CEWE Stiftung & Co. KGaA (CWC) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to CEWE's annual press conference and analyst conference for the year 2020. Now I would like to say good morning in a nice hotel room and have some coffee. Now I hope you all of you found coffee or whatever you would like to drink somewhere else, and had to serve yourself. We love to serve you, but this year, it's different. So anyway, we hope we're able to serve the right numbers for you and you find it interesting anyway. The way we are going to run the day is that Christian Friege, our CEO, is going to present the umbrella of what actually happened in 2020, you know already quite some detail. I'm going to -- myself, Olaf Holzkamper, I'm going to add financial details; and then Reiner Fageth, our CTO, is going to add the latest and greatest development on the app area that we have seen there. All in all, the way we're going to run this is we try to mute, please stay mute during the time of the presentation. We're going to record the presentation itself, and we're going to put that online, including the charts afterwards. We're going to stop that recording after the presentation, and we are going to open the discussion then for you. [Operator Instructions] So having said that, without any delay, Christian.

Thank you very much, Olaf. A very good morning to you all, and welcome to our analyst conference this morning. CEWE had a good year 2020, and we will report about that year today. Part of having had a good year was that we had a very stringent COVID management, that in its priorities, you can see the 5 priorities in order of priority, we have not changed for the past 12 months. So there's a slight difference to some public profit management approaches. We focus on the health and safety of our employees, first and foremost. We secured the production capabilities of our labs and printing plants throughout the last 12 months, and we've been able to deliver to any point in Europe that we serve throughout the whole of the 12 months. And that distinguishes us from 1 or 2 of our competing companies in the market. We have put a focus on keeping online mobile sites up and specifically communicate with our customers about these specific and special circumstances. And only then did we start to focus on cost reductions, which indeed also contributed to the year overall. And last but not least, we've always been on the lookout, and I will talk to that a little more when we talk about our retail business and our commercial online printing business, we've always been on the lookout for potential corona upsides. Now this slide that you can see here is a slide -- well actually, will soon be seeing, is a slide that if all who have covered CEWE for some time, have seen before. And it is covering the last 30 years of corporate development. We like this slide because it does show very, very nicely at how the company looks [indiscernible] over the past 30 years. In light blue, you can see the analog times, where we were market leader in Europe in the analog business. In red, you can see the digital conversion transformation that we have achieved in the early 2000s and its impact on our sales. What you can see here is the sales. And you can see that we are a true online business today with a very strong footprint in photofinishing, within green, a footprint in the commercial online print; and in gray, on top, with our retail business that we are accelerating in its conversion towards more online sales and more online basis. So that in itself makes us a strong online business. Now what I would also like to point out at this slide is that in December 2020, we received 61% of the photos that we process in our labs, 61% of those photos were actually from smartphones. So not only are we an online business, but we do serve the smartphone community with this online business. And with that, we feel that we have actually entered the next transformation successfully and we are not only in online, but also a smartphone business today. That strong development in sales also translates into a good development as far as the earnings are concerned. You can see here, we published this earlier on, that with EUR 79.7 million, this result is strong EBIT in 2020. But overall, again, you can see that there is a long-term positive development. I'll talk about photofinishing retail commercial online print, as you would expect, we will look at the group results. I would like to explain to you in some more detail that we would usually do our sustainability performance of 2020, not because this is flavor of the day, but very much so because today, we're also publishing our sustainability report and that must not be overshadowed completely by our business report and business results. Reiner Fageth will look into innovation, and we will have an outlook. What does make us strong in photofinishing? What makes us strong, in fact, what makes us unique in photofinishing is that we are offering an omnichannel solution in the marketplace, disregarding whether you are at home, whether you are in store with a CEWE photo station or anywhere else with your smartphone, you can access CEWE MYPHOTOS and you can order CEWE products from everywhere. You can print them off directly in store. You can have them delivered to the store to pick up if it's a lab product or you can have it delivered to your home. And with that, we have all channels that a customer can possibly want under 1 brand, under 1 umbrella and with 1 consistent brand experience. And that is unique in the European market. And that is the reason why we seem to be successfully acquiring also new partners in the retail industry. Reiner Fageth will show you later on how we are also at