Tonies Se Reg A

Hi everyone and welcome to the Tony's H1 2024 call. I'm Manuel Busing from Investor Relations and today we will lead you through a presentation and afterwards you have the chance to ask any questions you might have with the Zoom Q&A function. On the call we have our CEO Tobias Mann and our CFO Dr. Jan Middelhoff. And with that, over to you Tobias.

Thank you Manuel. Good afternoon, good morning, wherever you are. I'm Very pleased to welcome you to our H1 earnings presentation. You probably know these are my first half year results as CEO of Tony's and I'm proud to share our progress with you over the next hour or so. As usual, I'll start by telling you a bit about the Tony's story and giving you an overview of our business. Then Jan will dive deeper into our financials and at the end, I'll be happy to answer any questions you might have. We have a lot to unpack, so let's go, Manu. I know some of you have seen this chart before, probably many. I just love showing it. And of course, we've updated the figures with our latest H1 results. Tony's has built the largest interactive audio experience platform for kids in the world. Look at this incredible map that shows where Tony boxes have been activated all over the world. Tony's is a global phenomenon with active Tony boxes in more than 100 countries. And by now, we've probably enriched the lives of more than 50 million people based on over 7.3 million Tony boxes sold since our launch in Q4 of 2016. And that's not all. We've also sold over 90 million Tony's figurines on top, literally. But it's not just about the size and reach of Tony's. It's about how often children use it and how much they enjoy it. We are the category leader with unparalleled stickiness, averaging over 270 minutes of weekly playtime per child. Our customers love our product and are eager to tell their friends about it. In the US, we have a net promoter score of over 70 and NPS even higher than the fantastic Apple brand, which stands at 61, I believe. Let me dive into the business performance of the first six months here, Tony's. We have seen a first half year performance in line with our expectations. Revenue grew by 29.8% to 147 million euros. with growth in all regions. US revenue specifically grow by 63%. And very important to me, even our mature DAH market showed an increase of 9% year over year. Overall, our international business now makes up 51% of our total revenue. This success clearly comes from our strong business model. We built on the exponential growth of the Tony Box platform every year. More than 70% of Tony Boxes ever sold are still active with around 20 Tonys per box over an average customer lifetime of four and a half years. In H1, we further strengthened our installed base by adding around 600,000 Tony boxes and around 11.4 million Tonys. I'm also very pleased that our revenue growth goes hand in hand with higher profitability. Our adjusted EBITDA margin for H1 is 2.6%, up 0.8 percentage point from last year. And remember, in H1 2023, we had a highly positive one-off effect of 3.4 million euros due to the release of a licensing provision. Without this, we would have been an additional three percentage point better year over year. After adjusting only for share-based compensation, our clean EBITDA margin stands at 2.0%, which is 4.4 percentage points higher year on year. And finally, we achieved a contribution margin of 37.4%. We also made good progress on free cash flow generation, closing H1 with minus 32 million euro, up 7 million euro from last year, with 40 million euro in cash available. Jan will actually speak a lot more to this when he's talking in his section. So as we head into our structurally stronger second half of the year, we are fully on track to meet our full year targets. in the full year 2023 presentation in april i introduced our five key value levers to you internationalization gross margin expansion own content ip product channel mix and operating leverage while we continue to work on all five of these levers today i'd like to focus on six highlights first We achieved these strong H1 results while transitioning leadership from the founders, Patrick and Markus, to myself and preparing the company for its next growth chapter. We've further grown our US wholesale channel with partners like Colts and Target. We've just launched Australia and New Zealand as new markets and are deploying our successful blueprint down under. We secured new multi-territory contracts with Disney Consumer Products and Paramount to enhance our competitive advantage and strengthen our platform, a key advantage, especially when entering new markets. We started to address older children with clever Tony's, expanding the customer lifetime value of our users. And finally, we have successfully streamlined our European logistics and warehousing provider landscape to Avato, generating mid-single digital million savings all without any disruptions. We will go into these six highlights now and we'll start with the CEO transition. As I said, this is my first H1 results call, and I'd like to take this opportunity to share some personal impressions and observations with you. After my first six months, I'm very happy to say I'm even more excited to be with Tony's now than when I first joined. I knew beforehand that Tony's is a strong company, but now I really understand what makes our product, business, and team so special. With our universal product market fit, we have achieved over 50% market penetration in the DACH region and now have over 