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

Good afternoon, everyone, and a warm welcome to our roundtable with Leifheit. It's my pleasure to introduce Alexander Reindler, CEO of the company; Marco Keul, CFO of Leifheit; and Igor Munduate, COO of Leifheit. They will walk us through the presentation and share deeper insights into the company's product portfolio, which I'm sure many of you know well as Leifheit products can be found in almost every household in Germany. Before we dive in, just a quick housekeeping note. [Operator Instructions] And so gentlemen, without further ado, I'll hand it over to you. The floor is yours.

Yes. Thank you very much for the introduction. A really big welcome to all of you. Thank you very much for joining our first mwb Roundtable. We have been selecting this format, especially to reach a lot of you. So really big welcome, and we are very excited, Marco Keul, Igor Iraeta and myself; to welcome you here and have a discussion in the next hour about a great company, Leifheit. So as a couple of you, people are new, I think, have not been yet at our investor calls, we will also show you a little bit more fundamental information about the company. But we look also very much forward to the Q&A at the end. So if we speak generally about Leifheit as a company, first of all, I mean, first of all, we last year celebrated our 65-year anniversary. So a long-standing company, very healthy and very, very great company. We have around 1,000 employees worldwide. Obviously, you all know the strong brand Leifheit, but also the brand [ Soehnle ], which is part of the Leifheit company. Very established business models where we work mostly across Europe, but also globally, but mostly across Europe with a lot of different customers for a long time together, very trusted relationships here across the different sectors, across the different channels, be it retail, offline or online. First of all, I mean, high quality, I think, stands out for Leifheit. I myself, I'm now CEO for 1.5 years; I was impressed by the high quality of products, really German engineering at heart, very great quality in the market also versus other products in the marketplace. As I said, we have an international presence, mostly Europe, 98% of turnover we do, in fact, in Europe, so a European company, and we had a very good business development. And last year, we come to the year 1 -- half 1 results later after we have done a strategy update for you. Strong commitment to sustainability is part of our vision as a company, and we have started with a climate strategy last year and continue to roll this out into the different elements. So in terms of company structure, we divide the company generally in three fields: household, well-being, private label. These are the three business areas we have. Household being the core of the company. So the core also, if we talk about the new strategy from last year is really laundry care and cleaning, and you see that is also the dominant part of the company, around 80%. We have also a kitchen segment under the brand Leifheit. We have then the brand [ Soehnle ], which is part of well-being, more than 150 years old brand. And then we have the private label segment, where we have 2 companies, 2 French private label companies. First is Birambeau, mostly -- yes, entirely kitchen equipment, kitchen segment and also in the laundry drying segment, producing private label, mainly for France in the drying sector. So now let me show you one video which maybe encapsules very nice what the company is about. [Presentation]