the cutting-edge of our mobile performance. Here, you have a quick glimpse at our new mobile app, and Reiner will explain to you exactly what we are doing with artificial intelligence here to support our customers who order from CEWE, but also increase the usability, specifically as far as the layouts are concerned of our software, the HPS software that we are offering for laptops and desktops. And that still has a significant importance for those of our customers who want to take their leisure in order to prepare their CEWE PHOTOBOOK. I did talk about our trade partners. Here, you can see a photo from Boots in the U.K. Despite COVID-19 last year, we were able to install more than 2,000 CEWE photo stations at Boots outlets and we have successfully implemented the partnership that we reported on in last year's conference in the U.K., resulting in a very significant expansion of our brand presence, of our market presence in the U.K., and we're quite satisfied with what we see also in terms of the collaboration and the results with this new partner. The strength of CEWE that we have built over time is the consistent appearance and the consistent communication of our CEWE brand of the CEWE PHOTOBOOK and the other CEWE products. Here, you can see some glimpses from our Christmas campaign. You can see Nadine and Tim Wartmann, real customers of ours who were appearing in the TV spot for Christmas, who were appearing at display ads online, who were featured in our customer magazines, who could be seen at the POS in the top left corner, at the POS when she is being given a CEWE PHOTOBOOK by him, who you can see on the starting pages of our online presence and so on and so forth. So it's the same inventory, it's the same messaging that you can consistently see in connection with the CEWE brand. And that in itself helps us to be absolutely top of mind of the customers in Europe compared to all other competitors in the photofinishing industry. We are living from updated and actual products. You can see here a range of our new CEWE CALENDAR designs. You can see here that for the advent calendar, we have offered for the first time, for the chocolate advent calendar, printed photos on the inside of the little doors. You can see here a new range of CEWE cards that we had on offer in Christmas and also some layouts that we offered for the CEWE PHOTOBOOK that proved to be successful last year. Now talking about the CEWE PHOTOBOOK. You can see here, a little unfortunate, I would say, a little unfortunate development in that we have a sell-off of minus 1.6% of CEWE PHOTOBOOKS "only" 6.521 million CEWE PHOTOBOOK sold in 2020. But if you look at it in more detail, you can see this is the outcome of what we would have expected because of a changed travel behavior. And if you consider that a trip, a safari in Africa, a RV trip in Canada, temples in Thailand, are the mainstay of trips that we would have in this portion, obviously, the PHOTOBOOK a customer orders and that those were all obviously not happening last year. And I think that dip is very minute and could have been a lot more significant had it not been for our overall brand efforts in selling our CEWE products to our customers. What you can see on this slide, and I like to draw your attention to the center part of those columns, value per photo. We increased the value per photo by 11.8%, and that is another result of this slight decrease in the sell-off of the CEWE PHOTOBOOK. Obviously, a CEWE PHOTOBOOK has more than 100 photos, maybe even more than 200 photos in 1 product; whereas a wall art, a CEWE 1 image thing, puzzles or something like that, anything like that has 1 photo and it's obviously only counted as 1 photo here. So what you see here is not so much a change in the quality of business in itself, but also a statistical effect, slightly less CEWE PHOTOBOOKS, slightly more 1-picture products resulting in an increased value per photo. Overall, we are very comfortable with this increase in 8.9% in turnover for photofinishing. It is in line of what could have been realistically achieved last year. Now if we look at the quarters and you know that we like to look at the quarters because it shows us how the business is also transforming. You can see that the first quarter, in line with the past years, has been a strong quarter. One, we've had a good second quarter where the stay-at-home effect actually materialized. You can see in the third quarter that there is a lack of travel-related products, probably that led to a reduction in turnover here. And you can see the strong Christmas business, where CEWE photo products as gifts were very much in the forefront of our marketing efforts. In more detail, the WhiteWall acquisition still does contribute to our nonorganic growth in turnover in photofinishing from January to May. You remember that in June 2019 was the first time that we accounted for WhiteWall. We are as happy as we could be both about WhiteWall and Cheerz as a part of our CEWE family. You are also aware of the impact of the coronavirus. We talked about the change in holiday travel behavior. And you can see here the significant increase in EBIT from photofinishing, especially effects in light of the overall size of the photofinishing EBIT are not significantly different in 2020 from 2019. It is specifically purchase price allocations from various acquisitions that we're looking at here. And there is a small restructuring allowance in -- specifically in Denmark and related to some parts of the retail restructuring. Overall, you can see that the margin in photofinishing increased significantly to 15.1%. Yes, there is an effect of corona savings. Yes, there is an effect of the significant increase in additional Christmas