Profoto Holding AB (publ)

My name and I'm head of Investor Relations. Today I have with me our CEO Anders Hedebark and our CFO Linus Malmstad. I'll now hand over to Anders who will start off by giving you a summary of the quarter.

Good morning everyone. Thank you for joining in and listening in to our third quarter report. So sales was not good in the quarter. It decreased by 28% to 119 million Swedish crowns. The organic growth was negative with the 23%. And the reason for this is the uncertainty in the macroeconomic situation, especially in the United States. But also we had a dealer inventor build up in previous quarter. And consequently, EBIT is not good either. We are losing 10 million Swedish crown, which is 8% minus EBIT margin. And as we said, it's negative sales, but also we are having a higher cost of goods sold due to the tariffs in the United States. And we also have a changed relationship between capitalization, depreciation, and Linus will cover that in more detail. Let's go to the next slide, please. So weak demand in our larger markets for the quarter. So we had, as I said, we could explain partly the lower US sales by a larger sell in prior to the new tariffs and consequently the price increases in the United States. And that's one of the reasons, but also we see a lower customer demand. And customers are not only cautious in the United States, but also in Europe. And this has the same reasons. On the other hand, we see a slightly better effect in Asia Pacific, especially in China. But this is due to a number of major larger customer deliveries that is driving this positive development. So all in all, we have a negative or sales decline by 22.6% for the group. Americas is down severely with 40%, EMEA 15%, and APAC is a plus 10%. In addition to this, we also have a currency effect where the Swedish crown has appreciated over the quarter in comparison with the last year. So we can take the next slide, please. On the year-to-date figures, sales is down 11% organically. And the reasons and the explanation for this is the same, where we see a damped demand. We also see a higher competition from competitor, as well as a technological shift from flash to constant light LED. Here we have a group total decline of 10%, and in addition to that, we have a currency effect of almost 4% for the group, where we see that Americas are having the biggest problems all in all. EMEA is down 5%, and APAC is down a little bit more than 2%. So including the currency effect, we have a decline of 14.4%. So... We see the customer needs and demands changing, but we are continuing delivering our plan that where we are moving and we are following the customer demand and moving more towards LED based solution. And this is continuing and we're starting to ship and invoicing now in this quarter, partly a part of the product, especially the point source unit with L1600D, L600C and L600D and the panel we will start to ship during the first quarter next year. So we think that we are well positioned for this change. And with our LED portfolio, we are the premium brand for continuous light as well as flash for shooting video and still in the same bay, in the same studio. So we are meeting those demand long term is our ambition. And this is what we are developing new products and solutions for. Thank you. I will leave the word to you, Linus.

Okay, thank you. And this slide and the graph clearly shows the effect on EBIT When we have a decline of a top line of over 20%, it's of course really hard to then compensate that on a cost reduction basis. And also given the gross margin that we have, you see a clear effect on EBIT. And the third quarter is also a ceaseless, not a slow quarter, but with historically lower sales, which has, of course, an impact when you have a more or less fixed cost base. And also, you know that we have recorded some one-off effect during the quarter of a total of 47 million, which leads us to just a little bit of 10, minus 10 million. and i will come back to it but of course one not shouldn't say major explanation but we had an impact during the quarter of the ratio between capitalization and amortization and i will elaborate on that a little And here is the shouldn't say long term trend, but we had, as you know, had a number of quarter with the top line decline, which we tried to compensate by reduction in cost. But the full effect haven't been seen yet. So this is As I said before, this is not my favorite slide. We really need to change in coming back to top line growth in order to actually increase the margins. And we're not sitting still, so we're doing a lot to really take actions to meet this changing market condition, as Anders touched upon on the previous slides. And the cost reduction plan is going according to plan. So the total annual effect will be a reduction of over 20%, and that corresponds to a reduction of the cost base up to 80 million on an annual basis and also that you know that we acquired styleshoot in 2022 and we had seen the effect on top line after the pandemic so we have done a number of actions to really compensate for the the weak development actually in in the choir business So during the quarter, we took some reduction costs, a restructuring cost to reduce the cost. And that's mainly personnel. And also that we did an impairment reduction of the the over values of 11 million. So in total, it's 7 million related to the statute. And during the quarter, we also did some minor adjustments on the devaluation of our asset and the capitalization of assets related to our product portfolio. And that's related to a changed business case just for a small handful number of products. So all in all, we still believe that we have a really strong balance sheet. Yeah, and this is, as I said, we are following our pause of reduction, the cost base. So I think we have done quite substantial reductions and on an annual basis, we will, we're very sure, certain that we will of an annual reduction of 20%. And as you can see, if we start with the end of last year, we have actually reduced it slightly more than the 20%. But on an annual basis, it's 20%. And we are at the full effect by the end of this quarter. And this is just to show the change in what during this quarter is the first time that the depreciations are higher than the capitalizations. This actually have, if you compare to the same quarter last year, it has actually quite substantial impact on EBIT. So it's more to give some background and give more color on the EBIT number that So this is a consequence of when we have a reduction in R&D spend and also that we have now launched a number of products that we are now starting to depreciate on. So that's the other thing.

Thank you, Linus. So before questions, let me just summarize what we have said. sales is down because of weak demand of the willingness to invest in capital goods in general is down in our area in content creation, visual content creation. It is also very slow, but it's also the technological change from flashlight to continuous light or to LED that is affecting our sales as well as harder competition overall in the market. But we are taking several actions to meet these new market conditions, and we are working very hard both in sales and product development to deliver on exactly that. And as you said, Linus, we're also cutting costs in order to adjust to the new situation for the company. And we are continuing to invest in the next generation technology for video and still in the same studio to shift the transition that the market is undergoing. So thank you very much.

