ALSO Holding AG (ALSN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining ALSO's conference call on the full year results 2023. [Operator Instructions] At this time, it's my pleasure to hand over to Gustavo Moller-Hergt, CEO. Please go ahead.

Good morning, everybody. Thank you for being here [indiscernible] press conference. I think the most happy people will be my people. No, they don't know my people. They are great professionals, and we saw that last year. I will share some numbers with you and trying to go a little bit deeper, not as we are going every day because, otherwise, we will stay 2 days here together. To get a little bit insight of what happens last year, I want to share what is the management summary of last year. Normally, we don't talk about turnover. It's like that because they are coming and going. But last year, we had an impact in H2 that we would see afterwards was tremendous. But the great issue here was the capacity of the organization to react to reduce costs. I'm showing the resiliency of the business. We are going there afterwards. And we work on -- the group work on two issues. On the other -- on the one hand, to improve EBITDA with the conditions we have. And on the other hand, we want proof ROCE is reduced. Because at the end of the day, you are having customers which are busy enough, but if you have a problem with the customer that he is not able to pay, you destroy the result of the year in a couple of days. And therefore, it was a trade off constantly, constantly moving. And at the end, I would say that was for me, personally, one of the best years of the company. This ability of reacting, this ability of switching I'm not saying no, but I cannot change the issue in Ukraine. I cannot change the political issues in Germany and Poland. The organization was able to react in showing the resilience, and we will go inside of that. Next page, please. I think for the first time in my press conference, I will go to one issue here is turnover. You see the decline of the turnover. We are talking about roughly EUR 1.44 billion turnover in the year, okay? The nice issue, if you see the 3 business models, you see an improvement in service. That is coming especially through the cloud, especially through the cloud. And the amount of unique user when we put on that, and that is an excellent base for the future because without a functioning cloud platform that is and only for your information, is utilized by different people around the world because we are selling that as a service. This amount of seats around of the world are not included here that are on top. But we said that we are not managing the seats, and therefore, we are not reporting this, okay? And one thing more, that is the base for future growth, but not only the only base, we will go deeper afterwards. But let us look at the turnover and the developing of the turnover in the second half year. Please, next slide. Look at the numbers. If you see, there is -- I wanted you to understand this chart. It's important to understand it. The top is the developing of the sales in the first half year and the second half year. Then in the middle is developing of the sales in consumer area for first year and second half year. And in the bottom is the developing of commercial business in the second half year. Okay. If we see the numbers, you realize that in consumer in the first half year, we were missing already EUR 500 million. It's like that. Why we didn't say, "hey, that will be repeated in the second half year," because maybe I can remember to everybody what was said outside. Consumer is coming back we will have a good performance in the second half year, and you can read the reports of every vendor in the second half year and in every organization. Okay. Nobody was expecting here that we have a small issue in Israel at the 7th of October of this year -- of last year, which is sad and pity, but it's creating, how you say, a reluctancy to buy new stuff. Actually nobody was thinking that we will have a disorder into big economies like the German economy and the Polish economy. And that is our reality. I cannot change it. What the organization was able to do is knowing what is coming and happening it needed to reduce cost. And you see that afterwards, I think Ralf will show that. I want to say thank you for Ralf, he is not more our CFO, but he is responsible for the numbers in the first 9 months of the year of last year, and therefore, I asked him to come because there were people saying, no, there was something wrong there -- no, no, nothing is wrong. We are friends, and he's supporting us, and I like that, and he will make part of the presentation afterwards, okay? You will see that we increased the restructuring volume from EUR 4 million at the beginning to EUR 10 million. That is like that. The nice issue the organization was able to react very fast. What happens in the commercial business? In the commercial business, we had a very good first half year. Flat if you want to say a little bit higher. But the second half year was a loss of more than EUR 300 million, and that is profit out of business. That is a reality which we can discuss it to the right, to the left is a reality and especially coming through Poland and Germany. And you can see that in the annual report, page is at the end, and you have 4 countries and developing of the 4 countries turnover, and Netherlands is either there. And that is what we said it's pity. Important is that you have a structure which is able to react to some changes like that. The issues in Poland and Germany, honestly, we see a positive for the future because Germany showed end of the year that we have right system, separation of powers, which is functioning because the government, the executive said, "I am taking the money from this part." It's not that we didn't have money or the country didn't have money. We take the money from here and the right system said, no, you cannot do that. As I say, [Foreign Language] because that means the democracy is functioning. It's functioning. The same issue in Poland because nobody was thinking that the government will be replaced. And what these guys are doing is incredible. And therefore, we see these changes very positive, not only we because if you imagine that Intel is investing a couple of billions in Poland, and they invest already a couple of billions in Germany that small companies like Tesla are already running in Germany and small companies like Microsoft small, it's ironical. They announced a EUR 3 billion investment in Germany. Why? Because they don't believe in the economy? No, because they believe about the resiliency of the economy. The people are there. And that is what is giving a good move for the future. Okay. Let us go one back. One back. If you see the EBITDA of EUR 280 million and EUR 247 million, is okay, for this turnover at the same margins. It looks too sexy. If we go to the details and Andreas will share with you the details. There are a lot of investments there in the EUR 247 million for the future. But let us remember, when was the year we had EUR 11 billion turnover, roughly was 2019. And why didn't go back and look 2019 was EUR 10.8 billion. And the EBITDA was EUR 198 million. We have now roughly the same revenue but with EUR 50 million more EBITDA or 25%. And I am not even reporting -- I am not making changes about reported and clean and EBITDA reported like it was in 2011. 50% improvement is support to the organization, no discussion. I don't know too much companies within these last 4 years with Corona and not corona and without acquisitions, or big acquisitions made a 50% improvement in the EBITDA. Okay. If we go a little bit deeper, we know that in this EUR 280 million EBITDA, there was EUR 20 million one shot, and we were transparent -- or transparent because very transparent is like a little bit pregnant. It's impossible. You are transparent or not. You are pregnant or not. Okay. We were transparent in saying, hey, this EUR 20 million is coming from one shot that we sold Augsburg warehouse, okay? The operative EBITDA EUR 260 million and we must compare this EUR 260 million, but with a turnover of EUR 12,563 million, that means that we were able to improve the margins and to improve the result of the company with chunk of less turnover, EUR 1.44 billion. But it's great. It's a very good base. To make the same result of EUR 247 million, with the margins of 1.8 of 2019, the turnover should be EUR 13.6 billion. And I'm making only some remembering that everybody is in context about what we are talking, okay? I'm talking about reported. Now going deeper, Andreas will show us what were real improvements. Andreas, please.

