Cewe Stiftung & Co KGaA

XETRA:CWC

Earnings Call Transcript 2023-Q1

[Olaf Holzkamper, executive]

All right. Welcome to all of you, and welcome to CEWE's Conference -- Analyst Conference Call for Q1 2023. We are starting to record this presentation right now, just to inform you, but we will stop the recording at the end of the presenting time -- the presentation time. So the Q&A session afterwards will not be recorded.

When I was sitting on my chair last -- yesterday, watching the famous Tiger show, at the end, I saw the weather forecast. And all of you know that weather is very important for us. And I love the division of labor, the [indiscernible] that I saw there that we are going to have for this weekend in Germany.

Of course, we will have a clear division of labor, the South of Germany, at least I could work the German weather forecast. South of Germany is going to order our products from CEWE because they will have bad weather. And the North of Germany, where we happen to be, is not going to order products, but take pictures because we will have great weather. And that was a view that I quite like. But you see, whatever happens, CEWE has a positive takeaway from what's happening in the weather, and we quite like that.

Now obviously, the weather we're going to see now over weekend is going to be a result -- going to be a basis for the result of Q2 '23. And now we're going to look at Q1 of '23, which also has had a great result. So you can imagine that the weather that we saw in Q1 was not too bad.

When I'm saying we are going to look at the results, it's Yvonne, our CEO; and myself -- Yvonne Rostock and myself, we are going to present the details. And the details that we are going to present is, as you can see on the next page, the overview of the development we have seen in different business segments, the total of the group results that Yvonne is going to present. Then I'm going to add the financial details before Yvonne is coming back to you with the outlook. And then we're going to finalize, obviously, with a Q&A session for you.

And with that, Yvonne, it's yours.

[Yvonne Rostock, executive]

Thank you very much, Olaf. Ladies and gentlemen, it's my great pleasure to welcome you on our analyst conference for Q2.

Before we dig into the details, let me share an important informational message with you regarding the composition of our Board of Trustees. The Board has been completed already with the assignment of [indiscernible]. And this week, the Board elected the Chairman, Mr.Helmut Hartig, and the Deputy Chairman, Mr. Kai Hafner. With these decisions, the Board of Trustees has fully reestablished its ability to pass resolutions and to carry out its responsibilities. So this will answer, I think, some of the questions you had raised in Frankfurt at the annual press conference. So that is why let's put this upfront.

And now let's move into the facts and figures. And in the facts and the figures, I'm proud to present an excellent start of the year, which is the strongest Q1 historically. So that means the turnover increased significantly by 13% and reaching EUR 157.7 million. And each segment contributed well to this turnover.

The photofinishing business increased by 12%. The commercial online print increased by 26%, and the hardware retail continues to stabilize solidly at 3.3% growth to this result. The good news is that this increase in turnover as well is a profitable growth. So that means our group EBIT increases by EUR 3 million and reaches a strong EUR 5.7 (sic) [ 5.1 ] million in Q1.

And here again, all segments contributed. So you have the photofinishing businesses rising up to EUR 5.2 million, the commercial online print became profitable, and the hardware improved the EBIT versus last year, still with a slight negative touch.

If we start with our core business, the photofinishing. And here, before we start with the facts and figures, let me highlight some of the soft factors, which we had throughout the Q1. One of our biggest and most important priorities are innovating. So this is some -- I think you have seen on the yearly conference, but this was taking place as well in the Q1. It is our innovation days. And this is meant together the teams with the clear purpose together all the ideas for the new year and ensuring to get them on the road before the peak season of Christmas.

So it's a great way of exchanging and developing ideas. And if you see in the next 2 slides, a bit of the impressions, how this is going in -- how we come to these conclusions.

If we move to -- next to innovation, I would say. There is -- we have a responsibility as well beyond the business development to develop the photo culture. And the photo culture here, our biggest contribution is the photo award. And we have talked about it as well in Frankfurt. It is running until end of May, and we are looking forward then to share with you the best -- the winners afterwards.

What we are very proud as well is on the next chart that we could -- we can share with you that we won another TIPA award at this time for our photobook, and for the photobook was 100% recycled paper. This is a great story. It's 6 wins in a row for the CEWE PHOTOBOOK. And this is our core business, so it's very important that this is recognized, and we are developing further continuously.

