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

Good morning, ladies and gentlemen, and welcome to today's analyst conference call of the CEWE Group following the publication of the Q1 figures of 2024. I'm delighted to welcome the CEO, Yvonne Rostock as well as CFO, Dr. Olaf Holzkamper, so the Management Board will guide us through the presentation and the results shortly. [Operator Instructions] And having said this, Dr. Holzkamper, please go ahead, the stage is yours.

Thank you very much, and good morning to everybody, and welcome to today's Q1 '24 conference call of CEWE Group. Great weather, great numbers. And as you can see behind this is a real wall, not a digital wall. We're now in our new great studio here at CEWE. I hope you like it, but quite frankly, it's an interim solution, but we all know interim solutions stay for quite a while some time. So here we go, and I hope that we'll enjoy you also with the great numbers that Yvonne is going to start with that.

Thank you, Olaf. A warm welcome at our Q1 call as well from my side. Most of you I met personally in our annual press conference 6 weeks ago, there we shared our record results for 2023. And now 6 weeks later, I'm more than happy to be able to present an excellent start as well into 2024. In the next 45 minutes, we'll cover the following points. We share the results in a nutshell. We look at the corporate development and the business segments. We sum it up in the group results, and then we'll dive into financial details and close with an outlook before we then go into the Q&A session. Let's get started with the results in the nutshell. As the CEWE Group, we're proud to publish that in Q1, our group turnover raised by EUR 10.3 million to a record of EUR 165.7 million, this is an increase of plus 6.6%. To put it into perspective, I can say that to reach our yearly target we require a growth of 5%. And with this 5% growth of the yearly target, we'd then be at the upper range of EUR 820 million for the total year. So we're good on path. For the group EBIT, we increased a plus EUR 2.9 million up to EUR 8.1 million, which is a plus of 55%. To put this in the same perspective, in order to achieve our yearly growth, we'd have to accrue in a total year by 4% to reach the upper end of the range of our EUR 87 million. So to sum up, if you look on this one, we can say top line and bottom line developed successfully. We had a real strong start into the new year. And with this, we clearly control our targets for 2024. Let me guide you through the corporate development and the business segments and starting with our biggest segment, which is the Photofinishing. Before the numbers, let's follow up on the direction of the CEWE Group. We define this beginning of this year. We're striving to increase our #1 position in Photofinishing in Europe. And in order to achieve this goal, we believe it's important to stay focused on our mission. Our mission, inspiring people to create and share personalized photos and print product at highest quality. We achieved this by providing an outstanding user experience along the entire customer journey and here innovation is key to success. This will enable us to stay ahead and build our position as the market leader. Next to the mission and to live up to this mission, we defined the common set of principles, all starts with the consumer at the center. We then, if we go around the circle, built on strong brands, innovation, sustainability and efficiency all carried by one team sharing the same values. The key principle of customer centricity, it's one of the biggest award that we can get is the feedback from our consumer. Some of the feedbacks is anecdotical and they praise products or services, the speed and the quality -- speed of delivery, the quality, but this feedback is also measured in a Net Promoter Score. And this is a KPI internally, Which I'm happy to share because here as well, it's quite well above 60%. And alongside with some of the well-known brands like Apple. And we increased on the last 12 months rolling up to 62.6%. And this is what a great NPS can look like in real life. This is what we mean by consumer centricity, doing everything to make our consumer happy. And we do everything to excite and inspire them everyday. The question is what inspires and excites people. And the answer is innovation. Innovation as well as the main target to be in the service for our consumer. But innovation is as well our dedication, it is helping us to shape the future of our market. And it's our responsibility as market leader being always the first. Innovation is embedded into our way of working. So there's a strong top-down approach as well with a bottom-up approach. And the bottom-up approach, there's processes behind. We had just as we're hosted in Q1, our innovation team is welcoming 1,000 team members here in Oldenbug to exchange on innovation and product and service improvements. Still, we're particularly proud and pleased that the innovative strength of CEWE has once again been recognized by an external honored international jury, the Technical Image Press Association. And we got -- we received 3 awards for 3 brands in 2023 -- 2024. If we look into it, The Best Photo Service award went to the Freeform Stickers, which we can be created and cut and picked directing at our CEWE photo station. For Pixum, we received the award being the Best Consumer Photo Printing App. And for WhiteWall, we've been awarded to receive the Best or be the Best Photo Lab for our ultraHD sharpening for black-and-white photo prints. Another thing that really is important to our consumers and to us is sustainability. It's a passion and a strong mindset in CEWE. It's as well a responsibility for our people and our planet. And it's important that we're future fit. The 14th sustainability report is now published, and all the