Earnings Call: Q1 2021

May 20, 2021

Thank you. Good morning, everyone, and welcome to the presentation of Ambulance Group's 1st quarterly report. Next page, please. My name is Ole Svenske, and presenting with me today is Paris Schoop, CFO. If we move on to next page. First of all, I want to actually to take the opportunity to talk a little bit about Ambulance Group and who we are. Ambulance Group, we acquire, own and develop strong brands in wallpaper, textiles and rugs. Our mission is to contribute to a more beautiful and more inspiring everyday life. And our vision is to be a leading house of brands in interior decoration with a certain focus on premium and to drive the development in a changing market. Next page, please. We have a competitive brand platform today. Our largest brand is Prosta Theater with a Scandinavian caractive design. Our 2nd largest brand is Coal and Sand with a British heritage and is actually one of the leaders, if not the leader in the industry with more than 400,000 followers on Instagram. Our 3rd largest brand is Wall and Deco, that's tailor made contemporary wall covering with amazing Italian design and a brand fueled with innovation. Pershvan, it's a brand that we are restarting now and want to develop into a Scandinavian lifestyle brand with a vision to have consumers press print. So it will be it is a purely direct to consumer brand. And our 5th brand today and our recent acquisition, that's Papalina, as an international brand in premium plastic rugs founded in 2019 by Linarikertsak. Next page, please. We focus on 3 strategic areas. First of all, to have continued leverage of the premium market. We estimate that there is an underlying market growth of at least 5%. Secondly, It's all about internationalizing our business, both with organic growth in Europe and in selected markets in Rest of the World, but also with add on acquisitions of brand driven premium companies. And the third part here is digital innovation. We will launch and have launched direct to consumer into new geographies, and we will do further investment into what we call digital tools. But let's move on to the quarter itself then. So next page, please. Q1 has been a busy quarter. We have the listing, we have done the name change and the Add On acquisition. But more importantly, we have delivered strong profitable growth. Our net sales is up with 16%, and we reached an EBITDA of adjusted EBITDA of 15.9%. We strengthened our brand portfolio through the acquisition of Papelina, and Papelina holds a strong position in an attractive niche market around the world with more than 80% of the revenue outside Sweden. Then, of course, we have the listing on Nasdaq First North Premium Growth Markets, which gives us visibility, better access to capital and gives us is also the right position for us to continue our journey. And the 4th point I want to mention is the direct to consumer launch for Kol and Son brand in the UK market that happened in March, but also the soft launch of Pershval direct to consumer. And that's a very important step for us, and it will be followed now in the second quarter with Volostapietta opening up in Sweden as well with direct consumer. Now over to you, Per. Next page. Thoughts, some more details on the financial performance. We had a strong year, strong start of the year. Our net sales were up 16%. It's driven by organic growth, but also through add on acquisition. Our adjusted EBITDA ended up at SEK 28,200,000, which is almost doubling compared to same period last year. The improvement was driven by the organic growth and then also the acquired company, but also an increased share of premium sales. In addition, we are we have continued to look at our cost. We have cost reduction both in production and in, I would say, in administration. Yes. And cash flow, we had an improved cash flow compared to the same period last year of SEK 13,000,000. It's mainly driven by the improved results. The cash flow in the quarter was negatively affected by an increase in accounts receivable, which is coming from the strong sales second half of the quarter, same as last year. Our next page, please. So some more details on the sales development. In total, we improved our sales by 16% or SEK 25,000,000 and SEK 14,000,000 of those came from the acquired company and SEK 14,000,000 came from the organic growth. We also had a negative currency impact of SEK 4,000,000 SEK 3,700,000. Next page, please. So let's go into our segments. The first segment of 3. It's in the Nordic region, which represents 55% of our turnover. Our net sales in Northern was up 16%, which is coming from organic growth and also from the acquisition of Papillina. Our adjusted EBITDA ended up at SEK 16,700,000, which is more than doubling compared to last same quarter last year. And the improvement in EBITDA is coming from