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

[Audio Gap] Please keep in mind that in the prior year, we had some positive one-off effects, especially the rate change. On our DBS business on the digital business solutions, we have a mixed picture in my eyes. On one side, we have seen a decline in the output management where we have lost a key customer. On the other side, we have seen also good growth in our SaaS business solutions, which I will provide a little bit more detail later on. On the mail service, there's also a decline of 9%, but that was in line with our expectations in the year '22. We have benefited from a lot of corona pandemic related print shops and extra work. Therefore, that was in line with our expectation. Overall, we have seen significant external currency headwinds that had a negative effect of around EUR 4.1 million on the revenue line. On the EBITDA side, we have expensed our investments in the One ERP system like we did in prior years. And there were also negative currency effects of around EUR 2.4 million compared with the year before. And there was also a significant effect from the rate change of around EUR 2.6 million. On the positive side, we could release some provisions in regards to our restructuring activities that was needed because we have seen some progress and some adoptions on our plans, and that was reflected in the -- in this accrual, which led to a release of this provision. How did we do on the free cash flow side in our net debt position. On the cash flow from operating activities, we have achieved EUR 23.6 million, which is one of the highest values which we have achieved in the last years. And our free cash flow is up to EUR 9.1 million. The key reason for this development is that we have seen a higher consolidated profit and have seen lower depreciations and the lower inventory levels and also lower trade receivables. On the net debt side, there's another positive development. We have seen a further decline in our net debt position down to EUR 14.4 million. Our cash also slightly declined to EUR 19 million. Please keep in mind that we have done a significant repayment of our loan in the last year of EUR 7.5 million, which was financed out of the free cash flow. I would like to remind you that the net debt position is very low, below us in the last 9 years. And please keep in mind that on the end of 2019, we had a net debt position of EUR 32 million. So we have done -- we have here achieved significant progress in this financial KPI. How did we do in our core business in the mailing, shipping and office solutions, the revenue development was in line with our expectations. Everybody is aware that the overall mail volume is declining so that we could keep stable. Our revenues is a good development, especially if you look at constant currency basis, where we have seen a slight increase. And I mentioned several times, we had this positive onetime effect in the year before. We have freshed up our product portfolio. We did two product launches in the last year, and we are continuously working on switching our -- solve our customer base in our own FP franking machines, and we are seeing some progress in the last year as well. DBS first of all, if you look at the reported figures, there is a decline, which was not in line with our expectation, but that was driven from the fact that we have lost a key customer in the last year in the output management. But the good message here is that in our SaaS solutions, we have seen a growth of nearly 14%, and we have now reported a yearly revenue in the last year of EUR 8.3 million. Our SaaS solutions are FP Sign, each HEFTER's the e-mail, the parcel shipping solution and the track suite, and we are seeing in all these areas continue to see growth, and that's also our focus going forward. Major Services, we have seen a decline of 9%. As I mentioned in my starting comments already, we had around EUR 10 million of pandemic-related onetime effects, especially in the first quarter '22. Overall, we have gained some new customers and have improved our margins with a consistent cost management and logistic cost savings, and this revenue development was in line with our expectations as well. Let me summarize what we have done, achieved from a revenue perspective. Overall, we are largely in line with our expectations in our classical franking machine business, we have seen a robust development, especially in the light of this overall letter decline. We are good with this development. We are seeing significant challenges in our mail services and output management business, and we have seen a continuous growth in our SaaS business. Again, I want to repeat it, it's 13.7%. The EBITDA result has reflected that the transformation initiatives over the last year have improved our overall profitability. And at constant currency, without any release of provisions, we have seen also an increase in the EBITDA result. That is an overview about the financial results. And as you have seen in the comments, the full year audited results will be published on the 30th of April that has to do -- that there's a significant workload necessary to make this tech happening, and that takes a little bit more time than we have seen, and we had also some significant capacity issues on our side, which is causing this delay. And we will provide this tech report on the 30th of April. That means next Tuesday. Then I would like to hand back to Fritz.