50% international revenue. We clearly built a love brand that has strong licensing contracts and strong own IP. Our business is built on a rock-solid distribution strategy that we base on each local market requirements. We have a proven profitability blueprint with over 18% EBITDA margin in DAH. And finally, we have a super enthusiastic and committed team all over the world. For example, also in Melbourne, where I just met the amazing Australia team. And even if I am still fairly new, we have a stable and highly experienced leadership team. Many of them have been with the company for a long time. They have consistently delivered our IPO guidance from three years ago in a quite unstable macro environment. And it's my great pleasure to lead them as I take Tony's to the next level. So after witnessing our teams and operations for six months now, the way I like to think about our company is this. We are not just a tech company. We are not just a content provider. We are not just a toy maker. We sit at the sweet spot right in the middle. We have a unique proposition that combines several success factors for entertainment of the 21st century. Yes, we are a technology company. Our audio hardware platform for children is the largest globally and continues to grow exponentially. Our renowned and award-winning user experience drives strong customer loyalty, and we seamlessly blend offline listening with digital audio content. Yes, we are a content provider with our comprehensive content portfolio featuring all major IPs, and with more on the way, we cater to almost every consumer sector. Our content catalog and multi-year frame contracts create very effective entry barriers. And yes, we are a toy maker. The playful character of Tony figurines and accessories expand our market reach beyond just content. We add an interactive audio layer to traditional tactile play. We also provide the opportunity to Tony-fy other toy categories and products. So this sweet spot between content, technology, and toys means that we serve a market that is both very timely and very timeless and driven by purpose. In this market, I see three key success factors. Number one, storytelling. Storytelling is at the heart of everything. It has shaped human culture since the beginning of time. Storytelling is highly relevant for social cohesion, cultural preservation, identity formation, connections to others and the development of cognitive and creative skills. It is especially crucial for children. Through stories, they learn how the world works. But how do you tell stories to your kid when you don't have the capacity or the resources to do so? Many parents, unfortunately, turn to screens, which brings me to number two, our goal to reduce screen time. Research consistently shows how harmful long periods of screen time are for children. More and more parents are looking for alternatives. We offer them a screen-free, audio-based alternative that is so intuitive that even small children can use it on their own. Plus, audio content specifically is proven to foster creativity, which, according to the World Economic Forum, will be one of the top 10 skills of the 21st century. And then number three, we are operating in a structurally growing market because parents' investment into their children's development are increasing strongly. The market for educational toys defined as objects of play that are designed to stimulate learning in children is growing. What makes me particularly proud during these first six months is that it's not only our conviction that Tony's provides a great product with purpose and our commercial success that echoes this conviction. It's the feedback we receive from our customers every day. I have people writing emails to me personally saying how much they love the product and how much it helps them in their family life, for example, with bedtime. Parents tell me about how their child has improved their vocal skills since owning the box and listening to the stories. They also mention that these stories have often been conversation starters between their children and them as parents. And being a father myself, I know what a challenging part of the day the bedtime routine can be. So I really empathize. However, let's also look at the bigger picture here. There are 1.5 billion children between birth and the age of 10 globally. We have sold around 7.3 million Tony boxes, which might sound a lot and is a lot, but in fact, it means we are reaching only 0.5% of the children we could reach. So my bottom line, we have so much potential to bring this experience to more families around the world. And what I want to say is we are just at the beginning. I'm looking forward to telling you more about our plans to tap into this enormous market at our very first Capital Market Day next year. So stay tuned. Now let's move on from perspectives and potential to performance. One of our most important value levers is internationalization, and the U.S. market plays a crucial role as it will become our largest market in 2024. Since the launch in 2020, we have grown our installed base to already 1.7 million Tony boxes and sold 14 million figurines. With more than 200,000 Tony boxes and more than 3 million Tony sold in H1 of this year alone, we had a very strong first half of the year. In addition, it is very important for us to deliver a strong performance during commercial events. And I want to show you the most recent examples from the US market, which is already a little Q3 teaser for you. Our boxes and figurines were the number one