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Edited Transcript of CWC.DE earnings conference call or presentation 13-Nov-19 1:00pm GMT

Q3 2019 Cewe Stiftung & Co KGaA Earnings Call

Oldenburg Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Cewe Stiftung & Co KGaA earnings conference call or presentation Wednesday, November 13, 2019 at 1:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Christian Friege

CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO

* Olaf Holzkamper

CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management


Conference Call Participants


* Charles Bordes

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Winfried Becker;FMR Research;Senior Analyst




Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [1]


Thank you very much, and a warm welcome from Oldenburg to today's conference call Q3 results 2019 of CEWE, as we call it, of CEWE. And as we are sitting here, Christian and myself on the call, it's getting dark outside. It's getting colder outside. And that's why the warm welcome makes sense and makes sense because it's -- the cold weather gives an opportunity for all of us to generate the Christmas presents, which are nice and which are going to support, as always, our Q4 business.

But before we start Q4, Q3 is done, and we're happy to announce Q3 numbers today. And Christian is giving us all of that on a glance of one page.


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [2]


Yes. Warm welcome from my side as well. It is indeed getting awesomely outside. And so it's a good time to look at Q3. We are, if I may say so, not entirely unhappy about Q3. And specifically, our photofinishing business grew by a significant 15.7%. That obviously includes, in part, the WhiteWall numbers, but that is only part of the increase and with that -- and with an increase in the Commercial Online Print of 3.9% in sales, we reached an EBIT that is in line with that of last year. And over the next few minutes, we shall explain to you why that is so, i.e., why the business is growing and why we are also not unhappy about the bottom line.

What you may be interested in I can disclose right now. We will confirm our 3Q targets for the whole year. 3Q will confirm our targets for the full year. So we are still expecting to an EBIT rising up to EUR 58 million overall.

If I then go into the photofinishing in more detail. The first thing I would like to talk a little bit about is our CEWE Photo Award 2019. We had the award-giving ceremony in Vienna in the museum of natural history in late September. And I have to say that was a very moving event. We had 11 winners from 8 countries. We had with Yann Arthus-Bertrand, a world-renowned photographer as the president of the jury. And we had a stunning 448,152 photos being submitted, which makes the CEWE Photo Award the biggest photo award in the world. And you can see that we had an award-giving ceremony not only in a great environment, but also in a great branded environment. And we are quite pleased with the coverage of that throughout Europe in the media and in the press. The photos were shown that, one, we had coverage in such media as GEO, Bild, National Geographic, Gala, The Sun, as I said, across Europe, and many, many more. And this will not only help us to promote photography as a pastime, but it will also help us to promote CEWE as the brand in photography and that at the beginning of the fourth quarter.

The other thing I would like to point out to you is that we have ever been able to more integrate the different order channels and also the different distribution channels. So that under the brand of CEWE, a customer can order through the CEWE photo station in store, at home from the laptop or the PC from anywhere in the world from the smartphone. And all those brand experiences have not only the same brand, but they also radiate the same message, the same expectation in terms of quality. And we're also distributing straight throughout Europe through mail order and in the stores of our trade partners. And that has, over the years, grown into a true omnichannel business model and brand experience, which we increasingly successfully marketing to not only Europe, but also to our trade partners.

And with those different order channels and with the investment that we are continuously doing in those, be that with new concepts for the CEWE photo station in store, be that with the new software that we are starting to roll out in Germany this year and across a number of European geographies next year, with the desktop software that has just been published at the 7.0 -- in the 7.0 version with our new apps that we are continuously updating. That is an offer that is second to none in Europe by now, and that is increasingly reflected by the response that we get from our discussions with our retail partners.

We're also taking care to brand our offer in store, as you can see here, with an outlet that has 2 CEWE photo stations, a number of printers, as you can see in the center of the photo. And that is clearly branded CEWE. And that focus on an omnichannel offer with our retail partners, but also in other ways is something that we will -- I'm very convinced of seeing much growth from in the coming months and years.

Now that would not be anything remarkable if it wasn't for also a continuous flow of innovative products. And as those of you who've been with us for a longer period of time know, Q3 numbers always expose you to a lavish presentation of Q4 products that we have in store for our customers such as the new CEWE PHOTO BOOK in leather and linen covers with the enhancements. And we're looking here at the upper end of our CEWE PHOTO BOOK range where the recommended retail price now reaches up to EUR 200 and where we have an offer at hand that actually is most suited to the lavish wedding photo book, to the lavish book of a world trip and so on and so forth.

