Profoto Holding AB (publ)
STO:PRFO
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Good morning, and welcome to our Q4 and year-end presentation. My name is Amanda Åström, and I'm Head of Investor Relations.Today, I have with me Anders Hedebark, our CEO; and Petter Sylvan, our CFO. Anders Hedebark, will now start off by presenting some highlights.
Good morning, everyone, and welcome. We are very proud to present great Q4 and full year figures for 2021. And I would like to start out by saying that we are proud also to deliver according to what we said in the IPO process 8 months ago. Actually, we're doing better than we presented. And I would like to congratulate all of you as owners to a great company.At Profoto, we're really doing well in our small worldwide niche, selling professional product to professional photographers.We have noted a significant structural increase in demand of high-quality images of pictures. This is mainly driven by great brands all around the world that needs to produce great images to drive traffic and increase conversion and selling on the internet.And we see -- for the quarter, we see a 26% in net sales growth. And this is basically based on Americas opening up and really starting to have much higher activity than previously. It is somewhat slower in EMEA and in APAC. So in Europe and in Asia, we do not see the same kind of growth figures. And we believe that this is due to the reinforcement of restrictions in the end of the quarter.We have also noted a shortage of components continuing as we have communicated previously, but it has had a limited and also manageable impact on the quarter.So we see a strong quarterly sales, and we are exceeding the pre-pandemic 2019 figures for Q4. Margins are good, so we see that we -- our sales is SEK 218 million in comparison with SEK 173 million with the figures for 2020. The EBIT margin is 36%, and this is corresponding to an EBIT level of SEK 79 million.And we could clearly see on the graph to the right side of the presentation that we are continuing our bounce back from the low pandemic figures.We are also very -- enjoying a very highly profitable recovery for the full year 2021. And we are seeing a net sales figure of SEK 732 million with a 32% EBIT margin and an adjusted EBIT of SEK 237 million. And as you can see also in the graph, we are not back to the full year pre-pandemic levels, but the profitability is very good.So let me give you a snapshot of Profoto. What we are, our history and our future? We were founded in 1968 by Conny Dufgran and Eckhard Heine. And already from the start, we were focusing on the premium position in the niche market that we are active in, and we'll talk more about that.I came into the company almost 25 years ago in '97. And during my time we have increased the customer focus and launching more quality products for enabling growth. We have continued to have a very high level of entrepreneurial spirit and drive, so that focusing really on growth. And when Petter came into the company in 2009, also the profitability rose to extraordinary levels, and this is what we could to present to you today, with very good profitability.We are the -- Profoto is world leader in lighting products for professional photographers. We are active in the growing image and content creation market, where we enjoy the premium position in the segment photography lighting solutions. We are providing an innovative and easy-to-use flash and light system for professional photographers. And we are really used by the world's best photographers.And we know this that the best photographers, they are renting their equipment. We know all the rental companies all around the world and more than 70% of rental flash in all parts of the world are Profoto flash. So really, the world's best photographers are using Profoto.We sell -- obviously, sell all over the world, where photographer -- where great photography is made, and we are focusing on organic growth and high margins. This demands large investments in innovation. We also combined this with high operational efficiency.And one of the things that we do is, we do not own our own productions, so we have outsourced production, and we outsource a lot of other things also. This means that we have a very asset-light balance sheet. So check out our return on capital, and we are one of the -- we have -- we enjoy one of the highest return on capital on the Swedish stock market.And this is combined me that we really need to have high-end staff, and we are only hiring the very best people that we could find in the market. And this -- and the staff of Profoto is really what is making the difference and driving growth and profitability.So we are active in the larger image and content creation market, and this is all kind of content produced, including TV film, video, et cetera. This market is showing a very strong growth. And Profoto holds the -- and this is the black part here -- holds the premium position in this segment lighting solution market for professional photographers.This market is growing 3% to 5%, CAGR, 23%, 25% according to a market study that we conducted during the IPO process. So -- and all this growth is based on the exponential growth of number of still images published, especially on the internet.We are focusing hard on innovation to drive sales. So we are really -- what is really making the difference is when we are launching new products into the our niche -- worldwide niche.So during 2021, we launched 2 major products, B10X and B10X Plus and the Pro-11. And Pro-11 is really the product that's used by all the rental companies and all the high-end fashion companies who produce this stunning imagery that is needed to drive their own brands.We invest around 10% of sales. We invest back in R&D and product development. And we are obviously are -- we're very active with patents. We have quite a few of our staff -- more than 1/3 of our staff are active in R&D, but we also are using a lot of consultants, a lot of outsourced partners that -- so this figure should actually be higher.Anyway, that's what we do, that's what we continue to do and to drive the growth within our niche around the world -- worldwide niche. And this is the black part of this image. So really selling and launching new products to professional still photographers all around the world.Organic growth is the key here. But