CEWE Stiftung & Co. KGaA (CWC) Earnings Call Transcript

Welcome, ladies and gentlemen, to the earnings call of CEWE Group following the publication of the first half year figures of 2026. I would like to welcome CEO, Thomas Mehls; and CFO, Sirka Hintze, who will speak in a moment and guide us through the figures. [Operator Instructions] The recording will be stopped before the Q&A session. And having said this, Mr. Mehls, the stage is yours.

Yes. wonderful and very warm welcome and a very good morning to all of you.

Yes. Also from my side, very warm welcome.

Yes. It's a beautiful day in Oldenburg. The heat is not yet up. So I'm sure we will look into a very beautiful summer day today. And you know, summer is an important time for our clients to take a lot of pictures, and I hope either you had your holidays already and took a lot of pictures and are in the face of preparing your personal photo product, or you will be still going on holiday and do so. We have a very good call this morning. So we are proud to announce very good figures for the first half year. The Q2 was a really strong Q2. And also, we would like, obviously, to reiterate our very beautiful story of the acquisition we did announce actually during my holidays. So I know some of you have been on this call, but not all of you. So of course, we will reflect on this acquisition, which we announced in July where we had this signing. So I would say, a call with good news for today. And well, let's start. And let's start with the latest news, which are, of course, no news anymore, but it's important to reflect a little bit to give you, again, our view on why we did so, what is going to happen, what is the outlook for the Kodak Moments acquisition. And well, we acquired the Kodak Alaris, and I will come to that one. It sounds all a bit complicated, but in fact, it's very easy. The global instant photo business of Kodak Alaris, which is called Kodak Moments, and which is important. It's a very strong brand, and it's something which will strengthen our brand portfolio here. So you know us, we are not only the CEWE brand. We are a so-called, house of brands. We are mentioning a diverse portfolio of brands, maybe [ Pixel, ] may be White Wall. And we will add a really strong and international, and we can say, global, a really global brand to our brand portfolio, which, of course, is based on the iconic Kodak brand. You all will know it. It's a brand which emerged in the film business, which is still very strong. Of course, it had its challenges. But I will show you the Kodak Moments brand is a fresh brand, it's a strong brand, especially in the U.S. It's a young brand also, Kodak Moments, I mean, if you happen to look it up in a dictionary, it's something which found its way into dictionaries and it's defined as something, which is really a moment which is a [ charming and memorable ] moment and which was really the -- this brand was loaded by social media in the past 10 years, especially in the U.S. So what is Kodak Moments doing? So it's very similar to what we call our on-site finishing business. So if you happen to live in Germany and you walk into a dm drug store, for example, you might find our red CEWE photo stations or if you happened to live in the U.K. you walk into Boots store, you will find our CEWE photo stations, or if you happen to live in the Netherlands and you walk into a [ Kruidvat ] store, you will find them. And if you happen to live in France, and you walk into [ E.Leclerc, ] you will find the CEWE photo stations there where you can print on-site. This is why we call it on-site finishing, we can print on-site your pictures. And this is a very similar business. So they provide the hardware. You can see this in the upper right corner into retail locations. Obviously, they provide software for this hardware. Obviously, they are products, which consumers actually can print on with different designs and forms and shapes and whatnot. And I will come to that in a little bit. Kodak Moments also produces the, as we call it, the kind of technical term, the consumables. So the media kits, which go into this hardware because if you want to print something, there must be something inside, and I will come to this in a little bit. They have the strong advantage and this is one of the strategic rationale, the strong advantage of having a production facility producing these consumables. So well, you see here for the first time, I would say for the first time in one of our analyst call, actually, we are showing the globe. We're not showing Europe, and I will come to that in a minute. We are showing really the globe because Kodak Moments is serving retailers around the globe and not only some retailers, really strong retailers. And if you have been to the U.S., and I'm sure you have been to the U.S., you know CVS, you know Walmart. Latin America Farmacias, one of the strongest drug stores chain in Mexico, Kmart in Australia. But well, maybe your summer holidays took you to Disneyland in Paris, could be or will take you to Disneyland in Paris. Kodak Moments is also very active in amusement parks. Disneyland is a very good example for that one. So if you're on the rollercoaster, and this is really, I would say, top-notch technology, which is built into Disneyland Paris, you can