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

Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of the CEWE Group following the publication of the first half year figures of 2024. Kindly note that you have the option of switching on your camera yourself, but please bear in mind in this case, you will be visible during the entire presentation, but not on the recording. So this call will be recorded and stopped due to the Q&A session. So having said this, I'm delighted to welcome CEO, Yvonne Rostock; as well as CFO, Dr. Olaf Holzkamper. So the Management Board will speak shortly and guide us through the page through the presentation, and afterwards, we will have our Q&A session. So having said this, Dr. Holzkamper, I hand over to you.

Yes. Thank you very much, and a warm welcome also from our side to today's calls of the Q2 numbers of the CEWE group. I've just had a quick look at the number of participants, and it looks like a very elite smaller group we are seeing today, which to some degree is probably due to the effect of the expedition happening right now. And in vacation season, we do see smaller groups typically. Nevertheless, we couldn't be happier than you are on vacation because vacation is important for you, as you know. We love you taking pictures during vacation and ordering the CEWE Photobook products, later on based on those picture. So these product are still to come nevertheless, Yvonne and myself, are in this call today to present you also numbers that is in without the vacation having happened already are quite worth looking at. And having said that, Yvonne, please?

Thank you very much. A warm welcome as well from my side to our Q2 call at the CEWE Group. Most of you I've met during the last quarter, let's say, the first quarter call, where we could present record results. And the great news are that one quarter later, I'm very happy to share with you that this development continues. So in the next 45 minutes, we are going to cover the following points: the results in a nutshell, the corporate development as well as development of the segments, we then turn to the group results and Olaf Holzkamper will guide you through the financial details before we close with the outlook and then open for the Q&A session. Let's get started with the CEWE Group results internationally. For half year one, we are proud to publish that the Group Turnover raised by EUR 21 million or EUR 21.7 million to EUR 317 million, and this is an increase of 7.3%. To put this in perspective, in 2024, we target a growth of 5% to reach the upper end of the target range. The group EBIT increased by EUR 4.3 million to EUR 5.4 million. This is nearly 5x and to put this in perspective, to reach the upper end of our target range, the EUR 87 million, we would need to grow by 4%. To sum up, the top and the bottom line developed successfully. We had a strong kickoff of strong first half of the year, and we clearly confirm the targets for 2024. Let's have a look which contribution the Q2 quarter. The Q2 turnover raised by EUR 11.4 million to EUR 151 million, and this is an increase of 7.8%. This is even slightly higher than in Q1 and slightly higher for the half of the year. The group EBIT traditionally is negative in Q2, but we could reduce the loss versus last year by EUR 1.4 million. So we are now a remaining loss of EUR 2.7 million. Here again, we are fully on track on our yearly results, and it's great having created a surplus taking off into the second half of the year, knowing that everything will be decided at Q4. Knowing as well the macroeconomics, we are all aware of, this is a great achievement. And with this, I wholeheartedly thank the whole CEWE team to make this possible and to carry this growth. Everyone showed that we are on the right path in making our customers happy. At CEWE, as you know, everything starts with the customer. And that includes not only our loyal CEWE customers, you're going to the see the family [indiscernible] and it also includes our B2B customers in Commercial Online-Print, they trust, SAXOPRINT and Viaprinto and it includes the consumers that visit our retail stores in some countries. When we are able to present good numbers, we succeeded in making more consumers happy. Making consumers happy is easier said than done. They expect the best, they are demanding and they want to be inspired. And that is exactly what we are focusing on every day, inspiring people to create and share their personalized photo and print products at the highest quality and we achieved this by providing the outstanding user experience alongside the entire journey and innovation is key to this. This is how we want to stay ahead and build our position as the undisputed market leader. The good news is we know what we are focusing on, and we know what needs to be done. We are confident that we will deliver cutting-edge experience to our -- of our products and the journey for our customers that we will inspire. And to achieve this, we follow this principles. And these are the principles, which made us successful and which even more will make us successful in the future, all starts with the consumer at the center and we measure this as the KPI of NPS, the Net Promoter Score, and I can report as well that the Net Promoter Score, again increased in half year one by 0.9 points, now reaching 