Leifheit Aktiengesellschaft ($LEI)

[Audio Gap] Market environment is indeed very challenging. Despite that, we have quite good progress on our strategy execution. The overall quarter 1 results for turnover, we are at EUR 61.2 million, which is a decline of minus 4% versus previous year. Despite this environment and despite the challenging market environment, we invested into the Leifheit 2345wret654332wsadbrand, which showed positive impulse where I will go back later. We see on the gross margin continuous very good progress. However, we are still doing more on the efficiency and the resilience side. And as reported previously, we now started and launched the Focus program to enhance efficiency and resilience. On the EBIT, we saw an EBIT decline of EUR 2.8 million in the first quarter, which is due to our increased marketing investments. Still, despite that, we are confident for the remainder of the year and confirm our forecast for the full year 2026. If we look at the market side at the consumer side, we definitely see a significantly worsened consumer climate. Main consumer indexes, you see here the European and the German, the ones we are tracking are in the case of the German, especially on the lowest point since COVID, especially the willingness to purchase or the consumption is weak. And we saw especially the input now on the petrol prices, which has an immediate effect on certain KPIs we look at. So definitely a very challenging environment we are in. How does the turnover development looks now for the group and for the different segments and geographies? First of all, the group, we have seen that minus 4% decline. I think it is very important to point out that there is a lot of positive development in that number. From the 14 markets we track as our biggest markets, 9 are positive and on or above last year. So the decline is driven mainly by a few markets and by also very few customers. So -- and we saw across the first quarter, a positive development of the dynamic, which is also important to state. You see household slightly better. We are coming to the core business in a moment, but slightly better, mainly because of Laundry Care, which saw a positive indication of a turnaround with a positive development versus previous year. Also, the innovation showed growth in the household segment, and I'm coming back to the innovations later. What was below last year was especially cleaning, slightly below with minus 3.4% and you see well-being and private label next to that. Well-being coming to that, so the brand Suhner, impacted by 2 customers where we had a loss of activities and promotions, which are Kaufland and Net which explains obviously on a low basis, the development. On private label, both businesses, both Bergamo and OB with a similar development, be slightly better, plus 2% development and Bambo slightly below last year, which brings us to a flat business and also for private label, quite a challenging market. If we now look at the different geographies, you see obviously different developments by geography. First of all, Germany declined minus 6.4%. It's important to keep in mind that the first quarter of 2025 was a very strong quarter with 13% growth. in Germany. So we are against a very strong quarter. This has to be taken into perspective here. What went -- what developed very well is the DIY channel overall as well, a very positive development driven a lot by the German DIY customers, a decline we saw on the discounter business, and this is one of the larger customers I indicated at the beginning. Central Europe, slightly better than the group, minus 1.8%. There, in the markets where we have a strong brand, we see a better performance. This is Netherlands, Austria and Switzerland with very strong brand equity. We see that we are more resilient, and these are the markets which are having a positive development versus previous year, which makes us confident. And on the other hand, the -- the countries where we have a weaker brand and where we are developing the brand still like Italy and also France, we have a slightly negative development versus the minus 1.8%. Eastern Europe, you see pretty much in line with the total group. We see also there a mixed development, stronger markets because of some customer developments in Romania, for instance, flattish markets like Czech and a slight decline because of one specific customer in Poland. So overall, a quite mixed bag in Eastern Europe. And then rest of the world, I mean, more or less stable. It is anyhow a very small segment for us. So here, you see the quarter-by-quarter developments. And again, you see here, I think, a minus 4%, which if you look at quarter-by-quarter, maybe starting from quarter 2 in 2025, you see a start of a trend reversal. We saw that especially in Laundry Care, but also in the core business. So this is -- gives us a positive expectation for the coming quarters, especially driven by targeted marketing campaigns, but also the innovation pipeline where we have in the second half, strong initiatives coming up. So now to the core business. I think this is very important to state. Overall, our core categories are flat versus 2025. So they remain structurally attractive. And again, here, if we see the core business, especially in Laundry was especially positive and indicates the trend reversal I was referring to. So we have a positive picture looking at the core business. If we look at the different distribution channels, we see very different developments. We see very positive development in the DIY channel, which is here now even in percentage, our strongest channel. It's definitely one of the core channels we have, and we see overall positive development. We see also very positive development in sell-out, and we are gaining market shares in the customers where we see the full category like OB, for instance, we gained significant market shares in the first quarter. So we are very happy with that. E-commerce is a mixed bag because of D2C, yes, solid start, I would say, even a very good start in the D2C business with plus 7%. On the other hand, on the B2B, especially negotiation with one bigger customer here, which had an impact on sell-in, less on sellout. -- hypermarkets stable and discounter, I mentioned that already, we had less promotions in the discounter channel and therefore, a decline, especially here. All right. With this being said, I'm coming back with the strategy update. I now hand over to Marco Keul.

