TAKKT AG (TTK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the earnings call of the Preliminary Results 2021 at TAKKT AG hosted by CEO, Maria Zesch; and CFO, Claude Tomaszewski. [Operator Instructions] Let me now hand the floor over to your host, Maria Zesch.

Good afternoon. Today is a sad day for Europe. And I believe we are all shocked because of this war. TAKKT results seem less relevant, I would say. But at the same time, I believe that we owe you also to inform you about our figures '21, and that we will do in a minute, Claude Tomaszewski, our CFO, and myself. So welcome to this earnings call. And I would like to start with giving you an overview about what we have achieved this year. What you see here is that we had the strongest organic growth ever in the history of our company. So what we see is that despite of the challenges from supply chain and inflation, we saw that we could get the result of sales of EUR 1,178 million, which means it's a 10.4% increase year-on-year. And even if you see that what we did on our EBITDA, it was even increased more than that, up to EUR 112.6 million. So that it ended up in the upper range of our earnings forecast, and we are glad that we could achieve that number. But as important as the financial performance, we also see that we are going along with our transformation. We successfully completed our strategic review. We accelerated our transformation. And since first of January, we have a new leadership team in place, which I will introduce to you in a minute. But let's first come to our order intake and sales. As I mentioned before, our top line development last year was very successful. So we are very proud. But even if you look at what we have achieved on the order intake, you can see that the order intake is even higher than the sales. So from a customer demand, we were well above 2019 levels. So we increased orders in hand by more than EUR 50 million, and we also believe that this will help us for 2022. So overall, a very successful year from a sales and order increase perspective. Let me now share with you what we already have communicated end of December. So how we plan to operate now in 2022 onwards. So we set up a more customer-centric and more growth-oriented and more integrated organization. Since January, we have implemented 3 customer-facing divisions. So first one is Industrial & Packaging, where we're clearly targeting warehousing logistics companies. The second division is the Office & Display division, where we have clear focus on service industry. And then, of course, also our FoodService division, where we target holders, restaurants, caterer. So with these 3 customer-centric divisions, we have a clear target. This target is growth. And also, what I can see from the January numbers on, I think we are getting there. But last but not least, I also would like to share with you our concept of OneTAKKT. Our key target is to improve our back-end processes by a much stronger integration of group functions. So this especially means supply chain, logistics, but also tech and data and, of course, HR and finance. Why do we believe that's value add for us and for our shareholders? Because this enables greater scaling and also potential synergies out of this integration. So as I said before, key for us is growth. We will see that our system, our divisional set up with the customer-centric divisions is the right basis. And also, what we see -- how we started with the group functions, we see first positive effects. I will give you more details on our strategy and our strategic levers we set up with the new strategy by end of March. So -- and I hope we'll have the chance to go into more details and then end of March. But let me now introduce to you our executive team, which is in place since first of January. I believe you know Claude Tomaszewski, our CFO. And then we have 2 new members as part of the executive team. This is Thomas Nowak and Marcelo Podesta, both leading divisions, both have a very international background and both help us to even get more customer-centric in TAKKT. Next to Thomas and Marcelo, Rolf Schiffel, Patricia van der Velden and Axel Faltin joined our team. So overall, out of the 7, we have 5 nationalities, so a very diverse team, and which is more important and very international background of all team members. So I'm very convinced that with this new setup of the executive leadership team, we will be ready for growth. But I'm looking now forward to giving you more [ details ], as I said, in March. Now I will hand over to Claude to give you more details about our 2021.