62.7. The strong brands and innovations, we are currently working very hard behind the scenes to deliver the innovations and the fascinating experience in time for Christmas and of course, beyond. Sustainability we were how to say, we released the 14 sustainability report, and we were nominated again as a sustainability leader in half year one. Right now, our teams are working on how to fulfill the regulations of CSRB. But at the center, our focus is to reach our goals that are important and that are centered around people, environment and society we live in. In terms of efficiency, it's always at the heart of what we do. It's an everyday effort. And there are 2 main points or 2 main directions to look at. If we look at our investment and the continued improvement of machinery as well as printing methods. And on the asset side, into more innovative site extensions, efficient site extensions, like [ Kommerzieller ] earlier on this year, we shared and the upcoming extension in Freiburg we are going to open in September this year. And all this is carried by one team, sharing the same values. Let me guide you through the corporate development at the Photofinishing. Let's have a look at the Photofinishing, starting with this business segment, which is the biggest. Following these principles, I can relieve some of the innovations. In fact, we had presented the TIPA awards in half year one. So I don't want to repeat that one. But what we can do already, we can share a couple of things like International Trust Corporation, which we initiated and which will contribute to the strength of our brand building. And so we are pleased to announce that this is now in place. As well, the Photo Award has started. And good news are that we have received already 150,000 pictures at that early stage, which is great. and we target directly everyone, who is enthusiastic about photography. And as well, we support this in cooperation with some of our trade partners at like Boots or [ Migros ] for example. If we go further, we are as well happy to share that we won a German Brand here for the individualized thermal mug and if we go on further, you see a couple of, I would say, extensions and directions we go to Domino or calendars in different formats, building on the base of this year, the 3 TIPA awards you see on the right and the rest, we were currently on our road map, very secretly, as well remaining and holding the cutting edge and the competitive edge. So stay tuned and what we will bring out in this year. If we look more further, there is one more nomination. CEWE has been recognized and awarded as a digital champion. It's a study which is rated by an agency called Service Value Incorporation with the daily newspaper debate. The study checked on more than 2,000 companies from nearly 160 sectors, CEWE is the winner of our sector. So this is, I would say, a stage on the Q2. If we take a bigger picture next to the principles, we have set priorities for Photofinishing, age priorities. So we have shared them as well on the press conference with you beginning of this year and we follow alongside these strategic priorities, starting from developing strong differentiated loved brands; second, driving international goals with a focus on Europe, build on the power of [ that ], but accelerating on Western Europe and continuing our success story in Eastern Europe as well using the opportunities in Southern Europe. Developing continuous product as well as technological innovations. And here, each of the product ranges have to play their role. So while the CEWE PHOTOBOOK stays the biggest one, but there is the potential in others like whether it's gift, whether it's instant printing or potentially digital products. For B2C, we have the priority for all brands, the same priority. For CEWE, we combined B2C with the [ B2B2C ]. So that means partnering with our retail partners. And this is part of our USP and this is part of our dedication to offer the consumer as well this access and entering the photo printing world. If you look further, this drives as well to omnichannel. So we are multichannel today, there is a lot of more potential to combine all our channels into a seamless journey again, with the customer at the heart and this is on our agenda, mobile acceleration, while every other channel has its own relevance and it's on role. The biggest one still is remaining the software, but biggest acceleration we expect from mobile. And here, we will focus on. If we look on the retail business, here the retail business, the main idea is that we turn more and more from hardware into Photofinishing becoming flagships and I would say, representative stores for our Photofinishing and for our CEWE brand. And last but not least, at the heart. It's everything about our operations, 99% of the products we offer or produced in-house. So it's about efficiency and quality in these operations, whether it's production, whether it's customer service or whether it's supply chain. So all this we target to extend our #1 position in Photofinishing in Europe, and the half year one results confirm our approach, so export numbers. Photofinishing, Photofinishing, we had as well a strong half year one. The turnover was increasing by plus 10%, if we split it down, then 3% was the increase of volume, 5% increase through premiumization, price increase