the growth, of course, but also cost reduction in production and the higher share of premium sales in the Nordic region. Our premium share in the Nordic region was 28%. Last year. Same period was 20%. Moving to the next page and the Europe segment. Also here, we on the Europe segment, it's 35% of our total turnover. Also here, we saw a pickup in sales, improvement of 12%, which is coming from, again, the acquisition of Apalina, but also from organic growth. Our EBITDA ended up at SEK 9,400,000, which is an improvement of 81% compared to same quarter last year. And it's, again, driven by the big improvement is driven by the ISAs and the Add On acquisition. The share of premium sales in the Nordic European region is SEK 82,000,000, which is same as last year. The 3rd and final segment is the Rest of the World, which represents 10% of our turnover. Here, we saw also an increase in our sales. It was up 34%. It's driven by organic growth, but also acquisition of Papalina. But we should also keep in mind that last year Q1, we started to see some impact from the COVID-nineteen pandemic in China, which is an important market for us. So that is also part of the explanation why we year increase in sales. The adjusted EBITDA ended up at SEK 2,100,000, which is an improvement of 62% compared to same quarter last year and is driven by the higher sales in the AdOn acquisition. The level of premium is 89% in the rest of the world, which is an improvement from 83% last year. So next page, financial targets. We have 4 financial targets. The first one is about growth. We say that we should double our sales from 2020 numbers to 2025, ending up at SEK 1,200,000,000. That represents an annual growth of 15%, which should come from both acquisition and organic growth. Q1 2021, we had a growth of 16%. Our operating margin, we have a financial target of being at least at 15% EBITDA margin over business cycle. For Q1, we ended up at 16.9 And also the leverage target, we should not go above 2.5 net debt in relation to EBITDA. And End of quarter 1 this year, we had leverage of 1.4. Okay. Next page then, summing up then. So first of all, we delivered a strong profitable growth, 16% up in net sales, strong adjusted EBITDA and a share of premium sales of 52%. We strengthened our brand portfolio with the 1st acquisition outside of wallpaper with the Papalina. We are now listed on Natak's 1st North Premium Growth Markets. We launched direct consumer business, Colasan in the UK and Pasch trial in Sweden and UK. And as the quarter developed, we could register more and more markets in Europe opening up and then allowing craftsmen into their homes. And moreover, worth mentioning is also that hospitality is starting to Vitality segment. It's starting to show signals of waking up and doing investments again, but also corporate visit. In the quarter, we decorated Microsoft's office in Shanghai, and we actually we decorated a couple of prestigious hotels in the UK. And Papalina collected a large order for rugs from cruise ships that they will use this for outdoor on their sundeck. But with this, we close the presentation, and we open up for question. Thank you. Thank you. The first question comes from the line of Karri Winder from Handelsbanken. Please go ahead. Your line is open. Yes. Thank you very much, and good morning, Ochter. I have a few questions, so it may be best if I take them 1 at a time. Firstly, about this premiumization trend in the Nordics, going from 20% premium in the Q1 last year to 28% this year. Was the Q1 last year specifically weak? Or what's driving this very encouraging trend? I would say that it's coming from various factors. First of all, we have some of the important launches that we did over the last year that has improved our Borozda Perta performance in the market more and more and also the fact that consumers are spending more money into their homes is also affecting. But obviously, the acquisition of Papelina is also having a part of this. Okay. How much would you say of that 8 percentage point increase would you say comes from Papalina? Is it possible to say? I don't know. I cannot answer that now. I have to come back to that. All right, fair enough. It's fair here. It's of the 8% improvement, I would say that 5 Approximately, 5 of those come from Papelina. And there is growth in the premium deep organic growth. Good. Then the growth in Europe. You mentioned that you see various countries recovering. But more specifically, did you still have some countries in Europe that are important to you that still had negative sales growth in the Q1, maybe more specifically the UK. Good question. UK, I mean, now I have to say, top of my head, UK has not been the market that we're most worried about opening up. That has performed strong for us or not strong, but at least, I mean, not negatively. The