Thank you, Maria. A warm welcome to everybody. Let me give you some more details and statements on the figures we've published this morning. Let's start with quarter 4 2021 for the whole TAKKT Group. We have reported a sales increase of 17%. Organic sales have come in with a good growth, strong growth of 14% in the last quarter. These organic sales for the first time have been above what we call the pre-crisis level, so above quarter 4 2019. So -- and we'll see it later on in the development when we look at the different quarters, that this has been a good growth and the -- almost the strongest growth for the year if we compare it also with the different base impacts we have seen from 2020 onwards. We have still seen quite substantial supply chain constraints. So our order intake is still accelerating more than the sales, similar to the other quarters, which we have reported here also, back after -- during the year 2021. The order backlog has increased a bit, but here now, slightly. Why? Because Christmas period is a period where, anyhow, there's a slowdown in order intake. And so there is a seasonal impact here at our order intake. Our order backlog has gone upwards, but possibly not as much as before because there's a seasonal impact in the last 2 weeks of a fiscal year. Profit has grown by EUR 12 million. Also, margin has gone up nicely even after considering that we had to digest the EUR 3 million onetime expense in the last quarter of last year. So that means our margin would have been above 10% EBITDA margin, correcting for that onetime expense. Let's have a look at the different segments. Starting with the omnichannel segment. Just to remark, we still, of course, report for the year 2021 the segments which have been in place for that year. And of course, going forward, 2022 forwards, we will then, of course, report according to the newly formed 3 divisions, which we have disclosed. So we have published a new organization shortly before Christmas last year. Now looking at the Omnichannel Commerce segment. The sales have gone up reportedly by 17%, correcting for currency impacts, currency adjusted growth of 15.5%. All business units have contributed to that. So we have seen double-digit organic growth at KAISER+KRAFT, Ratioform and NBF. And NBF has come in here the strongest. EBITDA profit has gone up by EUR 5 million, although we have digested roughly EUR 2 million onetime expenses. And that, of course, is a good and strong contributor to the group debt segment with the results we are presenting here. Let's have a look at Web-focused Commerce segment. Quarter 4, sales can have, on a reported figure, 12% growth, 7% currency adjusted. And here, we've got still a little bit the difference between the 2 business units. Newport growing double digit. Displays2go coming in with a stable development. And that's a positive news because Displays2go was in a negative trend for the first 3 quarters in the year 2021. So Displays2go here coming in with a stable development. The first time is promising going forward that we can see here some good news, especially when we compare the second half to the first half year '21 for that business unit. EBITDA has increased by EUR 3.5 million. Also, the margin has increased, and this is predominantly coming here from an expected improvement in earnings at Displays2go. So normalizing a bit more. Whereas, in the Newport division, there, we are still digesting some additional warehousing and logistics costs, especially in the U.K. due to the difficulties we have there -- we see there in the supply chain. The Foodservice Equipment segment came in very strong in the fourth quarter. On a reported figure, 25% growth, currency adjusted, a 19% growth rate in the top line. Central here being in the front runner, a very strong double-digit growth. And Hubert coming in with a high single-digit organic growth. Also, good news for Hubert because -- also, Hubert here is showing a promising trend and has come in here quite strong in the fourth quarter compared to the 3 quarters before. There is here quite continued increase in order backlog, primarily for Central. So here, we see still also an order intake coming in even -- yes, significantly stronger than the reported figures here. So that market, the foodservice market in the States seems to have quite a nice recovery happening here, and that's quite promising. Profit-wise, we have seen an increase of EUR 4.5 million on the EBITDA level and a quite substantial increase in margin, which is predominantly coming from a higher gross profit margin. These, the details on the quarterly results. If we look at the full year, TAKKT Group has come in with a sales reported -- with the growth rate on reported sales of 10.4%. A little bit more currency adjusted, it's 11.4% growth. And then orders in hand have increased by around EUR 55 million above, [ I should ] say, the normal level, which means that we have seen roughly a 5% additional growth coming into order intake above the reported sales growth below. EBITDA has increased, profit has increased by EUR 20 million and also an increase in the EBITDA margin. There has been a slight [ hop ] of onetime expenses, which were EUR 2 million below last year, just to report that, very transparent. And then at the same time, I think if you look at these figures, it's important to understand, with all that additional order intake, we have seen above the sales growth we had, of course, higher marketing and personnel spend in the year so the costs have been already accounted for. But in the top line, we can only show, of course, the order intake, which have converted into sales. And that, of course, this has had an impact -- a negative impact on the earnings we are reporting here from that lower level of sales compared to the order intake. Looking at the different segments. Omnichannel Commerce was -- the big driver of that growth coming in 15% on a reported figure and almost a percentage more on the currency adjusted figure. And also here, all the sweet business units, KAISER+KRAFT, Ratioform and NBF, have contributed with a double-digit organic growth. Profit has been increased by EUR 23 billion. There, we have, of course, to also be fair and say it was -- EUR 5 million was helped by having had less onetime expenses, only EUR 2 million in the year '21, whereas we had EUR 7 million in 2020. But nevertheless, even adjusting for these onetime effects in the 2 years, EBITDA has come in stronger than the sales growth, so we have also operationally increased our operational margin here as a consequence also of the good sales growth. Web-focused report a sales and even also currency adjusted growth between 4% and 5%. Newport coming in with double-digit organic growth, Displays2go with a double-digit organic decline. That's why I was mentioning just a few minutes ago that the second half was much better than the first half, and so, yes, that's good. That's promising, that Displays2go is now a bit more back on track here. When it comes to profit, we have