Ceconomy AG (CECV.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the CECONOMY AG Analyst and Investors Call. [Operator Instructions]. I would now like to turn the conference over to Fabienne Caron, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our call. We are so grateful you could make it on such a short notice. By my side today are our CEO, Kai-Ulrich Deissner; and our CFO, Remko Rijnders. Before we dive into the presentation, I want to remind you that we will be discussing certain forward-looking statements. Please refer to the disclaimer for more information. You can also find the presentation slide on our website for your reference. This call is being recorded and will be accessible on the website later today. Now I'm delighted to hand over to Kai will walk us through the partnership with JD.com.

Thank you, Fabienne, and good morning, everyone, from my side as well. Thank you for joining us. Look, today marks an important milestone for CECONOMY. And as you know, we announced the investment agreement with JD.com last night. JD.com globally leading supply chain technology provider, service provider and of course, retail brand platform. Now we're deeply convinced this agreement enables us to accelerate what you have come to know is our strategy to grow. And that is to grow as Europe's leading omnichannel consumer electronics platform delivering value for customers, employees, industry partners, and of course, shareholder value alike. We are really excited to share how this partnership will accelerate our growth trajectory. And with that, also further strengthen European retail. Before we go into this, let me briefly walk you through the agenda on Slide 4. We'll begin by taking a closer look at the current market environment and the strong position from which CECONOMY is starting this new chapter. After that, Remko will guide you through the details of the transaction so that you understand this really well before I then discuss the strategic rationale behind this partnership. We'll then review the time line and highlight the key milestones you can expect in the coming months. And finally, we'll, of course, leave plenty of time at the end to answer any questions that you may have. Now let's start where we are today. We are Europe's largest consumer electronics retailer. And we're proud to be operating from a position of real strength and positive momentum present with more than 1,000 stores across 11 European countries. Our brands, iconic brands enjoy unaided awareness above 70%. And as most of you who follow us regularly know we have been working hard to transform this company over the past 3 years from a traditional retailer to a truly customer-centric service platform, omnichannel service platform. At the core of all of this is what we call the experience electronics strategy, with a focus on the customer and built around 5 growth areas with very distinct business models and those have been fueling our growth. As you will recall, these are sales and solutions, marketplace, the private label business, Space as a Service and retail media. Now as you know, this strategy simply materializes in our numbers, it yields strong results, as you can see on Slide 6. In financial year '23, '24, we achieved around EUR 22 billion in total sales, with nearly EUR 1 billion in adjusted EBITDA. We've delivered adjusted EBIT growth for 10 consecutive quarters. That's an impressive 47% increase since our starting year here and that's financial '21 and '22. Very recently, we also specified the EBIT outlook for this financial year. We now expect around EUR 375 million by the end of September. In short, if you summarize all of that, over the past years, we have built real momentum by consistently delivering strong results and strengthening our market position. All of this is firmly grounded in our strategy. Now at the same time, we are acutely aware that we are navigating a very dynamic market, new competitors constantly evolving customer expectations. Given these market dynamics, strategically standing still is not an option for us. Our ambition is not only to keep pace with the transformation of European retail Instead it is, we want to continue to lead it. And for this ambition to lead in Europe, JD is the right partner at the right time. First and foremost, our customers will benefit from a better shopping experience because we can leverage JD's advanced omnichannel retail expertise in the industry-leading technology logistics and warehouse capabilities. Second, for our shareholders, the offer provides an attractive premium with significant value upfront. JD launches a voluntary public takeover offer at EUR 4.60 per share in cash. Then for our employees, these partnerships sends a strong message of confidence. We will stay a stand-alone company with proud European heritage and workforce continuity. There will be no workforce reductions or site closures in connection with this transaction. So this partnership is finally not only about growth for us, but also about growth for our industry partners, for our suppliers. We will continue to work closely with our existing suppliers, quality suppliers from all over the world and grow theirs in our business together. So in essence, this partnership strengthens our ambition to meet the growing customer demand for speed, convenience, excellent service, as you can see on Slide 8. We want to be able to offer superior customer experience. We want to excel in store digitization and advance our technology better and faster than today. We want to enhance our logistics network and supply chain management, and we want to leap frog with digital growth businesses. With JD as a partner, we have the chance to accelerate our existing growth strategy, seize market opportunities that may emerge and strengthen overall, our position as Europe's leading omnichannel consumer electronics platform. For that condition, JD also increases our financial agility and gives us access to technological, omnichannel retail and logistical capabilities. With them, we're in the best position to double down on our growth path as Europe's leading omnichannel consumer electronics retail. So with that background, I'd like to hand over to Remko to discuss the offer in more detail. Remko?