Thank you very much, Gustavo. Also welcome from my side. It's great to have you here. As Gustavo said, I would like to give you and share some insight about the EBITDA, what kind of effect impacted our EBITDA. So for that, again, let's go back to slides. As Gustavo already said, we had EBITDA of EUR 280 million in 2022. EBITDA of EUR 247 million in 2023. The same numbers. You will find here on the very left-hand side, that's the really big bar and the EUR 247 million. So what are now the elements that really impacted our EBITDA to make it a little bit more comparable? Well, the first thing to mention is on the left-hand side, we have a big bar of EUR 20 million. Gustavo just touched it a little bit a minute before. That was an opportunity in 2022. We had a warehouse in Germany, which was not operationally used. And we took the chance to sell this warehouse with a profit of EUR 20 million. So this is what Gustavo was just referring to. It's warehouse sale. It's a really onetime opportunity we had in 2022, which improved back then our EBITDA. So without that impact, the EBITDA would have been EUR 260 million. So in the middle here, you see a lot of the other impacts I would like to quickly touch. First of all, there are 2 elements. It's currency and acquisition effects. I mean you know it as good as I do. Currency, it comes and goes, really depending on macroeconomic impacts and scenarios. So sometimes you win some, sometimes you lose some. On the acquisition effect, it's quite the same. So it really depends on the timing when we get approval from the authorities, from governments when we can acquire companies. So this is something we barely can influence. So sometimes, as we said, you win on the acquisition side, you lose a little bit depending on the timing. So what is really the second key impact which we can influence is the restructuring effects. Here, we have a plus EUR 4 million in 2022, which means plus. In this case, we constantly launch initiatives, small initiatives, in various countries where we try to optimize our cost structure to become better in our processes, we call that operational excellence. And so in 2022, we had invested in our operational excellence, which means it comes always while the investment is with a future view where it gives us a better cost structure, it has an impact when we do the program causing some costs of EUR 4 million. In 2023, we announced a bigger restructuring process -- program in Germany, which on top to this, let's say, baseline of EUR 4 million we had in 2022, added up EUR 4 million cost in Germany, first half that we announced and there was in the second half year because we improved even this operational excellence. So it costed us again additional EUR 2 million, then leading to restructuring effects of EUR 10 million in 2023. This is really the key message on this is when you come to the really middle of the slide. You can see a comparable operational EBITDA, which was EUR 256 million in '22 to EUR 257 million in 2023. That's an absolute EUR 1 million increase, but I think it's more important to notice that the operational margin, and this was already mentioned by Gustavo, it increased from 2.0% to 2.3% which is really a tremendous success of the organization, I would say. And just Gustavo will start with some numbers game. As a CFO, I would like to continue. Just imagine last year's revenue of approximately EUR 2.5 billion. If you multiply that with our operational margin of 2.3%, we would have ended up with EUR 290 million EBITDA approximately. And I think that is really something to look for. So now I would like to hand over to Ralf, who is giving you some insights on our cash position and ROCE.

