elumeo SE (ELB) Earnings Call Transcript & Summary

All right. Good morning, ladies and gentlemen. And before we start, just a little information as usual, the call will be recorded. Once again, good morning, ladies and gentlemen, from my side. Welcome to our H1 2022 financial earnings call. Together with my colleague, Dr. Riad Nourallah, I will guide you through the key developments of the first 6 months of this year. Not surprisingly, it has been a very challenging time, as you can imagine. You may remember our Q1 call in which we have shown you the massive negative impact of the outbreak of Ukraine war, which resulted after the 24th of February in a clear drop of revenue of active customers and of new customers. And in general, the situation, costs, as you all know, high inflation in the past months, which resulted in a very negative consumer sentiment, as I'm going to show you on one of the next slides, hitting negatively mainly all goods that are not goods of daily need. And of course, this has also had a clear impact on our elumeo business and the elumeo buying behavior. Our revenue decreased by 9.7% compared to previous year. But at the same time, given -- in view of the circumstances and of our peer groups, I am really happy and proud that we were able to very quickly react to these challenges. And Riad and I will show you in the upcoming slides, how we managed to adapt and optimize our product offer to decrease costs, especially also thanks to successful restructuring of our Italian TV broadcasting, and to stop the revenue decline in the second half of Q2 2022, which resulted also in a very successful elumeo birthday sales event and all measures together allowed us to have in Q2, the ninth consecutive profitable quarter in adjusted EBITDA. Our Juwelo video shopping app continues to develop very nicely. We increased the channels, we increased the users. And we managed to further decrease the cost per new products, channel and user, which allows us to further improve the scalability of new channels and new users. And regarding the outlook on the second half of 2022, which Riad is going to present you more in detail, we can confirm our revenue and earnings forecast in 2022. Sales declined in the single-digit percentage range and adjusted EBITDA in the low million range. So I think we can directly go to the chart with quarters. Yes. Here, you can see the development since Q1 2020. And as you can see, Q2 2022 has been the ninth consecutive profitable quarter with EUR 0.8 million in adjusted EBITDA. Yes. Let me guide you through the key developments in this first half of 2022. And I would like to start with the market situation, which has, as you know and as you have probably also heard from other calls and other companies, very negatively affected the consumer sentiment. And this can be seen on this slide from the [Foreign Language] Gfk, which shows -- here you can see the consumer sentiment index between July 2021 and June 2022, and you can clearly see that after the outbreak of the war in Ukraine, the index fell dramatically down. It reached its all-time low in May 2022. All-time low means that never in the history of the Gfk Consumer Index, which exists since 1991. So there have been several crisis in these 30 years, never there has been a lower value than in May 2022. Of course, this also had an impact on e-commerce and on teleshopping in general. So on the left side -- the graph on the left side shows you the development of the German teleshopping segment reported from Bundesverband E-Commerce und Versandhandel in H1 2022 compared to H1 2021. And you can see a massive decrease of 22%. When we compare our live shop business, which you can see in the middle, we only decreased by 11%. So we clearly outperformed the markets if we compare H1 this year against last year. And moreover, the measures that we took, which we are going to present to you on the next slides have been able -- enabled us to stop the revenue decline in the second half of Q2 and resulted in the month of June, where we reached the top performance of last year and which resulted in a very successful Juwelo birthday. And one important information when we look at the numbers of June is that it shows the data for both years in a demand view, which means before returns. And the main reason here is that we have sold a lot of so-called creation orders, which gets created for the customers and which have been sent out weeks after the purchase. And since they might still come returns, it's fairer and more correct to look at the demand number. So both for June 2021 and June 2022 here, we are looking at revenue before returns and cancellations. However, we don't expect any major changes in the trend. Yes. The Juwelo birthday was successful. We had a high density of special guests, of premieres, fresh products. We achieved the highest revenue and the highest margin per customer ever in our live business and also on our web business and a strong performance in our mobile live app, which resulted in an increase of revenue of 17% compared to last year. One of the success factors was our ability to quickly react to the challenging situation and the fast supply chain we have and the close contact with our local product suppliers enabled us to adapt our product offer to more wealthy customer groups who are less affected by the economic impact of the high inflation. And here you can see that we launched 4 new brands with higher price points, clearly above EUR 100 per piece. And as you can see in the graph on the left side, with EUR 90 profit per live show minute, it clearly outperforms our average profit per minute of EUR 69 that we have with our usual brands. And yes, we have launched these new brands, 3 of the 4 in Q2. So I expect the main impact of this positive news for our new products and brands in the second half of this year. Let us come to our classical static webshop business. Also, our webshop was affected by the economical situation, of course. It resulted especially in a drop of new customers and an increase of customer acquisition costs. However, in light of the very strong growth of our webshop in the past years, you can see how we managed to stay clearly above pre-pandemic level. So from H1 2019 to H1 2022, we managed to grow by 131%, and this by far outperforms the market and the general e-commerce growth. Also, as you can see on the graph on the right, top right side, I'm very happy to report that in June 2022, we managed to have the best birthday sales in web industry of the company. And yes, you can here see the first 2 weeks in June, that's our birthday sale special weeks and the record we had in June. Also here, all data of all years before returns. In addition to this, we increased the average basket size by 6.2% in June versus previous year, which is not surprising since we launched the new brands with higher price points. And we also improved the conversion rates by 6.6%, mainly due to improvements in our mobile shopping business. Let us now come to jooli. On the left side, you can see that the number of new product channels increased, continues to increase. And at the same time, the cost per new channel, the acquisition cost which we pay to new vendors decreased from EUR 400 to only EUR 100 in June. This allows us the same effect, as you can see on the right side we have with installations, cost per app install. And especially in India, we also managed to further decrease the cost per installation, and this enables us to highly improve the scalability of channels and users since with the same budget, we can have a much higher effect, a much higher return in new channels and new users. On this slide, you can see the progress that we have in our jooli app in 3 main areas. Point number one is the launch of jooli in the U.S. market with the jewelry-only approach and together with the launch of Italy and France, jooli is now present in 5 countries. Also, we have continued to develop the artificial intelligence-based algorithm to a near real-time algorithm. However, in order to really have the maximum potential of the algorithm, so the best suggestions of our next products, we need an implementation of 100% real-time algorithm, which we expect to be completed by the end of Q4 2022. And this will really give a lot of power to the algorithm and the suggestions and the personalization of the app. And finally, the third point is a more technical point. jooli has been built as a headless platform which means that we can play our videos to whatever platform can play videos. So it's not linked to any specific -- software-specific platform. As long as the platform can play videos, it can be Google VR, it can be Apple VR, we are able to use it. And this is basically what a headless platform is. Via APIs, we can connect to whatever video platform there might be in the future. Maximum flexibility, and we are -- we have developed a prototype for Oculus 2, which has been finished and which shows where the whole thing can get [ to us ]. Yes. Before handing over to Riad for an insight into our financial data, here are 3 examples of very operative sales performance improvements we are planning. First one is our sales event that we plan in September, it will be a huge pre-autumn sales event with a high density of special offers and promotions. On one side, we will further increase the revenue per customer. We might also reactivate older customers and sales events always used to be very helpful for new customer acquisitions. Secondly, we continue to focus on our existing customers. We will develop our VIP customer treatment, and we are planning to launch a loyalty program in order to increase the buying frequency and the revenue and margin per customer. And finally, in the third example, you can see our plannings to do more cross-promotion between jooli and our classical jewelry business to further accelerate, on one side, the growth of jooli and users of jooli, and to also improve sales performance of Juwelo and use the existing Juwelo video content in our jooli app. And now I will hand you over to my colleague Riad for the financials of H1 2022.