Yes. I think very nice, puts everything together. So let me come now to the strategy part. So after the first introduction of the company, we want to give you today a strategy update or an introduction to the strategy for the ones who are new to our calls and our interaction. Then we will give you -- Marco Keul will do that, an update on the first semester results and then an outlook. You have seen it already in the video, so that is our long-term strategy, corporate strategy leading with focus creating sustainable value, which we developed last year, beginning of last year and which we are rolling out since then. At the core of that is really we want to be a specialist in what we do, we want to focus on what we are best in. And this you see in the vision encapsuled in the focus and the specialist in mechanical cleaning and drying. So being -- really by being specialists, we want to serve consumer needs best. We want to do that in an entrepreneurial culture and with a sustainability mindset. So sustainability is high on our agenda since the start of the strategy. And you see leading with focus, creating sustainable value means exactly that. So really focusing on what we are best at and also leading the market and yes, the market with that clear focus. Then very important, we defined growth and efficiency drivers because that's what we believe is the key importance. We want to bring Leifheit back to a growing but also very efficient and profitable company. So both five growth drivers as well as five efficiency drivers are very important, and I will touch some of them. And afterwards, Igor Iraeta will speak already also a bit about the efficiencies more from the production from the operational standpoint. And then below, you see the values. Obviously, culture eat strategy for breakfast for us, it's also very important to really develop the culture of Leifheit. So we have four core values: trust, courage, integrity and ambition; which encapsuled what we want to see in terms of culture and how do we want to develop the culture at Leifheit continuously into the future. If we now look at what are we best in, if we look at the core business, this is really what is reliable and a very successful business for us. So that is mechanical cleaning and drying. We have specifically made clear that this is mechanical cleaning, and drying is all the laundry drying. And you see that over the past 10 years, we had a very consistent development. Actually, the development of this area was more or less 3x the overall company. So the growth of the company came essentially not to our expectations, so I will come to that later. But overall, very reliable and very sustainable, successful core business. That is the foundation of the strategy and of our business. But then we see even in that, we see a lot of opportunities to expand because if you would say we are by far market leader, that would be more limited. But we are actually not. So this is the combined market that is an estimate because not for all of these segments and markets is official data available. So there are certain estimates in, but we see here that the -- our estimate, we are around about 10% market share. So we believe we have a lot of opportunity to grow, not only against our 2 key competitors, but also against very -- many small brands and small products, as you can see at almost a 60% share as they have. So overall, we believe there's a big opportunity and potential in the core categories, and this we want to accelerate in the years to come. So now of course, the question is going to be how do you want to do that? And let me focus exactly on that. So we have -- and this is derived from the fivegrowth drivers you have seen on the strategy chart before. The key growth drivers are a stronger brand positioning, a growth outside Germany in the key European markets, a new innovation strategy and a new e-commerce digital model. And let me highlight the key aspects of each of that where the growth will come from. First of all, we have a very strong brand Leifheit, and you see one of the great placements we see at point of sale, you can see also in stores. So we have a high brand awareness in core markets, and we are really perceived as a high-quality brand, and I think that's a great base to work on. We want to continue to develop that. We want to modernize the brand positioning and image. And this, we are working on at the moment. And this will be brought to market in the future very soon. And it's also the transformation to be a digital-first brand. So we want to further increase our investment into digital, and I come to the aspects of the e-commerce part here as well. So based on that, the big potential we have outside Germany. Obviously, Germany is an important market for us. You see in turnover, it generates around 40% of total turnover. But obviously, if you match that against the market, the market in Germany would be around about 20%, 23%. So the opportunity we definitely have growing outside Germany. So to do that, we have very specifically defined in which market we want to drive aggressive growth, where do we want to drive growth and where do we not want to grow because we rather want to develop a more profitable business. So here, we have a specific country clusters and very specific targets for the different organizations and teams. I'm coming to e-commerce as one model, obviously, which is very important for us, and it can also be very interesting as an entry model into new markets. On the innovation part, if you have followed Leifheit for the last years, you have seen that innovation was not very high on our agenda over the past 5, 6, 7 years. So we now bring this back. We think that innovation is key to really address new consumer targets, but also new segments where we are weak or not in at all. This will be, of course, in the core categories. And you see three examples which we have been bringing to market since the strategy is to [ Leifheit ]. So you see we are putting that into place day by day. We have been launching the cleaning set POWER CLEAN, but also window cleaning and innovation of 4in1 window cleaning product. And now just recently, just 2 months ago, we launched the SUPERDUSTER in the dust segment. So I think very exciting, and I come to two examples of these. We are also having a new innovation strategy where obviously, it all starts with the consumer, a very consumer-focused process. We are very clearly defined where do we want to innovate, what is the launch, relaunch cycle, we need to be competitive, but also what does our climate strategy means in terms of sustainability targets. So this all is quite precisely defined and now putting in place step by step. Let me give you two examples of innovations. And one we are very excited about is the dust cleaning segment because that is a significant category. It is used by consumers very frequently, weekly. And the market is, for our dimensions compared to our other markets, huge. It's actually the biggest market within our current portfolio if we look at market size. So we estimate the hand duster market around about EUR 220 million only. So significant opportunity, and we are basically not in that market. We are entering it now. And this is what we have been launching 2 months ago. We launched the SUPERDUSTER. It's really new in the way of bringing a very strong performing product in terms of dust absorption, parity with the market leader, but it brings the sustainability aspect fully into place, which is actually not a very sustainable category today, if you think about how these products are used. So we have a product which is washable, so you don't have to trash it, but you wash it. You can wash it up to 50x, and it keeps the product performance. So definitely a very good, very great product differentiation. And I think the market is ready for that. I think there are many consumers out there who obviously clean their house every week, but want to have a more sustainable solution than others on the market. On top of that, it is also almost 100% recycled plastic. And I think that is also underlining the sustainability message. Here, this is how it looks like. So you can see it in store in Germany at the moment, and we are going now across Europe. So 9,000 displays are being placed while we speak. So for the company Leifheit, that's an absolute record, and you see the consistent branding and the clear messaging at point of sale. So that was one example. And so far, that looks very good. We have very good feedback, maybe to say that we have very good feedback from customers. We see first sellout data for the SUPERDUSTER being very strong. So we are very, very positive about the opportunity and the potential we have here. I think it's a great example for an innovation where we really enter a new market and serve absolutely new needs for consumers. Black line, we have been speaking in our quarterly calls frequently about Black line. And you see here, that's already an important line for us. The innovation is about 3 years old, but we are rolling it out through different products. And you see the first half increase was 23% of the Black product. So significant increase and actually a great performance of the product range of the Black range. So let me now come to the second -- or to the next growth driver, and that's e-commerce and digital. And this, I think, has also really strengthened our strength. So really focusing on what Leifheit is already great at. We have strong logistic capabilities, and Igor will be later talking about that in a moment. And based on that, because that's the backbone, we now open new distribution markets, new marketplaces. And we put then digital money into that to accelerate growth, which we want to go until 2027, 2030, around about 30% share in net sales. Here, one example that is also stationary customers, we work together as an example here of Kaufland because we, of course, hand-in-hand with them; want to develop their marketplaces. And here, we started now in Germany to be present on Kaufland, a great cooperation with that customer. I think an excellent example how -- of -- or standard stationary retail and online also works hand-in-hand. And then the other example is here in France, where we have started D2C September last year, first as a pilot, and now we roll it out month after month. And you see the fantastic performance we have in France. So back to the point that e-commerce can be a strong growth driver in a market where we want to be more present and stronger. So with that being said, I hand over exactly to the logistics part and to Igor Iraeta. Thank you.

