Profoto Holding AB (publ)
STO:PRFO
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Hi, and welcome to Profoto's Q3 Interim Report. My name is Amanda Åström, and I am Head of Investor Relations. Today, I have with me our CEO, Anders Hedebark; and our CFO, Petter Sylvan.
I will now hand over to Anders who will start off by giving you some highlights.
Good morning. So we are very happy to present the Q3 quarterly report.
Our net sales increased by 24% for the quarter, and the organic growth was at 7%, adjusted for currencies and for acquisitions. We see a continued good demand for our products within the studio segment and also strong demand and growth in the United States and Canada. There is, however, a general concern about the world economy, and it had some negative effect on the demand. And this was especially noticeable in Europe and, in Europe, especially in the German market. The postponed sales from last quarter that we talked about was invoiced and delivered. So we do not see any more major quality and delivery problems of components.
So in the quarter, we noticed a 24% sales growth. And the net sales was SEK 235 million. And last year, it was SEK 189 million. The EBIT margin was 28% in the quarter, which corresponds to SEK 66 million. And we could now see that we're up to SEK 836 million in last 12-month sales. So -- and last 12 months, SEK 836 million, as said, which corresponds to 22% growth; and a healthy EBIT margin of 30%, which is SEK 247 million, which is also a growth figure.
So a short recap on what we do and who we are. Profoto is the leader in a global niche and with high barriers to entry. Our brand is used by the very best photographers all around the world. We have a very long history. We were founded in '68, and we have more than 50 years of experience. Our focus is on the customer and delivering quality products to the customer group. We still, even if we have a long history, have a very entrepreneurial spirit and drive within the company.
So we are the leader in the lighting products for professional photographers. That is part of the growing image and the content creation market. And we do great products and easy-to-use flash system and light-shaping system for professional photographers, and it is really used by the world's best. We sell all around the world.
Our focus is not on anything else, but organic growth and high margins. This means that we need to invest heavily in innovation and new product launches. It also means that we need to focus. So operational efficiency is key for us, and that's why we have an outsourced production, which means that we have a very light balance sheet. This also means that a lot of us are working with management in different ways. So we are only hiring the very best that we can find in the market.
So as said, we are part of this larger image and content creation market, and we are the leader and the premium position in lighting solutions market. And the market is around $1 billion worldwide, and it is really driven by the number of images that are posted on the Internet, which you can see on the graph to the right.
So we invest heavily in innovation, around 10%, depending on year-over-year. But on average, 10%, we invest back in product development so that we can launch new great products into the market and to the customers. So half of the employees around are busy with bringing out new product and developing new product for the market. And we also work with a very active patent strategy where we have a number of patent families that we are protecting our innovation with.
So at 1.5 or 5 quarters ago, we were quoted on the stock exchange here in Stockholm. And at that time, we communicated this image, which shows where are we going. We are trying to reach our financial targets within the black part of this image. In addition to this -- and this is lighting solution for professional still photographers. And here, we focus on the organic growth and on profitability.
So in addition to this, we work in 3 areas. Number one is in the smartphone photography for professional use, and we have a great cooperation with, for instance, with Sony where we are bringing out -- we are the only company in the world that are able to connect the smartphone camera with professional lighting equipment. That is area number one.
Now area number two is continuous light for film, video and that kind of application. We already today have products for photographers that want to mix video production with still photography, but we see a potential for taking a bigger share of that market. Number three, we are active in the industrial or more e-com content solution market. And that is why we, 2 quarters ago, we acquired a company, StyleShoots, in Holland.
So StyleShoots, they were -- they are manufacturing a workflow software, which supports the e-com content production studios to produce better content in order for the e-com companies to actually have high-quality images on their websites. This will lead to shorter time to market from when you actually receive the apparel, the shirt or the jacket then that you want to sell on the Internet. So the productivity is very important. Everything here is to increase conversion. The key is to increase conversion and minimize return for those companies.
So in the 26th of October, which was after the quarter, we launched the first complete solution for e-com studios when we merged the product lines of the acquired StyleShoots, which you see to the left in this image, and with Profoto's legacy product portfolio, which you see to the right. So today, we are the only company that are able to offer both automated solutions and modular solutions combined with a workflow software solution. So we are a one-stop supplier for the e-com content production studios that is catering for basically all the needs that you have in that kind of studio.
That was it for me, and I will leave the word to Petter.
Hello, everybody. I'm the CFO of Profoto.
Let me first, for those that haven't followed Profoto that much, summarize the Profoto investment case. So we have a leading position in a global niche, a market that grow 3% to 5%, i.e., the professional flash market. And within that niche, we are the premium brand and we are the biggest. We are about twice as big as our nearest competitor.
