CEWE Stiftung & Co. KGaA — Call Transcript 2020

Aug 6, 2020

Results Q2 2020 Analyst Conference Call

CEWE Stiftung & Co. KGaA

August 6, 2020

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 differences might occur.

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CEWE acts with clear priorities in Corona crisis

• We focus on health and safety of our employees 1
  • We secure production capabilities of our laboratories and printing plants
  • We keep online and mobile sites up and communicate with our customers
  • We ensure cost reductions and review investments
  • We prepare the re-start of Retail and Commercial Online-Print
  • We seek "Corona-upsides"

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Photofinishing overcompensates corona-driven declines in COD and Retail: EBIT in Q2 EUR 2.4 million ahead of PY

• Turnover in Photofinishing rose also due to coronavirus-related "stay-at-home" effect by strong 13.8% to EUR 110.6 million, EBIT improved by exceptional EUR 6.3 million to EUR 5.1 million. Sales of the CEWE PHOTOBOOK increased by 11.1% to 1.37 million copies. Besides additional contributions to profits from the increase in sales, the cost-reduction programme initiated as early as in March also improved the EBIT.
• Commercial Online-Print is significantly affected by the corona crisis, turnover at EUR 10.9 million is 56.5% below the previous year's level. Efficient cost management and the conversion to performance-oriented depreciation kept the decline in earnings under control: EBIT of EUR -2.8 million is EUR 1.7 million weaker than in the previous year.
• The corona shutdown hits (Hardware-)Retail, turnover declines by 28.8% to EUR 7.6 million. Continuation of the optimisation strategy accelerated: EBIT of EUR -3.2 million includes EUR -1.7 million for shop closures and EUR -1.5 million value adjustments on stocks.
• Group EBIT is EUR 2.4 million ahead of last year's EBIT: EUR -1.0 million (Q2 2019: EUR -3.4 million). All in all a good second quarter.

CEWE recognized by Deloitte, Wirtschaftswoche, Credit Suisse and BDI

Agenda

1. Corporate Development by Business Segments

• 1.1 Photofinishing
• 1.2 Retail
• 1.3 Commercial Online-Print
• 1.4 Other

2. Group Results

• 3. Financial Details
• 4. Q&A-Session

1.1 Photofinishing

Boots: First shops up and running

"Boots Photo powered by CEWE" New strategic partnership in UK and Ireland

CEWE ordering software with new layout features

Number of prints and turnover Photofinishing Q2

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

WhiteWall supports increase of turnover per photo

Number of prints and turnover Photofinishing H1

Rounding differences may occur. Rising share of value-added-products increases turnover per photo

WhiteWall supports increase of turnover per photo

CEWE PHOTOBOOK Q2 und H1

CEWE PHOTOBOOK with strong growth in Q2 also due to corona-related "stay-at-home"effect

Photofinishing-Turnover by Quarter

Seasonal distribution: CEWE 2016 to 2020 – Share in turnover by quarter as a million

Photophinishing turnover in Q2 is clearly above the range of pre-corona perspective* for 2020

* due to corona situation no targets have been set for 2020 so far ** group turnover w/o targets of segments retail, commercial online-print and other.

Business segment Photofinishing Q2

in Euro millions

Coronavirus-related "stay-at-home" results in additional sales in Q2 and, together with cost reductions, in a considerable improvement to earnings

• Photofinishing also grew thanks to the coronavirus-related "stayat-home" effect (customers used the time spent at home to order photo products - including products using older photos from the past) by a good 13.8% in Q2
• Acquired wall-art specialist WhiteWall still contributed nonorganically to this growth in April and May
• Photofinishing EBIT grew by a highly presentable 6.3 million euros
• Besides additional contributions to profits from the increase in turnover, the cost-reduction programme initiated as early as in March also improved the EBIT against that of the previous year
• Q2 2020 special effects: -1.1 million euros
  • − Effects from the DeinDesign purchase-price allocation: -0.1 million euros
  • − Effects from the Cheerz purchase-price allocation: -0.5 million euros
  • − Effects from the WhiteWall purchase-price allocation: -0.5 million euros
• Previous-year special effects in Q2 2019: -0.7 million euros
  • − Effects from the DeinDesign purchase-price allocation: -0.1 million euros
  • − Effects from the Cheerz purchase-price allocation: -0.5 million euros
  • − Effects from the WhiteWall purchase-price allocation: -0.1 million euros

