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Edited Transcript of CWC.DE earnings conference call or presentation 13-Aug-19 8:00am GMT

Q2 2019 Cewe Stiftung & Co KGaA Earnings Call

Oldenburg Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Cewe Stiftung & Co KGaA earnings conference call or presentation Tuesday, August 13, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christian Friege

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

* Olaf Holzkamper

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

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Conference Call Participants

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* Alexander Thiel

Deutsche Bank AG, Research Division - Research Associate

* Alexander P. O'Donoghue

Joh. Berenberg, Gossler & Co. KG, Research Division - DACH Mid-Cap Analyst

* Charles Bordes

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Thilo Kleibauer

Warburg Research GmbH - Research Analyst

* Volker Bosse

Baader-Helvea Equity Research - Co-Head of Equity Research

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Presentation

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

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Thank you very much for the introduction, and welcome to everybody for today's conference call of the Q2 results of CEWE. The weather is getting less sunny outside. So we are getting to the order-friendly phases of the year. And the big question today is, was Q2 as order-unfriendly as it was in the last year? And that is what we're going to walk through in this call. The structure of the call is going to be, as always, Christian Friege, our CEO, is going to lead through the main numbers and give you some strategic talk around those numbers, whereas I'm going to hop in afterwards and lay out some more financial details for you. So Q2 ordering situation. Christian, how would you describe it?

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

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Well, we're not really dissatisfied, I have to say. And I'm saying this with a little tongue in cheek. We've had a good quarter 2. We've had a very nice growth in our photofinishing segment by 13.3%. We increased our EBIT contribution from photofinishing by EUR 600,000, and that is despite the incurred cost for the transaction for the acquisition of WhiteWall. And what we are specifically pleased about is that the sales volume of our Euro product, the CEWE PHOTOBOOK, increased by a strong 9.9% in that quarter. So in photofinishing, this was a really good second quarter. As far as the commercial online print is concerned, here, again, we're able to grow our sales, and we also improved our underlying profitability. I will come to explain some more details about that. But in short, we can say already today that Q2 validate the expectations for the whole of 2019.

Now before we go into too many numbers, I would like to share with you some of the photos that were handed in for the CEWE Photo Award 2019. That award was -- that competition was open for contribution until the end of May this year, and we are particularly pleased about the results of that competition. First of all, so many outstanding photos. As a member of the jury, in the end of June, we looked at the photos and it was really a great day to be part of that jury. What outstanding photos we saw, we will share with the public in September in our award ceremony. Very happy to have Yann Arthus-Bertrand, the world-famous photographer, as the President of the jury. And we are also extremely proud about the fact that the CEWE Photo Award 2019 is now, significantly, the greatest photo competition in the world with 448,000 entries. Why are we focusing on the CEWE Photo Award while we have -- why do we put something like that out there?

Number one, we are continuing to contribute towards celebrating photography as a means to express yourself, as a means of art, as a means to conserve memories. We believe photography is a part of our Western culture here in Europe that we really want to support into this digital age. We also pursue this CEWE Photo Award as a development of the CEWE brand to a synonym for photography. So we are paying into the brand awareness and the penetration of our brand in people's lives. And of course, this increased exposure of our brand will be visible in the award ceremony in the end of September, and we actually hope that there will also be some good press coverage leading into Q4 for this year. So this is the CEWE Photo Award.

One of the things that I wanted to specifically talk about. I would also like to say a few words to WhiteWall. You all remember that we had our Q1 results telephone conference right when we had signed the deal for WhiteWall. On 1st of June, we actually took over. And as of the 1st of June, WhiteWall is accounted for in our numbers. So 1 month of WhiteWall sales is included in the numbers that we're talking about today. And we see that WhiteWall, with the focus on gallery quality on a very, very high quality, is a very good extension of our photofinishing business. We are focusing on professionals. We are focusing on semi-professionals, and we are focusing on a clientele, on customers that I do not think we would ever have been able to reach with the CEWE brand that is so strongly rooted in our partnerships with the trade partners like dm, like Rossman, like Kaufland, like [EDEKA], like Saturn, et cetera, et cetera. So we cannot stretch a brand that is so deeply rooted in these partnerships to professionals and to people who actually seek gallery quality.

So with that, we have actually, in addition, that is absolutely fitting our portfolio of photofinishing activities. And I'd like to underline again what we've said numerous times already. CEWE will stay CEWE. We will work with the same customers and with the same production for our CEWE clientele. And WhiteWall stays WhiteWall. So we will keep the production in [Freitung]. We will keep the range of products that we have in Freitung . We'll keep the brand. We'll keep the distribution. We will keep all of those things in place. And we will seek the synergies outside of what is actually visible in the end of the day for our customers. And so we believe that WhiteWall will actually strengthen CEWE over the next years. And we have good plans, I believe, in place to realize that.