orders where, obviously, economies of scale were achieved. And yes, we are quite happy with this result. If we again split this up by quarters, you see a situation quite similar to that that I pointed out when we looked at the sales. In the first quarter, we saw another increase in line with the long-term development of the first quarter. The second quarter was a little bit out of the ordinary in that we have the stay-at-home effect. The third quarter, in line with previous years but may be a little bit pushed further by corona, with a slight further decline; and then the very strong Christmas business. We are -- brand development with the technological development that Reiner Fageth will point out to you a little later, and with our focus as an online- and smartphone-driven business very much at the forefront of photofinishing in Europe, we are the uncontested market leader in Europe, and we feel that we are on a good trajectory to also be successful in our trading over the next years. Now retail is a little bit slightly different kettle of fish in that retail obviously is one of those areas that were significantly impacted by COVID-19. There's a lot of forced closures of retail stores on top of the general decline in camera and hardware sales, and on top of our ongoing effort to reduce those sales that are too low-margin for us and that we are simply not willing to pursue. So you can see a 21.8% decline in turnover, slightly more than we would have expected had it not been for COVID-19 and it significantly declined in EBIT. Let me talk to the decline in EBIT maybe a little further. On the right-hand side, the second from the bottom bullet point, you can see that there was a EUR 4.4 million one-off effect in there. And that's completely related to the restructuring, the reduction of retail stores from about 140 to something around 100. Why did we do that? Because we've implemented a program that's called Accelerate in order to accelerate our move into an online business and for the restructuring of the retail sites, about 40 stores that we are closing with a provision of EUR 2.9 million taken and obviously, if you have less retail, there is a slight effect on the value of inventory, and that is a reduction write-off, in fact, of EUR 1.5 million, so a total of EUR 4.4 million. And if you take -- add those EUR 4.4 million to the minus EUR 4.2 million, you can see that on an operational level, despite the store closures, the management of our retail divisions actually been able to offset all the problems and generate slightly more of a black 0 than in 2019, an increase of EUR 0.2 million. It is also an effect of an increase in online sales already in last year, so that we are quite confident that the strategy, less retail sites and more online business, is actually on a good -- on a good road. Commercial online print, the second division that was significantly impacted by corona. We have taken the opportunity, and we talked about this last year, to restructure LASERLINE and put LASERLINE together with SAXOPRINT. We've also significantly restructured our footprint as far as cost is concerned in SAXOPRINT, and we are now confident to be not only cost leader, but also price leader. There is even a best-price guarantee for a lot of products in place. And with that, we feel that we have a good strategic positioning for SAXOPRINT plus LASERLINE. And on the other hand, you see Viaprinto. And Viaprinto has actually been brought together as a brand that has a service focus for small and medium-sized enterprises. And so on the one hand, we have Viaprinto as a service-focused brand for small and medium enterprises. On the other hand, SAXOPRINT plus LASERLINE for Berlin as the cost and price leaders in that market. With that clear positioning, we feel comfortable. I also have to say that I'm very comfortable with the way that the local management and specifically in the local management in Dresden, where we have the biggest SAXOPRINT plant, has actually offset most of the impact of the minus 34.3% decrease in sales, corona and COVID related. Again, if you take away the EUR 5 million provision that we took for the LASERLINE restructuring in 2019, that is a minus EUR 2.7 million. It's a minus EUR 3.7 million if you look at the special effects on the right bottom of the page, you can see that we have actually had a very low impact of the significant loss in revenues that we suffered as a result of corona. That is the situation in commercial online printing. Then if we look at other. In the sales part of other, you can specifically see our futalis enterprise, dog food -- individualized dog food with a growth rate of 19.3%. The bottom line is not futalis only related. I can tell you that futalis has actually had a good year and that we are quite happy with where we are there. Okay. And if we add all that up, we come to group results. Group results are at EUR 727.3 million in sales, plus 1%. The growth in photofinishing can compensate, even slightly overcompensate, for the significant COVID-19 related decline in other business areas. And as far as the EBIT is concerned, that looks good. It looks actually very good with EUR 79.7 million as the group EBIT and EBIT margin overall of 11% and the earnings after tax of EUR 51.9 million. The little dip in 2019 is because some of the -- or actually, most of the restructuring provision that we took in 2019 was not tax deductible in 2019, but actually, then only impacted the 2020 numbers. So there's a little thingy in there in the development, but EUR 51.9 million earnings after tax and an earnings per share of EUR 7.20, we are not entirely dissatisfied I think is the wording that we would usually use in this case. Basically, we're quite happy.

