Leifheit Aktiengesellschaft (LEI.F) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you very much for joining us for Leifheit's conference call on the business development in the second quarter and first 6 months of the financial year 2025. First, the management team will present the business highlights and financial figures. Afterwards, you will have the opportunity to ask questions directly. Please note that the conference call will be recorded. I will now hand over to CEO, Alexander Reindler; and CFO, Marco Keul, for the presentation. Mr. Reindler, please go ahead.

Yes. Thank you very much, [ Mr. Boer ]. So welcome, everyone. Good afternoon. Thank you very much for joining our call. We look very much forward to the presentation and your questions afterwards. So as usual, for the half year results, we want to look obviously together with you at the results of the first half year, but then also give you a strategy update as usual and the outlook for the remaining of 2025. As usual, let me start to give you the summary here. So definitely, first was a challenging, first half 2025, with quite some headwinds coming mostly from consumer constraint, restraint and consumer sentiment, but also other elements. Still, we have been working on improvements on significant improvement when it comes to efficiency. So there is the strategic optimization project, which we announced earlier in the year, which will generate annual savings of EUR 2 million, I think very important, especially in the time we are in, where it is about the transfer of injection molding from the German site into Czech and into Blatna, our main production site. I'm coming back to that later. With the -- before the special items, from that shift in production, our EBIT is at EUR 3.8 million, unadjusted EUR 2 million, and it's obviously impacted by especially the decline in top line, where I'm coming in more detail. Gross margin, we were speaking about gross margin for the last quarters. Always, we see another strong improvement before special items, we are at 45.3%, so 90 basis points improvement. I think that's very good and very positive. And definitely, the -- what I was mentioning already -- definitely very challenging the turnover development with negative 8.6%, and I'm coming to the reasons, but obviously, it is mainly the consumer sentiment and the consumer restraint in especially non-food categories and segments overall. It is also part of the impacts we have been doing by portfolio adjustments and by one customer insolvency in The Netherlands. On the other hand, we have been strongly working on executing our strategy. And as part of that, we have been successfully launching, we call it, the Super Duster. And I'm sharing that the first time in this call with you. So a major product launch, which is in the biggest volume segment we are in actually, bigger than other categories for us. So a very promising project with very good positive feedback already from trade partners and also from consumers. And obviously, we develop and we have a strong plan for the remainder of the year for the second half to really continuously develop, especially the D2C business, which is dynamic, but also as an example, the Black Line, which shows strong growth and which also is in our activity plan for the second half of 2025. So if we now first start here with consumer climate, I mean, obviously, consumer climate is still at a very low point. I think that part of that is, for sure, the uncertainty consumers manage. On the other hand, we have also been seeing that food prices in the last, let's say, 3 years were increasing significantly. So the purchasing power for non-food in general is reduced. And therefore, we see non-food category in the markets, we have some data, we see it stagnant and not growing, and we are affected partly on that as well. So this is on the consumer side. On the other side here, the consumer confidence index, both in Europe and in Germany remains stagnant or rather low. If we now have a look at the top line development, and that's always the detailed chart, and I go through that more in detail because you will be interested in that I'm sure. So overall, again, for the group, minus 8.6% as you see on the upper left side. What are the impacts here? I was speaking about consumer part. And we see that overall non-food is not growing. We don't have market data yet for the second quarter, but the assumption is also that markets are not developing in our categories. We see that especially in the second half, high stocks in the stores were impacting especially our sell-in. So sell-out was low because of traffic in stores because of what I was describing. And this had also especially an impact in the second quarter because you see that our second quarter was even weaker than the first quarter. Additionally, we had portfolio adjustments, which we were planning for these ones. Some mostly is the phaseout of electric floor cleaning. That has an impact and then also the insolvency of Blokker, our Netherlands customer, is obviously also a planned impact, but it isn't a negative impact which we are seeing. So this all in all brings us to a negative -- very negative minus 8.6%. We see then in households slightly better. We also see that our core categories are developing better, around minus 5%. Drying is better than cleaning. But overall, we see households slightly better than overall. In well-being, that's the brand Soehnle. And here, especially, we have an impact in the brand Soehnle because of the insolvency of Blokker, which was a big customer for Soehnle, but also one discounter activity, which we could not repeat this year. Then you see private label. Private label, both French subsidiaries, Herby and Birambeau, developing very differently, Birambeau with a good performance, slightly growing. On the other hand, Herby with a negative impact, they were the private label supplier of Blokker. So that is something which in private label is very difficult to compensate, though we are trying to acquire new customers. This is a gap. And on the other hand, also in the French market, we see that also the consumption is reduced versus previous year. If we then briefly go through the region. So in Germany, you see we are minus 5.5%. You will -- if you have -- if you remember our quarter 1 call, you remember that we had a positive quarter 1 for Germany. So quarter 2 was definitely negative, especially because of the effect I was describing. We had a lot of sell-in, a very strong and very good sell-in in first quarter. And now because of high inventories in customers, especially in DIY channel, but also in other customers, the sell-in was weak, weaker. And sellout was not to expectations. Then we see in Central and Eastern Europe overall is matching roughly the total number. So there are not big differences. There are some markets which are better. In Central Europe, for instance, Italy and Austria. In Eastern Europe, it's Poland, Romania. They are only slightly negative, but then there are some markets which are also weaker. So always a mix. Belgium, because of a loyalty promotion we could not repeat or which had not the sellout because of consumer constraints. Belgium was weaker and also Czech Republic as one example for Eastern Europe. Then rest of the world is minus -- is a very small business. Percentage looks more dramatic, but it is mainly our U.S. customer, Pampered Chef, which basically ordered last year a lot, so has sufficient stock and therefore no repurchases. That's the main impact we see here in the export business or rest of the world. If we have a look at distribution channels, so distribution channels, it's also there, I would say, quite a mixed bag. I think overall, we see that the distribution channel, some are declining, some are growing. So there's quite some shift between channels. Overall, we see that e-commerce is definitely below expectations. It's around about minus 5%. But overall, also traffic overall on Amazon is weak, it's the overall category and market, but also for us. I'm coming to D2C later. There, we see growth overall. So