imagine at the right moment, in a rollercoaster pictures have to be taken, you can see them on screens, you can buy them as a digital product, you can buy them as a printed product. So they're also in locations like that. And well, talking about technology. With this deal, we also bought about 400 patents in the sphere of on-site finishing here. So also very interesting, well, patents are important in today's world. So we also acquired about 400 patents. Well, if I say we did acquire, we have to be sure we will acquire because, yes, we signed the deal, but the closing is not yet done. We will come to that in a minute. So forgive me for this one. So Kodak Moments in a more, let's say, fact-based sheet here. What is that company about, it's about EUR 200 million of turnover. We will have 500 new colleagues joining the CEWE Group, including some of the production. I will come to that one in a minute. They are serving 16,000 points of sales directly with 37,000 connected photo stations. We have about 25,000. They serve also a lot more, which are not connected, but that's a different business. They do about 1.5 billion prints annually. We do, in our on-site finishing, about 400 million, just to give you a little bit of order of magnitude here. And as said, they have a production site in Windsor, Colorado. The main office of Kodak Moments where most people are being employed is in Rochester, which is Upstate New York. So I would say closer to Toronto than to New York City. Yes. And again, this is the map. Well, we would have focused a bit more and just show you the European map, that's the map you have been used to. This is where the CEWE Group is being present. We are present in most European markets. You know we are the European market leader and, now we will add the global scope of the network of Kodak Moments. CEWE, your company, well, if you're an investor and if you're not yet and want to become one, your company will become a real global company with activities around the globe, the main ones, the key markets there are the U.S., Mexico, Canada and Australia. This is where most of the revenue outside of Europe because they are active in Europe as well, outside of Europe is taking place. So we are adding really new key markets. And well, this, I told you what they are doing. It's a brand which connects with consumers at the point of sale. This is something which always made CEWE very special. We talked a lot on these calls about omni, I think, it's omnichannel, omnichannel here, which we are driving. And this, of course, strengthen and will strengthen our omnichannel position around the world. So it's something which made this company always special. This is how we grew the business and this is how we will be growing the business as well, and retail has been important and is still very important for CEWE, which is very different to some of the competitors, which limits them in their growth as well. Yes. I told you, and this is nice. These are our photofinishing brands, and now we will add Kodak Moments to that one. We made it a bit bigger and put it more to the center because this is the news, obviously, here. I talked to you about the production. So what is production? What does production mean? If we talk about Kodak Moments, it's about -- this is the subline, you see it here on the side, on the sign, the thermal media manufacturing. This is a photo actually in Colorado. Yes, and this is how it looks, a bit dry. Well, we know that now in Germany and in Europe, it's a bit dry as well here. So it's a bit dry. There's not a lot of round. So it's really -- it's in the -- close to Denver, Colorado on the footsteps of the Rocky Mountains. So Rocky Mountains is quite nice, but down there pretty dry and, well, flat land where not a lot is happening actually. And why thermal media? Well, that's the technique that most photo stations around the world use in order to print on paper. So there is not an inkjet print or a laser printer in there. So it's a thermal media. That means there's a so-called ribbon, which connects with a paper and the ribbon brings basically the color, the color of the picture on to the paper. This is a thermal process, which takes place within the photo station. And of course, this material must be produced. And this is a photo from the manufacturing side in Windsor in Colorado on the so-called wet end. So this is a [indiscernible] printing machine. It's a huge machine, a lot larger, a lot different to what we used to have here. It's about, I don't know, about 50 meters long, if I would guess about, I don't know, 8 meters high. So it's a monster, I would say, with the large cylinders. And there, they print on these ribbons, it's a very thin -- I don't know, it's about a 1/10 of a millimeter. It's a very thin foil, which will then connect with a paper. So this is the process which takes place here in the so-called wet end. And then there is a dry end, right? It means there's no printing, no chemicals involved where those so-called media kits, which at the end, go inside the photo stations are being produced. We also, at CEWE, have these media kits. We have them as well. But as of now, we buy them. We buy them from different suppliers. They're all from Asia. We have had challenges also in securing our supply chain. You might