details about our efforts on sustainability activities are sum-up there, and they're published on our website. We're proud to be awarded by Statista in the Financial Times as well as a climate leader and we received this in 2023. Consumer require as well best quality, fast and reliable service at a competitive price. In order to provide this, efficiency is really key to us. Efficiency in production, in cooperation, in services and in [ stores ]. In '24, we continue to invest. And you know for us after Christmas is already before Christmas, so we invest in automated processing, whether it's printing or sorting and we invest as well into strategic production expansions. In April, we celebrated the significant extension of our production site in Kozle, which you see here on the picture -- on the big picture in the new hall at the back of the picture. And how it looks inside is this, and this is an area where you can see what -- we did not only extend, but as well, we built a specialty for our photo gifts near the textile production for Kozle, which we in-sourced end of 2023, which already took part during the last Christmas season. The consumer search as well for strong brands is an orientation. This is -- strong brands are important in the fast-moving consumer goods and as well, they're important for Photofinishing. Strong brands are key for us. Historically, CEWE has transformed from private label to the CEWE brand and then to the house of brands. So you may ask what are we going to do now? We're going to make sure that the brands are strong, they're differentiated, and they're not brands. So the example of Austria that for the first time, we became the most loved brands of Austria is very valuable to us. And it's great consumer recognition. And this is built by 2 things. First, by building the global brand of CEWE, but as well by giving it the local touch with local activities, with supporting the local photo culture and with local families as ambassadors transmitting our inspiration to our consumer. So far to the principles and where we're standing there in beginning of this year, we defined as well our strategic priorities to reach our goal of the number one. So if we look at the strategic priorities, this we've to find and we're working now alongside these priorities to build on. So what you can see, it starts with the brands, which we just talked about on the left bottom, extending the brand's strong, differentiated and love brands. We can put a second innovation in terms of products and as well technologies, focusing on our core products and core services. We then -- as the number three, we can talk about the international growth. International growth, meaning with a focus on Europe. South is the strong base, Western Europe as an accelerator and Eastern Europe continuing its success story using further opportunities in countries where we're not yet leading. Number four, means developing the 2 channels, B2C, relevant for all our brands. And the combination of B2C and B2B2C is very valid for our CEWE brand. And here, it is important to have this balance and together with our partnership of our retail partners. On the number five, we're working on going from multichannel to omnichannel. And to this priority, there's a lot of potential. Consumer would like to have seamless transit, seamless between channels, between softwares, between the photo station and the online. So they'd like to be perceived and welcomed in one world. And there is a lot of potential behind. So it's one of our priorities we're following. We then come to the ordering channels. And on the ordering channels, we're developing all of them and the ordering channel of the software is still the elephant with as well high growth in terms of value, but we'd like as well on top to focus and to accelerate on the mobile, which we see as well as a growth driver for the future. Retail, number seven is more and more comes from the hardware business. We've strengthened this footprint, and we've turned this in more and more of an experience in store to our Photofinishing. And this means for us, we go first in this direction of vertical integration and putting the Photofinishing more and more forward. And point eight, operation, vertical integrations, quality and efficiency. The example of what we've seen there, it is covering everything, production, logistics as well as supply chain and customer service, of course. And this is important to deliver the best results behind them. We do as well investments. As in '24, we continue our investment track in machines and in services, but as well in the way we're approaching it. So this is all the priorities. And if we sum this together, we've set our strategic priorities. The number one is playing a huge role for us. So being one house of brands with one common goal, with one common set of principles and set of strategic priorities, we've shared the priorities for Photofinishing and delivering this as one group with one team. And the one group, we've launched. And this is the sign, it's a platform. It goes beyond the different segments. So photo -- whether it's Photofinishing, whether it's commercial online printing. It's covering and hosting all the brands and it's hosting and giving them home to all our team members. So the group, in fact, is supposed to be more than the sum of the parts. And we've launched this internally in Q1 as well as externally on all relevant channels. And the group can only work, if this is carried by the team spirit and this is carried by our team. Here, you see the team on the innovation days where we've launched this new group approach. And this is the one team. And at this moment, I'd like to thank whole heartly each of them for their contribution in Q1. Contribution in Q1, we can now dive into the figures -- hot figures of Q1. So in Photofinishing, we had a strong