Cewe Stiftung & Co KGaA
XETRA:CWC
Earnings Call Analysis
Q3-2023 Analysis
Cewe Stiftung & Co KGaA
CEWE demonstrated resilience and growth amid a challenging economic landscape, buoyed by a strong performance in photofinishing and commercial online printing. Group turnover increased by 5.8% in Q3 and by 8.9% year-to-date, reaching €453 million, thanks largely to photofinishing growth of 7.1%. Despite inflationary pressures, careful price increases and internal cost management enabled a slight rise in EBIT to €1.2 million for Q3 and enhancement by €3.7 million year-to-date. The executive team exudes confidence in achieving their targets for 2023.
Photofinishing volumes returned to pre-pandemic levels, particularly with international travel resuming. The segment posted a 7.1% increase in turnover, supported by a successful translation of this travel uptick into CEWE products, and an impressive 9.3% year-to-date turnover growth. The PHOTOBOOK, a crucial product, saw a quantity increase of 1.8% and an impressive 12% growth in value. Meanwhile, commercial online printing grew 2.7% in Q3 and 10.5% year-to-date, outperforming industry trends. These segments are well on track to meet their target ranges for the year.
On the retail front, CEWE faced challenges with a 6.7% decline in hardware sales in Q3. However, the photofinishing aspect of retail remains strong and contributes positively to the overall photofinishing figures. Over the first three quarters of the year, retail saw a top-line reduction of 1.6% and an EBIT decrease to minus €0.4 million, with CEWE maintaining an optimistic stance for the year-end.
With a solid increase in equity by €31.9 million and a healthy equity ratio now standing at 63.8%, CEWE's balance sheet gives it strategic flexibility. Investments in photofinishing production, particularly in Poland, indicate preparations for further cost-efficiency improvements. The net working capital saw a slight reduction due to tax position changes, which are among the final adjustments post-COVID. The company's financial liabilities have also been reduced structurally over time, indicating strong financial health and future readiness.
The company's Return on Capital Employed (ROCE) reached an impressive 18.1%, well above the 15% threshold that many investors look for. This figure reflects CEWE's steady development and its consistent ability to generate value over time.
Looking ahead, CEWE is targeting an EBIT range between €70 million and €82 million, with an assurance that Q4 will provide a positive jumpstart. With an already €2.2 million advancement year-to-date, the company exhibits confidence in continuing its success story into 2023, projecting increases in both turnover and EBIT, and maintaining a stable foundation even in a potentially weakened economy.
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Welcome, warm welcome to everybody to today's Q3 call 2023 of CEWE results. As always, we are recording the presentation and putting that online afterwards, we are not recording the Q&A session later on. We would be delighted if you could switch on your cameras which gives us a feeling of talking to somebody, seeing the actions, knowing where we should spend 1 or 2 more words on or where we could skip over quickly. So thank you very much for that and for handling it that way.
If I'm saying we, it's obviously Yvonne, our CEO today, myself, Olaf Holzkamper. With us, as always, Axel Weber, who has been running in the show in the last days and is running the DJ technically for us; and there's Marcus Opitz as well taking care of accounting in our group.
Looking at Q3, obviously, we are at an important timing right now. We are approaching the famous Q4 and I reckon that is probably why so many of you have an interest in joining this call today, and getting a feeling for where we are, where we stand and what's our feeling for the future. And that is a nice question, and a nice moment to handle, Yvonne with us since half year roughly and now enjoying first Christmas time at CEWE Stiftung. Yvonne, how do you feel?
Very good. And you see it's a real Christmas company. So since January, it's like good like exports since generally returning our muscles for the final, and we are now in the middle of it. So the Christmas trees are coming out already in August in our teams. And of course, the production is set. Everyone is there to deliver a best Christmas business.
And between the numbers, we saw that we can as well as share with you today some Christmas feelings and emotions because it's only 6 weeks to go to the [ course of Advent ] and report some promising figures with us as a pre-Christmas gift, if I can tell this.
So let's dive in. We will cover today the group results. We will then go on to the corporate development of the segments, the financial details, and we will end with an outlook for 2023.
