DO & CO Aktiengesellschaft (DOC.VI) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call on the results of the first quarter of the business year 2025-2026. I'm Sergen, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Attila Dogudan, CEO. Please go ahead.

Thank you very much. Good afternoon, ladies and gentlemen, in Europe. Good morning to the U.S. Welcome to our Q1 results. Our team today is twice Johannes, Attila Dogudan and Bettina. And in general, I think no more to say than that we had a very good Q1 and believe that we have hopefully met all your expectations. Revenues increased by 11% and more important, profits increased significantly higher. We've improved in all divisions and markets, which we are proud of. The team, I think, did a great job. And I think we do the right things and go into the right direction. We have already mentioned a few times that we have clear goals for this business year, which was smart double digit growth, I think, which we are completely in line with. One of our clear goals is to improve our margins step by step in the next couple of years, and I think we did another step now. And we have to do this year some homework to prepare ourselves for the next step of growth means focus on people, education, product innovation, efficiency internal processes and do organizational changes to go to the next level, which was always, as you know, the EUR 3 billion within the two to three years' time, which we always said. And I think the goal is obviously to be in the right shape to be able to digest and manage these signs of business on a global scale and at the same time, further improve the margins. Overall, the team is in a very good mood. The business case is great and unique. We see good demand and incredible market opportunities in all divisions, as you can see in Q1. And I think it's very important to say and it makes us safe, secure and confident that we are financially very healthy now as one of the few ones in this industry, I would say, means that DO & CO is not only far more resistant in bad times, whatever comes, it means that we can attack the market at the right time while maybe other competitors might have not the opportunities at that time as we could have. We are now going to a next level. Let's go quickly through the presentation. So I'll give you a quick update on the divisions. As you already know, the revenues of EUR 611 million means an increase of 11%. EBITDA EUR 73.2 million means 33% EBIT EUR 52.5 million means an increase of 43% and net result is 26.8%, 44% increase. I think the most important part, as we always mentioned, is our long-term business case and profitability. EBITDA margin has increased to 12% EBIT margin from 6.6% to 8.6% and net result from EUR 3.4% to 4.4%. This is all because the business case is a unique business case. It would not work with one of the divisions. It's only working because the combination of these three divisions. You see on the next page, the three segments, Airline Catering, EUR 467 million, event, EUR 100 million and EUR 44 million on the restaurant, lounge and hotel. We always promised you that the restaurant, lounge and hotel will improve, and I think we are there now. So all the other divisions are in line where we are and how we deliver, so to say, in the single area. But as I said earlier, it's always a mix of all of them. If you look to the highlights, the free cash flow of EUR 23 million in comparison to minus EUR 5.8 million in last year is, I think, great. The net debt-to-EBITDA ratio, we might be a little bit old-fashioned of the 0.5, we like very much as much as the equity ratio of 37.8%, which is a great improvement in comparison to last year, where it was 27.9%. All the divisions, strong demand. We -- I think we are the right partner for all the quality-focused global network carriers. And we see this kind of relationship is unique because it's very difficult to deliver all the setup what we have in terms of R&D, in terms of product, in terms of cabin routine and how to serve, what to serve, when to serve and these kind of things. We learn in the restaurants and we learn in the event catering, as you see. So we do the most prestigious event in terms of sport. And at the same time, we see that the starting point and the learning curve always starts in the restaurant business and the lounges and hotel where we have an EBIT margin of 10.0%, meaning it's B2C, and this is definitely an area we will go ahead for the next level, so to say. All the ingredients are people, quality and innovation without any compromise. It's all about customer satisfaction and guest experience. This is where we start from. We are not starting at the logistics side. We are starting on the experience side and then end up what is right and wrong. If you go to the divisions, we mentioned already the numbers. I think it's quite satisfying, impressive if we go now to quickly to the countries. Turkish Airlines and the other clients, but it's incredible what kind of hospitality approach this kind of airline, especially Turkish Airlines has. It's all about satisfaction of the client. It's all about innovation. We won again twice the SKYTRAX Awards for the best airline in Europe and for the best business class catering worldwide. We're talking significant volumes of 500-plus flights a day. which means 250,000 to 300,000 meals, which are produced every day with fresh ingredients as much as possible from the local market with a clear proposition with a clear product and market position for Turkish Airlines. But at the same time, we are very strong in the third-party business. So the growth in the third-party business was really, really good. And as you know, the big kitchen, which will be, I think, the biggest in Europe is one of the biggest in the world, is going to hopefully go in operation end of '27 or beginning of '28. Next area is the IAG Group, so to say, British Airways and Iberia. We are very proud of the close relationship and partnership. We have very good operational performance in both locations, London Heathrow and Madrid Barajas. So I think is again, it's in all cabins, very positive customer feedback. Iberia won awards and is a kind of Ambassador of Spanish Gastronomy. And on the BA side, I think it's getting always better and better. So I think we are everywhere kind of tailor-made concept for an airline, which we do not replicate somewhere else. So the only thing which is the same is the focus on quality fresh ingredients and the focus on detail. Delta and another strategic partner on the U.S. market as much as JetBlue on the next page, you will see. So we have managed now to do our start-up or to solve our start-up problems in New York. So we have a smooth operation after 1 year now. And as you know, is one of the biggest hubs of Delta in the world. So we have more than 220 flights a day. So this is now a significant place where day by day, we are getting better, and we are no more bleeding as we did a year ago. So I think that's good news. The same is on the JetBlue side. For us, is another strategic partner with a contract extension for another two years on the JFK location, which is one of the main hubs as well. We do long haul and short haul up to 180 flights. And if you count this and if you go -- if you land in JFK, you see a lot of the DO & CO trucks, which