and through the shift of a business model for major clients to commission. We achieved this despite macroeconomic environment and we do everything to stay independent from the macro developments. Even we are doing well that means as well we cannot rest on it. So we are contributing continuously in terms of what we offer for the consumers, we invest in innovation, we invest in marketing, we increased investments in value, we develop our brands, all pure Photofinishing brands contributing. And we're expanding still our network of Photo [ kiosk ] with our partners providing access to millions of consumers to their first photo printing experience. So this, we have not yet the half year market figures available. But due to our estimation, we are winning share. We need to grow as well in order to mitigate the cost increase. And this you see on the EBIT line, in EBIT, we did this successfully because we had recorded an increase of EUR 3.3 million and reached EUR 4.4 million, which is 4x bigger than last year. So we are on track for the long-term view, the only exception here, you see 2020, which was the Corona impact. Looking at what did the quarter 2 contribute to this one. Here, we can say that the German -- the North Germany that we are not unsatisfied. Continuous strong development in turnover with plus 11%, the 11% slip down and 4% growth of volume and 5% growth of premiumization, which is driven by pricing as well by increasing the value per product. So upgrading and as well due to the business model shift for one of the international key customers to commission. Traditionally, the negative EBIT is negative in Q2, but we could reduce the loss. So we are now performing as well better than the last previous years, only corona was again better. Looking at the distribution of the turnover over the individual quarters. Q2 has as well outperformed against our targets. We had a target range from 110 to 118, and we reached 122.6. So after the green take under Q1, we could as well set a green take on the Q2. So with the 2 quarters, we are above -- slightly above our own planning. If we look for the Photofinishing EBIT distribution, as value we can say, we are above target for Q1 with a higher EBIT, and we are above target in Q2 with a lower loss in EBIT than targeted. So all in all, in top and bottom line, we are above our own targets, a strong half year one. And once more, it's an achievement and it's a good position to be in. And during the Q3, remembering that this was a strong benchmark last year and knowing that the year will be decided in Q4. Diving one level deeper on how the turnover is constituted. So if you look there, the number of total brands positive, plus 2.3%, slightly above our range and improving. The value for Photo continues to increase was plus 7.6%, this includes, again, the price increase, the premiumization and the shift towards more value-added products. And on the volume and value impact you see on the right side, this leads to a 10% increase of the Photofinishing. So if we look on the Q2, Q2 is even stronger and close versus the previous year, and it contributes strongly as well to the lending of the half year 1. The direction is the same as we have seen of the half year. Let me look into the PHOTOBOOKS. This is an important number for us, how many people we make happy across Europe receiving one of these PHOTOBOOKS -- ordering one of these PHOTOBOOKS. We can say that the Q2 was strong in terms of volume development, we could increase by 5% and this makes us lending for half year one at plus 1.5%, so within our target range. And if you remember, this was a discussion in Q1, because there we were slightly negative and we have explained to you that this is a phasing effect and a phasing effect between holidays and shifts and calendar shifts. So here, in fact, we can confirm that overall, the volumes are increasing as well. So far, the Photofinishing, let's dive into the Commercial Online-Print. Commercial Online-Print driven by the 3 brands and the 2 main brands, SAXOPRINT and Viaprinto. Here as well, we have set ourselves a strategic priorities, 3 of them first, pursuing the best price strategy, which was critical for us as well for the turnaround, expanding our product portfolio as well towards a more value-added different format printing with the extension of East print products. And we have the third one, of course, potentialize first any synergies between Commercial Online-Print and Photofinishing. So alongside these priorities, we could as well in half year one achieved the following results. So you see there is a minus 3% in turnover. And so reaching now EUR 43 million, and it's a decline. It's a bit of a lower decline than what we have seen in Q1. So we are fighting against and it's very important to see the overall perspective. We don't have exact market numbers, but the estimation is that the market is declining. It's still a significant market with potential for us to win market shares, which, to our calculation, we did as well in half year one. Important despite this turnover decline, we managed to improve the EBIT by EUR 1 million on the base of a continuously optimized cost structure, and this is important as we are going forward. If you look on the contribution of quarter 2, we can say the quarter 2 contributed well. And here you see the minus lowered