Well put.

Quite happy. And the Board of management and the Supervisory Board are suggesting to the assembly of shareholders an increase in the dividend by 15% and to EUR 2.30, and we couldn't withstand the idea of putting a little wreath of laurels around the 12 which we're looking at if the shareholders' family agrees to this proposal. We're looking at the 12th increase in dividend consecutively and I think there is not very many companies on the DAX-listed companies anywhere in the DAX index whatever left who have such a track record to show. It is important for me to share with you today not only business numbers as much as we are satisfied with those business numbers, but we are also publishing today the 11th consecutive sustainability report. And for the past years, ever since 2010, we've reported to you about our efforts in sustainability. We've reported to you about the steps that we are taking to achieve what we see as the ultimate goal and that's a climate-neutral business as a company by 2045. We are looking at all papers used in production to be FSC-certified by 2023. And there's a number of highlights reported in this Nachhaltigkeitsbericht. I understand that the English version is going to be available in about 1 to 2 weeks. But for those of you who command German, it is downloadable as of today from our website. And to the -- some of the highlights I'd like to point out because it is important to us that the community understands how very much we are focusing on sustainability. We have actually conducted a stakeholder review of more than 5,000 stakeholders and of those who have answered, more than 76%, they actually see the CEWE group as a leader in sustainability in the photofinishing industry. We have, since 2016, all CEWE brands produced climate neutral. And whatever we cannot avoid and as far as the CO2 emissions are concerned, we are offsetting. And we've also achieved an interim goal for certain CO2 emissions in 2020 that was actually set for 2025. We act in a variety of dimensions of sustainability. I would like to make it very clear here that this is not only focused on environmental protection and the protection of resources, but there's a lot of other ways that we are pursuing sustainability. There is a social commitment. We make donations actually more than the previous year. We are fostering photo festivals, photo culture across Europe every year. I'd like to remind you of the big CEWE photo award, the biggest photo award in the world as far as the entries are concerned, that is the 2021 version is running for submissions until 31st of May this year, and we will have the award-giving ceremony sometime in the second half of the year, probably September. We are feeling very -- related to our employees, we are, again, offering all of our employees employee shares. All employees are entitled to 6 completely free shares of the business. And we feel that over time, there should be a significant shareholding of our employees in the overall company. So there's a number of things that we are doing. One Reiner Fageth will actually come back to, which is our Customer Charter for digitization, where we are promising to our customers in which way we are actually using the advantage of digital technology to their benefit. We do want to be a leader in the industry. Last year, we successfully introduced a advent calendar with a 100% biodegradable interior. So the little inlet where the chocolate sits in is actually entirely biodegradable and is not a plastic anymore. We have introduced a recycled paper version of our CEWE PHOTOBOOK Pure that is now produced with recycled paper. And we have also invested a lot of focus in developing a scorecard system, which actually covers all of the CEWE products in their environmental impact in the whole product life cycle. So we're looking at raw materials. We're looking at the supply chain. We're looking at the production. We're looking at the used space and the end-of-product life cycle, and all of that, its impact on the environment. There's more than 40 criteria for each of those products is measured. And whenever we are updating on further developing a product, we are looking at improving the sustainability of these products. That is actually very important. And we'll ensure that over time, we are becoming better and better and better. And last but not least, I'd like to draw your attention to the fact that for the first time, last year, we have given away 2 CEWE Supplier Sustainability Awards, 1 to Fujifilm in Europe for their FSC-certified photographic papers; and 1 to a small company called Schmidt GmbH who are supplying us with wooden frames for our canvas products, and they have actually very much appreciated to be awarded from us. So yes, we've had a good financial year. Yes, we have actually further established ourselves as an online- and as a smartphone-driven business. But we are also consistently looking at how we are acting in our environment, in our communities, and we're consistently looking at the sustainability of what we do. Over to Olaf because he can give you the details of how that is reflected in the numbers in the minute detail.