growth in D2C, that's very positive because that's also the area where we focus on. And then in the traditional channels, we see more or less a very similar development across the channels, specifically for us, the -- we call it retail, wholesale department stores where Blokker is there, obviously, we have a stronger decline. Otherwise, no big differences. One thing stands out, and that's definitely discounters. So we are growing in discounters, positive slightly plus 1%, where we focus on and also for the second half, we gained additional activities. So this works better, but the assumption is also that the market there is overall better. So these are the distribution channels. And now briefly, and then I close on the net sales, our quarterly development. So you see, I mean, overall development, I think I commented on. Obviously, we initiated some growth initiatives. That's important to mention after the first quarter already where it was obvious with minus 3.3% that we put additional activities on. These were mostly driving now sell-out, but because of high inventories, not sufficient sell-in. And then obviously, I'm speaking later about SUPERDUSTER, this is expected to have a impact on quarter 3 and 4. All right. So let me now give you, as usual, an update on how do we progress with the strategy because this, despite the challenges, was a key element, obviously, for us to drive harder and continue to implement with a lot of discipline. And I don't have to introduce you to the strategy anymore, but one important aspect, especially at the moment, are efficiencies for us. And you have seen the very positive development of gross margin, and Marco will speak about that. But efficiencies were really in the forefront of our initiatives. So therefore, we announced the optimization of our production, which is essential. We had still a small, but yes, significant part in the injection molding still at headquarter in Nassau, but not very efficient, definitely not efficient, not a lot of utilization. So we have a lot of synergies bringing that into the main production for injection molding and have a full consolidation of all our own injection molding capacities in one place. This generates efficiencies, which we then can use and which we can benefit from. You see the financial impact there. So one-off costs of EUR 3 million and additional investments for -- which are required by the project of EUR 1.6 million, but then also annual saving, and this will start in the second quarter of this year already, but then have a significant impact of next year of EUR 2 million. You see the impact for the first half. So definitely a key project in order to be more efficient and drive our profitability, our gross margin harder. So then in terms of growth drivers, usually, I speak more about these, but growth drivers, let me focus today on the innovation part and on the e-commerce, on the digital process. So first, on innovation, I think one thing we really see which works excellent is the Black Line. I spoke about Black Line, I think, ever since I'm in the call. So Black Line develops very strongly in the second -- in the first half. So we grew Black Line by 23% in total. So we will definitely reach above EUR 10 million this year. And we have in the upcoming activities, strong focus on Black -- There's one big activity which we are planning at the moment, which is around Black Friday, where we really orchestrate the Black Week at point of sale. So this shows that innovations are working here and their over average profitability is also contributing to our overall efficiency. So that is Black. So very good development here. And then, of course, with innovations, which we now brought to market in the last 12 months, you see here, power clean window cleaning. By the way, window cleaning also strong double-digit growth in the first half and then now SUPERDUSTER. So SUPERDUSTER, I was not introducing you in more detail. So let me talk more about SUPERDUSTER. So first of all, it's very important that surface dust cleaning is the biggest category for us in overall our categories if we compare cleaning overall and also drying, so our biggest category. So significant because of usage as well. So 70% of consumers use dust cleaning, obviously, once a week and therefore, results in a market of EUR 220 million. These are data we bought, but also some estimates. If you ask me, I think it's even larger than that because of coverage. So it's definitely a big market and a big opportunity for us. So we started working on that in the last year, and now -- and this is what we are now bringing to market. And hopefully, you have seen it already in some stores, we are just coming to market first since 1st of July. So we call it SUPERDUSTER. It is reusable, it is really the differentiation of washability. So wash, don't trash. You know the dominant market leader so far is Swiffer, which is obviously absolutely not sustainable. So I think we have a very strong point of difference against Swiffer because we make dusting more sustainable. This is also highlighted by the first recycled plastic we are introducing. We are starting with this on our sustainability agenda. So the 96% recycled plastic. And we also, for next year, we work on improvement of that product that it is fully recycled, including the [ duster ]. And this is how it looks in store. And if you go to stores, we place overall now in the remaining month 9,000 displays in Europe. That is for Leifheit, a record. We have never done that. So that's an absolute great initiatives, where we are in 9,000 stores with a lot of visibility. And I think you see visibility is very impactful. We claim also 90% of consumers would recommend and use that product again, including Swiffer users. So I think a very good strong reason to really buy and try the product. A very clear branding and very also localized messages. We do this now with headers, with [ banners ], which are translated into local language. So we really push that product and that project a lot and have high hopes for that. I can give you one more information. We have the first customer in Germany was Rewe Group, where we are usually where we are not present as a brand. We are now listed because they were super excited by the project and by the product. They now extended the coverage, they doubled the coverage. So we are now in 70% of stores for Rewe, which is important. And we see first sellout data, which they share with us, which looks very promising. So overall, very good initiatives, and we have high expectations also for the year to go. So now let me talk briefly about e-commerce. Overall, I said e-commerce also really suffering to a certain extent. What are still the highlights is our D2C business. And I wanted to give you one different example than usual because we have a lot of these, but a lot of marketplaces we open. So we now work as a marketplace integration on Kaufland. Kaufland is pushing a lot their e-commerce business also into Eastern Europe. We now started with a German shop. We have always been there with the stationary products, but we are now as a seller on their account and offer our entire assortment. So much more presence and much more net sales, therefore, but really also a scalable business model because we will go now into the other markets as soon as they are critical in terms of size. Obviously, Kaufland started that last year. So still in a growth momentum, and we want to be there when it's significant for us. Otherwise, the case I'm always sharing with you is still the France case. So we started that in September last year. We are now almost 12 months. And it looks still very promising, very good development. We will have a business of around EUR 3 million this year. Overall, D2C only France, only our own marketplaces and our own seller account on Amazon, but also others, [ Manu, Manu, Laurent]. And you see we are, yes, 143% growth, so significantly growing the business, and we are just starting. So this is the update on the strategy I wanted to give you, and now I hand over to Marco Keul for the financials.