Yes, thank you very much, Alex, for passing it over. We have a strong transformation in our logistics in the last few years. We set up everything, building a concept of 3 strong logistic warehouses and logistics centers in Europe, one in Czech, where I am at the moment; in Germany as well, the new one we added by mid last year in France, as Alex already explained. We have transformed our logistics centers from nearly purely B2B logistics warehouses to a specialized of a hybrid logistic services, where we have achieved an incredible transformation, growing our capabilities in parcels per year from 2019 to today by more than 10x. And as Alex has shown, allowing us then in France, particularly in year-to-date to increase 142% our turnover by giving our consumers not only a good delivery service below 48 hours, but as well having good dispatch and logistic cost. If we are looking forward to further value optimizations in our supply or added value chain, we have as well achieved significant gains in efficiency and productivity in our in-house production. The main change in driver in the last years as well as in the coming years will be is the implementation throughout the whole added value chain of lean concepts, which means that we are streamlining our production processes and as well as synchronizing them. As an example, we are able to produce different parts, which are bringing -- we are bringing them together to a single product out of 10 machines, as is the case in our cleaning products as POWER CLEAN, CLEAN TWIST or Combi; as well as we see there a picture of our drying product, Pegasus. And we are within seconds, able to finish a product out of material. So that has driven the result out of that, that our productivity has increased in the last years from 2022 till today by 14%, which has allowed us to reduce the impact of increasing energy and material costs in the last years. If we are looking forward, then what are the next steps? The next steps is to go further in the implementation of lean concepts of the lean strategy to reduce waste. And in this sense, we are aiming to pass to a full pull production system, where all the supply chain is starting by suppliers still [ our ] logistics. We are quicker, we have lower inventories, we are streamlining our added value chain, and we will further improve our logistic costs. We will further improve not only logistics, but as well production cost by -- with the aim or with the focus in mind of continuous improvement, which is key to lean. In this sense, one of the projects where we have started to implement in here in order to go further into a lean concept in a full and streamlining production is to focus all our capabilities, competencies in injection molding in the Czech Republic. This project is bringing us around EUR 2 million savings per year. We are now in the implementing phase. We started by end of [ June ]. We are expecting to be fully finished by end of September, mid of October. And on the other side, to fully implement this project, we will have an impact on our P&L in 2025 of around EUR 3 million. And we are as well investing in the Czech Republic additional EUR 1.6 million. So that, as I said, is a good example of how we are further improving and moving forward in our production and logistics value chain. And now I am giving back to Alex.

