CEWE Stiftung & Co. KGaA — Call Transcript 2018

Aug 9, 2018

Results Q2 2018

Analyst Conference Call

CEWE Stiftung & Co. KGaA

Oldenburg August 9, 2018

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. Christian Friege CEO

At a glance: H1 2018

• Without the expected negative contributions to earnings from the acquisition of Cheerz and Laserline, the CEWE Group EBIT for the period up to mid-year is at the same level as in the previous year
• Including the contributions of Cheerz and Laserline, reported Group EBIT is reduced by 2.9 million euros to -3.4 million euros
• Besides the expected negative Laserline-EBIT, the EBIT for Commercial Online-Print has fallen short of that of the previous year, also due to price pressure in Germany, weak UK business and cost increases
• Strong development in core business: photofinishing EBIT maintains organic growth (without Cheerz) in comparison with the previous year
• H1 clearly confirms the annual targets set for 2018: EBIT in the range of 48 to 54 million euros expected

Highlights Q2 2018		Q2 2017	Q2 2018	Comment
Photofinishing
Sales Volume Turnover EBIT EBIT w/o one-offs	in photo m. in EUR m.	424 82.1 0.2 -0.1	432 85.9 -1.6 -1.5	▪ At 1.9% higher than 2017, volume is more than in line with annual target ▪ Additional sales through Cheerz, added-value products drive increase in turnover organically ▪ One-time item: PPA-effect (DeinDesign)
Commercial Online-Print
Turnover EBIT EBIT w/o one-offs	in EUR m.	19.9 -0.3 -0.2	24.7 -1.6 -1.2	▪ Sales increase through acquisition of Laserline and organic growth ▪ EBIT carries expected negative contribution of Laserline and cost increases ▪ One-time items: PPA-effect (Saxoprint) and integration costs of Laserline
Retail
Turnover EBIT	in EUR m.	13.2 -0.1	12.4 -0.2	▪ Focus on profitability and photofinishing reduce sales ▪ Due to seasonality EBIT traditionally negative in Q2
Other
Turnover EBIT	in EUR m.	0.7 -0.9	1.0 -0.6	▪ 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.	116.0 -1.0 -1.1	123.9 -4.0 -3.5	▪ Group turnover up due to acquisitions and organic growth in photofinishing and commercial online printing ▪ EBIT carries negative contribution of acquisitions as expected
Free Cash Flow	in EUR m.	-8.3	-10.3	▪ Cash Flow from operative business and investment activities decrease free cash flow
ROCE	%	20.5	16.5	▪ ROCE still strong, reduced due to acquisitions
Equity ratio	%	63.4	54.9	▪ Solid equity ratio

sollten Q2 confirms the annual targets for 2018

Agenda

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

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Photos Q2

Q2 volume development slightly better than expected full year development

Photos H1

H1 volume exceeds expected range

• Seasonal shift, extremely hot (not order-friendly) weather conditions and Football World Cup influence Q2 volume
• H1 volume exceeds scheduled annual target corridor

Value of Photos Q2

Rising share of value-added-products increases turnover per photo

Value of Photos H1

Rising share of value-added-products increases turnover per photo

Shares in Turnover by Quarter – Photofinishing

Seasonal distribution: CEWE 2014 to 2018 – Share in turnover by quarter as a percentage

* Photofinishing turnover approx. on previous year´s level (2017: 459.0 Euro mill.). Planned group turnover w/o target turnover of segments retail, commercial online-print and other. Rounding differences may occur.

Business segment Photofinishing Q2

in Euro millions

• Photofinishing grows through Cheerz acquisition

• Seasonal shift, extremely hot weather and Football World Cup see slight organic decrease in core business in Q2

• Cheerz acquisition sees Q2 growth

• Ongoing seasonal shift, extremely hot weather conditions and Football World Cup do no encourage consumers to place orders: slight organic decrease in turnover

• Q2 2018 one-off effects

• PPA effects from DeinDesign purchase price allocation: -0.1 million euros
• Negative contribution to earnings by Cheerz as expected
• Previous year Q2 2017 one-off effects
• PPA effects from DeinDesign purchase price allocation: -0.1 million euros
• One-off earnings from sale of property in Denmark: 0.5 million euros

