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

Ladies and gentlemen, welcome to the conference call on the financial results of the first half 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, ladies and gentlemen, good afternoon, and good morning to you. This is Attila Dogudan. Our team today is Bettina, Johannes, Attila Jr. and myself. We're very happy to share our half year results, and we'll be then ready for the Q&A. We had the best and strongest half year results ever in the company's history, and hopefully, therefore, have met all your expectations. As you have seen, revenues have increased by 9% to EUR 1,236.80 million in revenues. EBITDA is EUR 149.7 million, which is an increase of 24%. EBIT is EUR 106.7 million, which is an increase of 28%. And the net result is EUR 53.5 million, which is an increase of 21%. And I think even more important for us are the margins as we have promised to increase them step by step. EBITDA has increased from 10.6% to 12.1% and EBIT from 7.4% to 8.6%, net results from 3.9% to 4.3%. So we've improved in all divisions and markets which we're proud of. We, therefore, believe that the team did a great job, and we're definitely going in the right direction. As you know, our clear goal was to improve margins, digest the high growth rate of the last year, create a financially healthy setup for solid growth in the upcoming years. We have reached a very good level of financial stability. And what we're working on is to get now the right people, as I already mentioned a few times and educate them for the next step of growth. You all know this only works if we can manage with the right people and the level of quality, which is expected at the same time of different locations only works if we put this kind of focus on education. So once again, this is the reason why we put this on our headlines on the corporate news, hiring the best talent. So when we say we're going to get 2,000 people, it doesn't mean we're going to get for the same business, 2,000 people. It means we're going to prepare for the next step from next year on. So this year will not affect any cost of these people and give them the right education in our own DO & CO academy because the portfolio of activities DO & CO has no one else has. So it's a business case on its own and is unique. So therefore, we can get people, but we need to train them then to deploy, so to say, on various locations at the same time. So I think you heard this a few times, but we think it's very important to say it again because this is the driver of the next development and the next growth, so to say. Before Johannes will go through the numbers, then after my presentation, we're going to go now, let's say, to Page 2. So you see on Page 2 of the presentation, Airline Catering, EUR 981 million, 11% plus with an EBITDA of plus 26% and EBIT of plus 31%. Event Catering only 1% [Audio Gap]. And the Restaurants and Lounges with plus 11% and 30% and even 46% in EBIT, I think, are very promising numbers. Highlights, the EUR 1.5 billion in sales first time, 8.6% EBIT in kind of first time and 4.3% net result, we really like. Free cash flow, EUR 107.8 million means 40% increase in comparison to last year and net debt-to-EBITDA ratio of 0.4 makes us honestly very happy because we believe that we have to be strong for the future in terms of financial power and no [ wrong ] debt, so to say, to be able then to go for the next level of growth. Equity ratio, 38% makes, I guess, everyone happy too. If you look on the 3 divisions, nothing special than what is promised and estimated basically in Airline Catering, the construction has started in Istanbul for the biggest kitchen of the world. I think it's really the biggest kitchen of the world. And in any case, the most sophisticated and modern one, which will be very efficient I think once it's operating. We won the majority of tenders we went in and expanding our customer base. Event Catering, same for all areas, which you already know. And I think the really good news is in the Restaurant, Lounge & Hotel, which is a clearly B2C business where we have improved our margin from 7.7% to 10%. So I think we do well. And with the mix of the right education and the financial strength means innovation, quality and people will drive this company to a next level as we have estimated and all the time shared with you. Coming back in detail to Airline Catering, the EUR 981 million, I already mentioned, I think we can pass this slide to go to Turkiye. So Turkiye is doing very well. Turkish Airlines is very much focusing on product. They're doing, I think, a very good job in terms of how they sell the tickets and how it works. We got -- again, this is one of the airlines really taking super care of the clients, of passengers in lounges and on board, I would say, almost like no one else. It's all about Turkish hospitality and driving this as a trigger to get clients on board of Turkish Airlines. And I think it works quite well. Additionally, I think in Turkiye, we have additional third-party business, which is developing in a good way as well. IG Group London, Heathrow