Perfect. Thank you very much, Christian. And with that, moving through the financial detail, starting with the P&L. I don't want to go through all the details on the right-hand side here. Just to highlight at the very bottom, and actually is supporting. Yes, thank you very much for the pointer. Looking at the EBIT of the year 2020, we see a EUR 79.7 million, which is on the right-hand side, you can see the increase of EUR 22.9 million compared to last year. And the first thing I want to point out is that this 29 -- sorry, EUR 22.9 million, is including all the one-off effects that have been there, and Christian talked to quite a few of them within the year 2020. But nevertheless, they are balanced. If you take out the one-off effects all the restructurings and so on, you end up at an increase of EUR 22.1 million. So it's pretty much the same as one we are seeing here, which means there is no big special effects in the total sum of the year for CEWE. Then looking at and moving up and where those additional EUR 22.9 million in terms of EBIT actually came from. We see that we had increase in revenue. That is obviously very helpful. And there is the structural change in the revenue that Christian was pointing out. We do have additional revenue in photofinishing, the increase of EUR 8.9 million (sic) [ 8.9% ], and we do have the corona-related decreases in commercial online print and retail. And that means we have had a strong increase in photofinishing, which is our business that also was driving over the last years and has been increasing profitability overall and now has also been changing the structure of the P&L and that is what you see underneath there. For instance, we do see that the cost of materials were reduced even in absolute terms by EUR 17 million -- EUR 17.3 million. And in relative terms, that means that cost of materials came down from 26% to 23.4% of revenue. Now this structural change is due to the comment on the right-hand side there. Photofinishing is always something where we do add some more value-added from our side. So we have higher personnel costs and higher other operating expenses, but less material cost. And this is exactly what you see here, which is enforced again by the specific and corona-driven change in revenue structure there. Now that led to an increase in the gross profit of EUR 24.8 million and that actually explains already pretty much the increase that you are seeing at the bottom in terms of EBIT. So this is the big thing. Underneath are just a few changes. Personnel expenses, it's more or less driven by the differences in restructuring we've had in last year, we have had this year. This year, it's a bit better in terms of personnel costs, so less personnel costs there. And the main driver of this is that the restructuring of last year was on a higher level than this year. And obviously, the restructuring of last year led already to reduce personnel cost line there. And other operating expenses, it's an increase there also driven by the fact that we have especially more online business there, leading to more mail order shipping costs into the homes of different consumers. That is the natural driver of the structural change here in the P&L structure. So all in all, photofinishing was able to balance on the revenue side and the strong margin of the photofinishing compared to the other businesses was driving strength in EBIT and was driving the different changes in the P&L structure that we just talked to. Now if we move to the balance sheet side, you see here on a high level, first of all, we love to look at the 48% equity ratio we've seen there on the right-hand side that underlines again, CEWE is rock solid as far as balance sheet is concerned. This is a strength and again another tick up from the 47.5% of last year. Now that is something we are really -- I don't want to say, proud of, but we are happy to see every year. So that gives the stability -- that underlines the stability of the CEWE business once again. But it's not only the equity ratio on the liabilities side; it's also the cash position on the assets side that is quite amazing this time. All in all, you do see an increase of the balance sheet by nearly EUR 60 million. You see that we have an increase by EUR 58.3 million to EUR 625.5 million. And this roughly EUR 60 million of increase, it's obviously derived from the current assets at the bottom where we see a EUR 65 million increase nearly. And that is driven -- I don't want to go through all the details in the box at the right time bottom here, but it's more than that, it's being driven by the cash increase of EUR 69.9 million. Now that is something that's worth looking at. I'm going to look at that in more detail on the next sheet. So let's put that aside for a second. So the cash is driving the increase of the balance sheet overall on the assets side. And on the liabilities side, the EUR 60 million increase, driven by the cash is counterbalanced by one, the increase in equity. We just looked at that already. The increase to EUR 301 million means an increase by EUR 30 million. And so it's like half of the EUR 60 million is borne by equity, and the other half is borne by the short-term liabilities you see at the bottom there. What we do see a EUR 28.6 million increase. So again, roughly -- roughly EUR 30 million, increased to EUR 230.7 million in terms of current liabilities. Now I don't want to go through the details of the boxes there because it's easier to understand when you transform this into a management balance sheet, i.e., taking away the current liabilities from the right-hand side that are not that we paid for by the dividends or interest, but you deduct them on the assets side. And this is what we have done here to get to the capital employed and the capital invested here. So we are throwing basically the EUR 30 million from the right-hand side that you just saw there. We are throwing them over to the left-hand side now to the