Edited Transcript of TTK.DE earnings conference call or presentation 30-Apr-20 12:00pm GMT

And last but not least, I think it’s worth to mention that Heiko Hegwein and his contract has been extended for a further five years. And I think that’s really great news because that’s giving us stability on the Board level. And since Heiko is responsible for the development, the steering of the Omnichannel Commerce, and within that Omnichannel Commerce segment also responsible for KAISER+KRAFT, he is a very important player in our management team. And therefore we are very happy that we have been able to extend his contract.

With saying that, I would like to hand over to Claude, our CFO, who will give you more insights into the financials of the first quarter 2020. Thank you very much so far.

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Claude Tomaszewski, TAKKT AG – CFO [3]

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Thank you, Felix. Welcome, everybody. Good afternoon. Let me give you some insights, some further details on the figures we have published this morning. If we look at the TAKKT Group, in the first quarter we report a decrease in reported sales of 7%. Now we had a few positive effects from acquisitions and from currency fluctuations.

So, organically our top line declined by 10% and that was due — predominantly due to the corona pandemic since mid-March. So mid-March our top line has changed substantially when it comes to our growth rate and these, of course, 2.5 weeks since mid-March have impacted that figure quite substantially.

Web-focused Commerce was overall a bit better than Omnichannel Commerce in the growth rate, predominantly due to the fact that in January/February, where focus was growing better than Omnichannel Commerce. So, this is not so much a differentiation since mid-March, but more coming from January and February that we see here the figures Web-focused Commerce performing better than Omnichannel Commerce.

If we then look at earnings, you can see that our earnings have dropped quite substantially. Here we should take into account that we have [digested] one-time expenses for the implementation of the so-called new organization, TAKKT 4.0, of EUR7.5 million, predominantly KAISER+KRAFT — at KAISER+KRAFT, and this has caused as — has deteriorated this figure or has reduced this figure by EUR7.6 million.

The other major impact, of course, is coming from the reduction of sales. And if you look at the reported sales, EUR22 million less than the previous year’s quarter and multiply this with the gross profit. That alone would have led to a EUR9 million reduction in profit.

And overall if we adjust the figure we report in the first quarter by that EUR7.6 million, the reduction is kind of EUR7 million-ish. So, you can see here also that already in March we have — we took countermeasures to, of course, manage earnings and be able to report the EUR24.3 million EBITDA here in the first quarter.

Just a word on gross margin. Gross margin has gone up slightly by 10 basis points. And also in the figure here in the first quarter and EBITDA figure, we have accounted and we need to account for an additional inventory allowance. Because if you have got inventory and then your top line is of course in severe decline, then you’ve got a bit more allowance on your inventory. And this is EUR1 million.

So, if we would adjust for that EUR1 million on inventory allowance additional due to corona, our gross margin would even have gone up by 50 basis points. And here we see again the characteristics of our business model the moment and, as Felix has said, TAKKT has been twice in such a crisis since it got listed in 1999 and the characteristic that the moment the top line suffered that much that the gross margin is rather stable or even a little bit better is again showing here at least in the first quarter 2020.

Moving on to Omnichannel Commerce on the next page, you see here a reported decline in sales of 10%, organically even 11.6%. To take account, this is hopefully then the last time not the first quarter to mention that. A major Hubert customer, [Aramark] we lost in the first quarter 2019, accounted here for around 1 percentage point in that figure.

If we look at the different business units for the first quarter you see a medium to high single-digit decline at Ratioform, that’s a [national] business [furniture] and (inaudible). And Hubert and KAISER+KRAFT had a double-digit decline of more than 10% here for Hubert and KAISER+KRAFT in the first quarter.

Looking at profit again here, we have to account for the — and take into account the EUR7.5 million one-off costs for the new organization. And if you adjust for that you can see here also a similar pattern of course we have just discussed in the Group. You see the profit EBITDA going down by EUR6 million.