We have also added to the CEWE PHOTO BOOK in terms of our highlights or enhancements the rose gold. Rosé gold is the thing to have in this season, and obviously, the CEWE PHOTO BOOK also offers that. We have introduced in our photo category memory boxes, again, branded in CEWE. You can see this at the bottom left corner. Clearly, branded with CEWE because here, again, it is the brand promise of what CEWE stands for that you will find in the box that can actually tell the story, and that actually is innovative in the market.

We have added this year a new gift packaging for our CEWE CALENDAR. You know that the CEWE CALENDAR is a very, very sought-after gift item in our fourth quarter. And here, we make it easier for our customers than ever before to give those away as presents.

That may have a more conservative outlook. If you look at some of the new designs for our CEWE CALENDARS this season, you would see that we are going with the times and that we have a fresh roster of designs at hand.

We have added posters and plastic frames for the introductory price range of our CEWE WALL ART. We have added photo magnets in square and also in heart shape. And if you don't publish this, we've been inspired here by our recent acquisition, Cheerz, who have successfully sold some of these items, and we are now adding this to the CEWE range across Europe.

We have talked about our advent calendars here. You have the latest addition to the range, which is the advent calendar with Kinder Surprise eggs. We are also increasing our range of photo gifts here with our animal cup, which, again, is a very trendy item in the range. We have added a new set of high-quality photo premium tote bags in the textile range as well as the heart-shaped cushion.

So you can see that there is a significant range of new and innovative products. You will see that they are always placed in the premium range of photo products. And you will see that with these products and with the presentation in the store that I've shown you and with the omnichannel approach that we are pursuing that we are increasingly and very defensively conquering the premium segment of the European photo market with the CEWE brand.

Now what does that result into as far as Q3 is concerned? Our positioning, our product policy, our pricing policy, our partnering policy with our retail partners led in the third quarter of 2019 to an increase in print by 7%, to an increase in the value per photo by 8.1% and to a total turnover increase of 15.7% in the photofinishing range of our business. I have to say that, that is for a third quarter nothing to be totally ashamed of.

If we look at the addition of the first 3 quarters, you see a similar picture. So we are not looking at a onetime-off effect here, but we're looking at something that's actually going throughout the first 9 months of the year with an increase of total print by 6.9%. Please note that the target was 2%. So we're way beyond the target here with a value per photo up 5.6% of turnover and photofinishing plus 12.9%. If you're asking me why isn't that the third quarter was a little bit better, please remember, we acquired WhiteWall effective the 1st of June. So the third quarter is the first quarter where WhiteWall is fully contributing to the turnover of our photofinishing.

However, WhiteWall is, as the name indicates and as you all know, a wall art company. And you know that the backbone of our CEWE business is the CEWE PHOTO BOOK. And here, you can see that in Q3, we increased the number of CEWE PHOTO BOOKs sold by 6.4% and the number of CEWE PHOTO BOOKs sold overall in the first 9 months of the year, plus 7.6%. Again, look at the target, the target was 2%. So our backbone -- the backbone of the company in photofinishing, our hero product, CEWE PHOTO BOOK, is not only doing very well but is still a case of growth.

And that also led to the 60 million CEWE PHOTO BOOK being sold in this year. In fact, in October, it was a customer of our Austrian partner, BIPA, and the Managing Director of BIPA, Herr Lichtblau, and our Managing Director in Austria, Herr Hahn were actually here, as you see in the photo, giving a special recognition to Frau Reich who happened to have ordered the 60 millionth CEWE PHOTO BOOK.

If we go to the total turnover of photofinishing across the quarters. You can see that with an actual turnover of EUR 116.2 million in the third quarter, and that is actually, again, a little green tick mark that we earned ourselves here. So we are -- every quarter, we are in line with our expectations. And I shall share some thoughts about the fourth quarter review in due course.

I want to point out on the next slide -- you've seen the 15.7% already. I want to point out that the growth is not only a growth of WhiteWall and not even a growth of Cheerz and WhiteWall, but we are organically growing our business significantly. And that this is not just an [outcome] of the acquisitions, but it is an organic growth of our core business.

We have a lower EBIT in the photofinishing segment this year than the year before, and that goes back to a certain number of one-off effects. Last year, you may remember, we sold a property in Nuremberg which actually increased our EBIT by EUR 1.2 million. And we had certain effects from marketing against that this year where we invested significantly in Q3 in order to be prepared for Q2 -- Q4. That taken together led to the decrease of profitability. But I can assure you that even with those EUR 1.4 million and the other lines of business, we are with expectations for Q3 profit.

Total business segment photofinishing, plus 12.9%, with a total EBIT of EUR 3.2 million in the first 9 months of the year. Again, the growth is not only going back to Cheerz and WhiteWall, but it's fundamental organic growth of our core CEWE business that contributes to that, both in terms of the turnover as well as, obviously, to the profitability.

