Ceconomy AG (CEC) Earnings Call Transcript & Summary

For agenda items 1 and 2, I would now like to pass the floor to the; of the Management Board, Dr. Wildberger will discuss the preceding financial year and provide an outlook on the future development and events. Dr. Wildberger, you have the floor.

Thank you very much shareholders. Ladies And gentlemen, I'd also like to extend a warm welcome to today's Annual General Meeting. This is my first as the CEO of your company. I have an E.ON background. Before that, I was working in the telecommunications industry. And before that, I was a company consultant. And through all the professional stings, everything was geared towards digital transformation, further development in extremely dynamic surroundings. And especially, it was about creating enthusiasm among customers with the right solutions. And this is particularly important in retail. CECONOMY and MediaMarktSaturn, altogether, this is a traditional proud company with about 50,000 highly motivated staff. CECONOMY and MediaMarktSaturn have all it takes basically in order to play a leading role in an attractive growth market that is dominated by technology. It's an extremely exciting entrepreneurial challenge to take this company into a successful future together with my leadership team and all staff. I'd like to thank the Advisory Board for the trust placing in me as I was appointed. Ladies and gentlemen, in this day and age, which is extraordinary, our company is right bang in the middle of things. COVID-19, supply bottlenecks, inflation, all these topics are on the table. As a non-food retail company, we are really harder hit. We can not choose what surroundings we live in, we need to deal with them. We need to come to terms as well as we can. And that's exactly what we're doing. We're accepting the current challenges. We are still sticking to our chartered course. And we're also preparing for the time after. And I'm absolutely convinced that we will be emerged strengthened from the current turbulence. And one thing after another, let us first look back on the past fiscal year, which was 2020, 2021. To cut a long story short, the past fiscal year was a genuine asset test for CECONOMY and MediaMarktSaturn. We passed our test. Well, how did we? The first quarter Q1 in late 2020 was an excellent quarter. We were able to open our stores again. At the same time, our e-commerce business grew substantially. All in all, there was a substantial cut up effect. The customer demand was extremely high. And then came the second large COVID-19 wave. The associated restrictions were much more substantial, much profound in 2021 than the year before. It adversely impacted on our business development in Q2 and Q3. In many European countries, we had to close our stores again. In Germany and in the Netherlands we had to keep them close for up to 6 months. We had no clear opening prospects and all we could do was stay flexible and open for everything. But we stayed on track. Our business model has proved to be resilient. And to say the figures, this means that we've managed to increase our sales adjusted for currency exchange of portfolio effects by 3.8% to [ EUR 21.4 billion ]. Just to put this into perspective, this is above the level before the pandemic. Operating EBIT remained nearly constant at EUR 237 million, where it was EUR 236 million. Of course, this result doesn't reflect the basic earnings power of our company. And we can't be too satisfied now. In the context of the COVID-19 crisis, however, it's quite a remarkable achievement. Our omnichannel strategy, that is intertwining of our e-commerce business with the Brick-and-Mortar was a key competitive edge during lockdown. Online sales grew rather dynamically in the past fiscal year. Our online sales grew by just under 65% to EUR 6.9 billion. So our online business is now accounting for about 1/3 of our total sales. With our brands, MediaMarktSaturn, we're among the top 3 e-commerce dealers in Germany and among the leaders in Europe. Now how has our strategically important business with services and solutions developed? This includes purchase, a few examples, warranty extensions or repair services at what we call smart bars in our stores. For example, we are making smartphones or notebooks ready to use for our customers or repair defective devices on the spot. Now despite of the lockdown in Germany and the Netherlands, at Services & Solutions, we could achieve sales to the tune of the previous year's level, at EUR 1.1 billion. During the course of the year, that trend developed rather positively in Q4 2021 after the reopening of all stores, our sales in the field of Services & Solutions grew by 27% over the previous year's quarter. So what was so typical for the whole fiscal year was that in all countries, we're not affected or not so much affected by COVID-19 restrictions, we had high customer demand, both in Brick-and-Mortar and in e-commerce. And besides our sales, we were also able to grow our earnings. This development was particularly good in Italy, Spain and in Turkey. In spite of current problems, Turkey is basically still a growth market. Ladies and gentlemen, and check, in times like this, we've achieved quite much, which speaks in favor of the quality