Business segment Photofinishing H1

in Euro millions

• Marked improvement in photofinishing earnings in HY1
• Also staying at home due to the coronavirus resulted in additional sales and, together with cost reductions, to this outstanding improvement
• Photofinishing grew by a very positive 12.2% in Q2 2020, with acquired wall-art specialist WhiteWall still contributing non-organically to this growth in the period from January to May

• As of mid-March the coronavirus pandemic also had an impact on photofinishing: Instant-print POS business was affected by shop closures, while online photofinishing business saw the "stay-at-home" effect having a positive influence on incoming orders

• Photofinishing EBIT grew by a highly presentable 6.6 million euros

• Besides additional contributions to profits from the increased turnover, the cost-reduction programme initiated as early as in March also improved the EBIT against that of the previous year
• HY1 2020 special effects: -2.2 million euros
  • − Effects from the DeinDesign purchase-price allocation: -2.2 million euros
  • − Effects from the Cheerz purchase-price allocation: -1.0 million euros
  • − Effects from the WhiteWall purchase-price allocation: -1.0 million euros
• Previous year HY1 2019 special effects: -1.3 million euros
  • − Effects from the DeinDesign purchase-price allocation: -0.2 million euros
  • − Effects from the Cheerz purchase-price allocation: -1.0 million euros
  • − Effects from the WhiteWall purchase-price allocation: -0.1 million euros

Photofinishing-EBIT by Quarter

Seasonal distribution: CEWE 2016 to 2020 – EBIT by quarter in % of full year EBIT

Q2-EBIT in Photofinishing due to "Corona-stay-at-home"-effect and cost management clearly above expectations of pre-corona perspective* 2020

* due to corona situation no targets have been set for 2020 so far

17 ** group EBIT w/o targets of segments retail, commercial online-print and other

1.2 Retail

Retail with focus on photofinishing business

• Own retail stores in NO, PL, CZ, SK
• Strategic focus on photofinishing and online business
• EUR 43.7 million revenue (2019) with photo-hardware (cameras, lenses, …)

Retail segment contains hardware revenue only, photofinishing business is shown in photofinishing segment

Business segment Retail* Q2

in Euro millions

• Hardware retailing has been strongly affected by coronavirus-related shop closures
• Accelerated continuation of optimisation strategy initiated
• As a result of coronavirus-related business closures, hardware retailing was impacted strongly by the shutdown as of mid-March, with Q2 sales dropping by 28.8%
• Due to a focus on photofinishing business and refraining from low-margin hardware business, the active reduction in sales before the pandemic started was still at around a strategic - 10% to -15%
• Coming out of the crisis stronger: CEWE is closing altogether more than 30 stores in all the countries in which the company conducts retail business
• Corona-induced accelerated continuation of optimisation strategy with focus on photofinishing and online business
• Around 1.7 million euros in restructuring provisions was allocated for shop closures in Q2
• Over and above this, around 1.5 million euros in value adjustments were undertaken on inventory in hardware retailing
• Before these one-off effects, retailing achieved an operative EBIT of 0.0 million euros in the second quarter of 2020, an improvement of 0.3 million euros (Q2 2019: -0.3 million euros)
• Q2 2020 special effects: -3.2 million euros
  • − Restructuring provisions for retailing: -1.7 million euros
  • − Allowances for inventories of stocks: -1.5 million euros
• Previous-year special effects in Q2 2019: none

