Fielmann Group AG (FIE) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of the Fielmann Group AG following the publication of the financial half year figures of 2025. And with this, I'm happy to hand over to Fielmann's CFO, Steffen Baetjer.

Well, Ingmar, that was definitely the most enthusiastic entry we had in a long time. Thank you very much for that. And I think it's just -- it really given the way the company performed, I think this is the right -- setting the right tone, so to say. Welcome, everybody, to our earnings call for the half year 1 results that is the period ending 30th of June. Today is the 28th of August. We already published our preliminary numbers in just ahead of our AGM in -- on the 10th or 11th or something of July. So no real news but still we want to give you the opportunity to hear a little bit more on the numbers and definitely give you the opportunity to ask any questions you might have. You are all aware that this is the half year 1 results call. We're going to host in September. We're going to host a more comprehensive session on our vision 2030 and -- or Vision 2035 and targets 2030 that we announced on the AGM, where we're going to peel the onion a little bit further for you and then say what does all that mean? Where does all the growth come from and what does that mean for margin and CapEx? And are these guys going overboard with acquisitions? No, we're not. But that is all September's meeting today is all about the earnings of the half year 1. So let's jump straight to the summary. But we before we do that. I have with me Nils Scharwaechter and Nils Scharwaechter, most of you know maybe Nils, you turn on the camera. There is Nils. And Nils has been, as I introduce him to some of you as he was one of my guys. So working in the CFO office for Fielmann. He has been with the company 6 years then left us to do some equity research and came back. So I'm very happy to announce that mid of August, we promoted Nils to permanent full-time Director of Investor Relations. Patrick Miller, who was with us for a few months, helped us tremendously in taking what we had telling us what normal companies should have helped us through the AGM, and he is now taking a well-deserved break and we thank him very much for everything you did for us and he basically helped Nils to jump into this position. And I'm actually super proud that somebody who, after school decided to do his first professional endeavor with Fielmann is now a director in our company and part of the senior management team. Thank you very much for everything you've done, Nils. So far, good luck and very glad to have you on board, albeit in a different role. With that, we go to the summary of the first half year in a nutshell. We continue our growth trajectory. We have a slight delay here. Yes. We continue our growth trajectory, we continue our margin expansion. We are in a challenging environment. Consumer sentiment is still -- because of everything that's going on is still difficult. Consumer sentiment in the U.S. First -- in the first quarter, we had a lot of snow, even a lot for upper Midwest standards, a lot of snow. And then we had Liberation Day right on the beginning of the second quarter. And all that was absolutely not helpful for consumer sentiment but it has picked up since in late May, June, it started to pick up. But still, across the world, a challenging consumer sentiment with -- we do have a strong development across all major markets. We have a very strong development across all product categories. So very happy with the numbers that we're producing. We see that group sales increased by 12%, 4.5% of that organically, about 8% come from the U.S. acquisition. So Shopko that we consolidated fully for the first time on first July 2024. So with that, we're basically down to organic growth for the remainder of the year. I just want to flag that to you so that we don't expect all these big numbers. From now on quarter-by-quarter, it's going to be organic. 4.5% is good. It's not great. It's definitely at the low end. Over the last 5, 6 years, we delivered around 6% organic growth. But with 4.5% in that environment, we are satisfied Vision 2030, our target is around 5% organic growth in that part of the business. So we're kind of there. But as I said, it's definitely on the lower end of what we -- of the range that we're going to deliver. Our group's adjusted EBITDA profitability. We always said, and I've been saying it for the last 2 years actually that I've been working for Fielmann to set my anniversary 1.5 weeks ago. So for the last 2 years, I've been saying we're working on profitability, we're working on profitability and we're working on profitability. Adjusted EBITDA improved significantly. Margin for the group is now at 24% after to 21% last year. Europe at 25%, U.S. at 15%, all with quite impressive growth rates, and that is the usual mix, that's the great news about our business. There are no news in terms of what we do. We're pulling the same levers that we've been pulling, cost control, efficiency in the stores, and improve -- continuously improving sellout structure and all that drives profitability for the business and gets us fully into the target corridor that we have. Adjusted EBITDA, EBT, increased also substantially by 29%. Margin is now at 12.9% after 11% in the last year, and that is despite us adding EUR 300 million in debt, which obviously is not helpful for EBT. We have all the PPAs, so the acquisition-related write-offs of the intangibles. So despite all that, our margin is improving. And it's actually quite a nice pyramid shape that you want to have as a CFO. You want to have group sales at 12%, adjusted EBITDA by 26% and then adjusted EBIT by 29%. So you have this pyramid structure. The further down you go in your P&L