Sto SE & Co. KGaA

Conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Schmalzer. Please go ahead, sir.

Dear ladies and gentlemen, panelists, let me welcome you to our call on our Q1 2024 results. I will start into our presentation with a brief overview of the key figures for the first three months, followed by comments on strategic topics we want to highlight and what trends and developments we see at the moment. Henning will then comment on the developments and effects of our Q1 figures in more detail. This will be followed by comments on what we expect for the second quarter and the rest of the year. As always, we are looking forward to your questions after our presentation. With that, let us start the call with a short overview of Q1 2024. In our comments on our prelims, we had already indicated that the strong developments at the end of last year should continue in the first quarter, particularly in the out of home segment. We were able to increase sales from 410 million to 453 million euro, an increase of 11%. Organic growth for the same period was 9%. At the same time, adjusted EBITDA increased slightly better than sales at 12%. In addition to easing cost pressure and declining inflation, this was due to the substantial positive development of our core out-of-home segment. As already commented in our outlook, we expect an almost stable IFRS 16 effect and almost stable depreciation and amortization for the financial year. As consequence, adjusted EBIT will increase significantly stronger compared with adjusted EBITDA. Corresponding effect can be clearly seen in the past quarter and adjusted EBIT growth of 33% to around 35 million euros speaks for itself. We had a strong focus on cost management in the last 18 months, and as inflation softens, we see the fruits of our efforts in clearly improving operational leverage. Net income adjusted increased by 41% year-on-year from €9 million to €12 million. Free cash flow for the quarter declined to €-24 million compared to €-15 million in the prior year period, mainly influenced by working capital phasing. At around 90 million Euro, CapEx for the quarter was 38% below the previous year's figure of 31 million Euro and reflects the back to normal and our objective of further optimizing and improving the fill rate of our digital portfolio. Full year, we plan with broadly stable investments, so the lower number in Q1 is rather a phasing effect, just like the working capital system. While 2023 was a rather weak year for the advertising market to start into 2024, of course, again, software comms was quite positive. Global platforms like Google, YouTube and Meta have substantial growth again, and also Nielsen Numbers saw double-digit growth for the German ad market. It's important to mention that Nielsen reports on a gross basis and therefore these numbers are inflated by some six to seven percentage points versus net figures. So realistically, the German net ad spend is up by five to six percent and out of home in total on a net base around 14 to 15 percent. Either way, on a like for like basis, out of home advertising continued to win market share. Our own sure developments in net revenues, plus 11% for our group, plus 16 for our core out-of-home segment. Organic growth was at 17.4% and therefore even two and a half points better than our best estimate nine weeks ago. With plus 30% for digital out-of-home, we were able to continue the strong momentum of Q4 last year. The developments are definitely outstanding against the German ad market and even global digital platforms from the US don't show the dynamics of digital out of home at the moment. Similar to 2023, apart from TikTok and Amazon retail, digital out of home is the most dynamic in the ad market. We have been talking about structural change for many quarters. In the last decade, the ad market has gone through massive changes, but the CAGR of the out-of-home business has constantly and substantially outperformed all other local media. The pandemic, with the various lockdowns, had special challenges for our medium, but the developments since the end of COVID show an even accelerated outperformance of out-of-home. OOH advertising has developed from a niche topic with 3% to one of the key media in the German advertising market. Overall, the share almost tripled in the last 10 years to a new record in Q1 2024 of 9.2% and the current momentum should take us to and beyond 10% in the coming 12 to 18 months. And the 10% won't be the limit looking at the various market projections from EGPWC, the industry body or others. The underlying growth drivers indicates a stable further momentum at least for the next 10 years. On the one hand, it's the ongoing digitization of our inventory that constantly improves the flexible advertising opportunities for brands. On the other hand, it's the ongoing integration of digital out of home into the digital marketing world via programmatic advertising. Instead of pitching the out-of-home medium as a separate channel, it becomes more and more seamlessly integrated in the flow of digital advertising money. So the growth of out-of-home is digital, and the digital growth is programmatic. That said, we still see good opportunities for classic out-of-home, and our Q1 results with double-digit growth for the classic sub-segment is a proof for that. On a local level and for local advertisers, the location of an advertising site is crucial. Of course, digital out of home might be more attractive, but ultimately, MEs advertise where their business is. As national advertisers shift more and more to public video, we use the last 12 months to focus our local sales force even more on classic products. So across all of our sales channels, we still see low to mid-single digit growth potential for classic out-of-home midterm, and the digital growth will not happen at our own expense. We will win market jack from other media. But we have to actively manage that process and our long-term investments in local sales infrastructure pay off now, i.e. for the classic part of the business. Let's have a closer look at some of our internal KPIs for our public video business to illustrate a bit more why we are so positive about the underlying trends of digital out-of-home. The number of active advertisers increased by 14% compared to Q1 2023. We are seeing a constant net customer growth over the last two years, correspondingly stronger market penetration, and thus an increasing market share for the out-of-home category. Net revenue retention in Q1 was a remarkable 111%, while we have increased prices at the same time by around 7%. Low churn and increasing budgets driven by demand and higher prices are ultimately the proof for