Business segment Photofinishing H1

-4.6 -2.9 0.5 1.6 0.4 2014 2015 2016 2017 2018 EBIT 140.6 148.1 166.6 167.7 180.3 2014 2015 2016 2017 2018 Umsatz +7.5% -3.3% -2.0% +0.3% +0.9% +0.2% of tunrover in Euro millions Turnover

• H1 grows organically and through the Cheerz acquisition

• Q1 with excellent organic growth, slight organic decline in turnover in Q2

• H1 2018 one-off effects

• PPA effects from DeinDesign purchase price allocation: -0.2 million euros
• Negative contribution to earnings by Cheerz as expected
• Previous year H1 2017 one-off effects
• PPA effects from DeinDesign purchase price allocation: -0.2 million euros
• One-off earnings from sale of property in Denmark: 0.5 million euros
• Photofinishing grows organically and through Cheerz acquisition
• Without Cheerz EBIT even stronger than in previous H1

Photofinishing EBIT slightly below expected range (greater decline in demand due to extremely warm weather conditions in Q2 and negative Cheerz-EBIT contribution)

Agenda

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

The CEWE online print brands

Portals focus on different customer groups e.g. through designs, order processes or product portfolios

Business segment Commercial Online-Print Q2

in Euro millions

		0.3
-0.7	-0.9		-0.3	-1.6
2014	2015	2016	2017	2018
-4.0%	-4.8%	+1.4%	-1.5%	-6.4% of turnover

Rounding difference might occur.

COP growth in Q2, through LASERLINE acquisition and also organically in spite of ongoing Brexit-induced decreases in UK and price competition in Germany

• Mainly Laserline acquisition sees turnover in the second quarter rise, also organic growth
• Price pressure in Germany continues to restrain stronger growth

• UK business remains weakened by Brexit

• EBIT currently still absorbs expected negative contribution to EBIT from LASERLINE (of which -0.3 million euros for integration costs)

• Increased material costs (increase in price of paper) and higher logistics costs (express deliveries in order to guarantee promised delivery times) with a negative effect on costs
• EBIT before special items (integration costs LASERLINE and PPA effects) amounts to -1.2 million euros (Q2 2017: -0.2 million euros)

Business segment Commercial Online-Print H1

in Euro millions

Rounding difference might occur.

Majority of growth in revenue from LASERLINE acquisition Commercial online printing continues to battle with Brexitinduced UK weakness and price pressure in Germany

• Mainly Laserline acquisition sees turnover in the first half-year period rise, also slight organic growth
• Price pressure in Germany continues to restrain stronger growth

• UK business remains weakened by Brexit

• EBIT currently still absorbs negative contribution to EBIT from LASERLINE (of which -0.5 million euros for integration costs)

• Increased material costs (increase in price of paper) and higher logistics costs (express deliveries in order to guarantee promised delivery times) with a negative effect on costs
• EBIT before special items (integration costs LASERLINE and PPA effects) amounts to -1.3 million euros (Q2 2017: 0.2 million euros)

Agenda

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

CEWE´s retail business

• 146 retail stores
• EUR 53.0 million revenue (2017) with photo-hardware (cameras, lenses, tripods, etc.)
• Sales of fotofinishing products in fotofinishing segment

Retail segment contains hardware revenue only, fotofinishing revenue is shown in fotofinishing segment

Own retail business provides an excellent window to the market

Retail strategy

• Focus on photofinishing products in CEWE-retail shops
• Adjustments in hardware pricing to improve margins

CEWE RETAIL in Stockholm

Focus on photofinishing products in CEWE-retail shops

Business segment Retail Q2

in Euro millions

• Hardware sales in Q2 continue to decline

• Traditionally negative Q2 EBIT due to seasonality

• Focus on photofinishing products (reported in photofinishing segment) reduces hardware sales

• Optimized price strategy to strengthen margins for photo hardware with a conscious renouncement of low-margin sales

• Extremely warm weather conditions additionally reduce customer frequency in the second quarter

• Q2 traditionally negative due to seasonality

• Due to margin focus earnings despite revenue decline only moderately worse than in the same quarter last year
• Slightly higher value adjustments on inventories also reduce earnings

^* Only hardware, no photofinishing Rounding differences might occur.

