Earnings Call: Q1 2025

May 7, 2025

Summary

Q1 sales fell 3.3% below expectations, but gross margin improved 90 bps and EBIT held near last year at €3.1m. FY2025 guidance was reaffirmed, with growth expected from innovation, priority markets and D2C.

Good afternoon, everyone. A big welcome to our Quarter 1 call. Very happy to have you all on the call. As usual, today, we would like to give you an update on our Quarter 1 performance, but also an update on our strategy development and the implementation of our strategic drivers as well as a confirmation of our outlook for the year. Let's start with the summary. Overall, first, I think the important elements of the strategy when it comes to cost efficiencies and productivity enabled us to have good profitability, especially when it comes to gross margin. We see some very good progress on the innovation side. We had a launch in February. I am going to come back to that, and we are looking forward to a very important launch in June. Overall Group turnover was in Quarter 1, down by -3.3%, for sure below our expectations. Three elements are important here. First is one, is a weak consumer sentiment. We see low consumer confidence overall. Number two, we have some strategic portfolio adjustments, and we have been speaking about that as well. In the last calls, we have an insolvency of an important customer in the Netherlands. Blokker is that customer. We have a solid or good improvement on gross margin, 90 basis points, good development here. We see that Group EBIT is almost on last year level with EUR 3.1 million. Free cash flow is decreasing by around EUR 7 million, mainly due to increased investments. All in all, we confirm our forecast for the entire year 2025. Net sales between 2%-4% and EBIT in the range of EUR 15 million-EUR 17 million. We finalize our share buyback program end of April. Let me start with consumer confidence, and as usual, we show now these two KPIs. I think overall we see that there is no recovery or overall consumer confidence is on a very low level. We see that there is quite some uncertainty with the geopolitical topics. We see that it is impacting consumer confidence and also purchases. If you talk to retailers, you will hear that a lot, that there is less traffic in stores across European markets. This we see obviously as one aspect, as I mentioned, also in our top-line developments. Coming to top-line developments, net sales development, again, as I said, certainly below our expectations. Some of the elements were known. I think especially the consumer confidence is impacting Quarter 1 more than we expected. Overall, the Group, -3.3. We see that household, and I come to the core range here a little bit later, but we see that household, where is the core business, our two strategic priorities, is developing slightly, but only slightly better. This is driven on the positive side by laundry drying, especially Linomatic, which is very important for the first quarter. On the other hand, we see also that the electric products, we are losing sales. That on the negative side, brings it to -2.2. We see then wellbeing, so the brand Soehnle small segment, we see continuous impact on the assortment adjustment. We have been talking about that last year, and it continues in the first quarter 2025. It is also impacted by the Dutch customer, where Soehnle is very strong. Then on private label, we see a slightly different development of both businesses. Birambeau, the French kitchen private label supplier, is slightly positive and also quite a challenging development. That is a quite good performance, we think. On Herby, the laundry dryer producer private label, we see the impact on the Blokker business, the Dutch retailer, because we had a very important business there with this private label producer. That is the main impact here. On the regions, different developments. On the one hand, we are very happy with the development in Germany as such, +13% almost. Two aspects are important. We continue to see a very good development in DIY, which is an important channel, but we see continuously good developments there, and we are market leader in that channel. We see on top of that in the discounter channel where we are developing very strongly or much more positive than last year. You remember Quarter 1 last year, for sure. We see now a very positive impact here, which is resulting into the almost 13% on Germany. Go back. Don't know what happens. Central Europe, -12.5% is impacted by markets where consumer sentiment is especially low, which is France and Belgium. There, we see that impact, but it is also driven by promotions, which are not that successful like last year, where we see that aspect in the sentiment of consumers when it comes to purchases. Netherlands is here. I repeatedly spoke about the customer impact. On the other hand, also Italy and Spain, to name two very successful markets we are developing very positively. In Eastern Europe, also a mixed bag. Poland, actually double-digit growing, very positive, Poland. But the other markets, quite under pressure, also because of economy situation in Czech, for instance, which is an important market for us also there. Also price pressure, competition plays a role, therefore the minus six and rest of the world, you know that is a small segment for us, specifically coming from our U.S. customer, which is more a phasing, where we had quite some sell-in at the same period last year. That quite in detail, turnover development. If we look at the different channels, first, you