Francotyp-Postalia Holding AG (FPH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Francotyp-Postalia Holding AG conference call regarding the financial results for the first half year of 2021. [Operator Instructions] Let me now turn the floor over to your host, Mr. Carsten Lind, CEO of FP Group.

Thank you for that. So good morning, everyone, and a warm welcome to our presentation of the first half of the fiscal year 2021. I'm here in the room in Berlin with Anna Leman, Investor Relations; Martin Geisel, Chief Financial Officer; and Pierre Norman, Finance Director in FP. So the presentation will be, first, a short introduction to the numbers, and then breaking down a bit more detail per business area and ending up with giving an update on our FUTURE@FP transformation program. So let's go into the numbers. So in terms of where we ended up on our revenues, as you can see, compared to standing after the first quarter where we had a very low quarter, we are now picking up. And after first half, we had basically the same revenues as last year, EUR 99.5 million versus EUR 99.7 million. So we had in the second quarter, basically a 12.3% improvement over the second quarter last year. And we have here as well a positive contribution from Mail Services and the Software and BPA area, so -- and all in all, as always, benefiting from the recurring revenues and from our very reliable business area, Franking & Office Solutions. That very business unit, Franking & Office Solutions was a bit lower. We will come to that later. However, we have in the numbers for this year compared to last year, quite some headwinds on currencies. Last year, it was tailwinds. So the overall development, as we see with an EBITDA of EUR 8.8 million is clearly in the upper range of our guidance. And the depreciation and amortization is a bit down linking to the cleanups that we did at the end of last year in December. And well, the bottom line is a profit of EUR 0.04 per share. Overall, a good step forward in terms of the business. So yes, next slide. So in the light of having done exactly a cleanup last year, and the comparison between this, the first half this year and the first half last year, is a little bit, well, not easy since the first half year in 2020, I said we cleaned that up in the second half of 2020. So hence, the quarters are not very easily comparable. And maybe for looking at it from a performance view, which we are offering here, at least one way of looking at it would be to back out any currency effect and any effect on the EBITDA linking from -- stemming from the own work capitalized. And there we see a different picture in terms of the left being what we showed on the screen before EUR 13 million last year versus EUR 8.8. million. But if we do a more normalized perspective on a more performance-oriented perspective, we are seeing here a slightly different picture that we are improving on that key performance indicator. So on cash flow, again, our very reliable business unit, Franking and recurring revenues are helping us here. We have in the second quarter of 2021 a number of one-off payments in terms of basically moving into the new operating model and changing the structure in terms of force and the Vice President level, et cetera, so there are a number of one-offs there. Also, the investments were back to a more normal level of EUR 3.3 million compared to the EUR 8.6 million the year before, an area which, by the way, will change a bit in the second half because there, we foresee more investments and more spend in terms of projects and improvements that we are driving not just ERP, CRM, but also others. So this basically brings us to a positive cash flow again at this time at EUR 4 million versus EUR 5.9 million last year. And lastly, in terms of our debt, we have paid installments on the borrowing facilities that we have of EUR 6.9 million, which is then the -- basically, reducing the debt a bit, but also explains why the cash is not higher, but a bit lower compared to last year. And needless to say, it is, of course, always a priority to stay within the covenants. We are staying within the covenants now and going forward, and we continue to have a close and, from our perspective, very good dialogue with the banking community behind the company. So let's look a bit into the business units. So the -- clearly, the situation here is different compared to the first quarter. First quarter was basically around 10% down in this business area, so we are picking up. We are having a good contribution from HEFTER as well in terms of increasing our business there. And again, the numbers are, of course, as they are, but we are basically taking here a EUR 2.3 million currency effect, largely due to less euros or dollars in the first half this year compared to last year. So overall, let's say, a step forward, we are though still not having really so high visibility. We are all tired of talking about corona and pandemic, but we are still there. We don't see really very strong visibility going forward however, we are, of course, here and also going forward, benefiting from the high level of recurring revenues in this business segment. So as I introduced in April, it's a priority to combine our hardware business with software and applications that increases the value and we have taken steps not just to introduce more hardware products in terms of selling that into our installed base, such as air purifiers and others. And we saw before that HEFTER is picking up, so this is moving forward. But also, in the last time, I spoke a little bit about the parcel shipping. This time, we will look into Vision 360. So both sides of the equation here are, of course, incredibly important for us. And we have a little bit of news on the Franking side, if we go to the next slide, because we have, in the U.S., a relative -- a quite special market situation where the so-called IMI standard put onto the market from the USPS will mean that around 700,000 franking machines -- 700,000 meters would need to be replaced within the next 4 years, 3 to 4 years. And we hope now that all our franking machines that we bring to market in the U.S. are IMI compliant that this will help us to capture a piece of that market. And that would be, of course, very helpful in the light of the quite heterogeneous outlook for this business area. Some countries, we are declining. In most countries, we are declining and likely will continue. Hopefully, the U.S. can be a country where we actually will increase our installed base, not just market share, but our installed base. And going on to the next slide, this goes a bit hand in hand as well since the Vision 360 is an application. It's a piece of software that helps customers -- especially customers with relatively high volumes to have control over and get transparency over the postal expenditures they have and also, hence, take actions and continuously work on their cost base. And the news here is not the Vision 360 itself, but the news is that this is launched in July this year in the U.S. and other countries, and all the European countries and Canada will follow before the end of this year. So hopefully, this in combination with the slide before that our total portfolio of franking machines in the U.S. are IMI compliant would be a lever for moving forward there in a good way. Software & BPA, some growth, as we also saw in the first quarter. We have taken actions there on strengthening the sales activities in general, across the areas, and I will illuminate shortly a new type of business that we have been bringing to market where we started to win deals. Short update on FP Sign and the e-mail, it's