first quarter. The turnover once again rose significantly by 9.1%. We achieved EUR 137.6 million. And we achieved this despite macroeconomic challenges. Yes, you can say, on the one hand, we might be fortunate because we're less dependent on macroeconomics because we consider -- and the consumer considers the product range offers the value, which exceeds their price. So that's a good point. But we cannot rest on it, and we did rest on it, we continue to create this value for the consumer. We invest in innovations, products, technologies, we ensure quality and we let the consumer know about it. So we invest in marketing. In Q1, we increased this marketing invest in value as well as in percentage. We develop our brands, and so we're happy to say that all pure Photofinishing brands could contribute as well to the results of the Q1. And we're still expanding our cooperation with our partners and our footprint in photo gifts. So we can say, even we don't have precise numbers as this market is not covered by one of the auditors or experts like Nielsen or GfK, but we can say we extended our market position. So far to the top line. If we look at the bottom line, we can say as well that the bottom line has benefited from it. So we increased the bottom line by EUR 2.4 million and reached EUR 7.5 million, a very stronger sight as well for the Photofinishing. Going a bit in the quarterly distribution, having a look there, we can see a green tick on the box. We've targeted in turnover range between EUR 126 million and EUR 135.5 million, and we've achieved EUR 137.6 million. So yes, we're above -- we exceeded our own planning. We -- this is good because if you see as well, it is important. We did it because of Q2 or despite, we can say some of the calendar and holiday shifts, which was not set, which was significant. And it is very important to have a strong quarterly -- first quarter start as we're now moving into the more challenging quarters, Q2 and Q3. If you look at the EBIT, we see a green tick as well for the Q1. So here, again, we exceeded our target, which we set as a range between EUR 5.8 million and EUR 6.6 million, delivering EUR 7.5 million. And this is an important good start for us, looking at being prepared for a more challenging quarters in Q2 and Q3. Diving on one level deeper and understanding how the turnover is constituted. On the left-hand side, you see the number of prints. And you see there with a plus 0.5%, we're in the middle of the range. And here, we can see some of the impacts of the calendar and the holiday shifts. And probably in the middle of the range. If we look one further right, we see the value per photo, and there you see an increase of 8.6%. This includes 2 factors: first, the price increases; and second, the premiumization towards more value-added products and towards more expensive products. And if you combine the volume and the value, you count it 9.1%, which is the increase of the turnover. Taking a look on our core product, the CEWE PHOTOBOOK. We can see that there, we've a slight decrease with minus 1.5% in the first quarter. This is for us somehow expected due to the calendar and holiday shifts I mentioned, but we reassured -- and this was mainly concerning the March. We reassured in January and in February, we showed a nice increase between plus 2% and plus 7%. And we reassured once more because, if we'd look at the turnover from the CEWE PHOTOBOOK, it increased with plus 6% in the first consumer. So this is an important number, EUR 1.2 million. It's a number, but as well behind, we've families and consumers, who we make happy with this PHOTOBOOKS. We can move on to the commercial online print. The commercial online print is constituted -- the results of the commercial online-print is constituted out of the 3 different brands with the main contribution in the middle was SAXOPRINT. And if we look how they're landed here in first quarter, you see that despite the decline in top line, minus 4.9%, and we managed to have an EBIT increase and to deliver a positive result on the EBIT line with EUR 0.8 million. And this is always a fine line between the best price strategy and as well as the profitability. And here, it was important for us next to the best price strategy to ensure that we've a very good profitable start as well into the year. And yes, macroeconomics are here more challenging than in the Photofinishing business. If we look at retail. On retail, please be remembered that this is the hardware business we're looking at here. And the hardware business means the cameras, albums, frames. The Photofinishing business is included in the segment, Photofinishing, which we just went through. If we look on the hardware, we can see that we achieved a turnover of EUR 6.6 million, which is a slight decrease, minus 1.5%. And we managed with the mix of the things, an EBIT increase of plus 41%. It's still slightly negative, but close to breakeven in Q1. If we've a look at the others, which after the sales of futalis became a very minor segment. We've taken out here on this view futalis turnover as well in 2023 to have it comparable for 2024. And so this combines more the results from corporate costs and real estate property with a stable result in EBIT. So we're now able to sum up on the group level. And on the group level, we can say that all the businesses -- segments we've added up to this EUR 165 million and plus 6.6%, we've seen in which rate was very much driven by the Photofinishing in top line with a more challenging top line in online print. If we look at the EBIT, we can see that each of the divisions are contributed to the bottom line result, lion's share Photofinishing with good contribution and strong contribution of commercial online print and improvement on Slide 11 for retail. And with this, I'm happy to hand over to you, Olaf, for the financial details.