And if you look at the reported sales and multiply that with the gross margin then that would already be a EUR10 million reduction in profit. And also here of course we have then started countermeasures in the cost lines in order to achieve this profit.

Looking at the Web-focused Commerce segment, you see here a reported sales increase by 5.5% which was helped from the acquisition of XXLhoreca. We acquired that business in May 2019, so of course this is now — has no comparison to previous year, and so helping and some currency fluctuations are helping here.

Organically that segment was in decline of 3.8%. The sales dropped significantly in March — mid-March after a positive growth in January and February. And worth noting here, the Newport division had growth in that segment, mid-single digit growth, whereas this Displays2go had a quite substantial double-digit organic decline since mid-March. And this is here two very extreme effects we are seeing, Newport with growth and Displays2go due to the product range selling displays being hit the hardest in our Group.

EBITDA goes down due to the declined of organic sales of [Fitbit2go], which of course weighs on earnings. And then so you can see here around EUR2 million less profit in EBITDA in the Web-focused Commerce compared to the first quarter of 2019.

Looking at cash flow, the TAKKT cash flow, the reported TAKKT cash flow has been also in decline arriving at a figure of EUR22.1 million. And if you start at the EBITDA you can see here that we have then less financial expenses to be paid and also we have less current taxes obviously.

And so, these two figures have helped a bit compared to EBITDA. And then you can see — as our non-cash expense income here where also the allowance that was already mentioned is embedded. And so, we arrive here at a TAKKT cash flow of EUR22.1 million.

What happened in the first quarter 2022 (sic – 2020) with that EUR22 million TAKKT cash flow? You can see here the change in net working capital coming out at a figure of minus EUR11, which is a cash out. Probably at first glance a bit surprising because of the downturn in top line.

And this figure is due to an increase in inventories which happened in the second half of March, which we did to adjust our product range to the pandemic and to onboard hygiene and health protection items then of course to be sold afterwards. And that was the main reason here for that cash out of EUR11 million-ish. Going forward we expect a cash in from net working capital for the remainder of the year and we are happy to talk about that later possibly in the Q&A.

If we then move forward to the CapEx, which was a similar figure to the previous quarter, slightly lower. Of course our plans to reduce CapEx substantially this year are not yet showing up here with a significant impact, but that’s possibly more for the next three quarters where we are going to see a CapEx figure well below the previous year’s quarters.

And so, we arrive here at a pretax cash flow of EUR7 million in the first quarter 2020, which has been used on the second page to, of course, repay liabilities — financial liabilities and has a counter impact here of EUR3 million where we entered into a new lease contract which is adding that figure, that reported figure by EUR3 million, arriving at net financial liabilities of EUR185 million in the balance sheet at the end of March.

Equity ratio on a similar level even slightly increasing to roughly a figure of 60% equity ratio now that we are kind of moving through that and starting to manage through that crisis. Having said this, I think it’s time now to hand over to Felix who’s speaking and talking a bit of how we manage the current situation when it comes to the corona crisis. Thank you.

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Felix Zimmerman, TAKKT AG – CEO [4]

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Claude, thank you very much. And on page number 10 you see the three phases of our corona crisis plan on a very high level, much more detail underneath that. But just to illustrate how we think here — we have started very quickly with Phase Number 1, a clear focus on protecting our employees.

And I think it is good news that only a handful of people have been really infected in our organization. And that’s a, I think, for such a global organization as we are, a good result. So, everybody is working where it’s possible from home. We have the infrastructure in place, we have the equipment in place, so we were able to react very quickly, also a result of our efforts in the area of digitization. That is really good.

Ensuring business continuity, there we had one of the other challenges, especially when the government started to shut down businesses with the argument that they are not system relevant or not essential. And I think there we have learned very quickly that we are relevant and that the products we are selling in most of our businesses are relevant for let me say certain customer groups that are system relevant, whether it is the healthcare industry or the government or other let me say customer segments where it’s absolutely necessary that they can keep on working.