shows you basically the market share we have there. Other locations, Miami, Chicago, Detroit, we get here and there more and more clients, which then end up in this mix where you improve your margin as your, let's say, base cost stays the same and then you go on incremental. And if you do a great product, then you make someone happy and get them in a different location. You see on the further pages, new contracts for the rest of the world, Air Canada, All Nippon, Cathay Pacific, Etihad Airways, Oman, Scoot and Vietnam Airlines, I think it's very important. that you see the portfolio, which is super rich and that makes really -- that makes us very proud that it's not focused in an area. So I think we are a good partner for all of these clients coming from different regions regardless they came from Asia, Middle East, U.S. or European carriers. Event catering, a very good season start with Formula 1. All races have a great demand. Champions League final was great at Allianz Arena, which is our home base in Munich, Bayern Munich. And we did first time some jobs in Miami and New York for the FIFA World Cup only in the VIP area. I think we delivered in a very proper way, and we'll see what's going to happen with the tender, which is still not done, not finished. So we're in a tender process. We'll see what's going to happen. So -- and then we decide for Formula 1. On the next page. So it's all about, again, customer experience. So we have to deliver something people talk about. And I think we are proud -- we are a very proud partner of Formula 1. And for us, it's an incredible platform to deliver something, hopefully, others cannot deliver. So it's an ongoing push on innovation and getting things done others cannot do in terms of events, and this is one of the triggers where you learn a lot and go to the next area. Allianz Arena, you know it anyway. This is kind of one of the best stadiums in the world, I would say, not only in Europe, and getting more and more Olympic Park in terms of concept and public events, so to say. And the same is with SAP Garden, which is half basketball and half Eishockey Red Bull München on one hand and Red Bull on the other side. Tennis is the usual game. FIFA, I mentioned already and [ Rotos Platos ] is one of the biggest open airs in Europe, which we do for like since 1992, I guess. Revenue in terms of restaurant business is EUR 44 million, which is an increase of 8%. Obviously, in this division, you cannot do 30% if you don't open more restaurants or shops or whatever, which we will do. But in a, let's say, more reasonable size, the profitability has increased in EBITDA numbers in 35% and 57%. So it shows that our key DNA where we come from really makes sense. And I think this is one of the triggers why we do good and better in event catering and especially in airline. So I would say majority of products, food recipes and meals, which we serve all around the world come from basically come -- always come from the restaurant business and from the event business. If you just imagine that we go every two weeks and sometimes every week in a different country with Formula 1 or big sport events, you have always to adapt to the kind of, let's say, demographic and people eat obviously different in U.S. or slightly different in U.S. than in Budapest or we go to China, we go to whatever country. So you learn a lot of these authentic kitchens in these regions and then bring this know-how to the other Do&CO network, but with -- it's a know-how of people who do authentic their own food and they do their own hospitality, which we then can mingle and mix and may create new products, others, I think, have simply not the access like we have. They may since funny enough, since Corona, an incredible story with the Kaiserschmarrn, which is the Austrian pancake, it's still attracting incredible number of people queuing and getting this kind of affordable branded luxury. And additionally, obviously, we do far better in our sales, not only in the coffee shop, we do better with all these merchandise products and all the chocolates and any kind of candy suites, whatever you call it. So then the brand goes up and out. The restaurants are doing well in all locations. The hotels are doing fine. We got from Michelin, Michelin Key. We are one of the best kind of newcomers hotels in Germany with our boutique hotel. Is this something which is changing our balance sheet at the end? No, but it changes or improves our DNA, which then is scaled in all the other divisions to achieve all these results. Airport gastronomy on one hand in Vienna, I think we're going to go step by step now to other countries as well. We were simply not able after corona to digest all of this, and now we can go step by step to improve -- not improve, to increase this business segment. In lounges, you obviously know Turkish Airlines lounge one of the biggest and best in the world. So we're going to have another relaunch now of the product together with Turkish Airlines, and we are very proud that there are good airlines like Turkish and like sometimes Middle Eastern airlines, which are really focusing on an add value for passengers. And I think it really makes sense to work in such an environment. So in a nutshell, this was, let's say, the presentation. I hope that these numbers and the business development make all of you very confident that we are at the right path and we do the right things in order to prepare ourselves for the next round of the high growth, so to say. So we focus on these ingredients this year to get the right people in, to put all efforts in education, attitude, company culture. These are the intangible assets which make us different. And innovation is something which I think we are really strong in comparison to all the others. I think we have, on the other hand, and we've touched already some efficiency improvements. This is one of the reasons why we had more profitability increase than revenue increase. We even did not start on a bigger scale on robots. So this is one of the next step on the logistics side, which does not affect any guest experience. So in total, I think we'll end up in a competitive advantage at all these markets and areas, and that's the reason why we are confident to get better margins for the future. So flexibility will be another crucial tool for the future. Markets will change quickly. We are fully aware and we are thinking in 3, 5 and 10 years ahead. So what can change? How can it change? What is what we have to be prepared. And I think this really makes sense. DO & CO is so far, at least so far in a lucky position that demand is higher than what we can deliver, which is good and the part of the luxury -- the secret of a luxury business desire always is good for margin, so to say. So if we stay unique with our proposition and question daily ourselves in our business case, we will be always ready for quick adaptions at the market. So overall, we are facing a positive outlook. So we have very good reasons to expect a very good business here. So far in Q2, we do not see any changes and the prebookings are fine. I hope this update and our short midterm -- short and midterm strategy makes sense for you. And I would like to say thank you for listening. I will hand over now to Attila Jr., both Johannes and Bettina. Many thanks for listening.