and resilience of our business model. With our omnichannel strategy, we're on track. We're on the right way. The market for consumer electronics is intact and it still holds a high potential. I would like to extend particular thanks to our clients who have remained loyal even in times of pandemic. But what's become really apparent was that as a team we can rise to any challenges. Our approximately 50,000 staff, colleagues from all across Europe have shown impressively, I can defy the most terrible difficulties with a positive attitude, customer orientation and a passion for our company and for our products and services. The whole team did an excellent job, which is why I would like to say at this point, thank you very much. And very importantly, one just learn to deal with the immediate challenges of the COVID-19 crisis. We also achieved progress in implementing our strategy and in digitizing our business model. Before I'm going to give you a few examples, I will just briefly touch upon the financials of the past fiscal year, our balance sheet structure. And I'll start into the new fiscal year. Let me speak about earnings per share first. This rose substantially from a minus of EUR 0.66 to plus EUR 0.62. This was very much because our shareholding in Fnac Darty, which will have been subject to an impairment, was subject to reversal over impairment. In addition, our dividend payouts from our shareholdings in the Russian chain and video and METRO properties, positively impacted on our financial results. Which brings us to the topic of free cash flow. Free cash flow was particularly characterized by negative development of net working capital. You might remember this that in September 2020, we had very high liabilities, trade liabilities, as a consequence of our increased order volume in order to be able to satisfy strong customer demand after the end of the lockdown. In the reporting year 2020, 2021, we topped up our inventories quite deliberately at the very beginning of calendar year 2021. Because back then we had expected supply bottlenecks and wanted to ensure that we can make available as many of our products as possible. With these particularly high inventories, we have to face the next COVID wave and the continued store closures. As a consequence, we continuously reduced our purchasing volume with a negative effect on net working capital in the last fiscal year. So at the bottom line, our free cash flow at the end of fiscal 2021 was at EUR 233 million, which was EUR 767 million below the previous year's level. However, the described effects are now just becoming normal, they're normalizing so that for the current fiscal year, we're expecting a positive free cash flow again. Another contribution to that will be our already made investments for improving our logistics network that will help us to optimize stocks. In the past fiscal year in Gottingen in Germany, we opened a large national distribution center where we can handle deliveries directly from the manufacturers. And in addition, we've developed what we call urban hubs. These are small regional logistics centers, allowing for more flexibility and short delivery periods. To round off the whole picture of the past fiscal year, I have to say that in spite of difficult times, we've been able to strengthen our balance sheet structure. As of the end of September 2021, we had liquid funds of cash to the tune of EUR 1.6 billion. We increased our equity by 2021 by EUR 200 million. In addition, we restructured our financing structure and get it towards sustainability. We've exited the credit agreement, the loan facility agreement with the KfW, which we entered into in May 2020 and entered into a new credit facility to the tune of EUR 1.1 billion, whose price mechanism is attached to achieving sustainability goals. The lend facility by KfW has never been seized by ourselves in spite of all the difficulties associated with COVID-19. As we issued a bond successfully, we could also grow our financial flexibility, which means that our finance stands on solid feet. And we see ourselves placed very well for further implementing our strategic initiatives. So much on important cornerstone of fiscal 2020, 2021. Let us briefly take a look at our start into the new fiscal year. The figures for the first quarter are very fresh from the press, we only published 2 days ago. Just for you to be able to place our current development properly, what was the basic situation like that. That's very important in this day and age to be able to sort things out. COVID, growing inflation in the Eurozone and the tense situation in global supply chains influenced our business in October, November and December 2021 too, that is in Q1 of our fiscal year. We're basically very well prepared as we start into the new fiscal year. We cooperated with our suppliers and partners closely in the spirit of trust. And we made sure that products were available on a very high level. But we couldn't always avoid gaps in individual categories such as smartphones or tablet computers. In parallel, we successfully implemented our corporate campaigns during the Black Friday period and before Christmas. Demand dynamics, all in all, however, didn't achieve the extremely high level of the previous year. Here, the