structure, the higher the percentage growth rate that shows you that we are looking at operational leverage here, which is exactly what we're aiming for. We confirmed -- and I know this is boring, but there are quite a few companies who didn't, we confirm our outlook that we published for the financial year 2025. So we're saying nearly EUR 2.5 billion sales, a 24% margin for the group. And looking at the results, you see why we do that. We have a slide later at the end of the presentation on that. And we announced Vision 2035 and targets for 2030 in our AGM. And as I said, in September, we're going to talk about that. On the next slide, you see the numbers basically again, but in a much prettier shape. You see the total consolidated sales with the organic growth. CAGR actually for '23 to '25 was 12%. So we're pretty stable on the consolidated sales growth rate. CAGR for adjusted EBITDA was about 19%. Now this -- the last year, we were at 26%. So we see an acceleration but that's also acquisition-driven. Q2 in profitability, we typically talk about year-to-date but Q2 was a bit lower but that's basically a phasing of our marketing expenses, we really held back with timing the marketing a little bit according to season, and that changes every year because we're not one of these companies who says, we always do this campaign then and then we do the other campaign then. So we face it a bit. So there's an EUR 8 million difference in marketing spend between Q1 and Q2. And if you factor that in for the Excel guys among you, that's the -- in other operating expenses, if you factor that in, then you see that actually the profitability across the quarters is pretty similar. Product mix, we always -- if the sun is with us, and it was this year, especially in Germany if the sun is with us, we always have a slightly higher cost of goods sold in Q2 that's basically driven by more sun and therefore, more sunglasses and margin on sunglasses without prescription is lower than margin on glasses with prescription. And that's basically it because all the Northern European once the sun comes out, they come to Finland and they buy new sunglasses, which is great. Adjusted EBT, we talked about 28% or 29% growth. The CAGR for the 2 years is 23%. So we see an acceleration. We see a stableness in the sales growth. We see an acceleration on the profitability growth, which is exactly what we wanted. A bit more into detail. The top line growth or the top line increased by 12%. By now, everybody knows that song. Let's look at what we mean when we say all product categories and all in all countries. Here, you see the product categories. First, you look at it, and sunglasses is the only 1 category that helped me back by writing double-digit growth in all product categories. Sunglass is still at plus 9%. All other categories at double-digit growth. This is obviously mainly influenced by the Shopko Optical consolidation, especially the contact lens is because the contact lenses are strong product in the U.S. Organically, we put that here for your further information [indiscernible] the contact lens business at 25%. And adjacent healthcare services, relatively small, high growth because all the eye exams we do in our U.S. practices as basically adjacent those eye exams done by the optometrists are actually adjacent healthcare services grew by 87%. Organically, it's still 50%, but that's because we really trying to broaden in the U.S., we're trying to broaden the availability of doctor appointment, and that's why that category growth. And it also grows because we have our eye care, eye health checkup in Europe and that is developing for quite nicely as well as undoubtedly you have heard about. Growth in unit sales, eyewear 4%, some of that influenced by our U.S. acquisition. Organically, to be honest, SVS vision a bit struggling if you put together the SVS and Shopko and you treat them as if we acquired them all on day 1, you see a slight growth in unit sales in the U.S. and we're flat to slightly positive in unit sales. In Europe, as I said, very, very challenging consumer environment at the moment for us. So we're pretty happy that we're outperforming the market with our growth and that's partially by this growing slightly above 0, and it's partly because we're growing quite extensively as we do in countries like Spain and Austria, Czech Republic and Poland. We see that the economy is a lot more -- is a lot more vibrant. And therefore, we also see that we have a higher unit sales than, for example, in Germany. Innovation is driving our adjacent eye health business. We have -- as I said, we have the eye care checkup and then we have the business in the U.S. and you might -- all these trends that you see here are basically the foundation for our 2030 targets. So these strategic growth drivers that you see on this page and that we talked about are basically the growth drivers that we're going to use to get to our 2030 targets. But as I said, that's more [indiscernible] September, I'm going to tell you story. So product categories overall, ignore sunglasses double-digit growth, we were very happy with that. If we look at the individual markets, on the next page, you see the company growing, the group growing at 12%, obviously in the U.S. at 143%, that's driven by the Shopko Optical consolidation. I'm so glad that this consolidation part is over and we can talk about real numbers going forward. All the other countries, as you see 5%, 8%, 5% to 6%. So really a healthy development, think about where we stand and what the state of the world is and what market position we have. So you have an absolute market leader in Germany, Switzerland and Austria. And in these countries, we're still growing by 5% and 6% and outperforming the market overall. We're still at mid-single digit, and