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 financial 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 conference call where we present the financial results for the fiscal year 2022. And before going in there, an opening remark, that the ESEF regulation was apparently a bit overwhelming in terms of the process to finalize the annual report. We will deliver that report within the legal time frame of April 30, but there is a slight delay due to this regulation. It has nothing to do with numbers. It is pure process. So basically, we are now 2 years in the transformation that we kicked off Q1 2021. The aim was that we wanted to bring FP back on a trend of profitable growth by the work that we communicated and also for 2022 communicated that we do on the cost base by getting organic growth back into the company, and also adding growth through M&A projects. And when we are looking at the results, we can say that we have achieved growth and operational improvements across all the 3 business areas. So at this point in time, contrary to 2021, which was a black zero. At this point in time, we are actually profitable and growing. So when we're looking at the overall numbers, we had a 23% year-on-year growth in revenues, almost 50% growth on the EBITDA. And also, as we can see, the earnings per share and the consolidated profit also now are, let's say, in the state of being real profitable. So a number of nonrecurring effects are influencing here our numbers. Some of those in terms of the EBITDA are on the positive side, and I will, of course, outside of the numbers here present a normalized view, present the guidance and take Q&A, of course, at the end of the presentation. So some of the positive one-offs had to do with the rate change in Germany with some -- with the organic growth and the effects of Azolver, of course, and then also the FUTURE@FP improved EBITDA with the work on the cost base. A number of effects in the opposite direction has been the increased investment in software development capacity which is, of course, building more products and improving our products for the future. But in the individual fiscal year, it weighed down a bit on the margin. The investment in the One ERP is also a sizable investment here. And then we have some nonrecurring effects on the -- related to the acquisitions and the M&A projects. So in the normalized view here, we have backed out, let's say, the very visible nonrecurring elements. And actually, the rate change in Germany listed here, it is actually a recurring element. However, it's not occurring every year. It's more like every 2.5 years. So for a fair comparison, we have neutralized the effect of that and also the effect of the rate change -- the exchange rates, the currency effect, which in 2022, was positive; in 2021, it was negative. We have neutralized One ERP and a few more elements. So basically, from the -- as reported, EUR 27.6 million, we consider normalized that we are around EUR 26 million. And from the EUR 251 million as reported revenues, we consider the normalized perspective to be EUR 229 million. So basically, moving forward into 2023, we are considering that we are building from EUR 229 million turnover and EUR 26.2 million EBITDA, which is a 10% year-on-year -- normalized 10% year-on-year improvement on the EBITDA. There were a few more -- in terms of the normalized perspective, a few more areas that arguably could be included, for example, the pakadoo acquisition we did, which we bought out of insolvency, of course, weighted negative in Q4 in 2022. Also versus 2021, we have added more costs for developing the products for the future. And also an effect on the EBITDA margin in 2022 is the fact that when we add an M&A project into our classic business with a lower margin than our own margin on until we get the work done, that, of course, will also hold the margin a bit lower in the year where you do the M&A project. So on the free cash flow and debt. The free cash flow -- operating cash flow improved with just around 50%. And also some positive improvements here on the free cash flow. Of course, as we have stated a number of times that the financing of the Azolver acquisition out of the free cash flow, of course, make this less than it would have been otherwise. So cash flow increased, debt reduced and we have financed the Azolver acquisition and the pakadoo acquisition out of our own generated cash flows. So into the Digital Business Solutions. We have here a year-on-year growth of 34%. And basically, all the 3 main areas that document workflow management, the business process management and automation and the shipping and logistics, they all contributed to that growth. And at the end of 2022 and building into 2023, we are now in a better position in terms of having real dedicated development teams behind each of the products. Also, we have focused naturally on a stronger sales and business development approach, including the partner deals where we are white labeling or integrating some of our Software as a Service solutions into existing platforms in the market. So for example, FP Sign is also white labeled into other technology providers. Further, the work on self-service and, let's say, the low-touch approach in terms of selling some of the Software as a Services, FP Sign being the first product also helps us here. So in the Mailing, Shipping and Office, we had 23% growth, including that small organic growth. And as we communicated and envisioned contrary to what many people said or had as an impression in the beginning that this label is a stable area. It is not falling off in a quick way or something. And the combination of small organic growth and MA-based growth, we see as a good step forward for this classic business of FP. So we think that we can continue also in the future, good developments across this area, both with the classic products but also with some ideas and testing that we are doing of adding more products to the product portfolio of MSO, not only some ideas in the software side, but also some ideas for hardware. So Mail Services had a record year to a large extent due to volumes, actually franking volumes related to the situation with Corona last year because in Q1, in 2022, a number of customers struggled with lots of people being out due to sickness, et cetera. So that caused FP Mail Services to achieve higher volumes. However, these high volumes are not really, let's say, contributing to the EBITDA of the group since we are not making a margin on doing the franking work for customers. So it's largely the EUR 12.7 million here largely is to be considered as pass-through. So the FUTURE@FP, some important projects that we have completed at the end of -- during and at the end of 2022. So the work done on Azolver and pakadoo in terms of the restructuring element and the integration element of that. So for example, the whole supply chain change that connects the Azolver countries to our factory, et cetera, that is completed and up running. We have as well on part of the digital business foundation taken here some good steps forward and later we are -- currently and later, we are adding more of our Software as a Service solutions into the same framework that we have invested in. We obviously wanted to be a bit further down the road on the ERP CRM. That is the top priority for the Executive Board and the broader management system that we get this done during this year. And when we are moving forward here, as we can see, FUTURE@FP, it is a living program, and we have made some steps forward and improvements during the last 2 years. We consider that the good news here is that there is a sizable amount of improvement and projects that we will do in these 5 dimensions also for the coming years. So there's much, much more to do for us. And as I said, a very important project this year, of course, is to get the ERP done. We are in the user acceptance test stage with the digital business solutions and also with the MSO in Sweden, driven by the fact that we merged FP Sweden with the Azolver Sweden. So it's important that we there quickly get on to working on the same platform. Also, as an adjustment to the -- let's say, making the organization a little bit more precise is that we established group services with the IT, finance operations, HR operations and including the nearshore sensor in talent with the aim of over -- year-over-year to move into delivering those services to the business units on more, let's say, commercial terms, on market compliant terms and maybe at a later stage, commercialize that and start delivering these services not just to FP but also into the open market. So before we go into the guidance, that we have, as said, growth and operational improvements across all the 3 areas. And we envision also for 2023 that we will have, again, a good year in all the 3 areas with growth from the normalized perspective. And we expect as well in 2023 to increase, versus 2022, the investments in product development, both in the classic business and absolutely also in the digital business solutions, in particular, well, actually across all areas in the digital business solutions in terms of improving, not just '23, but also keep building the products for the future. So basically, we will continue in the Mailing, Shipping and Office, of course, the project of replacing across the Azolver countries, the Pitney machines with Francotyp-Postalia franking machines and we will continue also with our, let's say, test and business development on selling more products and different products into the installed base of franking machine customers. In freesort the focus, of course, is to execute well within the new framework laid out by Deutsche Post. So that the fee structure of how you earn money with mail consolidation business model has slightly changed and of course, here, our aim is to use that to our advantage and see if we cannot grow based on the normalized perspective by winning some new customers during 2023. And across DBS, we expect growth in all areas, and we have now quite some focus on the internationalization of the product. So the products are now -- some of the products are now for -- ready for international launch, and we are driving that forward here every month with the aim of growing also outside of Germany. So as said, we will build the guidance from the normalized perspective since the tailwinds that we discussed earlier during this call, we don't envision that they come again in 2023. So basically, our guidance is a revenue of EUR 245 million to EUR 255 million and an EBITDA of EUR 28 million to EUR 31 million. And if we -- which will give us a margin range of 11.4% to 12.2%. And if we imagine that we would be, let's say, in the midpoint of the guidance, then we would be at just under 12% margin with the EUR 29.5 million EBITDA and EUR 250 million revenue, we would be at 11.8% to 12% on the margin. So that is basically the outlook. So again, we expect building on the normalized review that we will grow. And the growth range here is actually 7% to 11% and also that we will improve our earnings. So we expect 2023 to progress along the lines that we have been progressing in 2022. Basically, that was the words from our side. And we are now happy to take questions should there be some.