Yes. Thanks, Alex. Let me briefly guide you through our financials for the first quarter. I think it's very important, especially this call that we have sufficient time to talk about our outlook for the rest of the year and the Q&A session, of course. There are 2 main challenges we are facing, and Alex talked about that already in a way. Firstly, the current consumer sentiment and linked to that, the effect of additional marketing campaigns. And secondly, the execution of our countermeasures to mitigate the negative effect that the raw material and transport costs will have in the course of 2026, which also includes our so-called focus project, which we started to drive efficiency and speed of our organization to another level, which will then reduce all costs, of course, along the P&L. And that in mind, looking at our P&L, we see that our margin is further improving, which shows that our projects of last year create the expected savings, but with 4% less revenue and the additional costs, our EBIT is negative with EUR 2.8 million. Three main effects are driving the cost increase, mainly the marketing campaigns, roughly in the mid-single-digit million euro range. Outbound freight because of D2C growth and current fuel prices that you are all aware of and the costs of projects like the Focus project, for example, other costs are below previous year's level. Our margin development is still one of our success stories over the past 4 years where we were able to constantly improve. Now the goal has to be to maintain that progress even if higher input costs will hit us in the course of 2026. Our expectations behind our guidance is still that we will have to prepare for negative effects due to the war in Middle East until December 2026 given that our countermeasures to keep up the margin level and the additional cost savings initiatives will get us to previous year's level in EBIT. As a matter of fact, we published our expectation of a negative EBIT in quarter 1, together with our guidance for the full year in March already. But Alex will talk about our guidance later during that presentation. I'm fully aware of the fact that investors and analysts, of course, will watch our cash flow development very closely. And looking at our quarter 1, the seasonality of our business is very important to take into account. Our negative free cash flow is mainly driven by increasing sales volume within the first quarter and especially in March, which is very important -- which is a very important month for us. One of our biggest channels, DIY is growing there, and Alex pointed on that earlier already, and we grew around 10% in DIY. And because of that dynamic, which within the first quarter, our trade receivables went up by EUR 17 million. You can see that on that chart very good. Also important to notice is that in previous years, we had to increase our inventories mainly because of preproduction of our rotary dryers. But unlike in the past, that doesn't increase our overall inventories anymore. Liabilities are up by EUR 6 million because of the high production volume in March, but also because of the increased safety stock of various raw materials to face the Iran crisis and to strengthen our supply chain. Yes, despite the fact we have a challenging months ahead, our commitment to shareholder value remains unchanged. We have seen -- you have seen our proposal to the AGM and which includes the dividend of EUR 1.20 and a capital reallocation, which will give us then more room for future activities. And with that, thanks for your attention, and I give back the word to Alex who will speak about our strategy update.

