Profoto Holding AB (publ)
STO:PRFO
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Good morning, and welcome to the Profoto First Quarter 2023 Earnings Call. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Amanda Astrom. Please go ahead.
Good morning, and welcome to Profoto's Q1 report for 2023. My name is Amanda Astrom, and I am Head of Investor Relations. Today, I have with me our CEO, Anders Hedebark; and our CFO, Carl Bandhold.
I will now hand over to Anders, who will start off by giving you some highlights for the quarter.
Good morning, everyone. Thank you for listening in today. Thank you, Amanda. And I would also like to welcome Carl, our new CFO and Executive Vice President. I'm very happy that we are 3 on the call today. So please prepare your questions.
So Q1, we had a sales increase of 17%, but our organic growth was 0. It did not grow. We were very profitable. Our EBITDA margin, SEK 86 million, which is a growth from last year and 37% of sales. Our EBIT, SEK 72 million, 31% of sales. We see a good demand for our product, especially used in studio photography. However, we have a general concern about the world economy. And it also had a slight negative effect on the demand for other types of products. I will leave all the details for the financial updates to Carl, and we'll come back to that after I talk more about Profoto and what we're doing currently.
First of all, short about Profoto. We are premium position, global niche leader, and we are doing this in a niche with a rather high barrier to entry. The core of our operations is our brand. And the brand is based on it's used by the very best photographers in the world. We were founded in '68, so we have a very long experience of doing the same thing. Our idea is customer focus and quality products for growth. The culture is built on entrepreneurial spirit and the drive to get things happen in the small niche that we are active in. As I said, we are active in the growing and attractive image and content creation market because content is key for all brand building companies. We have the premium position in this subsegment photography lighting solution. And what we do, we do the lighting system for professional content creation, especially still photography.
We're used by the leading studios and the world's best photographers all around the world. And hence, we sell everywhere where great photography is made. And on the map here to the right, you can see where we have offices.
The focus is on organic growth and high margins. This means that we need to invest heavily in new product development. This is combined with operational efficiency. So we do what is really important for the photographers and the studios around the world. Hence, for instance, we outsource production and we outsource things that other companies can do for us in a more efficient way. This also means that we are not so many in the company, but we are hiring only the best since everyone are basically managing customers, suppliers, et cetera, or product development.
So the large image in content creation market is based, as I said, that content is key for brand building company. Within our part of the market, which is of the size of approximately $1 billion, where we have a substantial market share, especially in the premium segment. The growth of this market is based on the growth of number of images and number -- the content produced and displayed on the Internet. And this is -- you can see the graph in the black area to the right of the image.
The key is to launch new product. Hence, we spend a lot of money, a big part of [indiscernible] and our target is, over time, to spend around 10% of sales back into product development and launching new product. This is resulting in that -- major part sales is coming from product that was launched in the last 3 years. So in 2022, 65% of sales came from that kind of products, newly launched product. And we invested 10% back into future launches in new product technology and new product launches.
So and we have, this is not something new. We've done this since the inception of the company, basically. And over the years, we've entered segment by segment and in this way, expanded our offering to the market into new customer segments.
So our future strategy is based on investing in growth areas. Number one, we are of course, focusing heavily on the core of what we are doing in the black part of this image. And this is light shaping for professional still photographers. Here, we are updating our customer offer, our product range and we are renewing the products, but we are also entering sub-pockets, subsegments in this market in order for us to further grow. In addition to this, we have identified 2 areas of growth: Number one, we've been doing since long, but we're expanding our offering, and it is the e-commerce workflow solutions. And the second area is light for moving images.
And during the quarter, we have especially broadened our offer within the e-commerce workflow solution.
Last year, about 12, 13 months ago, we acquired a company StyleShoots in Holland. And from that acquisition, we have based our workflow solutions, the expansion of our offering into workflow solutions. Let me talk more about that.
So we launched this quarter something that we call the creative automation, which is a unique solution that enables studios to combine creativity and productivity. What this kind of customer, the e-commerce studio needs? They need high level of creativity in order to drive traffic and increase -- drive traffic to the website. Increased conversion from the what is called the elevated PDP in order to -- for the customer to buy. We also need to depict the fashion for the apparel, the shoes or the accessory in a way that it actually resembles reality, so that you minimize return. And Profoto is the only company now that is able to offer the full scope of all different solutions that is needed in order to create all the great content that you must have in order to create a good brand.
