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 third quarter and first 9 months of the financial year 2025. First, the management team will present you 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, Alex Reindler; and CFO, Marco Keul, for the presentation. Mr. Reindler, please go ahead.

Yes. Thank you very much, [ Mr. Boer ] . So ladies and gentlemen, a big welcome to our investor call for quarter 3, for quarter 3 results. As usual, Marco Keul and myself, we would like to share first the results of now 9 months into 2025. We would like then to give a strategic update, and we'll finish with an outlook for 2025 and obviously have then, as Mr. Boer said, time for Q&A. If we look at the executive summary, it is definitely twofold. On the one hand, we see good progress on the strategic transformation and on the strategic key initiatives, which we defined and which we are implementing. On the other hand, we see a challenging macroeconomic environment, which especially gives headwinds and gives a clear impact on turnover result. Let me guide you through the main overview here. So on the strategic transformation, we have definitely forefront the optimization project, which we initiated in June this year, which is proceeding as planned, and we are having now consolidated the entire injection molding in our state-of-the-art plant in Blatna. This runs absolutely to plan and very well. We see on the group EBIT before special items that we closed the 9 months with EUR 6.9 million, which is impacted especially on the turnover result, but which is actually showing a good result in the third quarter. We see gross margin before special items also here developing positively, 0.2 percentage points, and we continue to increase margin via productivity and efficiency gains, which is very positive. Turnover, as I indicated already, turnover was challenging, very challenging in the third quarter, and we are now down with 10.8%, closing at EUR 179 million after 9 months. I will go specifically to the reasons, obviously, in more detail, but it is especially driven by decline in traffic, consumer traffic and lack of purchases, especially, I think, through all nonfood categories. Free cash flow, very strong improvement in the third quarter now stands at EUR 3.3 million. And on the further initiatives, SUPERDUSTER launch goes very well and contributed significant growth in the dust segment. And we will continue with these initiatives and others, I will come back to that in a moment to drive more positive momentum also from top line in the fourth quarter. On the consumer climate, we have seen that last call, we see obviously that consumer confidence is still on a low level. We see this for the European Union, the EU27 stagnating. We see this especially for our main market, Germany, where, again, we had last week reporting on now for November also a decline based on decreased income expectations and also increased savings, so people save more and they continue to restrain their purchases in nonfood in maybe nonessential categories, food with the inflation over the last years is definitely a priority for many consumers. So that's an impact which we see in the top level. So we see here more in detail, and let me go through that step by step. So resulting net sales results for the first 9 months, we see the group, you have seen 10.8% for the group. If we have a look at the different product segments, we see Household also impacted, especially we see here cleaning impacted by the strategic decision to step-by-step phase out electric floor cleaning especially. We see, on the other hand, also that over both segments, cleaning and drying promotions with weaker effects and also generally sellout decline in the category in the market data. So I will come back to that in a moment, but market data tells us that we are declining in the core categories in line with the market. Then Wellbeing, definitely very strong decline on Soehnle, which are the sales, which is basically 2 key drivers of this, which is the impact of the loss of Blokker in the Netherlands and one big promotion we had on one nonfood discounter. The rest of the business is relatively stable. So that's positive. On the Private Label, we see a mixed picture. Overall, of course, a decline of 14.7%, very different. Herby, we see -- we have been reporting that before already. Herby, our drying -- French private label producer of drying racks, sees the impact based also on Blokker. We had a very strong Blokker, very strong customer for us. And on the other hand, also competitive pressure in the market. On Birambeau, on the