Yes. Thank you very much, Marco. So strategy update, that is the strategy you have all seen, I think, leading with focus creating sustainable value, we are determined in implementing that strategy. While the environment is very challenging and maybe also the top line development, especially last year is not up to our expectations. We have been working on bringing more and more to the light, let's say, of consumers, and I will come back to that, but also the other angles in terms of growth and efficiency drivers, we are in full swing of implementing that, which brings me to the phase we are in now. So what is the phase of the strategy execution in this moment. And let me try to summarize is on the one hand, really making sure that we leverage the strength of the brand towards consumers and shoppers. And on the other hand, really working continuously with an additional activity on our efficiency. So this brings us to investment in growth while strengthening efficiency and resilience. On the Leifheit brand relaunch, that is the biggest asset we have. We sharpened the positioning. We increased our marketing campaigns, and we have and there will be more strong product innovations in the pipeline. This will be the investment focus. And on the other hand, the focus program we have been introducing to you last time in our full year report. We have started that program according to schedule. In that program, we will optimize processes and costs, improve organizational and operational flexibility and aligning the organization for growth. So this is the focus. Let me come back now to the first point. So Leifheit brand relaunch, I think something we have been working on the last 2 years. First, we had in the first semester, you have seen that strong investments into the main campaigns we wanted to drive. And these are also the best sellers we have plus the new innovation on dust. We have been adjusting our approach to make this as efficient as possible across the different media touch points. So what are the results specific results, I think, are important to state here. So we saw the successful turnaround of the Laundry Care segment, which grew in the last -- in the first quarter, plus 2.4% versus previous year. We have some sellout data I can mention. I want to mention on the e-commerce area and especially on the main DIY customers where we have, where we see on the entire categories with investment an uplift of 18% versus quarter 1 2025. So strong increase in sell-out, which makes us very positive to see then market share gains in the first quarter. We will can update you on this in the next update when we get the market share data for mechanical cleaning. What is now happening on the innovation side? It continues to be successful. The launch of the Super Duster -- so contribute to growth. You see here, we almost doubled the turnover. It's obviously still on a relatively low base, but it shows us that the product concept is working, and we are expanding distribution and sell-in net sales. Black remains a very strong segment for us. And you see that we have been extending the product range into the product called Parade, a kitchen tool, one of the best sellers we have on Amazon, for instance, and instantly had a very strong success there and also the window wiper. So you see overall in the moving last year, increase of 12%. So it keeps working and also quarter versus quarter positive development here and contributed to the growth in these segments in quarter 1. If it comes to brand relaunch, this is the first step we did in the first quarter. More is going to come. That is showcasing you how we will appear on shelf and visually. So more modern, more attractive, more focused on what is different, what makes our products better than competition. And this is the example of the ironing boards, which we have been launching now starting in February. We had a relaunch of the whole lineup. And you see here at point of sale where you see products mostly or in a lot of stores from the site, I think a very good shopper guidance to find the best products -- and obviously, the best products are from fat. So this is showcasing the brand relaunch. Also, small innovations, I also want to highlight here, it is not always about the big steps and the big innovations. It is also improving products like the iconic rotary dryer, the Lino Matic. We launched here a new variant at a premium positioning, which makes even hanging clothes even more effortless, even easier, so making life easier. And we launched this first in Austria and Belgium because it gave us special impulse to increase distribution and get stronger in these markets and then the other markets will follow in the next season. So it also gives us an opportunity with these small upgrades to work on different market penetration. So that was so far very working very well in the first quarter. There's more to come, and I can highlight this only in that way for the moment. We will keep on updating you here for sure in the half year call in August. Strong innovations are going to come. We will continuously add products in the Black Diamond line, especially here also new segments, which I think are very important. So that's very exciting. And on Laundry Care, we will launch an absolutely top product under the Pegasus range, where we are market leader in most of our markets. So you will see the, I think, the best product we ever had. So all this will be very consumer focused, will be focused on where do we want to innovate, not all segments, but very focused. And it will also have a launch, relaunch cycle that means we will always have a follow-up product to really continuously have news for shoppers and consumers. So as I said, we are investing in growth while stepping up our efficiencies and our resilience. And this is the performance program focus, which we started. This is really about simplifying structures and processes to reduce costs and increase margin but this is also to really have a better organizational setup and alignment of the organization and therefore, being more resilient and more long-term competitive. And we will keep you updated, obviously, on programs on this program in the next calls. So this is the update where we stand in the execution and implementation of the strategy. And as I mentioned, this is really the core of what we do despite an environment which is maybe at the moment not helping. So how does the outlook look like? So first of all, in a nutshell, again, more challenging environment. I think we spoke about that, but we have a clear strategic response. We see obviously that the conflict in the Middle East, especially remains highly uncertain. It has an impact on consumer demand and on consumer sentiment as we saw. On the other hand, we really want to drive growth actively, driving demand. We have a clear focus on the core, which we now stabilize in the first quarter. We have a continued innovation program, and we have seen the increase in investments in marketing. And this obviously showed an impact on earnings temporarily. And as I mentioned, efficiency and resilience is key for us, and we strengthened this and are strengthening this now with a new measure, the Focus program I was referring to. So we think a clear strategic response in a challenging environment. Our midterm outlook and our long-term vision remains fully valid. So we still believe -- and I think the trend reversal in the core categories is indicating this. We still believe that they remain attractive categories for us and that we can drive growth here midterm in the range of plus 3% to plus 6%. And by that, with efficiencies included, also drive EBIT margin up midterm from to 7% to 10%. So how does the forecast look like for the remainder of 2026. This, as we said, we confirm the forecast has not changed. So we see slight growth overall. You see the details for the different segments, slight growth in turnover in 2026 and earnings at the level of previous year. So in a nutshell, why do we believe Leifheit remains and is positioned as a profitable growth and attractive shareholder return stock. We have a strong vision, a clear focused strategy, which we are executing every day. We have a potential to expand, thanks to our strong brand where we are investing in, thanks to the potential we see, especially outside Germany and thanks to innovation drive, which is now coming step-by-step to the market and the e-commerce digital acceleration. On the other hand, very lean, efficient production and logistics, which we have been proving in the past years. If you look at especially gross margin and attractive capital allocation, as explained by Marco and the financial outlook for shareholder return. So this is a summary, thank you very much for your attention, and we now come to the Q&A.