and Madrid, very proud of this kind of close relationship and partnership. I think we have a very good operational performance in Heathrow and in Madrid Barajas. We have fresh menus everywhere. So what we see is basically that on both locations, these are key European hubs, which so far, knock on wood, work very well. Delta. Stabilized. One of the reasons why I'm proving is that the start-up cost of last year, which was a headache for us and cost us a lot of money is no more in place. So this is a stabilized account. And step by step, I think we get better and better. JetBlue, one of the few airlines focusing on quality on the American continent, so to say, we are proud of this partnership as well. And additionally, we see some clients which we got like Aer Lingus or WestJet in various locations. New contracts, last page. So you see, again, a few airlines from Air Canada and All Nippon Airways, Cathay, Etihad, so you name them. This is basically all -- these are all these airlines who take care of passenger satisfaction, take care of on board quality. And I think, hopefully, we are not only a good partner for now and for the future. Event Catering, as mentioned, the only 1% increase is because we have no chance to replace the European Football Championship last year. We have this problem every 4 years when we do this kind of events, which are one-off. So if this was in place, it would be a different growth obviously. Again, here, no surprises. Formula 1, as everyone knows, doing very well, strong demand on all locations. We just finished last weekend, Brazil. Next weekend is Las Vegas, which is one of the biggest of the whole tour and not only of the whole tour, I think it's one of the biggest sport events at all. So we see strong demand this year for the remaining races than in Qatar and Abu Dhabi, but we already see a very good demand for next year. As you know, the teams will -- from 10 to 11 teams will be increased. So by nature, we get more guests, so to say. And additionally, the interest in Formula 1 has increased significantly and still increasing all the time. I think is today the sport, which attracts, I guess, most of people of the world. Allianz Arena in Germany, including Bayern Munich, home city, so to say, home stadium, we're very proud to be there. It's a very good relationship, nothing new to report. The same is Olympiapark, a lot of concert, Dua Lipa and Robbie Williams and you name it. And the same is on in the SAP Garden Munich, a new arena, as you know, where you have a split between basketball and Ice hockey, which gives us the opportunity to have a very good allocation -- utilization throughout the week with the 2 segments. Tennis, we did last year a little bit FIFA World Cup. The other open as we have, I think, is regular business, as you know. In terms of Restaurants, very good news if you do the comparison with the old years. Now I think we learned how to approach these kind of clients and we will grow in this division, as mentioned, once we have settled the right people, the right education. It's a DNA where we come from. This is basically where the driver of the quality in both -- in the other divisions are impacted and affected. So that's the reason why we take very much care of this. Demel Pastry is doing super well. Kaiserschmarrn, the Austrian Pancake is already a kind of signature product. The restaurants in Vienna and Munich work well. So it's nothing special to report. Hotels. Do & Co in Vienna and the hotel in Munich. The one in Munich already got a Michelin Key and was awarded to, I think, the best boutique hotel in Germany. So it's only 30 rooms and the other one is 43 rooms. But I think it -- first of all, it's making money on its own. And secondly, I think for the brand awareness of the group makes really, really sense. Airport gastronomy, on one hand, we serve clients who focus on quality and serve something. On the other hand, we have an airport gastronomy where these airlines who do not buy have clients and passengers who at least consume at the airport, which gives us another driver of the whole, let's say, business case. Finally, in a nutshell, so I would say we are happy with the development of the company, although we know that some of you always expect more and more growth rate. But we shared already with you a few times openly that we will need this year to prepare ourselves for the next level in order to take the strong growth in the following years. We have to think about delivering the expectation of our clients to keep our margin, to increase our margin. I think it's the right step. And it was openly communicated. I hope you agree with the strategy, and I can promise you that our, let's say, macro goals, heading a double-digit EBIT in the next 2, 3 years and targeting EUR 3 billion of revenues has not changed. Some FX effects were in this half year, which were not in our favor, but Johannes will then come to this in a second. So that's, in a nutshell, what I could wanted to report to you. Thank you for listening. Johannes will now take over, and then we are happy for the Q&A. Thank you very much.