seen here a EUR 3 million reduction in that fiscal year '21 for that segment, and that is mainly due to onetime expense we have suffered from at Displays2go. We've reported that in detail. I think it was up to the second quarter in July, a sales tax cost. If we correct that EUR 3 million, profit has come in flat compared to the previous year figure. Foodservice segment. For the full year, we report a currency adjusted growth of 6%, reported a growth of 3%. Central has come in with a very strong double-digit organic growth, whereas Hubert has been in a single-digit organic decline. If you look at profits, there is a reduction of EUR 2 million here reported, having in mind that we had a onetime income in the year 2020 when we did a sale and leaseback transaction of EUR 4 million. I think it's fair to say that we can here operationally conclude that our profit has increased by EUR 2 million, and the EBITDA correcting for that has increased by around 10%. I think that's something worth mentioning here to understand properly the reported reduction in profit of EUR 2 million on this chart. Let's move on from sales and earnings to cash flow. TAKKT cash flow has come in with a slightly lower increase than EBITDA. And the main reason is that we have quite high noncash expenses in the year 2020 due to the inventory valuation, which then technically leads to that result, and that's also what we can then see on the right bottom of the chart that EBITDA is growing with EUR 20 million, but cash flow is growing with EUR 12 million. And you see the big, big difference here in the line, other noncash expenses. And as I said, predominantly, this is coming from an accounting inventory valuation impact. Cash flow generation on the next page. There, of course -- there is a huge swing in change of net working capital. So our TAKKT cash flow is growing by EUR 12 million. Whereas, last year in 2020, we had a cash inflow from net working capital, but the business was shrinking at almost EUR 40 million -- EUR 38.5 million cash inflow. Now this year, again, when we go into -- business is expanding. We see here a cash outflow of EUR 38 million in the other direction, which is predominantly coming from higher trade receivables and higher inventories. Also, due to the supply chain issues, so not just business expansion but also supply chain issues, have led, of course, to higher inventories. And that is the reason why you see that huge swing in cash from operating activities going from EUR 121 million down to the figure of EUR 56 million. CapEx, slightly increased, EUR 13 million to EUR 18 million. And then we see also the proceeds from disposal of noncurrent assets, which have been the property sale in the States in the year 2020. And we had a cash inflow from a sale of investments, predominantly an investment in parcelLab, and the minority [ USD ] at the time, which is then leading here to EUR 40 million income besides some other smaller sale of investments. Overall, free TAKKT cash flow has come in with a EUR 52 million-ish, which then, together with other movements, predominantly the payout of a dividend of EUR 72 million in the year '21 has led to an increase of our net financial liabilities of EUR 30 million. Here, also, the EUR 105 million financial liabilities, it's worth mentioning that EUR 75 million of these are lease liabilities, only the difference between EUR 75 million and EUR 105 million is current bank and similar liabilities. So our financial debt besides the lease liabilities is still on a very, very low level, and that is also indicated by the equity ratio, which is going from 65% to a figure of 62% now at the end of the year '21. So a very solid financing situation at TAKKT [ for the month ]. Now having a look at the different quarter developments on the next page, you can see there that the growth in the quarter 4 of 14.4% has been a very good quarter, a good performance and possibly, on a relative scale, even the best if we compare it to the base impacts, which we see there from 2020, because that 14.4% growth rate was done after we had only a minus 4% in quarter 4 2020 compared to '19. And so that leads to the conclusion that we have seen, yes, the -- almost the best growth in that quarter, if we go through the different quarters in the year '21. And that 14.4% growth has come a lot from a very nice considerable picking up in the foodservice market in the States, with a growth rate of 19%. You see that the highest growth rate is coming from the segment Foodservice and then helped, of course, by the largest [ in-house ] segment, Omnichannel. So these have led to that good performance in the top line. Let's have a first glance into the year 2022, how do we look at it before we then open up Q&A. What's the economic environment we're in? Well, almost like the chart we were writing, of course, before we got the news this morning. So economic environment, in principle, is positive with, yes, some GDP growth rates, which come in a bit slower in the U.S. and Eurozone, but acceleration even in Germany, but on a very good level. Yes, we were writing here high uncertainty due to COVID and political tension. I think we would have to rewrite that sentence. Unfortunately, COVID is still not over, so that's something at least to be aware of. And then, of course, we have all to, yes, now, understand what the news from this morning really means for the economic environment challenges. Besides that, definitely the supply chain, the constraints in the supply chain, we hope for some easing in the year 2022. But of course, we don't have a crystal ball, we don't know. And that's a big challenge, of course, for the type of business we are running. And then also, these increased levels of inflation are a challenge for us. We have increased prices last year quite significantly and considerably. We have also done it for the beginning of this year to pass on all the cost increases we are seeing from our vendors. So we're passing -- we have passed that on. But of course, there's possibly also a -- yes, a psychological threshold there to how far, of course, you can go with price increases with your customers before they might then not accept that anymore, not understand why you have to do that. And so that's, of course, then a challenge going forward for us. Key focus for us for the year 2022 is, yes, to bring our new organization to life, to really lift the new divisional approach, to live the new group functions we have established. And to have, of course, then all the organization focused in that growth in customer orientation towards, yes, the targets we are looking for. And second key focus, of course, to implement our strategic initiatives, to unlock what we call the additional growth potential we see here. And there, as Maria said, we are happy to report more in detail at the end of March in our analyst conference of what our plans are there for the future. Thanks for listening. Thanks for the attention you're giving me, and we are happy now to take your questions.