And last but not least, a lot of work was spent into securing the financial stability and to get the 100% transparency about our liquidity. And there we have also used a lot of learnings out of the last two crises: how to manage and how to steer our net working capital; how to manage and how to steer liquidity; and I think it’s also very important to keep in mind that our solid balance sheet, but also our long-lasting relationships, trustful relationships with banks are paying off here. So, that’s I think important and Claude will give you a little bit more details about our financial situation in a minute.

So, I think we can tick that box by not saying that we want to stop those activities, but by saying we have set up everything that is necessary to protect our people, to ensure business continuity and to secure financial stability and, of course, will continue to work on those topics.

But now we have entered already Phase Number 2, get ready for the rebound. I think it’s is also important for the organization that they get a target, that they know why they are working every day for the Company in order to not only manage the crisis but also trying to find opportunities.

So, we are working on activities in order to proactively generate demand. And there we have seen a couple of good examples and can give you little more details later on. Of course, we continue to deliver and to work on the agreed cost and cash management measures, of course. So, we need to keep the business on track.

That is an ongoing challenge to make sure that the right people are at the right point in time at the right place whether it is in warehouses or in other areas where it’s absolutely necessary that we keep our operations up and running. And at the same time we have also continued to implement the next steps for our TAKKT 4.0, because there we don’t see a reason why we should wait here. Even if it is extra and additional work.

But I think now is the time to continue with that in order to be ready with TAKKT 4.0 or as ready as possible, let me put it this way, when the rebound is kicking in and the business is coming back. Then, to be honest, we don’t want to be too busy with the implementation of TAKKT 4.0 because then we would like to concentrate our activities on generating additional business.

And then Phase Number 3, something where we start here and there a little bit already, it’s the proactive approach of acquisition opportunities, raising our hand and making sure that they are aware we are ready, we can act and we are ready to talk about acquisitions and mergers. And we’re also ready to talk about taking over dedicated teams maybe from companies that are suffering more than we do and having maybe liquidity issues.

And therefore I think it’s good that we are right now in a situation that we have a strong balance sheet, a good liquidity and can act. And I think that’s important especially in those crisis times that we can explore occurrences and options and we can act.

So, on the following slide you’ll see a few examples just to give a little bit more meat on the bone here what it means when we are talking about keeping the business on track. So, making sure that the business continues to stay open and operate.

So, we have in the US a couple of situations where the governor decided to shut down the business, I explained it already. There I think we are not subject to those decisions anymore. I think the situation calmed down a little bit, but nevertheless we should have a clear focus on that, that we have the right teams at the right place and time to support the business.

And we certainly track further developments and we all don’t know whether we’re going to see a second wave or not. Therefore it’s important I think that we watch out there. And it’s also important that we continue to deliver on the agreed cost and cash management measures. And there I think the finance team is really doing a great job in creating the transparency and making sure that everybody is aware of what the targets are and what we need to do in order to deliver it.

And proactively generating demand is somehow being viewed together with the last point here, proactively looking for growth opportunities. So, on the one hand I think we have made a really good experience in our broad customer base. There have been a couple of customer groups like, for example, the healthcare industry, but also the government and the military, the army, have constantly continued to order stuff.

And since we have adjusted our product ranges and then added a lot of corona-related products, we have seen more and more business coming in from those customer groups and that is good. That is a good base for further growth in the future because those customers are making a good experience with us. And therefore I think it’s worth really to reinvest into those customers and provide them the best service and the best products especially during the crisis.

And we have learned also over the last crisis customers are appreciating it when you are there when they are suffering. And therefore I think now we should be there and present and do the best we can do. The same would be the markets we are exploring, I think especially in terms of the additional products, we have learned a lot over the last couple of weeks what kind of products are really corona-related.

And in some areas we have started, for example, at this place to go to produce those products out of acrylic. That is a core and raw material that is being used by (inaudible) since years. And so, they’re now able to produce stuff instead of displace some other stuff that is helping, for example, retailers and other organizations’ offices to protect their people. And the demand for those products is enormous and we have seen really there first very good results.

