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 Full Year 2021. [Operator Instructions] Let me now turn the floor over to your host, Carsten Lind, CEO of the FP Group.

Thank you for that. So welcome, everybody, from Martin Geisel, CFO; and Francotyp-Postalia and myself, Carsten Lind, the CEO of Francotyp to our presentation of the financial results for 2021 and also a presentation of the guidance for 2022. So 1 year down the road, we are still in the beginning of a change process and this will continue. And if we will undergo also during the coming years quite some changes. So in terms of presenting numbers, we will present where meaningful both accounting numbers and normalized numbers. So we are happy of course that we managed to keep, even exceed a little bit our latest guidance, ending up with a 4% growth -- revenue growth for the year coming in at EUR 203.7 million, which is a little bit higher than the latest guidance and some distance higher than the original guidance. We have an EBITDA of EUR 18.5 million, which is also a little bit higher than the latest guidance, ending up with an EBITDA margin of 9.1%. And having contrary to last year also an earnings per share, which is, well, very small, however, above 0. And the growth across the 3 different business areas that we are driving, Mailing, Shipping and Office Solutions, very small growth, Digital Business Solutions, some growth, and also our Mail Services business, some growth. So let me walk through the EBITDA accounting numbers to a more realistic or normalized perspective, since a number of effects, one-off effects are in the numbers. First of all, we have this year, we still have a small contribution from the COVID subsidized, which, of course, should be taken out in a normalized perspective. We have the effects of future added fee. However, we have neutralized that in terms of spending, let's say, money that we accrued earlier for this restructuring. And as we will see later also, I will talk a little bit about our acquisition. There is of course accruals also to be done this year in terms of moving forward with that acquisition. So the future added fee, we have neutralized in the perspective here. We have the investment in one ERP and some investments in the direction of our technology products. And largely we have taken out the currency effects and also effects of, let's say, old projects that were written down in 2020 that yet still have an effect in 2021. So that walks us to -- and I think we can say here very conservatively estimated a normalized EBITDA of 22.5%, i.e., EUR 4 million higher than our reported -- as reported number. So on the free cash flow and net debt, again, here, meaningfully looking at normalized numbers. However, as reported, EUR 15.1 million from operating cash flow versus EUR 23.4 million last year and free cash flow of EUR 6.5 million versus EUR 11.4 million last year. However, the EUR 6.5 million free cash flow is a number heavily influenced from 3 main factors here. One being that we have built up inventories relating to the disrupted supply chains around the world and relating largely to our ambition of selling and leveraging the decommission of franking machines in the U.S. So we have built up the inventories in terms of being ready and moving forward with that work. And we also have, of course, a negative one-off in terms of payments related to the former cost, the former forestland of the company. And also here from the future added fee, of course, there is a cash impact here on paying out the EUR 3.4 million for doing the first wave of restructuring. And if we are adding that back, we're having instead a free cash flow of EUR 16.9 million normalized and an operating cash flow of EUR 25.5 million. So in comparison with last year from a normalized perspective, an improvement. On the net debt, we have reduced our debt yet also, of course, kept our covenants in close dialogue as ever with the banking consortium behind Francotyp-Postalia. So if we go into the Mailing, Shipping and Office Solutions, as already announced, small growth of 0.2%. A little bit more if we take out the negative currency effects that we experienced last year. As we might recall, we started out last year very slow in the first quarter, also related to the pandemic. However, the business did pick up. And we managed also to turn around a few of the smaller yet still important countries contributing to this business area. And we also achieved to start selling in terms of the office solutions part of the Mailing, Shipping and Office Solutions. We did various experiments with new products, hardware products in terms of selling those into the installed base and also winning new customers. And at least there, we passed in 2021, mainly the second half, we exceeded EUR 1 million of new revenues with new products, which is also helpful and important for this business area. We still, of course, do not know going forward how are the world around us developing with still being in some situation, of course, on the pandemic, war in Europe, supply chains and all kinds of things. But we have assumed, as you will see also relating to 2022 that it's not getting worse than it is right now. So in the Digital Business Solutions, where we now have brought all our digital products under one roof, we had contrary to '21 -- sorry, contrary to the trends, we have reversed the trend here in terms of getting at least some growth. We are having growth across our broader products and services around document workflow management, coined input and output management. And we had also in 2021 with a number of the products that for many years were not really moving. We have picked them up. And for some of them, including a design and also the e-mail-related -- the e-mails growth also related to the fact that these systems did an exit from this market. However, we have achieved, let's say, to reverse the trend with 13.6% growth in a year-on-year comparison. Mail Services here actually, normally, you would consider this business area to follow volume-wise and revenue-wise. The projections of mail volumes in Germany by the Deutsche Post since this service line here only exist in Germany. However, with [indiscernible], we managed to increase the volumes and hence increased the revenues. And we still consider