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Good morning, everyone. I hope you can see us and hear us. We've had some technical difficulties here in the morning with our video equipment, so we're going to do this presentation directly from our laptops. Welcome to the Doro quarterly interim report #2. My name is Jörgen Nilsson. On my side here, I have Isabelle Senges, our imminent CFO, and this is our Q2 report.
We're going to start out today with some key highlights from the quarter, then we're going to zoom in on more details of it. We'll do some concluding remarks, and then we'll open up for FAQ. And when we do, please don't forget to unmute your microphones because during the meeting now, your microphones are muted. Okay. So let's see if we can get this going. Let's do it like this.
So key highlight in the quarter. Q2 continued very much as the Q1, with the consumer sentiment in Europe remaining weak. There has been challenging economic conditions throughout the continent, which have resulted in reduced household consumption. Because of that, most of our consumer electronic chains, they have struggled, and some markets have even closed down shops and had to lay off staff. So not surprisingly, the EU4 market for elderly phones did shrink in terms of value. But basically, it's still in line with the overall European smartphone market development.
Our fixed line and our non-Doro products also declined compared to the same quarter last year. But despite this, our feature and smartphone sales increased. And overall, our sales ended up with an increase of 2% compared to the previous year. On a more positive note, our gross margin improved significantly. Once again, thanks to a number of different reasons, which we will zoom in on soon. Likewise, in line with our strategy to broaden our offering while we try to maintain the leadership in senior phones, we have continued investing in the future.
But despite these many investments and despite the tough market conditions with a shrinking senior phone market, we are happy to continue to show positive EBIT in the quarter. Finally, also a key highlight in the quarter. It's worth mentioning that the transition to 4G networks, whereby basically the operators shut down to 2G and 3G, or at least they don't allow new connections to 2G and 3G, is now further speeding up.
Now in the last quarter, it's been the French mobile operators who have all basically communicated their end-of-life schedules. And the biggest mobile operator in France is now also planning to incentivize the shift to 4G products. This actually plays perfectly in our hands because we have a very good positioning in 4G. Nevertheless, there are still some regions and markets where there's a solid demand for 2G. And that, which is good for us, too, actually, enable us to maintain good sales of 2G. And that's the way we've been able to have a more efficient inventory management.
That said, let's zoom in on the more details on the second quarter. As said, we are still working in a very tough consumer electronics market, where many of our customers, I mean, the retailers, the operators and distributors, are being heavily impacted by consumers delaying or completely putting off their upgrades of new products, phones. Some of our customers have also had to close down shops and lay off staff. And in some of the regions, for example in Germany, one of our major customers got their financial rating downgraded by Moody's and, therefore, stopped all orders during the initial months of this quarter.
In other regions, like the Nordics, we've also seen major consolidations taking place, where, for example, the Power Group taking no of the MediaMarkt channels. As I just mentioned before, the senior phone market declined almost 12.5% year-on-year in May, but this was once again in line with the overall European phone market decline. Likewise, as I said, our fixed line and non-Doro products dropped. But to our big happiness, the Doro feature and smartphone sales increased compared to last year, both about 7% up compared to last year.
So overall, our sales ended up at SEK 203 million in this quarter, which is, of course, just a minor increase of 2% compared to previous year, but it's still a plus amid a shrinking market. Better still is that our gross margin improved significantly, and in the quarter reached 40%. And this was thanks to a favorable product mix, where we have more 4G than 2G, a much more stable U.S. dollar to the Swedish krona, and once again, a very positive freight cost development plus a good control of our warranty costs.
We have also, in line with our strategy to maintain our leadership in feature phones and senior friends while we developed a new service offering, continued investing. And our investments today have been in more staff, new product development and various sales and marketing initiatives. And despite these many investments and despite the tough market conditions, we are still happy to be able to show a positive EBIT in the quarter of SEK 1 million.
As I just mentioned, the technology shift from 2G and 3G to 4G is really speeding up. As said, it is the French mobile operators who have communicated their go live. And despite this increased focus on moving to 4G, we still have regions in Germany where there is a solid demand for 2G. This might seem like a problem, but for us, it actually suits us perfectly, because we have a good position in 4G category and we're still able to ship goods in the 2G.