that's, as we always said, 4% to 7% is our guidance for organic growth in Europe. The U.S. is now our second largest market, which is still driving the integration of the businesses. So I said earlier, in Q1, we were done with the systems integration. So the management team integration. Now it's all about business model transformation. We're trying out a few things and identify the winning formula for the U.S. but still all that integration really drives profitability as you will see on one of the later slides that the profitability has really improved quite dramatically. And actually, we're higher in the U.S. profitability now than we were individually in those companies when we acquired them. Spain and Portugal, still our high-growth dynamic. Countries, they are outperforming the market. I always said the great thing about our country portfolio is not only that we touch the lives of a few hundred million people but -- and help them to hear and see the beauty in the world better but we also have a great portfolio of countries in terms of very, very mature market-leading companies in U.S.A and then some really hot growth engines in Spain and Poland and then some next-generation growth countries like the Czech Republic. In others, that's basically where you're going to find Poland. You're also going to find Italy. They have returned to growth. We closed quite a few stores there because we had to review our profitability profile, and it was not a profitability profile. It now is still mid-teens in terms of profitability for the year and Italy has also now returned to growth after the store closures. So they're only 2%, but still after everything the country went through, it's pretty great. And we are continuing to become more and more international, 39% of sales are generated outside Germany, and that's just because of the U.S. dollar that depreciated against the euro quite dramatically. Otherwise, we would have hit our target of 40%. But in 2023, we were at 30%, so quite a dramatic increase in out of Germany sales, which helps us to be a lot more balanced across the global economy. Looking at profitability on the next slide, significant margin improvement. I told you all that. You read about it. Yes, Europe at 24.8%, so 25%, the U.S. at 15%. Europe is going to be there or thereabout for the end of the year. We said that in our guidance for the year. The U.S. is going to improve a little bit, definitely not to 20%, somewhere between 16% and 18%, 19%-ish, that's where the U.S. is going to land. So they're going to improve further and further and thinking about that they came from just under 10% by the end of 2024, ending up at mid-teens, high mid-teens is going to be a great success, and we're very happy with adjusted EBT, I think [indiscernible]. Looking at half year numbers, we also look at the balance sheet. Pretty happy, actually very happy. You need to move that finger away from the numbers. Yes, thanks. Cash generation in the first year, we had a bridge facility for about EUR 305 million, and we refinanced EUR 275 million. So despite that decrease in financial debt, which we paid out of cash, we still have EUR 100 million more cash at hand than we had at the year-end. We're going to pay a dividend of about EUR 96 million. So first half year, we worked for [indiscernible]. Second half, we're working for the company to provide the company with enough cash to grow and invest. Net debt to EBITDA, so unadjusted EBITDA. So our leverage is at 1.1, if you adjust it for the dividend that we then paid like 2 weeks after the cutoff date, it's still 1.2 coming from 1.7, so pretty dramatic deleveraging, and that's all because of the strong cash generation, the EBITDA growth. So two-pronged approach. We're actually paying down debt. We're actually accumulating cash and we're growing the EBITDA at the same time, and that's how we delever the business. You know that in terms of leverage, our policy is we feel very comfortable with anything that has -- that is below 2. And yes, we're at the lower end of that, and that is including leases, and so the major part is leases. Our equity ratio improved and jumped over to above the 40%. And then one of the bigger effects for those who look in detail at the balance sheet is the currency translation. So euro to U.S. dollar, U.S. dollar depreciated from 1.04 against the euro in December to 1.17, and that really drives a decrease in intangibles, goodwill and right-of-use assets, AKA rent or leases or whatever you want to call it. That effect decreases our balance sheet by EUR 45 million alone just because of that currency translation effect. But as I said, it's all only one time event, it's [ translation ] and not transactional. On the next page, looking at our cash flow. Cash flow statement is mainly impacted by the U.S. acquisition and obviously, the growth in the business. Operating cash flow jumping from EUR 198 million to EUR 236 million. The main difference here is slightly lower cash conversion. We paid out bonuses. So slightly higher bonuses. So the provisions went down, the cash went out. So the cash conversion rate between operating cash and EBITDA moved from 86% to 83%, still a very high cash generation. And the driver behind the growth is the EBITDA improvement because we're a cash on transaction business. People get their glasses and they pay. And then, yes, we deal with health insurances and all that but the major part is cash on delivery and that great for a very healthy cash flow profile. In the U.S., we actually take down payments on ordering. So we actually have a slightly -- we actually have a positive working capital effect from growth there. So -- but that was too small what you see. Cash flow from investing activities EUR 37 million, prior year was EUR 15 million. If we just look at the