Business segment Retail H1

in Euro millions

Hardware sales also in H1 overall continued to decline

Traditionally negative H1 EBIT due to seasonality

• Focus on photofinishing products (reported in photofinishing segment) reduces hardware sales
• Optimized price strategy to strengthen margins for photo hardware with a conscious renouncement of low-margin sales
• Extremely warm weather conditions additionally reduce customer frequency in the second quarter
• First half of the year traditionally negative due to seasonality
• Due to margin focus earnings despite revenue decline only moderately worse than in the same quarter last year
• Slightly higher value adjustments on inventories also reduce earnings

^* Only hardware, no photofinishing Rounding differences might occur.

Agenda

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

Business segment Other Q2

in Euro millions

Umsatz Turnover

0.0	0.0	0.5	0.7	1.0
2014	2015	2016	2017	2018
EBIT				+32.8%
-0.6	-0.4	-0.7	-0.9	-0.6
2014	2015	2016	2017	2018

Structural and corporate costs and profits arising from real estate property and the acquisition of stocks are shown in the business segment Other.

Since August 2015 (date of initial consolidation), futalis has been reported in this business segment since the business activities cannot be allocated to the other business segments.

• The 1.0 million euros reported in turnover is to be exclusively allocated to futalis (Q2 2017: 0.7 million euros)
• EBIT improved especially through rental income of "Saxopark"-property in Dresden

Segment for other business raises turnover and improves earnings

Business segment Other H1

in Euro millions

Structural and corporate costs and profits arising from real estate property and the acquisition of stocks are shown in the business segment Other.

Since August 2015 (date of initial consolidation), futalis has been reported in this business segment since the business activities cannot be allocated to the other business segments.

• The 1.8 million euros in reported turnover is to be exclusively allocated to futalis (H1 2017: 1.4 million euros)
• EBIT improved especially through rental income of "Saxopark"-property in Dresden

Segment for other business raises turnover and improves earnings

Agenda

1. Results

• Photofinishing

• Commercial Online-Print

• Retail

• Other

- Group

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

3. Outlook

1. Q&A

In Q2 and H1 Photofinishing and Commercial Online-Print are contributing to the Group's revenue growth Fx-adjusted: Development in all segements slightly stronger than reported figures

EBIT

Q2 in Euro millions

H1

in Euro millions

Group EBIT in Q2 and HY 1 falls short of previous year, mainly due to acquisitions

Agenda

1. Results

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

3. Outlook

1. Q&A

Group P&L

in millions of euros	Q2 2016	% of revenues	Q2 2017	% of revenues	Change* as %	Change* m€
Revenues	116.0	100.0%	123.9	100.0%	+6.8	+7.9
Increase / decrease in finished and unfinished
goods	-0.1	-0.1%	-0.3	-0.3%	+345	-0.3
Other own work capitalised	0.2	0.2%	0.2	0.2%	-6.7	-0.0
Other operating income	5.8	5.0%	7.9	6.4%	+36.5	+2.1
Cost of materials	-37.0	-31.9%	-39.8	-32.1%	-7.4	-2.7
Gross profit	84.9	73.2%	91.9	74.2%	+8.2	+7.0
Personnel expenses	-37.1	-32.0%	-41.6	-33.6%	-12.1	-4.5
Other operating expenses	-40.2	-34.7%	-44.7	-36.1%	-11.3	-4.5
EBITDA	7.6	6.5%	5.5	4.5%	-26.8	-2.0
Amortisation of intangible assets, depreciation
of property, plant and equipment	-8.6	-7.4%	-9.5	-7.7%	-10.9	-0.9
EBIT	-1.0	-0.9%	-4.0	-3.2%	-287.3	-3.0

Turnover growth in Photofinishing and Commercial Online-Print more important than decline in Retail

(+) VAT refund for previous assessment periods (+) Rental income from real estate leasing of the "Saxopark" in Dresden

Organic growth in Photofinishing and Commercial Online.Print as well as acquisition of Cheerz & LASERLINE

(-) Mainly attributable to acquisition of Cheerz and LASERLINE (-) Few recruitments in central functions (R&D) of Photofinishing

Acquisition of Cheerz & LASERLINE

Only the substantial, significant differences to the previous year are illustrated. Rounding differences might occur.