and number two deal in the toys and games category during Amazon Prime Day in July. With record sales for us more than twice as high as in 2023. Wow, just wow. What a fantastic start to this quarter in one of our main distribution channels in the U.S. Another very important growth driver, as you know, in the U.S., but also globally, is the expansion of our wholesale business, which has shown the strongest revenue growth of all distribution channels in H1. We are making significant progress along our two growth vectors, point of sales and shelf space. I'm particularly happy that we have been able to onboard the iconic retailer Kohl's. At the same time, we grew our key partnerships with Target and Walmart across both total points of sale and stock keeping units, which are indicators of shelf space. Compared to the end of 2023, we will significantly increase the number of POS in the US driven by permanent listings with our key wholesale partners from around 4,900 POS to around 6,500 POS by the end of this year. Furthermore, you can clearly see that our strong performance will also result in further shelf space in 2024. For example, SKUs at Target will increase from 36 up to 109 and at Walmart from 35 up to 42. And as I said, I'm very excited that with Colts, we will have our biggest launch portfolio in the US so far with 54 SKUs at the start. Colts, by the way, is a wonderful example of how we have been able to convert a seasonal only listing with just two SKUs to a permanent listing with 54 SKUs. And we'll continue this growth towards the end of the year to drive sales. I think you can see we are laser focused on our US expansion, but we don't lose sight of international expansion elsewhere. We've just launched in Australia and New Zealand earlier this month. Why these two markets? First, pre-existing penetration. We had already around 8,000 active Tony boxes before the official launch. Second, synergies with existing markets like the UK or US, our portfolio and languages. In Australia and New Zealand, we are doubling down on our international expansion blueprint from previous launches. We are offering our biggest launch portfolio ever, 55 Tonys, four Tony boxes, headphones, listen and go bags and nightlight Tonys featuring the most popular content from iconic Australian audio stars. We are present in around 300 stores with retail partners all over Australia and New Zealand right from the start. And I can tell you, because I was there, we started with a bang, a major launch celebration with key partners, influencers, journalists, celebrities, and of course, kids in Melbourne. From this launchpad, we are confident that Australia and New Zealand will become our most successful launch to date. As I mentioned, a portfolio of popular brands is key in winning new markets. That's why I'm very excited to announce a new multi-year, multi-territory global contract with our two most important license partners, Disney Consumer Product and Paramount. Under these agreements, we will bring more than 50 new Disney and Marvel Tonys to the market, along with more than 10 Tonys from Paramount, think Power Patrol or Turtles. This is not only commercially important, but also a huge vote of confidence from these global companies in our business model and future success. We've also made significant progress on the product side with our new format, Clever Tony's. And I know I spoke about it on our previous call. So I think it's a good moment in time to give you an update. This format presents a large number of benefits for us. Here are some of those key aspects again. Clever Tonys are aimed primarily at children aged five and over as they convey knowledge and interesting facts for many different subject areas like animals, science, professions. The go-to market time is much shorter due to their standardized design and no long coordination processes with licenses are required. Our gross margin is higher as a result of a disproportionately higher share of own production. The simpler design can easily be produced in high volumes. And very important, we use more sustainable materials with up to 50% biocircular material. After the successful launch in the US in the fourth quarter of 2023 and in DACH in February of this year, we will launch Clever Tony's in the UK next month. We will considerably increase the number of SKUs in our portfolio by the end of the year, offering kids aged five and above even more choices for exciting audio content. On the right of the screen, you can see some of the incredible partners we've already brought on board. If you're from the DACH region, you recognize probably some of them. Checker Toby, Geolino, Was ist was? are household names known for their engaging educational content. We are excited to expand our presence in this area, which is key to deepening our reach in a mature market like DACH. By now, you also know we are firmly into growth mode, both regionally and on the product side. Before I wrap up the business update, let me say that throughout this growth, we also keep a close eye on costs. Let me take a moment to talk about our new logistics and warehousing partnership with Avato. Previously, we worked with three different partners across Europe. Now, we are down to one. And this has multiple benefits, upscaling of service levels, streamlined reporting in IT, a global warehouse footprint, and most importantly, mid-single-digit million savings in 2024. So better services with a direct impact on our bottom line. And that's a perfect segue into finance. Over to you, Jan.

