CEWE Stiftung & Co. KGaA — Call Transcript 2016

Nov 10, 2016

Results Q3 2016 CEWE Stiftung & Co. KGaA

Analyst Conference Call Oldenburg

November 10, 2016

This presentation contains forward-looking statements that are based on current assumptions and forecasts of the management of CEWE. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.

All numbers are calculated as exactly as possible and rounded for the presentation. Due to this, rounding errors might occur.

Dr. Olaf Holzkämper CFO

Dr. Rolf Hollander CEO

Dr. Christian Friege: New CEO as of 1 July 2017

Professional training and career

1993	MBA, Mannheim University
1995	Doctor of Political Science, Catholic
	University, Eichstätt/Ingolstadt
1995 to 2004	Bertelsmann AG, including 1998 to 2000
	Member of Doubleday Direct management,
	Garden City, NY, USA and 2000 to 2004
	Managing Director, British Book Club
	in London, UK
2005 to 2006	Member of the Board of Management of
	debitel AG, Stuttgart
2008 to 2012	CEO of LichtBlick AG, Hamburg
2012 to 2015	Independent Management Consultant
since 2015	CEWE Stiftung & Co. KGaA
since 2016	Member of the Board of Management of the
	Neumüller CEWE COLOR Foundation
as of 1 July 2017	Chairman of the Board of Management of the
	Neumüller CEWE COLOR Foundation

Highlights Q3 2016		Q3 2015	Q3 2016	Comment
Photofinishing
Sales Volume Turnover EBIT EBIT w/o one-offs	in photo m. in EUR m.	557 91.5 3.8 3.8	529 95.4 5.6 3.5	 At 5.2% lower than 2015, volume meets expected range  Added-value products drive the increase in turnover (+4.3%) and profitability  One-time items in Q3 2016: EUR 0.3 m. sale of the operation in Graudenz (Poland) and EUR 1.8 m. initial supply for business partners
Commercial Online-Print
Turnover in EUR m. EBIT		18.7 -0.4	19.7 -0.3	 Turnover (Q1-3: +10.6%) on track to achieve 2016 target  EBIT (Q1-3: EUR 0.5 m.) on track to be positive for full year
Retail
Turnover EBIT	in EUR m.	15.1 -0.1	12.9 0.0	 Focus on profitability successful  EBIT continues to improve
Other
Turnover in EUR m. EBIT		0.2 -0.6	0.6 -0.8	 Segment Other covers administrative costs for company structure, supervisory board costs, IR costs, real estate, futalis
Group
Turnover EBIT EBIT w/o one-offs	in EUR m.	125.5 2.7 2.7	128.6 4.5 2.4	 Photofinishing and commercial online printing increase turnover  EBIT due to one-offs better than previous year
Free Cash Flow	in EUR m.	-14.4	-1.9	 Operative cash flow and less investments in Q3 increase FCF
ROCE	%	15.9	20.6	 ROCE continues to rise
Equity ratio	%	52.3	57.2	 Solid equity ratio Rounding differences may occur

► Also Q3 above expectations: annual targets for 2016 increased

EBIT contribution of Q1-3 and Q4

• ► EBIT target adjusted from 38-44 million euros to 40-46 million euros
• ► Even a decline in the Q4 profit would be sufficient to reach the target corridor

Agenda

1. Results

- Photofinishing

• Commercial Online-Print
• Retail
• Group
• 1. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)
• 1. Outlook
• 1. Q&A

Photos Q3

► Q3 volume on track, especially given the seasonal shift continuously strengthening Q4

Photos Q1-3

► Q1-3 volume on track, especially given the seasonal shift continuously strengthening Q4 – and also supporting Q1

CEWE PHOTOBOOK

► CEWE PHOTO BOOK increases volume and clearly enhances photo value

Rounding differences may occur

Photos Total by Quarter

Saisonal distribution: CEWE 2012 to 2016

Total share of photos per quarter as a percentage

Rounding differences may occur

Value of Photos Q3

► Continuous increase of turnover per photo in Q3 driven by value added-products

*turnover since 2013 adjusted Rounding differences may occur

Value of Photos Q1-3

► Continuous increase of turnover per photo in Q1-Q3 driven by value added-products

*turnover since 2013 adjusted Rounding differences may occur

Shares in Turnover by Quarter - Photofinishing

Seasonal distribution: CEWE 2012 to 2016

Share in turnover by quarter as a percentage

* Photofinishing turnover approx. on previous year´s level (2015: 415.0 Euro mill.)