So we are looking at a premium brand for professionals that specializes in wall art. And you all know that our core product is the CEWE PHOTOBOOK. We have not had this traditional strength in wall art, so we are actually extending our wall art portfolio here. We are extending the brand, as I explained before. We're also a little bit extending the reach. WhiteWall is delivering to 46 countries at this point in time, so a few more countries that we currently are reaching with our CEWE brand. We have a proven leader in quality and innovation. WhiteWall was awarded twice with a TIPA Award. I'll come back to that. We have an outstanding production facility. I can only tell you that is really, really, really unique. I mean just so that you imagine a little bit. There is about 6 -- 16 people who are only occupied with putting frames together. 16 people in a huge workshop that's only focusing on frames as a part of the product range that WhiteWall has on offer. We have an outstanding team there, a very good management team. We have a good multichannel business that we know how to operate. So I'm quite convinced that WhiteWall will be a very good addition to the portfolio of CEWE.

And I mentioned the TIPA Awards, we actually got another TIPA Award for our hexxas. You remember that we introduced hexxas at the Photokina last year. The 6 cornered combinable wall art that we have. And in fact, this year, we got our third TIPA Award, so if you combine the WhiteWall photo -- TIPA Awards and the CEWE TIPA Awards, which is the world championship of photofinishing that we're talking about here, you can see how very much we are focused on outstanding quality on trying to be really the best photo service worldwide.

And with those tools in place, with those products, with that focus, we actually are solely focusing on customer satisfaction with our brand -- with our brands, I should say, with our innovative products and our innovation culture in the company, with the efficiency that is a cornerstone of production here at CEWE, and with our focus on sustainability. I mean in the days where everybody talks about Fridays for Future, I would like to underline again that all CEWE-branded products are CO2-neutral, and that we have actually something here in our company that seems to be a flavor of the day, but has been a mainstay of what we're doing at CEWE for a very long time.

Now if we look at some of the numbers, you will see where does the increase in turnover in photofinishing by 13.3% come from. It comes from both an increase of value per photo, plus 8.1% as well as an -- of an increase in total number of prints, plus 4.8%, both numbers actually exceeding what we had planned for, so this is above expectations and the same applies to the first half of the year. So we're now switching between the Q2 numbers and the first half year numbers. And again, a total of 11.3% in turnover for the photofinishing is actually a piece of good development, good news for CEWE. By the by, for the first time, it actually reached 200 million plus in turnover in the first 6 months of a year.

If we go to the CEWE PHOTOBOOK, as I mentioned before, we increased the number of CEWE PHOTOBOOKs in Q2 by 9.9% and that clearly exceeds our expectation. And we are very happy about the fact that our marketing efforts, our focused on the CEWE PHOTOBOOK, all the sales efforts that we have around this key product for us are actually fruitful efforts, and never have we sold more CEWE PHOTOBOOKs in the first half of a year, 2.566 million, than in 2019. And looking at the photofinishing, I can say that this is a solid base for the second half of the year. And specifically for also very important Christmas business to expect results in line with our prognosis. If we look at the quarterly development, you can see that in both the first and the second quarter, we've actually increased our turnover. I'd like to remind you here that, in 2018, we had a very, very hot spring and summer. So we're always talking about not order-friendly weather, but photo-taking-friendly weather. We've had a bit of a mix of those 2 this year, so don't be shy to contribute a good chunk of the good development to the weather and not to the management of the company.

We -- you can also see that for Q3 and Q4, there is a lot more work to do. I believe we are well prepared for that work. And thus can meet our expectations. In Q2, you can see EUR 97.2 million in turnover and an EBIT improvement of EUR 600,000 in the first half of the year. That total spend to EUR 200.8 million in turnover for photofinishing and an EBIT improvement of EUR 2.2 million. Please remember, the whole cost are from the acquisition of WhiteWall have actually been worked into this result.

Okay. And the EBIT line is actually as much in line with expectations or slightly exceeding expectations as well as the turnover. And so we're talking about good business here.

Now let's get to the commercial online print. I do not need to remind you of our 4 brands. You've heard me talk about that numerous times. But I'd like to point out 2 developments that are actually overlaying each other. The one is that we have a challenge at LASERLINE with price pressure. We have an overall challenge in the commercial online printing business with the Brexit, the continuing Brexit. I mean you all read the paper and you all read the interesting ideas that the government of Great Britain has about leaving the EU. And that is not helping us, and specifically, it is not helping us in our commercial online print division. However, you can see that there is an increase in turnover in Q2 and also an increase in profitability in Q2. So where does this come from?