Yes. Great. Then let us come to the financials, H1 2022 and point out the main numbers. Let's take a look at the revenues. So as Florian already said, so in line with the market, but overperforming concerning the live business in Germany as well as the webshop. So our revenues declined by nearly 14%, exactly by 13.9% in Q2. We have the same line concerning like the gross profits. So it's at minus 14.5%. Nevertheless, thanks to our cost-cutting programs initiated in Q2 2022, we made it that we had an adjusted EBITDA on the same level as in the previous quarter, in the comparing quarter 2021, reaching EUR 0.8 million. Let us take a look at H1. So H1 with a decline in revenues and a higher decline like in the gross profit. Nevertheless, we achieved to reach an adjusted EBITDA positive. That's the ninth consecutive adjusted EBITDA. What were the points so? The points, we really like to focus on costs and we like to optimize our cost structure. Let us take a look more in detail. I think the main points are the 2 following points. On the one hand, we had the reach costs. On the other hand, we have the personnel costs. Concerning the reach costs, we made it really like to improve them, to optimize them. We decrease them in the first half by nearly EUR 300,000, resulting in minus 8.3%. At the same level, so concerning personnel costs, we are further like focusing on our part on digitization, optimizing our personnel costs regarding the high investments in jooli we made in the team of development and the team also of sales. Nevertheless, we wish to be on the same or nearly on the same level, even like slightly decreasing by 2.0%. Let us take a look at the main KPIs. I think one important point, I really like our operatives earnings results. So we have, on the one hand -- nevertheless, despite really not the easy circumstances in the light of the war in Ukraine and resulting with a higher inflation, the consumption expectations of our customers. Nevertheless, we reached a positive EBITDA. Our adjusted EBITDA is at EUR 1.2 million in H1 and this is also like for the first time, our goal is to have like an equity share of nearly 50%. Like for the first time, we had an equity share above 50%. Concerning the cash flow. So of course, it's obvious so that the cash flow from operating activities went down. On the one hand, this is due to our increase in our inventories. On the other hand, this is due to our investments in jooli. I think the operative numbers there reflecting the view which Florian already gave. So we are, I think, in line so concerning our development in TV business as well as in the web business. Outlook. Let us take an outlook. At the outlook, so we know the circumstances which are in Ukraine, and which reflect in our economic -- macroeconomic development in the European market, but we stay with our outlook and our forecast we have. That means so we expect based on the -- really like on the first view. So with that regard, on the one hand, we will optimize furthermore the Italian TV business. And on the other hand, so this will result in disproportionately high savings and broadcasting range costs. We stay to our forecast, leading to the point that we expect a drop in sales in the single-digit percentage range, while webshop, so we expect -- we like a stable development. Gross profit margin will result in plus 50% and adjusted EBITDA, where we are in line, will be in low single-digit millions. Thank you very much.

