Profoto Holding AB (publ)

Good morning and welcome to Profoto's Q2 telephone conference. My name is Amanda Åström and I'm head of investor relations. Today I have with me our CEO Anders Hedeblik and our CFO Karl Bandholt. I will now hand over to Anders who will start off by giving you some highlights for the quarter.

Good morning, everyone. I hope you're fine. Thank you for joining the call. So we're here to present the second quarter in our figures. So the main topics here, I would like to point out that the sales organically is 8%. And this is based on that we are launching new products and we are creating our own world and our own universe and creating sales. And this is also making the brand more attractive. But it's a tough market and we don't think that the market is growing. We don't have any official figures, of course, as you know, but it is a gloomy market. We are also taking costs for new products that are not activating, product development activities that are not activated and also marketing costs to drive the demand. This is driving down the EBIT as you've seen in the report. But we are very proud of showing growth. But we actually want more than we're showing today. And yes, we are continuing to grow and to invest more in product launches. And you will see this in the future. As you know, you've seen this slide before most of you. So in our investment in product and marketing, we are focusing on these three areas. Pro still photographers on the top, film production to the right, and large studio solutions to the left. New products may be sold in to more than one of these customer segments. For example, Pro D3 that we launched during the quarter is mainly positioned for large studios but we also see that individual pro photographers are buying this kind of product and we have specific growth plans for all three areas so we launched in may we launched the pro d3 which was the main driver of growth growth in the quarter It is designed to be the very best in large studios. And it was well received by customers and dealers. And we also see, which is very annoying, that over the time now, we see that sell-through at the dealers is very good. Customers like the product. And this has, as I said, been a positive effect for sales in the quarter. Light shaping tools are very important for our customers. They enable customers to work with their creativity to take better images. We launched two new types of accessories or light shaping tools during the quarter and this actually affects the attractiveness of the brand. We also launched the L1600D and this is great news for us. We are entering the large and vibrant lights for film production and we're doing this with a great product. It has a lot of power and low weight so the power to weight rate is absolutely best in the industry and this also makes it fast to set up. And it enabled us on the film production set to focus on what is really important, the light shaping. And we're basing this on our own Hydro C-Tech technology. It's a unique cooling technology that enables us to actually make the products as attractive as it is. The product was well received by the market. I was myself at the trade show in Los Angeles and talked to customers, and most of them were very happy. But one of the things we do is that we show it now, but we're starting to ship an invoice in the fourth quarter. It is our first product into this customer segment, and we are continuing to invest in more products to come, but that will take a while. Right now, we're focusing on really entering the film production market because we also know, as I said, that this product will be sold into all three customer segments that I just talked about. Product launches have a very important effect on our business and our sales. And they are now a bigger part. Let me see here. of our sales, and they're growing. The new product sales is growing. You can see this on the, that we now have 43% of the sales is coming from product that was introduced the last three years. And I expect this trend to continue. And we are also continuing to increase our investments in new products, as you see on this slide. We are slowly growing our technology department to the next level, and we're doing this in a very efficient way. We have a great tech organization. Right now, the ratio is 16% of sales. The investments are 16% of sales. This is actually a high figure, and we expect the ratio to fall. And this is because we expect higher sales, not lower investments. Last 12 months, we had one major product launch that was the Pro D3. Next 12 months, I expect to be able to present a lot of more launches. The investments that we did in 2022 and 2023 should be materializing in new launches in the coming 12 months. We should also do this. Yeah, sorry. We see growth. It's very pleasing to see growth in APEC Asia and in Europe EMEA. Approximately 15% growth. The growth was not there in Americas. The reason for this is that we're based on very challenging last year figures and we had a couple of big orders that we had a very good quarter in the US last year.

Over to you Carl. Thank you Anders. As Anders mentioned, I think the highlight really for the quarter for us is that we return to organic growth. Almost our target level of 10% organic growth, despite it continuing to be a bit of a challenging market. And as we have discussed before, we can see that generally our customers, both large studios and individual professional photographers, are a bit cautious with their spend. And as we also have said several times over the last quarter, deal with this is to introduce new products to give people a reason to buy our products and we are very happy that we see that the positive response when we introduce the pro d3 and that and the new light shapers um you can also see that our margins are a little bit depressed in the quarter and this is primarily driven by continued as well as in-market activities in conjunction with the current launches and preparing for future launches. So while we were very happy with the organic growth, the margin is not where we want it to be or expect it to be going forward. If we look a little bit on the longer-term trends, this will promise no news, but over 12 months, our revenue was 742 million SEK, which is low and lower than the previous 12 months. And this is primarily, as we discussed before, related to a weak market, but also very few product introductions in the last 12 months. So we just had one major introduction, and that was at the beginning of May. So in the rolling 12-month numbers, we can see growth and the profitability. But at the same time, again, we were happy that we have shifted the trend and that LTM is up compared to where we were a quarter ago. Operating cash flow and operating cash conversion is an important API for us, given that we are running a very capital efficient business model. So cash conversion in the quarter was 67%, which is kind of a normal level. I think over time it's expected to be somewhere between 60 and 75%. But as you can see here from the history, there's quite a bit of fluctuation in this, not really relating to product introductions, but there are also other natural factors that make this change a bit quarter to quarter. But over time, I think we should be at around the level we were in Q2. Another important metric for us with our business model is return on operating capital. And over time, we have achieved a very high return on operating capital. In the last quarter, it has declined a little bit, and there are two factors in this. operating capital has increased as we continue to invest in R&D and capitalize a big part of R&D expenses. But more importantly, in the last 12 months, our profit has been a little bit lower than... Our sales have been a little bit lower in proportion to those R&D expenses than we expect over time. So while still at the high level, should see being stronger over time even. And then finally, from the financial perspective, looking at the balance sheet, it's really important for us to have flexibility to continue to invest in product development to drive future growth and also to be efficient with our capital and our cash. So we're happy that we have a strong balance sheet with a leverage of less than one net debt to EBITDA. Even though we were able to return quite significant capital to our shareholders in Q2 with a dividend of almost four of our net income for 2023. And while we are continuing to invest in R&D and increasing those investments, as Anders mentioned before. Summarizing a little bit on our performance compared to our financial targets, our EBIT margin target is 25 to 30%. LTM, we're just over 20, so that's below our expectations. But again, in a weak market and with few growth interactions, I don't think that's too surprising. Organic sales growth also below our target, looking at LTM. but quite close in the quarter. So we think it's important to highlight that we remain committed to these targets, even though there are a few quarters since we were there. And with investments we are making in R&D and the market, we expect to return to these targets over time. That's basically the end of our presentation today. So I hand it over to to the person taking questions.