elumeo SE (ELB) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the H1 2024 financial earnings call of elumeo. And as always, I would like to start with the summary of the first half year and then together with Riad and Wolfgang, guide you through the key developments. In Page 1, despite the ongoing challenging market environment, we have been able to increase our revenue by 1% to EUR 22.5 million and outperformed, once again, the market, which declined by 4% for the online jewelry and watches market and 8% for the tailor shopping market. We have reduced our selling and administrative expenses by 3% to EUR 12.1 million and EUR 12.4 million in H1 2023. In addition to this and in line with our #Juwelo100 strategy for profitable growth, we have fully implemented cost-saving measures in the volume of additional EUR 1.2 million that are not visible yet, mainly because of contractual reasons such as termination periods. To visualize the full effect of these additional cost measures, we added pro forma costs, which are at EUR 11.2 million in H1 2023 versus -- sorry, EUR 11.2 million in H1 2024 versus EUR 12.7 million in H1 2023. I will show you this more in detail later, but in summary, our cost efficiency program has improved our cost by a total of EUR [ 1.5 ] million. Our adjusted EBITDA improved to EUR 326,000. Once again, our web business was the growth driver in H1, increasing revenues by 6% to EUR 7.2 million. At the same time, in the web business, we optimized our online marketing campaigns, and have been able to reduce online marketing expenses by 16.5%. One of the highlights of H1 was the start of our AI-based internationalization 2.0 in Spain, based on our new multi-language platform. And I'm very happy to report that the start was impressively good. After only 2 months, we reached breakeven. And of course, after such a great first step, now the focus is to scale this, starting with this additional TV reach in the neighbor countries of Germany with the target to increase TV households from 56 million to 80 million households by end of next year. With Jooli, we continue to increase gross merchandise value and average order value at a fast pace. An important next milestone is the implementation of SALEOR [Audio Gap] sales and adding crucial e-commerce features, such as vouchers, in order to improve retargeting and grow the customer lifetime values. And finally, we confirm the outlook for 2024, with revenue increasing by 4% to 8%, gross profit margin between 49% and 51% and an adjusted EBITDA moving to EUR 1.5 million to EUR 3.5 million. I will skip the next slides that present our company in general and come directly to the key developments in H1. So let's start taking a look at the market development in comparison to us. As you can see, looking at the gray bars, the market continues to decline. So on the left side, the German teleshopping market, which went down by 8%; the multichannel markets, which decreased by 3%; and the online jewelry and watches market, which went down by 4%. And contrary to this trend, also thanks to our strong video shopping based business model, we continue to outperform the market and have been able to slightly grow our revenues by 1%. And as you can see, our web business was the growth driver with 6% increase in revenues in H1. For live business, we can report a stable top line and in -- mainly in Q2. We have optimized our live shows, focusing on more profitable high price points. So this means that we increase the [ at time ] share for premium jewelry collections in the scheduling of the TV program. You can see the effects in the average selling price in the chart in the middle, which increased by 6%. It took us a couple of weeks to get our customers used to this change. But in the second half of Q2 2024, we returned to significant growth rates. And in June, our live business grew by 9% compared to June 2023. On the 1st of June, as every year, we celebrated the Juwelo birthday, this year, the 16th Juwelo birthday event. And the Juwelo birthday has always been an important moment for us to see how the consumer sentiment is and also for the second half of the year. We launched -- we always launch several new brands, new products, new guest formats, which will then return in the upcoming months. And therefore, I'm very happy to report that this year, the Juwelo birthday was record breaking. In fact, it was the strongest birthday with the highest revenue ever achieved in the history of our company. Let's come to our web business. Our web shops have been the growth driver in H1, increasing revenues by 6% to EUR 7.2 million. At the same time, based on investments we did in Q4 2023 to determine the most cost-efficient online marketing mix, we've been able to significantly optimize our marketing campaigns, reducing marketing expenses by 16.5% to EUR 1.5 million and increasing the basket size by 4%. We will continue to focus on profitable campaigns also in the second half of 2024. So we expect the reduced quantity of new web customers, but a significant improvement of profitability of the new customer cohorts and the customer lifetime value. Let me now give you an update on #Juwelo100. As you will probably remember, we launched this strategic program in 2023 with a target to reach EUR 100 million in revenue per year by 2030 through profitable growth. So the program contains both revenue drivers and cost improvements. On one side, revenue drivers such as our internationalization 2.0, video shopping with high customer lifetime values, the digitalization, the personalization and also new revenue streams via augmented and virtual reality. And on the other side, further optimizations of our platform performance with a focus on using AI to improve efficiency and to decrease cost. And in line with this target to reach profitable growth and EUR 100 million, in H1, we implemented a substantial cost efficiency program. In summary, we put the focus on quality instead of quantity. So this means that, for example, we target the more profitable customers with our online marketing mix or we focus on premium jewelry resulting in higher price points and less pieces sold. So this reduces the costs in logistics, in service center and basically, in all departments, where we have costs related to the number of pieces or the number of customers. And the effects of this shift towards quality can be seen in higher margins per active and per new customer. Just to move back, an example, the gross margin of new web customers after the first month increased by 20%. So this was a clear improvement of customer lifetime value. And let's see on the next slides what the effect on the total cost is. In this first half of the year, in line with what we have planned, we've been able to improve our costs by EUR 1.5 million. And as I said in the introduction, the total volume will become visible throughout the second half of 2024. And with this chart, I would like to visualize the success and the elements of our cost saving program more in detail. If you compare the bar on the very left-hand side of the chart, showing the reported cost of H1 2023, with the bar on the very right-hand side, showing the reported cost of H1 2024; you can see the first component of the EUR 1.5 million cost improvement, which is the reported cost decrease of 3%. However, the reported costs in H1 2023 included, as you might remember, extraordinary savings related to our stock options program of EUR 227,000 which should be added to the H1 2023 cost, of course, and brings the pro forma costs of H1 2023 to EUR 12.7 million. Now let's take a look at the right-hand side, at the reported cost of H1 2024. From this cost, we deduct the amount of EUR 964,000, which are cost measures [Audio Gap] H1 2024 but that are not visible yet. Why are they not visible yet? The majority of these costs are personnel costs or contracts in the field of logistics and packaging, where we simply have a couple of months of termination periods. And as I said, the total volume of these executed cost savings will become visible in the second half and throughout the second half of the year. So in summary, as you can see in the middle of the chart, our cost efficiency program has improved our cost by a total of EUR 1.5 million. To give you a little insight and preview into what we are currently doing in Q3 and our [ live ] business, I would like to highlight the successful launch of our new studio at our jewelry hub in Bangkok for our German and European live shows. This was also one of the #Juwelo100 projects planned for Q3 of this year. The Bangkok studio is not just a new studio. It has significant business advantages for us. First, all jewelry presented is on consignment basis. You have to know that Bangkok is one of the most important jewelry trading centers in the world, which means that there are many vendors and many products. And this circumstance allows us to easily offer a huge variety of products to test new designs to offer premium to luxury jewelry without having risks in stock management because we only pay for sold items. We don't need -- second, we don't need to pay for custom duties for unsold consignment items because they simply remain in Bangkok, they do not get imported to Germany. And finally, which can create very authentic and entertaining jewelry shows for our German and European customers. And altogether, as you can see on the very left-hand side in the chart, this resulted in an improved profit per show minute of 8%, if we compare the evening specials of August 2023 with this new evening and special live from Bangkok in August 2024. Let's come to our new multi-language platform, the basis -- the technical basis for our internationalization 2.0, which is one of the most important and most exciting #Juwelo100 projects. It's based on three main strategic areas: video shopping, artificial intelligence and cross-border commerce. And just to remind you how the platform works, the platform records the German live show, then translates it and adapts the show into all foreign languages that we define. The platform uses AI translation and lip sync to create very authentic local language shows that we can then distribute internationally with our Gamerobots, which is our automated shopping robot. So this allows us to leverage our video shopping content that we have any way for the German live show and create international shopping shows at very low production cost. And on this slide, you can see the development of our internationalization 2.0. After some technical and also quite manual tests on the platform in June, we started the full automatization in July. And in the graph, you can see the development of the cost coverage ratio. And as I already said, the start was impressively good. We received great feedback from customers about our entertaining and inspiring new show, there was basically no negative feedback on the translation. And our impression is that nearly no one noticed that it is a fully AI translated show. So we are happy to be able to report that it was the start of internationalization 2.0, was a great success. We can see that the product works, that it is accepted by the customers and that it is something that we can now [ scale ]. In fact, after only 2 months, we already reached breakeven. With this proof of concept, we are now planning to continuously expand our footprint in Western Europe, increasing the amount of households reached from currently 56 million to 80 million households by end of next year. We are currently expanding TV reach in Spain, and we will start in France in September. And as you can see on this slide, with a total of 259 million households, the growth potential of all European households for us is really significant. So we are now very excited about the next steps.