other hand, we are almost stable versus last year, slightly declining, which is in the environment, actually a very good development in the first 9 months, given that the French market is also very impacted by consumer sentiment, especially. In the different regions, you see that Germany is declining 9.8%. We are almost in line with the effect of the total group. So we see the impacts there if it comes to phasing out certain strategic assortment decisions, and we see the similar market decline in the German market. Then we see Central Europe and Eastern Europe, I mean, across the board, you see that the decline of net sales goes basically across most of the markets and all the regions. We have, of course, different developments here. By market, more positive means only slight single-digit decline we see in Netherlands, Austria, Italy or Switzerland and a stronger decline we see in Belgium and Nordics. So different impacts here depending on, yes, consumer sentiment also on markets which are slightly developing in a different way. Eastern Europe, you see here by minus 10.7%, better Romania, almost flat, weaker Czech and Slovakia, where we also see high reduction of promotion share and also there a higher competitive pressure. On the Rest of the World, the minus 40%, I mean, it's a small business we have here outside Europe is impacted by the -- mostly by the U.S. customer, which we have Pampered Chef, single customer, which has still a very high stock level from last year. So it is not affected by duty so far, but by the higher stock level the customer has in general from last year. So this is how the overall net sales development looks like by segment and by regions. If we look at channels, we see a differentiating picture here. We see overall that e-commerce -- obviously has a great potential e-commerce. We have to differentiate here. D2C works very positive for us, is growing versus last year. So the D2C business works good. The impact comes more from the B2B business, where we also see an e-commerce impact on purchase and buying. On the other hand, DIYs are also more resilient, also only in the mid single negative, so better than the rest. And on then we see [ maybe trend here ] more in the traditional distribution channel. So we see overall a shift in the market. I was speaking about this last time as well when it comes from hypermarkets, shoppers migrate to especially discounters, but also nonfood discounters. So we see this channel shift here happening. Therefore, hypermarkets, as an example, a bit more weaker. But we see this also on the retail, wholesale and department stores in a similar way. So if we have a look at the net sales development by quarter, you see obviously that, yes, we are at 10.8%. So we had a negative quarter 3 of minus 15.4%. So definitely a stronger -- slightly stronger impacted than the second quarter. And again, I think by the different elements I was pointing out for the fourth quarter, I'm coming back to the initiatives we have planned to have a better result in top line in the fourth quarter. So here, this, I want to pinpoint and highlight. We believe a lot in the long-term potential of our core business. We have been speaking about this and our -- this is the fundamental of our strategy. Core business for us is all what is cleaning, the cleaning range, manual cleaning, mechanical cleaning as we call it, and drying. We see that this long-term developed positive, much stronger and much better than the total company. What we see here now, if we divide the turnover development of the first 9 months into core and noncore, so core being these 2 strategic categories, drying and cleaning, manual cleaning, we see a very different development, and this I want to highlight. So we see the core business declining by minus 6%, which is in line of the market data we have. You know that we are not having market data for all markets and all categories. But what we see also in terms of customer sellout, we consolidate that, this indicates roughly minus 6% market development. So we are not losing shares. But obviously, we are not compensating what on the other hand, the noncore development is minus 19%. So we are not able to compensate that according to plans, where we took, of course, also strategic decisions to phase out electric floor cleaning as an example, but there are also other impacts like we have seen for Soehnle or Herby are also included in that number. But you see very different development of core and noncore segments. So now I hand over to Marco Keul for the financials, and I come back with the strategy update in a moment.