to 1.1%, so it was a good quarter. Despite the decline of the profit increase now up with EUR 1 million. So we could increase the profit despite still the challenging top line growth. Looking forward, it's not going to be a walk in the park, but we are ready to fight and feel equipped that as their Commercial Online-Print business will play an important role in our portfolio. Let's have a look on retail. Retail, let's remember, here, we cover the turnover and the numbers, which are delivered by hardware business or the Photofinishing is included in the Photofinishing segment, which we just did. Having said this, we can have a look at it's number. So CEWE is continuously and strategically, as we saw on the strategic priorities of Photofinishing shifting towards more focused Photofinishing stores. And this we see as when the numbers at the top line is minus 4.2% and important that we do this in a profitable way. So we could decrease the loss versus last year. So in line with our targets, we can say. So if we look on the Q2, the picture is similar, I would say, challenging on the top line. But here, the top line will be decided in Q4 as well. And on the EBIT mitigating the cost structure in order to have a profitable continuity. When we look at the other business segments into the numbers, you see that after the divestment of Futalis in December 23, there's no longer any turnover in this other business segment. Fortalis is excluded now from the turnover for '23 and for '24. Our business, [ assets ] is now purely carried by the corporate costs. And you see there a decline in the profitability, and this is mainly driven by the real estate, and this is driven by the in-housing of Eastprint which was before paying a rent being already on our on our ground, working already on our ground and now being part of the group. So this is, I would say, the big picture of the asset segment. But if we look there into Q2, that the same explanations would take place. So having said this, we come to the closer slides and with the summary. And if we look at the summary, we can see that all business segments we find back the plus 7.4. The plus we have achieved for the CEWE Group and which marks a new term over high for the half year one. We see as well the same picture for Q2 with the individual contributions, which we went through of the different segments. All business segments contributed as well to the Q2 EBIT improvement, Photofinishing improved by EUR 1 million, Commercial Online-Print, 0.6, and the retail business as well. With an EBIT of EUR 5.4 million in the first half of the year, we are EUR 4.3 million ahead of the previous year, and this is a good start, a starting point into the second half of the year. And with this good starting point, I hand over to Olaf.

Thank you very much, Yvonne. And I just looked at the watch and [indiscernible] beginning 45 minutes. So yes, there is a bar I need to reach. So we try to stay within this time frame. And I will try to shed a bit light on the details without losing too much time there. Thus starting without any ado. Looking at the details of the P&L, I think we talked about the revenue in great detail already. If we look at the -- if we look at the lines underneath and what's changed there, the next lines, I think, are not really worth mentioning, not -- no significant change in there. The first real line that is driven by a material change is cost of materials. And there, the change in million, Euro million, as you can see on the right-hand side, EUR 0.2 million less in terms of material cost is not a lot. Nevertheless, given that the revenue has changed and if you apply that in terms of percent of revenue, you can see that we have decreased quite a bit in terms of customer upfront [ CEWE ] expressed in percent of revenue and that was due to the fact that the change in sales structure that we have been seeing has favored very much the Photofinishing segment and the Photofinishing segment is the one that has less material cost but more of a value generation. So more personal cost, more administration and more other costs and so on that we see underneath the gross profit. And that is the reason -- that's the main reason why we have the change here in cost of materials in the sense that in percent of revenue, actually, we have quite a reduction by 2.2 percentage points here or improvement in the sense that there's less cost. So there is the most important change for cost of material. Moving on to personnel expenses. That is where you see the countermovement basically. Yes, we do have more Photofinishing finishing, and that's why there has more personnel expenses. We do have an increase in personnel any way in addition to that. So not only Photofinishing, but also in Commercial Online-Prints and then some Central services, there is more personnel and we are here and [ they ] especially in other countries than Germany. We have also increased in personnel cost. And that is the reason why in percentage terms, it doesn't increase that much, it seams pretty much on the same level, 35.7% respectively, 35.9%. But in terms of Euro million, you see the increase in costs from EUR 50.1 million to EUR 54.4 million. And the drivers have just walked through. And the same is true for the next level, the other operating expenses where you can see that we, yes, we increased