If we look at the EBIT by quarter. As I said, yes, the EBIT in Q3 went down to 2% of sales. But if you look down to the tick mark in the lower line there, the actual is at plus EUR 1.4 million and is exceeding the target that we had set ourselves. And overall, we are actually doing what we're expected to do.

I also would like to remind you here at the shifting of the quarters, those of you who's been covering us for, say, 15 years may actually remember that our third quarter was the strongest quarter. And we used to hire seasonal workers for the third quarter because everybody came back from holiday, and they had their undeveloped films in their pockets, and they needed to see did we actually capture our holiday on the photos. And so everybody was sending in their films at the end of Q3 or during Q3, and that was the biggest quarter in the year. Now everybody now wants to take advantage of the great quality of CEWE products as Christmas presents, hence Q4 is the quarter to look at.

So that's photofinishing. I think you will all agree with me, that is doing quite okay-ish.

Now as far as the commercial print is concerned, just as a reminder, we have those 4 different brands with CEWE-PRINT, Viaprinto and LASERLINE being marketing labels and with Saxoprint being in the marketing and sales as well as in the printing. By the way, LASERLINE, obviously, is printing as well, sorry. So we have those distribution brands, and we have the printing plants in Dresden and Berlin.

We grew our sales in the third quarter by 3.9%, and this is a little bit -- it is the classic average that you can see here. We have, unfortunately, not been able to increase our sales in LASERLINE. In fact, LASERLINE is weak as far as sales are concerned, mainly as a result of price pressure. And we were more successful than you can see in the plus 3.9% here if we look at, for example, the other 3 brands, specifically if we look at Saxoprint. So the negative impact of LASERLINE is diluting the development here at our Commercial Online Print segment. Hence, we have plus 3.9% in sales. And hence, we have only an improvement of EUR 0.9 million in EBIT. Over these first 3 quarters, the improvement in EBIT is EUR 1.3 million. However, the line is still red, and the improvement in sales or the increase in turnover on average for the reasons that I've just pointed out is plus 2.8%. Needless to say that there is an obvious difference between the performance of the photofinishing segment and the commercial online segment. If you were to ask me which one I like better, I would have to say the photofinishing pleases me more.

In retail, we have a situation with our 147 retail stores and the revenue of EUR 48.7 million in 2018 where we are both selling hardware as well as photofinishing products. The sales of the photofinishing products are actually reported in the photofinishing segment. So what we're looking here at is only the hardware. Now hardware, as you will all have experienced in your own personal lives, hardware is not exactly a growing business to be in. In fact, the Canon CEO, Mitarai, at the beginning of this year announced that he would expect that hardware sales, and he's talking about cameras, will decline by 50%, 5-0 percent over the next 2 years. The first of those 2 years is almost over. That would actually be a decline of 20%, 25%. And in light of that, I am not so unhappy with the minus 13% that we see here because we have continued to do what we've been doing in the past, and that is we are not selling for the sake of revenue, but we are selling for the sake of a contribution margin. If the contribution margin is not to have, we will not sell, i.e., would either price up or without -- delist. And with our positioning as a photo specialist retailer in the countries where we are present with our retail businesses, we also have the advantage that customers are more likely to come to us and ask for advice and in the end buy the photo cameras -- the high-end photo cameras from us than they would be in an electronic same-store or in a retail market of whatever other kind of form. So that is the one thing we're looking at the margin to be had, and we are forsaking revenue in favor of margin and the second thing to be had. As long as we are doing a reasonable business, we look at this also as a marketing investment because all those brands, as you can see, have been co-branded. I'm going back one -- and have been co-branded with CEWE. So it's FOTOJOKER CEWE in Poland. It's FOTOLAB CEWE in Czech Republic and Slovakia, and it's CEWE Japan Photo in Norway and Sweden. And the CEWE brand takes over part of the branding of these stores because of the photofinishing that we have now.

Okay. Overall, the retail business is down 10.9% for the first 9 months and has yielded a loss of EUR 800,000. We have always seen the fourth quarter as with the photofinishing to be the strong quarter here. And so we will see what comes out of the performance at the end of the year.

If we then go and continue to the segment of other. That, in essence, is our futalis business. And you know that we have actually said that business is cited as a business to be sold. The turnover is nicely growing by 42.9%, and we're also increasing in profitability slightly. And that is not only a focus that you can see for the 1 quarter, but actually, you can see that for all 3 quarters with a slight improvement in bottom line. And so that is on track.

For the group, we have increased our sales in the quarter by 11.3% and overall by 9.1%. And if we take out foreign exchange movements, it is about the same -- it's a percent -- 0.1 percentage points less in Q3, and it's a margin more in Q1 through 3. So that is not the essence here. But what is the essence is that the photofinishing accounts for the growth in group turnover. The positioning of CEWE as the European photofinisher is also mirrored in the figures.