So we have the automation, which we call all-in-one, which is simpler to use, can be used by an operator. In addition to that, we have since basically '68, we have sold product, what we call the modular flexibility. This is a flash studio based on flash. So what we did at EuroShop, in Düsseldorf, during the quarter, we launched something called Creative Automation that combines these 2 words. So great light, automated, you could plan in to have, so that you could actually increase the speed or the time to market from the e-commerce company receives the fashion product, apparel and before they actually could sell it and post it on the Internet.
For the e-com company, they need -- the process of creating great content is based in 4 stages. First, you need to plan. You need to plan when the product is arriving, so the product that you're going to photograph. Secondly, when you receive it, you need to capture the image. Third, you need to have postproduction, which means that you're basically using Photoshop in order to make the product look the way it should like. The last point is to publish the content on the Internet so that you could actually sell and start taking order for the shirt, the black shirt or whatever you're selling.
So we were happy today. We're launching Assetflow, Profoto Software as a Service solution to -- for the e-com companies, enable the e-com companies to plan their capture and post process. So we acquired the Assetflow product last month, and now we're launching the Profoto version of the same product.
So Profoto offers now planning. We offer capture, and we have modular solution, creative automation and automated studios, as I talked about in the last slide. And we also have integration with external providers that are doing post-processing. Profoto is now the only company that we're able to cover 3 parts of the e-com content creation flow process, and we are very happy to announce that today.
So thank you very much. Carl, I'd like to invite you. Please?
Thank you, Anders, and hi, everyone. I'm really happy to be here today and join Anders and Amanda in presenting Q1. And also very happy to join this fantastic company with a lot of great people, but not too many. As Anders said, we try to be efficient and amazing products. And I think a result of that, you can see in our report, very high profitability.
So going into financial performance for first quarter then in the quarter, which was very solid. EBIT grew 31% to SEK 72 million, which is a margin of 31% on EBIT, which is great and above our financial targets. Sales wise, as Anders mentioned, sales increased 16.5%, mostly driven by M&A and currency, but still a solid quarter on sales.
Moving to a bit more on the long-term trend than on the last 12 months. Revenue also increased 14% over the last 12 months. And EBIT was SEK 266 million, which was up 17% and also 30% EBIT margin for the last 12 months. So momentum profitability-wise continues to be solid.
If we break down Q1 by region, it's great to see that sales increased across all 3 regions, slightly different drivers, though. So from the bottom, EMEA was up 20%, primarily driven by the acquisition of StyleShoots last year. APAC was up 15%, which was driven by good demand in China and Japan. And Americas was also up by 14%. Most of that though was driven by currency, so a strong dollar. But overall, 17% up with good momentum.
If you look at profitability over time, and our target is to have an EBIT margin between 25% and 30%. And you can see for the last 9 quarters, which has admittedly been quite dynamic. We have been able to maintain that margin, and we have another quarter with a solid EBIT margin, which, I think, shows the strength of our business model.
Another strength in our business model we come to is capital effectiveness. So operating cash flow for the first quarter was SEK 105 million. So with an EBITDA of SEK 90 million, that's an operating cash conversion of 115%, a level that I don't think is sustainable. But if you look at the last 9 quarters, we have had an operating cash conversion of 85% on average for these quarters. So quite a capital-efficient business model, which also then reflected in our return on equity, which was 51% in the quarter and it has been consistently over 40% -- between 50% and 60%. So all in all, very profitable and capital effective company and quarter.
So to summarize a little bit how are we performing against our goals. Profitability-wise, as I've probably said 10 times now, very profitable quarter, 31% EBIT margin, which Anders is a little bit disappointed because it's outside our target range of 25% to 30%, but I guess we can live with it.
Dividend, our goal is to have half of the profit every year returned to shareholders. With the strong cash flow last year and the first quarter, the Board has recommended to the AGM tomorrow to decide on dividend of SEK 4 per share versus an EPS of SEK 4.85 last year. That's a [ 89% ] dividend yield for last year's profit. But again, with a strong balance sheet and strong cash flow, we are very confident with that.
So the only blemish really is that organic sales growth was 0% in the quarter. And I guess when we -- looking ahead, as we mentioned in the report, it's difficult to predict where we were going in this macroeconomic environment, but still a quarter with slower sales growth, we managed to maintain our profitability and generate a good cash flow.
So that's more or less what we had for the presentation of Q1. Now I'll open up for questions.
[Operator Instructions] Our first question is from Karri Rinta of Handelsbanken.
Karri from Handelsbanken. I have a few questions, and maybe I'll start with the first point that you made, which was that you still continue to see good growth or good development in the studio photography. Can you give us a sense of what kind of organic growth we are talking about? And then maybe also if you would then take the other 2 customer segments, the e-commerce studios and your traditional professional photographer. How are those 2 segments developing maybe in relation to -- which one of those is relatively stronger and relatively weaker? So if you can just give us -- give me a sense of these 3 customer segments.