Rounding differences may occur

Photofinishing Segment in Q3

• ► Increase of turnover in Q3 driven by value addedproducts

• ► EBIT before one-offs slightly below previous year

• After two positive first quarters, Q3 2016 sees sales continuing to rise: +4.3%

• CEWE brand and added-value products support increase in sales

• Trend towards these "brand added-value products" reinforces photofinishing sales

• EBIT backed up by positive one-off effects: Sale of the operation in Graudenz in Poland generates special income of 0.3 million euros, and the initial supply for business partners 1.8 million euros

• EBIT before these one-off effects, at 3.5 million euros falls just short of that of the previous year by 0.3 million euros

EBIT before Restructuring by Quarter – Photofinishing

Photofinishing Segment in Q1-3

in Euro millions

► In spite of seasonal shift photofinishing better than in same period of previous year

• Q1, Q2 and Q3 all increase turnover in comparison to the previous year: Total for 2016: + 9.3%
• Added value products drive increase: CEWE PHOTO BOOK, CEWE CALENDAR, CEWE CARDS, CEWE WALL ART
• EBIT (rounded off) improves by 5.3 m. euros
• EBIT before one-off effects improved by 3.1 m. euros:

One-off effects in 2016: +0.4 million euros in sales revenue for Smilebooks USA, -0.9 million euros in goodwill depreciation in the UK, -0.2 million euro closure of DeinDesign operation in Berlin, +0.3 million euros in sale at Graudenz operation, +2.1 million euros basic equipment for business partners

One-off effects in 2015: - 0.4 million euros in restructuring costs for closing a customer service office in Dresden

Agenda

1. New Products and Results

• Photofinishing
• - Commercial Online-Print
• Retail
• Group
• 1. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)
• 1. Outlook
• 1. Q&A

CEWE's Commercial Online-Print activities in Europe

► CEWE operates with webshops in 10 different countries

Commercial Online-Print Segment in Q3

• After 12.3% in Q2, Q3 growth in sales declines to 5.3% for seasonal reasons (and thus to approx. the scheduled level)
• Brexit-induced currency losses in the UK reduce growth in sales (0.2 million euros)
• Q3 confirms the fully-year target of "approx. around" 86 million euros (+10% against the previous year)
• Q3 EBIT slightly better than in the previous year
• Currency losses in the UK have a negative effect on the profit
• Q3 also clearly confirms the annual target set for a "positive" EBIT (including the effects from the Saxoprint purchase price allocation)

► Commercial online printing continues to increase its turnover, and annual targets for turnover and profits are to be achieved

Commercial Online-Print Segment in Q1-3

The total increase in turnover, at 10.6%, is on track for the increase in turnover planned at around 10% for 2016 as a whole ("approximately around" 86 million euros)

• EBIT improved by a total of 3.0 million euros in comparison to the previous year and is thus positive for the first time: +0.5 million euros
• Q1-3 clearly confirms the annual target set for a "positive" EBIT (including the effects from the Saxoprint purchase price allocation)

► Commercial online printing continues to increase its turnover, Q1-Q3 EBIT positive for the first time

Growth outlook CEWE Commercial Online-Print

Revenue in Euro millions

► Commercial Online-Print is a growth driver

Agenda

1. Results

• Photofinishing
• Commercial Online-Print

- Retail

• Group
• 1. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)
• 1. Outlook
• 1. Q&A