see here maybe I start with DIY. I spoke about that. DIY is showing growth overall 5.6%, so successful development there. We see also discounter on a small base from last year, but also discounter developing positively. The other segments slightly down. E-commerce, which is actually driven by vendor business, by the B2B business more, which is decreasing. Increasing is the D2C, which is an important area for us. There we are high single digit in growth. Hypermarkets, you see the reflection of France and Belgium in that number, which is decreasing. On the retail stores, we have the Dutch customer Blokker included. There you see the effect I was speaking about previously. When it comes to our main initiatives in Quarter 1, as usual, I would like to give you an update on that. We continue to drive the Black Line, which is still developing very positive. We are very, very happy with that development. It is also margin accretive. It is the higher price point. That is very positive, and we continue to develop the black range. That is positive. One of the other key priorities for us was window cleaning, and we launched this 4in1 Window and Frame Cleaner, which is patented, 4-in-1. We see overall the product category up by 40%. That was very successful with the focus we are giving to that segment. We are market leader in that segment, also in Germany, also in some other markets. We see that we continue to develop that segment across Europe. We are very happy with that. Another important aspect I spoke about laundry drying was also so-called Linomatic, our rotary dryer, which is a very important product in quarter one. We had a focus on the sales teams on that, and this also showed very positive response. We grew there 13%. The initiatives where we focused on were actually showing very good results overall. E-commerce, also, we spoke about that already. Just wanted to update you on this. We started that mid of last year, August, September, our D2C from Chablis, delivering into France. We continue investing into this, and you see that we develop very strongly the business here. It is getting also to a significant size, that makes it, I think, more interesting going forward. This is one of the drivers why our D2C business in the quarter one is actually very positive. All right, so that is the update I wanted to give you regarding quarter one, and saying this, I pass over to Marco Keul. Thanks, Alex. As always, I would like to highlight the most important figures briefly so that we have enough time for our Q&A. Alex already pointed out that our revenue development is currently the biggest challenge we are facing. Last year, we saw additional distribution, new products. We expanded our successful Black Line, and we made major progress in D2C business. But despite all those positives effects, the insolvency of one of our former top 10 customers, Blokker, Alex already mentioned, the weak consumption overall in our major countries, especially in France and Belgium, and the portfolio adjustments that we took, we are talking mainly about stopping electrical cleaning, led to a group turnover that is -3.3% below previous year's Q1. Because all of that, we were expecting a weak quarter one, but minus 3% is below our expectations. I would like to highlight that we still see growth in some of our core categories and that March was the best of the three months regarding overall revenue. We will come back to that when we have a look at our free cash flow. The positive elements of last year combined with the additional initiatives of 2025, such as the next innovation Alex will talk about later a bit, convince us that we will keep our guidance for 2025 as is. Profit-wise, you can clearly see that we are on track to reach our goals in 2025. We improved our gross margin by nearly one percentage point, which is the key factor why EBIT is nearly at last year's level despite the lack of revenue. Our costs are below 2024 as well. In Q1 2024, we had a positive effect in other operating income of half a million because of a patent infringement. Our foreign currency result is this year slightly negative, while it was plus EUR 0.3 million last year. So around about EUR 0.8 million effect between 2024 and 2025. Overall, we are quite positive, except the top-line development, of course. In Q1 2025, we are convinced more than ever that our strategic effort to strengthen our own manufacturing with the goal to improve our margin and resilience of our supply chain was the right choice. Not only does it help to be more flexible when it comes to our D2C goals, on top of that, we see no direct impact of the tariff discussions, for example, between the U.S. and China over the last weeks. Because of our ongoing improvements, we were even able to increase our margin by nearly one percentage point. Our focus on our profitable products, our core products, is a major part of our strategy and will help to increase our margin in the following month. Before we get to the free cash flow development, I'd like to highlight two things on this chart. First, we invested EUR 1.3 million more than last year, which was mainly driven by shifts of CapEx in production and logistics from Q4 to Q1 this year. Second, because of the good liquidity of our shares in the last weeks, we were able to buy treasury shares of EUR 1.9 million, which gets us to around about 8.7%. Now, the question is, what is happening with our free cash flow? We see on this chart a net result for the period that is roughly on previous year's level. Depreciation as