Good morning, afternoon and evening. Thank you for joining us today. My name is Johannes Echeverria, and it's my pleasure to take you through our company's best half year results now. I would like to begin with our detailed income statement on Page 27. Let us first consider the revenue which has increased by 9.3% and now exceeds EUR 1.2 billion for the first time at the half year mark. It's worth highlighting that we achieved this increase over the past 6 months despite a fixed headwinds, with the Turkish lira devaluating by 16% compared to 9% last year and the U.S. dollar devaluating by 7% compared to 0 last year. Higher than most significant outcome is that our profit margins remain unaffected. In the first half year of '25-'26, we saw an improvement in our EBITDA margin which grew from 10.6% to 12.1%, and our EBIT margin, which increased from 7.4% to 8.6%. We are pleased to announce that our net results has also improved from 3.9% to 4.3%. A big thank you goes to our more than 16,500 employees worldwide whose daily commitment is the key to Do & Co's success. So all in all, we are pleased that our philosophy and company culture are reflected on our financial performance with consistent bottom line improvements and an increasingly robust balance sheet. If we move on to the next slide, 28, we can see the development of our results quarter by quarter. I would like to draw your attention to the Q2 figures. As you can see, we have succeeded in increasing our EBIT margin from 8.1% last year to 8.7% this year and another step as well from Q1 to Q2. If you look at the margins at the right, it is obvious that our EBIT margin has consistently been over 8% since the second quarter of last year, which demonstrates once again our margins have increased sustainable over the last months. Now let's review the results for the first 6 months in our divisions on Page 29. In Airline Catering, we have seen a significant improvement in the EBIT margin rising from 7.0% to 8.3% in the first half of the year. This was driven by start-up costs of JFK last year, as mentioned in our last call as well as improvements in all other units worldwide. In Q2, our EBIT margin increased from 8.2% to 8.4% versus the last quarter. In Event Catering, revenue increased by only 1.3% as we experienced a substantial one-off effect last year in the form of the Euro '24 tournament in Germany. For this reason, we would like to present our growth for the first half of the year without this effect, which is plus 22.3% versus the reported 1.3%. Nevertheless, we were able to improve our margin in that division from 9.1% to 9.7% for the first half year. The margin improvement from 7.7% to 10% in our last division, Restaurants, Lounges & Hotels once again demonstrates the great potential in this division. Demel, as well as our lounges, Henry shops, restaurants and hotels must be mentioned here. Looking again at the absolute numbers in the boxes on the right side, we see that the revenue increased by EUR 9.1 million, of which EUR 2.8 million ended up in our EBIT. Let's move on to the balance sheet on Page 30. Firstly, I would like to highlight the overall increase in our balance sheet to 4.4%, almost EUR 1.3 billion. This is the result of an increase in trade receivables of EUR 37.9 million and an increase in cash of EUR 34.1 million to EUR 208.3 million. We will discuss our cash flow for the first half of the year shortly. In contrast, property, plant and equipment decreased by EUR 17 million, mainly due to FX differences from U.S. assets. Turning to Slide 31. I would first like to draw your attention to the equity ratio of 38.3%, which is the result of an increase in retained earnings and bond controlling interest. The reduction in other financial liabilities of minus EUR 17.7 million is mainly driven by a decrease in leasabilities, mostly in the U.S. of EUR 9 million and the repayment of loans of EUR 8 million. The left-hand box displays the outstanding loans as of September '25. The total remaining amount is EUR 68 million, of this, EUR 2.1 million and EUR 55.8 million are to be paid back this year. Please find our strong cash flow statement on Page 32. Firstly, I would like to highlight that gross cash flow has increased by 22.5% compared to last year, amounting to EUR 155 million. The company's free cash flow stands at EUR 107.8 million after a 6-month period. If we review last year's results, we will see that we had EUR 125 million for 12 months. The cash flow from investing dividends has been seen a decrease of EUR 13.5 million. Please be advised that our capital expenditure for the first 6 months was EUR 29.2 million. As illustrated on the left-hand side, the figures in comparison to EUR 36.5 million last year. It is anticipated that our CapEx will be higher in the second half of the business year. Our guidance for that remains the same between 3% and 4% of our revenue. I would like to close the presentation on Page 33, where you will find our new net debt-to-EBITDA slide. We would like to demonstrate our progress over the last few years, beginning with 2021, period that was impacted by the pandemic, resulting in an 8.2%. Further improvements can be seen down to 3.3%, 1.9%, 1.1%, below 1 and 0.4% now. I would like to thank for your attention. I will now hand over to Mr. Dogudan, who will be happy to answer your questions afterwards.