Repositioning of Retailing in Poland

Photo-Hardware Photofinishing-Products

► Focus on photofinishing products in CEWE-retail shops

► Adjustments in hardware pricing to improve margins

Retail* Segment in Q3

in Euro millions

• Photo hardware sales decrease in almost all the markets
• Stronger focus on photofinishing and earnings (not selling via price)

Repositioning, particularly of business in Poland, pays off: CEWE RETAIL improves EBIT by 0.1 million euros

► New positioning of retailing successful, profits further improved

Retail* Segment in Q1-3

in Euro millions

Rounding differences may occur

• Photo hardware sales decrease in almost all the markets

• Stronger focus on photofinishing and earnings (not selling via price)

• Repositioning, particularly of business in Poland, pays off: CEWE RETAIL improves EBIT by 1.0 million euros

• CEWE RETAIL improves operatively before restructuring costs for the previous year (0.6 million euros) by 0.4 million euros

► New positioning of retailing successful, profits further improved

EBIT*

Agenda

1. Results

• Photofinishing
• Commercial Online-Print
• Retail

- Group

• 1. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)
• 1. Outlook
• 1. Q&A

Turnover

Rounding differences may occur

EBIT Q3

EBIT Q3 after restructuring

in Euro millions

EBIT Q3 before restructuring

in Euro millions

► Mainly the photofinishing business segment sees Q3 profit increasing

Rounding differences may occur

EBIT Q1-3

EBIT Q1-3 after restructuring

in Euro millions

EBIT Q1-3 before restructuring

in Euro millions

► Positive Q1-3 profit based on positive development in earnings by all the business segments

Other

Rounding differences may occur

Page 51

Agenda

• 1. Results
• 2. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)
• 1. Outlook
• 1. Q&A

Group P&L – Q3

in millions of euros	Q3	% of	Q3	% of	Change*	Change*
	2015	revenues	2016	revenues	as %	m€
Revenues	125.5	100.0%	128.6	100.0%	+2.5	+3.1
Increase / decrease in finished and unfinished
goods	0.2	0.2%	0.1	0.1%	-72.0	-0.2
Other own work capitalised	0.3	0.2%	0.2	0.2%	-17.2	-0.0
Other operating income	5.8	4.7%	4.4	3.4%	-25.5	-1.5
Cost of materials	-39.2	-31.3%	-39.3	-30.6%	-0.2	-0.1
Gross profit	92.6	73.8%	93.9	73.0%	+1.4	+1.3
Personnel expenses	-33.7	-26.9%	-35.5	-27.6%	-5.3	-1.8
Other operating expenses	-47.4	-37.8%	-45.0	-35.0%	+5.1	+2.4
EBITDA	11.5	9.2%	13.5	10.5%	+16.7	+1.9
Amortisation of intangible assets, depreciation
of property, plant and equipment	-8.8	-7.0%	-8.9	-7.0%	-1.5	-0.1
EBIT	2.7	2.2%	4.5	3.5%	-66.2	+1.8
Financial income	0.0	0.0%	0.7	0.6%	>1,000	+0.7
Financial expenses	-0.3	-0.2%	-0.2	-0.1%	+32.2	+0.1
EBT	2.5	2.0%	5.1	4.0%	-105	+2.6
Income taxes	0.1	0.1%	0.3	0.2%	+239	+0.2
Earnings after taxes	2.6	2.0%	5.4	4.2%	-110	+2.8

Distribution of sales returns: € 95.4 m. photofinishing (PY: € 91.5 m.) € 19.7 m. (COP) (PY: € 18.7 m.) € 12.9 m. retail (PY: € 15.1 m.) € 0.6 m. other (PY: € 0.2 m.)