Yes, good afternoon also from my side. And Tobias said it before, looking at our H1, I think we're in a perfect position to now go fully after our H2, which is the most important time of the year for Tony's. And we're in a very good position with how we have come in with the business overall. Looking at the revenues, and Tobias has said it, we're growing fully in line with what we're expecting for the full year, plus 30%, reaching 147 million euros in revenue. growth healthy and good in all our operating segments. And I'm particularly happy to see that the strategy continues to work, which is we bring this DACH success case to international heights, and we're adding another 10 percentage points in terms of international revenue share. So that overall on group level, We now have over 50% revenue share in H1 already. I think that's a great check mark again on the execution quality of our strategy. And on the profitability side, very, very happy and proud. First time since we IPO that we can report a profitable H1, not only profitable adjusted and profitable on clean and reported EBITDA, 2.6% and 2% respectively. And I really want to point out the adjustments only come from share-based payments. So we do show you here the healthiness of our business model and how with growing scale and further international, we're able to deliver a profitable hyper growth story. Contribution margin is at 37%. This is above our full year 2023. So we're taking positive developments here. I'll speak to it more in a minute. Free cash flow at minus 37 million. This is in absolute terms and also relatively speaking better than prior year. And therefore, we feel confident to be on track for full year guidance, which is greater 10 million euros of free cash flow. At the end of June, we had 40 million euros of cash available. So going comfortably in the peak season in terms of our cash profile in the group. And I said it before, we're replicating this blueprint in DACH. And as you probably remember, we introduced the segment reporting in full year 2023. And this is the second time we're now reporting on the segment profitability. And you can see that we now show 18% EBITDA margin in DACH. And that is a confirmation that our blueprint is highly profitable and we are on a good path. Moving to the next slide, here's the full P&L for H1 2024 in comparison with 2023. And I'd like to guide you through the main points on the slide. Growth we talked about, looking a bit more on the profitability side and how we have improved our contribution margin, you do see first and foremost that we increased our gross profit. And that is exactly what Tobias said. It's one of our core value levers. We drove it up 1.4 percentage points. We have been better in sourcing versus prior period. And that is a great example that we are fully on track with our value levers. What is maybe surprising is the comparison of the licensing cost versus prior year. Here you do see a minus four percentage points effect on the very right-hand side. But I want to call out that in H1 2023, as you might remember, we had an exceptional one-off effect when we released a provision for collecting society. So in the licensing costs of 3.4 million, and that was an effect of approximately three percentage points. So if you, Take that off this 4% response exceptional effect. I think we're actually on a very good path also with our licensing costs. Fulfillment costs also slightly lower versus prior year. There are market mix effects, channel mix effects in there. And that gives us a good 37.4% contribution margin effect. And again, the comparison was prior year. You probably want to take it on a light for light basis and consider the licensing cost effect that was exceptional last year. Marketing reflects our investment into international growth, and we can show you some substantial operating leverage if you look at the SG&A COPs, both on the personnel, but also on the OPEC side. I think I told you also in full year 2023 that we had a few exceptional ones and you do see coming through here where it's showing more and more operating leverage with the scale of our business. A new position is the own work capitalized. So we're capitalizing for tech costs. This is then an effect that you see for the first time here and the other result which concludes some FX effects slightly negative. of our EBITDA 4.4 percentage points, and that is even before the one-off in licensing costs. Adjusted EBITDA also improving, but here it's important to consider that in H1 2023, we were still adjusting for tech costs. And secondly, we had a much higher proportion of share-based payments adjustments, and that is due to a program for our founders that was effective in 2023 and had a disproportionate effect during that period. So overall, a very healthy position. P&L good for 2024. Let's look a bit at how the business has been doing. We talked about it, all markets in good shape, growing. Tobias talked about that business where I see continued healthy demand and also consumer sentiment feels good. North America has accelerated in the second quarter. I'll show you in