Let's start with the group overview and list the turnover for Q3. In Q3, we are increasing by 5.8%, and this means we're achieving EUR 157.8 million turnover. This growth is carried by our performance in photofinishing and commercial online print, retail with photo hardware is slightly below the previous year's level. Please note, and this is something special. For futalis, this year's process has started. Therefore, futalis is now excluded from the income statement in accordance with EFS price.
So this growth is carried by the different segments and the revenue growth and the price increase as well as the internal cost management help us to manage the inflation-related cost increase. So in EBIT, we can show a slight increase now up to EUR 1.2 million, and this reaches for us to bigger Q3 level.
If you look on the year-to-date, it's a similar picture. Group turnover increases significantly here by 8.9%, and we are now reaching EUR 453 million. This is EUR 37 million ahead of last year. So it's a big...
3.7%.
The group turnover.
I'm sorry. I'm sorry. I'm sorry.
EUR 37 million ahead of '22. And it's a similar picture as for the Q3, it is driven by photofinishing as well as commercial online print. The growth, the premiumization and the price increases as well here contribute to mitigate the cost pressure. Even so, we have told this for the last time that we have been very careful with our increases, not to price ourselves out of the market.
The group turned over here as well, no longer includes futalis. On the EBIT side, we increased by EUR 3.7 million. And with this year-to-date performance, we are now entering the Christmas quarter with a head start. This gives us the confidence to achieve our targets in 2023.
If we look to the contribution of each of the segments, we can see here we'll find back the top number of the total development, plus 8.9%. And here, you can see that the drive by the commercial online print was plus 9%, the photofinishing was plus 10.5% and the retail slightly behind with minus 1.6%. And this is contributed by all the three. Of course, the lion's share has the photofinishing, but as well as by all the brands.
Let's start with photofinishing. And on photofinishing, I would like to start with some insights. If you look into -- Welcome. Let's start again. If we look into our production data, on the base of the meta data of each of the photos, we can see where the photos have been taken geographically. The good news are -- on the right-hand side, you see 2023 that the volume of the photos and their origin were as strong as before corona. So especially the summer holidays where you can see with the dark blue were international again. And this is good news for us, and it is coherent as well as the publications of the travel industry. And the good thing for is that CEWE succeeds in converting this traveler activities and taking photo crafts into CEWE products.
This is also a promising indicator for us for Christmas. Because an important share of the photos for Christmas gift derive from summer holiday. And this gives us a good base on the Christmas start. But before we start with the business performance, let me talk a little bit about the responsibility as a market leader. And here, I would like to talk with you and I would like to share with you that we are happy, we can publish the CEWE Photo Award. The final award ceremony has been taken place on the Photokina and Hamburg. And here, you see all the winners together with Michel Comte in the middle who is the head of the [indiscernible], a very well-known fashion photographer and a great person.
Some of the winners traveled far as from Asia, South America or from Europe, and they were standing out with their works and made it to the top of each category. I let you discover yourself the impressive summary in our short film. So these are the winners of the CEWE Photo Award. And it was a great momentum for each of the winners and important as where we could create an impact from the photo world. We have more than EUR 0.5 million photos handed in from 54,000 photographers out of 147 countries. And for each of the photo, which was handed in, we contributed as well. We donated to the SOS Kinderdorf and we could gather over EUR 50,000,000 for this donation.
Our responsibility as well to support the industry and here you see our stands on the fare of the Photopia, one of the few remaining ones and very important ones. We were there present with WhiteWall MCV, but even more beyond with our stance. It's portrait -- impulses as well as panel discussion inputs and open sessions. It's a great platform for the industry, which we think we are contributing as a market leader.
Perhaps some technical issues here to share the presentation. Just give us a minute, please. We need just a minute to fix this problem with the presentation to reload it.
We could continue just by voice.
Responsibility is one dimension to build our success and is part of our sustainability approach. The overview of the most important dimensions we have summed up in sort of clip art And what is in it? CEWE leads the industry with unique innovations, distinct brands, strong partnerships and the united team. And this we do efficiently and in an increasingly more sustainable way. The consumer is at the heart of everything we do. And our mission for all the photofinishing brands to empower our customers to create their photo products at the highest quality and very emotional.
