elumeo SE (ELB) Earnings Call Transcript

Yes. Good morning, everyone. And let's wait some seconds for last ones to come in the call, and then we will start. All right. As always, this call will be recorded. Yes. Good morning, ladies and gentlemen, and welcome to our full year 2022 financial earnings call. I'm sitting here together with my colleague, Dr. Riad Nourallah, the Chief Financial Officer of elumeo. And together, we will guide you through the key developments of the year 2022. And in general, we can say that, of course, you all know, 2022 was marked by a highly challenging economical environment. In comparison to the previous year, the circumstances have dramatically changed. If you remember, in 2021, we have been able to record one of the strongest years of elumeo with a remarkable growth of 20%. In 2022, the high inflation rates have caused a loss in purchasing power, resulting in a consumer sentiment that decreased throughout the whole year 2022, as I'm going to show you in one of the next slides, and which reached its all-time low in the fourth quarter of 2022. And despite this highly challenging economical context, elumeo succeeded clearly in outperforming the market. After a drop in sales caused by the outbreak of war at the end of Q1, we took quick action, and I will show you what exactly we did. We stabilized our business in H2 2022. And this also resulted in a positive operating cash flow of $150,000 in the second half of the year. In Q4 2022, we have been able to record the 11th consecutive profitable quarter. In line with our forecast, our sales in 2022 declined by 9.5% to EUR 45.8 million, and the adjusted EBITDA was at EUR 2.2 million. If you look at our Italian business that we restructured in the second quarter of 2022, there we optimized the live broadcasting after a strong decline we had in the first quarter of this year -- of last year from a 24-hour broadcasting that we did on our own channel to a 4 to 7 transmission window that we buy on an existing channel. And this, I'm going to show you in one of the next slides, allowed us to return to profitability with our Italian business in 2022. Also, our video shopping app Jooli continues to develop very nicely. The app has now over 1,200 channels. Over 8 million shopping videos have been played and thanks to significant improvements we did in user experience, the user retention rate has significantly improved. Finally, regarding the outlook for this year, we expect our sales to remain stable compared to last year, and our adjusted EBITDA is expected to be in the low single-digit million range. Yes. I'm going to skip our business model, which you probably all know and go directly on this slide where you see the development of our business since 2020. And as I said, despite the highly challenging year, with consumer sentiment being at the record low in Q4 with Q4 the 11th consecutive profitable quarter. Yes. On this slide, you can see the consumer sentiment index from the Gesellschaft für Konsumforschun, focusing on our core markets, Germany. Already in Q3, I reported that we achieved a record low, but it went even further down to Q4 and never ever such low rates have been recorded in this index, which exists since 1992, so quite a significant amount of time. And yes, of course, this was driven by high inflation rates by income losses, by general negative consumer sentiment. And this all, of course, resulted in a reduced purchase power of the consumers. And as expected, it had an impact on the general market. So on the left side, in the black and white columns, you can see the negative effects that the low consumer index had on the sales of the general German online multichannel markets. On the left side, it went down by 12.7%. And on the German traditional teleshopping market, which went down by 32%. So how did elumeo perform compared to this general market? This can be seen in the column in the middle. Our live business, which is our core business, has clearly outperformed the market, and the revenue only decreased by 7% compared to last year. Moreover, most of the revenue decline came in the first half of last year. In the second half, we stabilized our business and I'm going to show you what exactly we did and what was 1 of the main factors for achieving this. Yes. The main factor is our fast supply chain. So here you see the development of the sales rates per SKU, so of the amount of pieces we sold product line that we have from the first quarter of last year until the fourth quarter of last year. And not surprisingly, after the outbreak of the wall, the sales rate dropped, achieving its low in the second quarter. But then we quickly reacted. We reduced line sizes of the product. So this means, for example, instead of ordering 200 pieces from ring -- from a ring product type, we reduced the order to 150 pieces of this ring. And this allowed us to increase the sales rate of the SKUs to have always fresh and new premieres coming in and at the same time, and just what you can see on the top right side, we avoided excess inventory over stock. So the stock level between 31st December 2021 and 31st December 2022 remained stable. Also, if we look at the gross profit margin in percent, we see that also this despite all the inflation cost, cost increases, our gross profit margin remains quite stable. Yes, as I have already said in the summary, we successfully restructured our Italian business. We had the strong decline in revenue, which you can see here, basically in -- which we recorded in the first quarter of 2022. And we then optimized our live broadcasting to 7-hour transmission window, which of course, reduced the revenue, but which was accompanied by a disproportionately high savings in TV broadcasting costs. And thanks to this measure, our Italian -- the whole Italian business returns to profitability. And we are planning with further marketing improvements and customer reactivation campaigns to further increase this profitability. An important pillar of our business model is the digital transformation from our business from a traditional linear TV player to a fully digitalized and highly personalized individual online product presentations. And as you can see on this slide, our nonlinear and non-live video shopping revenue channels, for example, our interactive online streams where you can skip product shows and select what exactly you want to see our nonlinear mobile app buying options or also our fully digitalized, automized TV show game robots are getting traction and all combined grew by 10% compared to last year, which is, I think, quite remarkable in view of the fact that all other channels had to record a decrease in revenue. Concerning our webshop, we can see that after 2 exceptional strong growth rates we had in 2020 and 2021, the revenue in 2022 decreased by 8%, mainly caused by the reduction of new customers. which was a consequence of the reduction of the general online search volume for gemstone jewelry related keywords, but the revenue remains clearly above pre-pandemic level. In order to show you this more in detail, we compared the revenue development with the pre-COVID year in 2019, and we took the German online jewelry and watches market as reported from Der Bundesverband E-Commerce & Versandhandel. And we can see that the consolidated growth rates of our -- that business outperformed the market by a factor IV. So 22% was the growth of the online jewelry and watches market in Germany and our web shop grew by 88%. Yes. Also with our video shopping app Jooli, we made significant improvements in 2022 and achieved important milestones. As we have announced, we developed personalized video AI feed, which is calculated hourly. So not yet instant real time. We redesigned the app from scratch to improve the user experience and the general attractivity of the app. We implemented an important sales and marketing instrument, which is the voucher system so merchants can add discounts which are directly applied into the merchants shop system automatically. And the whole platform was built in a multiregional and multi-language setup, which allows fast access to new markets. And as you can see in the picture on the right side, we have developed the first metaverse prototype. On the picture, you can see how this could look like with, for example, Juwelo, our main jewelry brands. In the middle, below the huge black screen, you see our gemstone experts, Thomas, presenting high-value jewelry to customers, which are sitting in form of Avatars there who can interact with each other, who can follow the show, and who can see the jewelry in 3D model directly in front of their faces if they want. So of course, this is still a prototype, but I think that it gives a good idea on how immersive the future of home shopping will be. On this slide, we summarized important growth KPIs. So on the top left side, you can see the huge growth in channels to over 1,200 channels. We grew in videos watched, the download cost has significantly improved and went down to only EUR 0.14. And thanks to major improvements in the app, we managed to achieve a significant increase in the daily retention rates which is highly important because it means that customers come back, that customers like the app and that they use it more frequently. Here, we show you the next important milestones of Jooli that will be released in the next week, so quite soon. And a very important milestone will be the real-time AI-based video feed. So the possibility for us to optimize the individual shows in real time within the same session. After a few data points we get from customers using the app and swiping, they can directly see videos of products of their field of interest. And we expect a massive further increase of the video impressions, of the customer retention and of the conversion of that. And in general, I think it can be said that it's an impressive achievement from the Jooli team that basically, on a technical basis, built a TikTok like experience with only 4 developers. So if we compare this to TikTok with over 1,000 developers, that's quite a difference. And I think something we can be very proud of. Second, very important milestone for us is Jooli Pay. Jooli Pay is the in-app-based checkout for customers offering all major, we will start in India, Indian payment methods. We signed a cooperation with Kotak Mahindra Bank and -- to fulfill payments in the highly regulated Indian markets. And this will extremely help in conversion optimization and user checkout experience, making the checkout just one click away and making it as easy as possible for our customers. If you look before giving to Riad for the financial data of 2022, the outlook of Jooli, we have also other projects and other improvements that we planned throughout the year, for example, the contextual and voice-based AI that will have to build a virtual assistance where customers can shop without the need of a keyboard. And this will also be very useful as you can imagine in the metaverse where keyword interaction is not foreseen. We will build an automated self-onboarding for our merchants. So merchants will be able to go through the know-your-customer process and create an account on our back-end Jooli platform without having an actual operations manager involved, and this will help us massively in scaling the merchant acquisition even more in bringing down the cost of merchant acquisition. There's also the integration via API with shop systems. So merchants will receive the orders via API directly into their shop systems or platforms. And finally, as we have already seen just slides before, we are currently working on an improved Metaverse app in collaboration with Hochschule Düsseldorf.

