elumeo SE (ELB) Earnings Call Transcript & Summary

Welcome to the conference call of elumeo SE. At our customers' request, this conference will be recorded. May I now hand you over to Mr. Wolfgang Boyé.

Good morning, and a very warm welcome to our half year financial results call for the first half year of the year 2020. I will guide you through the presentation together with my colleagues, Bernd Fischer and Florian Spatz, who are here in this room together with me. We are pleased to confirm the outlook that we have given already in the beginning of the second quarter when we published our first quarter results about the fact that we have been able to very much improve the operating performance of the business. And you may recall that, together with the full year financials, we published a very conservative outlook for 2020. For us at that time, it was really difficult to project, how the COVID-19 pandemic was going to unfold in our business. Already, when we published the Q1 numbers, it was apparent that it was not going to be anywhere close to be as bad as we had feared as we were able to reconfigure most of our value chain quite quickly, and we were able to adapt to that situation and change our logistics value chain in a manner that we could continue to offer perfect products to our customers. Also, the decline in demand in much of the jewelry business was something that we did not see as we had feared. And therefore, in Q2, the business was able to improve dramatically, both with regards or compared to the first quarter, but also compared to the second quarter in 2019. As we had stated in the Q1 numbers already, we have optimized our broadcasting schedule. We have reduced our broadcasting time from 18 live hours per day to 12 hours of live broadcasting per day. This has resulted in a significant reduction of operating costs. At the same time, we have not suffered a corresponding reduction in revenue. Moreover, the revenues have stayed pretty much stable, even though we were able to reduce our cost quite significantly on that front, which is very encouraging going forward. Furthermore, in the first week of June, which is traditionally the so-called Juwelo Birthday Week, because Juwelo broadcasting station was launched on the 1st of June of 2008. We celebrate this every year by what we call a birthday week. All of our customers are waiting for this every year because we offer terrible deals. And in the first week of June, this Juwelo Birthday Week, in this year for the first time in a couple of years, we could really show again the full scope of products with the full flexibility of offerings all across the entire price range from EUR 19 to EUR 20,000, and it was after a difficult year 2019, where we had to change our entire merchandising strategy the first time again, where we could really offer everything to our customers that we wanted to offer to our customers. And this has resulted, and I'm happy to report that in the best Juwelo Birthday Week that we have had in the history of the business, both in terms of revenues, but also in terms of operating margins. So this was a very encouraging result going forward because this shows that our business model is alive and that our customers continue to interact with us in a very favorable manner. But through -- all throughout the first half year, our workshops continued to grow very fast and to deliver an increasing contribution to the overall business. Clearly, in the time of the lockdown, we received a huge number of new customers who, for the first time, decided to treat themselves to something nice, in our case to a piece of jewelry, which they clearly could not buy during that time in classic retail stores. And data that we have collected since then suggests very firmly that the shift is a continuing shift, meaning that these customers continue to buy from us. So this was not a onetime effect, and that will fade away. But from our perspective, this is something that will stay and will manifest itself as a change in consumer habits and consumer patterns. So that kind of people become to be more open to buying jewelry online than they have been in the past. Clearly, we have to continue to monitor the COVID-19 crisis enormously closely. It is of great concern to us to make sure that the workforce of elumeo continues not to be affected by the COVID-19 virus. Up until now, we have had not one single infection in the work place of Juwelo. So all of our protection measures that we have taken have been successful. I may say that there was also only one case of an infected person in the entire group of employees, which was outside of the workplace. And we took fast action to make sure that this does not result in any kind of further infections. And as we move into fall, clearly, this will be something that we will have to take greater care of in order to make sure that we continue to operate in a safe and secure manner. So until the end of the year, at the moment, we are still a little bit cautious with our outlook. As you may see from our numbers, the numbers in the first half year look a little bit better than our full year outlook, which is mainly due to the fact that for the time being, we would like to see one additional quarter going well before we start being more optimistic about what the full year financial results could be. But I will speak about that a little bit more in detail at the end of this presentation when we come to the outlook. I am now happy to hand over to Florian Spatz, who is going to report to you how the second quarter and the first half year has gone from the sales perspective.