Good morning, and a very well welcome also from my side. I would like to update you on the developments of Jooli throughout the last 3 months. For all of you that are not yet familiar with Jooli, Jooli is a video shopping platform that we built based on our experience with the video shopping formats that we launched with Juwelo. We have launched this platform in Germany, but mainly in India, where we have a local team that is developing this platform throughout India. And up until now, this platform has grown very fast. And we are pretty close to reaching a next, very important milestone that I will explain to you in a minute. A little bit like with the Juwelo business in Germany, also in India, we focused throughout the last quarter on developing more profitable customer cohorts, which resulted, on one side, in a small decrease of 35% of the average order value on volume. So from close to 2,000 orders in January, we reduced -- 1,700 orders in January, we reduced to 1,100 orders in July. But at the same time, throughout the optimization of our campaigns, we have been able to increase the average order volume from INR 124 to INR 500. And that, in total, resulted in a total increase of gross merchandise value, which is in the current setup of Jooli, also in the revenue of the business; from INR 215,000 to INR 543,000. So we continue to roll our customer cohorts very nicely. We are still in the process of improving customer retention. And in order to improve customer retention even further, we have started to bring our platform to a new backbone. If you come to the next slide throughout the -- last quarter, we also shifted our focus a little bit on new channel acquisition, while in the beginning, we have been acquiring customers throughout all of the areas of products, so from clothes to household appliances and a lot of other kind of classic teleshopping products. We have seen that for us so far, the jewelry category has worked by far the best. It has the highest average order values. It has the lowest customer acquisition cost. And therefore, throughout the last quarter, we focused on jewelry as a further growth driver. And you can see that even with this focus, we've been able to increase the total volume of channels from 1,400 channels in January to 1,000 -- roughly 500 channels in July. So this focus has allowed us to increase this level of gross merchandise value and not lose the remaining business. Channel acquisition cost has been further optimized. So now, a new channel cost us only EUR 21. And on the next slide comes the biggest milestone for us in 2024, which is the technical backbone, with which we administer Jooli. Up until now, we have administered Jooli with the backbone that we have developed ourselves. So the entire backbone is a backbone that we developed specifically for the needs of Jooli, which has allowed us to move quite fast in the beginning and to experiment quite a lot. But at the same time, which has made us slow, in the sense that a lot of e-commerce features that are really important in a platform business such as Jooli, we would have had to develop ourselves, such as a shopping basket, so that you can shop items from various channels and put them into your basket. And then, only once you're done with your shopping, you can check them out. Or also the ability to give incentives such as vouchers or rebate codes to individual customers, in order to lure them back into the app. This backbone will be released sometime in September. Current release date, I think, is around the 10 September. And with that, we will improve our customer retention quite substantially and therefore, can start a further step in the development of the business. At the same time, since this is a so-called headless e-commerce backbone, so it's a backbone that basically allows to play out the content to whichever platform that you attach it to, it gives us also much improved strategic maneuverability of the platform. So for example, with this new platform, we will be able to easily adapt streaming or even television to the platform. We could offer the platform and Software-as-a-Service to individual merchants, who would like to have their own video shopping platform, and we can also offer this as a white label Platform-as-a-Service business. So we have many more options on how to capitalize on the development that we have had so far, that are different from what we have had. So in the total kind of -- we made a huge step forward in this quarter technically. And in the next quarter, we will get the [ fruit ] out of this technical improvement and see much improved customer retention rates and therefore, further step towards scalability of the platform.