To achieve this mission, we are constantly delivering cutting-edge experience across the entire customer journey. Innovations are key to our success, and they enable us to stay ahead and remain market leader. So we have put a couple of things with you, this is for you. And if we go to the overview of the clipart which I just talked through. So let's dive into the innovations. It's important, especially before Christmas, to have all the launches ready and live, and we have brought an overview of a couple of things here are some improvements and things news on the CEWE PHOTOBOOK. In terms of sustainability, we received an award as well on the Photopia. And we are continuing in premiumization with new templates, state-of-the-art templates and designs as well as personalization here with the slipcase. Beyond the CEWE PHOTOBOOK, let me share as well some news for our calendars and gifts. It's -- yes, perfect. It's new formats, upgraded quality for sustainable material, like on the middle on the bottom, you see the bio-based case for mobile phones. And of course, we extend our corporations with other companies to print the personalization to a wider scale.
And as well on the rollout and the cards, we do not stand still. Each addition has its purpose, the treatment poster is for us a social media product while the wooden rollout is dedicated for nature lovers, of course, each year as well.
Moving on for the products as well as important how our consumers get there. We have completed our new CEWE App Calendar editor, and you will be able to find it out. But the main cause was here to improve a lot of thing. One of the most demanding is black and white photography, and we are happy to offer this now in Ultra-HD quality and resolution.
We are -- we implemented AI-supported occasion registration. What does it mean? So if you have pictures taken in your vacation, this is detected by AI. And if you want to have clip arts, it proposes you this suitable clip arts on to it without a lot of work.
If we go further to our brands of Cheerz. Cheerz enters Christmas with new design collections and new products as well here, selection of it. You see some retro advent calendars, surprise crackers filled with photo gifts and the so-called Christmas big fat box, which is one of our best sellers.
And here as well, next to the product, it's important to improve technology. And for Cheerz, we are making steps as well to integrate videos and here you see the example of the Christmas card, which is filled with videos -- video content to complete the emotional experience for Christmas.
So far, after new things we bring in terms of products, it's very important always to increase our choice and the journey. If we look on the brands, we are now out for Christmas. So we wanted to share with you as well our Christmas campaign. And here, you can find a 15-second for the CEWE brand.
We have still some technical issues. We have the video playing here, but without any volume, yes.
Let's move on. We have as well as mutual party where the family is enjoying emotionally the value of personalized products, and this is our DNA, and we develop this further from year to year. A different approach you will see on Pixum report as well as some advertising team very much focused on mobile and you will see a different language for a different customer. Let's go for that one. And for Cheerz, of course, we will not play the film right here, but we have an impression as how the Christmas company can look for Cheerz. So let's look at the numbers. On photofinishing, the growth is plus 7.1%. And with the [ tier ] win from the travel market, we converted well for the CEWE with higher marketing investments as well and with evaluation of 5% due to the price increase. We does mitigate the inflation-related cost increase as we deliver 0.7 EBIT.
If you look on the summary of the year-to-date, we have a similar picture for figures. We have a very good top line 9.3% with more than EUR 30 million -- that's EUR 300 million turnover. And what we see as well that we can go ahead with the EBIT is now is 1.8%, an improvement versus last year.
Important for us is always to check how we are trending against our targets. And here, we see the photofinishing turnover divided in the quarter, and we see the green ticks. So that means we are in each of the quarters so far in the range of our targets in Q1 even very much the end.
If you look on how it does it look for the EBIT side. And here as well, for the EBIT side, you have the green ticks. So that means we are within our target frame and especially in Q1, we were very much ahead and carrying this over with us. Let's look at the quantity development. The quantity development, this is the number of prints. So it's really like the photos we are using. The photo print is plus 2.3%, and the value plus 4.7%. And here you see the price increase coming through. And this both leads to a turnover increase of 7.1%.