Yes. Thank you very much, Yvonne. And let's look at a couple of pages we've back there. And the first one is always, let's look at the P&L first. I think you did already explain, obviously, the development in the different segments and the top line segment development obviously adds up to the first line here. But it drives the structure underneath in the lines that indicate, where is our value generation. So you know and we've explained that a couple of times -- I truly know by now that in our segment, Photofinishing, we do generate a lot of value by actually doing things ourselves by having personnel costs in there by having other costs in there, marketing costs in there and so on and so on. And that is why, there is always limited cost of materials in Photofinishing, but there's more personnel costs and more other operating expenses in there. So that is photofinishing. And we saw an increase in Photofinishing in Q1, as we just looked at. Now in the other 2 segments in commercial online print and in particular, in our retail segment, we do see a different structure. We do more cost of materials, but less personnel costs and less other operational expenses. And we did see a decrease in revenue in these 2 segments. And looking at that is driving the kind of structure we do see in the next slides here. So yes, we've talked about the 6.6% increase, nice increase in terms of revenues. Next 2 lines, nothing really important in there. Other operating income, yes, we did see a slight increase there, which is also different bits and pieces gains from exchange rate differences and income from the recycle-linked material we've in there have a slight increase there. In cost of materials, we do see -- in spite of the revenue increase, we do see a decrease in cost of materials here by EUR 2.4 million. And we do see obviously, a tremendous decrease in cost of materials in percent of revenue from 26.9% to 23.8%. And this is driven by exactly the change that we just walked through. We do have the changes in the revenue structure, more Photofinishing less of the other 2, and that is leaving to -- leading to less cost of material in percent of revenue, which was increased, obviously, by the higher sales, especially due to the price effects in there. and these price effects did intensify this development in terms of decrease in material cost percent of sales. The price increases were not able to compensate in the other 2 lines, personnel and other operating expenses, the effect -- because there, we did see the increase in percent of revenue. We did see the increase in personnel expenses to 33.4% of revenue because there is like EUR 5.9 million more cost because we did have more personnel in Photofinishing operations. We did have more personnel in central services, and we did have a wage increase in some of those situations there. So this is -- has been leading to the situation in personnel expenses. And the same is true for other operating expenses increased in terms of percentage of revenue to 35.9% in millions, up by EUR 6.7 million. And we do see there selling expenses, which is our value generation there, which is marketing mainly and we do see a bit more exchange rate losses there, which are in line corresponding to the exchange rate gains we've seen above. So these are the developments in the operational lines of our P&L structure. In terms of amortization, depreciation, no change at all in terms of absolute numbers, which means a decrease in percent of revenue. So if we add it all up, we've a nice situation. It was explained already, EUR 8.1 million in Q1 EBIT. It's a successful quarter we can build on for the rest of the year. That was the P&L. Now, we move over to the balance sheet. And look at the traditional balance sheet here on this page. Yes, we do have an increase in assets overall by EUR 41.5 million that is in line with the revenue increase, which we're seeing right now already and which we're even more going to see hopefully as we go through the year and especially in Q4. That is the important quarter. So that makes sense at all. Q4 is being prepared, and we do see the increase in assets here. If we look on the liability side, yes, obviously, the equity ratio is the number we like to look at here. As a conservative company, we like the situation we've. We do see a 66.6% equity share, which is a decrease from the 67.1% you might notice here and then you could be asking. So why do we see a decrease? I mean, given all the success we've had in last year and given the success of the first 3 months of this year, so why do we see looking back 12 months ago, why do we see a decrease? The decrease is because we have a -- do have a strong cash position. We're aware of that. And if we see share prices that we appreciate and that we consider worth buying, we do buy our own shares. So we've share buybacks