Yes. Great, Igor. Thank you very much. I think very exciting to see the progress we are doing in terms of efficiency in the operations at Leifheit. And I'm now coming to the first-half results, and you will see there as well the impact of these efficiency gains, and that was really and is a continuous focus of us, and you will see that in a moment. Let me introduce the first half 2025 results to you, and I will, in a moment, hand over to Marco, who will then share with us the main part of that update and including the outlook. So the headline over the first half is, for sure, related to what Igor just said. So really a focus on efficiencies. We have a major boost in efficiencies. On the other hand, we really see strong consumer restraint in nonfood categories in our categories. So this had definitely an impact -- a strong impact in our net sales result. So let me go through the three main messages here for you. On the one hand, we have been seeing an EBIT of EUR 3.8 million before the special effects, special items. Unadjusted, it's EUR 2 million. And obviously, the sales decline and also the project Igor was talking about, had an impact on that EBIT number. On gross margin, and that is something which we are updating frequently in our quarterly calls, we have continued to do significant process, thanks to the efficiency gains that we were speaking about. So here, you see that we are now reached 45.3%. So we are up 90 basis points versus last year, which I think is a very strong achievement, and we want to continue that road. And then on the turnover result, you see obviously a disappointing decline of 8.6% now to EUR 123 million. And it's mainly driven to what I'm talking next on the consumer side. On some portfolio adjustments, we had some parts of the portfolio, which we are phasing out. And we had a customer insolvency in the Netherlands of our top 10 customer in the Netherlands for us totally blocker. So that had also an impact. These are the three elements basically. So before I hand over to Marco, let me speak about consumer and about consumer climate and give you a little bit more context to the net sales development. So obviously, first, we see that consumer confidence overall remains on a very, yes, low level, I would say. So it's quite stagnant. So we have hoped for some improvements, especially in Germany, which we are not yet seeing. So this is definitely due to uncertainty overall in the geopolitical area, and this drives consumer sentiment. On the other hand, we also see that this has a certain impact on consumption, especially more related to the inflation over the last 3 years, I would say. High inflation led overall to higher spendings on food and less on nonfood. There are some studies which are public as well. So that is one impact, and we are also impacted by that. And we see that in the first half in market decline overall in our relevant categories. And obviously, this also affected our net sales development, especially in quarter 2, where we had rather high stocks at customer levels, where we were first driving out with our activities, which we obviously started on top of the ones we have planned. So we started then rather to sell out the stock. So therefore, the sell-in was behind expectations for the second quarter, especially. So this may be just as an introduction, as a background. And now I hand over to Marco. Marco, please go ahead.