a minute. But you always have to consider in our business the baseline effects. So versus prior year, there might be shifts between quarters. And therefore, I'm very happy with what the position of North America is right now, growing a full year guidance. That is a good position for the full year. And the same goes for the rest of the world. We talked about the high international share, and you can see that we are executing as planned. If we look by the product mix, you will see that we're also growing in all product categories as planned. Maybe we can click on the next chart, please. Wonderful. Thank you. And there's one effect I would like to point out. We have actually sold more Tony boxes than Tony's. And you remember that H1 is typically a more Tony's heavy seasonality profile. This is overall not Bad or worrying, on the contrary, we're building our installed base faster, and this comes on the back of continued growth. But of course, as we have a higher contribution margin on Tony's versus Tony boxes, that might have also a small effect on our contribution margin after all. So overall, good with that. If we now look at the Q2 revenue, you will see here the stark acceleration that I talked about. So Q2 on a year-on-year comparison has been very, very strong for Tony's. When we last spoke during our Q1, we told you that Q1 had baseline effects and that we expect an acceleration of the business in Q2. That's exactly what you're seeing here. 2023, as a comparison factor, had a lower Q1 and a stronger Q2, so other way around, apologies, and you see the effects coming through. That's overall good, and I just want to point out the excesses digital effect is just a reclassification, nothing major. We can follow up on more questions if needed, but that's nothing that is fundamentally to the business. With this, I would like to again look at our segment reporting and the 18% in the DACH business, which is a strong sign. The blueprint, remember, that we have in DACH is what we're aiming to bring to international focus markets. And we see that it's a very nice business for Tony's. You do see if you compare it versus the full year results, which of course have the full seasonality, whereas H1 only has the first half of the year, you see that North America is somewhat stable versus the full year results and rest of world slightly more negative. Tobias said it, he was himself in Australia, so we're launching international markets and of course we're investing here. Again, I'm happy with this development because it overall resulted in a group positive EBITDA for H1. Let's maybe look a bit how the overall profitability builds up on the next slide. And this is the bridge that I walked you through almost already on the P&L, but I want to do it for clarity again. If you compare our EBITDA from H1 2023 to 2024, you do see two major effects striking here. The one is the licensing cost bar, and the other one is the OPEX. Of course, please consider, and I've said it before, H1 2023 had this exceptional. And if you really take this one out of the mix, you do see that over on the contribution margin, we are staying on track with our value levers, improving the Cox. We have mixed effects on our licensing costs and on fulfillment, as I said before. And we do see some real operating leverage coming into the business. And that then ends up on a very strong 2.6% EBITDA margin. Next is a view on our cash flow, starting here from where we ended last year. We're of course there in a cash rich time of the year after our Christmas business. And you can see that we invested in our continued growth. So the typical inventory build up has been happening in H1. We are now somewhat in the peak low time of our inventory position in August and September, when we then go into the Christmas business Again, and this is what you really see also in our cash bridge. We had an investment, as usual, in our tools and manufacturing equipment that our suppliers use. It's not our own factories, as you know, but some of the tools are owned by us. It's also in content. We had some repayments of borrowings, some FX effects, and that resulted in a cash position of 25 million euros as per June 30th. If you add our available credits line to it, we would be in a cash position of 40 million, which is, I think, for this time of year, a good place to be. I also promised that I would take another look at the free cash flow development. And what we try to show you with this chart here is the free cash flow in comparison of H1 and full year, 2023 and 2024. You see how we have come in in 23 and where we landed for full year. And you see that we have shown quite some opportunity and quite some ability to improve our free cash flow profile in the second half of the year. This is what we're expecting to happen also this year round as the revenue comes in, as the business grows. And therefore, just wanted to provide a bit more transparency around the free cash flow position. With this, I am done with the numbers. I expect probably some questions later, handing over again to Tobias, who can give you an outlook for the full year.