So, the organization is not only focusing on dedicated customer groups. No, it’s also extending the product range. And there I think it’s good to see that we are flexible enough and that we have the product know how and that we are able to deliver. So, good news there.

In terms of the implementation of the next steps of TAKKT, 4.0 we have described already what we have done in the first quarter, including described the financial impact, the one-offs. And I think that was a necessary investment into the restructuring of KAISER+KRAFT and into the preparation of KAISER+KRAFT to get ready to be a vital part of the Omnichannel Commerce segment. And we will continue with our activities and really focusing on the implementation of TAKKT 4.0 as we have described in our annual report and at other occasions.

And last but not least, we will continue to strengthen our operational excellence with new management methods and processes. And there we continue to implement those irrespective of the current crisis situation. So, to put it in a nutshell, yes, we do suffer from the crisis, but we don’t want to use the crisis as an excuse to stop things that are maybe keeping us busy right now but which are portioned in the long run.

And since we are here for the long run we have decided to continue with those activities irrespective of the current situation. That is a challenge for the organization, that’s a challenge for our management team, but I’m pretty sure it will pay off long term.

And by looking at the growth opportunities, the external growth opportunities, yes, I think there it’s important that we are a but part of the community of the direct marketing companies, the B2B direct marketing companies, and that we have also invested in the past in very young and startup companies.

So, we are known as a reliable owner, as a long-term thinking owner. And we have raised our hand and have made clear in the market we are ready and we have got already first request. First companies approached us and said let’s talk. Is there something where we are already in negotiations where we could say it’s very likely that we are going to close the deal? No, not yet. But I think it’s good to see there some activity out there.

With that I would like to hand over to Claude who will give you a little bit more details about the financing situation as of March 31, and will give you also kind of an overview of the performance of the last couple of quarters. And then I will take over again and give you a little bit more information about the expected performance for the year 2020. Thank you.

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Claude Tomaszewski, TAKKT AG – CFO [5]

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Yes, let me talk about the financial situation at the TAKKT Group. And we reported a net financial debt figure, as already previously shown on the slide, of EUR185 million. If you look into that EUR185 million net financial debt reported, then you can see there are roughly EUR100 million bank liabilities sitting in that figure. And the other predominant item which is in that figure are financial lease or lease liabilities that I have told now.

So, that could be translated in now very easy wording. That is the rent we are going to pay for the next years for warehouses and offices, which is shown here as a discounted financial debt figure within that EUR185 million.

If you look at the EUR100 million bank liabilities, you can see then on the right-hand side that we have a total committed credit line figure here of EUR230 million, so EUR130 million are currently not used, they are unused. And you see the pattern of these EUR230 million in different durations here.

So, after 12 months there are credit lines of EUR100 million and we’ve got medium-term facilities of EUR20 million, which have a perspective of one to three years. And then we’ve got the long-term facilities, more than four years with [EUR110 million] at the moment in play.

In addition to these EUR230 million committed credit lines TAKKT has at the moment in place and addition of EUR70 million uncommitted lines where we are currently in negotiations to possibly swap these uncommitted credit lines into committed ones.

And also we at the moment in talks with our banks for an early renewal of our short-term facilities in order to even further stabilize the financing situation or stabilize(inaudible) to negative. But to kind of make it even better the financing situation at TAKKT so that we are at any point in time in the driver seat and we would even be able then to finance some acquisition.

As Felix just pointed out there were some requests that we are also working here on our finance structure to make sure that we are always in a very, very comfortable situation. Just recently we have swapped (technical difficulty) [70] million of uncommitted lines into committed ones, so there is already a first execution which has happened. So, EUR30 million out of the EUR70 million we have swapped into committed lines and that of course then is increasing the committed credit facilities just now talking today to [EUR260 million].

Going to the next page or to the next chapter talking about expectations and let me just introduce this topic with having a look at the organic sales growth rate over the last five quarters, you see on page number 14 how this has developed in the year 2019.