If we look how this is placed for year-to-date, Q1 to Q3, you see 6.6% at the beginning, a higher number. And then you see a 2.6% in the value. And you might ask the question, where is the price increase here. Here, the price increase is not as visible as on the quarter because we have still the impact of the corona mix. So last year, there was a different mix of products, especially rollout and for instance, as well parcels were stronger, so more valueized products. So this is, in fact, mitigated. Important is that we analyzed by 2.6%. And these 2 effects lead to the plus 9.3% in photofinishing.
The most important category and the most important product is the CEWE PHOTOBOOK, and that is why we would like to share this with you as well. The PHOTOBOOK is in quantities increased by 1.8%. So it's in the range. And year-to-date, we are plus 5.3%. I think what is important here to understand as well behind is there seems to be a potential because the number of PHOTOBOOKs are not yet on the level of 2019. And this is a potential.
At the same time, I can tell you, this picture looks very different in value because here, we have a turnover cost of plus 12% in value for the CEWE PHOTOBOOK, and accumulated plus 16%. And this is given by the evaluation of it, the price increases as well we are able to use larger consumer or the larger formats and more premium products. So it's formats more as well embossing and added values, adding to the photo prints. So this is a solid strong performance.
So here, we would conclude for the photofinishing and dive into the commercial online print. In commercial online print, we have 3 brands with us, Viaprinto, SAXOPRINT and LASERLINE. SAXOPRINT being the biggest of that. And for the ones who don't know, it's the B2B business, taking care of flyers, cards, stationary, folders et cetera, for industry partners for companies.
We go further, and we can have a look how we perform here. And here in Q3, we have a plus 2.7%, and we are profitable with EUR 0.7 million of EBIT contribution. What is behind this number. It's, in fact, the best price guarantee with very tight managed costs. And we have to say that we are here going against a trend because this market seems to be more penalized the B2B market than the photofinishing.
If we look on the year-to-date, on the year-to-date, we have an impressive plus 10.5%, and we are adding up now our profits to EUR 1.5 million, as we would say in -- as I learned in Oldenburg, we would say we are not unsatisfied with these results in a modest way, and we are looking forward to build on this further.
Retail. Retail, we have several brands and several markets contributing here. The strategic focus of retail is to be a point where the consumer can discover and can connect with us as a CEWE Group. And in this sales, we are now tracking. It is only the hardware business. which is as well a declining market, which are making our way. So into Q3, we are minus 6.7% in the hardware, as I said, the photofinishing part of it is positive and is included into the photofinishing figures.
In terms of EBIT, we hold the force, and this is a very topic for retail is -- close to 0. If we look for the result of Q1 to Q3, minus 1.6 and the top line and minus 0.4 on the bottom line, with well positioned optimized structure as well here. We are more confident for the year -- the end of the year.
So let's have a look into others, which we normally go quickly. Here you see the effect of futalis. The few in this segment, it's including for futalis. You will also find the figures excluding futalis on the notes right at the bottom. So we are minus 2.2% and minus EUR 0.4 million in EBIT. And as said, the sales process is initiated now. People have these volumes once we offer them.
If we look year-to-date sales, it's plus 7.5% with minus EUR 2.1 million of EBIT. You might remember the impact of the write-off -- writing down into Q2, and this impacted the whole levers.
So having gone through each of the segments, we can sum up. And in this summary, you will be able to see -- you find by the figures again, the EUR 157.8 million, plus 5.8% and the contribution of each of the segments to this result, and you see as well, well the overall evolution. It's a growing line. In the year-to-date quarter 1 to 3, again, you find the EUR 453 million with a plus 8.9% and the contribution of each of the segments.
For the EBIT, we see on the left-hand side into Q3,we see an improvement from EUR 1 million to EUR 1.2 million. So you find this number back as contribution has just presented. And after 9 months, we are EUR 3.7 million ahead of the previous year on the right-hand side and have an excellent starting position into Christmas.
And with this, I would like to hand over to Olaf for the financial details.
Thank you very much, Yvonne. And in the financial details, as you know, we are always starting with some more light around P&L. You've seen the revenue increase that we were looking at in Q3 by EUR 8.6 million. You've seen where it is strong. If we move further down in different lines of P&L, there's no comment here on the -- our own work capitalized, but that is a while kind of significant increase by 0.5%, which is due to the production and that has happened within Hertz, a production company for CEWE Photo stations that we acquired a bit more than a year ago. And that's why we have more own work capitalized here now, which is structurally due to this being in-house now.