Thanks, Alex. Let's have a look at our results before we get to our outlook of 2025 second half of the year and beyond and to our question and answers, of course. So first of all, I'd like to point out that for the first time, Leifheit reports adjusted KPIs that was necessary because of the strategic optimization project in production, which Alex pointed out earlier. We will have onetime costs of about EUR 3 million in 2025, which will be shown fully in our gross margin. Therefore, we have done that already after Q2. We will adjust our gross margin and EBIT so that you can see the development compared to the previous period's like-for-like. So without the EUR 1.8 million that we have already in the books after Q2, our gross margin is 0.9 percentage points above, nearly 1 percentage point above previous year. And that shows, given the fact that we produced less volume in 2025 and on top, lowered our stock level once more by EUR 3 million that we made good progress to be more efficient and more flexible than in the past. I will come back to that on the next slide. Our foreign currency result is slightly negative this year compared to a positive EUR 0.2 million last year, adding further pressure on our EBIT. And that being said, we were obviously not able to fully cover that lack of revenue in the first half, so that our adjusted EBIT stands at EUR 3.8 million, while it was around EUR 7 million last year. It's important to highlight that we had additional costs in the first half of this year because of major projects within our efficiency drivers that will strengthen our company. For example, we will convert our ERP SAP system to SAP S/4, including cloud services, advanced AI tools and so on within this year. But nevertheless, we will concentrate our efforts fully on executing the marketing and sales activities in the second half of the year, which, therefore, means that we will reduce all other costs to finance that and to make sure that we get back on track according to our guidance and reach an EBIT level of around EUR 9 million to EUR 11 million, which will bring us slightly above previous year's level before onetime costs of around EUR 3 million. As you know, our strategic or one of our strategic goals, is to strengthen our manufacturing footprint in Europe, which should lead to continuous margin improvement due to focus on efficiency and flexibility and therefore, lower costs. Another important aspect, of course, is the focus on profitable products within our campaigns. And for the second half of the year, beginning of 2026, we will have already projects lined up that will create additional savings such as the relocation of the injection molding from Germany to Czech, the SAP S/4 conversion that will create additional savings or options for additional savings. Another big step of the second half of 2025 will be the start of our direct-to-consumer business, Eastern Europe from our distribution center next to our manufacturing, and that should enable growth in that segment and reduce costs like we see or saw in France on one of the earlier slides. Our free cash flow is negative after the first 6 months. And as usual, I will show you the details on the next slide. But before we come to that, I'd like to highlight that we paid EUR 11 million dividends in the first half and that we bought shares within our buyback program that finished in April for EUR 3.5 million in 2025 and EUR 3.5 million in 2024. In addition to that, we invested EUR 3.7 million, around EUR 2 million more than last year, mainly in our manufacturing. But yes, let's get to the details of the cash flow development. And you see that, first of all, the net result for the period is only EUR 1 million, which is not adjusted, of course. Our working capital has increased by around EUR 7 million, and that is mainly due to the increased trade receivables where there is no current risk, just to point that out, and that we reduced our stock level once more by EUR 3 million. And our goal is to reduce that even further until year-end. And our liabilities are minus EUR 4.7 million compared to last year because we had to step on the brakes due to the current revenue development. Then, of course, we had higher investments and therefore, a negative free cash flow in the first half, but with good potential to turn that around in the second half to get to reach our guidance of positive mid-single digit, which will then include the additional investments and costs because of the optimization project we're working on currently. Of course, our commitment to shareholder value remains unchanged. We will stick to an attractive dividend policy. And as you know, share buyback is something we are considering currently now that our program of 2024 ran out, but it's always a thing that is on the table. And we keep an eye on, of course, on keeping our investment capabilities, especially when it comes to innovations such as the SUPERDUSTER, or our optimization project, for example. Yes. And with that, I'd like to give back to Alex.

