Earnings Call: Q2 2021

Aug 23, 2021

Thank you. Good morning, everyone. My name is Ole Twentz. I'm the CEO of Ambulance Group. And presenting as mentioned today is Harjeskug as well. Next page, please. Obviously, we will go through the Q2 report, but I, of course, want to take the opportunity to give you some background about the Ambulance Group. I mean, we are a group that acquire, owns and develop strong brands or brand houses, as we like to call it, in wallpaper, textiles and rugs. We have a certain focus or large focus on developing premium brands and even up to luxury. Next page, please. We have today a competitive brand platform, which we want to develop further. Today, we have Borostapiete being the largest brand, then followed by Kol and Son, Wall and Decor, Percewalt and Papalina. Wearing wallpapers, rugs and textiles and other categories where we can see that we can utilize and develop our fantastic patent archive as well. Next page, please. Our 3 strategic focus areas is, 1st of all, is to leverage on the premium development in the market where we see market growth of at least 5% in more or less all markets around the world. Secondly, it's to have further international growth, mainly focusing in Europe on and some selected markets in what we call rest of the world. But we also want to add the organic growth with the add on acquisitions. The third part is to develop close relationship with consumers, but also A and D's architects and designers. And we do that by launching our own direct to consumer into new geographies, which we have done now during this quarter, but also further investment in different digital tools. Next page, please. Some Q2 highlights then. We delivered this quarter as well strong profitable growth, exactly in line with what we have communicated and discussed during the IPO process. Our net sales is up 33% versus last year, which I can say we were expecting a strong quarter here as the market last year was very much impacted by pandemic closedowns lockdowns. But we are really happy to see that we can also we also grow versus 2019, which was more of a normal year. So we had a we can report the growth with 60% compared to that year. Our adjusted EBITA is 14.3%. I will go through this more in coming slides. We could see strong demand in more or less all markets. There are some few exceptions around the world which are important markets for us. And that continues to reflect the increase in home related spending where people spend more time at home, working from home, and they want to develop or invest in their homes. But we also in the market could see a certain built up pent up demand as markets in Europe were opening up. During the quarter, especially in April, but also somewhat in May. We had some supply constraints and shortages. However, we managed to overcome that. And we had some really strong there were some really strong price increases temporarily, but it's falling down now. Another very, very important event during the quarter was that we have appointed a new Managing Director for our Italian brand, Wallendeco, Cristiano Tomadini. And he brings a lot of experience and network, a lot of Patzione into the business, and it's with us now since beginning of May. Last but not least, I want to mention also that the 1st June, we launched the Borastarpiete digital flagship store with its own with its own e commerce here and with Sweden being the first market. On the right side, right hand side here, you see an installation we made in Italy in London with Wallendekko. And we are starting to see some hospitality development in many important markets for us. So it's not only residential. So contract, as we call it, is slowly coming back as well. Next page, please. And over to you, Baerst. Thank you. Pariksku here. So our demand continues to increase. Our net sales for the quarter too was SEK 160,000,000 compared to SEK 120,400,000 same quarter last year, which is an increase, as Ole mentioned, of 33%. And the organic growth in the quarter was 21%. And I will show you some more details on the growth on the next slide. Our EBITA ended up in SEK 22,900,000 compared to 16.7% same quarter last year, which is an improvement of 37%. And also our EBITA margin, as Ole mentioned, ended up at 14.3% compared to 13.9% 42% last year. Our profitability is driven by the growth, but also an increased share of premium sales, which represent high gross margins. In total, we don't have any major currency impact on EBITDA level. We have a negative impact on the sales, But we have a positive impact on the cost side, which neutralizes itself. On the cash flow side, we ended up on a positive cash flow of almost SEK 18,000,000 in the quarter, which is lower than last the year's same quarter. And that is explained by the delayed payment in Sweden, the tax payment that was related to the COVID-nineteen support from the Swedish government. Yes, next slide. So some details on the growth then. As explained, we ended up at SEK 160,000,000 in Q2 this year. The growth came from acquired Apelina AB representing 13.5% of the growth and organic growth as explained already 21.1% and a negative slightly negative currency impact on top line. Going into some details in our segment then, which is Nordic, Europe and Rest of the World, starting with Nordic. Our net sales ended up at SEK 75,000,000 compared to SEK 73,900,000 last year, which is a growth of 18%, both organic and from Papelina then. Our