capital employed and deduct them. And this is the reason why the increase of the capital employed is not EUR 60 million as normal balance sheet we just saw, but it's just -- in inverted commas, "adjust" to a EUR 29 million, so it's again, EUR 30 million because EUR 30 million are now deducted here and are, again, increasing the negative position of working capital at the bottom. We see an increase of working capital here of a bit more than EUR 30 million up to a minus EUR 69.1 million. Now that is strong, obviously. And you are experts. You know that this is driving the cash position, obviously, is working capital is contributing so strongly to the financing of the company. And that is why directly on top of that, you do see the positive cash position of EUR 102.8 million here. That is the increase again of the EUR 69.9 million that we were seeing again on the page before. So this is the main movement we have seen here. And the reason why I tried to call this one here is to look at the details, is the operating and the other net working capital box, that is worth looking at. And before looking at that, let's take a step back, how has our business done? Especially Christmas, this position was very important. If our business, the business also with the retail partners in photofinishing, if we do business via the point-of-sale and the consumers collect the product at the point of sale, then we do have a short-term slight disadvantage in terms of cash there because it's our retail partner who is collecting the cash first, and then a couple of weeks afterwards, pays us. So it is a cash disadvantage for us. Whereas if we have an online business, also with a retail partner, we are collecting the money from the consumers first and we are paying the share to the retail partner later on. So we have a cash advantage there. And this difference in business types, if you want, business systems, was exactly what is driving the strong position of working capital here because in the pandemic, especially in the pandemic lockdowns of the Christmas period of last year, the business shifted a lot to the online side. So we were collecting the money first, and we didn't have to collect so much money later on from the retail partners due to any point-of-sale business. And this is exactly what you see in the first top positions here. So the trade accounts receivable, we get money from the retail partners later on was reduced by EUR 6 million. And whereas the trade payables we owe money to the retail partners because we collect their money first from the consumers in the online business was increased due to the lockdown situation. So you can see that these 2 items are obviously exactly driving a big change in this working capital position there. And then the first of the other net working capital positions, underneath the EUR 60 million from an increase in short-term liabilities due to business development on the tech side, is also obviously driven by the pandemic situation in Christmas, the tax prepayments that we have done were not tuned to the amount of profit that actually the Christmas business generated for us. And that's why when we calculated in hindsight, our tax liabilities that we still had with the authorities, we are arriving at a EUR 16 million payable position there that we owed them. And so you see these first 3 points are the main points to look at when you think about what was driving the cash position within the year 2020 to such a high level up there. And that's important in looking at that when we look at the cash position. Obviously, these are just interim situation -- this is just an interim situation. And obviously, we did pay the tax authorities afterwards. And the money is already and has already been flowing out to some degree. And obviously, we did pay the money to our retail partners, and the money is already flowing out. It's just that at this point in time, the cash position due to the structural change was so high there. And if we lean back and try to think of what could a gut feel normalization amount be, when we are saying that, yes, some of this changes into an online business might still remain, but nevertheless, this is a special situation. So out of those roughly EUR 30 million that you are seeing there, we are guesstimating that probably some EUR 25 million need to be allocated to a special situation, the special pandemic situation of 2020. And so there is some other increase in inventory that we did last year that also was contributing to this situation here in working capital on the negative side that is going to flow back. So we are, all in all, guesstimating probably EUR 25 million is the increased situation here, the increased number of special effects of 2020. And this obviously then not only is to be taken into consideration in the positioning on the cash side, but also if we look at the cash flow side. But always please keep in mind, this is looking at the balance sheet, while we are comparing the position at the beginning of the year with the position at the end of the year; whereas on the cash flow side, we are comparing 2 cash flows. So we can't easily take the situation and take this balance sheet comparison here and apply that on the cash flow side. It's just a guesstimate to give you a feeling, and in our perspective, looking at the very details of the cash flow, we are guesstimating that this back of the envelope calculation we just walked through is not too far off. So that's the main takeaways on the management balance sheet. And looking at the free cash flow, you are seeing exactly these things here in the cash flow from operating business. You do see the big increase in cash flow from operating business from EUR 102.7 million to a level of EUR 142.3 million. And the point we're trying to make here is this is not necessarily the steady state cash flow going forward. But I want to give you a guesstimate, a fair view of what it could be like. And that's why we were trying