Balance Sheet data at 30 June

Balance sheet extension mainly due to the acquisitions and the purchase of Saxopark Earnings growth keeps equity ratio at 54.9% despite balance sheet extension

From Accounting Balance Sheet to Management Balance Sheet

Balance Sheet

Management Balance Sheet

Management Balance Sheet at 30 June

Long-term assets increased due to the acquisition of Saxopark, Laserline and Cheerz Net working capital increased mainly as a result of the acquired business

Capital Employed I

Capital Employed I
in millions of euros	Mar. 31,	% of	June 30,	% of	Change	Change
	2018	C E	2018	C E	as %	m€
Property, plant and equipment Investment properties	150,7 17,9	50,1 % 5,9 %	153,7 17,8	50,5 % 5,9 %	+2,0 % -0,1 %	+3,1 -0,0
Goodwill	65,2	21,7 %	65,2	21,4 %	-	+0,0
Intangible assets	15,3	5,1 %	15,4	5,1 %	+0,5 %	+0,1
Financial assets	10,8	3,6 %	7,6	2,5 %	-30,2 %	-3,3
Non-current financial assets	0,8	0,3 %	0,9	0,3 %	+5,9 %	+0,0
Non-current other receivables and assets	0,1	0,0 %	0,4	0,1 %	+261 %	+0,3
Deferred tax assets	7,8	2,6 %	9,0	3,0 %	+14,9 %	+1,2
Non-current assets	268,6	89,4 %	270,0	88,7 %	+0,5 %	+1,3
Inventories	47,5	15,8 %	47,0	15,5 %	-1,0 %	-0,5
+ Current trade receivables	39,6	13,2 %	39,2	12,9 %	-1,2 %	-0,5
Operating gross working capital	87,2	29,0 %	86,2	28,3 %	-1,1 %	-0,9
- Current trade payables	52,8	17,6 %	55,7	18,3 %	+5,3 %	2,8
Operating net working capital	34,3	11,4 %	30,5	10,0 %	-11,0 %	-3,8

Investments in tangible assets, especially digital-print and offset-print

Investments especially in software

Divestment of a start-up participation

Seasonal increase

Only the substantial, significant differences to the previous year are illustrated. Rounding differences might occur.

Capital Employed II

Capital Employed	II
in millions of euros	Mar. 31,	% of	June 30,	% of	Change	Change
	2018	C E	2018	C E	as %	m€
Assets held for sale	1,4	0,5 %	1,4	0,5 %	-0,4 %	-0,0
+ Current receivables from income tax refunds	6,3	2,1 %	10,7	3,5 %	+69,7 %	+4,4
+ Current financial assets	2,5	0,8 %	2,6	0,8 %	+0,8 %	+0,0
+ Other current receivables and assets	8,9	2,9 %	9,0	3,0 %	+1,7 %	+0,1
Other gross working capital	19,1	6,4 %	23,7	7,8 %	+23,8 %	+4,6
- Current tax liabilities	3,5	1,2 %	2,7	0,9 %	-21,9 %	-0,8
- Current other accruals	3,3	1,1 %	3,2	1,1 %	-3,3 %	-0,1
- Current financial liabilities	3,7	1,2 %	3,0	1,0 %	-	-0,7
- Current other liabilities	26,3	8,7 %	22,8	7,5 %	-13,3 %	-3,5
Other current liabilities	36,8	12,2 %	31,7	10,4 %	-13,7 %	-5,1
Other net working capital	-17,7	-5,9 %	-8,1	-2,6 %	-54,4 %	+9,6
Operating net working capital	34,3	11,4 %	30,5	10,0 %	-11,0 %	-3,8
Other net working capital	-17,7	-5,9 %	-8,1	-2,6 %	-54,4 %	+9,6
Net working capital	16,6	5,5 %	22,5	7,4 %	+35,1 %	+5,8
Non-current assets	268,6	89,4 %	270,0	88,7 %	+0,5 %	+1,3
+ Net working capital	16,6	5,5 %	22,5	7,4 %	+35,1 %	+5,8
+ Cash and cash equivalents	15,4	5,1 %	11,7	3,9 %	-23,6 %	-3,6
Capital employed	300,7	100,0 %	304,2	100,0 %	+1,2 %	+3,6

Capitalization of tax prepayments in quarterly reporting

Decrease due to payment of trade tax

Settlement of wage and salary liabilities from oustanding vacation Decrease of VAT-liabilities due to payments

Only the substantial, significant differences to the previous year are illustrated.

