VusionGroup

Ladies and gentlemen, welcome to the SES IMAGOTAC 2022 full-year results conference call. I am pleased to present today's speakers, Thierry Gadou, CEO, and Thierry Lemaitre, CFO. Gentlemen, please go ahead.

Good evening. Thanks for joining our conference call following the disclosure earlier, just a few minutes ago, of our full-year 2022 results. So you can follow the slideshow if you are connected on the web conference. So six weeks ago, we had already discussed our strong growth numbers with sales of 47% at 620 million. And we are happy to confirm today that this growth was profitable and significantly more so than the previous year. That should not be a complete surprise, as we had provided precise guidance four months ago at the Capital Markets Day. You remember, probably, we had given an EBITDA range of 53 to 60 million, a 9 to 10% margin range, and we end up close to 59 million at 9.4% EBITDA margin, and a significant increase in net result. However, when we promised at the beginning of last year that we would increase significantly our profitability in 22, we didn't know we would suffer during most of the year the combined headwinds of supply chain tensions, the worst commodity shock of the decade, and the increase of the dollar, all combined. So we are all the happier today. to be with you confirming this performance in such a difficult context. 2002 has been a very good test of our resilience and of the relevance of our strategy and business model. I will now let Thierry take you through the detailed numbers.

Thank you, Thierry. So it's my pleasure tonight to present the full year 2022 financial performance of ACS Emerita Group. And as Thierry said, these results really confirmed the quality of our business model since we were able to face major headwinds and deliver a significant performance improvement. Despite the very detrimental fluoride impact, especially in H2 and higher component costs, we succeeded in almost stabilizing the variable cost margin rate. And since we could control the OPEX, which now represents only 11.7% of the revenues versus 14% in 2021, we could grow the EBITDA margin by two points at 9.4% of the sales, which means grow the EBITDA in value by 81% at 58.6 million euros. We even reached, over the second half of 2022, a 10% EBITDA margin. And finally, we also multiply by nine the net income, which now stands at 18.7 million euros. So on the following slide, you will see the major impact of the two headwinds that we previously highlighted, the first one being, of course, the forex impact and the euro-dollar exchange rate. As you can see on the graph, the deterioration of the euro-dollar exchange rate has been brutal, especially in H2. 100% of our records are denominated in dollars. And even though we succeeded in invoicing almost 50% of our revenues in dollars, this had, of course, a very detrimental impact in our 2022 accounts. It cost us approximately four point margins, which means that if we had kept the same exchange rate in 2021 and 2022, our VCM rates would have been four points higher. Hopefully, as you can see, the trend is now improving, early Q1 2023, and this should pave the way if the trend remains, of course, to a better performance in 2025. Second headwind on the following slide, this is what Thierry previously highlighted as well, which is the components cost increase. This cost increased continuously over 2021 and 2022, which was actually not the trend before 2020 and the COVID-19. And despite this cost increase and the forest inspect, I remember that we could almost stabilize the margin. Good news here too, as we had expected, we now see that the purchasing costs are decreasing again, and this should benefit our production costs in 2023. On the following slide, It seems to be now a usual trend that you might get used to, which is the OPEX ratio. And you see that this OPEX ratio is decreasing. It's represented a bit less than 12%, 11.7% precisely in 2022, versus 14% in 2021. And this is, of course, essentially due to the higher revenue growth, but also a good control of our op-eds, which are essentially consisting of HR costs. This puts, of course, the company in good shape to be able to deliver the 10% op-ed ratio that we have set as an ambition for 2027. So finally, on the following slide in the EBITDA, you see as a summary that the significant growth supported the EBITDA increase. And the increase in profitability of our value-added solution, which is something which is nice to remind, plus the pricing power translating into selling price increases that we place to customers could almost offset the negative impact resulting from the Forex and the higher cards.

CapEx.

Our CapEx have increased in 2022 versus 2021, and this is mainly the results of our R&D investment that we are pushing in order to develop our next generation digital shelf system. This is of course a significant investment that we should also see in 2023, but this is at the level of the ambitions that we are currently nourishing towards the large customers which are likely to buy these solutions in the coming quarters. And cash situation to end up this financial presentation. We end up the year 2022 with a 40 million euros net debt, which is mainly impacted by fast-growing EBITDA, of course, higher IMDca bets, and the negative impact resulting from the deconsolidation of our Chinese JV, which had almost 20 million euros on its balance sheet. This means a 0.7 times net debt to EBITDA leverage. This is, of course, a very low and moderate level as well as net debt to equity ratio of 20%. And this puts the company in a safe situation to begin 2023 with a sound balance sheet. So what's the outlook for 2023 based on the 2022 results? Of course, we confirm our strong growth on the revenue and our 800 million euros revenue target and based On the positive outlook on the COGS and also the dollar, and of course the strong increase that we are expecting on the VAS, we anticipate a continued significant increase in profitability in 2023. So that's it for this financial performance, and I'll leave the floor to Thierry.