Yes. Good morning, everybody. Let's come to the financials. As Florian already indicated, overall, we are in line with our forecast. Revenues are down by minus 9.6% despite really the challenging market circumstances. Gross profit went down by minus 12.8%, a little bit more. I think this is mainly driven by currency exchange rates so we could see overall 2022, the decline of the euro in comparison to the dollar and also in comparison to the Thai baht and Indian rupee. Overall, we succeeded in realizing a positive adjusted EBITDA, and this is for the 11th time. Adjusted EBITDA at EUR 2.2 million. Let's take a further look at the adjusted EBITDA and how it derives. We start with a slight negative EBITDA at minus EUR 0.5 million. The major parts are the followings: On the one hand, this is the impact of our stock option program, which has no impact on cash, then we have a personnel expensive share program, which partly has an impact on cash of EUR 1.1 million and this is adjusted in 2022, but will be readjusted driven by tax law in Q2 2023. We have the development in Jooli of 1.3 million, so overall, adjusted EBITDA at EUR 2.2 million. Let's take a look at the earnings after tax. And I think we can clearly see that they are mainly driven by active deferred taxes. So starting from our EBITDA, the amortization have an EBIT of minus EUR 1.4 million. And the major impacts are -- is the following, the active deferred taxes, which went down nearly by minus EUR 2 million. Let's take a look at our costs. And I think it was quite important and challenging to decrease our costs on the one hand and even concerning like the personnel costs to stabilize them. Our reach costs mainly went down by minus 27%. This is mainly driven by the Italian TV business, which we clearly optimized and brought to profitability. Our overall personnel costs despite the investments in Jooli are clearly stable. Let's take a look at our key performance indicators. I think the main key performance indicators were here derived. The major point I think we can, as already Florian said concerning the net cash flow from operating activities. Overall, it's negative by minus EUR 1.4 million. But as Florian already indicated, H2 and the operating cash flow was positive. Our other key performance indicators are in line with our revenue performance. So we can see that the major part of the decline from 2021 to 2022 is driven by the decrease in new customer acquisition which is clearly driven by the market circumstances. We compare an inflation 2022, which is driven also by the war in Ukraine to a corona lockdown year of 2021. Our outlook. Of course, for 2023, the circumstances and the volatility is quite high. 2023, the war in Ukraine is still there. And so the influences on inflation and on customer demand are quite volatile. So furthermore, we have to take into look that in comparison, of the first 2 months 2023 to the first 2 months of 2022, the first 2 months in 2022, they were driven by a positive COVID effect and then clearly the war break out in Ukraine. So let's take a look further at the outlook of 2023. So our clear target is to be stable. And furthermore, we take into account and our stable forecast that we have a reduction in broadcast in Italy, which lasted in the first month of 2022. For the webshop, we expect the sales growth in 2023 and the low single-digit percentage range. Gross profit shall be stable at over 50% and adjusted EBITDA is expected to be in the low single-digit million range.