in there by -- of EUR 12.9 million, as you see in the box on the right hand top. And if we take out -- if we take all these EUR 12.9 million and put it back in there, then we'd have seen an increase in the equity ratio to 67.3%. So that is the reason -- that has been the reason why we do see the slight decrease there, but it was completely planned for. It makes sense in our eyes because we're cash strong, the cash is not visible here, but the cash is visible on the next page, which is, as you know, the management balance sheet, we like to create for you to show you what does it mean if we take out the balance sheet elements we do not have to pay for in terms of interest or dividends. And looking here at the capital employed and the capital invested, yes, we do see a cash position. It's not greatly visible. It's -- on the left part, capital employed in the last column, we do see the EUR 83.6 million we've as a cash position in there. This is a big item, given our balance sheet situation, given the way it looked like in the last years after Q1. And yes, also for that reason, we do have the ability to buy back shares if we consider it useful, and we do so as we just talked through. And we've done so all of last year pretty much. So that is something -- if the share price makes sense, yes, we like to do it, and we think it makes sense. But -- all in all, we do like to develop our company. And that is why the EUR 83.6 million, we see there are needed. We're going to use them to do something with it. And you're aware that 2019 was the last acquisition, WhiteWall at that time. The last acquisition that we've done. Now, we've not done any acquisition in the meantime to grow them, whatever operational means, but also because the prices that we were looking at starting discussions here and there about any company that could have made sense for us, the prices were too high. And I was just sort of encouraged again this morning at our breakfast when I was reading the [ 100 plus ], I was reading an article on the private equity situation. And they were saying, "Oh, yes, and the funds that we've and the acquisitions, they're vintage '20, '21 and '22, they'll have a hard time being successful at the end of the day because prices we paid at that time tended to be a little bit high." You see that it was black and white, and that was exactly the reason why we didn't do it because we look at the numbers and if it makes sense, yes, we're happy to buy and if numbers don't make sense and things way too expensive, we don't buy. And if we don't buy cash happens to be still visible here. And that is why we're happy to have the cash here, and we will use it. But given what I just talked through regarding how others tend to behave, I'm rest assured that we don't do anything stupid with the EUR 80 million we're seeing here. We'll try to use them as wisely as possible to the benefit of the company. So that was on the visible EUR 80 million we're seeing there on the cash position. If we look at the rest of the capital employed there, where did the changes come from, yes, a little bit of the money that was freed up by the net working capital at the bottom was used on top by the noncurrent assets. And there, you see if you read through the box the most important change is the real estate projects that we've now for the Photofinishing production. Yes, there's something happening in Freiburg in Germany close to the border of France and Switzerland, but there is also happening something in Kozle, which Yvonne talked through at the beginning. Kozle is -- has been built up in the last years for our labor-intensive products, and that is exactly what you could have seen on the picture -- what you could see on the pictures that Yvonne shared before. So that is the mainly the increase in noncurrent assets. And in net working capital, you see decrease that, to some degree, funded both increases you see above. Net working capital is you can read through all the details at the bottom, but it's mainly taxes that have been -- with the tax position that has been changed. We had an increase -- a decrease in tax receivables and an increase in tax liabilities, and that was obviously a positive effect on the cash flow of the 12 months that we're looking at here, not on the cash flow, sorry, on the cash position and the balance sheet. So that was on the capital employed. And if we move over to the capital invested, no big change. I mean, yes, we talked through the increase in equity already with 2 positions at the bottom, gross financial liabilities and nonoperating liabilities. No big changed, nothing to talk through in detail. So that was the balance sheet on the looking backward compared with 12 months. And if we look at the comparison, what happened in this quarter, cash flow wise, so it's the cash flow of the Q1. Yes, you do see that