COVID associated access routes were stores in countries like Germany and Austria had an unfavorable impact. In addition, to compensate for store closures in the Netherlands and in Austria, and there was yet another topic that kept us busy in Q1. As you would have heard, our IT systems were attacked in early November, and we were a target. We responded immediately and bending over backwards, our teams and our IT partners manage in the nick of time to restore all our systems. Very importantly, we have no indication that customer or employee data was stolen. No indication. And as this question is one that keeps coming up often, no, we didn't pay a ransom, no ransom. We were able to serve our clients at any time on all our channels. However, with regard to individual services and at the interface between our online and our offline business, there was some restriction. For example, our pickup services weren't available for a number of days. So much on the basic conditions we faced in Q1 2021, 2022. And let's have a look at the figures of our business for that period. We achieved sales to the tune of EUR 6.9 billion, over EUR 7.5 billion in the previous year's quarter. Adjusted operating EBIT as of the end of December 2021 amounted to EUR 274 million over EUR 346 million in the previous year. But you can't compare apples and oranges. We had a record in the previous year. A year ago, after the pandemic-related restrictions were ended, clients spent more for private consumption than usually. Such special effects in the economy were not given in the first months of the current fiscal year. On the contrary, just as described, we had to face COVID and inflation and bottlenecks in international supply chains. So comparing the first quarter with Q1 2019, '20, that is pre-pandemic times is more suitable in order to understand how we develop and what progress we've achieved in transforming the company. That period was before the beginning of the pandemic and the economic environment was stable. Compared to that, current quarterly sales grew by 2.9% in spite of the current difficulties, that's adjusted for FX and portfolio effects. This was mainly owing to our online business. Our online sales were grown by 80% over the first quarter in 2019, '20. Considering the rough weather, our start to the new business year was very solid and substantial. Except for the countries that were hit by COVID restrictions, the course of business was consistently positive, particularly in Spain and Italy. And ever since mid-December, there's only been 1 tendency, upwards. Ladies and gentlemen, what does all this mean for our outlook, our forecast for the whole year 2021 and '22. One thing is for certain, we will have to live with uncertainty. We should all be able to face a certain amount of volatility. It's part of the new normal. So any further course of the COVID-19 pandemic is not foreseeable, neither is the development of international supply chains or the influence will potentially longer stage of higher inflation. Therefore, as of today, we need to work with a slightly rougher forecast. It's not so fine tuned. We're expecting a slight increase of currency and portfolio adjusted sales for fiscal 2021, 2022. And in parallel, we're aiming at substantially growing our adjusted operating earnings. As soon as the basic conditions allow for more clarity, we will add more flesh to the bone and provide more precise data on our forecast. Ladies and gentlemen, times have definitely already been easy in order to substantially and sustainably further develop a traditional trading company. Sometimes, you feel like in a perfect storm. But as I said at the very beginning, the basic conditions are as they are. We've shown that we can rise to challenges which become more agile and resilient. We won't be misled, and we are coherently applying our omnichannel approach. Omnichannel is the only genuine answer, the true answer to changing customer behavior and to risen customer demands -- requirements. Customers want to have the products quick in the hands, but they want to have a comfortable and attractive shopping experience, what have tailor-made offers and consultants and more transparency and sustainability. And they want it any time and in any place. We have created what it takes in order to serve such demand [indiscernible] to continue on our chartered course and even more speedily. Now where do we stand today? Firstly, we are relevant. In the past year, all across channels in Europe, we have 2.5 billion customer contracts. There are not many companies with such a strong outreach profile. Second, we are well positioned on the market across 8 European countries. We're [indiscernible] first or second in terms of market share. Our brands enjoy a wide reach. Third, we get e-commerce over the past 2.5 years, we have been able to more than double our online turnover. Today, we are one of Europe's largest online traders. We are fully aware there is room for improvement in many aspects, and a lot remains to be done. We are not truly working with a customer at our hearts in all aspect. We need to seize the opportunities brought about by digitalization more swiftly and more resolutely. We are on the right track. And what's most important, we're putting