Yes. Thanks, Alex. As always, I will go through our financials for the first 9 months. And after that, we will, like Alex pointed out, we'll give you an update on our strategy and talk about our outlook for the rest of the year. I'm pretty sure that you're all aware of that from Q2 on, Leifheit reported adjusted KPIs for gross margin and EBIT for the first time, which was necessary to do because of the strategic optimization project in production. We expect it to have onetime costs of about EUR 3 million in 2025, which will be shown fully in gross margin. We made good progress within the last weeks, and it is likely that we won't need the full amount this year. And as a matter of fact, we were able to release provisions of EUR 300,000 already in quarter 3. So without the EUR 1.5 million now onetime costs in the first 9 months or in quarter 3, our gross margin is 0.2 percentage points above previous year, and that shows given the fact that we produced less volume in 2025 and on top, lowered our stock level by now EUR 8.3 million that we made good progress in terms of efficiency and flexibility. And we will come back to that on the next slide. Our foreign currency result is slightly negative this year and compared to a positive EUR 0.3 million last year, it adds pressure on our EBIT, of course, and in fact, EUR 0.7 million if you compare to previous year. And that being said, we were obviously not able to fully cover our lack of revenue in the first 9 months combined, so that our adjusted EBIT stands at EUR 6.8 million -- or EUR 6.9 million, while it was EUR 10.3 million last year. There are 2 things worth mentioning. First, we had additional costs within this year because of major projects within our strategic efficiency drivers, we call them, and that will strengthen our company and create opportunities for further improvement next year, such as the SAP S/4 conversion, for example. And we will -- in fact, we will go live in the next 2 weeks from now on. Obviously, the most critical part for the rest of the year is to concentrate on executing our marketing and sales activities while reducing our costs wherever possible without jeopardizing next year, of course, because we have to reach our EBIT and free cash flow guidance despite the fact that we had to lower our revenue expectations. I'd like to point out that we were able to achieve an EBIT slightly above previous year in the third quarter. 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 our costs. And 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 additional savings of our relocation of injection molding from Germany to the Czech Republic. Like I said, SAP S/4 will create options for improvements as well. And another big step of 2025 will be the start of our direct-to-consumer business, Eastern Europe from our distribution center then to -- which is linked to our manufacturing in the Czech Republic. It is a bit delayed, but it will start at the end of Q4 in 2025. And that should enable growth in that segment and reduce costs like we see in France already. Our free cash flow is down versus previous year, but massively improved within the third quarter. I will go or get to that in a second. On this slide, from my point of view, it's important to notice that we had a cash out this year of EUR 15 million because we paid good dividends of EUR 11 million and the second part, as you are aware of our share buyback program of EUR 3.5 million. But let's directly jump to the free cash flow development. You see that, first of all, the net result for the period has been EUR 3.2 million, nonadjusted, of course. Our working capital has increased by around EUR 3.8 million (sic) [ EUR 2.8 million ], and that is mainly due to the increase in trade receivables. So we don't see any risk there, of course. Then we reduced our stock level by EUR 8.3 million. Our goal is, of course, to reduce that even further until year-end, and our liabilities are minus EUR 6 million compared to 2024 because we had to step on the brakes due to the current revenue development, like Alex pointed out. Then of course, we had higher investments because of our optimization project. But if we look at only the third quarter, our working capital reduced by around EUR 4 million and our free cash flow stands at EUR 7.4 million and is therefore positive with EUR 3.3 million after the first 9 months and on track according to our guidance. Of course, our commitment to shareholder value remains unchanged, and we will stick to our attractive dividend policy. And as you know, share buyback is something we are considering. And now that our program of 2024 run out and we underlined that by canceling our shares just 2 days ago, but we will keep an eye on our investment capabilities in general, especially when it comes to innovations such as our SUPERDUSTER or optimization project, for example. And with that, thanks for your attention. I give the word back to Alex to speak about an update of our strategy -- on our strategy.