Thank you, Andreas. Welcome also from my side. Good morning, and thank you to Gustavo and Andreas for inviting me here. It's a pleasure to be here. And I will explain this chart where we are showing the development of the cash of the other group last year. And first, let me see to the free cash flow, which is roughly EUR 350 million, which is new record for ALSO, so it's the biggest free cash flow out ahead in the history. The next biggest was EUR 250 million some years ago. You may say, okay, it could be a little bit easy in a time where the turnover is reducing to meet better cash flow because the net working capital, of course, may -- with maybe reduced also with reduced turnover. But also, as Gustavo explained in terms of operative results, the same comes to for net working capital because now it's easy to look back and say, okay, that wasn't the reduction of turnover. But during the half year 2, of course, it was at the cue where we will end up. And therefore, the disposition and the stock was quite hard to manage. And therefore, the team made an excellent job in situations like is really showing if the instruments are working and monitoring and the details, controlling of net working capital, especially stock was really working perfect. And let's say, the reduction of the turnover may have an impact of EUR 80 million to EUR 100 million of estimation. And you see the at least it's coming from the optimization. And also the EUR 80 million to EUR 100 million, you have to earn that based on good management. Based on this positive free cash flow, we were able to increase the cash position to EUR 660 million, which is also a new record in other time. Hence you have to remember, what you see here in financing cash flow that's in that year, we also spent EUR 50 million in the buyback of shares. We spent EUR 50 million in to pay back some financial debt and we paid out EUR 60 million dividends. So that is the financing cash flow. At the end, based on all that, we were able to increase the royalty to a level of 25.7%, so significantly above the target of minimum 20%. That's about the cash. Thank you very much. And I hand over back to Andreas.

Thank you very much, Ralf. Yes. As we heard, we have a very strong cash position. And I think strong cash position give us a lot of opportunities. This strong cash position, not something new we already had that in the past, we even increased it. So in the past, what option did we have? For example, we did a very good position to start a share buyback program of EUR 100 million, which we launched in August '22 and finalized in July '23. And on that, purchase of own shares, we already increased the value of 44% or almost 50% in what we invested. So why not to consider that also for the future, again could be a possibility, because of strong cash position. And even if you do that, we still have enough strong cash to further increase the dividend. So the proposal from the Board of Directors to the shareholder meeting in March will be a dividend of CHF 4.80. It is the 12th increase in dividend, subsequent dividend and improving our great track record. So Gustavo, please.