So let's dive into the results of Q1 for this segment. And as we talked about the photobook, let me start as well as the photobook overview. And what we see here is that the photobook is growing very well with plus 10%. And the good news is there is even more potential because we are not yet back on the level of pre-corona.

And if you put this in the whole picture, the results we could deliver in Q1 with even the photobook not yet on the full potential, I think this is promising for the future. And what we can see in the number of prints, here, we can see already that we are above the pre-corona level. If we go on the left side, you see the numbers, the numbers of prints where we are above, then we are as well in the value per photo so as well on a good track. And here, we had 2 strong years with the home decoration in '21 and '22 with high-value pictures. And so these homes are now decorated for the moment. But there is still good that we could set on top versus these strong value years with the Q1 '23. And these results on the very right into the photofinishing total so that we could reach EUR 126.1 million, a plus 12%, which is a very strong quarter 1.

And going on the next one. So this is where we -- what we see here is that you find back to turnover figures on the top. So the EUR 126.1 million and the plus 12%. And here, you can see it in the historical perspective, and you can see how strong this is. So that means it's a historical strongest 1 -- Q1 for photofinishing. And it is a profitable growth because here as well, we are able to raise the profit -- to double the profit versus last year.

Yes, we had a very strong year in '21, which was an exceptional one. But if we would draw the very long line, this EUR 5.2 million is a very solid and very promising result. If we look into the photofinishing turnover per quarter and if we benchmark ourselves versus our targets, there -- please have a look on the left-hand side of the chart, where you can see the Q1. And there, you can see you find back the EUR 126.1 million, which is the actual of the Q1. And below, you see the target we had planned, and this was a range between EUR 112 million and EUR 123 million. So we are above this range, which makes us confident as well for the total year target.

The same we can see for the EBIT. So you'll find back on the top Q1, the EUR 5.2 million. And we had set ourselves a target between EUR 3 million and EUR 4 million. So here as well, we are above target range, which gives us confidence to achieve our unit targets.

Looking into commercial online print. Here, as you know, we are underway with 3 brands. And the main focus and the main brand, of course, is SAXOPRINT. And it's a different business model, which is very additive and complementary to our core business.

And let's have a look in facts and figures. On this one, and this is a very good news. Here, we are -- we have grown by 26.6%. Here, we are not yet back on the pre-corona level. But I would say we are very much underway. And how could we achieve this growth for this year? In fact, it's a clear way that we say the best price strategy is the main concept we are focusing on, and we permit ourselves this with a really strict cost discipline and a high-tech production so that with this best price strategy, we are still able to lift the EBIT over the 0 line and we could contribute EUR 0.4 million into this Q1.

There is still further potential to be lifted within the market and the size of the market where we can gain more shares, but I think it's a good start. Looking at the retail business. On the retail business, let me remind you that in the retail figures, you find the figures for the hardware revenue only. And let me put this in perspective.

If we place this in perspective, means what is the role, the strategic role of the retail. And this is more and more the photofinishing to contribute to our photofinishing business, to support our photofinishing business and being a place to experience our brands for the consumer. So it's like a window, a flagship of our services.

So when we look there, and this, remembering the hardware business. So you see in the long term the shift from the hardware business focus towards the photofinishing business. And here, we are happy that we can deliver a solid Q1 with EUR 6.7 million, a 3.3% growth. And the Q1 historically for retail is a challenging one in terms of EBIT.

So here, we are not worried about the minus EUR 0.2 million, and it is a better result than the previous year. Last but not least, we come to the others. And on the others, in fact, it's very -- overall, it is very small, we have to say. And what we can say here that the EUR 2.3 million turnover is exclusively delivered by our futalis. And here, we were accruing. And in terms of EBIT, it stays a bit challenging. But as well in this challenge, we have an investment into growth and -- which will pay off in the future.

So this is the end of the, I would say, of the segment view. And let me put this together the picture for you on the total overview. And on the total, what we can see here. You see here the quarters again as the total numbers with the contribution of each of the segments. And this is the strongest Q1 in the company's history. And all segments, as we discussed, delivered to the growth. There is not much more to say about this in detail unless you have questions later on.

And the same view we see on the EBIT that is significant -- that we are significantly better than pre-corona and clearly better than the previous year. We know we understood that '21 is an exceptional year. But I would say these results on turnover and as well on EBIT gives us confidence for the future and for the delivery in the COVID year.