Yes. Thank you, Kai. Good morning to everybody. And first of all, I share, of course, the excitement about this partnership, as Kai already mentioned. JD.com is the right partner at the right time and this transaction is all about growth, accelerating our strategy. Let me now focus on what this means for you as shareholders on Slide 9. The offer of JD.com provides an attractive and certain opportunity to realize a significant portion of the long-term value of your investment immediately and in cash. JD.com will, as Kai already mentioned, launched a voluntary public takeover a takeover offer at a price of EUR 4.60 per economy share in cash. This values the company at EUR 4 billion. The offer represents a premium of 23% over the ineffective closing share price as of the 23rd of July and 43% over the 3 months volume-weighted average share price. The offer price equals to an equity value of approximately EUR 2.2 billion. The implied enterprise value of EUR 4 billion corresponds therefore, to a valuation of 4.1x EV on an adjusted EBIT basis over the year 2025. The transaction will be subject to customary offer conditions, including the regulatory and merger control approvals. It's important to note that the partnership has the full support of the management Board, Kai and I, Supervisory Board, Anchor shareholders and the founder family, which is also extremely important for us. Anchor shareholders, including Haniel, Beisheim, Freenet and Convergenta have already signed a so-called irrevocable tender commitments to accept the offer for approximately 32% of CECONOMY shares. CECONOMY's founder family, shareholder, Convergenta will maintain 25.4% shareholding following the public takeover. Following a careful review of the over document in line with the legal obligation, the Management Board and Supervisory Board intend to recommend to accept the offer. With that, I will hand over back to Kai, who will now outline the partnership means for our workforce and also very important for our customers.

Thank you, Remko. Now on to the next slide. As Remko said, this transaction does not only benefit our customers and our investors, very importantly, also our employees and it's to listen that we signed an investment agreement with strong commitments led by JD. First, JD explicitly backs our midterm financial targets and the existing experience electronics strategy as a basis. Second, CECONOMY will stay as a stand-alone company headquartered here in Düsseldorf and Ingolstadt. JD.com does not plan any material changes to our company structure, organization and for a period of 5 years after offer settlement, our strong brand architecture. There are no plans importantly to enter into a domination or a profit and loss transfer agreement for a period of 3 years after settlement. And third, JD has committed to work closely with the current management team, so the two of us, which will continue to stay in charge of driving the company's business strategy and operations. There will be no workforce reductions and no site closures in connections with this transaction. I said earlier, JD is the right partner at the right time, simply because our strengths are complementary. But also if you look a bit underneath because our values are shared. Both companies with the customer first. Both companies believe in trustworthy and long-term relationships with international brands. There will be no overarching changes to our product range or our focus on high-quality consumer electronics products. Importantly, both companies share the conviction that omnichannel is the future of retail. That's why we will continue to invest not only in digital growth, but agreed to accelerate also our strategic initiatives regarding our bricks-and-mortar business. For example, with the personalized service, under the existing brands. Last but not least, it is important to note that in this investment agreement, we ensure the full independence of our IT systems, the tech stack and customer data as well as, of course, full compliance with European data privacy regulations. Together, we will work towards establishing a separate and strictly independent European tech stack with the ability to provide technology services and capabilities similar to those offered in China but based in Europe. So in summary then, why JD.com? Both CECONOMY and JD are fully committed to excellent customer service and outstanding customer experiences. JD has unparalleled retail experience as well as industry-leading tech and logistics capabilities. You're probably aware, but it operates one of the world's largest in-house e-commerce logistics operations, for example, pioneering, same and next-day delivery nationwide in China. Let it sink in, 95% of JD's online retail orders are fulfilled same day or next day across China. And finally, both companies operate brand-led platforms prioritizing strong partnerships with leading global enterprises. Both companies believe in responsible and sustainable business models. For example, JD sets really new standards in emissions management. So by joining forces, we're not just keeping pace with the transformation in European retail, we will be able to shape it and delete it, delivering even greater value, convenience and innovation, to those who matter most for us and customers. So to recap. This partnership means improved shopping and customer experience for customers, attractive premium, realizing a significant part of the value immediately in upfront and preserving our prior European heritage and workforce continue for our employees. It's a strong endorsement of our strategy that most of you have followed so closely for the past 2 or 3 years and it positions us for accelerated growth and ... Let me now hand it back to Remko to give you an overview of the upcoming time line as well as the financial calendar for the rest of the year.