If we look at the profitability, you can see here outlined in terms of the contributions of the photofinishing, Commercial Online Print, retail and other how we are faring against the total of 2018, and that's the EUR 400,000 that we are doing less. I just want to remind you, that is basically the futalis effect. If we were to add futalis onward, exactly the same EBIT as we were the year before, with all the marketing investment and so on investments that we have gone through. And if we look at the addition of the first 3 quarters, we are ahead EUR 1.8 million in profitability.

Now the key question that you will always -- that you obviously ask us all 8 weeks before the end of our financial year is what will be the end result. And as every year, we can tell you only one thing, we have absolutely no clue. And we have no clue because in Q4, that actually is making the difference for us, as you all know. And what we have done here is we've looked for you at the results of the first 3 quarters in earnings on the left-hand side and the Q4. Q4 is the dark red, and little gray sliver there is what we've done the first 9 months. And obviously, it is the fourth quarter that makes the difference.

On the right-hand side, you can see how much the fourth quarter actually exceeded the EBIT of the previous 9 months. So in 2018, the fourth quarter exceeded the fourth quarter of 2017 by EUR 7.8 million. In 2017, it exceeded the previous fourth quarter by EUR 6.7 million. The black is the nonrecurring effect of the PPA asset depreciation. The red is what was the -- then visible increase in the [merchant] and so on and so forth. So it's the same logic here. And for those of you who take out the calculators now, there's a little footnote there that explains to you this situation before. We put futalis up for sale. And after we put futalis up for sale, of course, as to IFRS 5, the discontinued business has to be taken out of our calculations.

In essence, for those 1, 2, 3, 4, 5, 6 years that you see here from 2013 to 2018, we grew our Q4 business by anywhere between EUR 2.2 million and EUR 7.8 million. In order to reach the lower end of our targets, we can actually do EUR 6.5 million less than we did in Q4 2018. And if we want to go to the very upper point of our expected range, we need to add EUR 500,000 to the performance of the previous year. I will leave it to your own estimates where we will come out because, as you would expect us to do, we have no understanding in detail of what's going to happen with Christmas, whether Christmas takes place or not, whether it rains or not, whether there is ice out on the street or whatever can actually happen. And you can take your own judgment on how likely it is that we will reach the target range and how likely it is that we will reach the upper end of the target range. And I think I'll leave it with that.

And before you have any opportunity to ask any questions, I'll hand over to Olaf Holzkamper who will now dig in a little deeper into the financial numbers to give you those details that I intentionally omit.


Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [3]


Thank you very much, Christian.

And as Christian finalized on the P&L part, let's look at that one first and see what happened in there within Q3. If we go through the different lines of P&L, you see that the revenue is up by EUR 15.1 million. You have seen that photofinishing and also Commercial Online Print grew and were able to overcompensate the revenue reduction we had strategically pointed out and opted for in our retail business. So that's fine. That's also in the right direction.

Next lines, no big change. Operating income change of EUR 0.7 million or the largest part of the difference is that we had the sale of the Nuremberg site last year, and we gained profits from that. And that is nice. I mean we're just talking bottom line right now, and we don't even mention that we have close to EUR 1 million in profits that we had last year from this item. And we don't have anything in comparison to that this year, which is a nice development we're seeing there. So we can just take this hit, and that's all fine operations make able to take it.

If we look at the 3 biggest lines in P&L after, obviously, revenue, we have materials, personnel and other operating expenses. And the structural change we're talking through since many years, we are increasing our value-added share of revenue and of business, which means we are -- we tend to decrease the cost of materials, so we adjust "buying in things." And you see an increase here in absolute terms of EUR 3.3 million due to, obviously, the business increase overall and the acquisition we are looking at. But if you look into a percent of revenue in the different lines, you will see that cost of materials from last year, 29.6% were reduced to 28.8%, so it's nearly 1 percentage point. We are seeing there the cost of material is being reduced, and that is exactly the direction, more value-added and less material input into our P&L. Makes sense, right direction. And that means, obviously, we have somewhat more personnel and somewhat more other operating expenses. Personnel is right in line. We have more people in the group right now also due to the acquisition, obviously. But nevertheless, it is more. So it's 4.7% more in personnel expenses. And also in terms of percent of revenue, you see a slight increase there from 30.1% in Q3 '18 to 30.3%. So it's not tremendous, but yes, it is this direction that we have seen since many years now.