Now according to the new segmentation, looking at Omnichannel Commerce and Web-focused Commerce, we can we can conclude that the Web-focused Commerce will always in growth mode for all the four quarters ending up with a 6% growth rate for the year 2019 whereas the Omnichannel Commerce followed much more the economic pattern out there in general and was going from a nice [growth] in the first quarter to unfortunately a minus almost 10% decline in the fourth quarter 2019, ending up with a figure of minus 3% growth rate for the full year.

And if we look at the first quarter of 2020, we have talked about that, we have reported it. You can see here that the sales of Web-focused Commerce was developing better than the Omnichannel Commerce in the first quarter 2020. But this is mainly due to the fact of having had already better growth in January and February and not so much the differentiation since mid-March this year.

Having said this I’m happy to hand over again back to Felix to talk about the outlook and the (multiple speakers) for this year.

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Felix Zimmerman, TAKKT AG – CEO [6]

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Yes, thank you very much, Claude, and I think we all know that it’s pretty difficult to give guidance for the full year 2020 after the things we have seen over the last couple of weeks and the fact that we all don’t know how that will develop further.

Nevertheless I think we have done so far our homework in terms of crisis management. We are looking at opportunities and I think with that we are in the right mood right now is an organization. But nevertheless the environment will be challenging and we expect this to be a negative GDP development in 2020.

And you know that the dynamics are important for us, means the delta of the growth rates of GDP in comparison to the prior year. And there I think we’re going to see a severe drop in 2020 in more or less all the markets where we are active in. And the purchasing manager indices are indicating the same in Europe as well as in the US. Even if that is in the US not really relevant for us, but you are seeing at that purchasing manager index the markets are really suffering.

And we all don’t know how long that will last and therefore we have really a challenge here in giving you dedicated and specific guidance for 2020. But it’s I think pretty obvious and sure that sales and EBITDA will be significantly be below the level of 2019.

But at the same time, and I think that’s important to keep that in mind, we are convinced that we will generate a positive free cash flow since we have started early enough our working capital management measures. And since we know how to do that based on the experience we have made during or over the last two crisis, I’m pretty optimistic that we’re going to see there a nice result.

The management focus will stay on of course ensuring the business continuity, maintaining the cost discipline and adapt the product base to current environment and explore new customer segments. And I think it’s also important that we are looking forward really to proactively using organic but also in organic growth opportunities. We are ready for that and looking forward to check options and to move on with those.

With saying that, I would like to give back to the moderator and I think she will open the Q&A session. Thank you so far for your attention.

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Questions and Answers

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Operator [1]

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(Operator Instructions). James Letten, Berenberg.

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James Letten, Berenberg – Analyst [2]

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First just on costs, can you give us an indication of what percentage of your workforce is currently working (inaudible)? How much have their working hours shortened by? How many have been placed on unpaid leave? And maybe also some guidance for advertising spend in the current run rate sales? And actually I’ll take my questions one by one. That was my first question.

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Claude Tomaszewski, TAKKT AG – CFO [3]

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Thanks for your question, James. When it comes to advertisement, I think it’s fair to say that our thinking is to be in the advertising cost as good as it can be in line with our top-line development.

That might not be perfect completely to 100% so that we can say if our top line decreases with minus, 30% as an example, that the advertising cost would also go down by minus 30%. But our thinking is that it is approximately in line with the sales development, so that’s how we are managing the advertisement costs since recently and you can expect it throughout the year.

When it comes to personnel costs, our aim is to get personnel costs down by something like 20% to 30% and we’ve got, of course, a different situation in Europe compared to the states. If we look at Europe, the business was impacted by the crisis significantly. They have started to go into short-term work between 20% and 30%.

The state is managing this a little bit different because they are mostly then sending people home. That’s kind of the expression we could use your to make it very clear, people going to unemployment. They can still be called back for the business, so they are not finally gone but in principle they are on unemployment. They get some money from the federal government from Washington and the state.