markets that we are more concerned about during the quarter. That has been Spain, for instance. Italy was very low in the beginning of the month, but then end of the quarter, I mean, beginning of the quarter weak, end of the quarter quite strong in Italy. So I would it's rather the Mediterranean countries than UK. UK, we are we have continued to have a strong position. And Our estimation is that we are performing better than the overall market. All right. That's very helpful. Then this cash adjusted price that you paid for MAPELINA, I mean, that seems very, very low. Is this an indication of what we should expect going forward? Or was this a particularly attractive price tag from your point of view? We acquired Papelina for SEK 55,000,000. But in that price. We also paid for the cash, which was almost SEK 21,000,000. So that leaves us that we paid SEK 35,000,000 then. And we paid in cash, we paid SEK 26,000,000 and we also had adept to the previous owner, which we regulate or we pay after quarter 1, the debt. So I don't know if that answers your question. I mean, I think you have earlier indicated that the Patalina had about SEK 45,000,000 in sales and Maybe 10,000,000. So compared to that, that seems like a very low acquisition multiple. And I just maybe just wanted to confirm to get a sense of we should expect going forward. So I mean, I'm sorry. No, I would I think I I understand where you're going, whether this is a combination of many factors, but of course, this is a fairly small company as well. That all so this is I would say, this is lower level of spectrum we can expect acquisitions going forward. So I would not see that this multiple or level is the one that other add on acquisitions would be at. But I hope you can you answer that. Yes, maybe on that topic, if I remember correctly, then when you acquired Wallendecos, that's relatively recent. So If memory serves short, I think you paid maybe 5x, 6x EBIT for that acquisition. Good afternoon. And we actually paid in the similar lever to EBITDA to as with Papalina. Okay, sorry. We got it over. Then these directed consumer efforts, you mentioned that you are now launching even Borastafer in Sweden, so that you're starting to come directly to consumers. I think the last I checked, if I would as a consumer order, I would still have to pick up the wallpaper from a retailer. Is that way going forward as well? Or will you have a sort of a full blown e commerce offering time. No, we have not launched it yet. So we will have a full blown one, and that will be launched during June. So the consumer can decide themselves where they want to have it delivered to their home or to their, I don't know, to their office or anywhere else. But it will be a full blown, as you say. And what are your traditional retail partners saying since Borastafer has such a high market share in the Nordic countries in Sweden. So are they voicing some concerns about this? Or was it? I mean, the discussion we have with the leading retailer chains in Sweden, it has been and I mean, they have been endorsing this and understanding the logic in this as well. We have to be present with Borosta Peter where the consumers want to buy us. So we are we will act as, how should I say, like a price umbrella as we will only offer our products on the recommended repay price. So we are we have had this discussion or we had the discussion with important players in the Swedish market since end of last year. And we have been pretty clear that this is The main reason for this, for our doing this is to build our brand even stronger. But then, of course, we will all and collecting insights and information and on consumer behavior and taste and so on. But of course, if a consumer wants to buy directly from us out of convenience or time constraints or something like that, they can do it. So we are We have been open with this for half a year in the discussion and so on. And If this would have been done 5 years ago and or 6 years ago or pre COVID, it would have been another game, but so many things have changed, as we all know. And I think the pricing will probably have to be similar to what the retailer is offering. So what have you set or what kind of expectations do you have for margins from your direct to consumer sales? Can you sort of cut out the middle, ma'am? Margin is one thing, but that will, of course, be improved when we have it directly. But we will also have additional costs related to logistics and and transport and packaging and so on. So the net effect and IT structure, so there will be certainly we will be we are making quite a lot of investments around But with this being said, we are not doing this because we think it's a bad business for us, of course. But again, it's about building brand. And we have done consumer studies where we have realized that consumers expect it