And it comes from a payoff that we start to see of our really very modern and state-of-the-art print facility in Dresden. There've been some reports in some printing press -- some papers and magazines and journalists that are specifically focal on the printing -- focusing on the printing industry, talking about how very state-of-the-art this facility is. And we can see some cost advantages that we have there, that we also are able to turn into profitable sales increases. And that actually is the overlying development that we can see why we can also record an increase in sales here. And if you turn over to the half -- first half year numbers, you see the same picture. The slight increase in sales, there is an increase in profitability. So with all the adverse conditions in the market, we feel that we are getting on track here.

For our retail business, you can see, as I've pointed out before that we are co-branding most of our retail brands now with CEWE, FOTO -- FOTOJOKER CEWE, FOTOLAB CEWE, CEWE Japan Photo in Norway and Sweden. And we're doing that because, increasingly, the photofinishing is a backbone of the business there. However, as we're reporting here, the photofinishing sales are recorded in our photofinishing business whereas what we're looking at here is solely the hardware, cameras, lenses, tripods, et cetera, et cetera, sales. And those are moving backwards as they have for the past few years, and there's a very obvious underlying strategy behind this. We are trying to shift that chain of stores towards the photofinishing business, and we are doing so successfully. We are also very focused on only picking up the hardware business, where it is contributing a margin, and that is not easy in a situation where actually the camera business overall is in a significantly decreasing state. You may or may not have picked up the quotation by the Canon CEO, Fujio Mitarai, earlier this year, who is actually expecting that the market for digital cameras could shrink to about half in the next 2 years. So in a market that is really shrinking very significantly, the development of our hardware -- hardware turnover, both in Q2 as well as in the first half of the year, is actually as expected. On our side, it is managed in a way that it is not affecting our bottom line, as you can see, and we are preparing ourselves for an even further decrease in sales in the segment that we are countering with increased photofinishing sales.

Then we come to other. You will remember that wherever we look at other as far as turnover is concerned, this is the futalis concern, the futalis turnover. You may, if you've had a chance to look at our news release earlier today, found that we have reclassified futalis as a discontinued operation, and those of you who've actually participated in the call 3 months ago will remember -- possibly remember me saying that we are reviewing options for futalis. We've actually started a structured process with a view to possibly sell this asset because we feel that maybe there is a way that we can actually find a new home for futalis that is benefiting futalis, and at the end of the day, will also benefit CEWE.

If we look at the overall group performance, you can see that our overall turnover in Q2 increased by 8.1%. In the first half of the year, it's 7.6%. All of that is way within -- well within the target range and is a good, as I said before, starting point for our important second half of the year. If you look at the sales growth, one of the things that I can actually explain to you here is that about 60% of the growth comes from our traditional core businesses and about 40% of the growth, roughly speaking, is due to the acquisitions. So what we're trying to do is we try to balance out those 2 sources of growth to have a healthy and with a long-term perspective growing business here at CEWE.

And as far as the bottom line is concerned, you can see that both in Q2 and in the first half of the year, we've actually improved our bottom line in all aspects of our business and all segments of our business. And so by the end of the first half of the year, we're at minus 900,000 -- minus EUR 900,000 in EBIT, which is absolutely within expectations and the experience that we have from earlier years.

And that's about all financial insight I can give you. But my colleague Olaf Holzkamper is far more knowledgeable about IFRS 16 and many more details, and he'll be happy to share those with you.

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

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Absolutely. And IFRS 16 is already the first point that we have put at the beginning of the financial sections. As we discussed already last time, this year, we are using obviously IFRS 16, which means the lease accounting had to be changed, which means we had some balance sheet expansion. And by the June 30, you can see here, the reporting date for this Q2, we had an increase of our assets, for instance, by EUR 65.6 million, as you can see on this page. Now we'll find this IFRS 16 thing in many of the next pages because it is a major driver of our changes our balance sheet, and it has effect, for instance, on the ROCE, which is now shown to be 16.5%. I will show it later, 16.5%, but without IFRS 16, it would be 18%, 18-0. So there is an effect. Same as for equity ratio, you're going to see in a second. Equity ratio is now shown as 46.4%, and without IFRS 16, it would be 53.3%. So there is some effect of IFRS 16, which we need to bear in mind, but I'm sure you are used to that because many other companies are going through the same development.