The first one that is -- that carries a red box here is the reduction in other operating income. That is obviously counterbalancing. The other were capitalized. This reduction of other operating income is due to lower sales in recycling materials from production, which is just a timing question. Sometimes it happens in this quarter sometimes in the other, so that is just a timing thing. Whereas the cost of materials change, the next one, that is again EUR 0.9 million reduction. It's more a structural -- has more structural driver behind.
The driver is, yes, we do see the absolute increase in absolute numbers due to turnover increase, which makes sense. But if you look at the relative number in terms of percent of revenue, you do see a decrease from 28.5% to 27.5%. And this is due to the fact that we have a lower share of commercial online print and retail and a higher share of our value-added photofinishing area. And you know in photofinishing, we have less cost of materials relatively, but we have more personnel cost and other costs than there. And this is exactly what you can see here. So there's a structural change in this line cost of materials, that is the same trend as we have seen in the last years.
Moving on to personnel expenses. Yes, we do have an overall increase in personnel. And because we do have this change into more value added, and we have also a slight increase in absolute terms, also leading to an increase in relative there into these -- due to these increases that we have seen in Q3. That is on personnel. So in relative terms, it is pretty much on the same level as before, no big change in there.
Moving into other operating expenses, EUR 3 million more. And in relative terms, it is -- sorry, the -- I was already jumping to other operating expenses with my last sentence on -- in relative terms because that's where that's stable. In absolute terms, it's an increase. And the main driver behind the other operating expense increase has been marketing cost, which is just given that we have more of the business here. That's the way things are developing. That's the main driver in there.
All in all, you've seen that we are not entirely unsatisfied with the EBIT we are looking at, and this is what we can just confirm looking through the details of the P&L. We are moving on to the balance sheet. You can see that the increase we are seeing there is the normal development, EUR 6.7 million increase is less of an increase also in relative terms. It's less of an increase, 1.3%, and we do see as a revenue increase. So yes, we do see -- just looking at the balance sheet, the capital turnover is increased, so that's fine, makes sense.
You see there's no big structural change on asset side here. If you look on the liability side, I just want to jump on the yellow part, equity. Yes, we are happy, we are seeing -- looking back 12 months, we are seeing an increase in equity by EUR 31.9 million and i.e., equity ratio has increased to EUR 63.8 million right now, which is a nice stable situation. It gives us a lot of strategic leeway to make any moves that we could think of.
That should be all on the balance sheet. If we move to the management balance sheet and take out the roughly EUR 100 million that we have in terms of anything on the balance sheet that we don't have to pay interest or dividends for or whatsoever, then we see that we have a slight increase there as well, EUR 6.2 million to EUR 434.5 million capital employed. So very modest increase given the revenue increase.
Where does that come from. No big change in noncurrent assets, EUR 4.7 million. And there's a little box saying that, yes, it is from some investment in real estate projects for photofinishing production. And yes, if you ask where this is, this is in Koszalin in Poland. And yes, we are preparing for some labor arbitrage work we're doing there, like we have done in the last years. So operationally, it makes a lot of sense to go through these steps there.
That's on noncurrent assets. And on the net working capital down there, you see the slide -- you see the slight reduction we have seen there, and you can take that in other net working capital, you have mainly a tax position change in there. This is the last -- I think it's the last item we are seeing on the balance sheet where we can allude back to corona. Because after corona, we had to pay higher taxes because the profits were so high in terms of corona times.
Then after corona, the tax authorities realized, well, these tax prepayments are too high. And we had some tax refunds happening and these happened now finally, and we are through the corona -- last corona effects basically. So that is the biggest change we are seeing there in terms of other net working capital.
Whereas net operating working capital in terms of the typical inventories, receivables, payables are increasing a little bit due to the effect of business increase. So on the whole capital employed side, no big change, nothing that is of importance other than the way the business moves on.