we also see the possibility to grow in different areas. And I would like to start to do right with e-com workflow solutions. That's an area where we see growing a lot in the moment. We sell a lot of products into this area. The Pro-11, I have, but also D2 and D2i, and a lot of light shaping tools are widely used among both the high-end brand, but also the more specialized e-com players in the industry, which you -- I'm sure you know very well about. So this is the first area where we see the possibility for organic growth as well as platform acquisitions in order to take the next step and make a wider offer to the market.Secondly, light for moving image, so video, vloggers, broadcasting, film, cinema. We have products already today that -- which we sell for applications like that -- this. And this is mainly the B10 and B10X, which are used by photographers that is also shooting video. We see possibilities in this area to grow a lot. But this is a separate part of the market, and we need to do this in the right way, both in form of organic growth and platform acquisitions.And thirdly, we see a potential in professional smartphone photography. And today, Profoto is the only company in the world that are able to sync and use professional flash system with your smartphone.Remember, there are around 1.5 billion smartphone cameras sold annually into the market. And the only way to use that if you want to use real light, you have to use Profoto. So basically, all our products are able to work with your smartphone camera. And we have an app called the Profoto Camera that you could download for Android or for iOS.So let me take you back to the investment case that we presented 7 or 8 months ago. So what we said that was, that we are a leading brand in a global market niche, and I think that we have talked about that already today. We are active in an attractive segment in the growing content creation markets. Our focus is really on core operation and innovation to expand the addressable market, but also sell more to existing customer and existing customer groups.We have several possible avenues of growth for -- which I just presented, that in addition to the organic growth prospects that we have. All of us at Profoto, we have a long history within Profoto. We are well educated and we're very dedicated to drive and make a change in the market.We have historically had and we're showing this today also a long-term organic growth and exceptional profitability records. So -- and this is what we plan to continue to do into the future by hiring very good staff in addition to launching great new products.So I will leave the word to you, Petter, to talk more about the figures and details about the figures. Thank you very much. And please remember to ask us any questions in the end of the presentation. Thank you.
Thank you, Anders. So Profoto has had a long history of organic profitable growth. In last 20 years, we have delivered 17% growth year-on-year. EBIT started out in the beginning of the period of -- in the range of 10% to 15%. In the last year's pre-pandemic we have increased that to -- in the range of 25% to 30%. As many of you know, we had a clear dip in 2020 since the restriction from the pandemics in the world heavily limited our business. But now we are fast recovering.And looking at this recovery, I would say that in Q4, we are for the first time, trading back on the level of pre-pandemic, actually slightly increasing it in total. And that this is most notable in America. In America, we lost about 50% of the sales in 2020, so the rebound has also been most strong now when the recovery come.APAC has grown since 2019, and that is mainly an effect of that we have increased our local presence there. In 2019, we started an owned subsidiary in the Chinese market.With strong sales and high efficiency, we have [indiscernible] number now. And we are delivering 36% in the fourth quarter, which is clearly exceeding our target in the range of 25% to 30%. This is great. We don't believe that this is long-term sustainable given that we are investing heavily in marketing mainly in order to create more growth.In short, we are far exceeding our financial targets. And we have also recommended the dividend of SEK 3.5 per share, which corresponds to 89% of the profits generated in 2021. And as a consequence of that, we have delivered strong sales in the quarters, we have revised the financial targets, and we have simply removed the clarification that we have had, that we aim to reach SEK 800 million in 2023 since we now simply believe that it will happen earlier.So that was all I had to say. And now we'll lead the floor questions.
[Operator Instructions] We have the first question, it's from Karri Rinta, Handelsbanken.
Firstly, maybe about the pipeline for 2022. I mean, we know what products you launched in last year. And then, I guess, you don't want to -- of course, you don't want to disclose which products you plan to launch in 2022, but would you characterize the coming year as a typical in terms of the number and importance of product launches?And then maybe a follow-up question is that as we now have this positive boost from reopening, is it so that it's maybe better to save those product launches for 2023 to drive growth that year. So in which year are these product launches more important?
Yes. It is always important to bring new technology to the market and to actually provide our high-end photographers with new products and new possibilities to shape light and create great images. So as soon as we are ready to launch, we are launching and we are working, as you know, constantly with product development, and we have a pretty stable product pipeline, and we hope to launch products this year as well as in the same way as we did last year. So -- but we are focusing high on expanding also our R&D department so that we could come out with new innovations to this niche market -- worldwide niche market. And we will not save any products for next year.
Then about this industrial e-com workflow solutions that you mentioned as one of the growth opportunities. I mean, what is the main impediment to doing a deal today in this space -- platform acquisition in this space today? Is it that you feel that you need more time to learn about this ecosystem? Or is the ecosystem itself too immature that there aren't any platforms to speak of today.