this not being, let's say, in a transformatory mode, is relatively stable. So this -- what we are searching for here are continuous improvements in the cost side. And also that we -- going forward, we'll see if we cannot sell through mail services some of the hybrid products like Hybrid Mail and also use freesort to be helpful on the scanning processes relating to our broader offerings in the document management workflow space. So moving back here in terms of the future added fee program that we launched a year ago. And again, the point of departure when we began was basically the trend that Francotyp was selling less and spending more. So yes, lower revenues trending down and the cost base especially in -- at the headquarter in Germany trending up. And of course, that is no healthy combination. So the aim of future added fee was exactly to reverse that trend and moving steps forward in terms of increasing or getting back to real profitability by working on the cost base, but also by more effectively selling what we already have. And of course, since we are not in it for maximizing just the short run, but also initiating the product developments and the innovations that we need and that we rely on for also growing in 2022 and the many years after 2022. So basically, the reorganization for simplicity and accountability into the 3 business areas. And let's say, the liberation of energy and commitment by doing that and also by pushing many more decisions out into the business areas. And for example, for the Digital Business Solutions, giving them much more control and autonomy and not being attached, so to speak, to the group IT functions, but focusing on their own software development and software as a service that has helped us quite significantly. There is also, in general, here absolutely an element of learning since we have trained a significant amount of people in product and innovation management and also on the financial side, in the business areas, some places more than others. We have trained not just -- we have changed and trained the financial side, the managing director side, the controlling side on driving these types of businesses forward. So of course, we are still in the beginning of our transformation program. But we have the first deliverables. And of course, this is possible for one simple reason and that is real efforts from our employees, from our colleagues that we have taken an important step forward. It's a small step, but it's the first very important step. And now when we come back later this year and look at future added fee, of course, this program will change a little bit now that we have a post-merger integration program added, for example, to the new operating model. We are done with the first wave of restructurings in the first program here. And we will, at a point in time, of course initiate the second wave. And in terms of the digital offerings, et cetera, we are working forward with what you're looking at here. But also from Azolver we are adding a few digital products into our Digital Business Solutions. And this is, of course, a welcome challenge to pick them up and also setting them back on a growth trajectory. So shortly before I come to the guidance, shortly about Azolver, as we already have announced, it is a company, 160 people, just south of EUR 30 million revenues, spanning the 4 Nordic countries, Denmark, Norway, Sweden, Finland, but also Italy, Switzerland and Talen in terms of the near-shore location of Solon. So we consider this to be a very meaningful acquisition. We don't consider it to be the acquisition. But it's the first one and you need to start somewhere. So the value that we expect to get out of this, of course, is that we will replace the significant installed base of franking machines that are under Azolver as of today with our Francotyp-Postalia machines. And we will leverage the near-shore center already established in Talen, which means that we expect that we can move faster forward with our own intention and establishment in Talen. And thirdly, with this acquisition, we also add a few new digital products that we will put under the Digital Business Solutions umbrella, one of them being asset tracking that we think would be very helpful in terms of value-creation for customers and helping us in the next years to continue growing in the Digital Business Solutions. So getting to the guidance and comparing with the 2021 actuals of EUR 203.7 million, EUR 18.5 million and 9.1% EBITDA margin. We gave the guidance of EUR 229 million to EUR 237 million with 9 months of Azolver added and assuming a 3% to 6% organic growth of Francotyp before the acquisition. The EBITDA range we consider to be 24% to 28% and the margin between 10.5% and 11.8%. And please look at this in the light of we are still being in a significant change process and change mode. So also in 2022, there are significant investments in terms of moving the organization forward, investments in ERP, investments in products and quite a number of one-off investments. Hence this range of 24% to 28% on the accounting numbers. So I guess that this was the brief I guess presentation from our side. And I will now happily give the page back to the moderator, and we are happy to take some questions, should there be some.

[Operator Instructions] And the first question comes from Felix Ellmann, Warburg.

Congratulations for the numbers and congratulations to the outlook, which is very, very nice. You mentioned it in the last sentences that you are still in the process of reorganizing. Could you give some feeling or some blend for the year 2023, how this could develop? Because if one sees the dynamic you've been showing in the last year and looking at 2022 and drawing a line there, that could even come out with even more EBITDA, maybe something around 30%, 35%, something like this. What can you tell me about the midterm with regards to 2023?

I tell that it is the intention that at a point in time this year, I wanted to give exactly a midterm outlook, let's say, a 3 to 5 years' outlook. And you are right in your assumption that we expect that we are improving also 2023 over 2022. And you could say we are -- of course, now with Francotyp, we are moving into the zone where we within the foreseeable future, could also start paying out dividends.