actually, there's no big change compared to what was useful -- what was used to be the case in the last quarters. The most important thing we see on the left-hand side, cash flow from operating business is the position #2 in this list. And we've seen a decrease of EUR 6.2 million there. And that was due to the fact that last year, we had a one-off increase because some retail partners didn't pay in Q4 of '22 what they should have paid, but they paid immediately in Q1 of '23. So that was EUR 6.2 million that we've to compare ourselves against now. And that is why there is a decrease now in fiscal year, but it was more an extraordinary increase of last year, which is funding the decrease now that we see here. And the EUR 6.2 million are actually driving the whole thing. That's the development you see there in operating business cash flow. It's the decrease you do see in only a EUR 2.1 million. So they're countermeasures or the counter effects invisible. Yes, there is more earnings. You can see on top EUR 3.2 million and the cash flow from that. And there is more -- there's a positive effect in cash flow in other net working capital. It's mainly we still have to pay sales tax liabilities due to the increased business we've there. So those are the most important counter effects we've seen. All in all, not a big change that we could look at there. In investment, yes, we do see an increase in investment. We do see an increase by EUR 2.7 million, and that is basically 100% driven by the little supplementing company acquisition we've done in commercial online print, but it was not a sort of real acquisition. The company was part of our supply chain anyway. And we used to -- we used them as a provider before, as a producer for some of our products. And now they're part of our company because these products, it's mainly large-format prints. However, successful and we've a handsome margin, and we'd like to have them on board as part of our company. So it's only a supplemental little thing there, but it makes sense. These are the 2 changes we've seen, not a lot all in all, and that is why overall, you do see a free cash flow position for Q1 of EUR 26.9 million negative, and that fits, if you look through the last years there. It fits in the flow of things. That's a very typical normal Q1 as we tend to see it. And the last number we really close with is the ROCE situation. ROCE increased again to 19.2%. It's a great position we see there. CEWE is clearly really generating. Obviously, if you look at this number, it's great. So what do we do in the AGM? We did put out already a proposal for the dividend of EUR 2.6 to be paid. And hopefully, that is going to be approved by our shareholders and then it's going to be the 15th dividend increase, consecutive dividend increase we've seen over the last years. And that is quite an extraordinary number, as we've seen also in the last years. 2 years ago, it was number 13. And with this number 13 out of all more than 600 companies listed on the German stock market, we've been positioned #5 in there. Now '23, we increased for the 450 -- sorry, for the 14th time and because others didn't increase, we stepped up to position #3. And now another company didn't continue the increases, and with 15th year now, we happen to be #2 out of 611 stock listed companies in Germany. And that -- we think that is quite an extraordinary position where we're on. Those were the financial details. And for the outlook, Yvonne, I'm happy to hand back to you.

Thank you very much, Olaf. So what can I say for the future and for this year. If you go on Chart 1. This is one of any charts of CEWE, and it's important for us to develop the line as well as for the dividend as well for the business. And here, we've targeted EUR 770 million to EUR 820 million as the top line, knowing that we're targeting the upper end of the range. And the lower end was declined to integrate post potential macroeconomic effects, we could not already foresee for the planning. So that means with all the things you've seen today and with all the things what we've delivered in Q1, we feel confident to confirm this target of EUR 820 million. If we go to the EBIT line, here, we had set ourselves a target EUR 77 million to EUR 87 million for this year. And here as well with the things we've shared today -- and we're confident to go for this target range and to confirm the target range up to EUR 87 million EBIT. We start with the consumer and the consumer stays at our center of all our efforts. So we can only invite you to capture your particularly nice moments in photos. And now with the weather becoming very nice, use the momentum to shoot the photos and then you're invited to turn them with us into your personal memories. And we love the photo products, and we look forward to deliver versus our targets in 2024. Thank you very much.