Capital Invested

Capital Invested
in millions of euros	Mar. 31, 2018	% of C I	June 30, 2018	% of C I	Change as %	Change m€
Equity	231,8	77,1 %	215,0	70,7 %	-7,3 %	-16,9
Non-current accruals for pensions Non-current deferred tax liabilities Non-current financial liabilities Non-current other liabilities	27,7 1,6 0,1 0,8	9,2 % 0,5 % 0,0 % 0,3 %	28,1 1,5 0,1 0,7	9,2 % 0,5 % 0,0 % 0,2 %	+1,6 % -3,4 % - -13,3 %	+0,4 -0,1 +0,0 -0,1
Non-operating liabilities	30,2	10,0 %	30,5	10,0 %	+0,9 %	+0,3
Non-current interest-bearing financial liabilities	1,3	0,4 %	1,8	0,6 %	+36,7 %	+0,5
+ Current interest-bearing financial liabilities	37,3	12,4 %	57,0	18,7 %	-	+19,7
Gross financial liabilities	38,6	12,8 %	58,8	19,3 %	+52,2 %	+20,2
Capital invested	300,7	100,0 %	304,2	100,0 %	+1,2 %	+3,6

Decrease due to dividend paid in the financial year 2018 for 2017

Increase of pension accurals, due to adjustments of the pension commitments

Seasonal increase for business operations

Only the substantial, significant differences to the previous year are illustrated.

Free Cash Flow Q2

Cash flow from operative business approx. on same level as 2017

In the outflow of funds from investment activities rises slightly as announced for the full year

Free Cash Flow Q2

in millions of euros	Q2	Q2	Change	Change
	2017	2018	as %	m€
EBITDA	7,6	5,5	-26,8%	-2,0
+/- Non-cash factors	-0,5	0,3	-	0,8
+ Decrease in operating net working capital	2,4	3,3	38,3%	0,9
- Increase in other net working capital (excluding income tax items)	-2,2	-3,5	-56,2%	-1,3
- Taxes paid	-6,2	-5,3	15%	0,9
+ Interest received	0,0	0,2	>1000%	0,2
= Cash flow from operative business	1,0	0,5	-45,8%	-0,4
- Outflows from investments in fixed assets	-9,6	-13,0	-35,4%	-3,4
- Outflows from purchases of consolidated interests / acquisitions	0,0	-1,0	-	-1,0
- Outflows from investments in financial assets	-0,1	2,9	-	2,9
- Outflows from investments in non-current financial instruments	0,0	0,0	-	0,0
+ Inflows from the sale of property, plant and equipment and
intangible assets	0,4	0,3	-28%	-0,1
= Cash flow from investing activities	-9,3	-10,9	-17,1%	-1,6
= Free cash flow	-8,3	-10,3	-24,3%	-2,0

Reduced earnings situation

Inventory and receivables reduction

Decrease due to payment of VAT

Less subsequent payments

Saisonal investments

Subsequent purchase price regarding to current acquisitions

Divestment of a start-up participation

Only the substantial, significant differences to the previous year are illustrated. Rounding differences might occur.

ROCE as of June 30

* Return On Capital Employed Rounding differences might occur. * * Weighted Average Cost of Capital

Acquisition of the Saxopark and recent acquisitions (LASERLINE & Cheerz) increase average capital employed, as a result ROCE drops to still strong 16.5%

Agenda

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

3. Outlook

1. Q&A

Outlook 2018

Targets		2017	Target 2018	Change
Photos total	billion photos	2.17	2.12 to 2.14	-3% to -2%
CEWE PHOTO BOOK	million photos	6.02	6.08 to 6.14	+1% to +2%
Investments*	Euro millions	44.6**	55
Revenue	Euro millions	599.4	630 to 665	+5% to +11%
EBIT	Euro millions	49.2	48 to 54	-2% to +10%
EBT	Euro millions	48.9	47.5 to 53.5	-3% to +9%
Earnings after tax	Euro millions	33.6	33 to 37	-2% to +10%
Earnings per share	Euro millions	4.70	4.55 to 5.13	-3% to +9%

Rounding differences might occur.

H1 confirms the annual targets for 2018

* Operative investments without potential investments in expanding the business volume and, for example, corporate acquisitions and/or additional customer-base acquisitions

** EUR 44.6 million in operational investments including building expansion in Oldenburg, plus acquisition of property "Saxopark" in Dresden (EUR 27.6 million)

EBIT Development

54

Agenda

1. Results

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

3. Outlook

4. Q&A

Q&A-Session

Q2 2018 Analyst Conference Call August 9, 2018