well. We reduced our inventories by nearly one million, and we increased our liabilities. So many positive effects for our free cash flow development, but we invested more than last year, as I pointed out. The key issue is that because of the comparatively high turnover of March, we increased our trade receivables by EUR 16.3 million before the reporting date. In the previous two years, we were able to cover that with strongly reducing our stock volume, which is still one of our goals in 2025 as well, but with much less effect in quarter one, obviously. So regarding free cash flow, we see ourselves on track, although minus EUR 7.2 million might not look like that in the first place. Well, thanks for your attention. I give the word back to Alex. Thank you very much, Michael. Let me come to the strategy update. First of all, by now I think all of you on the call you know our strategy. It was of course very important for us to continuously work on the strategic driver to really also build the path for next quarter, for the second half of 2025 and obviously beyond. Just to highlight a couple brand positioning, I think we are going to come back in one of the next calls, but the progress there is visible and we are going to launch this in the second half of this year. We see obviously sharpening the focus markets, focus categories. How do we win in the different markets? Also to prepare second half, but more importantly than the year after. On innovation, I am going to come back and on e-commerce, I gave you already the D2C example, but exactly we are using there our efficiencies to make e-commerce more efficient for us and drive more D2C. Various aspects next to the efficiencies, of course, which we made reference already to. To show you some of the highlights. I think first of all, I showed you this last time. We see that we have a very reliable core business which continued to develop over the years, and we wanted to update you here on that. Quarter 1 was flat. Obviously, we want more than that. This is just the sign here that the core business develops much better than the rest of the business, which you can see here. Obviously we are also not 100% satisfied with that, but it shows that this part of the business is much more resilient. Innovation, and we spoke about that innovation is going to be very important. We have been launching Power Clean last year, which especially in a moment like now where we have a more price entry product is very important. On window cleaning, we saw the strong development in the first quarter, and now the next innovation will come in June, July. We will give you details on that in our next call. It is a real innovation where we are getting very positive feedback from our retail customers. We got one important customer listing in Germany, which we actually, where we are not listed as a brand, so it gave us an entry into this big grocery customer, and it shows also in all our customer discussion that the retailers were waiting for that. We are very happy with that. Will be very interesting and exciting and definitely will give us also further the confidence in the second half to really drive top line. Really very nice differentiating concept here, which shows that innovation will really be a key driver for growth for us. Obviously, it is not only about growth, also about efficiency. We spoke about the efficiency gains in our manufacturing and also in logistics, which have been developed throughout the years very positively. We saw that in the further development of the gross margin. And here also give you an update that we saw these productivity gains also in the first quarter, which resulted as part of the elements into the better gross margin in the first quarter versus last year. That's very positive. On the other hand, we spoke last time more in detail about our attractive shareholder or capital allocation, I would say. You know that we have a very solid liquidity position, strong equity ratio, and we want to use this to really focus on shareholder value. Three elements are important here. So attractive dividend policy, you are aware about. We go to the Annual General Meeting with the proposal of in total EUR 1.2 per share, which we believe is a very attractive dividend also this year, and we want to keep that, obviously. We finalize the share buybacks end of April, and we will now on the Annual General Meeting, also get the authorization to acquire more stocks in future to potentially make use of that, obviously, with further share buybacks. Obviously, the third point is important, and we highlighted that in the free cash flow also for quarter 1, that investment into growth and our innovations are obviously a very important part of our capital allocation. I want to come back to the outlook. Outlook for the year, I want to start with what we introduced in our last call of the full year results with you for the first time. Obviously our forecast 2025, as we said, we want to confirm that today. I want to highlight here maybe the midterm potential where we say we think that the business should grow between 3%-6% on a CAGR and improve the EBIT margin up to 7%-10% of net sales. This will come through growth of brand positioning, especially outside Germany, to build the brand outside of Germany in the big European markets. Innovations will come, as we spoke, with the new innovation strategy, and growth will come from the new e-commerce digital model. In total, we then expect in the vision which we communicated last time, that we want to develop the