to guesstimate these EUR 25 million we just mentioned on the balance sheet side. And it's not too far off if we look into the details of the cash flow. Now this increase here, we are seeing an increase of EUR 39.6 million, so nearly EUR 40 million was driven by exactly the points you are seeing on the right-hand side. So the earnings are higher, including the noncash effects. That is already contributing EUR 16 million here. And then we're looking at the cash flows from operating net working capital, which is contributing EUR 11.6 million. Cash flows from other net working capital is EUR 2.8 million. And then all in all, the tax payments we have seen in terms of the income tax were reduced compared to the year before. And now we are comparing the yearly flows really that were reduced compared to 2019 by EUR 9.1 million. All of that led to this great increase of EUR 40 million here. Now moving one level to the investment activity cash flow. You know that in the last years, we always had those special investments be it Cheerz, be it WhiteWall, be it the acquisition of the [indiscernible] of SAXOPRINT, and that was always roughly EUR 30 million on top of the normal acquisitions and the normal investments we have seen in the years. Now last year, we didn't have an acquisition, and that's why with the EUR 39 million, so roughly EUR 40 million, we do see a very normal investment year. Maybe it was a bit even keeping a foot on the brake because we weren't sure how safe we are in this pandemic situation. But nevertheless, you get a feeling for, it's roughly EUR 40 million, which is the normal, so to speak, maintenance invest if you want. And adding the 2 or subtracting the investment cash flow from the operating cash flow, you get to this free cash flow of EUR 103.2 million, which is quite a bit. And that's why, again, we are pointing out to this back-of-the-envelope gut feel calculation of maybe it's EUR 25 million that you need to subtract from there to get to a more normalized free cash flow situation, given the special situation we are looking at in the working capital side of -- and the cash -- and the tax side of the year 2020. That was on the cash flow side. Looking at the value generation, we love to look at the ROCE part. And you know the EUR 79.7 million EBIT already. So you have seen the working capital, which has not really changed from the average of the 4 months before. So we're looking at EUR 385.9 million capital employed here in total. And if you divide the 2, we end up on a level of 20.6 million -- sorry, 20.6% ROCE, which is a nice increase compared to last year, starting from 14.8%. Now we stopped complaining about the IFRS assets now. As we had to do it the second year in a row now, we accept it. It's a different level, but especially given that IFRS assets and the stronger cash position by one-off effects are in there in 2020, 20.6% is really a solid number, we feel. And I think it's worth saying CEWE is clearly generating value, whatever the interest is that it takes place for equity and for debt we have on the balance sheet. It's certainly not continued on that level. So it's a fine situation we have there. We really appreciate the ROCE level. This is how we see the value we are generating in the numbers, but how we are actually generating the value and what makes the difference for CEWE, Reiner is going to highlight the latest and greatest innovations on the app side to you.

Thanks, Christian. Thanks, Olaf. So greetings from Stuttgart. I have the pleasure to inform you about what we have done recently. But starting from a point which we showed you when we last time met in Frankfurt was our Customer Charter where we installed the Board of Trustees in order to justify that we are really sending out the draft signals, where we are really sending out our epic ideas and giving the customer control over everything he or she is doing with our solutions. As we promised, on the next slide, you see we report all of our artificial intelligence features on our website. It's linked from the mobile photos. So it's linked from online. It's linked from our desktop software to this webpage, so the customers can be informed about what we are doing. In R&D, we are really -- and I will show you, as Christian was saying, in detail in a minute, we are really helping the customer to find the best images, to find the best layouts, to cluster people to get the best images quality out based on location and time. We are really using this to increase the usability in our CEWE MYPHOTOS online albums. We do event detection, which, of course, are linked with a lot of heuristics and algorithms. I will also show you later. We are really optimizing our SEA campaigns using artificial intelligence, which really makes them more successful and return on investment is much better. In customer service, last Christmas season, we had a bot live, supporting our customer service in this high season in answering questions about the delivery time and for the very few reclamations we have, we also support it there. And on the next slide, please, in production, we successfully installed super resolution. This is also artificial intelligence-based and is related to the increased number of images we received from mobile phones, as Christian was pointing out, and a lot of them are not the original images. They are really down sampled by WhatsApp, by Facebook and other messages, and we are also generating compression artifacts. And the approach we are doing there now is based on artificial intelligence, so-called GANs, these are generative adversarial networks, so they are really generating a new image. As you can see here in the details in the eye, there's a lower resolution, there are artifacts, and using this GAN, you really get a clear eye again. And in the Christmas season 2020, we already have this installed for wall art, Christian showed you with CEWE advent calendars. And every fourth image layer was already improved by