Thank you, Thierry. Well, I can only, you know, as a word of conclusion, confirm what you just said. I think we have continued to build in 22 a strong platform for our customers' success first, but also for profitable growth. And in 23, we will benefit from all these construction of the past few years. We will benefit from the largest portfolio of digital solutions available in the market and their increasing adoption. We will bring several major innovations to the market. Thierry has been mentioning our significant investment in R&D to develop a completely disruptive new digital shelf system. And this will come to the market during this year. We also anticipate that Europe will grow fast but that America will be our fastest growing region. We will benefit from a more favorable environment in terms of supply chain and industrial cost, as Thierry just said. So despite the current global economic headwinds, which exist, we can't deny it, we start the year with great confidence on our target. Our profitability should continue to increase semester after semester. And all in all, we see 23 as a first major milestone on our way to the Vision 27 target. Thank you for your attention, and of course, we're available for questions if there are any.

Ladies and gentlemen, if you wish to ask a question, please press 0 and 1 on your telephone keypad.

So, well, I said if there are any, so no questions means we've been very, very clear. So I think if we will wait for another minute, and if there are no questions, then I think...

So sorry about the time. We have a first question from Aurelien Sivignon from ODO-BHF. Please go ahead.

Yeah, thank you. Good evening and congratulations for the 2022 performance. I will have four questions, please. First on VCM, can you comment on the breakdown between ESL and VAS in 2022? Is it still fair to assume that the VAS VCM is around three times higher than the ECL VCM? So that is my first question. Then on the OPEX sell ratio, so which has greatly improved last year, do you see further leverage in 2023 or should we expect the 10% ratio to be reached, let's say, later in the 2027 plan? Third question on CAPEX, I would appreciate if you could maybe give us more color on the CAPEX trajectory for 2023, because the acceleration has been strong in H223, so that's why shall we consider that the 23 CAPEX sales ratio to be in the 5 to 7% range as guided in the 27 plan? And my last question was about the acquisition of In the Memory and BeLive AI. So since both are now closed, could you give us more color on the total cash out we have to take into account? And maybe if you can say a word on the margin contribution for 2023 for those two deals. Thank you very much.

Thank you, Aurélien, for this set of questions. Very comprehensive one. VCM rate, yes, I think it's fair to consider that the ratio is still approximately 1 to 3. Nonetheless, as you saw on the slide on the evolution of the DABDA, we mentioned that our VAS, our solutions, are showing an improvement in profitability, which is just translating the fact that more and more of our services are now cloud-based with a profitability which is for instance higher than the professional services or maybe the maintenance that we were essentially having in the VAS in the previous years. So it's a one to three ratio and of course this ratio is likely to increase moving forward. So that's the first one on the VCM rate. OPEX, you should not expect OPEX first, there is OPEX already. So OPEX, no, don't expect that the trend, which is a minus two points every year is going to repeat in 2023. In 2023, we will have a significant recruitment. So it's fair to assume that if there is an improvement, it will be a very limited one in 2023 compared to 2022. So let's keep around the 12%, which is a kind of a target for 2023. CAPEX in 2023 we will still have the impact of the continuous improvement and the continuous investment on the digital shelf solution that we are developing so it's fair to assume a high-end 7% of sales in CAPEX and then it should progressively get back to 5 to 7 in the coming years but 22 and 23 are quite a peak in terms of capacity due to the development of this specific range and new solution. Be live and in the memory. In the memory, we have finalized and completed the acquisition. It's not the case yet for be live. What we said is that we have not given any guidance on these two companies. I think it would be easier to give you a bit more guidance once we could integrate the performance of these two entities in our accounts so that you can see how it translates into the financials. So let's wait probably for H1 and maybe already Q1 to see the revenues, at least in the memory. but more likely at the end of each one, we'll give more precise guidance on these two entities.

Okay, very clear. Thank you. Thank you very much, Thierry.

So we have another question from Valentine Paul-Jean from Stifel.