We were also, at a certain time, a little bit worried that if the 4G transition went too fast, that we would end up with too many 2Gs in our inventory. But thanks to the good demand in especially Germany, we have been able to have a very efficient inventory management. So given this phaseout of the older networks, our inventory management has become increasingly important. But as we had good sales in both 4G and 2G, we've been able to reduce our stock values by SEK 35 million compared to the same quarter last year.
During the quarter, we've also continued to roll out of what we call the Doro end-caps, which is basically a senior corner that we put in our customer stores. We've done so successfully in the Nordics, and we also started in U.K. and Ireland, and with Germany soon to follow. Presently, we have equipped, I think, 36 stores in the Nordics, and there are another 50 to come during this year. And then hopefully, we'll see the uptake coming as fast in the U.K., Ireland and Germany.
One of the most important things for us is, of course, the seniors, and our strong focus on seniors and end users have continued. We'll continue with external research, like we started again, but also more importantly, with consumer hands-on prototyping. And it is really pleasant to see the number of seniors walking around here in the office with our usability experts and participating in various end-user trials in order for us to really understand the needs and challenges of the seniors.
We have equipment, which has been developed together with Cambridge University, which enables us to have the same tactility and movability in our hands and the same eyesight as a senior. And together with actual seniors, we work actively to develop our new products.
Just to round off the business key points. So we are in a tough market. Our customers, the operators, retailers and distributors, they are struggling. The senior phone market is shrinking, and we are having a very good gross margin, which we're basically investing full out. And despite these many investments, we still are able to report a positive EBIT.
Resuming on the market and the individual markets, we see that the Nordic has once again come in on a very solid SEK 56 million, which is almost 28% up compared to last quarter -- last year's quarter. Then you have to remember that last quarter -- last year's quarter was really tough because then we were faced with trying to implement the new price increases. At the same time, as many of our customers, had large overstocks and consolidations took place.
To our big delight, our new smartphone has started generating higher sales than its predecessor. And also, there is an increasing part of 4G sales among our feature phones, which have contributed to the high turnover. Once again, our B2B sales in the Nordic were very good. This is boosted mainly by Sweden's largest operator, which is switching from copper to digital network. And in most of those cases, they actually proposed the Doro's 4G fixed phone or the Doro 4G feature phones for updating to the customers.
Our Western and the Southern Europe, Frabel, reached almost SEK 73 million this quarter, which is a decline. But overall, we still think it was satisfying given that the Frabel market is the one that's been decreasing the most sharply in the quarter. Our latest smartphone, which we launched at the biggest operator, has actually come back with good volumes and also reorders. And in our 4G feature phone, and especially clamshells, are continuing to increase. But we still hear, on France also, despite the communication of switching off 2G, still have very good delivery volumes for 2G.
We are actively preparing, as I said, the phaseout of 2G in the region and especially now when the operators are communicating to the retailers. So we do think there's going to be an impact. But we're super happy to be able to report that we have a very close relationship with the biggest operator in France. And along with their economic incentive to switch, we are also preparing activities. Finally, for that region, sales in Belgium has now resumed after some time of uncertainty. And they have a different product now, which is now much more favorable to our margin.
Looking at Central and Eastern Europe, DACH as we normally call it, the sales once again was down [ almost ] 25%. This time, however, most of this is actually explained by turbulent stock from our biggest customer in Germany. As I've mentioned before, they suffered from a financial downrating by Moody's and, therefore, stopped all their orders for over 1 month.
Now the situation has been restored and they've started ordering like before. But of course, this initial hiccup affected the overall sales, not only in the region but left the dent in all of sets. On this outside, our distribution channels in DACH has had a very good quarter, but the e-com business in Germany went down somewhat versus last year. But that is in line with the overall e-commerce trend in DACH region for the last quarter.
Finally, but not least, sales in U.K. and Ireland amounted to about SEK 41 million. That is an increase of 26%, which is really good, and there is a good momentum in the region, which is actually the only region where the market for elderly phones grew during the last quarter. At the same time, it's important to remember when we said that they grew that this is basically the reason that dropped the most previously. So basically, they bottomed up, they reached rock-bottom. So now the only way is up.
