Fielmann Group Ag U/Adr

Good afternoon, ladies and gentlemen, and a warm welcome to today's earnings call of the Fehlmann Group AG following the publication of the first half year results 2024. I am delighted to welcome the CFO, Steffen Betyer, who will speak in a moment and guide us through the presentation and the figures. After the presentation, we will move on to a Q&A session in which you have the possibility to place your questions directly to the management. So let's jump straight into the numbers. Steffen, the stage is yours.

Thank you very much, Judith, and good afternoon to everybody. Good morning to those of you joining us from the US. It's our first earnings call. that we're doing here as Fielmann Group. So very excited. Let's make this a tradition and try to be in touch once a quarter, you know, because I think a direct interchange or an exchange between us and our investors is really important. The presentation that we're holding here today, including my speech, so to say, will be published later today on our investor relations website. I will present for about 30 minutes and as Judith said, Thereafter we have time for Q&A. I am not reading the disclaimer. So I'm Stefan Bejtje. I'm really, really, as I said, really, really pleased to join you. I joined Fielmann just over a year ago. Before that, you know, by education, I'm an economist and worked for McKinsey and have been a CFO for the last 15 years, mainly in private equity owned services business. I'm very happy to present to you today what was a really Good first half of the year, despite the challenging market conditions that we have, especially in our home market in Germany. So it was a good half year. But let's be a little bit cautious as CFOs should be and say this is just the first half of a marathon. I'm going to keep the intro of the Fielmann Group and who we are and what makes us great really short. I assume that you know us. Over the past decades, we have built and developed from a German optical retail chain into a central European market leader, and we're now a global operator, the third largest optical retailer in the world. The foundation of our success is a radical customer centricity. We really focus on making our customers happy. We're really working on consulting our customers as if they were part of the family and trying to give them the best service and the best advice so that they, on the other hand, go and leave our stores and have the best vision possible, because we believe that that is the foundation for a long term Growth and the last 50 years show that we weren't totally off with that assumption. As I said, we're a market leader in Central Europe. We're number one in Germany, Austria, Switzerland. Number two, you see that on this chart, number two in adjacent markets in Spain, number three in Italy. And we have just become the market leader in four European states and four U.S. states. Our business by segment, well, you know, Germany, we're doing optics and acoustics, mainly geographical footprint. Germany, our home market is is still the biggest. But with the recent acquisition in the US, we're now looking at about 40 percent of our sales in the second half of this year will be coming from outside Germany. And We're aiming to get this up to 50% in the medium term. The vision 2025, the internationalization of our business is really important for us. It's really important for me as a CFO because we're unlocking new growth opportunities and new growth engines and we're diversifying our risk so that we're more independent of certain economic trends that we witness at the moment. So If we look at the product categories, well, we are an optics and acoustics player, so we're mainly doing optics and acoustics. As you can see, we're focusing on prescription eyewear. Acoustics with 6% is a fast-growing business that we have, but we're not a sunglass provider. We are really all about prescription eyewear. We help everyone here and see the beauty in the world. That's our vision that we developed together with all our employees about two years ago. And that really says it all. We aim to help everybody. As I said, the basis of our success is a radical customer centricity. It's anchored in our DNA. And I can tell you, I joined the business a year ago, and it's really impressive to see how every Every employee lives and breathes this every day. And it is all about how can we make our customers happy and provide them, as I said, the best product, the best service at the best price so that people have the best vision Our guiding principle is the customer is you, which basically emphasizes all that and says that we want to consult our customers as if they were part of the family. So they should get the advice that we would like to get from my brother or my sister or that I would give to my parents. Satisfied customers translate into business value and into into customer value and to shareholder value. And that's basically the other side of the metal. But we believe this is really the foundation of our success. I'm not going to go through the summary. As I said, we're going to publish this. But overall, we had a pretty good First half year challenging environment, but we actually grew in sales organically and inorganically. We increased our EBITDA margin in Europe more than in the group overall because the US is still margin dilutive. We're working on that. and we keep our guidance that we issued after the Shopko acquisition. We keep our guidance and we confirm