Yes. Thanks, Alex. I'd like to give you a brief summary of where we stand in terms of profitability after the first 6 months in 2025 before we look at our mid- and obviously, long-term potential. And first of all, I'd like to point out that for the first time, Leifheit reports adjusted KPIs, and that was necessary because of the strategic optimization project in production, which Igor pointed out earlier. We will have onetime costs of about EUR 3 million in 2025, which will be shown fully in our gross margin. And therefore, we have done already -- after Q2, we will just adjust our gross margin and EBIT, so that you can see the development compared to the previous periods like-for-like. And so without the EUR 1.8 million costs that we have already in the books after Q2, our gross margin is 0.9 percentage points above previous year. And that shows, given the fact that we produced less volume in 2025 and on top of that, lowered our stock volume or 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 EBIT. That being said, we are obviously not able -- 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 EUR 7 million last year. It's important to highlight that we had additional costs in the first half of the 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. 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 because -- before onetime costs of around EUR 3 million. One of our strategic goals, like Alex and Igor mentioned, is to strengthen our manufacturing footprint in Europe, which should lead to continuous margin improvement due to focus on efficiency, flexibility and resilience and therefore, lower costs. While we started with around 50% in own production a few years ago, we are now talking about roughly 70% to 75% of own production within our core categories. Those efforts led to a margin improvement from first half 2022 with 38.6% to 45.3% adjusted, of course, this year. Another important aspect, of course, is the focus on profitable products within our campaigns. And for the second half of this year, beginning of 2026, we have already lined up the additional EUR 2 million savings of our relocation of injection molding from Germany to Czech, and we will convert our EP system, like I said, to S/4, and that will create additional options for savings next year. Another big step for the second half of this year will be the start of our D2C business, Eastern Europe from our distribution center next to our manufacturing that should enable growth in that segment and reduce our costs like we see in France. Now I'd like to give you an outlook for 2025 for the rest of the year and -- which is more important. I would like to talk about the midterm and long-term potential. Even with the expected decline in revenue in 2025 of minus 5% to minus 8%, we expect an EBIT level of around EUR 9 million to EUR 11 million, which means that even if we reach the lower end of that corridor without one-off costs because of the strategic optimization project of around EUR 3 million and EBIT on previous year's level of EUR 12 million, therefore, an improvement of our EBIT margin to above 5% is in reach this year, which underlines again the improvements in efficiency throughout the organization. And if we look at the different growth drivers that we identified while working on our corporate strategy, and you see them here on this chart, stronger brand positioning, [ internationalization ], our new innovation strategy and nevertheless, strengthen our capabilities online; we should have the potential to grow between 3% to 6% on average midterm. And taking the efficiency drivers into account, that should get us to an EBIT level of around 7% to 10%. And like Alex pointed out earlier, if our core grew by 4.1% over the last 10 years and if we then take all strategic drivers into account, we think that is achievable. And in general, our vision is to become European branded leader in mechanical cleaning and drying, which then would get us to more than EUR 300 million of revenue and more than 10% EBIT margin level long term. We have a strong commitment to shareholder value, which will stick to -- we will stick to our attractive dividend policy of 75% of free cash flow or net result for the period. And as you surely know, our share buyback program of 2024 ran out in April this year, which had a volume of around EUR 7 million. And of course, this is something we are considering generally, but always with an eye on keeping on our investment capabilities, especially when it comes to innovations such as our SUPERDUSTER or optimization project this year, for example. So why did I say attractive dividend policy? First of all, we paid a base dividend of EUR 1.15 in 2025 for the year 2024, which was the highest amount in Leifheit history and -- as base dividend and additional EUR 0.05 special dividend. And both combined, we are talking about a dividend yield, as you can see on top of the screen, of 7.6%. In general, over the last years, Leifheit paid reliable dividends with exceptions only in years which were affected by the Corona crisis measures. Let me close the summary with a summary of the four most important investment highlights. We are a company with a strong vision and corporate strategy that focuses on clear growth and efficiency targets as well. Those will fuel our potential to expand and grow in Europe with innovation and, of course, our e-commerce and digital capabilities in general. We also stand for lean, efficient production and logistics support and logistics to support profitability, but also our cash generation with great improvement of our working capital over the last years. And last but not least, we have a strong commitment to shareholder value, which means, of course, that our shareholders will benefit from the improvements of our company and of course, from our solid liquidity position or situation, I might say. All right. Thank you for your attention, and we are looking forward to our Q&A session that follows.

We are back with the Q&A session. We got some insights already and received also some questions. Before we start with the first question, quite often cited and talked about are the U.S. tariffs. Do you have any direct impact from the U.S. tariffs?