Thank you. Good afternoon and good morning also from my side. I would like to start with our income statement on Slide #27. Mr. Dogudan has already highlighted the margin development compared to Q1 last year. Part of the increase comes from our start-up costs in JFK, plus we also made additional improvements in all our units and in all our divisions. Once again, I would like to point out as well that these figures are the result of the unique interaction between our three divisions within the group. The other income statement items are in line with our expectations. Depreciation is up by 11.6%, but in absolute -- and sorry, the financial result is slightly affected by FX, but in absolute numbers, only an impact of EUR 1.7 million, financing income higher than financing expenses by EUR 1.3 million and the tax ratio of 24.2% is consistent with the previous full fiscal year when it was over 24%. Guidance for this full year is between 24% and 26% for the tax ratio. On the next slide, #28, we see the financial development of our group over the last few quarters. As you can see on that slide, we continued our successful path of sustainable margin development. After achieving an EBIT margin of only 6.6% last year in Q1, we increased it to 8.1%, 8.7% and 8.4%. This year in Q1, it stands at 8.6%, slightly above Q4 of the previous year, which is a very encouraging progress. I would like to direct your attention now to Page 29, where we'll be focusing on the results of our divisions. We are pleased to report that all areas have performed strongly in the first quarter. The division Airline Catering is benefiting from a strong U.S. business and strong demand from new customers, especially in Turkey as well as other locations. This leads to a top line growth of EUR 11.3 million, amounting to EUR 47.6 million. In Airline Catering, we see a significant improvement in the EBIT margin from 6% to 8.2%. As already mentioned, I would like to point out that last year was impacted by start-up costs in JFK. For International Event Catering, Q1 closed with a strong revenue growth of 10.2%. Last year, in the first quarter, we received a portion of the revenue from the Euro '24 in Germany, which kicked off in mid-June. This reduction in Q1 this year was compensated by Formula 1 with a strong start of the season with one additional race, a successful ATP Tennis tournament in Madrid, which attracted more visitors than last year. Next, the operation at SAP Garden in Munich was conducted in comparison to last year. And in June '25, we had the privilege of hosting the Champions League final at the Allianz Arena in Munich. So all in all, the EBIT margin in that division increased from 9.4% to 9.8%. In our last division, which includes restaurants, lounges, hotels, there has been a significant margin improvement from 6.9% to 10%, highlighting the substantial potential within this division. All areas of this division have shown improvements in profitability, which is a result of focus on efficiency and sustainable growth. If you refer to the absolute numbers in the boxes, you will see that there was a revenue increase of plus EUR 3.3 million, of which EUR 1.6 million ended up in our EBIT. Moving on to the balance sheet on Page #30. Total assets decreased by 1.7%, mainly from PPE with a slight offset from higher trade receivables. Property, plant and equipment decreased by EUR 27 million. This is mainly due to foreign currency effects resulting from the weak dollar in Viva. Just please note that we have a very high fixed assets in the U.S. Trade receivables increase is driven by the business growth. Moving to the liabilities on Page #31. The equity ratio increased by 2 percentage points to 37.8%. The reduction in other financial liabilities of EUR 18.2 million is an effect of FX translation losses, approximately EUR 11.9 million, EUR 2.1 million repayment of loans and EUR 11.7 million repayment of lease liabilities. At the bottom on the left, you can see our outstanding loans amounting to EUR 74 million, which will be repaid now in the coming months. The cash flow statement on Page 32 also demonstrates a clear improvement compared to last year. The cash flow from operating activities increased by EUR 19.8 million due to higher gross cash flow and changes in working capital. Our free cash flow stands at EUR 23 million. You can see again a repayment of financial liabilities of EUR 10.1 million. The overall cash is at EUR 170.9 million, which is also a very high level. Total cash decreased by EUR 83.8 million compared to last year, especially driven by the bullet loan repayments of approximately EUR 164 million last year. Finally, on Page #33, the new net debt-to-EBITDA ratio decreased to 0.5. I would like to highlight here the reduction of our net debt to EUR 151.4 million compared to EUR 232.6 million last year and the increase in EBITDA from EUR 214 million to EUR 280.4 million. Thank you for your attention. Now I would like to hand over and to start with the Q&A session. Thank you.