Business segment Retail* H1

in Euro millions

• Hardware retailing has been strongly affected by coronavirus-related shop closures
• Accelerated continuation of optimisation strategy initiated
• As a result of coronavirus-related business closures, hardware retailing was impacted strongly by the shutdown as of mid-March, with HY1 sales dropping by 28.2%
• Due to a focus on photofinishing business and refraining from low-margin hardware business, the active reduction in sales before the pandemic started was still at around a strategic - 10% to -15%
• Coming out of the crisis stronger: CEWE is closing altogether more than 30 stores in all the countries in which the company conducts retail business
• Corona-induced accelerated continuation of optimisation strategy with focus on photofinishing and online business
• Around 1.7 million euros in restructuring provisions were allocated for shop closures in HY1
• Over and above this, around 1.5 million euros in value adjustments were undertaken on inventory in hardware retailing
• Before these one-off effects, retailing achieved an operative EBIT of -0.5 million euros in the first half of 2020, an improvement of 0.2 million euros (HY1 2019: -0.7 million euros)
• HY1 2020 special effects: -3.2 million euros
  • − Restructuring provisions for retailing: -1.7 million euros
  • − Allowances for inventories of stocks: -1.5 million euros
• Previous-year special effects in HY1 2019: none

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1.3 Commercial Online-Print

Commercial Online-Print

Business and advertising prints: flyers, business cards, stationery, packaging, promotional items, etc.

Business segment Commercial Online-Print Q2

in Euro millions

• In a B2B business environment, COP was hit particularly strongly by the coronavirus crisis
• Efficient cost management kept the decline in earnings under control
• Since as early as mid-March, COP in B2B printing business has been strongly impacted by the coronavirus, with sales declining very considerably in Q2, by 56.5%
• Aggregated as at the end of February, COP was still increasing at a single-digit growth rate
• The coronavirus-related decline in sales also caused the EBIT to fall below that of the previous year
• Efficient cost management and the conversion to performanceoriented depreciation kept the decline in earnings under control in spite of heavy losses in turnover
• Coming out of the crisis stronger: In order to ensure that a renewed stimulation of the online printing brands after the coronavirus crisis is focussed and efficient, CEWE will be streamlining the commercial online printing brand portfolio, with a focus on the Saxoprint, Viaprinto and Laserline brands
• Q2 2020 special effects: 0.4 million euros
  • − Effects from the Laserline purchase-price allocation: -0.1 million euros
  • − Conversion to performance-related AFD for Saxoprint: 0.5 million euros

▪ Previous-year special effects in Q2 2019: -0.2 million euros

• − Effects from the Saxoprint purchase-price allocation: -0.1 million euros
• − Effects from the Laserline purchase-price allocation: -0.1 million euros

Business segment Commercial Online-Print H1

in Euro millions

• In a B2B business environment, COP was hit particularly strongly by the coronavirus crisis
• Efficient cost management kept the decline in earnings
• Since as early as mid-March, COP in B2B printing business has been strongly impacted by the coronavirus, with sales declining very considerably by 33.4% in HY1
• Aggregated as at the end of February, COP was still increasing at a single-digit growth rate
• The coronavirus-related decline in sales also caused the EBIT to fall below that of the previous year
• Efficient cost management and the conversion to performanceoriented depreciation kept the decline in earnings under control in spite of heavy losses in turnover
• Coming out of the crisis stronger: In order to ensure that a renewed stimulation of the online printing brands after the coronavirus crisis is focussed and efficient, CEWE will be streamlining the commercial online printing brand portfolio, with a focus on the Saxoprint, Viaprinto and Laserline brands
• HY1 2020 special effects: 0.5 million euros
  • − Effects from the Laserline purchase-price allocation: -0.2 million euros
  • − Conversion to performance-related AFD for Saxoprint: 0.6 million euros

▪ Previous year HY1 2019 special effects: -0.3 million euros

• − Effects from the Saxoprint purchase-price allocation: -0.1 million euros
• − Effects from the Laserline purchase-price allocation: -0.2 million euros

1.4 Other

Business segment Other Q2

Structural and corporate costs and profits arising from real estate property and company investments are shown in the "other" business segment.