remember the crisis we had in the Suez channel and so on and so on. We had quite huge dependencies. So with this step actually, it's a vertical integration, what we are doing, and we make ourselves a bit more independent from the suppliers, which is an important part of the strategic rationale we do here. So what's happening? And this is what makes this deal a little bit more complicated than just a normal acquisition. It's a carve-out. So there's a company called Kodak Alaris, this Kodak Alaris company actually emerged when Eastman Kodak went bankrupt in 2012, and this company was spun off. And in this company, there are basically 2 main business units and in the one, there are also 2 main business fields. So two main business units, one is Alaris, they call it mostly Alaris, not Kodak Alaris anymore. It's a B2B field where they produce scanners. So actually, they produce the machine, the hardware, the scanners on -- for companies which have a huge amount of scanning documents, libraries and things like that. So a totally different business, nothing we are in, and we don't want to be in there, to be quite honest. And in the Kodak Moments business unit, they have the Kodak Moments brands, which is this Retail Photo Solutions. I talked about this one over the last couple of minutes. And then there is the Film, actually distribution, analog, 35 millimeters film for cameras, which carries the Kodak Professional brand. And we will be carving out this retail photo solution business out of Kodak Alaris. We will take the Kodak Moments brand out of Kodak Alaris. It's a perpetual recurring license from Eastman Kodak, so we don't buy this brand, but it's irrevocable, so it's forever. So forever, we are allowed to use and work with this brand. So this is the transaction scope. And it does make also for finance, this transaction, a little bit more complex than others, right? So a couple of key facts again. I talked about the carve-out here. It's part of Kodak Alaris. And of course, this closing is subject to regulatory approvals, and we expect completion and there are a couple of more closing conditions, as you can imagine, in this deal that are just regulatory things, the carve-out has to be managed, so within 6 to 12 months, that's fair to say. So we have transaction pre-closing costs. You saw that in the announcement of our figures. Well, that's part of the deal. Nothing special about. It's well calculated in our ROI calculations. So nothing to worry about. But well, you need to hire a couple of lawyers. You need to hire a couple of people, which do due diligence. I mean, you don't want to run -- we don't want to run and you don't want us to run into blind into such an acquisition. We need a good contract. We need a good due diligence with that, so there's some costs associated with that one. The purchase price, we communicated that. So the enterprise value is about EUR 88 million. And then, of course, there's an equity, there's a bridge then. And we assume that there will be a cash out of about a little bit more than EUR 70 million, depending on the final bridge there. And the profitability, yes, this currently, because it's something which was owned by a private equity for a long time. They have not invested. They have not really been growing. They have not acquired new retail partners. New retail partners used a little bit of investment there. So we will start with a single-digit profitability. So it's a profitable business. We did not acquire anything, which is like distressed or something like this, but it's something which will get a lot more profitable under our hood. So this is important to note here. Strategic rationale, and I think I reflected a little bit already in my speech here. So it's really the combining strength of 2 strong brands. CEWE is very strong in Europe. To be quite honest, nonexisting outside Europe. Kodak Moments is very strong outside Europe. So it's something we see the opportunity and our instant photo business to grow, our instant photo business growing. And we will be having a stronger growth here and obviously also adding more geographies brings growth to us. But we will be growing the Kodak Moments business, so it's not about acquiring a stable business, it's about acquiring a growth platform here. So this is the second point here. Yes. So we want to scale the business geographically, adding more retailers. We have a huge chance for adding a real growth engine to the CEWE business. It's a very high strategic fit. Well, if we talk about strategically, we also have to talk about people. I realized I didn't talk about people, but that's also very important. I mean if we do an acquisition, we look really closely to the people. Will those people fit our culture? Can we build a combined company here, which is based on the same values. And we found very passionate people, very, very enthusiastic people about photo, very enthusiastic people about us acquiring that business, very enthusiastic about that, quality-driven people. So this is really a great bunch of people, which will be joining the CEWE Group. We are very proud, and that was important for us as well. So we can talk about revenue, we can talk about profitability, we can talk about strategy. But to have the right people on board is really important, and we have