Now if we look at the capital investment side, we talked through the equity already. When we think interesting here is, the long-term development potentially of the gross financial liabilities in the management balance sheet. Here, you can see long-term nicely grouped. And you can see the light green part, how that evolved from 2019, that was just the quarter after the WhiteWall acquisition, I think. That's why we have a little bit more of gross financial liabilities in 2019. And if you see how this evolved nicely over time, you can see how we decrease gross financial liabilities. So structurally, on the balance sheet, we have -- structuring the balance sheet. Also here, you can see we have room to move.
Moving from the balance sheet over to the free cash flow. You see a slight decrease by EUR 3.5 million on the operating cash flow, which is due to increases in net working capital, yes, because we have more of a business, makes all sense. Also, what we talked to in the balance sheet can be seen here on the cash flow as well. Just in the -- looking at the Q3 numbers and also the -- that increase is slightly reduced by the tax payments you can see at the bottom there, which we just walked through already.
So a slight decrease in operating business very usable given what we've seen in the business here. In terms of investing, you can see that there is a decrease in investments by EUR 4.3 million to an investment level of EUR 11.7 million, which is just in line with what typically is happening in Q3, as you can see in all of those 4 years before there. And the reason why it's less than last year is because we don't have the special acquisition item of Hertz.
We already talked about that, which happened last year. So that didn't happen. And then we had, in terms of investments into other areas, we sold less -- we sold some more machines. So we have an inflow there actually, and we have somewhat less investment into our start-up activities where we have some DC funds happening to be close to this business, but that's nothing really substantially that has structural importance.
So all in all, free cash flow is nearly on the same level, looking on the right-hand side, EUR 3.2 million negative right now, where it was EUR 4 million last year. So that is all in line with what a Q3 typically should look like. Moving on to the ROCE structure. You can see the increase in 12 months EBIT. You can see a slight increase very steadily over time in the average capital employed for the 4 quarters, which leads to a very nice situation in terms of ROCE. So there's many things you can read from here. One thing you can read is a very steady development of the company, which can be nicely viewed in terms of EBIT and in terms of average capital employed. And ROCE, obviously, is a nice level. I know that many of you are looking roughly 15% level as an important threshold for you. You can see 18.1% is obviously not too bad. CEWE is generating value.
And with that, I'd like to hand over to Yvonne again for the outlook.
Thank you very much, Olaf. And for the outlook, I would like to start with an overview of how we construct the year. Our target range is EUR 70 million to EUR 82 million EBIT to be delivered. And year-to-date, you see the contribution of each of the quarters, and the total contribution is EUR 2.2 million advance. If we... What does it mean for Q4? Let's have a look on the next one. And -- that means if we compare the -- on the left-hand side, the Q4, we are starting with a plus 0.8 versus the last year, we have started minus 1.4 into the fourth quarter. So achieving our target, we will need EUR 69 million to EUR 81 million. How realistic is this?
Historically, we managed each year to set EBIT on top. And this you see on the right-hand side, the yearly in a row so that we managed to set on top. And last year, it was plus EUR 4.9 million, and we would need a EUR 4.2 million to achieve the upper end and we would afford a decrease of EUR 7.8 million to land at the lower end of the range.
So that -- having did that in mind, we would be confident that the year '23 could continue the success story of CEWE and deliver as well an increase in turnover as well as in EBIT.
And with this in mind, we feel well positioned. We have covered a couple of things today. We have the large stock of images at our customer side to build on, which is a good backpack -- a positive backpack. We have the products, the innovations out. The campaigns are standing there with investments behind. We have tuned everything to be able to deliver -- to deliver in time and very short until to the Christmas season or the Christmas eve. We are compensating the cost increases, and we have had a history and a proven history that we can be stable, even the economy is weak.
So with this, we would conclude and we hope that all of us can sit in front of the Christmas tree with their personal gifts. So I have done mine already starting. I invite you to do yours, it's my family. Invite to do yours. I think it will be very much appreciated by your loved ones, and it will be appreciated by us by the CEWE group.
Thank you very much, and we would be able to move on to the Q&A session.
Thank you. And the recording is now stopped and we are open for the questions.