• The 1.5 million euros in turnover is to be exclusively allocated to futalis (Q2 2019: 1.3 million euros)
• EBIT mainly improved through futalis: futalis continues to grow most positively, with earnings clearly moving towards break even
• IR costs lower than in the previous year as AGM was moved to October 6, due to the pandemic

Segment for other business raises turnover and improves earnings

Business segment Other H1

Structural and corporate costs and profits arising from real estate property and company investments are shown in the "other" business segment.

• The 3.1 million euros in turnover is to be exclusively allocated to futalis (HY1 2019: 2.6 million euros)
• EBIT mainly improved through futalis: futalis continues to grow most positively, with earnings clearly moving towards break even
• IR costs lower than in the previous year as AGM was moved to October 6, due to the pandemic

Segment for other business raises turnover and improves earnings

2. Group Results Q2 2020

Group Turnover Q2

Photofinishing Commercial Online-Print Retail Other

Photofinishing nearly compensates decrease in other segments

Group Turnover H1

Photofinishing Commercial Online-Print Retail Other

Photofinishing overcompensates decrease in other segments

• Photofinishing increases significantly in Q2, COP and Retail with a more negative contribution to earnings than in the previous year due to the coronavirus and retailing burdened by restructuring and value adjustments on stocks
• Operating profit before specials items* considerably increased

3. Financial details

Consolidated profit and loss account Q2

Figures in millions of euros	Q2 2019	Q2 2020	∆ as %	∆ as m€	Increase of turnover in Photofinishing does not quite balance
Revenues	134.2	130.6	-2.7%	-3.6	corona driven decrease in segements Commercial
Increase / decrease in finished and unfinished goods	-0.1	0.1	172%	0.2	Online-Print and Retail
Other own work capitalised	0.2	0.4	105%	0.2
Other operating income	4.9	4.2	-14.2%	-0.7	(+) Cost of material following reduced turnovers in Retail and
Cost of materials	-40.7	-33.5	-17.6%	7.2	Commercial Online-Printing
Gross profit	98.4	101.7	3.4%	3.3
Personnel expenses	-44.8	-43.4	3.1%	1.4	(+) Cost containment (e.g. delayed replacement, overtime reduction,
Other operating expenses	-43.6	-45.4	-4.2%	-1.9	short-time allowance)
EBITDA	10.0	12.9	28.3%	2.8	(+) Integration of Laserline printing facility into Saxoprint production
Amortisation/Depreciation	-13.4	-13.8	-3.2%	-0.4	(-) Restructuring retail
Earnings before interest, taxes (EBIT)	-3.4	-1.0	-71.1%	2.4	(-) Acquisition of WhiteWall
Financial income	0.2	0.0	-99.4%	-0.2
Financial expenses	-0.3	-0.3	0.4%	0.0	(-) Acquisition of WhiteWall
Financial result	-0.1	-0.3	-201%	-0.2	(+) Cost containment (e.g. marketing)
Earnings before taxes (EBT)	-3.5	-1.2	-64.3%	2.2	(-) Mailorder costs

Increase of turnover in Photofinishing does not quite balance corona driven decrease in segements Commercial Online-Print and Retail
(+) Cost of material following reduced turnovers in Retail and Commercial Online-Printing
(+) Cost containment (e.g. delayed replacement, overtime reduction, short-time allowance)
(+) Integration of Laserline printing facility into Saxoprint production (-) Restructuring retail
(-) Acquisition of WhiteWall
(-) Acquisition of WhiteWall
(+) Cost containment (e.g. marketing)
(-) Mailorder costs

Rounding differences may occur.

