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 of the First Half Year 2022. [Operator Instructions] Let me now turn the floor over to your host, Carsten Lind, CEO of FP Group.

Good morning, everybody, and welcome to the presentation of the Financial Results for the First Half 2022 Francotyp-Postalia. I hope everyone had a pleasant summer and is ready for moving forward during the year here. So -- in terms of the agenda, we go through as regularly the accounting numbers. We offer a normalized perspective of the EBITDA. We break down the revenues and the developments per segment, the 3 segments. And then at the end, we look at the guidance, and we are happy to take some questions, should there be some. So the first half results, looking at the main key performance indicators. On the financials, we have improved basically on all of them, revenues are up around 28%. EBITDA and earnings per share up as well. A number of effects in here driving this development; organic growth, continuous cost reductions, also the rate change in Germany plays a role. And of course, we have here -- in the first half, we have 1/4 of Azolver added to the revenue part. But we are, of course, happy that every segment, every business area is growing, both on the top line and on the bottom line. So EBITDA at EUR 16.3 million versus EUR 9.2 million the last year. Earnings per share, EUR 0.32 versus EUR 0.04 last year. So in the normalized view, we simply backed out for the first half in 2021, the expenses relating to the FUTURE@FP, and a few more moving parts in 2022. We have backed out the rate change, the currency effects and added back the expenses on ERP. And -- some extra expenses relating to increases on -- in particularly, computer chips and also added back our expenses relating to the Azolver acquisition and a bit more. So from the normalized perspective, up -- the EBITDA, we consider here as EUR 14.8 million versus EUR 10.2 million. And, yes, the normalized perspective is quite close to the accounting numbers overall. And as we look at it here, also, the margin is up over 13% versus around 10% for the same time frame last year. On the free cash flow and net debt. We have achieved an increase in the free cash flow from EUR 4 million to EUR 7.4 million. Yet -- as part of that, we have paid for the Azolver acquisition out of our cash flow. So -- and together with that, reducing debt, I think, is the development that we wanted to see. So moving into the segments and into the business areas. We continue growing in our digital business solutions, both in the broader document workflow management space, where we help our customers with their customer communication outgoing and also handling of incoming communications. This goes both with physical letters, but also on pure digital offerings. On the input side, we are moving forward. We definitely want to do quite a bit more of that, both this year and next year. In the area below the business process management, business process automation, where we count FP Sign, our digital signature solution and others, we as well are growing. And we imagine that we will continue growing. And as you can see here as well, we also have now a contribution from the product TRAX, which is a software-as-a-service based tracking -- asset tracking solution that we got in with the Azolver acquisition. And maybe to put a couple of words around what is this software about. So one application of TRAX is that we help hospitals get control over their internal logistics. So for example, when you distribute food, medicine, samples and also keep track of core equipment in hospitals we there -- we there basically are contributing by giving time back to core personnel in the hospital so they can spend more of their time on what really matters, which are, of course, the patients in the hospital. And we see everywhere around the world that the health care sector is under pressure, not just on the cost, but also on certain key personnel. And it is our ambition here to bring a small contribution of giving time back to this sector by the application of TRAX and sometimes also combining TRAX with FP Sign to create more value in those internal logistics flows in hospitals, in particular. So the Mailing, Shipping and Office grew to 74.2% versus 60.4%. Of course, here, we have some effects in here from this year. We had the rate change. It is a recurring element. It's just not a recurring element that happens every quarter or every year, actually more like every second year. The Azolver acquisition is, of course, helping us here. And contrary to last year, the currency effects in terms of more euros or dollars are here a bit of a tailwind, whereas last year, it was a headwind. But we have as well organic growth in this area of 2.3% in a sector that overall, of course, worldwide is declining. So they are not just on market shares but on actuals, we are actually performing nicely compared to the competition. In the Mail Services area, we also see quite some growth. The first quarter was influenced by certain, let's say, effects relating to corona that some of our customers have outsourced more to freeze out, for example, the franking process and others. However, we also achieved to get in a few more new customers. However, the effect here in the first half of basically more than EUR 10 million above last year, it will not repeat itself in the second half. However, we envision that going forward into '23 and onwards, that part of this hopefully, a significant part of it is something that will stay with us. So it is kind of recurring. But when we are looking at it year-on-year and between the 2 halves of the year, for 2022, the extra EUR 10 million revenues are happening only in the first half. And last comment to the Mail Services, as we have communicated a few times, the business model of mail consolidation is only in the German space, and it is a low margin business, which means that the EUR 10 million extra revenues has quite a limited impact on our earnings. So FUTURE@FP. Yes, one project, of course, with a lot of focus now, which is still relatively new is the post-merger integration of Azolver. It has a number of components. We are investing more in the different digital solutions, for example, the TRAX that I mentioned before, but also other. And we have in there as well, a restructuring process and of course, the combination and bringing those -- bringing the 2 companies to be in the same supply chain in terms of replacing the installed base of Pitney machines in those countries with Francotyp-Postalia franking machines. And this is already ongoing in all countries. So we are moving forward in the way that we anticipated, and I do expect that the major portion of this is closed before the end of this year. Whereas the development -- the further development of the software-as-a-service side of this, of course, it's an ongoing process that hopefully never stops. On the -- so on the operating model, what we do is to integrate Azolver, both in our Mailing, Shipping and Office business or the business area with franking inserting and office solutions. However, we will with Azolver expand the footprint of our Digital Business Solutions since we move forward, for example, in the Nordics, having legal entities, there focusing only on software and software solution selling. And hence, also this helps us as -- on our way to the -- becoming an international technology company. On the ERP/CRM, we are standing here in front of shortly -- and shortly, this is Q4, starting the rollout, the onboarding of various entities onto the new platform. And we will continue driving that in terms of basically quality over speed, if you like, but we think that we are in a good way in terms of moving forward with that program. And that is, of course, important for a number of processes. Also the next, let's say, wave of restructuring across FP, not related to Azolver but the other part, of course, has some dependencies on the ERP/CRM system. The program 4 and 5, they are moving forward, continuing and with the actions that we are taking in those 2 programs, we are not just delivering growth this year. But by keeping investing and in the development, building the road maps together with customers, we believe now, and we are confident that the actions that we are doing now in this -- that we did in the first half and that we will do in the second half, again, going forward into the future, will enable us to keep growing at reasonable growth rates for the Digital Business Solutions. So on the guidance for the full year, we basically stay in our range. We do recommit our statements of delivering the upper range of this guidance, with the likelihood of exceeding on the revenues, at least -- on the EBITDA for the second half, we consider ourselves in terms of the performance of the underlying business to be improving versus the first half. But as mentioned, there are investments, the post-merger integration program, further investment in the software development and also some extra costs that we need to take in terms of shipping costs, in terms of ancillary cost, in terms of extra cost for computer chips that we do consider to go away again in a not-too-distant future. However, we will incur a number of costs and we are doing further investments in the second half that -- on the EBITDA, we stay in the already announced guidance, although, as I said, likely the top line will exceed EUR 237 million. That were -- these were the words from our side, and we are now happy to take some questions, should there be some.