[Operator Instructions] And the first question comes from Craig Abbott, Kepler Cheuvreux.

Yes. First of all, maybe a bit of a big picture question, and I realize you're going to give your targets in March. But you put a lot of emphasis on growth, growth, growth. But I just would like to get a feel of what you're thinking in terms of balancing, achieving this growth and, at the same time, focusing on increasing returns, like both margin but also in terms of ROCE, which has also been declining in the last years. That would be the first question. And of course, the follow-up would be -- and I know it's very tricky to answer at this stage, particularly given, again, this morning's event. But yes, to what extent you feel like the price increases that you just told us about are going to enable you to again offset the inflation that you're seeing? Yes.

Craig, thanks a lot for your question. And I think you're completely right. You are asking the big picture question. So on growth, I believe this is really what we can even achieve better than we did in the past. But it doesn't mean that we should not have at all a balance on also gross margin and also our final result. So growth comes together also with the bottom line, and that's also what we tried to achieve 2021, and we'll continue to drive it also 2022. On the price increases, and you also mentioned that it's definitely a challenge, not only on the -- especially on the product side, but also on the freight side. And so our target is, now, whenever we see price increases, we have to pass them on to our customers. So this how we set the guardrails in the company, and that's our ambition.

And the next question comes from Thilo Kleibauer, Warburg Research.