Result without being too confident because all the year will be decided at the end into Q4. So with this, I would love to hand over to the financial details to Olaf. Thank you very much.

[Olaf Holzkamper, executive]

Okay. Thank you very much, Yvonne. And looking into the details that we have there. As always, we are starting with the P&L. You have seen the increase in revenue there. And obviously, photofinishing is contributing the largest share there with EUR 13.5 million increase. But commercial online print, as you saw it, relatively showed the strongest increase with this 26% increase we saw there or EUR 4.7 million, which means that the share of photofinishing revenue-wise and also cost-wise in our business, just the share has increased, and that has an influence on the structure.

If you look at the P&L structure in the sense of percent of revenue, obviously, which we're going to look at now. If you look at the most important items there, the first line that is worth mentioning is the cost of materials. And here, you see it's an increase there of EUR 8.1 million, which is -- it's an absolute increase, obviously, due to the revenue increase. But also, it is an increase in percent of revenue. Just looking there, you see the 25% increase into 27.1%. And that is due to this shift in revenue mix, commercial online printing having a higher share, and there's a more material cost, relatively more material cost in commercial online print, and that is driving the relative increase there, plus obviously, the price increases we are seeing there as well.

So that's point one on the cost of materials, which is relatively sort of directly related to how much business we are doing. If we're looking at the next lines, personnel, other operating expenses and depreciation, they are not so closely related to how much business we're actually doing. And that is the reason why there, we see a reduction in percent of revenue. So the operating leverage effect that we tend to see sometimes in our business when the revenues really increase, it's clearly visible in Q1 this year. And starting with the personnel expenses, yes, you see it's an increase by EUR 3.1 million in absolute terms due to wage increases and somewhat more personnel we had. But relatively it decreased from 33.8% to 31.7%, and that is due to this leverage effect that we are seeing there and to the -- due to the change in the structure.

The other one is other operating expenses, the same. You've seen an absolute increase here by EUR 4.9 million, which is due to the more business we are doing. And obviously, that drives the cost increases there as well, plus some typical inflation topics we have. So EUR 4.9 million more. But we have reduction, [ 18% ] of revenue from 35% down to 33.9%. Also, their leverage effect, and the same is true for depreciation and amortization, which in absolute numbers stay pretty much the same or EUR 0.2 million difference, but relatively decreased from 9.4% to 8.2%.

So what we are seeing here is the good old leverage effect we are enjoying each year in Christmas quarter, Q4, where we have a tremendous rentability in our business. And we saw this now also in Q1, we had a glimpse of leverage effect as we love to have it in Q4. That was the structure of the P&L.

If we look at the balance sheet, what we are seeing is a total increase. On the left-hand side, you can see total increase by EUR 40.8 million. That means an increase by 8.1%. Now you know that the total revenue increased by 13.5%, which means we see a stronger increase in revenue than in balance sheet, which means there's some kind of more capital turnover always helpful, and we will see it when we come to the ROCE that obviously it helped.

On the right-hand side here, you see the increase in equity ratio after 64% last year. We are now looking at 67.1% this year, which means again, CEWE rock-solid balance sheet. Whatever is happening there in the future things that are discussed regarding the overall economic situation, whatever is happening. We don't have a perspective on our future to be very clear. But whatever is happening, we are rock solid, and that can best be seen here in the balance sheet.

If we're looking at the management balance sheet, i.e., transforming it to capital employed and capital invested. You see that the increase here is not EUR 40 million, but EUR 32.1 million. You see on the left-hand side top, that's an increase of -- by 7.7%, i.e., also below the 13.5%. So it helps the capital -- efficiency capital turnover, which we're going to see in a second.

The biggest -- the increase comes from, yes, a little bit in noncurrent assets. And you see we have somewhat more investments in there than depreciation. But that's all fine, EUR 8.2 million. A little bit of increase down at the bottom in net working capital, both from net operating working capital and other working capital. But if you do more business, yes, that is what's happening. So it's all fine. No big change.

The biggest increase in the end of the day comes from the cash position, which is still on a strong level of EUR 47.9 million cash or an increase by EUR 18.7 million. That is a very stable situation we have there. Also there, you can see how strong our balance sheet is and how much room to move we have and how much we can take advantage of any strategic opportunities that might be out there.