Yes. Many thanks, Riad. Many things. This was the full year 2022 presentation. And I would like now to open the Q&A session.

[Operator Instructions] So I can see Mr. Frey raised his hand. Okay. I think you will need -- you need to switch on microphone.

Can you hear me now?

Now, I can hear you.

I first tried the [indiscernible] function [indiscernible] obviously need to allow that from. Well, thank you for the elaborate presentation. I'll probably start with the existing the core business, hopefully, former crop business at some point in time. If you look at more growth rate, of course, year-on-year, some would, but there is, I would say, a sequential improvement in growth and is that a bit the base case that we should see that will be more or less at the H2 numbers last year and expect a bit slight improvement, hopefully more or less New Year fashion to arrive at our base quarter for the current year. And a bit related to that, I think you expect we changed a lot in U.S. Woodman and we have already positive impact. Is there anything which you can do to more or less it's been further optimized the price to be basically based well, we always set up, and we need some tailwind from the market as well.

Yes. Could you repeat the second question, it's -- I don't know, it's probably the Internet connection, but it's -- the audio quality isn't perfect.

Sorry. Why it is. What I mean is you've changed so much in your assortment quality -- is there further potential or do you need a tailwind from the market?

Concerning our products.

Concerning your products.

Okay, okay. Well, of course, I would then start directly with this question. This is a process that never ends, that always offers new potential. So we know that buying behavior in our customers can quickly change. And we see that offering new collections of jewelry, trying out something new that is gemstone related, but that maybe goes a little bit away from very traditional rings, earrings or traditional well-known types of jewelry is something our customers like very much. So in fact, yes, there is room for further improvement in the product assortment for broadening the product assortment. With new channels, we will also be able to target new customer groups, maybe also a slightly younger customer groups. And this will then, of course, result in the need of a slightly adapted product range. So yes, I see definitely a potential in the product assortments. And as we have built a platform where we can easily onboard new partners -- new jewelry supply partners. This is something we can very easily do. It's not like a couple of years ago where we had our one manufacturer, but we have now a system with over 40 vendors also and that is quite a significant change in the platform that will easily allow this. And your first question was related to Jooli, correct? So it would be.

This is probably a better now.

It's much better now.