the high relevance of digital out of home and a strong ROI for advertisers. Our share of programmatic digital out of home revenue from the national advertiser segment was 57% and eight percentage points higher than in Q1 last year. It shows that digital out of home is rather an element of the digital media universe than the digital version of out of home. Advertisers benefit from the integration with other digital channels via the same trading desks and data management platforms, work with the same targeting features and optimize transactional costs via machine-to-machine buying. national customers below our top 20 by size so beyond the large corporate key accounts are characterized by average ticket sizes of around 77 000 euros historically out of home only made sense for nationwide advertisers when they invested at least 1.5 million euro for a proper flight to have the necessary presence in the biggest cities Today, digital out of home is one module in the predominantly digital media plan and advertisers look at the combined coverage of all digital media. So the entry barrier has decreased massively. Advertisers start by adding smaller public video tickets to their media mix and then grow it based on the positive ROI impact. Our plus businesses play different roles in supporting our core out of home segment. A combination of our online business and digital out of home is a building block in the strong development of our digital sales. Let's also have a look at some trends from Q1 to illustrate that. We were able to expand the reach of our private marketplace on our SSE by over 40%, leveraging new partners like Sport One, as well as CTV publishers such as Warner Brothers, Discovery and others. This is a crucial driver for online video growth, which brings more new customers to our SSP that ultimately then also buy digital out-of-home. Combining online and digital out-of-home on our SSP is simply doubling our lever on programmatic demand. In a year with various sports events and highlights, sports publishing is another important revenue driver. We were able to sign Sport One, which covers the entire sports world 24-7 a couple of months ago. Other complementary formats such as Transfermarkt and Touralarm have a strong reach with a total of 5 million unique users. With this attractive sports portfolio, we have successfully established ourselves in the German online sports segment and are the market leader with over 27 million unique users ahead of Springer Media Impact or Kicker Quarter Media. We combine and bundle this portfolio with our public video network and offer more than 30 high-impact multi-screen formats on desktop, mobile, and public screens, covering over 80% of the sports-enthusiastic audience. We will talk at the end of the presentation about our expectations for Q1. There's a series of top sporting events in 2024 and historically they had a best case neutral impact on our core business. The Football World Cup in 2006 in Germany, for instance, was rather slightly negative for out of home. Some sponsors invested heavily, but most of the advertisers reduced their spend massively during the event to avoid the clutter. Since out-of-home is meanwhile in a different position and the combination of our online sports asset have also positive spin-off effects on especially digital out-of-home, there is a fair chance for a little bit of extra momentum in June and July, but it's a bit too early to have full transparency on the order book for the end of Q2. Let me quickly put all of the current developments around out of home in a little bit of broader context, because what we observe since the end of the pandemic is a rather fundamental change for our core business. until the 1990s the media landscape was dominated by print media our industry was dominated by billboards advertisers selected a range of individual sites and on average 400 000 euro for a campaign then tv became the lead medium in the market the out of home media focused on backlight products like strollers and street furniture and advertisers had to book predefined networks which forced them to spend at least 1.5 million Euro for out-of-home. Today, the leading medium in the market is digital, so anything that is digital across all channels gets in total two-thirds of the advertising cake globally. Digital out-of-home is clearly the leading product in our industry and advertises by programmatically their relevant audiences of public video in any possible budget size. Almost all historical entry barriers to use out-of-home advertisers have fallen. We are seamlessly integrated in the workflow of all digital media and the historic underpenetration of out-of-home offer substantial catch-up effects over the coming years. So far on my remarks and with that, over to Henning.

Thank you, Christian, and good morning to everyone from my side. Altogether, we had a strong start into the new fiscal year, exceeding our own forecasts and expectations for sales, earnings, and cash flow. Reported sales growth in the first quarter came in at 11%. Their organic growth accelerated to 8.9%. The delta results mainly from the net effect of changes in the portfolio in fiscal year 23. The acquisition of some call center locations in Q2 last year, as well as the disposal of a non-core service activity in our out-of-home sector. Overall, an accelerating growth trend in out-of-home, more than compensated for a top-line moderation at Azam and Statista. The group achieved profitable growth with EBITDA adjusted improving by some 11 million or 12%. Exceptional items in the quarter were roughly 5 million euro. The increase compared to the prior year mainly resulted from reorganization costs in our content business and to a lesser extent in Statista. For the full year, we are currently expecting lower exceptionals than in the prior year. Reported EBITDA came in at 104 million Euro, up 10% compared to the prior year quarter. After a temporary increase in Q4, including some extraordinary write downs, now depreciation amortization for the quarter was basically flat. With that, reported EBIT for the quarter improved significantly from 18 to 27 million Euro. The financial result came in at around minus 18 million Euro compared to minus 14 million Euro in Q1, 23. The development mainly reflects higher interest rates. The oil report at the beginning of last year was still below 2% and kept rising to more than 3.8% until September 23. Based on that, we shall still see rising interest costs in the coming month, but with reduced dynamics and eventually an improvement towards the end of the year, depending on ECB rate action. Sequentially, compared to Q4 last year, the Q1 financial result was broadly