And this cash is there, obviously, not because we are taking some debt from banks. If you look at the right-hand side and you look at the gross financial liabilities, there's a decrease by EUR 3.5 million to EUR 48.8 million gross financial liabilities. But that, quite frankly, is hardly any bank debt, not even EUR 1 million, I think, due to historic reason. These items are there. By far, biggest part of that nearly 100% is about lease liabilities we are seeing there, and they have decreased, obviously.

So that is a strong balance sheet we are seeing here as well. And again, the solid cash position we have right now moving into the investment [ activities ] of the year in Q2 and Q3, where we are going to buy and install the machines. They're going to help us cope with the strong Christmas business that we are hopefully going to see this year again. So strong cash position to allow us the necessary investments for Christmas, rock solid balance sheet.

Moving to the cash flow. You see an increase in cash flow from operating business by EUR 11.3 million, up to minus EUR 13 million, which is completely normal, as you can see, in Q1 with us. We are not in the corona mode anymore, which we were in the last 2 years. And we explained all the reasons why we had these negative cash flows in the Q1 there.

Now we are closer back to normal. And the investment -- the movements we have there is the important ones. Yes, we have a higher EBITDA that helps. And we had -- as I mentioned to you, we had explained that we were lacking some kind of cash in from retail partners, close to EUR 10 million. And this is the EUR 7.1 million that you can see here. There's a couple of counter effects. But the retail partners immediately at the beginning of the year paid. And we mentioned already to you that the incoming payment you will be able to see in Q1 cash flow, and here they are. So those 2 are the effects why we are increasing EUR 11.3 million.

The 2 tax revenue effects you can see at the bottom here are both around EUR 4.5 million, and they basically balance. So they don't really -- they didn't really pay any important -- they didn't really have any importance there.

So that is the operating business. Cash flow from investment, we had special effects in the last years, where we had some investments that we had done over the 2 years. Now we are back to normal. The EUR 9.2 million investment is completely normal and fits into the kind of size of business that we have right now. But also there, there's an additional EUR 4.5 million supporting our cash flow. So all in all, the total free cash flow was increased by EUR 15.8 million to minus of EUR 22.2 million, which is close to pre-corona. So it's all fine. It's exactly where we are typically in a Q1.

And last point, if we're looking at the ROCE, you can see that we had the 12-month EBIT on a nearly EUR 80 million level. We have increased the capital a little bit, but gained capital efficiency, as you could see before. And this brings us up to an ROCE of EUR 17.9 million. But if you do the -- sorry, 17.9%. But if you do the deflation in a way that you multiply the EBIT margin times the capital turnover, they could see that we have increased the EBIT margin on a 12-month perspective from 9.6% to 10.4%. So there's a positive driving the ROCE.

And also the capital turnover, we looked at that already. We increased it from [ 1.66 to 1.73 ]. Also, there's a slight increase in capital turnover and both, obviously, leading again to the 17.9% strong ROCE that we are seeing here. So CEWE is clearly value-generating.

And with that, I hand back to Yvonne for the outlook.

[Yvonne Rostock, executive]

Thank you very much, Olaf. And let's have a look forward for the total year. And on this one, you might remember this chart. It is a long historical change and a long historical view on the CEWE turnover results. And the [ gray one ] on the right-hand side is the target we have set ourselves, EUR 720 million to EUR 780 million. With this Q1 delivery, we are confident to confirm this target for the full year. And the same picture we show on the EBIT.

So you remember, we had set ourselves the guidance orientation frame between EUR 70 million and EUR 82 million for the total year. And with this lending after Q1, we confirm this target. So what does it mean? Before we enter in the Q&A session. Before we enter, I think, first of all, it is a great result, which I'm proud to share. And this is as well at the moment to thank wholeheartedly my committed Board, my precious team, my partners, you as investors believing and trusting us and of course, our consumers entrusting us their emotions, their lives to memorize them together.

It's a very strong year, a start into the year, and this makes us confident. But we keep focused, we stay grounded because the year will be decided in Q4. And we are now in the middle of the preparation of this peak season.

So thank you very much. I'm at the end of the official presentation part, and we can move into the Q&A session.

[Olaf Holzkamper, executive]

All right. And we move into the Q&A session there. And I think it's one way to ask questions. I prefer if you ask them, so we get more of a text version or a spoken version, and we get a -- some comments [Audio Gap]