Yes. Great. Thank you very much, Marco. So strategy update, obviously, very important for us while we see headwinds in the business on the macroeconomics and headwinds on the net sales, the more important it is for us to develop our strategic initiatives and implement them, and we worked obviously hard on that in the meantime. You all know our strategy, leading with focus, creating sustainable value. I think if you look at the growth and efficiency drivers, we keep on talking about these ones, and I really again want to talk about a couple of them. If we look into growth, these are essentially the growth drivers based on the clear focus on our focus categories, stronger brand positioning, European focus markets outside Germany, a consumer-driven innovation strategy and scalable e-commerce digital model. Let me come back today specifically on 2 examples on the consumer-driven innovation strategy. I give you one on the scalable e-commerce digital model. And also, as also highlighted by Marco on the efficiency, I would like also to come back to 2 measures, which we have been developing in the meantime. If we look at innovation, and if we look at -- here is the chart, if we look at SUPERDUSTER, we talked about that last time, the market potential we have, the market potential we see, really innovation giving us the opportunity to reach more consumer. I think a very exciting project where we are progressing very well. The key issue in dust, if you think about the main brand, which is in that market, it is disposable. It is entirely a disposable category. And we believe that with a sustainable offer, we can make a big difference for consumers and for shoppers. And therefore, we brought the SUPERDUSTER to life, a real sustainable yet also very high-performing dust product. We have that in 2 sizes. And so far, the plans are implemented. We see that we placed already -- we will place overall 9,000 displays in the whole Europe for the entire year. We see that displays drive a lot sellout, overall, very exciting. And it is exciting for us also in terms of -- obviously, these products have a lower price point than usual, and they drive volume and consumer contact. So we will look at this year at around about 1 million products which we are selling. So definitely also great in terms of really getting to shoppers, consumers in terms of a lot of contacts we are creating. And for next year, as I said last time already, we have a plan to achieve EUR 10 million in net sales. The BLACK LINE, we keep on talking about the BLACK LINE. We keep on adding new products to the BLACK LINE because it's a very exciting initiative, which is already 3 years in consumer hands and in stores. We see here still a very positive development in the 9 months of 2025, plus 18%. We are now coming with a very exciting initiatives looking at the fourth quarter. We now -- and I show you the results next time. We come with a big [ Black Week ], which we now do for the -- all the Black Week activations. We do this stationary, but also in digital on our main B2B customer, Amazon, but also in D2C. So Black Week will be very important for us in November with a strong activation. So Black is always positive for us. If we look at D2C and this scalable D2C e-commerce, we are also progressing here. You have seen that. You know that we now have for 1 year France, and we almost doubled net sales for the D2C business in France by the initiative. And we have continued adding distribution. What is new in the third quarter is that we added ManoMano as a marketplace. So now reaching really the relevant, roughly, I would say, 90% distribution in the e-com relevant marketplaces. So now we have the distribution build up, and we will continue with investing and scaling this business. So overall, also this, and I mentioned that overall D2C is positive in the first 9 months. On the other side, we keep on talking about efficiencies, which are very important for us. And I would -- to highlight again, 2 projects we are continuously talking about this. [ One ] -- and Marco made reference also for the numbers, what it means in numbers. We have the consolidation of the injection molding in the Blatna site, so which really consolidates the technology expertise there and really improves capacity utilization and should give us the efficiency gains also for next year, as mentioned. And on the other hand, we have mentioned last time for the first time, and I keep on -- we will keep on talking about that, a very strategic initiative, the conversion of our ERP system. We go to S/4. And this gives us, I would say, I would summarize 2 aspects. It will give us a quality of the data and the improved decision-making, and it will give us more in quantity, maybe the efficiency, which we will see also continuously into 2026 and beyond. And we have first projects which we are kicking off to get more efficient in the organization also via the usage of S/4. So one more, and that is also important if we think now about next year and making how do we make 2026 successful. Some of the elements were quarter 4, but some -- and this especially is really focused on how do we make 2026 a successful year. So there are -- that is a very important strategic milestone for us. We have been working on the brand relaunch of Leifheit. We have a fantastic brand, but we even want to make it better in terms of sharper positioning, being clearer on the consumer benefit on the point of difference and orchestrating that at point-of-sale, stationary, but also in e-commerce. We will continue with the launches with the innovation we are bringing to market. We have exciting news for next year, starting already in the first quarter, and we will keep on informing you about that, but it goes until September where we have a major initiative for one of the key categories. So I think overall, a very exciting innovation program we have. And then, of course, we continue with supporting with marketing campaigns and really creating that sellout and then consumer demand obviously. So marketing investment, we will keep on a good level for us to really communicate our innovations. So overall, this we will be talking more about that during the course of 2026, but we are well prepared to make 2026 successful. So now back to 2025, let me give you the outlook now for the remaining of this year. So as we spoke about, so we have adjusted the turnover forecast slightly downwards, but we confirm EBIT and free cash flow despite the net sales development, and this is due to all the cost initiatives, which Marco has talked about. So you see the group turnover comes now from minus 5% to minus 8%, comes now down to minus 10% to minus 12%. And the different segments, Household, Wellbeing, Private Label are adjusted accordingly in line with what we have seen, I think, also in the 9-month results, Household in line with the total, Wellbeing slightly more negative and Private Label slightly better. EBIT remains in the corridor of EUR 9 million to EUR 11 million and cash flow mid-single-digit millions. So on the mid- and long-term outlook, despite the challenging macroeconomics, despite the challenging environment, we keep on focusing on the strategic transformation and on keeping, implementing the strategic initiatives and developing them forward, like I said. So our midterm potential, which we see and our long-term vision doesn't change because of the current challenges. So we still see midterm potential to grow 3% to 6% on the CAGR and develop our EBIT to 7% to 10% in percent of net sales. And we will do this via the growth initiatives, especially which I have been talking about and which we are keeping -- keep to develop and make significant changes. So as a summary, for you, we continue to transform, we continue to develop our strategic initiatives with a clear focus on where do we want to be and who do we want to be, mean the European branded leader and specialist in the core categories. We have the potential to expand and reach this midterm potential. And we see especially key also the efficiency programs and efficiency gains we have been talking about, and Marco pinpointed one example on how do we create shareholder return and shareholder value. And you have seen this by our latest capital reduction. So that was all from our side. Thank you very much, and we open now the Q&A. We look forward to your questions.

