Sto SE & Co. KGaA

Dear ladies and gentlemen, thank you for joining our Q1 results call today. Together with our founder and co-CEO Udo Müller and our CFO Christian Beyer, we will present our Q1 figures and give you some additional insights where we stand, how we evaluate future developments, and how we respond to the challenges of the arising from corona. As usual, we will start our presentation with some comments on our main KPIs of the quarter. Christian Beyer will talk you then through the details of our financial performance in Q1. And afterwards, I will give you insights on how we managed to run this unique situation due to corona and give you some flavor on what we expect for Q2 2020. So looking into the results of Q1 2020, this quarter was again an excellent one for us. The figures of the first three months but also of the first weeks in Q2, prove that our out-of-home plus strategy performs both in normal times, but also in rough conditions. Overall, the performance of the quarter would have paid perfectly well into our original, but due to the uncertainties of corona-withdrawn guidance for the year 2020. Taking into account that after the first speech of Chancellor Merkel on March 18th on the upcoming lockdown measures, our programmatic public video business and our door-to-door ranger business came largely to full stop. Our performance in Q1 would have been roughly 10 million better in revenue and at the very top end of our guidance range of 3 to 7%. Nevertheless, in Q1 2020, our reported revenues grew strongly by 5% from 351 to 368 million euro. Organic growth was at remarkable 6%. The adjusted EBITDA increased by 6% from 117 to 124 million euro. Our adjusted EBIT developed basically in line and increased by 5% from 48 to 51 million euro. Adjusted net income was up by 9% from 35 to 38 million euro in absolute terms fully in line with adjusted EBIT development. Operating cash flow in Q1 performed with 76 million euro on a normal level compared to previous year's first quarters, but was down when compared with the exceptionally strong Q1 2019. The net investments of around 34 million euro are in line with what we have planned for Q1, but we will be reduced to the absolute minimum going forward until the economic environment shows first signs of improvement. With that, let me hand over to Christian Beyer.

Yes, thank you. As Christian just explained, revenues of the first quarter were up by 5% or in absolute terms from 351 to 368 million euros. When it comes to organic growth in the quarter with 6%, we again performed very strongly. Adjusted EBITDA developed basically in line with sales and increased slightly more with 6% from 117 to 124 million euros. Exceptional items are 1.7 million euro, significantly lower compared to Q1 2019 due to a positive disposal effect from the sale of Tube 1. With 85 million euro, depreciation and amortization are 3% higher as in Q1 2019 and well in line with business performance. The financial result of 6 million euro improved by a million euro when compared with the previous year's quarter. The tax result for the quarter increased by roughly 2. to 5 million euro in line with the increased operational performance and the expected minor increase of the tax rate as discussed in our prelims call. Adjusted net income was up by 3 million euro from 35 to 38 million euro. Our free cash flow adjusted for Q1 2020 is minus 4.4 million euro, a quite normal level compared to previous year's first quarters. However, below Q1 2019, which was an exceptionally strong quarter. Tax cash out was €7 million in Q1 2020 and on a normal level. In Q1 2019, we had to cover compensation payments for the previous year. Working capital in Q1 2020 was minus €30 million compared to minus €8 million in the previous year's quarter. The development is mainly due to phasing effects. However, it should be noted that working capital in the previous year's quarter was comparably strong and above the level normally to be expected. In line with our growth and digitization strategy, sustainable high investments in digital screens, software, and other intangibles were made as budgeted and were on pre-corona levels. Lease liability repayments were down slightly by $2 million from $48 to $46 million. As in previous years, Bank leverage ratio increased slightly in the first quarter compared to the year end and was slightly up from 1.44 to a still very solid 1.5 at the end of the reporting period. As mentioned before by Christian in his opening remarks, Q1 2020 was very solid, especially when taking into account the negative effects from corona on programmatic public video and Ranger in the last two weeks of March. All three segments, out-of-home media, digital out-of-home and content, as well as direct media, supported the positive development. Out-of-home media showed organic growth of 6%, digital out-of-home and content increased by 10%, and last but not least, direct media grew by 1% in the first quarter. In absolute terms, out-of-media revenue was up by 6% from 143 to 152 million euros. This strong development was driven by a consistently strong growth in all sales segments, such as national, regional, and local. Adjusted EBITDA of out-of-home media increased from 63 to 66 million euro in Q1 2020. With that, EBITDA margin stands at 43.6% pretty much on the level of the comparable period. Revenue growth of digital out-of-home and content was again mainly driven by a strong performance of our public video business as well as Statista. In total, reported revenue grew to €137 million compared to €125 million in the first quarter of the previous year. In Q1 2020, adjusted EBITDA of digital art of home and content was €49 million with a margin of 36%, or 80 basis points above previous year's Q1 margin of 35.2%. This was mainly driven by an overall positive business development and especially ongoing highly profitable public video business. Reported revenue of the direct media segment was slightly down by €2 million from €89 to €87 million. This relates to minor disposal effects of foodists and connections. Adjusted EBITDA for the quarter was €15 million, up by 7.6% versus prior year's quarter, and corresponded to an EBITDA margin of 17%. Let me now hand over to Christian Schmalzen who will give you an update on the current situation and our expectations going forward.