maintenance and growth CapEx, remember, we paid for the Shopko acquisition on the 1st of July. This is the 30th of June. So it's not a year. If you just look at maintenance and growth CapEx, we are this year at EUR 37 million. Last year, we were at EUR 33 million, and that is basically in line with our growing business. And then the prior year, why is the prior year EUR 15 million when you already spent EUR 15 million for maintenance and growth CapEx? Well, because we had disposals and we had basically securities and EUR 2 million [ provisions ] basically to generate the cash, and that was a EUR 18 million cash inflow. So EUR 33 million, minus EUR 18 million is the EUR 15 million. And this year, we didn't do any of that in a significant manner. So it's EUR 37 million and this year's EUR 7 million, it's 0. So that's why you have EUR 37 million and EUR 15 million. Cash flow from financing activities all over the place, minus EUR 100 million this half year, plus EUR 96 million last year, well, we paid our Shopko acquisition on the 1st of July but to make sure that we can pay on the 1st of July, we -- last year, we had to increase our debt by, as I said, initially EUR 280 million, and that was the cash inflow. And this year, we basically repaid the debt. We raised the Schuldschein. That's a promissory note that should -- I think everybody knows Schuldschein. So that's basically what we did here in financing. And then we have the repayment of leasing liabilities, and that's in line with our growing business. So we remain highly cash generative. We have a high-quality balance sheet that still may be on the lower end of the leverage, and we're pretty happy with that more conservative approach. Risks and opportunities for this year that we see. Well, opportunity would be a strong organic growth in our established European markets. You see it in those markets, we are really doing good in those markets that have a more vibrant economy like Poland, the Czech Republic, Spain, that's where as soon as that happens, it has a direct impact on us. Germany, it's still a bit of a problematic case, and we're obviously still fully dependent on Germany. So let's hope that sentiment improves. We still do have great potential for expansion in optical retail in the U.S. and Spain, Eastern Europe and hearing aids. Hearing aids, you see it. Spain and Eastern Europe, you see it as well. In the U.S., as I said, we're trying out things. We're in the middle of the business model transformation. So for us, we don't think quarter-by-quarter. We think more longer term for us, laying a proper foundation and really, really addressing the U.S. market in the right way will help us in the long run to really reap the benefits and bring the U.S. to where we want them to be, which is a strong organic grower with a margin that's very similar to our European businesses. So -- and that's what we're doing at the moment. One of our more senior management team members is now -- has now transferred to the U.S. He was our Strategy Manager. He has now transferred to the U.S. and is living there and working there and basically running the business model transformation together with the U.S. leadership team. Our Chief Sales Officer, Bastian Koerber, is spending now about 10 days a month in the U.S. to help with that. So we really have full focus now on the business model transformation in the U.S., and that will bring us a tremendous joy and potential for expansion in the future, probably only 1/4 of that this year, if at all but definitely for the future. And primary eye care is still definitely a promising market. You see that we're growing. You probably listen to what we said at the AGM or the strategy recording that Marc and I did and where we also talk about this as being a small but very important piece of what we're going to be doing over the next 5 years. Risks unchanged. Consumer sentiment is the biggest impediment where we made the growth. Skilled labor shortage is becoming more and more an issue that we have under control. Trade conflicts and tariffs, well, for now, the EU and the U.S. where we have a deal. Our industry analysts said, they signed the deal, and it has very little impact on the optical industry. And we always said that, that at the moment, we don't see any problems there. But let's see how long those agreements hold before we're happy. But at the moment, I would say, trade conflict and tariffs are going a little bit down on the risk -- the biggest risk remains by far the consumer sentiment. Now let's get to our outlook for 2025 at the last slide. We're totally on course to achieve our targets. Customer satisfaction is where it should be. Our customers are happy, and that's great because happy customers talk about their experience and happy customers return. Unit sales at EUR 4.7 million. So we said around EUR 9.5 million. I talked about the reasons. And so we're confident to get into that direction. Total consolidated at nearly EUR 2.5 billion, and I can fully confirm that. Consensus is about EUR 2.47 billion, and that's -- we think along those lines as well. Adjusted EBITDA of around EUR 580 million at a margin of about 24% with a European margin around 25% and the U.S. margin being in the high mid-teens. So we are confirming that and the adjusted EBITDA margin increased by -- we said because we didn't know how all that financing and the acquisition goodwill impairment write-downs and all that work. So we said it's going to grow at a similar rate, while it's been growing 1.7% so far. So we're pretty confident in that. So we are one of the companies who basically say, yes, we -- it's end of August, and we confirm our targets for the year. And with that, I came to the end of my short presentation, and we have a bit of time for Q&A, and I hand over for that to Ingmar.