(-) Irregular revenue unrelated to acc. income in previous year: release of provision for advertising expense subsidies no longer required

(-) Photofinishing (more employees and tariff increase)

(-) DeinDesign and futalis acquisitions

(+) Irregular expenses in the previous year: Purchase of a customer base already previously supplied

(+) Interest from tax refunds for 2008 (due to "waiving claim on receivables in 2008")

(+) Tax refund for the 2008 assessment period (due to "waiving a claim on receivables in 2008")

Rounding differences may occur

Balance Sheet as of September 30

Assets Liabilities

► Equity ratio increases to a sound 57.2%

Rounding differences may occur

Management-Balance Sheet as of September 30

Capital Employed

Liquidity Net Working Capital Gross financial debt Non operational debt Longterm assets Equity 2012 2013 2014 2015 2016 223.1 221.5 196.7 195.8 194.7 83.7% 84.5% 84.1% 85.6% 85.8% 12.8% 11.5% 9.7% 9.9% 7.3% 3.5% 4.0% 6.2% 4.6% 6.9% 2012 2013 2014 2015 2016 223.1 221.5 196.7 195.8 194.7 12.5% 13.8% 12.3% 12.6% 15.1% 55.6% 58.9% 76.9% 72.5% 79.9% 4.9% 32.0% 27.3% 10.8% 14.9%

Capital Invested

in Euro millions

in Euro millions

• ► Net working capital reduced
• ► Gross financial debts paid back as scheduled

Rounding differences may occur

Capital Employed I

Capital Employed I
in millions of euros	June 30, 2016	% of C E	Sep. 30, 2016	% of C E	Change as %	Change m€
Property, plant and equipment Investment properties Goodwill Intangible assets Financial assets	112.8 5.0 32.8 21.2 5.6	53.3 % 2.4 % 15.5 % 10.0 % 2.7 %	116.8 5.0 32.8 20.5 5.8	52.7 % 2.3 % 14.8 % 9.3 % 2.6 %	+3.6 % +0.0 % +0.0 % -3.2 % +3.7 %	+4.0 +0.0 +0.0 -0.7 +0.2	Invest > amortisation (+) On-site finishing, shop items (+) Digital and offset printing machines (+) EDP infrastructure (+) Land and buildings
Non-current receivables from income tax refunds Non-current financial assets	0.5 0.7	0.3 % 0.3 %	0.5 0.6	0.2 % 0.3 %	+0.0 % -0.2 %	+0.0 -0.0	Invest < amortisation
Non-current other receivables and assets Deferred tax assets	0.4 7.3	0.2 % 3.4 %	0.8 7.2	0.4 % 3.2 %	+106 % -1.0 %	+0.4 -0.1	(+) Raw materials, consumables and supplies; merchandise
Non-current assets	186.2	88.0 %	190.1	85.8 %	+2.1 %	+3.9	(+) Stocking up for the Christmas season
Inventories + Current trade receivables	41.7 40.4	19.7 % 19.1 %	43.6 41.0	19.7 % 18.5 %	+4.6 % +1.5 %	+1.9 +0.6	(+) Increase due to growth in sales in Q3
Operating gross working capital - Current trade payables	82.1 52.2	38.8 % 24.7 %	84.6 54.0	38.2 % 24.4 %	+3.1 % +3.5 %	+2.6 1.8	(+) Business-driven through growth in turnover
Operating net working capital	29.9	14.1 %	30.6	13.8 %	+2.5 %	+0.7	(+) Stocking up for the Christmas season