Very good for us is the transition from 2G to 4G at our biggest retail customer has been flawlessly executed by our sales and product teams, and that has generated really high volumes for the category during the quarter. Then also nondirect retails came back quite strong in the quarter. And as always, the online sales in the U.K. continue to grow compared to the same last year -- the same quarter last year. We're also happy to report that we signed up a couple of new customers in Ireland, which have a quite widespread listing of our products. And we continue to develop our own website during the quarter in Ireland, with an ever-increasing range and better delivery options.
I'll leave over to you, Isabelle.
So as a recap for the quarter, net sales landed at SEK 203 million, which is a 2.3% increase compared to same quarter last year. As Jörgen said, we faced some difficulties in Germany, but sales were quite good in Nordic and U.K. and Ireland. 4G feature phones and smartphones are the categories performing best, which also increased the average sales price of our transactions. The gross margin was 40.3% in the quarter compared to SEK 35.6 million for same quarter last year.
The main improvement year-on-year is the marginal products. The cost of goods of our most important products went down by around 5% to 6%, and due to better U.S. dollar rate and good negotiations. Furthermore, the products which we released in the previous periods, such as the new generation of 4G and the new smartphone series, they have a better margin than the previous devices, independently of the currency.
We also benefited this quarter again from lower freight prices than same time previous year, and from a more favorable ratio air to sea transport. Royalty and warranty costs remain at a very stable and fairly low level. The EBITDA for the second quarter was at SEK 12.8 million compared to SEK 15.7 million. The EBIT landed at SEK 1 million compared to SEK 5.3 million last year, same quarter. The EBIT in percentage of sales was 0.5% compared to 2.7%.
As Jörgen said, we have consciously allowed the increase of our operational costs to secure internal resources and to develop marketing to support our upcoming launch of products. We are also in the early stage of the development process for a number of projects, which means that these costs cannot be activated and increase our operational costs. The profit after tax ended up at SEK 1.1 million compared to SEK 4.9 million last year, with an earnings per share of SEK 0.05 compared to SEK 0.20.
Looking at the cash flow. Cash flow from operating activities was positive this quarter at SEK 21.6 million compared to SEK 44.7 million same quarter last year. We had a positive development of working capital during the quarter, mainly due to lower inventory. However, our accounts payable were rather low [indiscernible] the euro, so the improvement of the working capital was not as significant as same quarter last year.
Investment for the quarter were SEK 8.5 million versus SEK 9.8 million last year. and free cash flow for the quarter was SEK 13.1 million compared to SEK 34.9 million. On the liquidity side, we had a bank balance at the end of the quarter of SEK 138.3 million compared to SEK 132.5 million. The equity ratio was 55.4% versus 48.9% end of Q2 last year.
During the quarter, we have lowered the utilization of our bank loan from SEK 60 million to SEK 50 million. And we finished the quarter in a net cash position of SEK 74.2 million, which is an increase compared to the previous quarter, where we were at SEK 50.0 million, and it's also an increase compared to same quarter of 2022 when we had a net cash position of SEK 41 million.
And this was my last number. Jörgen?
Thank you, Isabelle. Move the computer over. Okay. And so I'm [ going to make ] some final remarks and then we'll open up to the Q&A. So on the positive side, as I said, continued positive EBIT. I know it's not much, it's quite slow. But given that we have a strong gross margin and also a slight increase in sales, despite tough market conditions. And then this -- basically, most or all of that gross margin we've invested in the future.
We are releasing a number of new products sharing the autumn. Most of them will be debuted now at EFA in September. And we've hired new people, and we're putting efforts into the marketing and sales initiatives like the Doro end-cap solution. We also have the Doro pop-up store, which we're going to open at a big super shopping mall in the south of Sweden at the end of the -- during the Q3 of this year. So if we haven't invested so much in the future, obviously, our EBIT would have been higher, but it's still continually positive.
As I said, we did roll out the end-cap solution, this senior corner in more than 30 stores in the Nordics and another 40 to 50 to come. We started slowly in the U.K. and Ireland, and Germany is next in line. We've also conducted a number of customer events and fairs, and we were actually awarded the prize for the Best Smartwatch at one of the fairs in France, which is very nice to receive.