that guidance. Now let's take a closer look into our numbers. Total sales EBITDA and EBT growth you see on this slide. The year-on-year growth in sales was 11%. The EBITDA grew by 14%. The margin improved half year one this year to half year first last year by 50 basis points. Our operating cash flow is in good shape. It also grew in an amount similar to the EBT. So overall happy CFO. But as I said, challenging market environment. So I remain cautious, but cautiously optimistic for the remainder of the year. Let's look at the revenue development a little bit more in detail. Total sales, as I said, plus 11%. If you look at that, you see the half year on the left, you see the half year last year, first half year 2023. We closed, as you know, some stores in Italy because we went through a portfolio analysis and we found that we had about 12 stores where we don't want to continue doing business. So that was a negative impact on our top line. These 12 stores generated about 2 million in sales last year in the first half. We reported just over a billion for this half year in revenue. The U.S. business, you should deduct the U.S. business wasn't around last year. So this is a first time consolidation. The closed Italy stores obviously made no revenue. And then we had new stores that we all that also didn't make any relevant revenue so far. So we're looking at a million and thirty one adjusted like for like revenue. And that's a five percent organic growth. So really happy with the growth on an organic basis. As I said, 11% growth overall. Now let's look at product categories and countries just to tell you what is the foundation of our growth. And you see that we're actually growing across all relevant core product categories. The bars that you see on this slide are is the the top line growth for the first half year compared to first half year last year on the bottom you see just the q2 performance for your information so prescription eyewear growing by 12 percent acoustics growing by 12 percent contact lenses by three percent sunglasses minus six percent well everybody who was in germany noticed that the summer uh so far was not really the best, so it was not definitely a summer where people thought like, Jesus, I really need new sunglasses. We did not have a lot of demand for that, and that is what you see in the numbers. It is a small category, as you remember from the sales segmentation, it is a small category, and we are looking at minus 6%. There. So let's look at the countries, especially proud of that, that the country growth is we're growing across all countries. Germany, as I said, plus 5 percent despite a challenging market environment, plus 7 percent. You see that at the bottom in Q2. The U.S. This is like for like. So we're doing as if we had them on our books last year as well. So the US growing at 9%, Spain double digit growth, Austria double digit growth, all the others almost double digit growth. So really happy that we're providing a growth platform that really grows across all product categories and all countries. Italy is the only country really, and I'm sorry, it's very, very warm in here. Italy is really the only country where we didn't show year on year growth, but that is obviously because we closed 12 stores there. Italy, though, is EBITDA positive, so that's a great development for us. Let's look at EBITDA for the group. EBITDA grew by 14%. Margin is up by 0.5 percentage points. This is a chart that everybody, every CFO really likes, you know, 11% in sales, 14% in EBITDA margin. That basically means that we have operational leverage. So we're really using our cost base to grow and EBITDA grows a little faster than total sales. which is great. The US business, as I said, is a business that is currently margin dilutive. We're working on that, as I said, and that's part of the whole US strategy that we have. And I come to that a little later. In Europe, we are seeing an improvement in EBITDA margin from 21.2% because it was only Europe last year to 23%. So a 180 basis point improvement in the European margin. Now, how do we do that? Let's look at two levers that we're working on. Lever number one is an improved sales structure. Our business benefits from an underlying demographic trend that basically says, People get older and if you, you know, if you turn older and I can tell you, I'm 54, I'm experiencing it myself. If you turn older, you need glasses. Either you need glasses to read if you didn't have glasses before or you need progressive lenses. And we benefit from that demographic trend. And we see that we have a higher progressive lens share. We also remain the price leader. That means what we offer our customers is the best service, the best product and also the best price. And wherever we see the opportunity, because the market moves, we obviously also following. But we always keep that distance to our competitors and and, you know, remain the price leader. But that helps us to build volume and that helps us to to leverage our cost structure. And therefore that helps us to improve our EBITDA. We also working on having a higher share of quality lenses. We always offer our customers three different lenses and working on, you know, training our people so that our people as well as our customers understand the benefits of higher quality lenses and increasing that share all that. leads to an improvement year on year in our gross profit margin of one percentage points and that's quite a success that our employees work for