things in practice. After all, any strategy ultimately depends on how well it is implemented. There are 4 aspects that we are particularly focused on: customer experience, omnichannel, exploring new growth opportunities and sustainability. Let me elaborate. What is customer experience refer to? For us, it is not merely about transactions that is selling a product. But what we care about is the shopping experience, advice and service matter. We want satisfied clients. And we use the Net Promoter Score, NPS to measure how much headway we've made. This KPI assesses if clients recommend us to others. Over the past year, we have been able to improve on this KPI, coming from minus 100 to plus 100. Across our business, we've been able to increase from [ 247 from 42/5 points ]. What does that actually mean? It means that there are more happy, satisfied clients and those who are rather critical about us. So plus 47 is great, but it's certainly not the end of the story. Our clients have particular focus and pay particular attention to aftersales service. In this context, we are making progress internationally. In Spain, we have set up a service center in Madrid and additional service points for repairs. That way, we've been able to bring down average repair times from 17 days to 11 days. That certainly has also had an impact on the NPS. It has increased by 80% in this regard. To further improve, we're also listening to our staff. They after all know best what our clients want and then put forward the specific suggestions to meet increasing client expectations. What ultimately matters is expert advice. Our clients range from young gamers to OAPs, OAPs who want to stay in touch with their grandchildren and the rest of the world over the internet. All of them want convincing answers and guidance around the jungle the technology can be. That's what we provide. We empower our staff fully. We count on digitalization. We have equipped our staff across the stores with smartphones and apps. These devices support them to provide targeted and personalized service to the clients and be more productive. A case in point is My Store app. This app provides all necessary information for first class advice, starting with in-store online product availability to detailed product information and actually compare price corporations. A further important element to improve customer satisfaction is modernization and reorientation of our Brick-and-Mortar stores. When we redesign, relocate or open a new store, we are doing this across 1 of our 4 new store formats, Lighthouse, Core, Smart and Express. These new concepts are tailored to the different demands that we get from clients in the respective sites. This one shared feature, they all provide a highly attractive range of products, competent advice and handy service directly linked to our online platform. I'm particularly thrilled about the Lighthouse format. In November 2021, we opened our first -- the second Lighthouse store in Europe in Rotterdam. These stores are true technology experience centers, across 5,000 square meters, which showcase the most recent product innovations in our industry has produced. To this end, we have brought in 30 famous producers that present their most amazing product in little boutique stores as you'd find them at trade fairs. This way, we improve our relations with our partners. And at the same time, our clients find a range of reputable brands under one roof when they come into our stores. The Lighthouse concept is particularly viable economically. We've had great experience with our first Lighthouse stores in Milan and Rotterdam. We know it's increasing customer traffic, strong turnover and higher profitability. This is why we intend to further expand this format faster going forward. This year, we are going to launch Lighthouse stores in other European cities, namely Berlin, Vienna, and Madrid. This leads me to the second aspect of our future development, omnichannel. We are linking our in-store business ever more closely with our online business. Across all channels, we provide a shopping experience that is ever more attractive, click and collect. More than 1/3 of our clients order products online and then pick them up at one of our stores. On site, we can then offer additional products and services. We're continuously upgrading our click and collect service. At this stage, online orders are available on-site in-store, 29 minutes after ordering. Closely interlinked is our third aspect, our third focus aspect, that is exploring new business segments. We cannot just be pleased with optimizing what we have. We want to grow and seize the opportunities. One great example of this is our marketplace. We launched in Germany in the summer of 2020. We're now speeding things up. At this stage, for over 500 traders providers offer more than 400,000 products on this platform. In October, we also launched the marketplace in Spain. And for 2022, we plan to launch in Austria and the Netherlands. In Germany and in Spain, indeed, the marketplace is already making a profit. Marketplace is of strategic significance to us. After all, this helps us to improve our relevance for clients as much as for producers. This way, we're increasing our product range, without actually