Thank you very much, Marco. So which brings us now to the outlook 2025. First, I wanted to still show you the midterm potential, which we shared in our last call with you. And first of all, we think we are still fully convinced we have the right strategy despite the headwinds and despite the headwinds we are seeing on the top line, especially. We still stick to our midterm potential, where we see that we want to grow this company and make it a growth and a profitable company. And therefore, the midterm potential of a sales growth of 3% to 6% is what we still target and what we still fully are convinced of. Then if we look at the forecast for this year, this is what you -- yes, have read already and seen. So our group turnover, we now estimate between minus 5% to minus 8% versus previous year. We have the different segments you see here. And then for EBIT, we get a corridor of EUR 9 million to EUR 11 million. And as Marco just said as well, free cash flow is in the mid-single-digit millions. So this is the summary here. So why investing into Leifheit? We are, again, despite the headwinds, fully convinced we have a strong vision and a clear focus strategy. We focus on what we are best at. We believe we have the potential to expand. If we look at outside Germany, if you look at innovations, I think we have seen that today, if we look at e-commerce digital acceleration. And on the other hand, we are fully committed to continuously work on making efficiencies count, making production more efficient and including our logistics and therefore, having also, as Marco mentioned, attractive capital allocation and shareholder return. Yes. Perfect. Thank you very much. So this is what we wanted to share with you as a presentation, and now we look forward to the Q&A.