We have a global network of about 270 dealers, and that is one of our most valuable assets in how we grow our sales. We have, for many years, at least 20, step-by-step grown our profitability year-on-year, 6.6%. And we are operating with an asset-light balance sheet, which means that could translate most of the profits into cash.
If we look at the long picture of Profoto the last 20 years or so, we have continuously grown. We have a backlog due in the pandemic when the ability to take photography as a profession was heavily restricted. But the growth, except that year, has been unbroken for many, many years, exceeding 10% year-on-year. And we have increasingly, year-on-year, increased the profit. So 20 years ago, so it was in the range less than 10%. The last 5, 6 years, we have had an EBIT in the range between 25% to 30%. And that is what our financial target is reflecting today.
Now focusing on the quarter. We've grown in all regions. In most of the region -- or in Asia and EMEA, it was mainly due to currency improvements and the additional sales from StyleShoots. The main volume growth was generated in -- due to increased demand in the American region. And by that, we continue to trade with high profits, 28% in the quarter. And here is an adjusted reported profitability, but we haven't made any adjustment in the quarter. So the adjustment equal the reported profit.
And summarizing and comparing to our financial targets, we have a growth target, long term, 10% organic and an EBIT range or a margin of 25% to 30%. We hit the EBIT margin with our 28% in this quarter. We don't really reach the organic growth that we would like in this quarter, but we continue to believe in the financial charges long term. And we have a dividend policy that we should pay dividends of at least 50%, and we are continuing to trade, so that should be fully possible with the way we operate.
So that's all for me. Thank you.
So questions, maybe.
[Operator Instructions] And our first question comes from Karri Rinta from Handelsbanken.
I have 3. Firstly, this revenue that -- or this invoicing that was delayed from Q2 to Q3, have you -- or can you quantify how much that roughly was that was delayed from Q2 to Q3 in terms of sales?
As we described it in the last report that it was more than normal. We have had delays in each quarter related to components and delays of components for the last year since we went public, and it became a shortage of supplies. But we haven't intentionally mentioned that because it haven't had any significant impact. This was the first time that we saw that was more clearly substantial. And so it is a difference from what it has been for the other quarters, but we choose not to disclose it in the last report, and we don't do it now either.
All right. Yes, I guess I'll just have to look at the 9-months numbers. Then StyleShoots or the impact from acquisitions seems to have been quite a bit lower in Q3. Is there an element of seasonality that takes place this sequential decline? Or is this more related to the comments that you made about the e-commerce players being more careful with their investments?
I would say that it's a combination. It's clearly so that Q3, from a seasonality perspective, is historically StyleShoots' weakest quarter. These are industrial decisions. And at least 2 months of the -- 2 months in this quarter, the decision-makers are typically on vacation. So it trades much, much lower normally. But we also had a more-than-expected negative impact of the delays in decision-making in the e-com business overall, and that affects StyleShoots. Both -- so there are both of these combinations.
All right. That's helpful. And then the distributors, I guess, mainly Europe becoming more careful with their inventories. How did that develop during the quarter? Did they start the quarter with caution? Or did they become sort of incrementally more cautious as the quarter advanced? And I guess that's probably something that is going to continue in the fourth quarter as well.
Care to comment?
Yes. I mean we saw in the beginning of the quarter that they were more cautious. We couldn't see -- but we do not measure the stock levels at the dealer's level. We're not able to do that. So -- but we -- the cautiousness continued. It did not increase over the quarter, though. If so, it might have been easing up maybe, but I cannot surely verify that. So we did not see an increase in cautiousness during the quarter anyway.
We can also say about inventories that, right, that we don't continuously measure -- we don't continue to have access to that data. What we do know is that if they clearly have high excess inventories, we used to on a sample base, we used to know that. But we don't, on the other way around, we don't necessarily know that they have very high inventories. We don't hear that as in their decision-making.
Okay. So their inventories are, from what you can hear, they are normal. Yes. Okay. Then finally, about the good development in sales, both in North America and in Asia. So I guess, in North America, I mean the reopening effect must have played its course already during the previous quarter. So this is something else. So what is this something else that is driving the good demand in the U.S.? And then how much scope do you see further sort of reopening potential in the APAC region as China hopefully starts to emerge from the lockdowns?
I think in U.S., we -- in all 3 regions, I would say, there is this underlying positive demand after the pandemic. It's not necessarily pent-up effect, but business started to trade again at normal level for the need you have. And U.S. has been such a market that hasn't so far been that negatively affected, but there has been a general increase in demand from photographers in all levels to invest.
And then there is the other way around, the different circumstances in each region, how much does it prevent or stop sales now or hinder sales or going forward. And there you have had that, as we see it, U.S. so far and up into -- at least up until the quarter, we haven't had that much bad feedback or so from the market from a generally negative outlook of the economy. So that has been -- it hasn't affected that much in the general perception in the market.