Now if we stick to the P&L for a second that Christian already talked about in great detail for many segments. If we look at the total on Page 48, we can see the increase in revenues by EUR 9 million, which is the increase in photofinishing, in commercial online print, and it is balancing -- more than balancing the decrease in retail, what we just talked through. And this shift is obviously also driving the structure of the balance sheet as we had it for many years in a row now, so I'm not going through that in great detail. We work for -- work further downwards. You see there's the operating income is reduced by EUR 3 million. That is, as you know, all the other things, VAT refund in previous years is mentioned here, but that just one driver of this number or has been one driver of this number. We had insurance refunds. Last year, we had foreign exchange effects that had to be booked here and all of that added up to EUR 7.9 million in other operating income where this time, it's only EUR 4.9 million. Now we don't make a big fuss out of that number. But nevertheless, it means EUR 3 million less in other income that the balance -- that the P&L of this year's profit was able to balance. And so that is also showing quite some strength in our P&L this year. We easily were able to cope with this minus EUR 3 million.

Working further down, the next one. Cost of materials, that is already driven a lot by the reduction of our retail share. Retail has a lot of material cost in terms of structure and percent of revenue. Material is very important in retail. Now as we are reducing retail share, this has less of an impact on the cost of materials. We're increasing cost of materials by EUR 1 million, as you can see. But if you look at percent of revenue, it means a decrease of cost of materials from 32.1% to 30.4%. So there is the reduced importance of cost of materials.

In terms of personnel expenses, there is an increase of EUR 3.2 million, which means in terms of percent of revenue, it's pretty much on the same level, 33.4%, down to now 33.3%.

So nevertheless, it is a slight reduction in personnel expenses. What's the reason why we have increased there? It's not only business increase, which is driving obviously as well, but it's obviously the specific additions of WhiteWall as a company of growth we are seeing in Cheerz and it's also the execution of the option plan that is due this year due to the share price increases we've seen there. So all these topics are driving the personnel expenses up by EUR 3.2 million, but that is fully in line with what was expected. So that's all fine, and we're happy with this number.

To the contrary, there's the other operating expenses that would reduce not only percent of revenue from 35.8% to 32.5%, but also in absolute numbers, reduced by EUR 0.9 million. And this is driven by, and now it's the first time, IFRS 16, also on the P&L side. Actually given the business increase we had seen, we would see an increase in other operating expenses, too. But given that IFRS 16 has the effect of taking the least amount out of other operating expenses, you see a plus here in terms of less cost. But you see an increase in amortization and depreciation in the next row of EUR 3.4 million that is to a large degree, driven by IFRS 16. And you do see an increase, or decrease, if you want, a negative effect on the financial results of EUR 0.4 million, which is also largely driven by IFRS 16. So these 3 rows, as you all know, should be affected by IFRS 16 on the P&L side and obviously they are. So it all fits into what one could expect. And leaning back, what is the takeaway? The revenue increase and the reduction of the retail share is driving the structure in addition to all the IFRS 16 effects that we have seen.

Now how does IFRS 16 work and creates effects on the balance sheet? We have an increase of the balance sheet by EUR 106.2 million to EUR 509 million compared to the same point in time last year. And the largest chunk of that increase, you can see in the noncurrent assets on the asset side, it's a EUR 96.8 million. A large part of this 98 point -- EUR 96.8 million, a large part of that is driven by IFRS 16. We have the number of EUR 65.6 million that we had seen on the page before. Now this number is exactly driving these noncurrent assets. Then we have the WhiteWall acquisition that is adding some EUR 27.6 million in terms of goodwill, adding up to roughly EUR 93 million, which is exactly what's driving the increase in noncurrent assets here. So IFRS 16 has a large impact on our balance sheet.

Current assets. No big change, not really worth mentioning. On the liability side, you do see the increase in equity, that's always very helpful, increase in equity by EUR 23.3 million. And quite frankly, yes, we are showing a decrease in equity ratio from 52.8% to 46.4%. But nevertheless, if this IFRS 16 hadn't happened, we would show an equity ratio of 53.3%, which is higher than 52.8% of last year. So you see stability of the company overall, in terms of equity ratio, has even increased again.

The bottom in terms of liabilities, yes, IFRS 16 again, and you do see the increase of EUR 60 million from EUR 35.7 million and noncurrent liabilities to EUR 95.9 million. And the largest chunk of the EUR 60 million increase, EUR 55.7 million, is from IFRS 16. And the other part, EUR 10 million of IFRS 16 can be seen at the bottom in current liabilities. Adding some WhiteWall liabilities in there and purchase price that is showing the current liabilities there or the increase of EUR 22.5 million. So again, here, IFRS 16 is showing the difference in balance sheet. It's explaining the difference in balance sheet compared to last year, and the WhiteWall acquisition is exactly what happened within that year and this is the second factor explaining the difference.