Yes. I have 2 -- yes, 2 number-crunching questions on the '21 numbers. Firstly, on inflation. So can you give us maybe the effect of the price increases? So at what extent was the sales growth supported by higher prices? And the second question is regarding the gross margin. We have seen some quarters with gross margin pressures during the last year. So can you give us some insight in the Q4 gross margin, that would be helpful. And then I have also one question regarding the change of the shareholding from Haniel. I know that you are not a spokesperson for Haniel, but maybe, is there any additional comment from your side or any consequence we should expect from the higher shareholding of Haniel?

Thank you, Thilo. Thanks for the question. Let me start with the last one, and I will then hand over to Claude for your gross margin and your price question, if that's fine for you. So yes, on the Haniel share, so as you know, Haniel is a long-term majority shareholder for us. And yesterday, they informed us that they increased their stake. So you saw the number at the year-end 2021. So we see this increase in their position as a positive sign of trust, of trust in our transformation. So -- and regarding potential future changes, I think you know you have to ask them, at Haniel, themselves. But overall, we see the positive sign of trust, as I said, yes? So Claude, may I hand over for the other 2 questions? And Thilo, once again, thanks for your remarks.

Yes. Let me take the first one on price increases and how much that might have helped our growth rate in the year '21. Now with all these different markets, country-wise, product-wise and, of course, in different continents. I think it's very -- I think we have to be aware that it differs a lot across all these different segments. But overall, it's not wrong -- it's not wrong to assume that it's a good 5 percentage points, which have gone into our top line through price increases. On quarter 4, gross profit margin, your question was more precisely about how -- about the exact figure -- or if I understood it correctly? Or also, about the development from last year, let me just check.

I think that the figure would be helpful.

Yes. Yes, okay.

I think you mentioned for 1 segment, i.e., I think Foodservice Equipment. You mentioned positive gross margin development. So maybe you can comment also for Omnichannel, which is the largest segment. And then the number -- the overall number would be helpful.

Yes. Okay. Sorry. I got it now. Thank you. The gross margin came in quarter 4 with a 39.8%, which was a percentage point better than the comparable quarter 2020. Yes. And then the Omnichannel Commerce came in slightly lower. And the other 2 divisions came in -- with a very good improvement. So these have been the different dynamics in the gross margin for the 3 divisions.

And is there any specific reason for the different developments in the Omnichannel development?

I think the only difference to me is that the timing of response to the price -- to cost increases coming in from the vendors was a bit different. So we have been a bit later in the year to react in the omnichannel segment compared to the other 2. I think that's the predominant kind of driver, which has produced that result.

At the moment, there seem to be no further questions. [Operator Instructions] And the next question is from Roland Könen, Value-Holdings.

I have 3 at the moment. First one is a very short one. Could you please elaborate a bit on the one-off effects in Q4 in the OTC segment of EUR 3 million? And what was behind that figure? Second question would be on the dividend. In former years, normally, you've given a dividend proposal in mid to end of February, so why not this year? Especially for -- against the background of being above your target range in the equity code of 30% to 60%. And the third one would be on the EUR 55 million higher order intake than sales. What would be the -- roughly the earnings contribution, if you would have been able to deliver this higher order intake. Is this roughly the 40% gross margin on sales you have, or what could we calculate there?

Okay. Let me start with the onetime expenses for quarter 4 in the Omnichannel segment. Predominantly, this has been our decision to merge 2 brands. So we have decided that we're going to merge [ Gaynor ] and KAISER+KRAFT going forward, especially as an organization. And so this has led to some restructuring costs, and that's predominantly what we see here besides a few other different pieces already starting one or the other decision on our new organization. Regarding the -- I think that was your third question about order intake compared to sales and what that would have mean for -- what that would mean for the earnings figure? That was your question, correct?

Yes, that was correct. Yes.