to be possible to order directly from us. But we have to invest and bring some additional service to it that also costs a bit, but it will be a healthy business for us. You can see from the I mean, you know that the majority of the business that we are doing in the Nordic region today, that is for Osta Pertel. And we are on a healthy adjusted EBITA margin today, And we expect this business to contribute, but it will we don't see that it will be our We will always have diversified channel strategy in any market, including the Nordics. It was a long answer to a short question. No, that's fine. And I have a few questions left, but maybe I will Operator, if someone else wants to pause the question, I'll get back to you in queue. Thank you. Thank you, Kari. We currently have no further questions. We have just got a further question registered from Karri again. Go ahead. Your line is open. Yes, thanks. All right. A few more short term or the sort of background query. First of all, you mentioned the hospitality and the offices and that you have started to see some business on that category. How much of that is has historically been of your total sales, business to business customers. I would day that it has been below 10%. Okay. And that probably applies to Papalina as well. Definitely, Pavlina. Pavlina is mainly a residential has the residential consumer market. So this really having we have done some Papelina has done some has some hotel shales that only have Papelina, but the cruise ship order was the first. It's mainly Wallendecko and Colonsam that has a portion of the business addressing the hospitality segment. And then if we look at seasonality, so Until now, we have had limited financial information available, but now we have some quarterly numbers. But it seems that the Q4 and the Q1 are yours, usually stronger quarters. So should we expect roughly similar seasonal pattern for 2021? And does Papelina have a similar kind of seasonality in its sales. Overall for the company, it is like to say that historically. Q1 and Q4 are slightly stronger than Q2 and Q3. We don't the pandemic effect and so on, how that will affect it. But apart from the pandemic, we don't see any signals that this seasonality that we have had will change. For Papelina specifically, Ole? Yes, the Capalina has been, I would say, it is almost a quarter per quarter, very much close to 25%, so not that much seasonality. Last year was a bit particular, but looking at 2017, 2018, 2019, It's very, very similar. So when the outdoor season starts in Europe and North America, and the rugs are moving outside and the demand. And so it's even less seasonality than we have with the wall taker business, if you like. All right. Then few smaller or more detailed questions. The you have now 3 quarters where your EBITA margins have been clearly above 15%. Is there anything I mean, okay, so maybe specifically, how much in terms of government grants. Do you have in your sort of 12 month numbers? And was there anything in the Q1? Parekh. Perio, no, in the Q1, we didn't have any. Last year, we had in total approximately SEK 3,000,000 SEK 3,600,000,000 I think was in there, which we are Yes, the net we received SEK 3,400,000,000 I think, but we paid back already some of it. So it's call last year. So it's SEK 2,600,000,000 last year. And we are starting to pay back from a cash flow point of view what we have received in VAT and yes. So 2.6% is a net effect last year. All right. And then finally, two questions. Firstly, about gross margins. They were down 1 percentage point compared to the Q1 last year in spite of higher sales. So what's behind that? And then do you have any IPO cost that you will be charging into the 2nd quarter numbers. The gross margin is it's also affected by the acquisition of Aphelina. Slightly lower gross margin than the other companies. So that is a mix effect, you could say. That's a big the main explanation why the gross margin is going down. Yes. And any IPO costs still to be charged? Or are there Yes. We have not seen the full charge yet. In the quarter, we had 5.3 in total. Most of that is coming from the Nasdaq. But we still have a few more a little bit more to come in quarter 2. But not more than SEK 5,300,000, so No, no. I expect it to be between SEK 1,000,000 to SEK 2,000,000. All right. That's very helpful. Thank you. Those were all my questions. Thank you, Cari. Thanks. Thank you. We have no further questions. So I will pass back for any closing comments. No further comments here. We're happy with the quarter, but we are now geared up to in the Q2 to perform well as well. Last year, the Q1 was a little bit affected by the high demand back, but it was in the Q2, as you know, We had a took a bigger hit in the market as many markets were really closed down. But no further comments from our side. Thank you.