the feeling that this group of people fits perfectly to our group of people here. And again, omnichannel is a very important point. We have been driving forward this omnichannel approach. If you look at what we do with our retailers here, and we see a lot of chances to add exactly the same notion to Kodak Moments. So again, part of the growth story here. We believe in retail. We see it. We see it every day. What's happening here. We get a -- it's the entry point for many, many people connecting with our brands. I just invite you to go into these retailers, look into the retailers and see what, especially young people are doing the Gen Z. This is the target group of on-site printing. I mean if you go into any dm around noon time, you see a lot of people after school, young girls especially looking at beauty products and printing pictures. So this is a really highly attractive target group, which we will be -- well, adding actually, well, we are addressing the target with CEWE, but adding geographically here with this acquisition. I talked about the international expansion. New core markets are being added to our portfolio. First, the U.S., Canada, Mexico and Australia, really strong markets, and we see a lot of potential for growth, especially in these markets. May there be even more growth options, we have been seeing that there is India on the map, there is China on the map. So looking at the current revenues, which Kodak Moments does in these markets, this is currently rather small. There might be even more potential there, but this is not factored into our thoughts as of now. But we might be looking in, I don't know, 1, 2, 3 years into that as well and see if there's more potential there. And I talked about the vertical integration. It's more control. It's value creation. It's securing the supply chain. So a very important step here for us to be more vertically integrated in this important business field. Yes. What's going to happen? I mean signing -- well, it's not today, but it was back about, what, 3 weeks ago, something this -- we did the signing. Obviously, we are in the preparation now for closing there in the preparation closing. We are really on full throttle here. There are a lot of things which needs to be done. But obviously, we have a high interest to shorten this period of time as much as possible. They have high interest to shorten that one. So I can't tell you, there's so many dependency on there, but we expect about 6 to 12 months to closing. And then it's about integration and growing the business. I mean, really, this is a growth case, which we acquired. This is a growth case, which adds profits already, and we'll be adding profitability as well. There's a lot of scaling options in there. So we are very strong about this one. This case changes the CEWE Group dramatically for the better, really for the better. So yes, Isn't that nice? It's about Kodak Moments, the CEWE brand is about joy. We thought, isn't it nice that we could create moments of joy together now, and this is what it's all about. So these 2 brands really, and these 2 businesses fit very well together. So going a little bit more into the strategic perspective here. We also completed our sale of the commercial online print. I mean, to be quite frank, this is also only a couple of weeks ago. I mean, it's not like half a year or a year or 2 years ago. This is just a couple of weeks ago. We changed the scope of the strategy. Well, not the strategy because we talked to you, the 2 of us talked to you about a year now, about what we are going to do with CEWE. We told you we're going to focus on photofinishing. And well, obviously, that, to focus on something means where you don't focus, where you are may be defocused in some ways. So I mean, it's always easier to say what you want to do. But if you say what you want to do, you also need to say what you don't want to do anymore. And this is what we did. We did a very nice transaction on the Commercial Online Print division. We have been seeing some costs in Half 1, 2026 here, and you will see that in Sirka's presentation. But there will be a strong benefit coming up in the second half of the year in Q3. The closing has been done beginning of July. And obviously, we expect pretty high nice effect, we would come back to that one, which you can see -- we'll be seeing in our Q3 figures. So this was strategically very well for the CEWE Group, but it was also operational as the deal was a very good deal for the CEWE Group. So this,we, first, almost forgotten, Sirka, a little bit. But it's the first time in our analyst call that we can actually talk about the closing being done here, and this has a high impact, but it's something very consistent to the strategic rationale, which we have been talking to you for the past 12 months. We sold that. It's closed. It says here, completed effective July 2. So we are a photofinishing company. We are a brand company. We are a house of brands focusing on photofinishing, and now we are global. So yes, the sale, it says here also improved CEWE's financial figures. You can say that we talked to you about that one. And now combining all these things together, I think you will be looking at a very strong growth engine within the CEWE company. Now let's look a little bit to our results.