[Operator Instructions] So we start with Mr. Thilo Kleibauer.

I have a couple of questions. Maybe the first one on the market development. You mentioned the weak sentiment in the non-food category. However, most of your retail clients have not posted an 8% decline for the first half. So have you lost market shares in several categories? Is there kind of more pressure on your price points? How does your retail partners and also the competitors have reacted on the market development? So is it more promotional driven, more discounts and so on? Maybe you can give us a little bit more insight into the current market. My second question would be regarding SUPERDUSTER. You highlighted there's a promising start. Maybe -- is there a kind of sales expectation for the second half of the year you can share with us? That would be helpful. And my third question, in your report, you mentioned an antitrust investigation, which was started in the Czech Republic. So I understand that this is quite an early stage. But I mean, what are the circumstances which led to this measure? That would be helpful.

Yes. Perfect. Thank you, Mr. Kleibauer. Thanks a lot for the question. So let me answer this one by one. So first of all, market development, yes, I think it's a bit of a mixed bag, but I think overall I see it similar than you, the customers in total are not reporting minus 8%. That is true. I think if you look at DIY, it's on the other hand, not that everyone is growing. I think it's more they are developing more constant versus last year, so to the ones we see reported. And so regarding market share, yes, we don't have market share yet for the second quarter. We had market share for the first quarter. Germany mechanical cleaning only, that is the only market data we really have, which is robust. And there, we grew market share overall, driven by discounter because we were better in discounter than competition. So overall, we grew market share. But that was first quarter, but also net sales development was better. So that's the one part we see. Yes, I think we see overall that price and promotions are more visible. We see in some data from Germany where you have a competitive overview on promotions, the [ Macon ] network, there, we see that we are very competitive when it comes to price and promotions. But this is not detailed data, but overall, we are competitive in the way we have done the price and promotion strategy in the first half. But also going into the second semester, yes, we have stronger activities to incentivize shoppers with a cashback program, for instance. This is what we now start 1st of August. You can see it in some stores. So we are also focusing more on that. We are very clear to manage the margin on the other hand. But yes, I would say, overall, yes, there is more pricing and also certainly more promotion in the market. We see that also from our main competitor. And that's a fact. I think it's linked to the overall consumer sentiment and the shift between channels, which as far as we can see that is definitely existing. So I hope that helps a little bit on that on the market development. So on the SUPERDUSTER, yes, I mean, you have seen the market EUR 220 million overall. So let me answer it the way I give you a specific figure. So for next year, we definitely want to have EUR 10 million in turnover. This would give us and now it comes to markets would give us more or less a share between 5% and 10%, depends a bit how big the market is. So that's definitely our ambition. For this year, for the second half, we -- I give you also a number, we definitely want to have EUR 3 million. And I think so far, it might be more because the start -- and it's just a couple of weeks -- is really promising. But that's definitely -- so EUR 10 million, we want to make it significant. And then we are also working already on initiatives next year and the year after, so that we not stand still having only 2 products, but we want also to then extend the range because Swiffer has how many products, at least 20, which are significant. So I think there's much more to do, and that's also part of the innovation pipeline. Yes. So that's regarding SUPERDUSTER. Yes, regarding the reporting we did on the Czech situation, yes, bear with me that I can't tell you a lot more than we have mentioned there. It is a fact that the Czech competitive authority initiated an investigation in May exactly as we stated. We don't have much more information than that. So we don't have any official report from the agency, from the authority. We are waiting for that. We obviously have discussed the matter with some lawyers. But otherwise, at this point, and this is what we were stating, it's so early that we can't give any more information than that.