by more than 6 -- by EUR 6 million there, EUR 5.7 million. And if you look at the percentage points, in terms of revenue, yes, we do see the decrease there as well, 33.7% up to 35% and the reason for that is that, yes, we have had this change, and there is more operating expenses due to the change in the revenue structure that we talked to already. And then there is this change of a retail partner that we have shifted over from its traditional sales model over to a commission-based model. And this is the other operating expenses is where you see the booking growth be commissioned. Plus some of the marketing increases we have had anyway and that has contributed all in all to the increase in terms of costs there in absolute and in the relative numbers. All the structural change we just talked to has led to the effect that, nevertheless, we have managed to improve our EBIT and also improve our EBIT margin, if you walk that way by more than 1 percentage point. And that is certainly a movement clearly into the nice direction even in the Q2. So profitability in Q2, perfect. That's where it should be, and that's the direction it should move into. If we leave the P&L and move over to the balance sheet on this sheet here, I just would like to highlight 2 things. One is, if you see the overall increase of the balance sheet, yes, we have increased by EUR 36 million or in terms of percent 6.9 -- 6.9%, given that we have increased the revenue even by a bit more than that. It depends on whether you look at Q2 or H1, the exact number. Nevertheless, both is higher than the 6.9%. So what we see is -- makes sense the turnover of the assets we are seeing there is moving to the right direction, that is point 1. Point 2 is very nice, obviously, on the right-hand side and liabilities, looking at the equity ratio, you can see that has increased the equity ratio from 66.1% to 66.7%, nice increase again. We love our balance sheet is absolutely rock solid and this is expressed again by the equity position we can see here. So any strategic movements that we might do in the future is very well backed by the balance sheet. So far, regarding the "normal balance sheet" if we move over to the version where we are showing the capital employed and the capital invested, you can see that also managed to be increase by 6.2% so that is a nice increase in line with the revenue increase and that means that the competitive turnover is pretty much unchanged or even slightly -- very slightly increase. So that is moving into the right direction. If you're then looking where the change comes from looking at the assets on the left-hand side here and the liabilities if we want on the right-hand side, capital invested. You see that actually the increases are exactly happening in the right dimensions, where you will have to see them. One is starting on the right-hand side here. Yes, there's the total increase in absolute numbers of EUR 26.4 million and the EUR 26 million to pretty much exactly see in the equity part of it EUR 27 million there. So the equity is driving the increase in capital invested. And the other 2 changes we are seeing there are first minor and second are balancing each other. So capital investments actually increased by equity, nice developments in balance sheet, again, rock-solid. And the same is true on the capital employed side looking in different assets that are actually making up for the EUR 450 million we're seeing here. The increase there also obviously EUR 26.4 million. And what you see there is the asset side is driven by the cash position. Cash is increased by EUR 28.2 million and that is making the change that is driving the change on the asset side. Also here, yes, we have changes in noncurrent assets. And the same is true for Working capital in the total. But nevertheless, this is all normal movements we're seeing there fully explainable and counterbalancing each other anyway. So also here, the cash has been driving the extension of capital employed. If I have 2 words on the cash position, you see that there's the overall cash position that is indicated here by the EUR 47.9 million. Now it is not the objective of company to pile up cash there, obviously. And so before you asking the question, yes, we would love to invest this cash. This is obviously the aim of the work we're doing regarding the development of the company. Nevertheless, it has to pay off. We are pretty conservative there. We are calculating things, and we won't abuse the money, we won't waste the money. We want and we will invest it into reasonable investments that pay off. And that is why we don't love the cash to pile it up, but it's certainly better to pile it up and then spend it in a wise way other than wasting it. And that is why we are looking at that. It's not quite the same number that were invested is piling up. I think in this case, it's like EUR 200 billion or something. So we are not quite there yet, although it's a different -- different [indiscernible]. But nevertheless, we are now approaching the EUR 50 million, which is quite a good number for us, quite a high number and bear with us, it's not the idea to waste it. We will spend it wisely. I think that is all we can say on the management balance sheet, and I think it's the expansion on both dimensions in given its cash on the one side and given it's equity on