stable. With that, EBT came in 9 million euro compared to 5 million euro in the previous year's quarter. Adjustments to be considered in the quarter were 6 million euro and related mainly to the exceptionals mentioned before, and PPA-related amortizations of around 3 million euro. To remind us, the corresponding assets were recognized by way of purchase price allocation in the context of the major acquisitions of the past. The corresponding annual amortization level is declining since more and more assets are fully written down in the meantime. After 23 million euro in 22 and 19 million in 23, in the current fiscal year, we talk about 12 million euro. Considering the effects described above, net income adjusted came in at around 20 euro, so approximately 4 million euro higher than in the prior year. Let us now switch over to the cash flow. The improvement in EBITDA and lower cash out per taxes was contrasted by higher cash out for interest and working capital, as well as a decline in other. The capital development reflects seasonality patterns, in particular also after quite strong development towards the end of last year. For the full year, we expect a moderate buildup in working capital. The increase in the position other reflects a slightly higher utilization of provisions compared to Q1 last year and higher equity income included in the EBITDA that has not yet become cash effective and as such is corrected via the position other. All in all, that leads to an operating cash flow of 44 million euro, including lower investments, free cash flow was slightly up year on year. Leased liability repayments last year benefited from phasing effects. The free cash flow adjusted, so after leased liability repayments, amounted to minus 24 million euros for the quarter and exceeded our own internal forecast. As already discussed in early March, we expect significantly improved free cash flow generation for 2024. In the sequential view, from the end of Q4 to the end of Q1, net debt was up by 13 million euros. including the adjusted free cash flow for the quarter of minus 24 million euro and a cash in from the equity contribution of exercise stock options of plus 4 million euro. The remainder of 7 million in the net debt reconciliation resulted from the reduction of previous customer overpayments. As a reminder, these overpayments do not impact net debt since the corresponding cash out is offset by the reduction of the financial liability to the With that, our leverage ratio remains stable, credit Q4 last year, and slightly better than in prior years Q1. Including the expected dividend payment in Q2, our leverage ratio will increase before we expect an improvement again for the second half. Let me now discuss the performance of the individual operating segments, starting with our core segment, out-of-home media. As expected, out-of-home media got off to a strong start into the new fiscal year. Organic growth came in stronger than the 14% in Q4 and also stronger than the 15% we expected as part of our guidance for the quarter. Organic growth for Q1 was 17% and included a strong finish in the last weeks of the quarter. Against the background of improving market conditions, growth was fueled by both our classical product as well as digital. Our regional and local business continued to deliver solid growth, but our business and national accounts reflected a very promising trajectory based on our strongly improved reach, targeting options, as well as easy programmatic accessibility. Sales in classic out-of-home were up by 13%. Sales in digital out-of-home improved by 30%. and the service category compared to the prior year were characterized by the disposal of a non-core activity. EBITDA adjusted for the quarter increased from 59 to 73 million euro, supported by moderating cost inflation and the better utilization also of our classic infrastructure. The EBITDA margin improved by 270 basis points. As we have said in March, for the full year 24, we expect sales in EBITDA to show a more synchronized development than in 23. And for the time being, we would stick to that while the chances and risk profile is clearly improving. In digital and dialogue, revenue in the first quarter increased by 13%. Within digital, sales growth was driven by programmatic demand, while our content business remained broadly stable in a normalizing market context. Growth in our dialogue activities was 13% and still benefited from the acquisition of some call center locations last year. Organic sales growth was around 3% after a decline in Q4. Altogether, the segment delivered an EBITDA adjusted of €31 million after €33 million last year, including a technical effect of around €-3 million from the loss of the Bauer contract that I mentioned in the last call. The effect on EBITDA adjusted for the full fiscal year will be around €-10 million. There is and will be no effect on sales, EBIT and net cash flow due to the compensation of business volume through newly acquired business mandates such as SPORT 1, for instance. Excluding that technical impact, the segment EBITDA adjusted showed a slight improvement compared to the prior year Q1. Moving over to our data as a service and e-commerce segment with Statista and ASAM. In total, revenue rose with 5% in the first quarter. While sales in ASAM's core retail and online activities continued to deliver double-digit growth rates, sales in the wholesale distribution channel were impaired by volatility and demand. Wholesale distribution last year delivered a very strong performance throughout the year, essentially from wholesalers catering for Chinese and consumer demand. And here in particular for products outside the classical beauty and care assortment of Assam. Our visibility on that channel is by nature lower than the core business and core markets. Sales at Statista, as expected, developed at more or less the same growth rate like in Q4 last year. Underlying dynamics, however, are recovering, and new customer growth for subscription revenue grew by 20% in Q1 24. Last year, we have made some key changes to prepare Statista for the next growth level, including the transition from the co-founder team to our new CEO, Mark Berg, new pricing and sales organization, and the first better version of AI-backed search on the platform. So the operational low point was already autumn last year. But in a subscription-driven business, you see the revenue impact six to eight months later. Based on that, we are expecting accelerating sales growth in the coming quarters of this year. EBITDA adjusted was stable compared to Q1 last year and amounted to 12 million euro. With that, let me hand you back over to Christian for the outlook and closing remarks.