Please go ahead. Good afternoon, everybody. Do you hear me well? Yes, we think so. Perfect. Sorry for taking my questions. I'm sorry I was interrupted so I didn't hear everything so maybe you answered some questions I would ask but I have three questions. First, Could you please give a comment on the order book and the value digitized dynamics over the beginning of this year, 2023? This is the first one. The second one is you confirmed that you are targeting 800 million euros in revenue, but you have made two acquisitions recently, so what contributions should we consider? And the third one would be about the PBA level for 2023. You didn't reiterate your target of 15%, so could you please elaborate a bit on that? Did you do a fix mostly, or... Yes, if you can add some details, please. Thank you.

So, for the first question on the order book, I didn't hear quite well the second question regarding the 800 million. But anyway, for the first question, we, of course, will discuss the Q1 numbers in the I think it's the 26th of April. But generally speaking, for the first half and the full year, we anticipate this year substantial growth in our order increase versus last year. So that's the dynamic. I'm not sure I understood your question on the .

It was the impact of the acquisitions for the 800 million euros. That's it, .

Yes, you are targeting 800 million euros, but yes, you made two acquisitions. So can we consider that you can publish something above this target?

Well, this is a general – again, I will make the same – I think we will make when they are completed first. So one is completed now, and the other one is still underway. So we will make, I would say, a more detailed debrief on these acquisitions when everything is completed. Nevertheless, they are small companies, so they don't change dramatically, I would say, the top line. And they were, you know, when, you know, so it is not very, I would say, material in terms of the, you know, of the top line. There are more transformational, I would say, acquisitions. So regarding figures, again, as Thierry said earlier, we will make a more detail with the H1 accounts, especially and more when we have absolutely completed these two acquisitions. But they are not, anyway, changing significantly. I would say the top line, we're at 800 million. We're talking about relatively small companies, so it's not changing very much. And, you know, there are many other reasons why we could be, you know, above or below, you know, at the scale of our business. So it is, let's take it as a target. Also, we had in visibility anyway, those acquisitions when we made our guidance.

Do not consider, for example, that we are revising the guidance and that we need these two acquisitions to deliver the 800 million euros. That's not the case at all. These are very small and tiny figures, so it's not really very representative in the total revenue target that we have. On the EBITDA, yes, you're right. We had mentioned, but it was a very long time ago, a 15% EBITDA margin. I think it still remains a goal. Of course, it is subject to the evolution of the overall economic situation and the dollar, and you can see that there is much volatility. There has been much volatility in 2022 on these two items. So let's wait a little bit to move forward in the course of the year 2023, and we should soon be back with a more precise guidance. But 2023, 15% EBITDA margin still remains a goal for the company.

Okay, thank you so much.

So we have another question from Laurent Jalabar from BNP Exam. Please go ahead.

Good morning, Thierry and Thierry. So I have one question regarding Captana. I would like to know if you are happy with the take-off rate of this product when you push it to your clients, and do you believe that – with the contracts you went to sign with Walmart, it will be embedded in the contract. The first question. The second one is regarding your new generation of ESN and so on. Do you have risks in terms of inventory of a product becoming, let's say, old-fashioned or that you will have to impair because you're not going to sell them? How are you going to transition, basically, between the new generation and the old one?

It's a good question. Regarding Captana, yes, we are happy with the take-up right. In fact, it's a solution that has a tremendous appetite because the ROI is extremely strong to monitor out-of-stock and the shelves in real time for retailers. There are After, you know, 22, we have gained many, many pilots, already started rollouts, and every time we see how relevant this offer is. But more importantly, Ivan, we see how unique our offer is. We think that... the performance of our solution compared to what we see elsewhere in the market was very good. The acquisition of BeLive is also very instrumental into making our solution a bit more universal because Keptana was very targeted at our ESL customers and BeLive is making it a bit more, I would say, agnostic. So we have great expectations on the take-up and in the future. This is one of the biggest agenda topic for retailers leaders right now is to be able to monitor shelves, to monitor execution. to monitor other stocks, and to monetize that data also with brands. And again, here you see the logic of the other acquisition, which is memory. They have a great expertise in monetizing data to CPGs, and that is also going to be super, extremely complementary to Katana. Talking about this new technology, So generation of shelf system, the way we are managing the transition, it's a big change. So we are thinking about right now focusing it on especially the U.S. market, which has no cannibalization risk. And then we're thinking about, you know, we will never jeopardize the investments of our customers. So there is not going to be any obsolescence of our platform, which is actually quite performing. But there's going to be a gradual upgrade of our customers, like we've already done, by the way, when we move from low frequency to high frequency or when we – there has always been – you know, a gradual upgrade and take refresh of our installed base. So there is no risk of obsolescence. And for now, anyway, this platform, which had a significant announcement, maybe some of you noticed, because we announced a part of this innovation with Qualcomm about this new Bluetooth-based protocol. That's part of the, it's one of the many, you know, disruptions in this platform. So right now, focus on America and obviously on the first of all of their customers, which is Walmart. So that's how we intend to manage the risk. So no obsolescence is going to be,