every day and they do it and that's the most important part because they consult our customers so that they get the best product and the best service lever number two Obviously, we got to look at efficiency. We're increasing efficiency in our stores and our headquarters. Just two examples how we do it in our stores. We're using things like automated refraction, which dials down the time that we need for a refraction, so an eye test. of a customer from 12 minutes to about five minutes. Well, you know, we're looking at four million refractions a year. So that's every minute. Every minute here really counts because we typically do not have enough members of staff in our stores to serve all the customers who want to get glasses from us. So really getting getting an efficiency driver really helps us. We're also rolling out a software at the moment that's going to merge the predicted customer flow with our workforce workforce so that we make sure that wherever possible we have sufficient staff for the amount of customers that visit us and obviously on the other hand as well that we have sufficient customers for the members of staff that we have in our stores that really that really helps and we're also obviously continuing to look and improve uh cost in our headquarters All that led to an improvement in our personnel cost ratio of, again, a percentage point. And given this is one of our largest cost positions, that really makes a difference. So you see, we're working on our top line, we're working on our bottom line, we're working on our sales structure and all that just to come to these results that we can expect. present to you. Now, looking at what happens after EBITDA, there's obviously IFRS 16 interest and depreciation or, you know, the rent payments or the rent related payments. We have the other DNA and we have of about 47 million. We have other financial results. All this looks good and leads to an EBT of 127 million, which is an increase of 17% or 6.6 percentage points increase in our EBT margin. Again, as I said, it's a great P&L, 11% more in sales, 14% more EBITDA, 17% more EBT. It really shows operational leverage. If you're trying to model it, please bear in mind that we're going to add a U.S. financing of about 300 million to the financial results. That's about 10 to 12 million a year. And we obviously also have the U.S. purchase price allocation and depreciation that's going to impact these numbers. But we talk about that in more detail in the next quarter. Most many of you have asked us in our investor meetings that, you know, you would like to have a clearer view on what the true and clear operational view of our business or performance of our businesses and every like every business. We do have certain, you know, big numbers that dilute the clear or cloud the clear view. on our EBITDA numbers and EBT numbers. And so we are moving towards showing you an adjusted EBT and an adjusted EBTA in the following quarters, just because we feel like you that that provides us with a much clearer view on the true operational performance of our business. On the left-hand side, you see the effects that we had in the first half year of this year. We had another industry player joining us as a shareholder in Fittingbox, and we sold a small part of our shares to them and made a profit on that. That's obviously in sales proceeds, and that's a one-off effect. We also had transaction integration costs for ShopGo. We didn't have anything below EBITDA in one-off effect. So the net effect on EBITDA means that the operational EBITDA is about 0.8 million higher than the reported EBITDA that you see in the same for EBT. Last half year 2023, We had quite a few effects in our numbers. We had multi-year payments related to acoustics. We had multi-year payments or prior year payments of material costs. We had severance payments, etc. You see the list here. So the impact on EBITDA would have been that our operational EBITDA last year would have been 2.8 million lower than reported. and the net effect on the EBT is 0.9 million. And so we're going to continue providing you with these numbers to give you a true view of the operational performance. If you look all that, you see that overall the impact is very limited. So you see it's now point is now 16% growth and 19% growth, but You know the growth pattern and the underlying story that these numbers tell us is unchanged. But you obviously have a much clearer view on that. If we look at our cash flow statement, You see also pretty happy CFO with this cash flow statement. You see that the higher EBT turns into a higher operating cash flow. So our cash flow conversion cycle in our operational cash flow conversion cycle is intact. You see that the business capex at 33 million versus 39 million A is lower than the depreciation B is about 3% of sales. So I think I feel for my taste, that's pretty much under control. And most of that is, you know, investments into our omnichannel experience, more software for digital and retrofitting or new stores that we're opening. M&A is just a million. That's an earn-out payment that we paid for one of our Spanish acquisitions. Mind you, we closed Shopko only on the 1st of July because we didn't want to have it in the half-year results. So that's why the M&A number here is just a million. It's definitely going to go up when we meet next quarter. In the financing cash flow, you see that we actually initiated and drew down a bridge financing facility to be able to pay for the