Thank you, Kai. Indeed, time line. So let me now walk you through the key milestones ahead as we bring this partnership to life on Slide 14. Today, we announced JD.com, voluntary public take offer, making the official start of an exciting chapter. The formal offer document will be published in August or September, providing all shareholders with the necessary details. Once published, we will enter in a 10-week acceptance period during which shareholders can review and consider the proposal. This period will, of course, include formal submission and review by the BaFin, the German Financial Supervisory Authority to ensure regulatory compliance. Assuming all approvals are received as expected, we anticipate closing the transaction in the first half year of 2026. Afterwards, it's investigated to transition economy to a private company with delisting target for June 2026. Throughout, we are committed to open and transparent communication with all stakeholders, keeping everybody informed every step of the way. As we look ahead, I would like to highlight a few important dates that you may want to mark in your calendars. We will we share in our Q3 and 9 months results on the 12th of August 2025 followed closely by Q2 results of JD.com, on the 25th of August. Later in the year, on the 28th of October, we will publish our Q4 and full year trading statement. JD.com Q3 results will be released on the 13th of November, and we will round out the year with the economies, Q4 and full year's results on the 17th of December 2025. Throughout this entire period, you can count on us, keep you fully informed the regular updates and transparent communications as we move through this important transaction together. So this is an outline of our time line. And now I would like to take a pause for possible questions.

[Operator Instructions]. And the first question goes to Clement Genelot, please go ahead.

Two questions from my side, if I may. The first one, beyond knowledge sharing ones, do you see Retail Media and private labeling as a concrete area of one of the division with JD? And my second question, when you merge with JD, you would assume that the business enhance and pivot a bit towards the B2B services?

Good morning, Clement. Thanks for your question. let me take the first question about the cooperation with -- regarding private labels and Retail Media. We already mentioned in the overview that we share beliefs and principles in a omnichannel strategy with JD.com. That, of course, means also that not only in Retail Media and not only in private labels, but basically in all our strategic focus areas that Kai mentioned, like Services & Solutions, Base as a Service, but also marketplace we see a strength in this cooperation together to accelerate already our existing strategy. So to answer your question, yes. But more than that, on all 5 focus points, we can accelerate with their support. And they also fully support this strategy, and that's what we have seen in the last discussions and the strategic document that we have together.

Yes. Clement, it's Kai. And then let me take your second one, you asked whether we would now merge with JD's European business and perhaps pivot to a B2B service. This is a simple one. It's binary. The answer is no. Let me elaborate a bit on this. As I said, we will continue our operational independence. We will remain an independent run company with our existing strategy. Our existing strategy is a B2C strategy around those 5 growth areas, which Remko just mentioned. There is no plans for any changes in our company structure, our organization, strong bank and most importantly, not about the strategy and the management. It was a long version of a short no.

Ladies and gentlemen, we didn't receive any further questions. [Operator Instructions].

Ladies and gentlemen, on the phone, we always -- a, we understand it's holiday season. And b, we do understand you're not having so many questions as a complement to our IR team. We spent the morning explaining this to you and also to the compliments of the communications team here of putting the information together. But let me emphasize, we are really happy to take any further questions. We do want to make sure that we answer any concerns that you may have very transparently as we speak. So we'll give you another minute to think if there's anything else you would like to know. All right. Look, then allow us to wrap this up to let me reiterate because it's just such an important day for us. This marks a new chapter for CECONOMY. We're acting from a position of strength, prudent strategy an excellent team, a clear vision for the future, but now we will be able to accelerate our growth and create even more value for stakeholders, and we will continue to lead transformation of European retail, and we will also continue to engage with you and keep you up to date as to this process that has started late last night. Thank you very much for your attention today and your continued support. Thank you.

Thank you.