Profoto Holding AB (publ)
STO:PRFO
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Good morning, and welcome to Profoto's Q2 presentation. 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. It's with great pleasure we are going to present the second quarter of this year. We were facing a tough market all around the world, and our net sales decreased by 2% for the quarter, but our organic growth was minus 9%. We had good profits and I'm very proud of that our team has actually delivered acceptable sales and good profits during the quarter. Our EBITA was SEK 61 million, and our EBIT margin was 26%, corresponding to SEK 47 million.
So what is Profoto? As most of you know, Profoto is the premium positioned global niche leader. And the brand for us is extremely important since we are used by the very best photographers around the world. We have a very long history and we've been doing the same thing for a very long time. we were founded in '68.
So we are active in the growing image and content creation market, where we have the premium position in the segment photography lighting solution. We are offering an innovative and easy-to-use light shaping system for different uses, and we are used by the very best studios, brands and photographers all around the world. We sell everywhere where great photography is made, which means that we have a global distribution.
Our focus is on organic growth based on new products, delivering new products to market with high gross margins. This means that we're investing heavily in innovation and also means that operational efficiency is super-duper important. And one of the things that we do is we let other people at the company do what they are best on. So we have all our production outsourced, meaning also that the operational staff is not so many. And it means that everyone at Profoto is very skilled in what they do, and we strive really to hire the very best employees.
As I said, R&D investments is crucial. Last year, 65% of sales came from newly launched products. And with that, I mean product that was launched in the last 3 years. And the investment continues in Q2, is in line with our target of around 10% investments in product development, in R&D. So for the future, we are investing in R&D in order to grow where we stand. So primarily, we are investing in light shaping for professional still photographers, which is our core. But we are looking into other areas as well.
Number 2 is light shaping for moving images, where we're watching the market and trying to understand what is the best way into this market segment. And thirdly, we're investing in workflow solutions for large volume studios, especially within e-commerce. So last year, we invested in StyleShoots, which are selling automated studios. And as you know, Profoto is more focused on high level of creative photography and we call this modular flexibility.
During this year, we launched something that we call creative automation, which is in between, which enables photographers and studios to create high volume photography with a great level of creativity, hence making images that is driving traffic to their websites and are converting the customers or the visitors at the website to being customers. So great creativity and high level of productivity.
Also, during this quarter, we launched Profoto Assetflow, which is a workflow SaaS-based, cloud-based system for ensuring productivity in the studio. So with this, Profoto is offering a combination of hardware and software for the content creation process. And we are the only one in the world with the possibility in this niche market to offer an end-to-end system for this, combining software and hardware within the e-com photography, high-volume photography area.
Thank you very much. I'll leave the word to you, Carl.
Thank you, Anders. I will take us through our financial performance in a little bit more detail, starting with the second quarter. So as Anders mentioned, in the second quarter, net sales was a little bit weak, declining 2% year-over-year, reported in SEK, but organic growth was 9%. And as we mentioned, I think after both Q4 and Q1, we see that the market is a little bit weak and that our customers are a little bit hesitant to invest in these uncertain times. So this is driving the decline in organic growth.
On the other hand, we still managed to have a healthy profitability. EBIT for the quarter was SEK 47 million for a margin of 26%, a margin that's very much in line with Q2 last year and within the range of our financial targets, which is 25% to 30% EBIT margin.
Looking at a little bit longer-term trend then, the last 12 months, EBIT grew 11% and the EBIT margin was top end of our target range of 30%, which we're very happy with, of course. That said, net sales in fact also grew 7% in the last 12 months, but the majority of the growth was related to currencies, so organic growth for the last 12 months was also negative.
If we take this down per region, looking at the second quarter, strongest region was clearly Americas, where we grew by 13%. Part of this, of course, was FX with the strong dollar in the U.S., and we could also see though that we had a couple of campaigns that were quite successful in driving demand as well. So a reasonably decent quarter for Americas. We also grew in APAC, particularly on the back of a little bit of market return in China as well as successful activities by the Profoto team there.
But EMEA, I think was the weakest link this quarter, coming down a little bit over 20%. And actually across the region, demand was a little bit weaker, and particularly Germany and the U.K., we saw a little bit of a challenging market climate. So that's a little bit on how we performed in the market.
If we look at our balance sheet, we continue to have a very, very high return on equity at 70% for Q2, which we're very proud of. And this is a result of the business model and focus that Anders described earlier that we're resource effective and very capital effective in how we set up and run our business.
In the first quarter, we had very strong operating cash flow, as you can see there, over SEK 100 million, which was over 100% operating cash conversion, which really is at a sustainable level. So naturally enough operating cash flow in the second quarter, was a little bit lower in Q1. We had super strong collection on receivables. So naturally, this was a little bit lower in Q2. In addition, we continue to invest a lot in product development to drive future growth. Even with a slightly weaker cash flow, our balance sheet remains very strong with low leverage.
