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 half year of 2023. [Operator Instructions] Let me now turn the floor over to your host, Carsten Lind, CEO of the FP Group.

Thank you. So good morning, everybody, and welcome to this presentation of our financial results for the first half of '23. I'm here with Ralf Spielberger, our CFO, who is supporting me on this call as he is doing on any earnings call. So in terms of the agenda, we will have, of course, the as reported numbers, normalized perspective on the numbers and a bit of more color around the business units and end up looking at the guidance. However, before starting with the financials, I wanted to add a little bit of color to the operations and what we have been focusing on for the first 6 months. And we are, of course, quite happy to be able to communicate that we are now live in 2 units on the new ERP project. So the Digital Business Solutions and our 2 entities in Sweden, those we have merged, and they are now running on the same ERP system. And in terms of DBS, we -- the fact that we are live on here on NetSuite, also, of course, reminds us that the ERP project here in FP is not only about cutting the cost and being more effective on base processes. It is also a platform for growth. And already now in terms of making international some of the Software-as-a-Service products in DBS, it's quite helpful that we are on this platform. So -- and now, of course, we are on to the next onboardings and taking this forward. In terms of the product launches and what have we been focusing on in the franking machine side and also in the digital business side. So in terms of existing products, let's say, our existing products improved and new products. We had 12 launches in the first half -- late in the first half. And with 6 in the franking side and in the Digital Business Solutions side. And we have the another 15, 16 launches planned for the second half of the year. And we have, as part of that, we've been focusing also on upgrading some of our -- operating our data centers in terms of server platforms. We have updated the work ventures for the R&D people and the software development people and spend also there on third-party software, which are the tools that we are using in terms of building our software. So in the DBS, we are now launching internationally more countries on our parcel shipping application in Germany for June. We launched the eBO, which is a public sector application, and so on and so forth. So other operational areas worth mentioning, I'd say we have, of course, some impact in terms of being later with the ERP than we wanted. We are happy we are now live, but we are a bit late still with that one. And also, we -- that, of course, weigh down on a few countries in terms of the effectiveness, also in the sales. We are rebuilding fundamentally our team and how we approach the French market. And also one learning still, of course, for DBS is that making DBS an international software company, it's very exciting, and we are thrilled about it. And it's a good step forward. We need to also state that a sizable amount of our staff here are still on the learning curve since we started out with a company that was German-focused only and had been focused on Germany for a decade or half a decade and of course, moving now out and playing also in the Benelux, in the U.K., in the Nordics, et cetera, is a good stretch. We will get there, and we are moving forward. So into the financials. From high level, we are basically at the same level as we were last year on the key performance indicators that we report. So revenues, EUR 124.6 million versus EUR 127.6 million. EBITDA, EUR 15.3 million versus EUR 16.3 million. And the profit, EUR 3.3 million versus EUR 5.2 million and so on and so forth. And as we have been communicating a few times, last year had quite sizable one-offs that impacted both the EBIT EBITDA level and also the revenue level, which is why we offer in the next few slides a normalized perspective. I think it's also a takeaway to say here that we are growing and we keep growing in the 2 business areas, the Digital Business Solutions and the Mailing, Shipping and Office, which are the areas where we are really carrying the EBIT and EBITDA, the cash flows of the company. Where as communicated, Freefloat is doing as we expected, we are actually fine with the performance there. However, the business model of mail consolidation is a very low-margin one. Sometimes with quite big swings on the top line without really impacting the bottom line. So on the next slide, the normalized EBITDA. We have the main effects that we are backing out without overdoing the normalization. However, the exchange rate effect versus last year is notable and obviously, the rate change in Germany, which normally comes every 2, 2.5 years. If we back out those and a few other minor adjustments, the normalized EBITDA, we end at EUR 18.8 million versus EUR 14.8 million. And also we see here a margin increase to 14.6% versus 13.2%. So we are continuing to improve the underlying business. However, for portraying this performance, we need to do a normalization with the sizable one-offs that we had last year. Cash flows and the debt and cash is a bit on the same track, as the same trend as we reported except here, cash flow is a little bit less because these are not normalized numbers. These are as reported numbers. The cash flow is a little bit less because we have earned a little bit less and also because we have invested more, as I said, in upgrading server farms tools. And also that, let's say, the sales, for example, in the U.S., which is a rental business model, means that it dropped a bit down on the cash flows when you are selling more in those countries. The trend of reducing debt and increasing cash is intact. So in fact, we have reduced our debt, and we have increased the cash. And this is at the level where we expect it to be versus the numbers that we have just shown you. So Digital Business Solutions, we continue to grow in the 3 areas with the smallest as expected growth in this document workflow management. We have there quite some focus on improving the margin there, but also making this service area more IT-intensive. We are basically done with changing the production environment and we are now in the phase of moving old contracts over to a new, let's say, state-of-the-art software for doing processing of output management. In the Business Process Management area, FP Sign, it's moving forward. We did this year a few minor releases, and we expect in the second half to do a major release of FP Sign, which we kind of consider in our Digital Business Solutions, let's say, the next generation of FP Sign with clearly a richer and better product, more stable products. And also, we have taken steps to move it into a much more modern technology stack than we had in the beginning. So this has been a delicate balance all the way to launch and grow a product where you simultaneously need to do some real refurbishment and modernization on some of the key parts in the products. And we are there on a good way. And the way forward for this product and our other products, Software-as-a-Service will be a combination of direct sales of logos that we work on winning ourselves but also through accelerators. And we have already talked a few times about DATEV, we have now here the ELO, which is another accelerator, and there are more as well in Germany. So we go to market also indirectly through other software houses and other sustained hennigsdorf that will help us to continue growing in a good way for that product. Further, we launched in June the eBO, which is the business to court communication. It's a secure gateway with secure communication and file exchange, data exchange between businesses and courts in Germany. We launched it in June. We have the first customers onboarded the platform. And it would be, of course, very exciting to see where this will go. It should be that businesses are by law obliged to use such a service. There are 3 providers in Germany. There businesses are obliged to subscribe to one of these vendors and we are one of them before the end of January next year. Let's see how this eventually could pick up. Shipping and Logistics, we have now consolidated it a little bit with basically 2 product lines. So we have the parcel shipping product line, and we have the trax suite, which deals with internal logistics. And trax suite basically now absorbs the Azolver acquisition and the software from a Azolver that we acquired. And we had, with the trax suite, a few notable wins recently, one universe -- one reputable university in Denmark and an automotive company in Sweden. On Mailing, Shipping and Office, small growth. As we communicated a few times, the aim here is to have, let's say, flat to small growth in this business area that works quite well for us. A number of product launches, as already mentioned, is ongoing, and the development there of refurbished and improved product has our priority. In terms of replacing the Pitney Bowes ranking machines across the Nordic region with our machines, we are moving forward in a good way. And that also has a part of the explanation here for the performance. The -- as I said, there are a few areas operationally that is kind of weighing down on the revenues for this business area, the rebuild of France late here and there on the ERP, where the ERP, in particular, can help the sales. So there is quite a lot of improvements to be done going forward for this business area. So Main Services, it's developing as we expected. It's quite stable. It's without the sizable one-offs that we experienced last year in -- mainly in Q1. And as we can see, they are not EUR 10 million less than last year. However, some new customer wins and some customers that are coming back for franking services are driving up the revenues. Because when we are delivering franking services for customers, we record the portal. However, the recorded portal is one-on-one with the cost of materials. So it's actually a pass-through. And also one of the reasons why -- or the main reason why sizable swings on the revenues in [free sort] gives no swings on the -- or almost no swings on the EBITDA line. So no big upgrades. It's the same programs as at the end of Q1 reported that we are focusing on. Of course, the ERP project is moving forward now in a better way and will become even better as we go forward. Lots of focus on product development, improving products, launching products also in countries where we were never present before, for example, with the franking machines. That is the primary focus now in terms of, of course, keeping the growth trajectory for both DBS and the Mailing, Shipping and Office side. We need to continue innovating and put better products out in the market, and that is exactly what we are doing. So summary, basically, we continue growing in the 2 business areas that drives the bottom line. We have, on a normalized basis, revenue growth of 12.5% and the EBITDA growth of 27.7%. So in terms of -- and that brings me then to the last slide, which is the guidance. So in terms of the guidance from what we see right now, we stick to our guidance, which will be somewhere in the EUR 245 million to EUR 255 million on the top line and EUR 28 million to EUR 31 million of EBITDA. This is still what we see is possible to deliver for this year. So that was the words from our side, and we are happy to take questions, and yes. So please, back to the operator.