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

Yes, firstly on Azolver, can you give us here some more information about the sales development? Has Azolver seen growth in comparison to 2021? And what was the earnings situation? Did you have a slight loss particularly in the fourth quarter with the final integration of Azolver? So what is here the margin development and what do you expect here for 2023?

First of all, we do not do any separate reporting on Azolver because Azolver is now integrated into FP, and I envision also that, that name will, at a point in time, disappear. However, we had Azolver 9 months on the P&L for 2022. And we -- the development was basically in line with what we expected, a little bit less on the revenue but quite a bit higher on the EBITDA because we managed to get the -- let's say, the restructurings and the adjustments done largely before the end of this year. So we -- so the expectation from this acquisition was in line with 2022 and it is also part of the improvement on the EBITDA for 2023 because there, we will have the full effect of the cost reductions and we will also drive hard the replacement project in the Nordics that we get FP machines out in the market, and we take the Pitney Bowes machines off the market. And lastly, the Software as a Service for internal logistics handling for companies that we also acquired with Azolver, this is growing, and we expect over the coming years also a good development in that software, which is now an integral part of Digital Business Solutions in FP.

Okay. Then with regard to ERP, you mentioned in your normalized EBITDA there's some burden of EUR 4 million in 2022. What is your expectation here for 2023? And do you think you can finalize this ERP topic in 2023? And what would you then expect for 2024 as a positive effect?

So we expect in 2023 to spend the same amount as 2022. Exactly what that would yield in 2024, it's still a bit early to go into that direction. That would come, of course, later once we, in the fourth quarter, get to the bottom of our budgets and outlooks for '24, '25 and '26.

But definitely, this EUR 4 million burden we will not see in 2024, and this is then definitely upside potential.

Well, as I said, I'm not here to comment a lot on 2024. We expect overall that there would be an upside potential. However, we are not advising here on the outlook for 2024.

Okay. And then the last point on the franking business in North America with the topic of replacement of [ the meters. ] How is this developing? What do you here expect now for the current year?

So we expect a positive development on both top line and bottom line for the U.S. in 2023, so in line with what we have communicated earlier.

So could you give us here some indication what could this mean on sales upside?

Well, what -- the guidance that we had communicated is the sum of the outlook that we have across all businesses and the group services. So this is the range, with the U.S. included.