Yes. So thanks for Mr. Kreuger, thanks a lot for the question. So first of all, direct to our business, very limited as we are -- I think we are very resilient in terms of our supply chain and also, obviously, in terms of our markets, as we are 98% European company. We have a small business in the U.S., which obviously is impacted by the tariffs, but that is really a small part. So overall, I think as a company, we are rather very well positioned in terms of our overall resilience. And if I understand correctly your question was, I think it went further, right? The question...

Exactly. I wanted to start with the direct impact, but also with the indirect outcome of those tariffs. And the question is also if there's some other producers or the Chinese producers removed their production to Europe or to the U.S.

If Chinese producers are redirecting their production into Europe, I mean, if I understand question correctly, so we don't see that. We can't see that they are shifting production into Europe, if I understand the question correctly.

So there's no onshoring. But do you see that, for instance, consumers are buying more local to reduce tariff impact, to reduce the value -- the production chains, to reduce risks regarding those topics?

I mean, overall, maybe less related to tariffs, but really related to the logistics of bringing products, for instance, from China into Europe, this really depends really on the categories as it's very different. If you take our laundry category, you have very high logistic costs. So that's definitely a disadvantage. And the opposite, it's an advantage for our European producer of these products because obviously, you have very little or far less logistic cost. So this drives, I think, overall, the competitiveness we have as a European producer versus producers from China, as an example. So less connected to tariffs, I think, more connected to overall cost, bringing at least certain segments long way from Asia.

Quite related question, the question about the e-commerce competition. Speaking about Chinese or Asian competitors, the question relates to Temu or Shein. Do you see any increasing competition from those players?

So first of all, I think generally, we see over the 12 -- over the last 12 months that they are getting more active across various categories and also across our categories. Yes, they enter these. These were not the starting categories for Temu and Shein. But yes, you can also find our product categories there. I would say, the market segment is a very different one, generally. So I would say, if it comes to quality, I would not call it a direct competition. But yes, we look at that, obviously, very carefully because certainly, that will also develop, right, in terms of the offers these platforms have. And maybe that is also just like discounters maybe 20 years ago, which are also today for many, many shoppers at the end, the destiny, the destination shop. This is also definitely changing. So in terms of penetration, they have, of course, significant gains of shopping trips, as an example. And this goes across age groups, these are not only the younger. So we look at that definitely. I think so far, it is a different market segment to most, to the largest extent. But we look at that, and definitely, this is a new market player and a new distribution channel at the end, which we will have a look at and which will be relevant also for us, I think, in the future.

Maybe a related question, could you also imagine to sell your Leifheit's products or the product portfolio on platforms like Temu and Shein as both companies are planning to relocate the logistics to Europe, so it could be another distribution channel for you?

So I think generally, for us, I think, as a brand Leifheit, it's very important to have the right quality environment, right, where we want to sell. If that is given, I don't see any reason why that should not be a distribution channel because I think the guiding principle should rather be where people shop. We want to be in the right environment for the right shopper, of course. So we will never be a brand, which offers a drying rack for EUR 5 or EUR 10, it's not what we are going to do. But yes, if we have the right quality environment, I think it's just another distribution channel with its opportunities.

With the word quality you have mentioned, already the step to the next question, especially in the challenging market phases, what sets Leifheit apart from the competition?

Sorry, in which sense, sorry?

Potentially, generally, what sets Leifheit apart from the competition? But also in the challenging market environment, we see currently, what makes a shopper in the grocery store go to Leifheit instead of some other products?

Yes, yes, right. I think first and foremost, I think there comes the great quality we offer. I think Leifheit has really a great quality -- product quality, I think always an idea better in terms of making it more convenient, making it more easy to use, making the chore in the house easier for people, for consumers. So I think this is the main point. But obviously, also in the current environment for us, value for money plays also a role. So we are also looking into, "Okay, how do we need to position ourselves in a very competitive way, also with offering really always the best value for shoppers?" That means also activations we run currently, for instance, addressing the consumer sentiment. That is, of course, also very important. And again, last but not least, it's the brand we have, where people, I think, over many, many years; trust the great products, they can use partly for decades. So I think that's a combination of these elements.