Okay. Thank you very much. Please go ahead.

[Operator Instructions] The first question coming from Julien Richer from Kepler.

I have 3 questions, if I may. The first one, we have been facing mixed comments about the U.S. consumer environment recently with record jet cuts, but at the same time, some decent consumer figures based on credit card data and the like. So have you noticed any areas of weakness in your 2 main divisions recently, whether it is in the U.S. or Europe, if you can talk about it? That's the first one. The second one in terms of new contract contribution, are you still in the 40%, 45% of revenue organic growth revenue coming from new contract contribution? And do you still expect this level of contribution in full year '25-'26? And last one, in terms of EBIT margin evolution, do you expect additional H2 EBIT margin pressure because -- so you are above the 8.5%. And if I look to the figures you just discussed in H1 for the Airlines Catering activity only, the increase in revenue and EBIT implies something like a 20% EBIT margin, the marginal EBIT margin was close to 20%. So is there any reason for deceleration in margin improvement in the second half of the year.

So thank you very much for the question, Julien. So let me start maybe on the U.S. side. We, at least, so far, don't see any changes on, let's say, on the attitude of, behavior of -- on the American market. And I would say we have 2 segments. The one segment is all international carriers. So they have to have their global product anyway, which is their product regardless where they fly to. So we don't see anything there at this stage. And then you have the American carriers where money is always a big issue, as you know, so there is always a pressure, but this is part of the game, honestly, but we don't see any additional pressures than the one which we have all the time because everyone is asking us for more efficiency, obviously and getting especially on the invisible side of cost, which is the logistics side, something which reduces their cost. But whatever, I think, happens so far, we don't expect any margin development. There might be some, let's say, nominated items someone could ask for, but it doesn't affect so far our margins. So this is the number one. I think on the new contracts, I don't know, Johannes, if you can say something.

Yes. So thank you for the question, Julien. Last year, we mentioned that our shares 50-50. This year is slightly down because we had the ramp-up of Delta last year. So yes, you're right, it's between 30% and 40% coming from new contracts. And regarding your third question, it's true pressure on the EBIT margin, we do not expect that, to be honest. Q3 should be in line with Q2. And then you know that Q4 is our lowest amount. So our guidance on the EBIT margin stays the same like in our last call at 8.5%.

Julien, let me add something on the EBIT margin. And this is, I think, this is a great question because it's basically reflecting very much when we say we're going to get the right people, educate and train them. So when do we get a better margin? We only get a better margin if we are able to differentiate from the rest of the market. So does the premium product apply to everyone? No. But those who like this, and this is a good chunk of our clientele. They only would go for the premium, so to say, if they had really visible, testable, realizable better products. So this is exactly why we are playing in the premium league. And the problem, so to say, is if the gap between us and the rest is not big enough, we would not get the premium. This is the reason why we have to invest in people, education, systems, procedures in a better way to have this innovational part, which is consistent throughout the network. So this is the driver of the business case. So it's not like we are not putting this on a corporate news because we don't know what to say, it's simply significantly impacting and securing the future growth and to keep the margin and not to go under the pressure, almost everyone in the market is offering for cheaper. So we still get, I would say, the claim of the airline industry. And the more we give them something which they differentiate, so their clients have a good voice and everyone has an NPS score. Everyone has customer satisfaction and they see them, and especially on the premium cabin that this makes a big difference so far to the pressure on the EBIT margin.