What we could observe in the last days, the first thing people do after a couple of weeks in their homes after focusing on themselves and the family is going out and enjoying life in the first warm days in spring. Restaurants, beer gardens, hotels, as well as shops, smaller and larger than 800 square meters, are already open again in some regions or will reopen soon. As of today, we have already indications that especially large clients and advertisers will capture that opportunity to reposition and activate their brand USPs. With our strong market share, our broad marketing and advertising services, as well as the highly flexible digital out-of-home solutions, we are ready and best positioned for that phase of recovery. Nevertheless, our focus from mid of March until end of April was very clear. Firstly, tight cash and cost management for the total group and securing the very robust development of the non-out-of-home businesses during the peak weeks of the crisis. Secondly, optimizing our out-of-home cost phase for Q2 and the following recovery months as aggressive as possible and with all available extraordinary instruments. We see that almost 80% of our total out-of-home and public video cost structure is flexible in such an extraordinary situation, and we target a cost reduction in that segment, including public video, for Q2 of at least 40% to 45%. Thirdly, making sure that across all our sales teams, we stay in close touch with the market to anticipate all rebound scenarios in real time, optimize our product bundles accordingly, and focus on market share optimization. Despite still low visibility for revenue development, we perceive already first signs of market recovery, which will be slowly supported by the easing of the corona restrictions to bring public life closer to normal. However, we expect Q2 to be hit by the effects from the restrictions to public life to slow down the spread of the virus. On out-of-home, for example, the eight weeks of strong restrictions of public life with the request to leave home only for important reasons had massively negative impact on campaign revenues, both with large national but also with mid-sized regional customers. As explained before, we expect positive stimulus from the reinitiation of public life and see first signs of recovery for June. In contrast, revenues with small local clients, which stand for roughly 20% of our out-of-home client base, are quite robust and are expected to reach at least 70% to 80% versus prior year's quarter. Looking into Q2's out-of-home order book in Germany, we stand in total at around 50% versus prior year's quarter due to long-term contracts and long-term campaigns of SMEs. The next four weeks will show if there is smaller upside potential for Q2 and what the dynamics for Q3 might look like. At digital out-of-home and content, the corona crisis will take its share in particular from public video. Bookings, especially via programmatic, will slash down to approximately 20% for the time being. Against the backdrop of public lives coming back, customers will react immediately, revitalize their campaigns, which potentially results in a soft rebound for end of May and June. In times of crisis, it is typical behavior to keep up to date with the latest developments and to keep in touch with friends, family, and business partners. G-Online offers advertising-financed, well-researched information on the most important topics and is still the gateway to email accounts for many people. Our customers, such as telecommunications companies, supermarket chains like Rewe, Lidl, or Aldi, as well as large number of e-commerce businesses like Otto or Zalando, perceive G-Online and many of our other websites as powerful distribution channels. This is why G-Online, as well as our third-party websites and online marketing portfolio, deliver solid performance and stand at an index of around 100 versus prior years Q2 at the moment. Especially in times of crisis, reliable facts and statistics are a crucial success factor for companies. But also private persons inform themselves about facts and current developments. Against this backdrop, we expect Statista to remain at least stable in Q2 compared to the same quarter of the previous year, and for the year as a whole, we anticipate a growth rate of 15% to 20%. Q1 was slightly above 30%, and June will be already back on growth track. In total, we therefore expect a year-on-year development of index 70 for the digital out-of-home and content segment as a whole in Q2, with upside potential for public video as already described. Our direct media segment is proving to be very robust, especially in the current crisis scenario. Looking into the details, Azam Beauty, the main part of the sub-segment transactions, is expected to continue the positive business development of the past quarters almost seamlessly, and we await revenue growth of up to 10% versus the prior year quarter. There is currently also unchanged demand for our call centers, especially customers from the e-commerce sector have once again increased significantly their volumes. Service requests, returns, and other issues can be handled well via contact centers. On the other hand, consumers can be reached easily at home, which our customers take advantage of for their campaigns. We therefore expect sales and business development on index 105 versus previous year 4Q2. Nine weeks out of business will unfortunately leave significant marks in the development of our door-to-door business arranger. However, we've already sent the first smaller teams of our sales agents back out and hope to be at full pace in the first half of June. Nevertheless, we assume that the development here will only reach an index of approximately 25 compared to the same quarter of the previous year. The rest of the year, so from mid of June onwards, should be completely normalized again. Taking into account the described details, we expect total segment direct media to show a performance of around 75 when indexed against Q2 2019. As this crisis is already exceptional and as revenue visibility is still really low right at the moment, we think that quarterly outlooks with a level of detail as described above give the best perspective on the current business development. That said, the flexible cost structure of our out-of-home business, the quite resilient performance of the non-out-of-home or the plus businesses, as well as our strong balance sheet, cash position, and low debt and debt leverage ratio give us confidence to return relatively stronger as soon as the advertising market starts to normalize. With that, let me close our presentation with a reference to our Q2 and interim report on August 13, where we will give you also more insights on Q3 and what we expect for the second half of 2020. Thank you, everyone, and we are now happy to take your questions.