It's like this. It's -- e-com photography is basically studio photography and we are providing equipment for studios in '68. So we know this market very well. And the case is that the high-end brands doing e-com, Profoto already have a very high market share in that area. But there are also many, many more needing to take great images and do this in a good operational way. So we are already very present, and we know this market quite well.And this -- the market is developing concerning software in addition to light and other studios -- studio products. So we are looking on different options in this market segment. But as we have communicated earlier, we are very picky when we do this. We are looking for the -- both the culture of the companies, obviously, but mainly also what kind of products they offer that they are sustainable long-term, that they also have a good product pipeline, so that we could add it on to Profoto in order to make one plus one more than 2.And so, we are -- and our brand is also very good in this market, so people love to talk to us since we are the market leader in the studio segment. So if something might happen, something might not happen, we will see. But we're working actively. We have a long list. We have a short list, and we have a pipeline of some sort.But as you know, our focus is mainly on organic growth and -- because we see this high profitability in launching new products to the market that we have developed ourselves. So this is our main focus. But we have people, we have organization for making it possible also to do acquisitions. Maybe you want to add something there Petter?
No.
Okay.
And then finally, about the dividend, the payout ratio of 89% is -- one hand, it's in line with your financial target, but it is rather high. So I just wanted to sort of confirm that it's more of a reflection of the fact that you don't have any net debt or you have a very strong balance sheet. It's -- we shouldn't interpret it as such that you're handing out excess cash, because you have no better use for cash?
No. The fact is that we are rather profitable, very high cash conversion since we have a very asset light, and this is obviously based on the high return on capital -- one of the highest on the Swedish stock market. So that is why the -- we have a good cash forecast, obviously, since this is what we do, and we foresee that we will operate on a good profitability according to our financial targets, and this means that we have a good cash flow.We've had good cash flow last year, and we continue to operate at more or less the same level. So no, we have -- we are investing in new products, in marketing, et cetera. So -- and we foresee that, we will be able to do that and more even if we deliver high dividends as well.
And just a clarification. I mean, your dividend policy doesn't say anything about how do you expect your dividend to develop going forward. But of course, that all companies or we like dividends to grow.
Yes.
So that is probably an implicit assumption there as well?
Yes. Our target is more than 50% of the profit.
But the absolute dividend is also growing year-after-year.
Yes. We also would like dividends to grow in absolute number, yes.
The next question is by Viktor Lindeberg, Carnegie.
A few follow-ups from my side. Just continuing on the e-commerce. Could you maybe share some details on the share of revenue today? And if this segment or initiative is tilting the profitability in any sense for you guys? That's sort of my first half for your first question.
Yes. We cannot share any figures on exactly that. But the main products in this area are the studio products. And this -- our studio products are mainly for the D2 and for -- and D2i, which is a specialized product for this kind of photography as well as the Pro-11.In addition to this, also B10 and X and B10X Plus is used of -- or some of the photographers in e-commerce. So that is what I can say about that. But what we can say is that this kind of products are well demanded in the market, so we see a good growth here. But we do not share any special product sales figures.
Okay. Probably given these are more -- some of the product names you mentioned here have higher average selling prices. Is it fair to assume that once you have good sales of these then their contribution to profit is -- from a margin perspective also above group average or will you say that it's more or less in line or below [ average ]?
For most of our product suite, we have fairly similar gross margin, so the variation is relatively low. But having said that, the studio and the e-commerce's products -- it's one of the more profitable area to us. That these are customers with very high requirements, and they have extensive budgets to resolve their problems, clearly.
Yes. And we could also see the structural change. One could have believed that we would have sold much in the beginning of the pandemic, but we did not. So what has happened is that all e-commerce companies -- basically, all brands, need to produce and sell their images and produce and sell their products on the internet. And they're working step-by-step to improve their operations. And we are very happy to be able to sell the Pro-11 into this market, which -- Pro-11 is really state-of-the-art and really the best you can get in the professional photographic market. And the people that are using that are the big brands, but also the big rental studios all around the world.
Clear. And then thinking of product mix and thinking about new launches, you mentioned you have B10X in 2021. And maybe if you could just elaborate a bit on when we look at your sales mix now on the new launches versus call it more on the legacy products, is there sort of normal steady state going on? Or have you -- or how has the ramp-up of the new products been so far, just so we can get an understanding of sort of the ramp-up and the decaying of the…
You mean, into the 2022 what kind of -- if the product mix will change due to product launches, is that your question, Viktor?
Yes.