Very clear.

This is very much, by the way, valid for the airline which is completely different than the other 2 divisions. And the reason is because in big sport events or in big corporate events and at the same time, on the side of restaurant, lounges and these kinds of things. It's anyway a lot of B2C, so to say, where the margin of our clients are pretty high. So no one is going to go for a 10% discount and risk operations, right? So this is on the 2 divisions. I think it's more safe on the airline. You're right. There's always the pressure but the answer is what we're trying to explain to you. I hope that's beneficial.

That is. But just as a quick follow-up, if you are talking about the new academy that you are launching, if you are talking about 2,000 people i.e., it's more than 10% of your total staff. Does it mean that we have to take that into account for the next 2 years, 2 to 3 years? And it will be more or less in line with the 4% increase in staff you posted in H1. So maybe 4%, 5%, 6% on a yearly basis. And so you are going to have that through 18 months, 2 years period.

Exactly. Completely right. We wanted to give the market the message. Hiring 2,000 people doesn't mean that we increase our cost. It means we expect business in the next years where we have indications, good indications that we'll get this. So that's the reason why I said in the very beginning, all the targets we have are in place and all, let's say, activities we have shared with you are in place. So the FX, which was this half year or quarter a kind of disadvantage for us does not say that this company will not grow in the future. So the 2,000 people means, as you said, a couple of hundred millions of additional revenue. So 100% right, what you said.

The next question comes from Vladimira Urbankova from Erste Group Bank.

My first question will be still related regarding your targets. Earlier you said that you target growth on the top line of some 8% to 10%. Should we expect 8% because of the ForEx. What was the ForEx impact in the first half? And how do you see the situation developing going forward, especially with respect to the Big Dollar as a new element of that kind of ForEx pressure on the top line. Then next in 3Q, we have seen this government shut down impact in the U.S.? Does it impact your 3Q results? Or what is your observation in this respect? And then last but not least, again, U.S. market related. Do we have any new developments regarding your catering for the FIFA World Cup or when do you think you can update us on this?

Thank you, Vladimira. Let me start with your first question regarding the guidance for the top line. So it's still in line with what we told you so far. So between [ EUR 2.450 billion and EUR 2.5 billion ] depending on FX. So for FX, we still have the same assumptions like in our last call. Regarding the FX impact for the first half year, let me explain to you the situation. So if you look to the U.S. market, our revenue in U.S. dollar increased by 15% for the first half year. In Europe, it's only 9%. So we are missing approximately 6 percentage points, which is EUR 15 million. In Turkiye, if you look to the lira revenue, it's up by 51%. In Europe, we see a 19% increase, which is more or less the organic growth in T rkiye. So if I only consider now the revenue in the U.S. that we lost the 6 percentage points, and if I add it up with our revenue in Airline Catering, our growth rate would be at 12.4% for the first half year, so that's more or less our organic growth rate for the first half year in Airline Catering. Regarding Q3 shutdown, so you don't have to expect any reductions in revenue there. Yes, we might have some cancellations, especially in domestic flights, but that was kind of our normal business. So no big impact on that.

On the FIFA front really, still they just came back now and we are still talking to them for the guidance, as I mentioned, I think, last time, we don't expect too much of the FIFA World Cup, still did not decide anything, and it's very little time to go. So I think we shouldn't count on that. If there is something that it's low numbers, honestly, we are all ready for next year, very well booked for this period. So we don't expect too much.