Karri, thank you for your question. As you know, we are not reporting segments because products are sold over different customer segments. But when we approach the market, we're thinking in the individual professional photographers and that is portrait photographers, event photographers, wedding photographers. We're also thinking of larger studios and e-com studios is part of those larger studios and more for professional, commercial advertising type of photography. And what we've seen during the quarter is that we have sold much more of our high-end products to the large studios. And that's why we commented in last point in the first slide on that, that we see a more sluggish demand from type of individual photographers. Did this answer your question?
Partly. Okay. I'll try again, if you would compare D2 to the B10 Series, which one is selling better at the moment?
The high-end studios are mostly but not only buy the D2 and the Pro Lab, whereas individual photographers are mostly, but not only buying A10 and B10. So those kind of A10 and B10 is slightly lower and whereas D2 and Pro Lab is slightly up.
Okay. That's enough there. Then the -- in your slide where you have your core and growth opportunities. You mentioned that some pockets of opportunities even in the core. Are you addressing those pockets organically or might we see acquisitions even there?
But as I said -- this is now the -- how many quarters. This is now, Amanda, this is the seventh maybe quarter and as from the start in July, and when we did this [ store ] in June in 2021. We communicated clearly that we are working on finding ways of doing product development and launching new types of products and services in all areas as well as we're looking -- that there might be also acquisitions. However, we are very picky, as you know, with acquisitions and really taking our time and really finding out ensuring that there is a value that we are creating with a potential acquisition. In some areas, obviously, where we are really experienced and the leader like in the core product development is a major part of our activity, and you can see that in that we're investing back 10% of sales into product development. But we have a long list and we have a short list and call, we have already started to work on the acquisition strategy. However, I would like to point out again, we are very picky.
Right. Yes, I heard that you're very picky. Then this hesitancy that you mentioned. Is it mainly the end customers? Or what's the level of conviction that retailers have in terms of their inventories? Are they still quite hesitant to carry extra inventories? Or have you seen any improvement there?
But we don't -- we very seldom see the -- I know that other companies talk about the [indiscernible], I don't know what they call it. Anyway, you have this effect of the downsizing and upsizing the level of inventory that dealers are having. Our dealers, they have limited inventory at all times, which means that the effect is very much so that the end users. And we believe that obviously, it is the energy prices and the interest rates that is affecting these small companies, individuals that are doing wedding photography type of photography. So I think there's hesitant of the overall economic environment for individuals, that is the main thing.
The other thing on the e-commerce and the large studio side, we see that there is a long-term trend of making the content creation process more efficient and faster with a higher level of quality, that's why we've seen during the last quarter, higher sales into that type of customer.
And then my final question is then something that Carl mentioned, which was that one of the drivers behind strong cash flow was lower receivables. And this could also mean that sort of business slowed down towards the end of March, and that's why receivables went down. Is that a correct interpretation or not?
Yes. So I think we both -- had quite strong revenue really at the end of 2022. So quite high receivables year-end, we started high. And then we had a price increase in February. So we had quite a lot of demand in the beginning of Q1. So yes, to your point, the latter half of Q1 was a little bit slower, but I think primarily driven by the price increase in February that people ordered ahead of.
The next question is from Amar Galijasevic of Carnegie.
Just a couple of questions from me. You mentioned the demand varying across your end markets here. I was just wondering, what would you say with your own word is the main difference between your different end markets? Is there anything fundamentally different? For example, that one market is more mature than the other or anything else?
Geographical market, you mean, Amar?
Yes.
I don't -- I mean, obviously, China is faster developers. But in the U.S., a lot of things are happening faster. So I don't think one could say today that they are more mature or not. In some markets, we have higher focus on large studios. Traditionally, this is the case in the U.S., but we also have a large portion of the wedding photography in the U.S. So it is very difficult to say actually.
Okay. And just another question on Assetflow here. Have you started to roll it out? Are any customers using it? And what's the feedback from those?
So we have -- we are starting to rolling out. We have a very limited number of customers already that -- a Swedish customer, it's one customer, and this is part of that happened before we acquired the product. But now we're actually starting today, rolling out Profoto Assetflow. And you could follow that if you Google Profoto Assetflow, you could read everything about it. And we can talk more about it later on today, Amar.
We have no further questions in the queue. And I would like to hand back to Amanda Astrom for some written questions that may have been submitted.
And I have no questions here through e-mail. So I just want to finish off by thank you all for joining us today, and give you a gentle reminder about our second quarter report, which will be published on July 21. Thank you for today.