the year. And in some of our core markets, we've seen that also in the first quarter that we have strengthened our market position. We have continued to build a strong offer and released new products and features during the quarter, and we delivered good margins and solid profitability in the quarter despite the challenging sales environment. The challenges in the quarter were -- continues to be sales growth at a level that is not satisfactory with continued impact from the pandemic that had burned in the quarter, where we are focusing heavily to ensure that we improve and drive further growth in the quarters to come. Challenges in supply chain have continued and increased in the quarter. We experienced both increased lead times and freight costs and, to a larger and larger extent during the quarter, component shortages in the market, which is something I think both we and the general electronics industry is expecting to increase for -- and I think especially the component situation for the month and maybe quarters to come. So of course, on the focus-ahead perspective, net priorities, is for us, in the near term, to ensure that we minimize the effect from the global supply chain challenges so we can ensure that we can support the demand from our customers. We will continue to strengthen sales and our offering in Doro Care in order to accelerate growth and continue to prepare for the separate listing of business area Doro Care during the year and, of course, continue to excel in delivering increased safety and independence for seniors. We can move to next slide. So with that, thank you very much for your attention and listening into Doro's first quarter webcast. Later today, we will hold our Annual General Meeting, and the documentation from that event can be found on our corporate website afterwards. And we will announce our second quarter results on July 16. I then would like to open up for a question-and-answer session. [Operator Instructions]
[Operator Instructions] We have a question from the line of Viktor Westman from Redeye.
I was wondering if you can discuss the subscriptions in Doro Care. Those are lower compared to Q4, I noticed. Are your -- or the won contracts in Q1, are those not included in this -- in the figure of 371,000?
Viktor, thank you for your question. As you said, in sort of the 371,000, there is a timing effect in sort of phase-out and phase-in of contracts. So what we experienced from -- in the first quarter and, as we've discussed, in the quarters in 2020, we did have an unsatisfactory performance in certain markets in contract wins last year, where we actually lost a few contracts with decreasing subscription as a result. And we've seen those effects in Q1 as it sort of taken longer time to phase out those contracts. And the contract wins, because we do have one -- especially in Sweden, we had a good quarter in contracts with -- in contract wins and won a number of new contracts and as a result subscribers, have not yet been implemented in the first quarter. So you're right. We have not seen sort of the positive effect from the contract wins during the first quarter.
Okay. Good. I wonder if you can say something more about the challenge in the global component shortage. I noticed you have actions to take to mitigate those issues. Can you say anything about your plans here?
No. I think overall, it is -- as you mentioned, it is a general industry problem. And I think every similar company I speak to and everything I can read in the press, there are a lot of companies that are facing the same challenges as we are. What we are doing -- and I think from that perspective which is positive maybe compared to some other companies, we have a long and good presence in Asia. And we have long and good contacts with our partners in Asia and sort of component suppliers. So we are working intensely, ensuring that we sort of identify and secure components so we can meet demand. And also, as you say, it's important for us to be extremely close to our customers to understand the demand so we can try to sort of have the right balance from supply and demand and ensuring that we get the components we need to meet the requests from our customers. And I think this situation will continue for a number of months. It will be a continued work to ensure that we continuously work with getting the right components in the right time.
Okay. Just a last question. On Germany, I -- the German market has been challenging for quite some time, not only maybe the few quarters but even longer than that, I would argue. Are there any new issues here that are not pandemic-related? Or is there anything -- any other problems that have risen? Or what's the status?
Yes. No. Good question, Viktor. I would say it's one -- of course, Germany has been a market that's been significantly impacted by the pandemic. We see German retail, which is a large and important market for us, have been significantly impacted. But with that said, I do not think that we have sort of focused enough in doing what we can from a sales perspective and ensuring that sort of we keep and we sort of demand the market position that we deserve, looking at our products and our portfolio and looking at what we achieved in the other markets. And that's why we've taken this decision to ensure we restructure market. We will focus on driving sales, increasing our market position but at the same time getting the cost structure right.
[Operator Instructions]
And while you sort of formulate your question, I can take a question that we received from the web. And it's a question from [ Fredrik ], who's asking what is the time schedule for the spin-off of Doro Care. And as we communicated, our plans with -- the planned separation and spin-off of Doro Care is that -- we are currently working on sort of finalizing the separation of Doro Care, creating sort of, call it, a listable entity for Doro Care with a plan to separately list Doro Care during the fourth quarter of this year.
There are no further audio questions registered.
I think we have no further questions on the web now either. So now I would like to thank you again very much for listening in and for the questions. I wish you a great day and great weekend. When that comes, happy tomorrow.