Yes, good morning also from my side. And as Wolfgang said, I will now guide you through some of the key developments and highlights of the first half of the year 2020, in our sales department. And I would like to start with an event in the first week of July, and that as Wolfgang already said, as always, every year, very important for us, the Juwelo Birthday Week. I'm on Slide #6. And this year, the Juwelo birthday special went extremely well, its week with a particular high-density of guest shows, gemstone specials, birthday deals and in general, attractive live show entertainment. So a great week for the customers, a little bit like Black Friday for online shops. It's our own Juwelo Birthday, Black Friday. And this year, also thanks to the new procurement system that allowed us to offer really very attractive products, while at the same time, keeping a good percentage margin. This resulted in the most successful birthday special in the history of the company. And as you can see in the chart on the right side, the highest revenue, and the highest margin of all times. And this despite the corona -- COVID-19 situation. So we are very happy about these results because we believe that they show that we are on the right track. The procurement system is working well and that our customers are happy in general with us. And I think, also, as Wolfgang already said, these are promising indicators for the further developments of the year. On Slide #7, I would like to show you an example on how the sales team of elumeo is dealing with the COVID-19 situation. And because in the beginning of 2020, we planned for the whole year, several shows with international guests in our studio in Berlin. But due to the COVID-19 shutdown and the travel restrictions, of course, for our international guests, it was impossible to fly to Berlin and to come to our studio. And therefore, together with our technical team, we launched a picture -- in-picture set up combining the normal live show picture that you can see on the right side together with a live stream that is being produced at home of the guests. In this case, it was Anuja. So we can see her sitting in her living room at home, and both pictures are being combined to a final TV signal for our customers and allowing us to broadcast the guest also from home. And the first results we see are very promising because, as you can see on the right side, the profit per show minutes dramatically increased from a normal ppm at EUR 64 to EUR 208, so an increase of 225%. And since this is working so well, we already started to set this also up in Jaipur for potential Indian guests, and we are planning to use this setup also for other international guests. On Slide #8, I would like to give you a little update on our static webshop performance. And as you can see and compare to the first half of 2019, the webshops showed a very strong growth, both in revenue and in margin. And as I already said also in our last call, of course, this growth is not only reflecting the 2020 performance, but also many optimizations that we did in the second half of 2019, and that we were already able to see in quarter 4 of 2019. But -- so we should keep in mind that we are comparing the first half of 2020 with many optimizations for the first half of 2019 without any optimization. And therefore, the strong store growth is [indiscernible] plus 69% in revenue and plus 74% in margin. And the main growth driver were once again optimizations in the search engine marketing, both paid and organic channels and also an increased number of new set of subscribers that we see in the past months and a successful optimization of our checkout process, reducing the complexity, especially for the payment and increasing the conversion rate. And the effect of these improvements can be seen on the next slide, Slide #9. In terms of new customers, we see a dramatic increase of plus 55% compared to half year 1 '19. While at the same time, sales and marketing expenses in the web only increased by 10%. And this was possible, thanks to better budget allocation, reduced costs for new customer and improved targeting of potential customers and also the implementation of several search engine optimizations that allow us to range on high position, reposition on Google for relevant keywords. Yes. In conclusion, I'm happy that we can see that we are on a good way for our webshops. And I expect continuously good development also for the second half of 2020. Okay. I would now like to hand over to my colleague Bernd Fischer.

A very warm welcome also from my side. I'm going to guide you quickly through the financials, starting on Page 11 of our presentation. And on Page 11, we start with the segment report divided between the existing and ongoing business here in Germany and the effect of the closure of our branch in Italy. So yes, on the left side, the H1 2020; on the right side, the H1 2019. And the basic picture, we see that in terms of revenue, we are, of course, down due to the fact that we closed the branch in Rome. However, the revenue decline and, in particular, the gross profit is on the same level as previous year. So mainly due to the fact that we have been able by setting up the new supply chain during the last year and this year to increase our margin significantly, which we will also see on the following page. So still on Page 11, the selling, administrative expenses, of course, are significantly reduced, so that the stable margin compared to the previous year, including Italy and the reduced cost overall leading to a significant improved segment EBIT and also segment EBITDA. On the page -- on Page 12, same structure for the second quarter only. So we basically have the same picture. We have a remarkable increased gross profit margin up to 57%, which is, in particular, also going back to the very successful Juwelo birthday that we had that Wolfgang and Florian already described. Basically, the same picture also here with an increased margin of EUR 5.5 million versus the EUR 5.1 million in the previous year, at the same time, reduced costs due to the fact that we closed the branch in Italy, but also due to the fact that we reduced our broadcasting time, overall leading to a positive EBIT and also a positive segment EBITDA of EUR 370,400. Putting this into the P&L. The positive result remains. We still have a positive EBIT of EUR 83,000 and also earnings for the period in Q2 are still EUR 50,000, which is slightly above breakeven, but it's breakeven. So that we have been also able to reduce the loss from the first quarter that is now at minus EUR 1.3 million, nevertheless, massively improved compared to the previous year where the results, earnings for the period has been EUR 2.2 million. Quick look at the balance sheet. On the asset side, compared to the 31st of December, there is still a slight decline in our inventories. However, compared to the first quarter, and we will see this also on the following page in the [indiscernible] we would see an increase. So during the second quarter, we have been able to optimize our stock intake that led to a slight increase in inventories in the second quarter versus the first quarter. Apart from that, also driven by the results, cash and cash equivalents could also be slightly increased to EUR 1.2 million. On the equity and liabilities, we see that the total noncurrent liabilities, there is not really any change also not compared to the first quarter, while in the current liabilities, we see a couple of changes. Also, this does not lead to significant changes in the total current liabilities. There may be 1 or 2 lines I would like to highlight, of course, the financial debt that was, as planned, paid back during the first quarter. So that elumeo currently has no financial debt at all. We see a decline at the level of the provisions. This is predominantly due to the couple of payments we had within the first half year with regards to the closing of our Italy branch. And we see a slight increase in the trade payables, which is due to the fact that the stock intake, as I just mentioned a couple of minutes before, have been increased in the second quarter, which also helped driving the good results. All in all, this led to a cash flow from operating activities that is positive at the level of EUR 1 million compared to the previous year, which -- where it was slightly negative [indiscernible] The 2 major factors for this development, of course, is the improvement in our results and secondly, the development in our working capital. On the Page 17, where we have the cash flow from financing activities, which are only for maintenance investments and the cash flow from financing activities, which in majority including the repayment of the loan for Berliner Sparkasse in the first quarter. So in total, development from last year, EUR 680,000 of cash to EUR 1.2 million in cash as of 30th of June 2020. So I would like to hand you over to Wolfgang for the outlook 2020.