Thank you, Jan, for this very insightful financial section. Appreciate it. Coming to the end of our session, let's look what's ahead of us. We confirm our guidance and are fully on track to achieve our ambitious targets. Group revenue of above €480 million. revenue from north america of above 200 million euro the us will become our largest market due to a higher gross margin and operating leverage on our cost base we'll see a strong acceleration in our profitability hence we expect the adjusted ebitda margin to be in the six to eight percent range compared to four percent in 2023 and our free cash flow will improve further in 2024 turning positive and coming in above 10 million euros compared to negative 5 million euros at the end of 2023 our business priorities for the remainder of the year are clear and aligned with our value levers we want to deliver impactful commercial moments with a focus on Black Friday and Cyber Monday. We will make North America Tony's largest market. We have two exciting launches in Q4, the launch of book Tonys and the launch of a new franchise with musical adventures for kids aged three to five. And we also have some exciting in store for next year. So stay tuned. And with this, I would hand it over to Manuel, who will lead us through Q&A.

Perfect. Thank you very much. Just as a reminder, if you have a question, please use the Zoom Q&A function. And we have already received the first questions. Could you please elaborate a little bit more on the DACH growth that you have seen in the first half of the year?

Yes, great question. And I actually said this is something I am personally emphasizing as well. So this is a testament. We have a very healthy demand in our home market. That's a strong signal and confirms our unique position as a company and brand. DACH grew by 8.6%. to around 72 million and even 17.6% in the second quarter. But you also, by now, I think know our business well enough that we have these Cutoff periods, these shifts, some times an order comes in, let's say, by March 31st, and then the next year that same order would come in by April 1st. We don't really control that. And Jan had mentioned we had a relatively strong Q1 2023 order. and a relatively weak Q2 2023. So the growth quarter over quarter is stronger due to those cutoff shifts effects that we have. But nevertheless, DACH continues to be a very strong fundament for us in a very strong growth market. And that's obviously what we like. Maybe one last thing, Clever Tony's, also something that has supported the growth in DACH. We've been able to gain additional shelf space for the new format. And we sold over 1,300 Clever Tony's displays, not Tony's, 1,300 Clever Tony displays to wholesale partners. So this all helped with the strong DACH growth business.

The next question is on profitability. Adjusted EBITDA margin in H1 was below the guided range for the full year. Where does the strong margin improvement in H2 come from?

I think, Jan, this would be a perfect one for you.

Yes. So first and foremost, I'd like to point out, I think it's a really great sign for everyone to see that we're profitable in H1 because that shows that we're continuing the profitability journey that Tony has been going for the past few years. years after we have been investing in our international growth. H2, quite frankly, is the most important season of the year. Approximately two-thirds of the revenue are coming in. This is where you see the operating leverage coming in, where the margins are coming in. So if you just look a bit how we have managed on H1 to H1 comparison to improve, I'm pretty confident that we are now in a good position to continue this improvement also in the second half. And therefore, I'm in a very confident position. And I think I've said it quite a few times today, the three percentage points from the licensing and prior year effect, if you take that out, it just shows you the year-on-year ability of us to drive our profitability up. And I'm very confident we will continue this track and are fully on track with our full year guidance.

We see several questions on the U.S. performance. One is growth in the U.S. is clearly above 42%. Are you too conservative with your U.S. guidance?

I like that question. I like, obviously, your aspirations. I share them. But remember, we have retail intakes that might again lead to overproportional performance. in certain quarters. So you cannot really look on our business from a quarter to quarter perspective. Nevertheless, it's strong, right? I mean, and our growth in that quarter is strong and continues to be strong in the subsequent quarters. We're very happy with the development and the growth rate that we have. It shows that what we are putting out there for us is ambitious, but realistic. And specifically, we obviously confirm this with our commercial moments that I also referred to the Amazon Prime Day as a D2C commercial moment or the additional POS or SKUs in our wholesale business. As I said in the presentation, wholesale expansion is fully on track and we will reach around 8,300 point of sales at the end of 2024. That is really, really strong growth over the 6,700 we saw at the end of last year. We are winning complete new permanent retailers, for example, Kohl's. And these are all very strong signals that what we are building there in the US is growth that is there to last.