Yes. So well, now we can -- it's EUR 55 million more. So we can now, of course, conceptually look at it. What does it mean if we have 50 million more sales in the top line. I think a rough indication would be to look at our gross margin. So what would be the additional profit? And I think it's fair to say, if you deduct there something for fulfillment costs, credit card costs, and also one or the other possibly variable cost, which goes along with that. So then you get at least a feel for 30%, 25% of that figure, I guess, would be something which should fall through to the bottom. If, with that volume, you wouldn't have to go for another warehouse or for another, let me say, fixed cost to be established, to run that volume. Then that would be kind of the conceptual thinking of what the earnings figure might be out of that volume. Dividend proposal, that -- we have not yet decided on what we're going to suggest as a dividend. That's the only reason why we are -- have not made a proposal today or for today. But if we look at dividends, Maria, myself, we can -- we look at it that we are a reliable dividend payer. And I guess, it's fair to say to expect that our thinking is to pay a base dividend, and we are looking at the moment into the topic, what would be possible or what could be a good dividend proposal. And once we are clearly on our suggestions of course, then we're going to suggest that to the Supervisory Board. I hope that helps to answer the question you've got on customer dividend.

Yes. So the last answer has nothing to do with the current political tension. So to say, okay, I want to make this decision a bit later than normal.

In principle, no, no. This has -- not now. If you mean the news this morning?

Yes.

Yes. And the news from this morning has not kind of influenced that thinking. Honestly, we're just not there yet. So we can definitely report that you can expect what we have done in the past, but we have to kind of fine-tune it a bit in the next days and weeks.

The next question is from Craig again.

Two follow-ups from my side, please. One is just kind of also in terms of the -- not-yet-decided dividend question, building on that maybe. I just wondered if we should be concerned about any potential, say, kitchen-sinking exercise announced in March when you update us on your midterm targets. Or do you feel like the various restructuring processes you've put in place already over the last 2 years and EUR 14 million, if you feel like that's probably sufficient and now it's more about execution? That would be the first question. And the second question would be, Claude, how you're thinking about the working capital? Let's say, to what extent we can maybe think about those DSOs and those ratios, let's say, turning back more positive, if you will, in the coming quarters or not?

Thanks for your questions, Craig. If you -- now we have to, of course, be clear what you mean by a kitchen-sinking exercise. If that, for you, would be something where we would go now massively backwards in profits or cash or whatever in order to restructure, in order to kind of build our new organization, I think we can clearly say no to that. We don't have in mind any huge kitchen-sinking exercise. But of course, when we deploy our strategy, it will not come for free. There's no free lunch. If we want to go for a growth in the future, then we also have to build the competencies and we have to, of course, then also invest. So it's more a kind of, I guess, then longer term when and how much to invest to get to quite ambitious targets for the long-term future. I think it's more the way we think -- we're not thinking about any kitchen-sinking exercise or a huge negative surprise that we would write off EUR 50 million somewhere or something like that, which comes as a big surprise. That is part -- if that is kind of the background to your question.

No, that is indeed.

Okay. So more like the balancing between growth and profitability and kind of how you do that. I think that's kind of what it is about. Working capital, yes, it's fair to say that the question -- thanks for the question. We had that huge kind of cash inflow from working capital in the year 2020. We had that now going into the other direction, '21. And it's fair to say the part of that development, which is due to now the difficulties in the supply chain in the kind of, yes, that at some point, should hopefully then help us again to generate in the other direction a bit cash. But I think it would be very careful today to predict in the year 2022 that the supply chain is already easing in a way that we're going to see some of that value, some of that kind of freeing up cash. But conceptually, at some point, of course, there should be a movement when these things are more normalized, then hopefully do not have as much inventory as we are carrying today compared to the sales figure we are running. But we shouldn't forget the bigger proportion of that now, movement in the year '21, was kind of a reaction to 2020. And then on top, there was a bit more possibly due to supply chain issue and that's positive expectation we could have whenever that will be resolved. I think we should be careful about the timing there.

And now we have no further questions from the audience.

So if there are no further questions, then thanks to everyone for your participation in today's call. And please, if there are any more questions after the call, just get in touch. We will publish our annual report and the analyst conference will be on March 30. So we are happy to talk to you again at this point of time. Bye-bye.