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

Firstly, a question on Azolver. So last year, you had still some integration costs in. How do you think are you positioned with Azolver? Is the integration done? Is Azolver contributing to your results as planned?

Thank you for this question. So basically, at this point in time, we have not yet taken the name Azolver off the market. But we eventually will do that. We don't see Azolver or speak about Azolver because we consider it to be integrated now in FP. And FP is the one name and company that we are moving forward with. In terms of the contribution, we see that this is in -- on the software side, for example, this track suite is developing in a good way. The pipeline is growing. We had notable wins recently. And we, of course, are also looking for, let's say, the first notable wins, not just in the Nordics but also in Germany and the U.K. And this is now well integrated into the Digital Business Solutions. On the franking machine side, we are, as I said, with the product launches, we are now taking advantage of this acquisition by putting our revised products into the Nordics, replacing the installed base of Pitney. It's also progressing as more or less as we wanted to be. Some areas where we have been a bit late on, let's say, merging the companies and also finalizing the ERP, I think you can say that FP as a group should have helped the Azolver teams a bit better or a bit more. This is weighing down a little bit in the short run, but it's already improving. Teams are in place. And we are moving forward in a good way. So long story short, we are definitely very happy with this acquisition.

And so as I understand you, more on profitability and positive effects to come in next quarter than particularly 2024?

Well, this review here is about the first half of 2023. But obviously, our intentions for next year is to be better on the top line and better on the bottom line than this year. And for a number of reasons, where the acquisition is one of them, but there are also other drivers in this play.

Okay. Then on franking machine business in North America and the tailwind you're hoping for from the certification issue, how is this proceeding? Are you here gaining market share? And are you getting here additional sales volumes already?

So we don't report, let's say, volumes or installed base per country. The outlook for the total is that our installed base and this business area will be quite, on the total, will be quite stable. As we said, flat to small growth. And let's say, still a positive outlook on the installed base. Some countries are weighing down and some are helping. The U.S. is one of the countries that we consider now and also going forward, that will be helping.

And regarding France, so you mentioned you're putting strong efforts here in getting market share. Can you comment on this? Have you been hardly active in France so far? And I think it's a core market of your major competitor. So can you comment a little bit on this, what you're hoping for in this market?

Well, so far, France was not in the category of countries helping the outlook and the installed base, and our intention is to change that situation to the opposite. It's a sizable market for franking machines, and we should be capable of doing better for the years to come than what happened in the last couple of years. So we now move forward with France with a new team, a totally new team, new location, new ERP and we want to leverage that to improve the situation there and get the sales to improve.

Okay. And then last question on the ERP system. So what percentage of your installation of the new ERP system are you now? So is the biggest part now done? Or what will have to follow in the second half of this year and in 2024?