Growth is also the topic of the next question. Growth in H1 has been in line with your guided growth for 2024. Could you please lead us through the phasing of revenue growth throughout the rest of the year? Yes.

H1 has been fully in line with our expectations. Let me actually put this out there one more time. We will see an acceleration of revenue growth in the second half of the year. And this is where we generate the majority of our revenue. Please keep this in mind. Of our full year 2023 revenue, in H2, we achieved 69% of that revenue. In Q4 alone, we achieved 47% of the full year 2023 revenue. So you see how important H2, how important Q3, and then specifically Q4 is for us. We do have a good visibility on our future revenue. That is thanks to the wholesale orders that are coming into the they don't come in by surprise. As you know, we're meeting with our wholesale partners almost on a weekly basis. So we have a pretty good idea of their order books and what they are planning and the joint events and the commercial moments that they are doing and that we are supporting. So I am confident, as I said, and I've reconfirmed the overall growth aspirations for the full year. And with this, obviously what we are, planning to see in H2O this year.

Then we have the Euro has recently strengthened versus many currencies. What is the margin impact of a stronger Euro? Jan, this is a perfect question.

So as every company probably we are taking our measures to protect ourselves against any fluctuations that we see in currencies. We have guided and guided with a a budget rate so we know how we look at the world. Please understand that I cannot predict this fully and also want to do it here today. It's still a bit of a volatile times. We're taking our measures and have taken them, so I think we're in a good position.

You talked about the opportunity to tonify other toy categories. I guess Steiff is one example. Could you provide more examples of further potential tonifications?

So I can't really talk about our product pipeline. I hope you understand that there is a lot coming, obviously, with some of our partners where we are developing products. We have NDAs. So I can only obviously speak about what we currently have. And you mentioned the Steiff teddy bear. That's a great example. It's a wonderful product. I really love it. And I know of many others who like it. We also have a Playmobil Tony figurine, as you know. That is another example of a tonified product. We have many, many more, specifically in the plush segment. Literally, this whole tonify idea is... Borderless, endless, right? I mean, as you probably know, the way it works is that our little RFID tag, probably that much of a size can go into almost all products, right? It can go in all Tony figurines. You can think of how many other products it can go. We're having really, really interesting conversations. And this is one of the many growth areas I'm looking forward to.

The next question is on the agreement that we have with Höllenhunde. So just for everyone, Höllenhunde are our founders, Markus Stahl and Patrick Fassbender. And if you can provide more detailed information, especially how long the agreement will last and what services are provided.

Jan, do you want to take this?

Yes, very detailed question. I'll answer to the best possible extent here with the details. So we have with our founders, and we're very grateful for that, a consulting agreement where they help us and support us. For example, Patrick was with Tobias in Australia. This agreement has a duration of two years. The amount that has been quoted in here is an amount not representing the full consulting agreement, but also has another portion related to some IP representation that was a one-off and it's a two years contract ending 31st of December 2025.

Then we're going back to the US. Now with the US becoming the largest market, where do you see the revenue potential in two to three years? And when do you think you can achieve a similar profitability in this market than in DACH?

So first of all, we are releasing a new midterm financial plan next year. So I'm not going to talk about any of those midterm guidances right now in the U.S. market. But I can tell you maybe overall, the U.S. market is about three to five times bigger than the DAX market. And as you can see, we are fully on it. We are executing flawlessly quarter to quarter. We are growing significantly in this market and we will do everything that this growth continues. And you now have a feeling of how much bigger the U.S. market in general is and what this means for us. We'll tell you next.

When do you expect the savings from the changes in logistics, Avato? Should we expect a positive contribution already in H2?

So overall, this is not a surprise that we are shifting. Let's take some preparation. Hence, you can assume this to be built in the plan and we're happy to see it unfold. So there is no extra effect to be assumed, but it's part of the plan and we're diligently prepared, diligently executed. It's all in.