having to provide a store space. Talking about exploring new growth segments, we, of course, also refer to our store brand for [ Peak ], Easy, Okay, and Good. These brands offer quality products across all categories, very often they have been ordered many prices and they come at very fair price points. We're expanding our range across all markets, across Europe. In the different markets in the different countries, we adjust our products to local demands. Overall, we'd like to increase the share of our own brands from 2% at this stage, substantially over the following years. This leads me to the fourth aspect of our strategic development, that is sustainability. We understand our commitment as a responsibility. Our responsibility for a better future. At the same time, we understand it as a business opportunity. We are pursuing a two-pronged approach. On the one hand, we are looking to render our own business operations more sustainable gradually. On the other hand, we are looking to provide our clients with better access to a sustainable lifestyle. Effectively, this means that we'll substantially reduce our own CO2 footprint. For instance, by exclusively using electricity from renewable sources from 2023 across all of our stores, we'll be reducing waste from packaging and add more products to the recycling economy. We understand sustainability to also include diversity. For instance, a markedly greater number of women leaders. For instance, we would like to -- we're looking to increase the share of women at 2 upper management levels.by about 3% by 2023, 2024. On the third level, we are looking to increase this to 30%. At this point in time, we have 1,200 products certified sustainable on our portfolio, and we're looking to double this by -- within the business year of 2022, 2023. Better way logo provides and supports our clients in making purchasing decisions. Ladies and gentlemen, as you can see, we are developing at speed even in times like these. We keep on track shaping this company as focusing on the customer and acting sustainably throughout. After all, we're thinking beyond this quarter and beyond this business year. We aim to establish our business as one that is successful in the long term beyond COVID in a new normal. We have all the tools to make this happen. Skilled and committed workforce, a resilient business model, an omni-channel strategy to match. We have a strong and solid foothold and attractive growth market. We have trusting relationships with our partners and suppliers. And what's paramount, we're extremely relevant to our client. Allow me to reiterate 2.5 billion customer contacts per year bear tremendous potential. We will better leverage and expand on this potential. Ladies and gentlemen, a simplified governance structure that we are aiming for, will help us in continuing on the path that we've chosen to do so swiftly. We've set the theme for this by agreeing with Convergenta in December 2020 for CECONOMY to acquire a majority share of MediaMarktSaturn, which, of course, triggers a restructuring of the business. You're all aware, implementing this transaction, unfortunately, did suffer delays last year. Notwithstanding, all parties continue to aspire to implement this change. In light of the provisional reading by the Digital High Regional Court, we've decided to put this transaction to an extraordinary shareholders meeting on 12th of April. Approval -- by your approval in April provided, we are confident that we will be able to formally complete the transaction in this business year. Item 2 of today's agenda includes our suggestion as to how to use the profits retained. We suggest to use around EUR 63 million towards dividend payments. To be precise, we propose to pay our preference shareholders an outstanding dividend to the tune of EUR 0.17 per share for the 3 business years of '17, '18; '18, '19; and '19, '20 as per our statutes. For the past business year of 2020, '21, we suggest payout of EUR 0.23 per preference share. For ordinary shareholders, we have earmarked a dividend of EUR 0.17 per share for the past business year. This is in line with our company's dividend policies. Among other factors, we have weighed the proposed payout amount against the investments in operative growth that we need. Ladies and gentlemen, CECONOMY and MediaMarktSaturn are in an excellent position for a successful future. Consumer electronics remain an attractive growth market. After all, it lives of the innovative power of providers and producers. After all, technology increasingly is a part of our lives. Our omnichannel strategy has put us on the right track to play a leading role in this market. Working hand in glove with our 50,000 colleagues across Europe, we will continue down that path. We will transform into a business that acts sustainably and is always there for its clients across all channels. Thank you very much for your trust and thank you for joining me on this journey. Thank you.

Thank you very much, Dr. Wildberger. Ladies and gentlemen, at this point, we are discontinuing the public broadcast of today's meeting on our website. I would like to say goodbye to all of our audience who have been joining in today's meeting, and I would like to thank you for your interest in today's AGM.