So looking at the next page, I've, of course, spent the last weeks assessing the overall situation and learning about the business meeting key stakeholders. And I think we have a very good foundation to keep making money with a traditional MSO business as a basis to also provide the necessary cash that we need to invest more in our digital products. How do we do that. We implemented a key value driver framework, which summarizes all key projects going on in all different business units so that we can really have a full overview in the management on the progress and also the need of resources, and we peak very strong alignment. And what we do is we really have broken down our customer experience process into the different steps of finding new customers, retaining existing customers, developing the right assortment, making sure that the ordering and promise to deliver process is in place and making sure that all of our after sales and customer support experiences are the way they should be. And this will take some time until we have fully implemented it into the overall organization. But the key focus will be on driving operational excellence in order to make the necessary results. And then afterwards, we will reassess our strategic direction. But in general, it will probably remain similar to what it is that we use the MSO business, try to stabilize it despite the fact that the mailing market is declining, make sure that there is a lot of focus on efficiency and generation of cash, similar in mail services, which is also a tough market as we depend on some key business partners that, on the one hand, are business partners on the other hand, are also competitors. And the growth focus will be on the DBS and there, especially on the SaaS business. Ralf already mentioned that we also see chances to regain some key customers for the output management, which will help the scalability of the output management that requires production capacities is not as easy as in the pure digital business with our SaaS solutions. And therefore, we see the chance to drive growth there much quicker than in the output management. So when we look forward to this year and we switch over to the guidance, we expect the revenue to be constant or slightly below the previous year. The same is true for the EBITDA where we will still continue to improve our cost base. But due to the fact that the MSO market is still the biggest part of the MSO business unit is still the biggest part of our business. It could also mean that we see a slight decline, but we are going to do our outmost to compensate this by growing even more than the double-digit numbers that we saw last year in this year's SaaS business. Thank you for participating, and I think we will now switch over to questions.

[Operator Instructions] There is one question coming from Felix Ellmann, Warburg.

What about your possibilities of the large loan you have? You have huge possibilities from the past, a large loan, maybe for acquisitions or enhancing the business. What are you going to do with this option?

As we have reduced, as you have seen in the announcement a few weeks ago that we have to reduce the overall loan agreement. And we have the flexibility if there is an opportunity that we could do something. But right now, we are focusing on reducing our debt because in this time, there's the higher interest rates, it costs also some money but we keep the flexibility and the opportunity available. But the clear focus right now is in generating higher free cash flows and reducing our debt position.

Okay. So no concrete plans with this.

We keep our eyes always open. So I don't want to say a category, no. But right now, it's nothing in front of us.

[Operator Instructions] There's one question coming from Peter Rothenaicher, Baader Bank.

Three questions from my side. Firstly, congratulations, once again, the free cash flow was very strong again. So you were able to reduce net debt. On the other hand, it's definitely the questions, don't you intend to pay a dividend now?

The plan is and the decision of the Board was that we propose not to pay a dividend, and that this has mainly to do with the fact that we have planned investments, especially in the digital business, but also in our traditional business where we need some cash for it. And again, we have repaid already some parts of the loan in the last year, and we have repaid a further EUR 8 million on the beginning of this year. And our focus is, as I said a few seconds ago, right now in bringing down our overall debt and focusing on a higher free cash flow. And we have made the proposal to the Supervisory Board and then it will be decided on the AGM what we are doing with the dividend. But the decision from the Board was not to pay a dividend for the '23 result as well.

But also, share buyback is no further opportunity anymore. So I don't like share buyback in your situation where the market cap is already relatively low and the number of shares low. Therefore, I would have prepared then a dividend payment. So -- but nothing of both is currently planned.

So we are in discussions with the share buyback, but we are getting a mixed feedback on this question. There are also a lot of investors which are preferring a share buyback. But yes, that's -- as I said, it's a mixed feedback what we are receiving here from the institutional investor side at this question. We have a new Chairman of the Supervisory Board. Fritz is quite new. So these things will be investigated and reassessed in the next weeks. But the status right now, as I said, was the decision not to pay out a dividend for '23.