Okay. One issue to the turnover can you go back to the second slide, I think? Third, next one. You know, end of the year, we had discussions with some credit insurance companies. You know that we are ensuring everything what we are managing there. And some of these guys reduced the credit limits for some bigger customers. And we took the decision to optimize the business with these customers because we don't want new shareholders to take risks, which are not managed, okay? And I wonder that you are aware about that because it's not the business went down only because the geopolitical situation. It was part of that was done on purpose. It was the management taking these decisions because we can tell stories about turnover increase are done. But afterwards, when somebody is not paying the bill. We have at the beginning of the problem and then you are having a program. And we said, "no way. No way we are not doing." And I want to reinforce that because that was showing the great management ability of the group. The second one, the geopolitical situation is unmanageable because if somebody will say here to me that he was aware that Hamas will go at the 7th of October into Israel. He must be sued because nobody was knowing that. There was a daily report, yes, which was very obvious that something is happening, but because of political reasons, nobody was hearing to this report, but I don't believe that somebody knew that. And that I think is impacting everything what we are doing. If somebody was saying to me that he knew that the Nazi Germany with Hitler government know. You were knowing issues that I was not knowing because it's impossible. It's like Harry Potter looking in black hole. Important is in organization is my management view, the ability of the organizations to adapt and to react to issues which are happening, and they are not able to manage. But not for making a sweet tea for the stock exchange, for making a sweet tea in the sustainable long term for the company. And that is what these guys are doing. I am -- it was a privilege now to work with them. because it's not obvious. Why we are so positive for the business having these numbers to go today? At the end of the day, let me say that in my words, the file is nice. PowerPoint, no power, no point. My view on that. First of all, this business which went out is coming back. It's not that it's not coming back. I was working before in the beverage industry, in the beer industry. And in the beer industry, you have the problem, if they didn't drink today or yesterday, they will not drink double today. In the IT industry different, because IT industry has innovation, and if you want to use the new AI tool, I assume you have an AI tool to look for the share price sometimes. If not, I can give you some recommendations because I am using that. But if you want to use all these opportunities, you must buy new stuff. That means great opportunity for the future. The problem I have, I cannot say you if it will be this Easter or next Easter. But in the next couple of years, will happen, in any case. Therefore, I am jealous with these guys because I'm too old to stay with him. It's coming back, and you have a very resilient company for the future. And the second one, why it is confirming that it's coming back? It's Innovation around this magic world called artificial intelligence, it's not very intelligent nor very artificial. It's a big data analyzing program, but it's helping a lot. For example, Tom Brunner, our Manager Director for Germany and Switzerland, was making last week. In our management conference, we have a management conference, we put 200 managers. 250 managers were?250 managers of the company around the 30 countries. And afterwards, we went to hear from the managers what was good, what was bad. And Tom Brunner was having a conversation with his [indiscernible], over Teams with a Copilot program and I got a report 1 second later. Incredible. Incredible. Okay. Sometimes you have a problem that if the pronunciation is not so good, like if I speak, maybe the content is not so good. I was surprised. What I'm saying is at the possibilities with this new technology, not new. With this technology, which is democratized now because it's available for everybody now. In former times, that means 2 months ago, the IT in the 3, 2 months ago, is former times. The technology was a privilege of big companies. Now imagine what is happening behind it. Everybody has access to this technology. What means that? Business. Okay, you want to know exactly when. I don't know. I was talking in the management conference or the management -- Investor Day a couple of months ago. The sixth issue in this industry every 50 years, a big pragmatical change is coming. The first one was '78 or something like that. Was the democratization of utilization of PCs because at this time, you had the first PCs. You remember? No, you were too young for -- I remember that I was using what is the name of [indiscernible]? I was using [indiscernible]. The second big pragmatical change in this industry was 15 years later, roughly 15 years, was Internet. You remember? Maybe now you remember, I remember when I sent my first PowerPoint page over CompuServe was the name of the company. It took 6 minutes, 1 page. And it was beep, beep. Maybe you heard about that. You were too young for that. You don't know. You are, how we say, Internet aborigine I am aborigine with Abacus. Okay. 15 years later, it was democratization of mobile phones. Maybe you remember it was the iPhone. And imagine what happens in the end of [indiscernible] was important. I have a feeling that we have the same situation now. And that is great, and therefor Andreas I am jealous because I'm to old to get that. But okay, maybe as an old guy, I will use that in my pension. Okay. There is a third issue which made me positive of this -- of the development of the company is the ability of the management to react, to adapt. They have the tools, they have IT, they have SIP. They are constantly investing in that in platforms sometime. In these numbers you have a lot of investments in different platforms. because you must consent is not that I bought something and that thing happens constantly because the technology is constantly changing. If you don't invest, you lose importance for the customer. But last but not least the pipeline we have with acquisitions, which is great. I cannot be specific on that countries. And I know, Andreas, you want to know that, but it's impossible. It's -- I cannot share with you, but the pipeline is full. And the company and the team -- not the company -- shows the ability for integration. A lot of these numbers is because of the ability of integration. Therefore, I foresee a very, very bright future for the company. Andreas, please share with us. You are the new gen.

Yes. Thank you very much. Taking up the ball from Gustavo about the good outlook in the future. So our we are convinced to change our guidance. So again, in 2023, we had EUR 247 million EBITDA and the brilliant ROCE of 25.7%. So now for next year or for the running year, 2024, we aim for an EBITDA, which is in the range of EUR 265 million to EUR 305 million. That's the same guidance we gave last year, but we increased the guidance for ROCE from 20% or above 20% to above 25% due to our strong capital management and in the belief in the EBITDA of 2024. For the midterm, which means 3 to 5 years, we see an EBITDA in a range of EUR 350 million to EUR 450 million and the ROCE even higher than 30%. Of course, if there are major acquisitions, Gustavo just told a bit about the pipeline that would, then be considered again. But this is as on a stand-alone plan the ROCE target we have for the future 3 to 5 years. So thank you very much.

One comment to that because I know how complicated is to interpret the midterm targets on that is 3 to 5 years. In 2019, we gave -- 2020, we gave a target with percentage of EBITDA margin. We will start already 2 years later. I want that you are clear. We are not [indiscernible]. We are continuing [indiscernible] what we are saying. And we are foreseeing that this future is coming. Thank you very much for this last 13 years -- 14 years? Was great privilege to work in the industry and the operative. That is my last one. Believe me that the initial generation is already prepared is there. We were discussing. I want to see already the next EUR 15 billion, EUR 20 billion on the table. Thank you for your questions, please.