Then our direct-to-consumer business and our inventory management remains strategic priorities in the quarter. And we're really happy to keep the stock value at SEK 35 million lower than the same quarter last year. And one of the reasons for this is, of course, that we are able to sell 4G where we're very well positioned. At the same time, there are still markets where we can offset our 2G volumes.
We actually have an order backlog in Q2 of SEK 104 million, which is an increase of more than 20% versus last year. And I would say that's almost somewhat of a trend change because the order backlog has been rather low in the past quarters. But previously, customers has been very cautious in the reordering.
But now, it seems that people are being a bit more optimistic since I guess, last year, everybody had expected sales to go back to normal after COVID, but then we had the Russian invasion of Ukraine. And now people got probably a little bit more to terms with that. And I guess also, we've all had our winter electricity bills disappearing in memory. So yes, people are probably feeling a bit more optimistic, and therefore, we're getting better reorders and backlogs.
Obviously, there are still challenges. The main is that the European consumer sentiment still remains weak. And there are challenging economic conditions for all of us, of course, which results in people putting out or completely postponing their repurchases. Some of our biggest electronic chains in Sweden and Germany, they have faced financial difficulties, which impacted their ordering, at least temporarily. And for the senior phone market, especially for the feature phones, they continue to decline. And so far, our new products are not yet [ replacing ] the revenue.
But on the upside, our Doro feature and smartphone sales grew compared to the same quarter of last year. And priorities ahead. We will continue the deployment of our end caps, and we will also, as I said, roll out the first pop-up store, and we continue our development of direct-to-consumer sales. And our direct-to-consumer sales for now is mainly through web, but also we're rolling out through our customer support, which we think is going to be very useful.
Then we have to continue maintaining tight control of the warehouse, which I think we've done excellently so far. And we will continue on the final leg of the conversion of the DACH region to become a full-fledged Doro sales region to be able to deliver on its potential so we can start seeing better results there in the year to come. And then, of course, as always, will need to ensure secure revenue margin from our existing own feature phone products, if you like, while we develop the new revenue streams for the future.
I think that pretty much sums up our report. So we will now open up for Q&A for all our guests, all our guests and visitors.
And I remind you that please unmute your microphone, so you can hear it. Now we'll see here if we can put on the cameras, and we can also -- there we go. Please feel free to...
This is Fredrik from Redeye. I have some questions. So just kicking off, you sold a pretty good amount of 2G products especially in Western Europe, as you talked about, and this will taper off. How fast will it phase out, 2G, you think? Is it next quarter or is it next 6 months? Or...
You could say -- I mean, it's very interesting. The best example of that is that one of our major channels in France, they communicated recently from their headquarters to us that there will be no more orders for 2G, 2G stocks. Then a few days later, their warehouses started placing massive orders, biggest orders ever in 2G. And we just wanted to make sure that this was correct, and they said yes. But they disagreed with their headquarters, they still believe in 2G, but the headquarters didn't. So there is a predictable kind of within the market.
But I would say that in Nordics, U.K. and Frabel, there is a much stronger push on the 2G/3G migration to 4G. Whereas especially Germany and DACH, it's much slower. So we will not be phasing out 2G for another year easily, I would say, in Germany. But then again, as I said, maybe things can change fast. But given the latest meetings I've had in Germany, I do not see 2G disappearing for at least another year.
And also, as I said, all the French mobile operators communicated a switch off. At the same time, they continue ordering. So I wish it was kind of black and white, but most of it is kind of gray. Nordic is probably the region where we've come the farthest, with 4G only basically. But even there, we get orders of 2G.
So it's not a risk that you will have a lot of 2G phones in inventory and can't sell them, this will...
Yes. We were a bit worried as I said. I mean, obviously, we had the same thoughts like you. But then we see these reordering coming even from regions which have communicated they would not. And then on top, we get the orders from the DACH region. So actually, it's been really good for us.
Okay. Okay. Good.
So I mean from a technology point of view, it would have been nice if there was only 4G, we could focus on one technology. But from a sales point of view, it's quite nice that the regions are coming in different timings.
Yes. And I guess the margin is pretty good on 2G phones or -- yes, the margins is pretty good on 2G phones?