Yes, many thanks, and let us now come to your questions. I think the best would be if you could use the function of Zoom, which is called Raise Hand. And then my colleague, Boris can open the microphone. And I see a first raised hand from Mr. Frey.

A couple of questions on my side, probably starting with the operating business. Many e-com retailers or industries are currently more or less fearing or already shivering because they talk about excess inventory. And what's your view in general on the jewelry industry? Would it be fair to say that this is no issue or at least much less of an issue than in, for example, the fashion industry right now that we should see price pressure and aggressive promotions in the back half of the year?

Did you want me to reply directly?

Yes. I think it's easier for you. I won't keep you to write down as much.

Perfect. Perfect. Yes, I mean I can imagine that for other industries, for the typical apparel industry, this might be a much bigger issue, also because they have experienced a much bigger drop in revenue. So they have maybe a slightly longer supply chain. So a lot of inventory has arrived in the beginning of the year preparing for continued growth in 2022, the crash came and the crash with a huge impact. And so I think this will affect other industries small than us. So as Riad said, of course, our cash level went down a little bit also due to the fact that we too have purchased more stock expecting, of course, not a revenue drop. At the same time, I think we will be able to keep our percentage margin at a very stable level. We have planned to do sales in autumn. So this has been planned all year. So it's part of our general planning and together with some marketing specials, I think we can sell our inventory without needing to give any smaller percentage margins.

Going directly into this issue, I guess, in your case, your replacement cost for your inventory has slightly risen given the weakness of the euro and basically all sourcing being outside Europe. Would it be fair?

Yes, I think you're right. So of course, so we face like this point. But I think we have to take a look at the following points. The first point is, of course, that we have really like -- we are -- from a strategic point of view, we are increasing the share of commission-based sourcing, so which gives us a lot of flexibility and which reflects really like on the one hand, our sales and then our sales where we are -- where we can more change also like the pricing situation. The most important point for us is really like the topic of freshness. The other point also like regarding -- like your first question concerning the fashion industry, our jewelry industry is quite different. The main point is so that we do not depend that much. We really like to change all the time our product range. So we can -- this is -- we can leave it a little bit like jewelry. The good point is about like gold, silver, diamonds and so on, that they always like keep their value and that we can then show them in a later period. So that means so that we have there, really like kind of flexibility.

Apart from the consignment products we have, we normally do not exchange our product. It doesn't make sense. Also it's not so -- there's not such a trend [ affection ]. So we can clearly also sell something 2 years later if we have it in stock for 2 years. So there's no need for us to do a lot of exchanges. This is totally different, as Riad said, from the apparel industry, the clothing industry. And Jörg, I think with a look to our very stable margins, it can be seen that we are able to give increased -- to pass on the increased costs also to our customers.

Yes, that sounds very good. And probably moving a bit to the opportunity side of the current market weakness. I think we're viewing everywhere that marketing costs are declining, cost per minute down. Do you see any advantage for you there already developing? Or is -- are your keywords still where we sought after? Or just some color on the outlook for that side.

So a decrease in cost per new customer is something we didn't see, but it has to do with a decreased number -- decrease volume of searches for jewelry. So if less people search for jewelry and the number of players in the market stays the same, the effect is normally the opposite. So even if all players spend less marketing, due to the pure lack of such volumes for jewelry or jewelry-related such terms, the cost remains relatively high. And I think this is something that might continue, but of course, ongoing. So if others will more strongly reduce their marketing spending and if the volume continues to come back, then I think it could be -- it could become quite interesting for the fourth quarter of this year.

Good. And then going directly to jooli, in terms of -- well, obviously, you've nicely reduced the acquisition cost for the channels in India. And what are the main -- or how far can you bring down acquisition costs in developed markets? This is mostly a function of, well, the lower absolute numbers of channels which you can acquire in a right market like Germany or some color on that one? And also if lower marketing costs in general, cost per minute could be any help there?

Of course, lower marketing costs is always a huge help. And yes, I think maybe for more details, I would hand over to Wolfgang, which can give you an even closer insights.