Yes. Thank you, gentlemen, for guiding us through the slides. Let's jump now into the Q&A session. Please -- so we will start with Mr. Kaiser. Please go ahead.

Hello, everyone. Just a couple of ones from my side. Starting with your top line, you mentioned that the turnover trends in the core segments stabilized during the first quarter following a weak start to the year. Just to get an idea, can you quantify the monthly run rate? So was March already growing year-on-year or still negative?

Yes. Thank you very much, Mr. Kaiser. So as I said, we see a positive development within the quarter. We had a quite weak start in January also because of some shifts between the years and some stock level of a large e-commerce player. We then saw indeed, as you saw -- as you say, we saw a positive development through the first quarter and saw a positive development in March, exactly like you are indicating. Yes, I can confirm that.

Perfect. Very helpful. Then looking at the -- yes, second half of the year, how much of the acceleration relies on the planned new marketing campaign versus competing in the second half?

Excuse me, new marketing campaign versus -- sorry, I didn't...

The kind of competition easing in the second half compared to last year.

Yes. Yes. Okay. I mean regarding marketing budget investments, I mean, you have seen our strong investment in the first quarter. So we are reassessing that at the moment in general because obviously, we have to really assess the results of that, which, as I indicated, showed positive impulse in these and stabilize the core segments. For the year to go, I think it will be partly the campaigns we still have plans. It will be also the effectiveness on how we showcase the brand at point of sale. So now we come with a brand relaunch to point of sale, which will be mid of the year. which will be much more modern, much more focused on the -- what's in it as a shopper and consumer. And as I said, the innovations will also play an important part. So it will not only be the marketing campaigns. It will also be really full scale on point-of-sale activities, but also the innovation, which are coming around about September, October.