moving forward. We are still in the ramp-up phase on the data that I mentioned the last time. We have, in the meantime, though, signed up around 20 system integrators that are also now resellers of FP Sign in the direction of data and later this year, FP Sign will be integrated into the data document management system. And hopefully, that would change the situation from a very slow pickup last few months. August, we didn't expect much because that is a vacation month, but hopefully, at the end of this year, we start to see some more action in that area. Further, if we go to the next slide. We have been working on the input management. It's a new offering for FP. It's not really a new offering in the market. It's about handling incoming e-mails, incoming physical mails for customers and processing that, categorizing the data and eventually inserting the data into the ERP CRM landscape of the customers are doing further value add on the data. And the idea here is to see this as a land and expand that we start with this relatively basic offering and then, over time, integrate forward into the back office of our customers and can help there in terms of doing process automation and digitalization. It is important for us since the offering would then be less and less dependent on paper volumes, which, of course, also in the inbound side has a tendency of a year-on-year declining trend, whereas the total communication in the world has a tendency of a year-on-year increasing. And still, there are complexities for companies dealing with both the incoming and the outgoing communications to customers. And we are seeing -- we are still on the learning curve there, but we are seeing some opportunities in the light of FP being capable of processing both the outbound and the inbound. So some customers see a particular value in having one-stop shopping of a company that can help them to make effective both the outgoing communication and the handling of incoming communications, for example, from marketing campaigns or other types of customer or public sector communications. And the logos at the bottom are first deals that we have signed very recently. And so, actually, they are not in the -- really in the first half. They are quite fresh. There's a ramp-up time, but these will help us especially next year. And well, it is definitely the intention that we keep on signing more deals as we go. This would also reduce the part of the revenue overall in the business unit, Software & BPA that relates to portal. So Mail Service is quite stable, a bit of growth. And we are at this point in time, not having, let's say, transformative projects going on. There are continuous improvement and tuning of the business and, of course, always the aim here and there to capture new clients in this market. We know and we have also illuminated that this is not a high-margin business, but it still has improved, and we are committed to driving it forward. So going into the future added fee program that we introduced in Q1, a quick update on those 5 programs. Let us start from left to right. So in terms of the rightsizing of the company, we have taken some measures there, and we are a good step of the way in terms of force and Vice President level, et cetera. So the restructuring has been moving almost like we wanted. We are having about EUR 2.7 million improvement in the first half numbers. Of course, run rate is higher. But accounting-wise, EUR 2.7 million with a combination of restructuring and other operating expense reductions. And in terms of the operating model, we are basically there now with a business unit in Franking & Office Solutions, having a North American unit on that and a European unit on that. We have combined the assets we have in software and digital into the business unit, Software & BPA. Mail Services will continue. And we also have, as the fourth leg, the business area, IoT, that will be commented not today, but at a later stage. So on the ERP/CRM, good way forward there in terms of proof of concept. So I think we stand where we have a good visibility that the system that we are in -- that we are with can deliver the functionalities in the finance as well as in the CRM side. A few details left in terms of the proof of concepts and user stories that we are testing and the focus is now the integration of the ERP/CRM with the back-end systems and the front-end systems. And well, we will comment on that again, of course, on the Q3, how this is moving forward. So the last 2 programs in terms of the digital business foundation and the value creation for customers. As I just illuminated, we are moving forward with the digital offers. I showed today the Vision 360. FP Sign is again being -- well, we are moving forward with the version that we have, and we have learned a lot on how to improve and enhance the product. This will -- this is in the making. We have introduced into the market the Input Management Service, which is new for FP, because we didn't really have it in the start of this year. We have developed it, and we started to win deals. And further actions also in terms of the IoT is moving forward, still though in the validation phase. And on the -- and in terms of the total development on the offerings, also some moves forward on the digital business foundations, which helps us to move into the low touch, no touch, which is in particularly important under the digital office. We're having here customers testing in our -- actually, we are already in production with some of those and other elements are in the testing. So in terms of the organization, this is how we would see ourselves and hope that also the market and customers will see us that we have a slim headquarter. All business areas on, except freesort, all on a single ERP/CRM system, which will enable us to really drive the business based on KPIs and data going forward. And all of it, of course, with the simple, yet noble aim of creating value for customers. So this is where we are moving forward now. This is the structure that we have put in place, and we are quite convinced that this is very helpful in terms of moving forward. So as I said before, on showing on the numbers that these were in the high end of the prior guidance that we gave. And as is known that we have adjusted the guidance very recently, and we now have the guidance of EUR 192 million to EUR 200 million on the top line, and we have EUR 12 million to EUR 16 million on the EBITDA, which is a raise from the EUR 185 million to EUR 196 million and EUR 6 million to EUR 12 million on the EBITDA. So basically, linking back to the numbers on the first page, one could think, hey, wait a minute, only EUR 12 million to EUR 16 million and you did EUR 8.8 million in the first quarter. And to take that discussion, first of all, we are still coming forward here in a prudent way with the uncertainties that we are still facing relating to the pandemic. And we are having also a certain amount of one-offs in the second half that relates to creating the foundations and changing some fundamentals in terms of moving into 2022. So that, of course, will impact the accounting numbers that we are talking about here. However, with the effects of the future at a fee put in place, even with the lower level of the revenues, the EUR 192 million, we will still improve the run rate during the second half. So basically, this is where we stand, and I think a first glimpse of what -- in terms of what the future FP is delivering and the first glimpse of what is to come as we continue to improve going forward. Okay. So that was all from my side, from our side here. So we are now ready for the Q&A session.