[Operator Instructions] The first question coming from the line from Vladimira Urbankova from Erste Group Bank.

Of course, after such an excellent quarter, I would like to know if you are going maybe to raise your guidance or stick to it for the fiscal year '25, '26 in terms of revenues, revenue growth and EBIT margin? And also, if -- is there any change or what are the current midterm targets, both in terms of revenues and profitability margins by segment? Then next area would be the FX. Of course, we have seen in the past, Turkish lira, we have got used to it. Maybe now U.S. dollar is another element. So what were the effects of ForEx effects in first quarter on your revenues and financial results? And if you have any crystal ball to see how the situation might look like for this fiscal year. So this would be my question for the time being.

Okay. Thank you, Vladimira. Let me start with the first one. Regarding the guidance, our guidance for sales remain between 8% and 10% like last time. The target for the EBIT margin this year is 8.5%, which should be coming from efficiency gains step-by-step compared to last year, but also operational leverage. And regarding FX, yes, you're right. On sales, we were impacted by the 4% U.S. dollar devaluation, approximately EUR 6 million. Turkish lira was minus 12%, amounting to approximately EUR 20 million. But as you can see in our numbers, there was no impact on our margin. I think that's a very important information due to our natural hedging. The financial result was impacted by approximately EUR 3 million, as I mentioned before. And with regard to the outlook, in our last call, we mentioned that we expect a 15% lira devaluation. Now, of course, we have to adjust this. But however, our guidance remains unchanged because we believe that we can compensate for this. And in dollars, to be honest, we do not expect -- we only expect minor changes. And same for the hyperinflation, we expect 30% to 35%. So that's what we expect at the moment. But as I mentioned, no change in the guidance and our target for the EBIT margin is still 8.5%.