And for the last one, other operating expenses. This time, the story is slightly different. In absolute terms, you see the increase of EUR 3.5 million there, which we have, due to -- also due to the acquisition that we are looking at. But what we do have to see is that in percent of revenue, you see a reduction from 37.2% last year to 35.8%. Now -- so there is really a visible reduction in terms of other operating expenses in the structure, and that is due to 2 effects. Last year, we had the Photokina. So you know that it's a substantial investment in terms of marketing costs there of more than EUR 1 million, and that didn't occur this year. And then we had last year still the leases in there, which due to the IFRS 16 now show up more or less as a depreciation, and that is exactly what we see in the next line. So that's the reason why we don't see the structural change in an increasing other operating expenses this year in percent of revenue. But if we have less cost in percent of revenue, also, that is something we like. So that's all fine.

And exactly in amortization and depreciation that -- where you see -- that's where you see exactly this EUR 3.2 million more in terms of depreciation, and that's the reason -- the driver, the big one is IFRS 16, which we do see here in Q3 for the first time. With the detail, it might come as no surprise to anybody looking at CEWE in more detail.

If we leave the P&L and move over to the balance sheet long-term comparison, we see that the company has grown nicely in the last years. Last year, the jump -- I mean we don't grow exponentially. The jump last year, obviously, was the IFRS increase we had there. But nevertheless, you see how steadily we have grown over the last years. And having now a balance sheet already of EUR 514.6 million, that's an increase of EUR 107.6 million compared to last year. The real chunk of that increase within the last year came from noncurrent assets. It's plus EUR 97.1 million, and the largest part of that is due to IFRS 16, as you can see there. That makes up for EUR 64.5 million in there. So that's really driving the big jump we saw in the last year here.

Other than that, the WhiteWall acquisition, obviously, is adding something here.

And all in all, that would add up, these 2 effects, IFRS 16 and WhiteWall add up to more than EUR 100 million. So they are, by far, explaining the EUR 97.1 million increase we have on noncurrent assets.

If we look at the current assets, it's plus EUR 10 million there, and WhiteWall is making up for more than EUR 7 million. So that is also explaining what's happening on that part of the balance sheet.

If you move over to the liabilities side. Before we explain the changes, let's celebrate first. The celebration is about the equity ratio. It's an important number for us to look at that we have a stable balance sheet and having had 52.6% of equity ratio last year, yes, due to IFRS 16, it's down to 46.2% right now. But if we take out this IFRS 16 effect, we are looking at 52.8%, and that is the number to compare to the 52.6% last year, so an 0.2 percentage point increase in equity ratio, although we have the WhiteWall acquisition in there as well. So that makes all sense in the world. This is a strong balance sheet.

If we look at the what -- the changes -- what drives the changes. Obviously, our profit situation hasn't been too bad in the last 12 months. So the equity did rise by 23.4%. On the liabilities side, we have this increase in noncurrent liabilities by 58.4% to EUR 94.2 million. And that is IFRS, big driver in there, making up for EUR 54 million out of those EUR 58 million. So that is the big driver. And then IFRS is also driving the EUR 25.8 million increase, yes, EUR 25.8 million increase in current liabilities at the bottom of this column. IFRS 16 is driving EUR 10 million out of that. Another more than EUR 10 million is due to the WhiteWall acquisition and then some short-term financial liabilities and so on are driving the rest. So that's explaining our current liabilities situation in there.

Now this is the more than EUR 500 million in the balance sheet. And to look at what of this capital actually we have to pay for, let's take out the part that we don't have to pay for, the noninterest-bearing part, which pretty stable over the last years, is around EUR 115 million, give or take. So if we take out this EUR 115 million there, we end up with the EUR 400 million capital invested that we have in our business. And the movement in there is also the big increase, EUR 95 million on this side here. IFRS and WhiteWall acquisitions are driving this. We walked through it. It's no change on this page here either. And they're also driving the capital invested increase we are looking at there. So the structure has not changed. It's just we realized a EUR 400 million that we are looking at in terms of capital that we somehow, in terms of interest or dividends, have to pay for. So this was the long-term development.

Let's look at what's changed within Q3, we are just looking at right now. And to summarize the next pages in a very quick way, the answer is not a lot. So if we look at the capital employed, yes, we can talk through this in detail. But within Q3, you don't see any big changes here. I mean EUR 0.3 million in terms of property, plant equipment is nothing given the more than EUR 200 million we are looking there. In the next line, there's no big change, if you walk through non current assets. I mean we're looking at 300 -- nearly EUR 380 million of noncurrent assets, and we have a change of EUR 1.7 million or 0.5%. It's really nothing to mention there.

If we looked at the working capital and start with the operating working capital, then we have the inventories. And there, we have to say on the inventories side, it's a nice development because we have a reduction here within Q3, although, obviously, we had to stock up for Christmas. So the structure certainly was prepared for the Christmas business, but nevertheless, the inventories didn't grow at the end of the day, which shows that our colleagues have done a good job there in terms of managing the inventory into the right direction.