this technology. And on our wall calendars in the large size, A2, 2 out of 3 images were improved with that. This is a great customer satisfaction tool and is also supporting what Christian pointed out, sustainability because we have less reprints. There are some reclamation if we are not really justified because the resolution was low. We're overcoming that. We have less reprint. We have less waste. So technology and sustainability can perfectly work together. Another great example of AI technology used in our online survival. So now I would like to show you, live again as you are used to me, with the risk that it works, if it's working or not, our mobile photo service. I hope it works now. This looks good. So here, you see our mobile photo service 5.2, which was launched last week for iOS and this week for Android, what you see here is the Android version. And really on a very prominent place, we show you the last events. Sorry for that, but it's not as much as you normally use for my personal images, but also COVID was really stopping us for going around. So the first and most used event is Oldenburg. The last one was in autumn in Bavaria when I met my children and we took -- the autumn was really in last year's summer. But if you go in there, you see a lot of more relevant events which are fully automatically clustered. I told you by artificial intelligence, but also by algorithms, heuristics we know. And of course, you see also the title where it was. This is based on the GEO location. And if I go down here, you see the first one, which has no GEO location because at that time, I don't know why, I deactivated my GPS coordinates in the mobile phone, but the system really said this is a relevant event. And now it's really checking about duplicates, it's checking about convenience photos, such as parking lots, and it's now presenting -- in this time, it was really light, as you have seen, it was more than 250 images, it's presenting you a suggestion how this CEWE PHOTOBOOK of our visit in Dresden could look like. And you really see it's very nicely laid out. And of course, as in our customer [indiscernible], you can go in, you can edit everything. And here on this page, for example, see how perfectly horizontal, panoramic and landscape images are laid out. Here's one example where our savings didn't work well because the face is a little bit overexposed. So I simply change it. I go to the next page. You see perfect. It's perfectly done. And if you look at the photos, and you really see how many I have taken in there and only the ones with the blue circular part are selected. You see how really perfectly it worked. To get out the near duplicates, it took only 1 image of this group line where it didn't take me hours. So it's really perfectly done. And if you go in there, it's really ready to order and all the artificial intelligence will lay out. You're seeing the layer is taken from our HPS. It's exactly the same experience on the layout you would get in the HPS. But the images are perfectly selected by our artificial intelligence solutions, which were built in-house in the mobile and artificial intelligence campus, which we also showed to you on our last meeting in Frankfurt. And this is the result, and I think it's pretty easy to see. You simply press the ordering button, and you can have a really nice design CEWE PHOTOBOOKS. Also for the weekend, as this was a weekend travel, we don't need only the PHOTOBOOK for Namibia or whatever it is. Here, for example, you see my wife, it's a little bit too dark. It wasn't perfectly aligned. I go in here. And that's it, I can order the CEWE PHOTOBOOK. And I think we've shown you, no matter if it's online, if it's desktop and especially it's mobile, we are prepared for the future, and we are delivering great solutions to our customers. And with that, I would like to pass it back to Christian.

Reiner, thank you very much. You very impressively showed us again that we are not only market leader in Europe in photofinishing, but we are also absolutely cutting-edge in technology. And this is proprietary technology. This is not available to competitors of ours because we've developed this ourselves in-house. So what does this lead to? In the slide that you've seen before and as you know, we like to refer to often enough, you can see on the very right-hand end -- yeah, on the very right-hand end, that we have actually an increase in sales that we expect to be between EUR 710 million and EUR 770 million. If you look at the next slide, you can see that we are expecting to stay or slightly increase our earnings to EUR 72 million to EUR 84 million. And we'd like to sort of extend the confidence to you that the good results last year are certainly not one-offs, but that we are actually looking at a similar level of profitability for this year. You may think about -- on the next slide, you may think about why is it that we increased the ranges. There's 2 reasons for that. Those of you who've covered us for many years know that we used to have smaller ranges, not number 1. Plus 2 and minus 2 of EUR 700 million is obviously a lot narrower range than plus 2 and minus 2 of EUR 500 million or EUR 400 million or EUR 300 million. This is the one reason. And the other reason very clearly is we still have COVID-19 around. Nobody exactly knows what's going to happen with that and how we are going to come out of this year. So we've actually also allowed for some COVID-19 insecurity. Despite that, we're confident that also 2021 will be a good year for CEWE. And if you look at what we are doing in branding, if you're looking at what we're doing in product development, if we look at what we are doing in terms of technology, and also if you are looking at what we are doing in terms of managing the COVID impact in our retail and in our commercial online printing segments, then I'm sure you will concur with us that CEWE is well prepared for 2021 and beyond that. Thank you very much.