Okay. Understood. Maybe one add-on question. Do you expect kind of more pressure on your gross margin due to the more aggressive price competition and you also highlighted some cash back initiatives and maybe also in your D2C marketing?

Not necessarily. I mean we look at that very carefully. So to give you the example on the cash back, it's more a shift where we shift actually above the line budget into that. So that's even not gross margin effective, but more an investment from a marketing point. But yes -- so on the other element, I mean, we know that D2C drives gross margin. So we drive D2C, that's over average gross margin accretive. And yes, therefore, we -- I mean, sometimes if we think about discounter, discounter overall profitability with all the P&L lines is a very profitable business. So being more aggressive in one of these channels can even drive overall profitability. It's a bit depending on the lines because logistic costs are much more efficient as an example. So it does not necessarily mean that this channel shift is negative in terms of our profitability. But to a certain extent, yes, it is more price and promotion driven.

Maybe let me quickly add, but we are expecting a positive development on the gross margin in the second half of the year as well. That's just to be clear on that.

Absolutely, like we have shown in the year-to-date. Despite the environment, we have been managing this very good, and we keep a very clear focus on that because that's essential for us.

So Mr. Muhlenbruch from MWB Research posted some questions via the Q&A function. So I would recommend to proceed question by question. So first question, if demand remains weak into the second half, is there still a risk of another guidance cut? Or are you now confident in reaching your targets?

Yes. Thanks, Mr. Muhlenbruch. Yes, we are confident that we achieved the guidance. That's why we have adjusted the guidance to where it is. And what makes us confident is, I mean, I have not shown you all the activities, but we have a very strong activity program, which we started already earlier, some activities in June. Others are starting now in August, others are coming in November. So therefore, yes, we are confident that we are achieving the targets, the guideline we made public.

So second question from Mr. Muhlenbruch. You need around EUR 7 million EBIT in the second half to meet full year guidance, which is broadly in line with last year despite a tougher market. Do you see that as achievable due to which factor, only efficiency gains or already a recovery in demand?

Yes, of course, let me quickly answer that. It's like I pointed out already in the presentation, we will -- yes, the figures are exactly right you're telling. And of course, we are fully aware about that. And it's the activities of the second half. Yes, that Alex mentioned, it's the margin because of our project and so on. We still think that there is room for improvement in gross margin, and we will achieve that in the second half of the year. But as I mentioned, we have to cut costs to finance that and to get back on track, let's say, let's put it like that and to achieve the guidance. Yes, we will reduce costs in all other areas where it's necessary to finance that and to get to an EBIT level without the one-off costs above previous year.

Thank you, Mr. Keul. So the third question is as follows: what indicators suggest that demand might be stabilizing? Have you seen any meaningful signs of restocking from key customers?