So as you remember my black [ bulb ] here with that this is really our focused organic growth. And this is within the same customer group, which is all the photographers that are willing to invest time and money into light shaping. And that's where we are -- we see that we have several gaps in that market. And we -- no one would see that, but ourselves. So very small gaps that we need to fill into this market, both in times of functionality and price points. So we are really delivering and we are looking to update and add into holes in this market.But generally, we are focusing on the customer group professional photographers, e-commerce companies all around that, needing professional images. And we will continue to do that, and we will try to do this in a high pace as possible in order to fulfill the demand that is within this customer group to constantly exchange, constant -- change their way of how they actually produce their images and a different kind of light setting might be able to actually increase both traffic and conversion and minimize returns for these kind of companies. So we will continue what we've done last year and continue to do the same thing more and better basically.
Final question from my side. You mentioned, Anders, in your CEO letter that, obviously, the margin performance is very pleasing to see, well above the target of 25% to 30%.
Yes.
But also that you don't expect to stay at these, I will call it elevated levels, in the longer term. But just to get an understanding on your maybe increased efforts on the marketing and product development. So these incremental spend or investments -- is there -- is it more of doing the same or do you see sort of new pockets in any sense, anything from geographies or how to market or if you -- sort of your incremental dollar will be spent on lighting relatively more than maybe the flash, just to get a sense on that commentary from the CEO level.
There are 2 areas that we really focus on. It is product development, and it's in sales and marketing all around the world. That's number one. So we will continue to invest higher, and more staff into R&D and make start new products and projects for new product launches. So this is what we will -- we are focusing on.And if you look on our LinkedIn page, now you see that we are actually recruiting heavily. So we have around 10 people that we're looking for. And since we are less than 100. So we have a significant increase in staff, and especially in the area of R&D. But also in sales where we are looking for more staffing in sales. And we will do more -- even more to support our partners all around the world, or all our photo dealers, and we will also do more in direct communication with end customers over our own platform.And you might have noticed that we have seen a good success with what we call Share the Light, which is in the beta versions where users are communicated with other users. So we are applying the user generated content strategy, so photographers are showing out to photographs how they actually create great images. And this has been so far very successful. We will -- we're looking to continue that to actually make us as an attractive day-to-day partner with all professional photographers in their change of how they actually set the light and create greater images. So we'll continue to do that.And -- but also here, we are very careful. We do -- never overspend, and the reason is that in our customer group, basically and should yourself go out and ask professional photographer. Basically all the professional photographers, they already know of Profoto. So brand building is -- on its own is not very important for us. However, to show real quality and real value in terms of, especially training and education, how to create great imagery, that is the route that we will continue to go in our marketing efforts.So we'll continue to increase our investments on a picky level and really ensure that everything we do is profitable, which is part of our core values at Profoto and that's why we only hire the best staff, so to ensure that we really do the good things. And we include, as I tried to communicate here, our great customers in our communication strategy.
Your next question is by Karri Rinta, Handelsbanken.
I wanted to continue discussing the sort of the post-pandemic versus pre-pandemic world for your customers, and we have discussed e-commerce customers because this market has, of course, experienced a nice structural uplift. But if you look at the other core customers of yours, maybe specifically about freelancing photographers and everything related to events. So what's your best guess of structural changes that for your sort of post-pandemic versus pre-pandemic? And how does that impact your sales of your different products?
Yes. So very good question. Thank you, Karri. It's about opening up for events, opening up for wedding, opening up for, what we call on location photographers, which is most normally including when you meet. So the Nordic market where we are active here, we see that the market is opening. But it has not opened in the rest of the world, somewhat in the U.S.; in Asia, not so much. I just spoke to Taiwan this morning, for instance, and they are seeing one or 2 case -- some cases, so people are becoming very careful. This means that they will not meet yet.So we still have a lot of possibility when the markets in Europe, in Asia are opening it up more. And then we see that products -- our specialized, on-location products, which are based on battery technology and automatic exposure that -- the way that we control the light. And this is especially the A10 and B10X, which we think that we will increase sales of into the near future when we see the pandemic fading out.
So you're not -- I don't know, worried is a wrong word, and maybe I'm fishing. But when this freelancing photographers start to get more gigs that they would buy more of the -- maybe the simpler products in your portfolio in the on-camera flashes? Or have those products become such a small part of your total that, that even if the sales there would increase, they wouldn't have any noticeable impact on your sales mix and margins?
No, no, because we have -- it's pretty stable. As Petter just said, we have pretty stable margins all around -- all over the product portfolio. And we think that we will not really notice a change in profit margins, because of this. We are very happy that the markets are opening up. We are very happy that it gives possibilities for the freelance photographers to get more work. And we are here to support. And we have launched great products, and hopefully, we will launch more great products into this market, so to enable them to do even better photography. And this will not have a -- as we see a negative effect on the margin. We will still have very good profit margins according to our financial targets.
There are no further questions for the moment, and so, I hand it back to you.
Great. Thank you. We would just like to give you a gentle reminder about our next report for the first quarter, which will be published on the 5th of May. Thank you for joining us today.