Yes. Thank you very much for the presentation, and we will now be happy to answer your questions in a couple of minutes.

[Operator Instructions] And we have received a couple of questions. Mr. Abbott, you should be able to speak now.

Yes. Can you hear me?

Yes.

Okay. Excellent. Yes, you usually like for us to limit our questions to 2. So I'll do my best. And the first question, it's a multicomponent but it's regarding -- all regarding the U.S. I mean we saw the Q2 sales number actually down versus Q1. Could you give us an indication how much of this was FX translation effect, whether there are normal seasonality patterns here and kind of what measures you're taking and what you expect in the coming quarters there? And then I'll ask my second question.

Yes. U.S., as I said, it's interesting environment. Q1, we were still up against the weather, which was a lot worse than usual in the Midwest, and that means a lot. And definitely, Q2 Liberation Day, so President Trump's announcement of the magic formula for tariffs didn't really help a lot for, a, the stock markets. And you know how dependent the Americans are on the stock markets for everything in their life, especially retirement. So that wasn't helpful. That really knocked down consumer sentiment. So we could instantaneously feel that people were hitting the brakes going into full backward throttle to say, look, we don't know what's going on with the economy with my personal income. So we'll be very cautious with what's going to happen here. So we really sense that. So your sentiment is right. We've seen that consumer sentiment came back up beginning mid-May, June looked better, July looks better. We still revised downwards internally our expectation for the U.S. sales because we just had to. And then obviously, the FX effect was also not helpful. So overall, I'd say not the greatest year for our U.S. experience. Plus, as I said, we're in the middle of changing the 2 companies into one and changing the way they do business. So that obviously also leads to a bit of distraction. But midterm, so next year, the year after, we're still very, very confident that we've done the right thing and working on it. And we see the margin expansion at least. And then once we're through with the business model transformation, we're going to see an uptick in U.S. sales as well.

But are you gaining, losing market share? Do you have any insights there?

We see -- well, total U.S. market share is...

No, I mean in your region, sorry, in Europe.

Yes, no. I just wanted to say we're under 1%. So if we take the European levels, we still have 30% to go. We do see that our competitors are actually reporting higher organic sales or growth figures than we are. We're looking at that. We do see -- we're looking at day 1 conversion rates, which is one of the primary key indicators for us, which basically means how many people come out of the optometrist's office with a prescription and how many of those file it with us or leave immediately on the same day or how many leave and then come back or go somewhere else. We see that, that number is actually pretty stable, slightly trending downwards, which would be an indicator for losing market share. Our biggest issue at the moment is doctor availability. So we're specializing on the more rural parts of the upper Midwest, which is great when you're there and you're running because there's not a lot of competition, which is not so great if one of your doctors retire or leaves the area and moves to a city, then it's very hard to attract doctors to work there. And once you don't have doctors, then you don't have a prescription and then that's not great for sales, and that's currently the biggest issue. We're now -- we did a lot of hiring over the summer. We now have after Labor Day, which is, I think, next Monday or the Monday after next. We actually have the highest availability of doctor hours ever. So we expect the business to pick up. But yes, so far, we're seeing lower numbers in our numbers than what our competitors are reporting for the U.S.

Okay. Okay. So -- but you did feel obviously the FX effect in that quarter, the translation.

Yes, yes, of course. Yes.

Okay. And for the group as a whole, my second question, please. I mean, you addressed.

That was a very long first question.

No, I know, I'm sorry, I really -- I'll be done. And you said -- you said, as we know, clearly, FX effect is all about organic sales growth. And to achieve that your guidance or stay where this level is where you felt comfortable with. You're going to need 5%, 6% growth in the second half, more towards the upper end of half of that. So I just wondered what you -- what underlines your optimism at this stage being in mid-August or end of August. with that number?