Perfect. With regards to the mentioned marketing budget, of the roughly EUR 5 million increase in distribution costs in the first quarter, how much is pure advertising marketing spend versus already higher logistic costs maybe caused by the Middle East conflict?

Yes. So let me answer on, let's say, on the media budget. We have been reporting this also previously. I think we have a media budget increase for the entire year of around 35% versus previous year. So -- because from the start, we said that we now need to -- we need the investment to drive the brand relaunch and the innovation. So we have overall significant increase in our media, which is more or less also what we saw in the -- or we will see in the entire first half. Second half, we are now assessing. It will be definitely on the level of last year. But obviously, we have to see there how much spending we can do versus earnings we need overall.

Okay. And regarding the logistic costs, you're looking at our distribution costs overall. And nearly the whole effect is the marketing budget, but the logistic cost, you could see roughly -- you could say roughly EUR 0.5 million.

Okay. Perfect. Very helpful. And then with the -- yes, you already mentioned the first half will be marketing front loaded. So is Q1 already the peak quarter? Or should we treat Q2 similar of magnitude with regards also to EBIT? You're talking about the marketing expenses then in quarter 2, they are on the same level as quarter 1. Did I understand it correctly?

Yes, to kind of get the feeling if Q1 was already the peak.

I mean, H1 in total will be front-loaded, but to get the share of those front-loading on the quarter basis.

Yes. From our perspective, it will be like you said, and we will see then lower costs in quarter 2, which then, of course, will help us to get in shape back in shape regarding EBIT. So therefore, the EBIT development of quarter 1 will not go on in quarter 2 then.

Perfect. Very, very helpful. Then you already mentioned the strong base effect in Germany in the first quarter last year. Will Germany return to growth on a year-on-year basis already in Q2, where the comp base was already much lower?

Yes. Thanks, Kaiser. It's a good question. It depends now a little bit on the continued sellout, I would say. I mean, of course, that is a target, but I think we are not yet 100% certain whether we will come to that.

Okay. Perfect. And then my very last question. Thank you very much for your patience. CapEx dropped from EUR 1.8 million to roughly EUR 600,000 in the first quarter. Is this just phasing or the current year structurally planned as lower CapEx year and what's the entire budget?

Yes, great question. It's -- currently, it's phasing. Within our guidance of the free cash flow, we expect investments of roughly EUR 10 million, like I said last time, EUR 10 million, and that's still the case. But to be honest, in the current situation, of course, we look into that and have to ask ourselves if we want to do everything that we planned in 2026. Of course. So there might be some savings then in the upcoming months. But currently, in the current guidance, it's roughly the same level than we had last year.

Thank for the questions. By the way, we are on the spring conference on Monday, Tuesday. So if you want to have more one-on-one, we can always do that.

So any further questions from the audience, then please let us know and raise your hand. -- so any further questions please let us know. Yes, Mr. Reindler, Mr. Keul, there do not seem to be any further questions for today. So gentlemen, your closing words, please.

Yes. Thank you very much. We take this -- the presentation has been crystal clear. So -- but thank you very much, everyone, for joining. I think to summarize, exceptionally challenging market environment. Within this context, we are investing into our brand, the strongest asset we have into growth, and we strengthen our efficiency and resilience. On the brand investment side, we see that it's an initial stabilization of our core categories, which is positive. On the short-term earnings, obviously, it has pressure. The Focus program now started to strengthen efficiency and resilience and full year guidance, we confirm despite, as I mentioned, the volatile market environment. So thank you very much for joining today, and see you very soon, hopefully. Thank you.

Thank you, gentlemen. We will now close the conference call. Goodbye.