Francotyp Postalia Holding AG

XETRA:FPH

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Francotyp-Postalia Holding AG conference call regarding the financial results for the third quarter 2022. [Operator Instructions] the floor will be open for questions following the presentation.

Let me now turn the floor over to your host, Carsten Lind, CEO of FP Group. Please go ahead.

[Carsten Lind, executive]

Thank you. So good morning, everybody, and welcome to the earnings call after the first 9 months for Francotyp-Postalia. Let me also give a very warm welcome to Ralf Spielberger, our new CFO, who joined us 1st of October. And Ralf is with me here in the room today.

[Ralf Spielberger, executive]

Yes. Thank you very much.

[Carsten Lind, executive]

Right. So in terms of our agenda, we follow the regular path. We start with the as-reported numbers. We offer a normalized bridge versus last year, then we break out into the 3 segments and then look at the guidance. And we have, of course, some time at the end for Q&A, should there be questions.

So let's go to the next slide. So overall, we are continuing here in the third quarter along the track that we laid out at the end of last year and the beginning of this year. So we continue with organic growth across all segments.

Freesort is back to a normal, let's say, revenue profile here in the second half. We had growth from M&A, growth from organic and we continued to do operational improvements.

So as we can see, revenues, EUR 188.7 million versus EUR 148.9 million. That's an increase versus last year of 27%. We increased the EBITDA with 41% to EUR 22.4 million from EUR 15.8 million. And also the margin, we have increased a bit from 10.6% to 11.9%.

So let me not read through all of the numbers. However, in the light of having some, let's say, one-off or effects in there with currencies and rate change, et cetera, et cetera, let's go to the next slide in terms of looking at our normalized EBITDA.

So on the right side, for 2022, we have taken out the rate change, which is -- the rate change actually is a recurring, let's say, project or revenue. However, it does not occur every year. It's like every second or third year. So versus last year, we take it out. We have backed out the positive currency effect this year and then we have added back the costs that we have on the ERP project, extra M&A cost and cost of materials.

So as we can see, also normalized. We are higher than last year in terms of 22%. And I'd say we probably could have added a bit more on the normalization for this year since, like every other company, we have, of course, inflationary pressures, not just here on the cost of materials but also on energy cost and others, but we have backed that out and so here are the main adjustments and also keeping it simple. So as-reported and normalized, better than last year.

So on the free cash flow and net debt. Yes, same, let's say, storyline. After the first half, we are higher on our free cash flow. We have reduced the debt. However, we have financed the Azolver acquisition out of the operating cash flow.

Next slide. So moving into the segments. We have now, let's say, simplified a little bit at the different solutions that we have in the business solutions under 3 main areas, one being the Document Workflow Management, which is the broader space of handling customer communication, ingoing and outgoing customer communication for our customers. And we have labeled Business Process Management & Automation for the products such as FP Sign, De-Mail and EASY software and other products. And then lastly, also with the latest acquisition of pakadoo, we have now a number of solutions under the broader Shipping & Logistics area, which includes our own Parcel Shipping tracks that we got in from Azolver and going forward also the pakadoo area.

So we continue here growth largely organic growth with 32% versus last year. And yes, we are moving forward with the Digital Business Solutions, also investing in all 3 areas here.

Mailing, Shipping & Office which is largely our franking, inserting, and let's say, mail-related business, grew with 24% year-on-year largely driven by the Azolver acquisition and also this year the positive effects from the currency. However, we did achieve -- filtering out those, we did achieve an organic growth of 2.1% in a market where competitors are having here negative numbers, significantly more than 2% negative.

And in terms of the statement on the overall, let's say, market situation and the business climate and how is that impacting us overall and also here in this area, we have, let's say, the main disturbances that we are envisioning during this year has been more in the direction of third-party products, so products that we sell related to our own franking machines such as inserters, et cetera. Since we are sourcing those from third-parties, let's say, there are still some supply chain issues, some delivery issues that have caused us some trouble. But overall, 24% in the Mailing, Shipping & Office versus last year.

Mail Services or freesort, 30% higher than last year. As we discussed after the first half, we had some sizable extra revenues that we did not anticipate driven, to some extent, by the pandemic and that customers in the first half outsourced and also the franking process into freesort, which basically gave in the area of EUR 10 million unanticipated revenues. Freesort, however, are though now in the second half back to a, let's say, normal operation which is comparable to last year. But due to the first half was so much higher, we are still here year-on-year 30% higher.