"Stay-at-home" effect in Photofinishing and broad cost containment – partly initiated last year (Commercial Online-Print) – improve profit situation

Balance Sheet at 30 June

From Balance Sheet to Management Balance Sheet

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Management-Balance Sheet at 30 June

"Stay-at-home" effect reduces current trade receivables (faster payment methods in Photofinishing and less turnover in Commercial Online-Print and Retail)

Capital employed I: T-3

Figures in millions of euros	Mar. 31, 2020	Jun. 30, 2020	∆ as %	∆ as m€
Property, plant and equipment	213.6	214.6	0.5%	1.0	(-) Scheduled depreciation > Investments
Investment properties	17.2	17.5	1.4%	0.2
Goodwill	77.8	77.8	0.0%	0.0
Intangible assets	37.2	35.0	-5.9%	-2.2	(-) Scheduled depreciation purchase price
Financial assets	6.2	6.3	1.7%	0.1	allocation-assets and software
Non-current financial assets	1.3	1.4	6.1%	0.1
Non-current other receivables and assets	0.1	0.5	764%	0.4	(+) Paper stock for Onsite Finishing
Deferred tax assets	14.0	14.0	0.2%	0.0	(-) Inventory RETAIL
Non-current assets	367.2	366.9	-0.1%	-0.3
					(-) Receivables from B2B photofinishing as more
Inventories	44.5	48.4	8.9%	3.9	online business with shorter payment terms
Current trade receivables	35.0	29.6	-15.4%	-5.4	(-) Receivables income Commercial Online Print
Operating gross working capital	79.5	78.1	-1.8%	-1.5
Current trade payables	55.6	59.9	7.8%	4.3	(+) Financing inventories for photo kiosks
Operating net working capital	23.9	18.2	-24.1%	-5.8

Rounding differences may occur.

Corona driven trade receivables reduction reduces net working capital …

Capital employed II: T-3

Figures in millions of euros	Mar. 31, 2020	Jun. 30, 2020	∆ as %	∆ as m€
Current receivables from income tax refunds	6.2	6.9	12%	0.7	(+) Claims against social security insurance related
Current financial assets	3.4	4.5	32.9%	1.1	to short-time allowance
Other Current receivables and assets	12.2	10.9	-10.7%	-1.3
Other gross working capital	21.8	22.3	2.5%	0.5	(-) VAT claims
Current tax liabilities	7.3	6.5	-11.7%	-0.9
Current other accruals	6.4	7.2	12.3%	0.8	(-) Payment of income tax for previous years
Current financial liabilities	8.5	6.8	-20.5%	-1.7
Current other liabilities	32.0	33.6	4.9%	1.6	(+) Provisions for restructuring RETAIL
Other net working capital	-32.6	-31.8	-2.4%	0.8
					(-) Payment of purchase price CHEERZ
Operating net working capital	23.9	18.2	-24.1%	-5.8
Other net working capital	-32.6	-31.8	-2.4%	0.8	(+) Deferral of social security
Net working capital	-8.6	-13.6	-57.7%	-5.0	contributions France
Non-current assets	367.2	366.9	-0.1%	-0.3
Net working capital	-8.6	-13.6	-57.7%	-5.0
Cash and cash equivalents	19.7	24.2	22.7%	4.5
Capital employed	378.2	377.4	-0.2%	-0.8

Rounding differences may occur.

Capital invested: T-3

Figures in millions of euros	Mar. 31, 2020	Jun. 30, 2020	∆ as %	∆ as m€
Equity	263.4	263.8	0.1%	0.3	(+) Positive overall result of the
Non-current accruals for pensions	35.9	36.3	1.2%	0.4	last four quarters
Non-current deferred tax liabilities	3.4	2.7	-19.3%	-0.7	(+) Dividend payout for 2019 outstanding
Non-current other accruals	0.4	0.5	3.7%	0.0
Non-current financial liabilities	1.9	1.9	0.0%	0.0	(-) Release of defered tax liabilities due to
Non-current other liabilities	0.5	0.5	0.0%	0.0	planned depreciation of purchase price
= non operating liabilities	42.0	41.8	-0.5%	-0.2	allocation assets
Non-current interest-bearing financial liabilities	1.0	1.0	-2.9%	0.0
Non-current leasing liabilities	48.6	47.4	-2.6%	-1.3
Current interest-bearing financial liabilities	12.9	12.6	-2.4%	-0.3	(-) Payment of lease liabilities
Current leasing liabilities	10.2	10.9	6.6%	0.7	(+) Accrual for termination payments for lease
brutto financial debt	72.8	71.8	-1.3%	-0.9	contracts of restructured RETAIL shops
Capital Invested	378.2	377.4	-0.2%	-0.8

Rounding differences may occur.