acquisition. We did that ahead of the closing date. The 61 million in the payments of the subsidiary shares is the acquisition of the remaining 20% of our second Spanish Acquisition Optica Universitaria, which is growing double digit, as you saw, and we're very happy with that. So overall, very, very pleased with the cash flow development that we're showing here. Now, let's do a quick look at the US market because it is the biggest event that we had so far in this year. And I just want to give you some background. I know from the investor meetings that you do have a lot of questions on the US. So I think, you know, give you some background on that. In 2023, last year in June, respectively October, we did the first step into the world's largest optical retail market. We acquired SVS Vision, an optical retailer, you know, that's a stationary optical retailer and befitting an insurance IT solution and an online sales channel. And we're combining those two together with our process know-how and the experience that we have to build what is now Fehlmann USA. We then You know, in line with our vision 2025, where we want to internationalize our family business, we then acquired this year Shopko Optical, another regional market leader in Wisconsin, where, you know, it just came on the market and we were lucky enough to be the winning party and very happy with that because now we have a footprint across the Midwest and we have a real volume with about just under 300 million in sales. We have real volume to build a great company and that is Fehlmann US. Why are we entering? A lot of people ask me, you know, why are we entering the US? Well, three reasons. Contrary to common belief, there's a significantly lower degree of consolidation in the US market. So if you look at the top 10 players by sales market share, you see that in the US, the top 10 players make 21% of the market. In Germany, we alone have 22%, so slightly more consolidated. In Germany, the top 10 players have more than 50% of the market, so low degree of consolidation. Secondly, there's a high market potential. The absolute The size of the US market is obviously big because it is a big country with a lot of people. Also, the relative size is big. US glasses are a lot more expensive than German glasses or European glasses, and therefore the relative size of the market is also greater. Also, the US economy over the last decades has shown that there is slightly more growth dynamic on the GDP level than in the European economy. So it is a highly attractive macroeconomic market. And then, which is surprising to many, There are a lot of unmet customer needs. We have long waiting times for eye exams. We have few attractive entry level offers for patients with vision insurance. So if you go into an optical retailer and you want to say like I want zero copay, that's going to be difficult and it's only be is a non-consolidated market. with very interesting macro features and a lot of unmet customer needs. And that's why we have embarked to unlock this growth opportunity for us. We're focusing on the Midwest. A, we're not really a Madison Avenue type of company. The Midwest, as you see here, which is basically Ohio to Utah and the Canadian border to Kansas, I think that's the heartland of America where we feel that should be our focus. It's about 80 million inhabitants, so same size as Germany. We have, as I said, relative market size. It's a significantly higher average order value then in Germany. So interesting economically. And there's even lower market consolidation than in the US in general. So that's our focus. SVS Vision is, you know, a great entry into that target market. 82 retail practices, market leader in Michigan. and SHOPCO as you see here all the dots show you the stores what you see a you know we're now covering our target market with the you know exemption of two states and b there is virtually no overlap between those two players. And three, their headquarters are about an hour's flight away across the lake. So one is in Detroit and the other is in Green Bay. So we're now a player in the U.S. with about 220 stores and are the market leader in Wisconsin, Minnesota, Nebraska and Michigan. Coming to our guidance, and that's why we're entering the US to really fulfill unmet customer demands. Coming finally to the guidance for this year, as I said in the introduction, we are confirming what we've said since the beginning and what we said about a month ago. So we're going to increase our sales. We're going to grow at the same rate as last year. So we're expecting group sales of around 2.3 billion euros. And we're expecting that we keep a similar slightly higher EBITDA margin as last year, probably also despite transaction cost. So you see, we remain, we had great results and it would be easy to say 23% in Europe, you know, it's going to go like that. But we need to be and remain cautiously optimistic. And that's what you would expect from me as a CFO. And with that, thank you all for attending. Very exciting times for us doing an earnings call. Very exciting times for us as a company to develop the company further and You see, we have a lot of topics on the plate and we're working with our 25,000 people diligently on that to satisfy our customers. That's priority number one, two and three, but also developing the business in the right direction. And I think the first half year was a good step into that direction and onwards and upwards, as they say. And see you soon. Thank you very much.