[Operator Instructions] And the first question comes from Peter Rothenaicher, Baader Bank.

Yes, Mr. Lind. Firstly, on Azolver. So the company is now being consolidated for 1 quarter. How is your experience? Have all your expectations being fulfilled? Is the company on a good track towards profitability as you expected?

So the very short answer is yes. To add a little bit more color to that. The post-merger integration project has a few dimensions. So one, of course, is the major portion, which is moving forward and consolidating the markets with Francotyp-Postalia products and starting that process of replacing the Pitney product, that -- and setting up the supply chain for that. We are in very good shape with that because we are already selling on a daily basis, Francotyp-Postalia in those countries that we did not sell before. On the digital products, we have the very interesting situation that the asset tracking software that I mentioned 10 minutes ago, we can sell in an -- we can sell both through the Mailing, Shipping and Office and through the segment Digital Business Solutions. And we have some ambitions in terms of driving that forward. And we have basically kicked off that together with Azolver. So on that dimension, it is also -- this is not happening overnight. But in terms of initiatives to build the pipeline to invest further in the software development, we are on a good way. The last dimension is that we have combined in Tallinn, the initiative that we initiated in FP last year and the hirings with it, we have now merged the 2 Tallinn sites so that we have one technology and service center in Tallinn, and we will continue driving that forward. So there, we are also confident that we will get the results that we are after. And we also understand, let's say, the drivers of doing the consolidation and reducing the cost base. However, let's also say that combining 2 companies, it's combining 2 cultures, 2 different modus operandi, and all of that, of course, comes with some, let's say, welcome challenges, but we are on a good way.

Then regarding your franking business in the U.S. We know that there is some special demand situation coming up in the next few years. Have you already experienced here some additional demand in the U.S. from the replacement of the meters ?

We have seen some effects of this since we are year-on-year growing the installed base in the U.S. Having said that, we want more.

Then a technical question. You had a very strong results pretax based. What happened in the tax position was one on special effect in this quarter? And what do we have to expect for the full year?

The tax rate that we see is 30% flat across the different regions and the different segments.

Why was the tax position so high in this quarter?

I think that we can walk a little bit further down that route on the technical side. I think we will record here the question, and we're happy to give -- there is a simple relatively simple answer, but let's record the question and then we get back in writing on the answer.

And the last point, within your Digital Business, you did not mention IoT, but my expectation is that still this is relatively weak in terms of performance? What are your ideas regarding the IoT business.

So on the -- so on the IoT, where -- our proposition now has both the hardware component of the past in terms of gateways, but also the application, the software that end users in reality are using when they are looking at -- and let's say, controlling the heating systems, that's what we are talking about in the real estate sector, our proposition is that they can avoid paying penalties to tenants because they, in due time, with our IoT hardware and software, we'll see when heating stations are falling out and hence, can intervene before they get penalties. That is one application. What we have achieved so far is the onboarding of quite a number of customers to do proof of concept on that application, including some non -- including some local clients in Germany. However, at this point in time, we are still on, let's say, proof of concepts and small extra projects, we have not yet seen, which was -- when we launched it, we have not yet seen that we win, let's say, big ticket IoT projects with the real estate sector. And it is our impression that actually no one else in the IoT or property technology -- prop tech scene no one else is also not doing that. So this sector is not moving slow. So the conclusion is it's still small. But in terms of what we started up in April last year, we have onboarded a real customer base, and we are working not just on new customers, but building up also the installed base of customers because we see that there is more potential on that installed base. That is where we stand with the IOT.