adjusted EBITDA ended up at SEK 9,500,000, which is slightly lower than quarter 2 last year. And that is last year, we had a COVID-nineteen support helping last year. But in this year, we also see an increase in input materials for our in our production, temporary input increases as we see it. And also, we have spent we have increased spending on our digitalization. The share Nordic represents 47% of our group. And the level of premium is 29, which is an increasing trend in the Nordic region. Last year, it was 21%. Next slide, please. Europe then, here we see net sales of SEK 65,000,000 compared to SEK 45,000,000 last year's quarter, which is an increase of 43%. Its we see a recovery in most big countries in Europe from the COVID-nineteen pandemic. Some hit last year's quite hard. But we also see positive effects from Papelima supporting our growth in Europe. Our profit adjusted EBITDA ended up at SEK 11,500,000 versus SEK 2,600,000 Q2 last year, which is, of course, driven by then the growth as explained. Europe represents 41% of our turnover, which is an higher share compared to Q1. When it comes to level of premium sales, it's SEK 82,000,000, which is in line with last quarter Q1 and same as Q2 last year. Then in rest of the world, here we see very strong sales, SEK 19,500,000 in the quarter versus SEK 11,000,000 due to last year. It's also here general recovery from the COVID-nineteen effects. We see also an increased demand in U. S. And also in the hospitality segment. And also Papalina is strong in the rest of the world, and we also have nice growth with Papalina there. The profit, small numbers perhaps compared to the other 2 regions, but an improvement of 46%, which is driven by then the growth the acquisition of Apollina. Rest of the world is representing 12% of our total sales, and the level of premium is SEK 84,000,000 in the quarter 2. It was SEK 72,000,000 quarter 2 last year. So leaving the segments, I will finally update to you where we are on our financial targets. Our first target is about growth. We say that we should double our sales from the IPO date to 2025, we should double our sales to SEK 1,200,000,000. That means approximately 15% growth per year. For the Q2, we saw an increase of 32.9%. And for the first half year, we have a growth of 23.6%. On the margin, our second financial target, we say we should be at least at 15% operating margin. The quarter 2, we had 13.3%. Adjusted operating margin or EBITA margin was 14.3% in the quarter. And for the first half year, we had a margin of 13.1%, and the adjusted margin was 15.1%. Our net debt target is we should not go above 2.5. End of quarter 2, we were at 1.1. And the last financial target, our dividend policy was not the PIKFO in quarter 2. The next slide, please. All right. Thank you. So summing up the highlights them from for the Q2, but also for the first half year then. So we're delivering a we are delivering a strong profitable growth versus 2020 2019. We see a gradual and improved activity level from hospitality, which means hotel, restaurants and cafeterias. We have appointed and Christian has joined us since 2nd May as the Managing Director for our Italian company, Wallendecco. And we have launched VorotaPelt digital flagship store in Sweden, with its own e commerce as well. So looking at the 1st 6 months, we are as Pal said, we are early on. But we are on par and in line with our 5 year plan to double our revenue until 2025. We see good and strong demands in many markets as people are spending more money in their homes. We have seen that for the last couple of years, actually a couple of 2, 3 years. But it's not only in the homes. We also see stronger activity in corporate offices as well. When people are then coming to the offices. They are also now being invested in to make to deliver a more home like environment. In the quarter, it's fair to say we also saw a certain built up pent demand in the quarter. But overall, we are remain comfortable and with the view of the overall demand for the category itself in interior decoration. And I'm also really happy to see that we have a very high activity level in digitalizing our offering, everything from our production footprint to the way we are developing different tools to support our consumers, but also customers out there in the market. And last but not least, we are working hard now to improve our sustainability offering to make our already green offering even greener. And I look forward to report that later on in the 3rd or Q4. With that said, that was all from our side in presentation. And we now go over to questions if you are. Thank And so far, we have one question coming through. That's from the line of Kari Vimpart of SHB. Please go ahead. Your line is open. Yes, thank you. Good morning. It's Kari from Handelsbanken. I have a few questions. Maybe if I could start with the talked about the input cost pressures and logistics costs. And I think you also mentioned in the report that you have implemented some price increases for your products and you expect to continue doing so later this year. Can you give us any sense of the magnitude of these price increases? The price increases will the ones that we have implemented and then the ones that will come later on will be in the around 4% to 5%. So that's the total impact from these 2? That increase of the end user prices, yes. And that's when you have implemented the second Price increase. And the prices after