Thank you, gentlemen, for guiding us through the slides. So let's jump now into the Q&A session. [Operator Instructions] Your questions, please. So we start with Mr. Kleibauer.

Yes. Can you hear me?

Yes, we do.

Yes, perfect. Yes, thanks for the update and the detailed presentation. I have 2 questions. The first is, I mean, the challenging market development will remain for the coming months and quarters, especially in the traditional retail channels. So what about the plan and the ambition to acquire new customers, especially to go more into the drugstore or supermarket channel with the SUPERDUSTER product? Are there any concrete, yes, plans or listings for the coming years -- for the coming year or maybe also some new listings in the e-commerce channel at marketplaces? Any update here would be helpful. And my second question is regarding marketing budget, marketing expenses next year. You highlighted brand relaunch and more campaigns next year in the first half. So should we assume also higher marketing costs or slight raise -- slight increase in marketing cost ratio in the first half next year? Maybe you can give more insight here.

Yes. Perfect. Thank you very much, Mr. Kleibauer. Thanks for the 2 questions. So first of all, yes, new customers, thanks for that question. So specifically to SUPERDUSTER, I mean, we have been talking about that. We got a listing in one of the big grocery stores in Germany, REWE. So we could extend the numeric distribution in that customers. We are now in all relevant REWE stores, not in the very small ones. So that was a big win for us. Regarding drugstores, absolutely, that is our target. We have discussions about that. I mean, if you know drugstore customers, they want to see results first. So we provide that at the moment. I think we work absolutely on that to generate the success these customers want to see. But to answer your questions, yes, we are in discussions, and I think this is definitely a target for us to get listings in these customers in these drugstore businesses, especially with the SUPERDUSTER because that's a great entry product for us. But we also work on other customers, of course. Let me highlight this as well. Again, we -- the channel shift makes discounters for us more important. So we have discussions with all the relevant discounter. SUPERDUSTER, they are also a good example because from the start of the project, we call this collision-free assortment. So we have another item which is especially dedicated to discounters, slightly different functionality and therefore, reduce costs to enter in a very profitable way the discounter. And there, we actually got 2 additional promotions in the fourth quarter, which is very positive in both very big food discounters. And you asked for e-commerce, obviously, we work on that every day. If you ask me, the big opportunity for us now, if we look at France, next is definitely Poland on the list. And there we speak about Allegro. And there also ties in the project Marco Keul mentioned in terms of D2C capabilities then from our Blatna site. So what we have done in Chablis with France, we then plan from Blatna to Eastern Europe. So there are other platforms as well, but Allegro would be one. So that's maybe to your first question -- to the second question, I mean, always the challenge, right? I mean we need marketing budget to really obviously to create consumer demand. It's essential. So we have a very strong program in the first half. We will be tilted to the first half to create a good start. But overall, we want also to keep on working on our efficiencies in terms of targeting the right consumer and making marketing budget very efficient. So we will keep more or less the level of marketing budget investments from this year. But also please understand that we work through the budget at the moment. So this is not all decided. So we are going to look into that. But definitely on especially point-of-sale execution, we also will invest in the relaunch. Yes. So therefore, in simple terms, we keep more or less the level of this year, but we will definitely work on efficiencies, especially in digital investments. Other questions, please.

[Operator Instructions] So we continue with [ Mr. Lukas Sprung ].

Yes. I have 2 questions. The one is regarding the operating cash flow. Revenue was down, inventories were up. Why was this the case? So normally, you should have a lower inventory level. And then the second one is regarding your midterm ambitious or ambitions. If we now take the 2025 outlook as a base for the next years to get to that EUR 300 million revenue, you should be in the upper end of your 3% to 6% revenue growth per year CAGR. Why do you expect now to be that successful in terms of revenue growth because now you have this difficult environment, you have consumer sentiment, which is not best currently in Germany. And so it seems to be very optimistic from a revenue decline into, let's say, 5% to 6% revenue growth in the next years. Do you see also some catch-up effects in general? Or what makes you confident to reach this revenue growth?