Then the next question is, can you elaborate on the elements to turn free cash flow positive? Do you expect free cash flow to stay positive after 2024, sustainably after 2024?

So first, you've seen that our operating cash flow was negative. This one will, of course, develop in turn. We have taken on balance sheet inventory that we're now selling in the second half of the year. So there is operating performance in the business that's driving our cash flow as we're unloading our inventory. And that's the main effect. And that's what we typically see. And this is, I think, a good and positive sign and that is why H2 is so important. I think for 2025, if the business turns profitable and you're not investing, of course, the cash flow should remain positive. But again, I would like to say what Tobias just said. We're not guiding for next year. We are presenting a plan for next year, only next year. So I prefer not to comment on what the exact expectation should be for next year at this stage.

And we have this, the breakeven EBITDA guidance at the end of 2024 still holds for North America.

John, do you want to take that? So maybe let's put one thing out front. We have guided on a profitability of adjusted EBITDA for the group, not for North America. Therefore, I cannot comment on this question. I will not do it. We have guided for revenue growth for North America. And here, I think Tobias had said it, with all our outlook and guidance, we have confirmed it. And I think that's what should be taken away.

Can you please comment on the competition in the US? Do you see the costs of the expensive design of the Tony's as a disadvantage?

No, and I wouldn't even agree with this. We have a wonderful product. We have a very profitable product with the Tony's figurines with a healthy contribution margin. And we have created a product that is unique and that children love. and that is winning at the POS in all countries that we are present. whether this is the US, whether this is Germany, whether this is France, whether this is now Australia or UK. So this is something that is very specific and special for us, and it's part of our DNA. And I think the important message is we can layer additional products on top of our current Tony figurines that do have a different cost profile. Take Clever Tony's. that are now very much appreciated with the slightly different form factor and quicker to produce form factor and also probably a little bit less costly form factor. Both elements are part of basically the same offering that we are giving to children. So I don't see this in any way as a disadvantage.

Then we have against which competitors did you gain market share in the DACH region? And what do you see in terms of consumer sentiment in DACH?

So we're not talking about competition specifically. We continue to grow our market share. We obviously have a look on competition. I would always want to learn from competition, but let's never forget. We are the category creator. We are the category leader. I would be much, much more concerned if such a wonderful and successful product has no competition because that would mean we see something that no one else sees. So this is how I look at competition. I do take them seriously, but we are the leaders and we will do everything to remain leading the category.

Then we have, could you provide an indication how much sales contribution you expect from Australia and New Zealand in H2?

So no, and it's not that I'm hiding behind anything here. We don't break out rest of the world, right? Australia and New Zealand is part of the rest of the world category. And that is France. That is UK. That is now Australia, New Zealand. And this is our European web shop and, and, uh, and some other small contributions. So we see that the rest of world is growing significantly and that is good. But, I mean, I think I told you in the presentation, we are starting from 8,000 boxes. Yes, we will sell a lot more now that we are officially available. But just looking at this number and compared, obviously, to the number of boxes that we have sold in other markets, you probably get already a feeling of where we are right now. Clearly, it is our goal to grow this market significantly. And maybe one day it's big enough that we're breaking it out.

This brings us to our last question, which is a technical one. Can you say a little bit more about the financial cost minus 5.6 million euros? What kind of warrants shares are these which had to be remeasured?

Jan, I think this is a good one for you to close this out. Yes.

So LATOS shares indeed the fair value of the warrants. But there's also financing costs for non-syndicated loan in it. But you can assume that the majority is from the warrants fair value adjustment.

Great. thank you so we are getting to the end of the session i really appreciate all the fantastic questions uh your attendance um many thanks for dialing in uh six things i would like you to take away tony's is fully on track to reach its full year 2024 guidance we know how to expand internationally and how to successfully conquer new markets Our competitive advantage is secured, continuously secured, through major deals with Disney and Paramount. We show a positive EBITDA margin, 2%, for the first time since IPO in our relatively weaker H1, with DACH being over 80%. Our free cash flow is set to turn positive in H2, And we here can't wait for the important second half of the year. I promise.