Now that was balance sheet. But what does it mean for the capital employed and capital invested? So the basis for the ROCE calculation. Now if we deduct EUR 108 million noninterest-bearing debt, we end up with the capital employed, i.e., we are down to EUR 400.9 million now, which is, again, an increase of EUR 95.6 million as the noncurrent assets on the left-hand side in capital employed are exactly in there. We do see again the same increase of EUR 96.8 million and you have heard the story already, IFRS 16 and WhiteWall is driving noncurrent assets. And the same is true on the capital invested side, the increase of EUR 67.4 million in gross financial liabilities. It's very much driven by IFRS 16 and by the WhiteWall acquisition. So the same 2 factors that were driving the balance sheet length, overall, also driving the capital employed and capital invested. That's the way it is compared to last year. Now what happened within Q1, within this quarter, and let's go through what changed our world there.

Next page shows first part of capital employed, first part is the noncurrent assets. And surprise, surprise, also in Q2, you see the big increase of the goodwill through the WhiteWall acquisition, EUR 27.6 million which is driving our goodwill. The purchase price of EUR 32.9 million, deducting the net assets of EUR 5.3 million, and that's how we get to this preliminary goodwill of EUR 27.6 million here. This is driving -- mainly driving the increase, adding some other increases in property, plant and equipment on top of EUR 4.5 million in various things, mainly digital investments are driving this -- these are the reasons why we have increased our noncurrent assets, in line with the increase in revenue and so on by EUR 34.6 million to EUR 378 million. So that is mainly driven by the WhiteWall acquisition.

On the operating net working capital, you see a little bit ups, a little bit downs, also managed through the acquisition. But in the end of the day, no big change, EUR 0.9 million more in operating net working capital. It doesn't change the world. So take away from the first part is WhiteWall acquisition is driving capital employed. If you look at the second part of capital employed, other net working capital, you do see that the futalis assets for sale are now put out here as EUR 2.9 million. But at the bottom you see liabilities there as well to be deducted. So that does change only a little bit of the EUR 6.6 million increase in other net working capital. But the main contributor for the EUR 6.6 million is receivables from income tax refunds, which is just cyclically, the EUR 4.8 million is basically claiming back all the tax prepayments that we had to do given the profitability situation we always have at this point in time in the year and then it's just some timing issues there. So there's an increase of EUR 4.8 million. That is quite a bit. And adding the liabilities, also due to WhiteWall, of EUR 1.7 million, this is what is driving the increase in other net working capital. So the 2 parts of working capital, a little bit of increase in operating, a bit more of increase in other, adds up to EUR 7.5 million increase in working capital. And if you add that to the EUR 3.4 million -- EUR 34.6 million increase in the noncurrent assets we have seen on the page before, we have a total increase of capital employed of EUR 41 million. Again, if you take a step back, mainly driven by the WhiteWall acquisition, and that is really what is changing our capital employed here.

Now how did we fund this on the capital invested side? The biggest number is pretty easy to be found. At the bottom, you see the interest-bearing financial liabilities, EUR 53.2 million and a little bit even in the noncurrent part on top, EUR 0.4 million. So that's how things had been funded, the acquisitions of WhiteWall, a little bit of acquisition at Cheerz. And the reduction in equity at the very top, you see nearly minus EUR 19 million. That is obviously the dividend payout we have done. It's the net result of Q2 and it's some actuarial losses given that the interest rates were down. And we saw some effects in there as well, and that's the reason why just underneath, you see an increase of pension accruals of EUR 3.4 million. By far, the largest part in there is actuarial losses, which are visible in equity development as well. So equity decrease and other WhiteWall and other assets have been financed by the changes in the bank of accounts we have seen here.

Now that is trying to explain funding on the balance sheet side. If we move to the real cash flow, as you want as far as we can calculate that in the indirect way. Let's look at high level at Q2 first, high level Q2. One looks at this page and says, whoo! On the right-hand side, minus EUR 37 million in free cash flow, that is a reduction of EUR 27.2 million. That's quite a bit. And if we look at where it came from, increase in operating business, there's the investment in -- outflow of funds from investment activities in Q2, a lot higher than the years before, and that this is no surprise, the WhiteWall acquisition. Now is that a surprise? Not at all. Does that fit into what happened in the last year? Absolutely.

I'm going to talk about Q2 in a second again in more detail. If we just move over to H1. We do see this year now it happened, the acquisition happened in Q2. Last year, 2018, it happened in Q1. So if you add up both Q1 and 2 to the first half of the year, basically, it means in both years, we had the same fund -- outflow of funds from investment activities. Last year, even more because the total of Cheerz and LASERLINE was adding up to a higher number than the WhiteWall acquisition we had this year. So if you look at the first half of the year, we have even an increase of free cash flow of EUR 17.1 million. So that's even a nice development in spite of all the investments for further corporate development that we have done this year again.