other side, it's the expansion in the right dimensions, where we actually love to see it. Moving over to the cash flow. There, we can see that actually, there is no real big movement. Free cash flow is completely normal on the normal level. And if we start operating -- schedule from operating business there on the left-hand side, you can see that we do have a good starting point in terms of increase of EUR 3.2 million for EBITDA and some noncash effects or adjusted by some noncash effects. So EUR 3.2 million plus. It's pretty much eaten up exactly by the higher tax payments, which just happened because we had tax repayments last year, which didn't happen again, and that is why compared to last year, there is a negative movement in our tax position there, and that's eating up our nice EUR 3.2 million advantage. And that's basically the story on the operating business cash flow. Yes, there are some changes in operating working capital and other net working capital and so on. But nevertheless, it didn't really make a big difference. All in all, we end up a minimum movement of minus EUR 1 million operating business. Then if you look at the investment activities, yes, we have invested a little bit more. You know that we are building -- we were extending the facilities, production facilities for Photofinishing, we have [ SkyBook ] and [ Koszalin ] in Poland. And that took some investments also in Q2. Adding this 2 up, there is an effect of free cash flow, minus EUR 14 million which is looking at the numbers and leaving out 2020, which was completely Corona driven, which is completely in line the EUR 14 million would see numbers we typically see in a Q2. So rock-solid Q2, the numbers are where they are supposed to be and we are taking the in-route into the second half, exactly on the right level. What kind of ROCE has this led to? You see the nice increase in EBITDA, we have seen over the last 3 months. So although the average capital employed increased steadily, as indicated here, our ROCE was more than stable, but nicely developed into the right direction and it added up to 19.2%. That is clearly the highest number of last year. If you leave out '21, which looking from here now 12 months back where '21 is the year where you see the full largest Corona effect and that is the reason why there the ROCE is a little bit higher. But nevertheless, 19.2% is a great number, and CEWE is clearly generating value. That was some details on Q2 and Yvonne, I leave the outlook to you.

Thank you very much, Olaf. So let's come back to where we started today with the overall numbers. And if we look there, it is important that our Q2 results and the lending of half year one, confirms our ambition to reach the upper end of the target for 2024. So we are EUR 820 million. So if we put this in perspective, it's important for us to continue the long-term growth line, continuing in writing the success story with our teams. If we look behind, yes, so far, we can mitigate and fight against the macroeconomics with all the things we explained. We invest, we innovate and we follow clear strategic priorities, and we ensure for the consumer that products themselves has a higher value than their current price. So it's important for us on the target line of the turnover and as well, of course, following the results of Q2 and half year one, we as well confirm our targets for '24 EBIT, targeting here in the upper end of the range. So if we look summing up overall, that we are following one common goal, one set of principles, one set of strategic priorities for the main business segments. We are continuing to build our house of brands and this we do as one group, which is reunited and covering beyond Photofinishing, different segments, the different countries to different brands. And this is all carried by one team and with the spirit of together, we are more than the sum of our parts. And it's important that this spirit is carried by our team. And I would like as well once from all I thank my team wholeheartedly for their commitment and their passion and their contribution for the first half of the year. We are all dedicated and passionate to do everything to make the consumer happy. And this is what means customer centricity for us. Yes, it's the NPS, but it's most of all the smile of our consumers. And I would like to share 2 pictures with you here as a representative, one of our ambassador family smiling and showing their photo products. And the second picture I would like to share with you is, in fact, that we are in the middle. We are preparing Christmas intensively. And this week, the Christmas tree was put in place in Oldenburg here in our headquarter, and we are officially opening and celebrating the opening of the Christmas season next week on Monday, and this marks the start of the season for us. When we think of the season and we think of Christmas, even earlier, the team is going to be ready as well to turn your pictures into lasting memories. So we hope that you enjoy a great summer. And the ones, who have not been on vacation still will have good ones. The other ones returned and we hope you have taken a lot of stock where you find some best photos, which you can turn into a CEWE products. And with this, I would like to finish the presentation part, and we are happy to answer your questions. Thank you very much.