Sorry, yes. Yes, yes. Sorry. Correct.
I have one question regarding the organic growth. I mean ex currency, it was minus 10%. This currency effect, was it due to a full FX hedge or was it part of it?
[indiscernible]
I need to be close to the microphone. A part is the hedging since we committed we are selling euros and we committed to sell euros when there weren't a much lower rate versus SEK some 5 months ago. The other part is the, yes, regular current rate for it. So it's not obvious to myself. Yes, it's a big euro ForEx of a couple of millions that decreased our sales in Q2.
Okay. And I mean, as for the SEK is now strengthening a bit towards the U.S. dollars.
Yes.
And going forward, how should we think about the hedge now? I mean you'll hedge like 50%? Or how should I think about this?
Exactly. We have actually adapted our hedging policy. We hedge a little bit because it's such turbulent time that we realized that the hedging, which is still is probably the best way to protect ourselves from deviation, might not be always optimal if we were to hedge a lot. So now we are down to -- we have flexibility between 50% to 90%, and we are closer to 50% in order to minimize the loss from hedging. But it will be -- we might have a little -- we had to buy some U.S. dollar when it was a bit higher than it is today, so we might have a little...
Delay.
Yes, delay. And a bad effect from this, but not as we saw last year. And for the euro, it could be the opposite. So it's actually quite hard to predict because we buy U.S. dollar, we sell mostly euro and GBP. So that one usually allow us to offset. But the best will be that the Swedish krona will stabilize, get a bit stronger and stabilize.
Yes. I understand. It's been tough. And this also spilled over to your strong gross margin. I know you don't guide, but I mean, I was thinking about 36% throughout the full year. But do you think we can manage to get above 38% this year? Or...
We shouldn't really be making those predictions. But I mean it's been a good quarter in the gross margin, Fredrik. So yes.
But you don't see the freight costs coming up anytime soon? I mean they should stabilize down here, right?
As it is, no, I don't see that happening. But then again, who saw that happening when Russia invaded Ukraine, and all of a sudden, half of the transportation disappeared overnight. But I don't know if you have...
You know what, I think rail freight costs will remain stable. What we see is that when we release new product, as we will do in Q3, we might have to have a bit more air. But so in that sense, it could be a little higher than in Q1 and Q2, but nowhere near what we have experienced last year, because our logistics department is really working and super good with the stock and the purchasing. So I think freight will remain low.
Compared to [ last year ], yes.
Compared to [ last year ].
Makes sense. And then moving on to the R&D cost. It came up in the quarter. So for the first half year, it's like SEK 38 million. Will you continue to spend R&D throughout the year? Or will you back off?
Definitely. Definitely. I mean basically, we can't capitalize it because -- let's say, it takes 1 year, 1.5 years maybe. If you develop a new feature phone, it takes probably 1 year all in all, and then it's from -- really from the day -- the first day until it's on the shelf. Obviously, now as we move into advanced and new stuff, it takes longer time, and we won't be able to activate and capitalize on these costs unless a product is actually launched.
And obviously, there is a whole process of steps going through. So we start products, we test them. And then some of them, they will not pass our rigorous test, and I'm not talking about technical tests only, it's also for financial and the business proposition. Where we say, okay, we tried it, it didn't work, let's cut it down, and that money then becomes OpEx. So it's an investment from our point of view, but it doesn't look like a CapEx investment.
But definitely, yes, we will continue. Because otherwise, what should we do? I mean we think that feature phone will probably continue living for another 10 years. And I think 10 years ago, people told us the feature phone were gone. This is a testament that it's not. That said, the number of people using feature phone, which is our strength, is declining. And therefore, we are expanding into other areas. And hence, we need to invest. So yes, we will continue investing during the year for R&D.
Okay. And this then goes for the sales cost as well that you need to spend there? Yes. Okay.
Yes, definitely. I mean, the current products, let's say the feature one, that's a mature market, we don't have to spend so much. But on the new products, I mean, now we're moving into new things and we're releasing this what we call the hearing [ buds ] very soon, obviously, that's in a sector in a category where we haven't been before. So of course, with the big retailers, the Cares and the MediaMarkts, et cetera, we have a lot of credibility.