that is 4% to 5% higher than it was A year ago. Yes, okay. All right. Then the this input materials that you discussed, can you remind me of how much of your cost of goods sold is input materials? It's around 60%. Okay. 60% of the cost of goods sold? Yes. Okay. And you saw a surge, but then those prices are normalizing or have normalized or have come down? How should we? I mean, what we saw, 1st of all, there was a shortage of certain input materials, not large not the substrates or other elements, but certain smaller ones that we need to a producer wall covering. And that those increases were up to 25%, 30%, but they were temporarily and they represent a small percentage of the total input material. They have now come down to a more normal level, but still an increase. But we are not talking about the 25% or 30%. But in beginning of April, it was really a matter of finding those input materials at all. But we have overcome that and we are we have stable supply now. So what we see is that there was a peak on very specific input materials in April, a little bit in May as well. But that has come down to a more healthier or a stable level, if you like. Okay. And then you also mentioned the UK and the sort of increased cost and complexity. So can you remind me of your setup in the UK? And how exactly do the flows go imports and exports to and from the UK that you have to now manage. And more specifically, this new setup that you have put in place. What exactly does that entail? Okay. Yes, in the UK, we have our Kol and Son brand house. In Kolent Son, it's Kolent Son brand and brand house doesn't have their own production, so to say. So certain part of it is sourced from our own factory here in Sweden. But the majority around more than 2 thirds of the revenue is sourced mainly locally in the UK. So with regard to supply to our so in our warehouse, it in the UK as well, where we supply the goods from. So when it comes to the supply to our warehouse, that has not really that has been quite okay from the all the time, I would say, or even it's been stable. What we what was the big difference for us was that the difference 31 December 2020 to supply from London to Newcastle or London to Milano was the same thing. But then overnight, Milanovic came overseas. And a lot of administrational constraints, let's call it that, when it comes to VAT and but also custom duties. And we, as anyone else, were struggling a lot to find it because logistic the logistic partners, UPS and DHL, they were not ready for it as well. So we did see we as many others saw some delays in supply in the Q1. And it has basically become more expensive to import products from UK for a customer or a consumer in France or in Germany. And but we I would say in by beginning of April, we were we have managed most of that or more or less all of it. But it has basically been more costly for customers to order piece by piece from us and from anyone else as well as the cost for supplying to those markets has increased. But we have implemented new structures and setups with the customers. And we have also and made the changes to or we have made changes together with our supply and logistics providers there. So And I wouldn't say that we are rather the opposite. We have actually received a lot of praise from our customers that we even though we were not perfect, we were in better shape than many of our competitors we realized. And another part that also impacted a lot during these 1st months of the year was that it was not only the Brexit impact, but it's also the fact that all the truck drivers that had to pass from UK to France had to be tested for COVID-nineteen. So that built up a long queue of trucks as well. And we were one of them, the companies impacted by that. Good balance. Okay. But just to clarify, going forward, Let's say that you have a French customer that buys coal and sand. Would it be possible to completely sort of take away the UK from the equation so that The wallpaper is produced in outside the U. K. And never needs to enter the U. K. And thereby doesn't get this sort of extra cost? Or will it still due to some sort of, I don't know, legal reasons, needs to be sold by the UK entity and It's a good question. That could be, of course, managed. But we are selling to virtually all customers in the UK. We are selling ex work. So it's the customer who takes the cost of this extra the logistic cost that is being implied now or implemented since beginning of the year. But so far, we have not received any demand from that side. And but that could be That's an interesting opportunity, of course. Right. Then the Nordics, You did mention that the we have talked about input costs and you talked about the digitalization efforts that you made. But if we look at the Q2 alone, how much of the sort of margin pressures you would say came from input costs and how much came from this investment into from these digital investments. And have you taken all of the digital investments in the Nordic region if we look at where the cost has been allocated. Yes. And the input material impact on the margin is not that big. It's mainly the digitalization investments. And it's the flagship store, as Olav mentioned, and also Paasch also that is the Nordic region. So the main impact on the digitalization cost is in the Nordic region. And you would say that it's you will continue, of course, making legacy investment. Would you say that the flagship store