[Operator Instructions] We have one question that comes from Mr. Peter Rothenaicher of Baader Bank.

Firstly, one question regarding restructuring. So you mentioned, I think it was in the first half of the year, you had approximately EUR 2 million in one-offs. The split on pure restructuring charges and also some expenditures for ramping up new business areas. Perhaps you can go a little bit here into details. And furthermore, do you expect further clear restructuring charges also in the second half of the year? Or expenses in the second half of the year are purely then for ramping up new business activities?

So I can answer that question. Thank you for the question. In the second half, we are still having expenditures on the restructuring. We think about EUR 1 million. And as I said, we are having there a higher spend, because we are now moving into the very concrete phase on ERP/CRM, but also across also across other product lines FP Sign, the IoT, the inbound side, et cetera. We are picking up there areas that we want to develop and improve. And we are seeking there for doing that rather quicker than faster, which means that there are some one-off spend in terms of doing just that in the second half. Hence, the accounting numbers are well not so high as you could potentially deduce if you look at the first half year.

Okay. And then a very interesting point in the U.S., these new opportunities. Could you perhaps give us here some thinkings about what could be the potential for you? What could be additional sales? And will this be then enough to compensate for the overall shrinking franking market, perhaps that you might be able even to generate some growth in the Franking business in the upcoming years?

Well, I think that in terms of the business unit Franking & Office Solutions, there are 3 levers, 3 [ self-starters ] in terms of continuing, not just at the level we are, but also improving that area. Of course, the digital office is one. And selling software as a service to the installed base should be associated with very attractive margins. We are already seeing an improvement from HEFTER in terms of selling other types of products. We know, of course, that in several countries, there will be a year-on-year declining market for the franking machines. And likely there also our installed base will decline. But we hope that with this outlook in the U.S. without coming with firm numbers because this is still underway, but hopefully, that the U.S. can help on, let's say, if not keeping flat then at least, that we will be relatively stable in many years out in the future, also in the classical Franking business. And then by adding HEFTER, by adding digital office, even improve the area. That is our intention. But we will have to see how -- it's relatively new. As I said, we have just launched this over there. And we are also just basically seeing recently the U.S. also coming a bit more out of the corona. So it's still a bit of a question mark, but it is definitely our intention to get a piece of the pie. And for 700,000 machines that need to be replaced, we should definitely be able of capturing some of that in the market.

Are your competitors in this area in the U.S. on a similar level in terms of the product offering? Or are you thinking you are here much, much better positioned?

Well, we think we have better franking machines. And we think that the trend of the declining volumes and the move to smaller machines, hopefully could play a bit in our hands. The intelligence there on the market that we have is that Disney, they have machines of IMI compliance. Quadient as well. But in some segments, not yet for Quadient. So I think that we -- realistically, we should look at this as all 3, let's say, provider are IMI compliant. But again, in line with what we see in other markets that the trend towards smaller machines hopefully can play a bit into our hands. And why not also have the Vision 360 software as shown, which is -- which we consider to be a good and modern approach for the cost accounting could also hopefully help us to capture some new customers there.

Okay. So you did not comment today on IoT. So is it fair to assume that you have not made significant contribution or benefit from moving forward to gaining new customers so far?