Good morning to everybody. Let's come to the financials, which we were partly presented by Florian. As Florian said, so we had stable revenue, but still under the times of inflation, margins still are under pressure. Revenue grew by 1% and we definitely outperformed the jewelry and watches market, which went down by 4%. Due to inflationary times, gross margin went down by 2.8%, overall, which resulted in a decline in the gross profit to EUR 11.0 million. Our main focus was the implementation of the optimization program, which resulted in a decrease of SG&A expenses by 3%. As Florian pointed out, the main [ effects ] will be shown in H2 and presumably in Q3. Let us come to the adjusted EBITDA. In comparison to H1, we had a much more improved adjusted EBITDA, which is driven by the cost reductions. We have to point out that, of course, pro forma cost savings are here not included in the adjusted EBITDA. We will be able to completely see them in Q3 and overall in H2. [indiscernible] In Q2, revenue slightly decreased, so we had a decrease of 3%. But overall, thanks also to the very successful birthday, gross profit margin stabilized. Gross profit went down by 5%, mainly driven by the revenues. In Q2, total expenses increased by 3.5%, but we definitely have here to point out to the special [ effects ], which we had in the last Q3 2023. SG&A expenses pro forma, they went down by 7.4%. Adjusted EBITDA decreased, driven also by the special [ effects ] in 2023 in Q2 by 33% to EUR 180,000. Outlook. Overall, in 2024, we -- our aim is to return to profitable growth. We confirm our outlook, which [ shared SaaS ] revenue growth by 4% to 8%, adjusted EBITDA between EUR 1.5 million and EUR 3.5 million and a gross profit margin between 49% and 51%.