Current trade receivables, not really much to mention there. Business increased, and that's why, yes, there's a bit more money outstanding we'd like to get from our customers. And regarding trade payables, that's where you see actually that we have purchased quite a bit of materials, which don't really show up in the inventories, but which do show up in terms of trade payables where you see the increase by EUR 6 million. So if you add these changes up, it means that we have a decrease in other net -- in net -- operating net working capital, that's the word, operating net working capital and decreased by EUR 5.7 million, which is actually reflected -- if we look at in terms of days of working capital, we have a reduction here from 37 days of working capital to 29 days. So nice development within Q3. And also compared to the same point of time of last year in seasonality, it's a reduction by 1 day from 30 to 29 days of net working capital we have here on the operating side, which shows our operating working capital management is working and going to the right direction, and there's nothing to really worry about there.

Other net working capital is basically counterbalancing that. We looked at the reduction of net working capital from operating of EUR 5.7 million. If we look at the other net working capital, you see here, it's basically an increase of EUR 5.6 million. And if you look through the different items in there that we have highlighted, all the changes you see here in other net working capital are driven by taxes. So that's the big point that is making up for the operating changes in there. No reason to go through in detail, which means basically the 2 directions are -- the 2 developments are counterbalancing each other. Operating is increasing. Other net working capital is decreasing. All in all, 0 change. So that's why I said, not a lot of a change in there.

And the same is true if we look for the overall, no change in current assets. We have looked at the 0.5% we just saw the other page before, no change in working capital. So the big number of EUR 400 million we are looking at in terms of capital employed has changed by EUR 0.2 million in terms of reduction in there. So there's hardly any change within Q3 to our capital employed.

Now obviously, the same is true for capital invested. And the only question we can ask ourselves is, are there any structural changes within the capital invested there? But if we glance through the column on Page 55 very quickly, we see there is no real big numbers in there. The biggest number we're talking about is a 1 million point something. So also here in terms of structure, it all makes sense to have these little changes. It's driven by seasonality. So no change basically in capital invested within Q3 and also in structure either.

Leaving the balance sheet, moving to free cash flow. What we see here is nice developments. One is cash flow from operating activities grows by EUR 3.9 million to EUR 14.8 million. And the main driver in there is -- if you look at the EBITDA already, that is the biggest driver of that. And then as you can see on the next page where we have more details, you will see we simply have paid less taxes given the timing of tax payments and so on. So a nice increase in operating cash flow by EUR 3.9 million.

On the investing side. First slide, you see that we had a slight increase in investment from EUR 8.1 million to EUR 9.4 million. But if we look somewhat more in deep, we see that last year, we had a nice inflow from financial investments in terms of payment of -- payments we received really as a cash flow, and we had sales for tangible assets of EUR 1.5 million in there as a cash flow. So if we take them into consideration, then from a pure operational perspective, actually, we have a reduction in investment within Q3 of EUR 1.3 million. So also there operationally, it goes into the right direction.

Nevertheless, the numbers we just talked through in terms of one-off effect of last year has to be taken into consideration to calculate the free cash flow. So in free cash flow, we've just seen increase of EUR 2.6 million, but it is increased from EUR 2.8 million to EUR 5.4 million, which is really nice, which is the kind of development we like to see there. This is Q3 cash flow. And if we look at the next page, then you would be able to dig more into the details, but I think it's not really enlightening and doesn't shed any further color onto the picture. But I think what's more interesting is to have a glance on the cash flow of the first 9 months, and that's where you see that we have improved our cash flow from EUR 65.9 million negative free cash flow to negative free cash flow of EUR 46.2 million, so an improvement of nearly EUR 20 million we are seeing in there. And that is a nice improvement. About 1/3 of that is from operating activity cash flow, and the other 2/3 are from investing cash flow. So that is a nice development we are seeing there. And it's not because we have not invested because, obviously, we had the WhiteWall acquisition this year as well, but we do see there is a nice trend, a nice underlying trend of improving our cash flow. And we are enjoying this trend.

Leaving the cash flow, moving to the ROCE. We are looking at -- this is now futalis. This is now without futalis number, futalis numbers having been taken out. We're looking at a 12-month cash flow -- rolling 12 months -- sorry, not cash flow -- EBIT, rolling 12 months EBIT of EUR 57.5 million. We do have the increase in our capital employed, mainly due to the IFRS 16 effect here to EUR 363 million, which gives us a ROCE where we are now at EUR 15.8 million (sic) [15.8%]. If we take out the IFRS 16, we'll be looking at the 18.2% ROCE already here. So that is nice development, going to the right direction. No concerns about the profit situation we have here, also given the capital we have invested into the company.