business to more than EUR 300 million and an EBIT above 10%. For 2025, despite the slower start on top line, especially for the quarter 1, we want to confirm the full year turnover between 2%-4%, EBIT between EUR 15 million-EUR 17 million, and free cash flow in the upper single-digit millions. All right. We close with the investment highlights. Strong vision, focused strategy. We continue working on that. We believe in the potential to expand with also keeping the efficiencies in mind and an attractive capital allocation. With this, I would like to close and would like to ask for your questions. Thank you, gentlemen, for the presentation. Let's jump into the Q&A session. Please use the button of your control panel to raise your hand for asking your questions, and please note that you also have to unmute yourself. If you are dialed in by phone, please press star and nine to raise your hand, and please use the combination star and six to unmute. Your questions please. We start with Mr. Leon Mühlenbruch. Your questions, please. Mr. Mühlenbruch, can you hear us? Yes, I can hear you. You can hear me? Yes. Yes. Certainly. Hello. Hello, Mr. Keul. Hello, Mr. Reindler. I have only a short question. The European demand, excluding Germany, was weaker in Q1. What do you expect for the next quarters in terms of how demand will develop and which catalysts could help trigger the rebound? Thank you very much, Mr. Mühlenbruch. Obviously, as we overall said, we expect a growth of 2%-4% for the total year. We have defined very clear growth markets where growth needs to come from, and others where we expect more profit. Overall, we introduced this in one of our earlier calls. We have a very clearly defined country portfolio, how we call it. Investments are going into these markets accordingly, therefore, of course, we expect also growth coming, especially from the aggressively growing markets. But in a situation like this, we are also very agile, I think, in looking in where is budget allocation most efficient at the moment. And this after quarter one we have done already, so we reallocated some of the funds. To be more specific, I spoke about Poland, which has a very good development, double digit. We want to continuously drive Poland as a key market. We have been seeing D2C developments very successfully in France. We want to continue that. Also in Poland, back to Poland, that is a growth driver with Allegro, to give you another example. But then, yes, markets like France, like Italy, the large markets, of course, but also we want to rebound on some of the markets which are, for the market, smaller, but for us, important, like Czech. Spoke about Czech Republic, but also like Belgium. So there definitely we believe we will rebound after the first quarter, and therefore achieve our growth for the total year. Perfect. Thank you, Mr. Reindler. Thank you very much. But one question after this. With the insolvency of Blokker, you see there are positive development or what you believe what could happen there, or you can share something with us? Yes. Overall, obviously, that's not a surprise for us. We know we had a certain turnover in the mid-single millions with that customer. It was, as Mr. Keul said, one of the top 10 customers, so important. Actually, it's a negative impact, but I think overall, we are doing a very good job in compensating for that. That is driven by the important e-commerce player. bol.com is very important for the compensation. But also in the Dutch market, of course, the retailers are changing a lot now. The category obviously moves now into new retailers. Last week we won in one of the supermarket chains, the category for cleaning and drying. So we will move into that retailer with 300 stores and will be present there as of quarter 3 approximately. So these are effects which are now coming. But overall, despite the impact, we are actually very confident that we are compensating that quite well in the Dutch market. Perfect. Thank you. Thank you. Thanks for the question, Mr. Miller. So any further questions from the audience? Then please raise your hands, or you can use the Q&A function to send us your questions. So once again, please raise your hand to ask a question, or you can also use the Q&A function to send us your questions. So once again, any further questions? Then please raise your hand or use the Q&A function. So there do not seem to be any further questions for today. Mr. Keul, Mr. Reindler, your closing words, please. Thank you very much, Mr. Burda. Thanks everyone for the participation. Less questions always means for me that it's very clear, which is good. I think overall we face obviously a challenging market environment. We spoke about that consumer sentiment, and we spoke about our top-line development. Below expectations, as we said, with -3.3%. On the other hand, however, we are developing the strategic elements of our strategy. I think this makes us, on the one hand, as Mr. Keul said, more resilient to what happens outside Europe. Let's put it like this, I think we are getting more resilient as a company. I think we are driving the efficiencies when it comes then to profitability and also growth. To name one specifically with innovations and looking into the second half, we are very positive with the innovation which is going to come. Despite the environment, we are confident to confirm our outlook and look forward to see you in the next call. Thank you very much for participating today. Thank you. Thank you, Mr. Reindler. We close the conference call. Goodbye.