Well, this was the presentation of our H1 financial data. And I would now like to open the Q&A session. [Operator Instructions] And I see the hand of Mr. Frey.

Well, thanks for the elaborate presentation. Probably I would go one by one with my questions, if that is okay for you. Firstly, I would like to start a bit with the German or the general online jewelry market. While we had quite a long period of outperformance, raging closer to 20%, now in the second quarter, [ to be ] fair, we slightly underperformed the [ BPH ] a figure of around 3%. Would you see that mostly as a function of the tough comparison base last year, being -- the first quarter where you had substantial sales growth? And is there anything other that we should bear in mind, just probably on that one?

Sure. Well, it's a little bit -- two things. One is what you already said. Of course, the market declined with -- I think, since 2022, with very high percentage rates. So there's a slow recovery, but the decline before was quite substantial. But I think, the more important factor here is the change that we did in our focus on profitable customers, on improving profitability of the web business and in targeting more precisely the profitable customers. And if you see also the amount of the decreased expenses in online marketing, which is 16.5%, then I think you have a full picture. And you see [ RK ], they invest in quality, they accept a temporarily smaller quantity and also a certain impact on the top line. But there's a clear investment in profitability.

Right. And then secondly, I think this implies certainly that the positive trends we saw in gross margin is likely to continue, I guess. Is there any impediment that you are seeing regarding further gross margin improvement?

Well, as Riad has said, the decrease has slowed down. And I think that we do not expect further decreases of the gross profit margin [ at present ].

And then, if we think about guidance, just a bit mathematical exercise, you've been now basically at 300,000 EBITDA adjusted in the first half. So the kind of worst case more or less is, you remain on this 300,000 level in the second half. So -- and we add on that EUR 1 million of hidden cost savings. So this gets us basically at EUR 1.6 million. Is that how you're thinking about the low end of your guidance?

Well, as we said, the guidance is between EUR 1.5 million, EUR 3.5 million. Of course, with the impact of our internationalization, which now gets scaled, and also the recovery that we have seen throughout Q2 in the two main revenue streams, we expect top line, of course, to increase further and to have a stronger Christmas season also compared to last year.

Just wanted to make sure that I think that the bottom end is more or less something which you have pretty well covered, and then we get more or less the upside of the internationalization. As I understand it, there was basically no contribution, no meaningful contribution for top line in the second quarter, probably some start-up costs. I'm not sure if you included start-up costs for internationalization in these hidden costs basically. So probably some color on that one. And then an idea of -- well, what do you see as potential now for the second half from internationalization? Do we talk about a low-single-digit or probably even a mid-single-digit contribution to group sales growth?

Well, of course, we have to see the next steps and the next launches in France and how we -- how fast we can scale the business in Spain. So for 2024, it will probably more be on the lower digit side. But it depends basically on how fast we are able to make new TV reach contracts and how fast we can scale the business. And for sure, in 2025, it will be a rather significant impact also on the total top line.