And in terms of selling the product, is it going to take place this year? I mean, first contract and implementation, or a contract signed this year and implementing the year after?

Well, we have this technology already in pilot, well, obviously, as you know, in Walmart, but also in other retailers. So it's going to be, I would say, the first contract, yes, for this year. And then, you know, in America, we are going to make essentially, you know, our proposals now based on this system towards at least around H2 next year is going to be essentially on this system. But that has been already, you know, planned and organized. So this is not an improvisation. So most of the U.S. market should be continuing to grow or migrating rapidly to this new system. Thank you, Thierry.

So we have another question from Hubert Maté from Maté and Company. Please go ahead.

Good evening, Thierry. One technical question. One technical question, first of all, is it fair to assume that reaching 800 million euro revenue in 2023 should balance, you know, the euro-dollar exposure you have, or is it a little bit too soon to conclude that?

I think it's too soon, Hubert. Okay, okay.

Thanks a lot. Okay, the second question for the other, Thierry. I consider, but I might be wrong, that the risk acquisition you made with Believe is what I call bolt-on acquisition, i.e. things you believe is important to add on to the existing technology you're developing with Kaptana. Let's say, in the years ahead of us, do you think you will still have those kinds of bolt-on acquisitions to make, or some, let's say, very strategic acquisitions to make, like the one you realized last year, because you're missing a little bit of technology to fully develop Capcom now.

No, I think the – no, we don't – at least we don't have any insight. I mean, obviously, it's very – it would be very absurd for us to say we don't need anything and, you know, as a statement. But I would say that we very carefully, you know, searched and were looking for something quite precise. In the case of memory, it's very obvious. We needed category management expertise. We needed data science expertise in the context of retail and CPGs. This is very important for us to improve our solutions and also to increase the ROI of our solution because it's in the data that you find the profit. And for BeLive, it's the same. We needed something that could expand the scope of Captana outside the perimeter of the Vuzion ESL customers. So I think we have great assets in technology, and we're not in search of anything that we see are missing. It doesn't mean we say we do everything, and we intend to do everything in retail tech, of course. That's not the point, and we probably could not, but we have great avenues now because, you know, with Engage, with Captana, with Memory, with Fusion, we have now a very comprehensive set of technologies to digitize retail and to and to extract the value out of this digitization. So I would say we don't see, actually we don't have acquisitions inside. We don't have acquisition in search at the moment because we think we have a very, very good portfolio. Let me tell you that Engage is on the retail media in-store story. And Kaptana is on the supply chain transparency story. Those are huge business opportunities. Those are huge markets. And so it's enough to focus. So do we, you know, are there going to be small acquisitions like usually we do? You know, we take technology. We have so many customers. We take technology. We scale it. We don't need to buy necessarily big things. We don't buy revenue. We buy technologies and capabilities. And we keep them, by the way. I'm not saying we don't need for something that we strengthen our AI engines. Maybe we could, but it's not a fundamental thing that we see a need of. Now we have really made two things that we were in search of You know, recently, to give you an example, recently somebody showed me a picture of me at the Euroshop 2020. And I was small on the picture because I was not the main character of the picture. But under my arm, I had a leaflet, you know, a brochure of BeLive. That was in 2020. So, you see, we take our time to watch people. I think we made great success in integrating all of them. And so there is no need for more at the moment that I see at least.

Okay. Thank you. All the best for 2023 then.

Thank you. I'm sure we'll see each other.

So we have no further questions. As a reminder, ladies and gentlemen, if you wish to ask a question, please press 0 and 1 on your telephone keypad.

Excellent. So, yeah, I think there is no questions, so I wish you goodbye, and we will now talk next on the 26th? Is that right? 25th? 27th now? Okay, 27th of April. So, have a good evening, and see you soon. Thank you very much. Bye-bye.

Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.