Composition of capital invested nearly unchanged during Q2

Free cash flow Q2

• +2.8 Euro million more operational profit plus substantial working capital and tax payment reductions increase cash from operative business
• Investments in fixed assets at regular level after acquisition of WhiteWall previous year
• 41 Free cash flow turns positive

Consolidated free cash flow Q2

Figures in millions of euros	Q2 2019	Q2 2020	∆ in %	∆ as m€
EBITDA	Q2 2019 10.0	Q2 2020 12.9	∆ in % 28.3%	∆ in Mio. € 2.8	(+) Increased income
Non-cash factors	-2.4	-1.2	49.7%	1.2
Decrease (+) / increase (-) in operating net working capital	1.6	5.8	-262%	4.2	(+) Reduction in trade receivables in commercial
Decrease (+) in other net working capital (excluding income tax items)	3.1	2.3	25.4%	-0.8	online printing
Taxes paid	-5.0	-1.7	66.3%	3.3
Interest received	0.0	0.0	69.2%	0.0	(+) Reduction n advance tax payments
Cash flow from operating activities	7.3	18.1	-146%	10.7
Outflows from investments in fixed assets	-10.8	-13.8	-26.9%	-2.9	(-) Investments for the roll-out for Boots (UK)
Outflows from purchases of consolidated interests / acquisitions	-34.0	-1.5	96%	32.5
Outflows (-) / inflows (+) from investments in financial assets	0.0	-0.1	-	-0.1	(+) Q2 2019 acuisition of WhiteWall
Outflows (-) / inflows (+) from investments in financial instruments	0.0	-0.1	664%	-0.1	(-) Payments for put/call options for CHEERZ
Inflows from the sale of property, plant and equipment and intagible assets	0.9	1.9	-107%	1.0
Cash flow from investing activities	-43.9	-13.5	69.2%	30.4
Free cash flow	-36.6	4.5	112%	41.1

(+) Increased income
(+) Reduction in trade receivables in commercial
online printing
(+) Reduction n advance tax payments
(-) Investments for the roll-out for Boots (UK)
(+) Q2 2019 acuisition of WhiteWall
(-) Payments for put/call options for CHEERZ

Rounding differences may occur.

IFRS 16 and the WhiteWall acquisition increase average capital employed to 383.1 million euros Positive development of earnings increases ROCE before IFRS 16 and restructuring to 20.3 %

* ROCE = EBIT / Capital Employed. Rounding differences may occur. ** before IFRS 16 balance sheet total increase and restructuring costs

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Outlook

Due to corona situation, no targets for 2020 have been set so far

CEWE		PY 2019	Pre-Corona Perspective 2020
Photos	billion photos	2.40	2.4 to 2.5
CEWE PHOTO BOOK	millions	6.62	6.7 to 6.9
Investments	Euro millions	39.3	57
Revenue	Euro millions	714.9	725 to 755
EBIT	Euro millions	57.8	58 to 64
EBT	Euro millions	54.3	56.5 to 62.5
Earnings after tax	Euro millions	31.8	38 to 43
Earnings per share	Euro	4.41	5.34 to 5.90

• CEWE is stable and expects to achieve a solid annual result in 2020, as well
• How the corona pandemic will continue to impact the company's business in the next few months cannot be predicted reliably – within the usual confidence interval
• Q3, in which turnover as a percentage of annual sales has already been declining for years, could see an additional negative impact in 2020 resulting from changed holiday-travel behavior due to the coronavirus

4. Q&A-Session

Analyst Conference Call Q2 2020