Okay, yes. With this being said, I mean, you probably might remember all the strategic discussions also and information we gave to you. And so coming now back to our results here to the existing business. So we completed the first steps. But also you can see here that we showed the numbers with numbers of our Commercial Online Printing and excluding under accounting ruling, we are going ahead with reclassification under IFRS 5 and take certain effects already out. But on the other hand, the cash came only in on the 2nd of July. So after finishing the year, the first half year, so that's why Thomas mentioned that the effect, from a profitability point of view, only be seen if we finish the consolidation by the third quarter. So what can we conclude of our business of Q2. You can see here a significant growth in our revenues, which is, I would say, especially under the circumstances that the German market is very difficult for a lot of e-commerce business, but we still see with this as a core market, we can also see here compared to the previous year a significant growth of 6%, excluding our commercial online business. So the EBIT is, from an operational perspective, comparable to what we have seen in the previous quarters, which is typical for our season. So a good and solid result on the one hand. On the other hand, we, of course, due to our activities of the first half year, I would say, we spent some money for getting our strategic direction implemented, and this is not for free, of course. So the transaction costs, you can see here will be loaded on our P&L as well. So we have to show also these effects, but still at a later stage, you would see that we stay with our predictions and plans. So we don't take these things away. We'll come later to that. So the group EBIT for Q2, solid operation, was EUR 3 million. And then corrected by transaction costs for the sale and of course, also the transaction costs that we had to anticipate for getting the signing of our acquisition of [indiscernible] done. So a proportion of that amount will be compensated by the seller at a later stage. And so -- but still we had to reflect. So that's why we have reported in after Q2 of minus EUR 7.4 million. So having the look on our first half year, in addition to all the activities we had, we can see a strong operational first half year. The first quarter was a bit tougher than the second one. If you would ask our people, they would say, no, it was the other way around because we had really a lot of things here to prepare and get under control, I was saying. So operational-wise, we are really satisfied. And also from a result point of view, we are not unhappy with our profitability, which is, of course, under -- and we shared it over the last months also market-wise, cost-wise, it's something where we have to be very focused and concentrated on steering all our activities with higher logistic costs, higher material costs. All this is also falling into our field. So we have really to manage these circumstances. So we promised, and I mentioned it in the beginning, as long as you talk at least also to me on this investor conference, we were sharing that we are focusing on our photofinishing business. And I guess, we not only took ourselves and the management, from a management perspective, a favor also for the team and our Commercial Online Printing business. They have now, I guess, a [ high bar ] where they can also develop and flourishing business in a way that they have their, yes, hometown found with Cimpress. So that's why we can now focus on our photofinishing business, which will be strengthened by the addition of Kodak Moments, and we will have furthermore insights of that in the future while we are preparing the closing and then later integration and really implementing the growth. And I guess also for our -- the people at Kodak Moments, it's maybe also a good move because we have a heart for pictures and photos. So operating performance, as I said, the turnover continued more than expected, and the result is on a typical seasonal level. So that's why we stay with the guidance for this quarter, so especially also the expected turnover growth. And so we will, of course, have a closer look at the third quarter, but it is expected to stay at the line what we have communicated. So EUR 780 million to EUR 810 million. And the EBIT will stay in the range as what we have communicated. So let's talk about a little bit more about photofinishing. And so I'm happy to announce that again, we have kicked off our International CEWE Photo Award, which is the biggest on earth. And this year, we have decided to donate EUR 0.10 to Unicef. And so we are happy and very curious to what will achieve our, I would say, our -- how do you say this.