Now looking at the group's targets, then there is no change we are making right now. I think Christian highlighted already that there's many things that could happen in Q4. And we are in a, I would call it in a nice situation. Christian would say we are not utterly unhappy with the situation that we have profit-wise after the first 9 months. And we do see a pretty good chance to keep within the target ranges that we have set for this year.

There's just -- and to extend the talk on the free cash flow for a second, there's just one number that we are not going to miss -- that we're not going to hit, and I suppose that you're not too sorry about that, the investments that we have in here, this is the number. As we see the investment in the balance sheet, the investment of EUR 55 million, we do -- we would be surprised, to put it that way, if we would be north of EUR 50 million there. Yes, there is more or less changes in there and depending a lot on seasonality, but the EUR 55 million is something we don't consider to be something we would reach this year.


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [4]


And just if I can chime in there. Don't be concerned. We are not under-investing here. We are not improving the cash flow at the expense of the future. We have always been focused on long-term development of the company. And with that, we actually feel that it just happens to be EUR 50 million this year. And if it's -- it doesn't make a fundamental change to our business, it may actually make a change to your numbers.


Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [5]


Yes. Exactly. And it makes a change to the number of depreciation in the next year, which we also enjoy. And that leads to the P&L side of the business, again, which we have as a long-term perspective on Page 61 again. We have nicely increased over the last years in terms of EBIT, and this puts into a long-term perspective, again, the numbers that Christian pointed out already. We are at a situation of EUR 57.5 million that we are seeing these days in terms of EBIT, where we are. So that means in our range of EUR 51 million to EUR 58 million on an LTM, last 12-month basis, we are pretty much at the upper end of the range. So we do see a chance to really be within the range of profitability in this year, 2019.


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [6]


And indeed, you can contribute to that very nicely if you were to choose to give away CEWE product as Christmas gift. I'm on the side the sales director of the business, and I need to remind you of that from time to time. So please spend lavishly. There is no more personal gift than a CEWE PHOTO BOOK or a CEWE CALENDAR. And with your spending your CEWE -- your Christmas budgets on CEWE products, you can actually help us to realize what Olaf pointed out as the upper end of the bracket.


Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [7]


And with this advertising, we are happy to take your questions.


Questions and Answers


Operator [1]


(Operator Instructions) Our first question comes from the line of Winfried Becker from FMR Research.


Winfried Becker;FMR Research;Senior Analyst, [2]


I have 2 little things. The first is about futalis in Q3. Is it a fair assumption that the company may have reached breakeven on the EBIT level? And second question is about the new companies, Cheerz and WhiteWall. Maybe you could comment a little bit more in detail top line performance, contribution of these 2 companies and what are your next steps in terms of integration into the CEWE Group.


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [3]


Yes. If I can start out with the part of the question B as far as Cheerz and WhiteWall is concerned, we have continued to be pleased about the development of Cheerz. Cheerz is, as we had intended it to be, is doing a very nice business on the smartphone. We have orders almost entirely from mobile devices. We have a very visible market position already in France, and we are building our market position in Italy and Spain as we had argued when we first acquired the stake in the company1 year -- almost 2 years ago. So that goes exactly in the direction that we wish it would be. And we are, as I may have said in one of the previous calls, we are trading on a case that is between our investment case and an upside case. So that is actually making us quite happy.

As far as WhiteWall is concerned, we've only had WhiteWall for 4 months now. That is June through September, obviously, October, November as well, but we are not talking about that yet because we have no view on that at the time -- for the time being. But for the first 4 months, we are happy with what we have seen.

You may have observed in the market that we are slightly changing the marketing strategy and the market positioning of WhiteWall, putting that up even a little bit more upscale in the market as it had been before, and that physically is done by reducing discounts given. So I hope if you try the Internet, you will find less vouchers for WhiteWall and you will find less discount offers. Other than that, we are very pleased with the development of WhiteWall, which is so far trading within the business case that we had made at the acquisition. However, it's early time. We have a lot more to work on for a medium and long-term perspective on WhiteWall. And so for us, it is more the development of the things we need to do, which is going according to plan so far, than the bottom line numbers.

And with that, I hand over to Olaf, who can actually potentially give you the details that he discloses in his Investor Relations calls.


Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [4]


Exactly. On the futalis, as you're all aware of, we do not disclose the details. There are some numbers visible right now given that we have put it up IFRS 5-wise for sale. So yes, you can see some things, and your calculation there is roughly right. Yes, we have a breakeven in futalis in Q3 here. So that shows us that the company is moving into the right direction. The investment was not bad at all. We are moving into the right direction here. And we've just put it up for sale and not for performance reasons, but just we are saying there's somebody who can now support the company in a better way than we can do. We have set it up for industrial production. We have specialists for industrial production of [lot size 1]. This is what futalis is now able to do. And now it's about dog food marketing.