being launched in the Q2, that was a pretty heavy quarter in terms of these investments? Or would you expect them to remain on these levels going forward as well? I mean, I would in addition to what Per has said, I mean, the input material impact was somewhere between SEK 500,000 and SEK 1,000,000 in the quarter, closer probably to the SEK 500,000. When it comes to the digitalization, there have been, of course, investments that has in the quarter or in the first half years, but also increased costs. I mean, we unfortunately, how I should phrase it, the digitalization is not that you can go from one model to another. So over a certain period of time, you have increased costs because you're running parallel setups, if you like. So there will be higher cost to run this for a certain period of time. But we also I mean, as we also see healthy we expect to see healthy and we see healthy gross margins coming through, both Colin Sand and Borozta Peter. But as you also know, we are now re launching the Perswold brand and that has also added up some cost elements as we have recruited a very strong team here. We're doing that. And we are just ramping that up as we speak. Okay. And about that ramp up then, is there anything that you can share with us in terms of early traction numbers, growth? And maybe more specifically, when you sort of turned on the full blown borostapeter.com e commerce store instead of consumers having to pick up the stuff from the retailers. Did you see Any impact on sales, traction, deliveries? With Borusta, Pieter, we are so far in only in Sweden, and we started in June with Konrad san. As you know, we're only in the UK so far, but we are opening up more markets. And I will answer your question by saying we are not ready to disclose the exact numbers, but we expect that the 10% of our total revenue, it's reasonable to see that we will have that in our direct to consumer business. We are not there now, we're not there now. We're but this is what where we're heading at. But now we are what is it? It's August now. We are 2.5 months into the Voluspa Peter part. So let me come back to that when we have some more data and some more stability. But we are absolutely convinced that this is the right initiatives that we have taken here. All right. Then final question on related to Capalina. So when should we expect to see some sort of cross selling to start to take place on different platforms? Because When I now look at Papelina's website, I don't see anything from that would suggest that it's owned by Ambulance. They don't sell your products. Of course, it's very early, and they don't have any of your designs that they are using. So what kind of plans do you have in terms of cross selling going forward? When it comes to cross selling, what you could well, could expect to see is cross selling in terms of product categories. But FQC is cross selling in terms of product categories. But we don't want to blend up and mix up the brand. So Papalina it's focusing on that brand offering. We will not start to sell Borosda Pieta from Papalina or vice versa. But you should probably you can probably expect to see cross selling in terms of categories sooner than later. And what does that mean, cross selling of categories? I mean, that we for instance, that Apelina might or Borota, Peter, might start to have an offering outside of wallcovering, wallpaper, maybe in certain textile or you can have or rugs or you can see Papalina doing wall covering. This is what I mean. But we want to you know, what is really important to in order to understand us is that we want to develop brand houses that are very focused on the brand operate the branded offering there and do what is right for the brand. So this is what I mean. We will not start to sell Papelina from Wallendeco's homepage. Definitely not because we want to deliver develop and have strong unique brands with their own stories there. So the categories where you should you can expect to find different product categories within the brand. In Papalina today, we have the rugs, of course, but we also have blanket and other categories as well. So we are with the same design and the same thing you should expect to come from Morozta Peter, for instance, later on. All right. And then a second final question. So Of course, the first half of the year has been pretty busy for you with the IPO and then the demand picking up and the events that you mentioned in your Q2. But what will be your focus areas now for the second half of the year? First of all is to continue to the Liber on our strategy to develop and deliver organic profitable growth. But then needless to say, add on acquisitions are very high up on the agenda for us. We have now leveraged that is 1.1 as Parekh explained here. So we are in several discussions here. So we that's very, very important for us to find the right add on acquisitions. Maybe we will not necessarily find it as soon as you or someone else from the financial community. But we when we find the right company, we will see if we can find an agreement required. So acquisitions is high on the agenda for the second half. All right. Thank you. Very helpful. You're welcome. Thank you. Thank you. And as there are no further questions on the phone at this time, I'll hand the floor back to our speakers. All right. Thank you very much then. And thanks for lots of good questions there, Karl. And look forward to speak to you soon again. Thank you.