Now again, as promised, let's look at Q2 in a little bit more detail how we come up with this number, the decrease of EUR 27.2 million at the bottom. We have an increase in EBITDA, but if we are honest, there's noncash factors, accruals and whatever that are basically balancing that plus 3.8%, minus 4.2%. So most of that is -- that effect is already gone.

But if we look at the increase in cash flow from operating activities of EUR 4.2 million, that's mainly driven by the change in other net working capital, and you see the driver is last year. Last year, we had VAT liabilities and payroll tax and so on, a large decrease in last year, which didn't happen this year. And that's why you see this effect that is trickling down to the cash flow from operating activities, plus EUR 4.2 million.

In investment, yes, no surprise. We do see WhiteWall again, some other changes in there. But this is the driving factor. The WhiteWall acquisition dominates the cash flow of the Q2. But as we just saw, it's balanced in H1. And even in free cash flow, we are even slightly improved compared to last year in H1.

What does it mean for ROCE? And we briefly touched that point. Yes, we are better in 12 month rolling EBIT, but we do see, due to IFRS 16, the increase in average capital employed for the last 4 quarters. And that's the reason why the ROCE is a little bit down from 16.7% to 16.5%. Nevertheless, last year, no IFRS 16. This year, IFRS 16, if we take out the effect of IFRS 16, this year would show 18% ROCE compared to the 16.7% last year. So that's a nice operational increase that we are seeing there.

And with these words, backward-looking, I hand over again to our forward-looking man, Christian Friege.

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

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Thank you very much, Olaf. As I pointed out earlier, there is absolutely no reason for us to deviate from the group targets that we announced early on. We are sticking to our revenue target of EUR 675 million to EUR 710 million. We're also sticking to our EBIT target of EUR 51 million to EUR 58 million. And we see no reason in the development of the first 6 months of the year to go with the flow of companies -- of listed companies that tend to be more -- tend to become more conservative during the year. We stick with what we said. And as we pointed out to you, the numbers are supporting that.

EBIT development here over the last 11 years, you can see an increase in EBIT from 2008 to 2018. And you see that the range that we published would also allow us for -- allow for us to keep in line with that development.

And I believe that is all the news that we have prepared for you. If there are any questions. I believe you have now an opportunity to ask those.

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Questions and Answers

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Operator [1]

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And the first question comes from the line of Volker Bosse from Baader Bank.

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Volker Bosse, Baader-Helvea Equity Research - Co-Head of Equity Research [2]

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Volker Bosse, Baader Bank. I would like to start with the other segment. It's good to hear that you are working on the options regarding futalis, now discontinued operations. Does that indicate that you assume that futalis will be gone at the end of the year? So a bit of a time line advice would be helpful.

And the second question would be regarding on the printing segment, you are mentioning the price competition. My question is, why you explicitly highlight your LASERLINE in that regard? Isn't the price competition effect in the overall printing industry? Perhaps a bit of backward information for me on that.

And third one would be on Cheerz. I know you don't break out Cheerz anymore, but nevertheless, a bit of flavor in regards to sales and earnings trends on a stand-alone basis? Or at least an overall update on current developments on Cheerz, would be helpful. Perhaps also kind of cross read where you can learn from Cheerz, what you have adopted from Cheerz already in order to make your core CEWE business better also would be helpful.

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

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Okay. We will try to do our very best. This is Christian Friege. As to your questions, unfortunately, we are not in a position at this point in time to give you a time line as far as a potential sale of the futalis asset is concerned. We have started a structured process, as I mentioned before. And the unfortunate things with these structured processes is as much as they are structured, the end line is a bit open there. So it would be inappropriate if I was committing to any time line here. But the structured process has been started and is underway and is underway in such a way that we have actually reclassified the asset.

As far as the commercial online printing is concerned, in the portfolio of our online printing assets and brands, LASERLINE is the one that was focused -- or that is focused very much on the metropolitan region of Berlin. And we have had actually a price level in the LASERLINE product in the market that was slightly above that of the other brands. And so this is rather inevitable that price pressure is actually giving us most pains in that market. And we -- as I pointed out as well, we have a very efficient operation in Saxoprint, and that is obviously the place why -- because we are so efficient, it is there that we may even be able to benefit from the price pressure. It is that logic that applies here.