Rounding differences may occur

Capital Employed II

Capital Employed	II
in millions of euros	June 30,	% of	Sep. 30,	% of	Change	Change
	2016	C E	2016	C E	as %	m€	(-) Sales at Graudenz operation
Assets held for sale	1.1	0.5 %	0.5	0.2 %	-53.9 %	-0.6
+ Current receivables from income tax refunds	4.8	2.3 %	7.4	3.4 %	+54.8 %	+2.6	(+) Earnings-induced increase
+ Current financial assets	2.9	1.4 %	3.2	1.5 %	+9.5 %	+0.3
+ Other current receivables and assets	8.7	4.1 %	8.4	3.8 %	-4.3 %	-0.4
Other gross working capital	17.6	8.3 %	19.5	8.8 %	+10.9 %	+1.9
- Current tax liabilities	6.8	3.2 %	3.9	1.8 %	-42.4 %	-2.9
- Current other accruals	3.1	1.4 %	3.1	1.4 %	+0.1 %	+0.0
- Current financial liabilities	0.3	0.2 %	0.3	0.2 %	+0.0 %	+0.0	(-) Tax refunds (Saxoprint)
- Current other liabilities	27.2	12.8 %	26.7	12.1 %	-1.6 %	-0.4
Other current liabilities	37.4	17.7 %	34.1	15.4 %	-8.9 %	-3.3	(-) Utilisation of the tax accrual for 2015
Other net working capital	-19.8	-9.4 %	-14.6	-6.6 %	-26.6 %	+5.3
Operating net working capital	29.9	14.1 %	30.6	13.8 %	+2.5 %	+0.7
Other net working capital	-19.8	-9.4 %	-14.6	-6.6 %	-26.6 %	+5.3	(+) Wages and salaries
Net working capital	10.1	4.8 %	16.1	7.3 %	+59.8 %	+6.0	(-) Value added tax and income tax
Non-current assets	186.2	88.0 %	190.1	85.8 %	+2.1 %	+3.9
+ Net working capital	10.1	4.8 %	16.1	7.3 %	+59.8 %	+6.0
+ Cash and cash equivalents	15.3	7.2 %	15.3	6.9 %	+0.5 %	+0.1
Capital employed	211.5	100.0 %	221.5	100.0 %	+4.7 %	+10.0

Rounding differences may occur

Capital Invested

Capital Invested
in millions of euros	June 30, 2016	% of C I	Sep. 30, 2016	% of C I	Change as %	Change m€	(+) Earnings after tax
Equity	171.3	81.0 %	177.1	79.9 %	+3.4 %	+5.8
Non-current accruals for pensions	26.5	12.5 %	26.9	12.2 %	+1.7 %	+0.4	(+) Allocation to accruals for pensions
Non-current deferred tax liabilities	4.1	1.9 %	5.7	2.6 %	+39.1 %	+1.6
Non-current other accruals	0.2	0.1 %	0.1	0.1 %	-7.8 %	-0.0	(+) Earnings-induced increase
Non-current financial liabilities	0.2	0.1 %	0.2	0.1 %	+0 %	+0.0
Non-current other liabilities	0.6	0.3 %	0.6	0.3 %	-2.8 %	-0.0
Non-operating liabilities	31.5	14.9 %	33.5	15.1 %	+6.4 %	+2.0
Non-current interest-bearing financial liabilities	1.3	0.6 %	0.0	0.0 %	-100 %	-1.3
+ Current interest-bearing financial liabilities	7.4	3.5 %	10.9	4.9 %	+47 %	+3.5
Gross financial liabilities	8.7	4.1 %	10.9	4.9 %	+25 %	+2.2
Capital invested	211.5	100.0 %	221.5	100.0 %	+4.7 %	+10.0

Rounding differences may occur

Free Cash Flow Q3

► Operative result and working capital increase cash flow from operative business

► Outflow of funds from investment activities return to "normal" after outflows of funds for corporate acquisitions in the previous year

Free Cash Flow Q3

in millions of euros	Q3	Q3	Change	Change
	2015	2016	as %	m€	Build-up of inventory of stocks
EBITDA	11.5	13.5	16.7%	1.9	(stocking up for Christmas season)
+/- Non-cash factors	-0.5	-0.2	-56.0%	0.3
+ Decrease/-Increase in operating net working capital	-3.7	-1.1	-70.4%	2.6
+ Decrease/- Increase in other net working capital (excluding income tax items)	1.2	0.3	77.7%	-0.9	Higher payments of value-added tax
- Taxes paid	-1.8	-3.6	-104%	-1.8
+ Interest received	0.0	0.7	>1.000%	0.7	Higher payments of income tax
= Cash flow from operating activities	6.8	9.5	40.8%	2.8
- Outflows from investments in fixed assets	-9.8	-12.2	-24.8%	-2.4
- Outflows from purchases of consolidated interests / acquisitions	-11.5	0.0	-	11.5	Interest income from tax refunds (due
- Outflows from investments in financial assets	-0.1	-0.2	-43.4%	-0.1	to "waiving a claim on receivables in
- Outflows from investments in non-current financial instruments	0.0	0.0	-	0.0	2008")
+ Inflows from the sale of property, plant and equipment and
intangible assets	0.2	1.1	362%	0.8	Higher investments in digital printing
= Cash flow from investing activities	-21.2	-11.4	46.2%	9.8	and administration building
= Free cash flow	-14.4	-1.9	87.1%	12.5
					Acquisition of DeinDesign and futalis in the previous year