[Operator Instructions] Anything to start off from the room? No, maybe they are in for the [ gib fillet ]. So first question, which is regarding the past, when were the structuring costs of EUR 4 million 2022 recognized in the first or the second half of '22 in the first one?

In the first one. I saw that is your question.

Indeed, it was.

The first one.

But there are a lot of questions also from Claude and the pity you're not here today, Claude. So the first one, looking at the operating momentum in 2024, should we expect already to see EBITDA growth in H1 '24? And should we expect a return of growth for supply and solutions in '24?

Let me say that it's a tricky question because I don't believe that somebody can answer that in a professional way. And then I tell you why, nobody was expecting February 2022. Nobody was expecting October 2023. And therefore, what we said in '22 and maybe you remember is we are opening the bandwidth because we don't know what will happen. And if somebody is able to say that, I will congratulate him, but I will not believe him. Was it impossible? Do we know if it's a third war coming in the next couple of weeks? It's difficult to say. What I can tell you, if something happens, we have the organization to manage it from the EBITDA and ROCE perspective in the negative or in the positive way because we have capital to invest. That's important. But if you want to have a, I say every time Harry Potter here to see in the future, we are not [indiscernible]. Definitely. And if you want to hear something else, it's okay, but I will not recommend you to believe it. Invest in organizations and that is what I am doing privately, which have the ability to adapt soon. And we said that a couple of years ago, maybe you remember, the amplitude and frequency of changes is getting bigger and bigger. You remember that? That was in corona times. If you will remember, I can tell you which page of the yearly report. It was my letter to the shareholders. The amplitude, that means the intensity, and the frequency the speed of changes is getting bigger and bigger. And at this time, we were talking about corona. We were not talking about war. Now after 2 years, we have 2 new wars in the world. Do we know what the Chinese government will do in Taiwan? Or let me ask different, when? Do we know what is the impact here? We know which buttons we must press that we know. Okay. Sorry, I don't want to [indiscernible]. Maybe exactly the opposite will come, and I told that last year, and I make a nice picture. Imagine Mr. Biden kissing Mr. Putin, we will have an incredible developing of the market because everything, all the tensions we have and all the discussion in relatively small countries like Germany and Poland will become not very important, and we will have trust of companies of consumers to invest. And therefore, I'm saying let us be able to react but not to say, "Hey, I know exactly what will happen." Sorry, Claude, I cannot say you something, I don't know, and I assume you don't know.

There is one question in this context coming from Andreas. What will be ALSO's direction of geographical expansion given the uncertainty in Eastern Europe?

Given the uncertainty in?

Eastern Europe.

Andreas, let me say that in my words, I don't think we have an uncertainty in Eastern Europe. We have an uncertainty in the whole world. We don't reduce that to our region because we have a global conflict. That is number one. Number two, the geographical expansion is clear. We are not moving from the approach we had a couple of years ago. First of all, we are having some, I would say, black spots -- I am not able to use the word black because I am black, sorry. Spots where we are not, I think I'm learning from [indiscernible]. Spots where we are not working in Europe. And yes, we are working to do acquisitions there, no discussion. Then we announced U.S., we are moving to the U.S. It's no discussion. It's not only an issue of business opportunity. It mainly an issue of survival because if tomorrow, mega will come back, we were not surprised that American companies will make only business with American companies. And for that, we need a solution, and we work already on that last year. And the -- we believe, and therefore, we have already people working there that in North Africa, we have a great opportunity under consideration of compliance rules because that is one of the issues there. I was leaving Cameroon 2 years, therefore, I know a little bit how complicated it can be. I learned there what is the word joint adventure, and I learned the principle of a repository at the beginning, the European partner had the money and the African partner, the know-how, after 3 years was exactly the opposite. The European partner had the know-how and the African partner demanding. It's a complicated countries where we must take care, but we have the experience and we have people already working. They were working in Africa now, and we have either a small operation there, we are moving without stress without pause.

Stefan Gaster Stifel. Predictions about the future are difficult, yes. But simple question from my side. Can you just share the basic assumptions how you arrive at your mid-term targets? I'm not aware if you, in the past shared some assumptions on this side. I mean, basically, just upgrade it bit.

Yes, I can do that. I cannot give you -- I cannot -- I can't give you the numbers, but I want to avoid tomorrow discussions if there is EUR 5 million more coming from there or from the other side. It's quite simple.