And we have already talked about that in Asia and China, there has been the restrictions that has been a major restriction for further ability to deliver, and that is easening up. In Europe, we all know that it's clearly so that the fear for the future has the most negative impact. So I don't think it's anything -- you can complement here, Anders, I don't think it's anything special that is driving each single region. It's rather how much is the general economy fears affecting the underlying willingness to invest in each region. Now we're looking forward.
Yes. Maybe one final question about your sort of product road map for 2023. Do you have -- have you changed anything? Do you have any contingency plans in case the economy weakens more than you expect? Or do you still expect to launch new products next year as well?
First of all, we read the papers, and we are aware of the world economy and the discussion or the belief that we should go into recession. We can't see that right now, I should say, number one.
Number two is that we are working with our agile management system. This means that we're doing quarterly forecast, and we revisit all costs every quarter going 12 months ahead, which means that we are always prepared to adjust our cost level to the current market demand. So we are always prepared, and we are obviously working with contingency plans for if the worse comes to worst.
Concerning product development investments, our ambition is to continue to invest in new products for the market because that is a major part of our strategy. So we aim to continue to do what we planned. And the reason for this is obviously also that the product development is long term. It takes several quarters, several years to develop great products. So that is why we want -- we are viewing product development as a long-term commitment. So there is no changes other than normal changes in the product road map. If anything, we are working with new, great offering to the market.
The next question comes from Amar Galijasevic from Carnegie.
So you've talked a bit about demand in different regions and for different customers. But could you give us some more color on how demand changed through previous recessions and what might be different this time around for you guys?
Petter, please. Thank you for a great question, Amar.
It was a long time ago. So last recession, the financial crisis, first, one situation picture there was that we have the same kind of base of customers as today, but the split of customers were different. What we today call the e-commerce, if we simplify things, is today perhaps, roughly speaking here, now like half of our business; and the other, freelance photographers is like half. But at that time, the e-commerce/industrial was like 80%, 90% of our business, and it was only 10% that was the freelancers. So there was a mix change there of customer base. That was a difference.
It was also apparent then that when the demand was decreasing in 2008, '09, the decision-making for the industrial buyers, today e-commerce, but slightly different in the ultimate decision-making because that was most rental companies, at that time, they decided, okay, we rent out whatever we have and we don't buy anything more. So for half a year, a year, they simply didn't buy anything. So we quite substantially lost 80%, 90% of our customers for half a year, a year, the rental customers. And the freelancers, mainly driven by new products during that time, kept up that demand relatively good for us. And we ended up with a 20%, 25% decline of sales in 2009.
So today, we have a different mix of customers. We are standing on more legs. We have higher geographical reach. For instance, China and Asia wasn't at all as big at the time as it is today. We have a similar pattern behavior. Who could expect? Freelancers mostly would, I would assume, act something similar to be wary on demands or wait to -- but at the end of the day, they need something and the decision make it easier. It's more my own money, do I have the money or not?
While the industrial customers is, we can expect some kind of similar behavior, postponing investment, but it's slightly more positive in the sense that they are buying for their own investment case. They are building a studio, which they probably have a return calculation, and our focus is to help them to improve productivity and partly lower costs. So if they want it, if they need it, they probably will buy it, but the decision-making may be a couple of months rather than the months or so. That's the way I would describe it. Yes. That would put any color to your question?
That was very helpful. And on the demand, the standard demand situation for one second here, we talked about Asia and China. But in the past few weeks, there has been some talk about stricter restrictions again. Is this something that you see yet? Or has this momentum just continued into Q4 as well?
The momentum in the Q4, we don't comment on the Q4. However, we do not -- we did not see due -- because of any lockdowns, any major effect. This always is a problem, but it's in China, it's shifting around. So a lockdown in Shanghai is replacing a lockdown somewhere else. So right now, we see more stability in the demand in the Chinese market. Would that help you, Amar?
Yes, that was helpful. So a question on the cost base. Other external costs increased quite a lot in Q3 compared to Q2. I was just thinking how we should go about that and think about that for the future.
We have described in the report a quite substantial part of the cost increase is related to more onetime-related costs, mainly related to the transfer of production from Russia to Poland. But for natural reasons to happen by a quite unplanned way, so costs that were occurring and identified later in this process during the summer, so it's not -- those costs are not planned to be part of the ongoing business. And we have planned to -- today, we manufacture like 90% in Poland, and we plan to be fully Polish production before the end of the autumn here.
There are no more questions at this time from the telephone conference. I hand over the word back to you, Anders and Petter.
Yes. Thank you.
Great. And no more questions on our e-mail. So I just want to thank you and highlight that we have a new date for our end-year report, which will be published on the 22nd of February. Thank you for joining us today.