Rounding differences may occur

Free Cash Flow Q1-3

• ► Growth in earnings and reduction in working capital increase operative cash flow
• ► Elimination of payments for corporate acquisitions reduces outflow of funds for investments

ROCE as of September 30

÷ = 12 months EBIT in Euro millions Average capital employed in the past 4 quarters in Euro millions ROCE* in % 186.9 191.0 192.7 207.6 218.1 2012 2013 2014 2015 2016 24.9 24.3 28.8 33.0 44.8 2012 2013 2014 2015 2016 13.3% 12.7% 15.0% 15.9% 20.6% 2012 2013 2014 2015 2016

► Increase in 12-month EBIT pushes up ROCE to more than 20 % in spite of increase in capital employed

* ROCE = EBIT / Capital Employed

Rounding differences may occur

Agenda

• 1. Results
• 1. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)

3. Outlook

1. Q&A

Outlook 2016

		2015	e2016	Change
Photos digital	billion photos	2.16	2.05 to 2.15	-5% to -1%
Photos analogue	billion photos	0.07	0.050 to 0.055	-29% to -22%
Photos total	billion photos	2.24	2.10 to 2.21	-6% to -1%
CEWE PHOTO BOOK	million books	6.0	6.10 to 6.15	+1% to +2%
Investments*	Euro millions	39.3	51 (old: 48)
Revenue	Euro millions	554.2	555 to 575	-0% to +4%
EBIT	Euro millions	36.8	40 to 46 (old: 38 to 44)	+9% to +25% (old: +3% to +20%)
EBT	Euro millions	36.3	39 to 45 (old: 37 to 43)	+7% to +24% (old: +2% to +18%)
Earnings after tax	Euro millions	22.7	29 to 33 (old: 27 to 31)	+28% to +45% (old: +19% to +36%)
Earnings per share	Euro per share	3.24	4.00 to 4.57 (old: 3.81 to 4.38)	+23% to +41% (old: +18% to +35%)

* without acquisitions (companies or customer bases)

NEW

NEW

NEW

NEW

NEW

EBIT Development

in Euro millions

► Annual EBIT-target for 2016 increased: 40-46 Euro millions

Agenda

• 1. Results
• 1. Financial Report (P&L-Details, Balance Sheet, Cash Flow, Return On Capital)
• 1. Outlook
• 4. Q&A

Q&A-Session Q3 2016 Analyst Conference Call November 10, 2016

Analyst Call H1 2016: Special tax effect raises 2016 after-tax earnings Backup

Due to an unscheduled tax refund of more than 2 million euros, after-tax earnings for 2016, currently in a range of 25 to 29 million euros, will now be in a corridor of 27 to 31 million euros.

The target set for earnings per share increased correspondingly to 3.81 to 4.38 euros (previously 3.53 to 4.10 euros/share).

Reason: In 2008, the amount of tax payable was reduced when the German CEWE company declared that it would waive a claim due to be paid by the French CEWE company. When the tax assessment for 2008 was received, a tax liability in the same amount had to be entered in July 2010, since the financial authorities initially did not recognise this procedure.

CEWE challenged this tax assessment by way of legal remedy, and has now been awarded a tax refund including interest in the amount of more than two million euros. This refund will be realised in the third quarter of 2016, thus improving the tax result.