Operator [5]


Our next question comes from the line of Charles Bordes from Kepler Cheuvreux.


Charles Bordes, Kepler Cheuvreux, Research Division - Equity Research Analyst [6]


First one, how do you explain the very strong graph of photo books volumes this year? If I look back at the historical data, the underlying growth rate is more in the area of 2.5%. You're much more above that. So are there any structural drivers for this? And second question, if I may, a big one, sorry. But is it possible to have more color on LASERLINE? To what extent did it hamper the Commercial Online Printing growth? What actions have been engaged to counter the price pressure? And how long do you expect this price pressure to continue?


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [7]


Okay. The CEWE PHOTO BOOKs is a very easy and simple answer that hopefully will not surprise you. We have consistently marketed and branded this as our key product. And with the growth of the -- with the spread of the CEWE brand and the increasing visibility of CEWE, with all the marketing that we are not only doing around the CEWE PHOTO BOOK but around the brand of CEWE overall, that obviously sheds a light back to the CEWE PHOTO BOOK and its -- that's the only thing I can see. We are very, very consistently focusing on putting the CEWE PHOTO BOOK at the center of the focus of what we are doing. And to me, it seems to pay back. That's the only explanation that I would have at this point in time, but I can assure you that's exactly what we will be continuing to do. We'll be focusing very much on the CEWE PHOTO BOOK on product variations around the CEWE PHOTO BOOK, on making it easier for our customers to order the CEWE PHOTO BOOK to be more readily available in the different marketing lines. And we'll continue to do that. And maybe next year, we'll grow by 2% and then we'll grow by more percent. Again, I have no clue. I have no clue, but we will focus on the CEWE PHOTO BOOK.


Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [8]


And let me take it that way. We've always discussed in our investor discussions that we are not going to change anything of what we do today, but we are just repeating and we are just in a more pronounced way doing whatever we have done before, and we're doing more of that. And this is exactly what Christian said, no change. We're just improving what we do every year a little bit into the right direction. And our feeling is, yes, it does pay off, actually. So, so much on the question on the CEWE PHOTO BOOK.


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [9]


The other question around the Commercial Online Print. As Olaf does not tire to point out, there is no detailed numbers that we're disclosing. However, he has authorized me to give you so much insight as to say that without the dip in LASERLINE, our growth rate and turnover in the first 3 quarters in the Commercial Online Print would be about a double percentage than we are showing. So we show 2.8%, and it'll be about double in terms of growth rates if it wasn't for the dip that we had taken in LASERLINE.

And we have, obviously, also an impact on our bottom line. And that impact is more than 50% of the loss that comes from LASERLINE, let's put it this way. And so you can see that we are focusing on straightening that out. And we are expecting, indeed, and this is the reason why LASERLINE is hit, LASERLINE has comparatively a relatively high price positioning in the past. And we do not count on the price pressure to go away all by itself. What we are trying to do is we're trying to counter the price pressure by playing our strengths. We still believe that we have a very, very efficient printing plant in Dresden. All the views that we're taking on that are confirming that perspective. And we have, since the beginning of this year, implemented a new distribution line called SAXOPRINT.pro, which is a closed shop for resellers only, but that closed shop has very competitive pricing, and we are the -- trying to win best and I can say successfully winning back some of those customers who may have gone away for price reasons. And we're also winning new customers who have never ordered at Saxoprint before because of this very attractive, for resellers, pricing positioning. And so no, we don't believe that the price pressure will go away all by itself. We'll have to do something. And yes, we are doing something. And yes, that will hopefully also then show in the numbers in the future.


Operator [10]


(Operator Instructions) We have no further questions. So I will hand over to Christian Friege for closing words. Thank you.


Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [11]


Well, I've actually fired away all of the words that I had prepared for this session, including the little advertising line for the Christmas business. But seriously, if you want to see what the impact of a very personal Christmas present is, go online and look for our current TV spot. It is the [Wachmann] family. [Mr. and Mrs. Wachmann] have had twins. We had a CEWE PHOTO BOOK in our advertising from their wedding some 3 years ago. Now they got twins, and [Mr. Wachmann] actually surprised his wife with a very nice CEWE PHOTO BOOK covering the first few weeks of the twins being at home. And if this doesn't move you, I would not know what actually can move you. And with those words, I wish you a great pre-Christmas time. I wish you a great enjoyment with creating CEWE photo products. And we're very much looking forward to talking back to you at our press conference in March next year.


Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [12]


Enjoy your Christmas. Cheers. Bye-bye.