Great. We will now open up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Marcella Klang from Handelsbanken. Please go ahead.

Good morning. A couple of questions from my side. You mentioned the expected start of deliveries of the lead portfolio L1600 and L600. We are now almost at the end of October. Have you started deliveries of these products and what is the pre-order situation? When do you expect the effect on the sales?

That's the first question. Good morning, Marcela. We would expect some effect as we earlier communicated by the end of the year. So during this quarter, we should see some sales effect over the... towards the end of the year but for this quarter we will see some effect but more effect will come in basically in the second quarter and some more in the first quarter next year. So a real effect we foresee for until the summer next year.

But you are right, Maricela. I mean, we are about to launch them. So it's no question that we are now in the end of October. So there are no, the products are not delayed or anything like that. So we will launch and ship them according to plan.

And can you give us a little bit more color on pre-orders on this portfolio? And if not through pre-orders, what is the main sales channel for this? And since we are talking about bigger effect Q1, Q2, maybe you can include the lead panel into the answer. Thank you.

So I can't give you a definite figure, of course, for the number of pre-orders because we're not talking about that officially, of course. But the main channel is the same for the point source units. The L600 and L1600 is primarily the same channel that we're using today. But in addition to that, we are also filling channels and selling through dedicated video and cinema channels. And that is number one for the point source products. In addition to this, the panel is more positioned towards cinema. Here we will work directly with some of the larger rental companies to actually ensure that they have these on stock and availability. And we have already started that with some pre-units with one of the larger rental companies in the UK. So we have a good positive effect. So to repeat that, for the panel, the channel is both the existing channel as well as new dealers in the cinema space and new rentals in the cinema space. Whereas the point source is generally both for the photographic and for the cinema video channel.

Thank you. And in terms of production, since this is a new product portfolio for you, the products, are they ready? And are there any production hiccups since this is a new production facility and so on?

No, but we have started the production, of course, of the point source units that we're shipping this quarter. And the production for the panels will start towards the end or beginning of next year, so around Christmas. So we don't have any hiccups in production.

Sounds good. And then... Profoto is a company with impressive track record in terms of profitability margins above 25% operational level for the traditional product portfolio. How do you expect profitability for the new generation? Will you be able to reach similar profitability from the start? Or do you expect maybe low profits starting just to be able to spread the product. Can you give us some kind of indication on your targets with the new portfolio?

Yeah, but we are entering a new area in the LED with slightly new customers. So of course we will work with the price in order to get in to the strategic rentals and studios that we need to get into. So we expect more or less the same margin, maybe slightly lower in LED in comparison with flash, but not not a major difference.

And that's, of course, related to the gross margin that Anders is referring to. And then your other what you touched upon, Marcella, regarding the EBIT margin, that's very much related to top line. I mean, that's the most important part of that equation, actually.

Thank you. And then maybe a couple of questions regarding the non-lead portfolio. You mentioned a positive sale situation in APAC. What product groups are selling there?

These are studio products, photographic flash that we're selling. There are some larger studios that has this effect and that's why. And there's also like that, you know, the sales during the quarter is 33 million. So it has the effect of one or two larger deals that has a major effect. So this is just an effect of smaller numbers, I would say. But what we can say, these are the deliveries is to one of the greatest brands in the world. So the big brands are continuing to invest in their studio capability to shoot great content, to build their brand. So there's no change whatsoever in that kind of demand. As you know, Profoto is having rather high market share to that.

type of customers yeah thank you and then uh given the fact that in apax demand is strong and we have weakness in the u.s without the new tariffs over north america can you help us um how big tariffs are hitting your products in in the u.s 20 or or even more

No, not more. So we are, as you know, we are producing our products in Europe or in Southeast Asia, in Thailand, where the tariffs are based on the import tariffs from Europe and Thailand. And there are 10%, respectively, 19% from those countries. We are also buying some components from China or some accessories, but that is less than 10% of global sales, of total sales. So it has an effect, but not a major effect on the cost of goods sold. We are also working on the way that we are exporting our products. We are following obviously all legal requirements and that is why we have an effect and we are following the transfer pricing rules. So we need to export in the right way and we are developing that in the way so that partly some last finish of the products are being now made in the United States. We've moved some work into the United States in order to lower the tariff levels. But they're not disappearing.

Doesn't seem like that, yeah.

But we haven't started that for that quarter. It started towards the end of the third quarter.

Yeah. And then you mentioned dealer-inventory situation during the third quarter, the build-up earlier and so on. Can you give any kind of your own estimate on your dealer-inventory situation right now, end of October?

Please repeat, the dealer-inventory right now?

Dealer inventory situation now, are the inventories empty? If there is any additional demand, does it need to come from you or is there still a comfortable inventory situation for your dealers?

I don't know how to answer that because we don't have the full visibility so that we could comment on that. But obviously, the dealer level has been brought down from beginning of the third quarter towards the end of the third quarter. And this is the effect that we see, partly the effect that we see. So the inventory level are lower now, beginning fourth quarter than beginning third quarter.

Yes. And then a final question for me. Are you hearing anything about your customers maybe picking Chinese competitors over your products, cheaper competitors, or is it your belief that they are waiting, that you are not losing market share, but that your customers are waiting?

No, but as I said, we have an effect of higher competition from competitors, and that is partly from Chinese competitors. And of course, we're meeting competitors and customers are evaluating whether to buy competitor products or Profoto products. And of course, we're not winning all those battles.

Thank you so much. It was all for me.

Thank you. As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

I have not received any written questions today, so I just wanted to round off by saying thank you for joining us this morning and a gentle reminder about our year end report, which is published on February the 11th. Thank you.