As I said in summary, so I will not bore you with additional comments on that. Clearly, as with every other business, the COVID-19 crisis is quite unpredictable and makes hard for us to really say how things will be. At the moment, we are gaining quite a lot of confidence about our ability to manage properly through this crisis. So the full year 2019 figures, we have been rather pessimistic about the effects in the Q1 numbers. We already said that it was probably not going to be as bad as in the beginning fear. We could see that the trend has stabilized all through the second quarter and that we continued to be able to ship better product at better margins for our customers. So at the moment, it looks as if things will, by no means, be as bad as we anticipated. Clearly, our original plan prior to the COVID-19 crisis, was to return to a sound profitability for the full year of 2020. We have everything in place in order to assure this. Now we are still in the process of recovering from the results in the first quarter. For the time being, we will stay a little bit cautious for the full year results, because we would like to gain a little bit more visibility on the long-term effects in our customer base before we start to raise the outlook also for the financials. And there is a large number of factors that are currently tricky to evaluate, in particular, the ongoing situation both in India, but also in Thailand and in China. India is until now one of the countries that has been affected worst by the COVID-19 crisis. In the beginning, there was a very harsh lockdown in India with a complete interruption of our entire value chain that now has stabilized, but it is hard for us to foresee what the effect could be that -- in a case that this value chain gets interrupted again. The same applies to China, which at the moment produces as prior to the crisis. And then there is also a little bit of uncertainty with the situation in Thailand, which up until now, from all of the producing destinations, has been and affected the least. So we believe that based on the information we have at the moment that even if there is additional disruptions in the value chain, we'll be able to manage this properly in particular, because there is still a substantial overcapacity in the market. Clearly, retail sales of jewelry has not come back anywhere close to previous levels. So therefore, in the long term, kind of we see that this will benefit us greatly from both perspectives. And we will benefit from the fact that we are gaining, at the moment, more new customers, online shoppers who previously have not been so keen to shop jewelry online. And now make the first shopping experience with us and start happily to fall in love with our product offering. So on the demand side, we will benefit in the long term from the situation. And on the supply side, at least for the next 2 years, we will certainly benefit from the fact that this is a market with an enormous overcapacity at the moment, and all of the producers are eagerly looking for ways where they can sell their products. At the same time, the very short-term outlook at the moment looks good, but it's still a little bit unpredictable, which is why, for the time being, we would like to err on the cautious side, and I very much hope that I will be able to present you with optimistic outlook at the latest -- together with the Q3 numbers. So this was the presentation that we have prepared and we would now be open to answer your questions.

[Operator Instructions] Mr. Jörg Philipp Frey from Warburg Research.

A couple of questions. And first of all, it's nice to see you back into profits again. So congratulations on that one. A bit of the your marketing on -- after the VAT tax increase, what have you done any special events regarding that? And how has that impacted your performance in early July? And here probably 1 housekeeping thing. In the slides, you mentioned for the Juwelo birthday beginning of July. I assume it's still beginning of June. So that one. And then can you talk a bit about the impact of the gold price increase on the demand for your, well, high-end assortment. Has that deterred people or has it actually probably even increased demand? And lastly, the reduction of the broadcasting time from 180 to 220 -- sorry, from 18 hours to 12 hours per day. Was it enacted for the whole quarter basically? So is it fair to say that on average, your broadcasting time in the quarter was reduced by basically 1/3 or just a bit of comment on that side again.