And maybe some midterm targets.

Yes, of course. So regarding midterm targets, I think organic growth should also be between 8% and 10%. In the midterm, as Mr. Dogudan mentioned, EUR 3 billion in the next two to three years on top line is possible for sure. And regarding margins, as you can see also in our numbers, our target is sustainable margin growth, leading us to double-digit EBIT margin. And I think we are on the right way. And yes, let's continue this path.

[Operator Instructions] We have the next question coming from the line of Henry Wendisch from NuWays.

Thanks for the presentation. I have, I think, a bit more interest on the material cost ratio. Was this margin increase or the cost ratio decreased actually from 42% to 47% to 40.7% now in Q1. Is that solely due to the JFK ramp-up costs? Or is there anything else that you also were able to get better prices on, for example, material expenses such as ingredients? Or is there anything else that we might be missing?

Thank you, Henry, for your question. Yes, you're right. So that's mainly due to our ramp-up cost at JFK. So we significantly reduced our agency staff costs but not only in JFK, also across the organization. So as we mentioned in our presentation, we are working on efficiency gains in all our stations. We're tracking our personnel costs on a daily basis, and that was also leading us to the significant decrease here as you are right, interest stuff is included in material costs, yes.

Great. So yes, we should not expect sort of further developments like this in the coming quarters because the base effect is gone then?

Yes, correct.

Great. And then, yes, maybe also going into a little bit more detail on the restaurant, lounge an hotel segment. I think the margin expansion was quite strong and the incremental margin, as you mentioned, was also very, very big coming, I think, mostly from stronger utilization rates. And you said already that you also plan to open up new restaurants, new hotels and whatsoever. But on the current status, I think your utilization rate, is there still room to grow based on the current setup that you have? Or -- and then also what does it mean for margins? So if we -- should we expect a further margin improvement there? Or is this sort of the cruising attitude of margins that we see in this segment?

Let me start. So we believe that we still have room, to be honest, for further margin improvement in that division, especially in retail. So you know that we had 0% EBIT margin two years ago. Now we increased it to 10% already. And as you have seen, out of EUR 3 million revenue increase, EUR 1.5 million was in our EBIT due to very low fixed costs. So yes, we still have room for further improvement here. We believe in that division. We see that's a great potential. And yes, from my side, I would be happy to increase our business there because it's doing really well across all our units. It's not only one or two outlets, it's really across all our units in that division. So I think it's not the end of our level, to be honest. So there's further improvement for sure, possible.

Let me maybe add. I think this year, it's in line with these 8%, 10%. And I think next year, once we are ready to deploy in this area, then you can expect like 20% or something like 20%, 25%. This is what we believe is possible. Because especially the one is the retail business. The other one is any kind of food production, which where you sell then components to the market. This is something what we see, which really makes sense.

Well, that's giving a bit more color. That's very interesting. And then my last question for today, the debt repayment that you mentioned, the EUR 10 million, is that sort of according to your general debt repayment plan? Or is there anything that you sort of went ahead and repaid debt early? Or is this -- and where is it coming from? Is it the classical debt? I think the German word is schulden? Or was it also principal payments for leasing? And yes, maybe to give you a bit more color on your debt situation and going forward also, how far further you want to go down in debt? And what's sort of the optimal level of debt?

Yes, of course. So repayment of financial liabilities according to our cash flow statement was EUR 10.1 million. thereof EUR 2.1 million in Q1 was a loan repayment and the rest IFRS 16 lease abilities. And regarding the open loans, we included as well in our presentation. So by end of June '25, the remaining debt was EUR 74 million and thereof EUR 64 million are paid back this business year. So the remaining debt by the end of this business year is only EUR 10 million. That's our plan at the moment.

The next question comes from the line of Patrick Vermeulen from Ascot House Advisers.

I've got a question regarding the capital intensity. I mean you've got this ambition to grow your revenues by 8% to 10%. And my question was, how much do you need to invest for that year in, year out to achieve that growth? And at what level would you situate your sort of maintenance investments to keep the business performing as it is now? Just if you could give some color on that would be great.