So at the moment, we are at 0.3x net debt-to-EBITDA. So very good. And even though net debt increased to SEK 175 million in the quarter, the balance sheet is strong. The increase in net debt is primarily related to us paying a dividend of SEK 160 million, or SEK 4 per share. So our strong balance sheet continues to give us both the opportunity to return capital to the shareholders, but it also gives us the strategic flexibility to continue to pursue acquisitions, which we see is a way for us to accelerate the growth strategies that Anders outlined earlier, light shaping for professional photographers, e-commerce workflow solutions, and light shaping for moving pictures.
So we still have the opportunity to both pursue these strategies with cool product development and acquisitions, which we believe is what will return us to growth over time.
So rounding out today's presentation and relating back to our financial targets. We continue to have an EBIT margin in the range that we target, 25% to 30%. We paid a significant dividend in Q2. But the last couple of quarters, revenue growth has been a little bit more challenging. So our target there is 10% over time. And we have a strong faith that we will return to that, even though the market climate today is a little bit challenging.
So with that, I finish today's presentation, and we are open to any questions.
[Operator Instructions] The next question comes from Karri Rinta from Handelsbanken.
A few questions from me. Firstly, about the new product introductions, which Anders you showed that they are -- it's important to keep bringing new products to your customers. But in these times of more hesitant customers, so does that have any impact on the planned product introductions. Are you postponing them? Or are you bringing them forward to give your customers reasons to buy? Or doesn't it have any impact on the on new product introductions? That's my first question.
No, we have done product introductions. They are more long-term sales. They're not like the normal one that we usually do when we sell through indirect channel. Both Assetflow and the great automation is more on direct sales. So right now, we can't see a major effect from those introductions in the figures. That is number one.
Number two, we are keeping on investing in all different kinds of product R&D projects. And they are not really affected by anything because they take the time that they take. Like in the beginning, it's like sailing, if you have headwind, it takes longer time. If you have wind from the back, it goes faster. So we do them with focus especially on quality, on the right cost level of the product and that the product has the high quality that our customer demands. So there is no major launches during the quarter that has affected the sales.
Okay. But the product road map that you have, that's still intact? I mean, this focus on direct sales that was -- do you have plans that you are now executing?
So we have both products coming for the indirect sales, which is more for the e-com workflow market, but have the majority of our R&D investments in our traditional business that I tried to talk about in my presentation. So there will be products in the future as always. But I can't talk on exactly when they will be launched. But we have several major R&D projects that will hopefully have a good result when we launch them into the future.
All right. Sounds good. Then if we talk about your different end customers and if we look at professional photographers, studios and rental companies, is there any differences in the levels of hesitation at the moment?
No, it's just a general thing. It's both -- some large deals are postponed because of financing, and individual photographers are also hesitant because they need to pay both their other bills like energy as well as mortgage. So there is just that the customers are very careful and sometimes hesitant in general, and they are looking more and more the same. Having said that, we also see, of course, the e-commerce market. We have two trends working in opposite directions here for the e-com market. First of all, of course, a lot of e-com companies, they are struggling with their profitability, which puts a somewhat downward pressure on their willingness to invest in new content creation studios.
On the other hand, as I've communicated earlier, we have a lot of discussions with customers that see that they could be more efficient, so produce better content at a lower cost if they invest in Profoto type of automated products. So both trends work in different direction. I cannot say exactly the end result of that. But most probably, we have a slightly downward pressure in the e-com also as a result of this.
And rental companies, are they still a significant enough of a customer that is worth saying a few words about them?
Yes, rental companies are important, but not as historically important as they've been historically. They are still investing, and they are still renting, and they make a lot of money in letting Profoto, especially pro level into the market. But the last couple of years, we've seen in-house brand, in-house studios also investing in that kind of product. So the total demand is good and that the market has shifted somewhat from rental into brand studios.
Okay. And then finally, retailers or direct customers, how are they thinking around inventories? And are there any excess inventories out there somewhere and is the weakness in Europe somehow to some extent related to inventory reductions?
Not really. They have very limited -- always have very limited stock of Profoto products. And one of the reasons is that we ship on a short notice, so they don't need it. So we do not see a destocking. The slightly lower demand is dependent on that the customers, photographers and large studios, they have a slightly sluggish demand at the moment. It is not about destocking.
There are no more questions on the line at this time. So I hand the conference back to the speakers for any written questions and closing comments.
I have no more questions in written form either. So I would like to thank you for joining us today. And I would like to give you a gentle reminder about our third quarter report, which will be published on November 7. Thank you.
Thank you, everyone.
Thank you.