So on the FUTURE@FP, which is our transformation program, we are moving forward in a good way across all the 5 different tracks. Obviously, when we buy a new company or integrate a new company, we will have some activities going on across basically every of the 5 products and we are now moving into the finalization of the post-merger with the Azolver company that we acquired in March. And we are now, of course, working on the post-merger integration with pakadoo in terms of driving there the top line with these products.

And overall, the operating model, we are very far down the road of implementing that. And we keep investing in terms of program 4 and 5 in all areas. So we have both sizable investments also for next year both in the Mailing, Shipping & Office relating to the franking machine. We are investing in the Document Workflow Management area and also our products such as FP Sign and EASY software and others, there we are investing.

So this brings me to the guidance slide. And as I said in the beginning, we are continuing on the track -- or the tracks that we laid out earlier this year. And as the last time, I confirm that we will be higher on the revenues. And on the EBITDA we would be at the top end, at the high end of the guidance there, even the very high end we can say.

So that basically concludes a quick walk-through. There were no -- from our side, no breaking news as such. We are basically where we expected that we would be and we continue the journey forward.

So with that, let me conclude here and give the pager back to answering questions, should there be some.

[Operator]

[Operator Instructions] The first question comes from Felix Ellmann from Warburg.

[Felix Ellmann, analyst]

I have a question regarding to your Digital Business Solutions, which growth rate was very impressive, in my view. How do you see this in the long term? Will we be seeing here 30% every year, let's say, like a strong growing start-up character? Or will this be slowing down? Or how -- what is your expectation on that? Or will you even make some more acquisitions, bringing this to the core -- new core business? Or what would be the midterm here?

[Carsten Lind, executive]

So I think there was a question here on, let's say, how we expect to compound in this area but also relating to M&A, et cetera.

If I start with the latter. Then on M&A, we are definitely, let's say, as part of our strategy, looking towards, let's say, some meaningful acquisitions into this area. And we had here, for example, the Azolver, the track software, added and we recently added pakadoo as a Software-as-a-Service provider within logistics software. And we definitely have more ideas to also grow along those lines.

And let's say, the midterm model that we are looking at, we imagine that we would be probably in the, let's say, 15% to 20% compounding around that area. So over the next 5 years, however, it could be -- so on your question, do we compound for a long time every quarter with 32%? I think that -- I'm not sure we will deliver exactly that number, but we envision that it would be a good 2-digit number that we have this year and also for the next several years out that we can compound with 2 digits.

And to add a little bit of color into it. The 3 areas, the Document Workflow Management is growing with single digits, whereas our Business Process Automation and the area of Shipping & Logistics, there, we are compounding for the last couple of years with quite sizable 2-digit growth rates. And I expect that this will continue. But overall, when you add it all up, I think that the range of -- as I've been giving here, is the most likely growth rate.

[Operator]

At the moment, there seem to be no further questions. [Operator Instructions] And the next question comes from [ Antonio DiMaggio ] from UniCredit.

[Unknown Analyst]

I have one short question, which goes into the same direction as the question before. What I would like to understand is -- I mean, we did a refinancing for a very short period of time. And I would like to understand on a larger time scale, let's speak about, I don't know, 4 or 5 years, where is the revenue share going to resolve?

So what I would like to understand is, are you planning to have the 3 parts where the revenue is splitted to, is it going to be even. So is it going to be one day, 30%-30%-30%? Or are you going to focus on the biggest revenue distribution as it is at the moment and just growing? Or -- yes, that's what I would like to understand.

[Carsten Lind, executive]

Okay. Thank you for this question. So in terms of our growth and also with that, our M&A, we are looking largely into the direction of the Digital Business Solutions and the Mailing, Shipping & Office Solutions since these 2 areas drive significantly our margin and our margin improvement. Whereas, let's say, the business model of mail consolidation that we still have and that we have is associated with a lower margin.

So let's say, over time, we -- and then you can say, depending on exactly what M&A we end up doing, if we do another few consolidation deals in the Mailing, Shipping & Office, then -- and do, let's say, relatively smaller deals in the Digital Business Solutions, then, of course, the Digital Business Solutions in percent will not increase.

But we envision that we can grow both areas, that we can continue MSO with small organic growth and do further acquisitions there. And in the Digital Business Solutions, we expect that we can compound organic growth with a 2-digit growth rate, and we also there want to add more acquisitions so that we grow from a higher base. So these 2 segments in terms of growth and M&A are the ones that have the primary focus.

[Operator]

There are no further questions.

[Carsten Lind, executive]

All right. Then thank you, everybody, for spending this morning with us. And yes, thank you for your time and we are looking already forward till the next time we speak together. Thank you very much.

[Ralf Spielberger, executive]

Thank you.