Okay. Thank you very much for your questions. I will answer the first 2 questions, and then Florian will comment on the third question. We have modeled actually quite a number of scenarios in order to see how we can cope with the reduction in VAT and how we can use this best to our own, so to the company's benefit but also to our customers' benefit. We have run, in total, I think, 10 scenarios, narrowed it down to 3 scenarios and then decided to take a very focused approach to the VAT reduction. And the problem is that our product, on average, in the region of EUR 100, the VAT reduction does not make anything very meaningful to our customers. So a customer who previously bought something for EUR 120 and then get this product offered for EUR 117, this doesn't produce a super-compelling offer, which is why we have decided to put all of the [indiscernible] of the VAT offer into 4, sometimes even 8 special VAT-reduced offerings throughout the day where we make pricing in the region of EUR 19 and EUR 29, EUR 39 of very, very attractive products in very high volumes so that our customers can really greatly benefit from this reduction. And this has been accepted by our customers very nicely. So our customers have reacted very favorably to this. And I may add that in the very high-end region we get from now and then direct inquiries from our customers on whether they are able to get an additional rebate on products they purchase from us based on the VAT reduction. Here, we're talking about pricing between EUR 10,000 and EUR 30,000. And we clearly are obviously very flexible on this. So we will not risk a EUR 5,000 margin for EUR 50, clearly. The gold price is an interesting question. I've just recently read an extensive report on the speculation effect on the current gold price demand because other than after the financial crisis, where also the gold price spiked this time and the gold price has spiked even though the jewelry demand in gold has gone down by some 75%. Traditionally, our customers do not really react very much to changing gold prices. So if the gold price goes up for short term, kind of our demand stays a little bit stable, but then returns to previous levels. Also when the gold price goes down, this is the same. We have had the first immediate impact of increasing gold prices in the late 2010, so between 2008 and 2010, where kind of we've had a real big increase in gold prices, which has basically raised any gold offering in jewelry below EUR 100. That has had, during that time, a big effect. And at that time, we had to substitute a lot of gold products with silver product. So in the year 2008, 2009, you would not find, for example, rubies or sapphires set in silver which today is completely normal and regular offer just because of the fact that for EUR 79, EUR 89, it's just not possible to produce a piece of gold jewelry. But that kind of had no effect at the moment anymore. At the moment in the high value and range, so anything, let's say, above EUR 1,000 or EUR 1,500, we did not see any effect of the gold price increase. Straight after the lockdown, we've seen pretty increased demand in products in this range, which was due to people buying these products for investment reasons. But clearly, they bought these products for investment reasons not because of the gold content, but because of the full piece of jewelry. So in total, we have had no big effect of that, I would have to say. And then I'd like to hand over to Florian for the broadcasting hours.

And now the broadcasting hours were reduced beginning of April. And with 1 exception, we kept the reduction to 12 hours in the exception of Juwelo birthday, where we added 3 hours in the morning, a broadcasting from 9 a.m. to midnight. And apart from these 7 days of Juwelo birthday or the other days since beginning of April were only 12 hours of live broadcasting per day.

So it would be, I guess, fair to say that at least 30% reduction of broadcasting time and I guess, in this context.

Yes, it's only 3 hours for 7 days, so...

Yes. Not really -- well, I didn't calculate it now, but I guess the back of my head that should still be valid. And then it makes your results obviously even better. So congratulations and hope that continues.

We work very hard on this.

[Operator Instructions] [indiscernible]

Actually I have something like 3 questions. Maybe I'll take them one-by-one. First of all, I struggle a bit with your numbers you give for webshop and for e-commerce. On the other side, webshop is -- I see a steep increase and the volume -- sales volume of EUR 5 million in this quarter. And on the other hand, we have a pretty stagnant e-commerce sales figure. So how does this come together?

Webshop is what we consider to be the static webshop. So this basically means that somebody goes to juwelo.de, browses to our product offering and chooses 1 product from our static webshop. E-commerce is our static webshop [indiscernible] online moving picture offering that we have of our moving picture offering. So when you watch Juwelo, you essentially have 3 ways on how you can watch this. You can watch it on a television broadcast by either a cable net operator or a satellite operator. You can watch it online under juwelo.de in a web stream or you can watch it in our Juwelo app that we have in the Google Play Store and in App Store of Apple. And these 2 broadcasting mechanisms of our moving picture, so online and app together with our static webshop is what we consider our e-commerce business.