A flavor in Cheerz is very easy. We have acquired Cheerz with a business case that we had assumed. Of course, that is how most acquisitions happen. And we are not on the base case. We are currently at the slightly more optimistic case, and that case, we are following or the management is following. So we keep being happy about the development of Cheerz and it is as you say, there are certain aspects where Cheerz is actually benefiting from expertise brought in by CEWE and the group as a whole. And there are certain benefits in marketing and in social media, et cetera, et cetera, where we are actually picking the brains of the people who are very successfully running Cheerz. And so above and beyond sales and profit developments, it is a good working together that actually benefits the whole photofinishing segment.

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Operator [4]

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The next question comes from the line of Alexander Thiel from Deutsche Bank.

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Alexander Thiel, Deutsche Bank AG, Research Division - Research Associate [5]

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My first question would be on WhiteWall. I mean could you give us some flavor on how much synergies you can realize? And I mean we know that they had like EUR 27 million of sales in 2018. And given your sales guidance, I mean what would be your organic growth rates for the full year if we count in those EUR 27 million from WhiteWall?

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [6]

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The WhiteWall synergies, I mean we had the point that Christian, I think, made at the very beginning, WhiteWall stays WhiteWall and CEWE stays CEWE. So we made it clear from the beginning that we are not trying to optimize synergies in production and so on here, but WhiteWall remains a brand with its own high-quality production facility, which is different from what CEWE does.

Nevertheless, there are always opportunities to regain synergies there and the most obvious is in purchasing, where both are purchasing paper and photographic paper, and where both are purchasing ink and acrylic glasses and so on. And obviously, the books are put together, and we are comparing numbers there and using that in our purchasing activities there. So that's probably the most important thing to bear in mind in relation to all the other operational synergies you tend to have when you compare, when you put together any businesses.

Regarding the operational forecasting of the growth vector. I mean that's the reason why we are saying -- we keep claiming that we have the increase that we do put out there for the full year for the group, which is a revenue increase of 3% to 9%, and that we're going to see this year. And obviously, WhiteWall, Cheerz and LASERLINE, all the other effects are included in this number here. So we do not -- so we do not disclose the growth in there. Sorry for that, but that's how we're going to guide the numbers.

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Alexander Thiel, Deutsche Bank AG, Research Division - Research Associate [7]

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Okay. Understood. And for WhiteWall, the specific growth rate? I mean what -- could we assume those business growing? Is it like a single-digit percentage number or high single digits?

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

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You are certainly right in the area of single digit, higher single digit there. It's not a huge growth business like Cheerz we are looking at here. But it's a solid growth business that is well in line with the photofinishing growth that we have seen from our photofinishing segments in the last years.

And regarding profitability, we had also announced and we are sticking to that, that in due course, WhiteWall should be able to be in line with the photofinishing profitability we have seen at CEWE before in the last years. So WhiteWall fits in nicely to what we do there.

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Operator [9]

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The next question comes from the line of Alexander O'Donoghue from Berenberg.

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Alexander P. O'Donoghue, Joh. Berenberg, Gossler & Co. KG, Research Division - DACH Mid-Cap Analyst [10]

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Alexander O'Donoghue here from Berenberg. Just one question, please. Given that the commercial online print obviously isn't performing quite so well, just wondering if at any time you think about maybe divesting this business, so you could concentrate on -- more on the photo side?

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

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We have actually put a lot of effort and investment into our commercial online printing. We've reviewed the sensibility of this investment, i.e., we've compared the value of the assets that we have with what we have invested, and we have generated value here as far as we are concerned. And therefore, for the time being, I cannot see that we would deviate from our 2-sector strategy. And it is inevitable with 2 sectors that one sector performs better than the other. Very seldom, very rarely will you have 2 equally performing sectors. And so we feel that developing these 2 is actually balancing out CEWE on the long term.

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Operator [12]

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The next question comes from the line of Thilo Kleibauer from Warburg Research.

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Thilo Kleibauer, Warburg Research GmbH - Research Analyst [13]

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I've 2 questions on your numbers. One, again, on the WhiteWall acquisition. Can you quantify the negative EBIT effect from WhiteWall and from integration and transaction costs in Q2? That would be helpful.

And my second question is on your CapEx guidance, which is excluded for acquisitions of EUR 55 million in the current year. This seems to be rather high after -- after the first half of the year. So is there -- are there some special projects that should come up in the second half? Or is there a significant acceleration in investment spendings planned? Maybe you can, yes, shed some light on it.

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [14]

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Thank you very much, Thilo. The WhiteWall P&L numbers for this year, you asked. And what we have said there in our communication is, and we're sticking to that, that yes, WhiteWall will be delivering slightly negative numbers and mainly driven by all the transaction costs we have had in this long and very tedious process we had been going through over the last months, I have to say. So the -- this is going to bring us into a level of roughly minus EUR 1 million for WhiteWall for this year, but that is roughly in caps, if you want. It can be up or down, and we'll see how that goes. That's point one.