But still a new buyer, it's a new segment and we need to reach out to customers who maybe did not associate Doro with this kind of product before. So yes, we will have to invest in it. Plus, we also believe that we stepped up the game by creating these senior corners, by launching a pop-up store, et cetera, et cetera. We want to be seen by the customer. We want to be close to the end users. So the sales and market cost will continue.
You mentioned it in your closing remarks at the order intake and the order book looked pretty good. I mean it was pretty strong. Can you talk more about it? Do you think we've seen a turnaround now or...
If I say yes, then probably everything is going to come to a stop, I'm sure. But I mean I would say that there was a trend break this time. Because I mean our customers have been very cautious in reordering, partly because of the hangover from COVID and then running into the Ukraine crisis. But also because there was a lot of stock out there in the warehouses of our customers and then a lot of consolidations took place. Some of the biggest distributors, they started consolidating the warehouse in different countries. And then they realize, wow, we're seeing a lot of goods.
Most of the time, it was not a lot of Doro goods, but they were sitting on a lot of the big phone manufacturing goods. And then they realize that that's hurting them badly, so they stopped all reordering. That seemed to have been eased out now. That year has gone. So I think that, in conjunction with the fact that people are -- it sounds horrible, but I think 1 year ago, we were all completely outraged by the war in the U.K., and of course we're still thinking it as bad, but people are maybe worrying a little bit less about their own private economy here.
Also, let's not forget, I mean 6 months ago, in November something, in December, when people saw their electricity bills going to EUR 1,500 a month, you get really, really worried and then you do not go to the shop at all. Now people have come to terms with it, have come to grips with it, so people are coming back a little bit more to the stores. And therefore, I think our customers are seeing that. And hence, our customers are feeling a little bit less reluctant to place reorders early on. Whereas previous quarters, they were really waiting and postponing their reorders until they were basically empty in the warehouse. They would rather go empty than having one stock too many.
So yes, I do think it's a turnaround, but it was a clear trend right now where we had an order backlog well over SEK 100 million. So let's hope it continues. But if I say it will, it probably won't.
I just have one more question that -- my question is you managed to take down the inventory quite a lot. I mean it's now 21% of the rolling 12-month sales, and I think you have to go back all the way to Q2 '21 to see that. Is it your intention to be this low going forward? Can you manage? Or do you need to increase it?
No, it's our intention. And even though we keep on selling 2G, there will be less different SKU in our portfolio. So hopefully, we will decrease even further the inventory. Having said that, we will release some new product, and then you'll never know how they will fly in the first period. So it might increase at some point, but I think it is our aim to keep it from early.
I think historically, Doro was quite good at building up a big inventory, if you put it that way, which, of course, our customers love because they could basically call us on a Friday and say, "Hey, can I have my delivery on Monday?" and we could. So from a customer point of view, that was great. But from a financial point of view, it was not. That is not the way we do business anymore. So it's quite some years now, 2, 3 years, we're really making sure that the warehouse is optimized that way.
That said, we noticed during the first 6 months of COVID that all of a sudden there were no components whatsoever. So when we hedged very low then, that was bad. So during the, let's say, the last 18 months of COVID, we built up quite a warehouse, but that was also a competitive advantage because most of our he competitors, including the big guys, they could not deliver, whereas we could deliver throughout all of COVID.
So assuming we don't have another new crisis, let's not even think about some countries invading a place where they make a lot of chipsets, et cetera, then we should definitely -- we are definitely striving to optimize our inventory. But when things happen, to sit with some inventory and be able to deliver, that can also be gold.
And how much of the inventory is 2G, roughly? It's like 1/3 or 20% or 10%?
Let me check that. I don't know. Can we come back to you on that one and [indiscernible]?
Yes, definitely.
So let's take -- we'll make a note and come back to you, Fredrik.
Any more questions from anyone? Happy to take. Please don't forget to unmute. See there are quite a lot of guests here today. No? Leaving another 30 seconds in case there somebody trying to get online. Well, I think thank you very much for your attention. Wishing you all a fantastic summer. I hope you get some time off. We aim to do that. And we will see you in October for the Q3 report. Have a nice one. Take care.
Goodbye.
Bye-bye.