And point two on the CapEx side, we are always flexible regarding how much we are investing there. Yes. Obviously, the M&A is out of that range. And we are targeting an investment level of around EUR 55 million for this year. And in the last years, in most years, we have been beneath the number we had targeted there as an around. So yes, it might well be that it's not going to be around that EUR 55 million, but it could be below.

But I mean that also depends on the activities of our suppliers. We are a mid-sized company. We are willing to spend money investments. If a supplier is offering a machine at a super-low price because maybe some numbers need to be met for the full year, we are happy to buy a machine we would buy any way 6 months later, if the price is super. So these are the things we do, and that's why we want to be flexible there to continue with our attitude as to smart purchases there.

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Operator [15]

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

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Charles Bordes, Kepler Cheuvreux, Research Division - Equity Research Analyst [16]

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First one, you had some strong volume growth for your PHOTOBOOK. Is it possible to have some color on the ASP trend please? And second one, also regarding commercial and printing. So Brexit has been going on for quite a long time already, unfortunately. It damaged profitability combined also with the price pressure in Germany. So if those 2 headwinds were to persist, do you have a plan already regarding more drastic measures to improve profitability? And if yes, what would be the horizon for triggering such a plan?

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [17]

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Your first question was regarding commercial online print as well?

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Charles Bordes, Kepler Cheuvreux, Research Division - Equity Research Analyst [18]

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No, for ASP in PHOTOBOOKs.

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [19]

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Then could you please repeat your question again regarding the ASP in PHOTOBOOKs?

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Charles Bordes, Kepler Cheuvreux, Research Division - Equity Research Analyst [20]

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Yes, just to have some color on the trends.

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [21]

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Okay. The trends regarding the average selling price of PHOTOBOOKs.

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Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [22]

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We have successfully, over the last decade, established a branded product, and the branded product is the CEWE PHOTOBOOK. Part of the positioning as a premium product in the marketplace is that we seek as much as it is possible to maintain a price level that is in the market. And if you go to various websites that are actually offering the CEWE PHOTOBOOK and also go to various countries, you will find 2 things: there is very little discounting or no discounting happening on the CEWE PHOTOBOOK; and we have very similar price levels for comparable products across the market, which is the result of our partners also appreciating the fact that a branded product is probably, in our case, not an -- the branded individualized product is not good for discounting. So in short, we've been able to maintain price levels year-on-year, especially on the CEWE PHOTOBOOK. But also overall, as were in the previous years and in some marginal areas, we've actually even been able to very marginally increase our prices.

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [23]

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Which is driving obviously the ASP as an average as well. So it is going into the right direction as it has been going over the last year.

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Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [24]

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Yes. As far as the commercial online printing is concerned. You mentioned that if we were to do away with the 2 headwinds, what then would we do. We have obviously a variety of ideas. And if you've closely followed us, you've seen that we have established a little venture in the German market that is called SAXOPRINT.pro. SAXOPRINT.pro is specific by-invitation-only website that we have established for so-called resellers that are customers of ours who actually are reselling the products that we produce to their customers. And obviously, that's been a core source of growth in the commercial online printing market and has actually helped some of our competitors to acquire significant customer shift. And we've seen with the establishment of this additional website, that actually positively contributes to sales and bottom line.

And with that, I just want to illustrate that we have a number of ideas of what we will be doing and could be doing in light of potential changes in the marketplace. I've said before to Mr. O'Donoghue's question, we have a 2-sector company, and I am not seeing that we would be at the end of our fantasy with ideas and creativity of how to run these businesses profitably and successfully in the future.

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Operator [25]

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There are no further questions. (Operator Instructions) There are no further questions. I will now hand over to Dr. Christian Friege for closing words.

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Christian Friege, CEWE Stiftung & Co. KGaA - Chairman of Management Board & CEO [26]

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Thank you very much for your time, interest and attention. We really appreciate you following the CEWE stock and our company. If you've had your holidays, please do not forget to take a little time and preserve your memories in a CEWE PHOTOBOOK. If you haven't had your holidays yet, please go and enjoy them. And once you come back number one applies, i.e., don't forget to do a CEWE PHOTOBOOK. And with that, we will actually be able, I believe, to start well into Q4. And once we've actually started into Q4, as every year, we will report back to you on Q3. And as we said, we are positive that we will meet our and your expectations for the whole year. Thank you very much for your attention, and talk to you in 3 months.

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Olaf Holzkamper, CEWE Stiftung & Co. KGaA - CFO & Member of the Board of Management [27]

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Thank you. Bye-bye.