And here also it’s fair to say that we have seen roughly — yes, also roughly 20% in America being in unemployment so far from all our workforce in America. I hope that gives you a good feel for how we are managing the situation and what the current status quo is there for TAKKT.

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Felix Zimmerman, TAKKT AG – CEO [4]

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And I think it’s important to keep in mind here the marketing costs there, always an important part we should not forget is that you need to be present out there even in difficult times. And therefore Claude is right in saying we tried to reduce our marketing expenses in line with the turnover development.

But on the other hand, we should keep in mind that we should continue to invest into our branding activities and to attract customers that are searching on the web. So, therefore we have to make a decision here company by company, but basically that is right. And when we talk about the personnel costs, I think there you could ask why are you not cutting it even more.

And I think there it’s important to keep in mind that we want to keep our talents here and we want to keep the key drivers of the organization and especially in our business the direct marketing.

In the e-commerce building it’s important that you keep those talents and keep them happy also in difficult times. And therefore we also have to make a decision here by company. But you can be sure we have our clear ideas and targets, but on the other hand we are also aware of we have a value team and we want to keep it.

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James Letten, Berenberg – Analyst [5]

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Okay, thank you. My second question related to that is, have management volunteered to take any pay cuts?

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Felix Zimmerman, TAKKT AG – CEO [6]

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Yes, so the management team, starting with the supervisory board, they have waived 20% of their salaries and benefits for the year 2020 already. The management board has started to waive 10% of their fixed salary in the second quarter. And we will continue to consider that also for the upcoming quarters depending, of course, on the development of the crisis.

As well as we have seen that on the second level of our management teams and there also the vice presidents, for example, contributed to that. And I think that is really a good sign. And at the same time we have taken a part of that money and funded a COVID-19 relief fund in order to support the employees in our organizations that are suffering most from the corona crisis.

And with that we want to send a clear signal that we don’t leave them alone in those difficult times. And I think that’s a good sign from the organization that we are taking care of our people. And therefore it’s not only a sign that we are waving part of our salary. Now I think it’s also a good sign that we are using that money and to support the people in our organization.

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James Letten, Berenberg – Analyst [7]

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The last question is just you touched upon in the comments about critical industries and then also corona-related products. Could you give us an indication of the size of those two factors in terms of your revenue stream?

So, if we think about what sort of percentage of your sales are somewhat protected from this or will receive some uplift, either through exposure to critical industries, which will be opened up sooner, or through being corona-related products.

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Felix Zimmerman, TAKKT AG – CEO [8]

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Yes, that’s I think a pretty obvious question, but a question that is really difficult to answer. To just give you kind of an example here, so Ratioform with packaging material is now benefiting a lot from that strong increase in online sales, also online sales in the B2C area. So, they are delivering the packaging that is necessary to deliver all the stuff to the B2C customers and also to the B2B environment.

So, their online packaging material is, for example, right now a strong growing product category. Now we could discuss it for I don’t know how long whether that is a corona-related product category or just a normal product category that is right now benefiting from the current crisis.

Another example is packaging for food. So, we all have experienced that in our private life, that we are ordering food via I don’t know what kind of platform. And that all needs to be packed and wrapped into boxes and so on and so on. And so Ratioform has benefited from that as well.

Is that a corona-related product? So the borders — the lines are blurry there, to be honest. But we are doing more and more on exploring that and saying what are the product categories that are right now benefiting and extend those product categories. And what are attractive ones we could add? And there another point is coming to the game that is inventory.

So, it’s not only good enough to provide those products, though you need to carry the inventory. Because only those companies that are providing right now the products and can deliver do benefit. And there we have benefited from our network to our suppliers, for example in the US, where we have bought a big proportion of thermometers from one of our suppliers and shipped that to our customers, for example, in the Hubert organization.

And now you could argue that’s a corona-related product, but is that a sustainable one for the next 20 months? I don’t know. So, therefore it’s difficult to say what is corona-related, what is not corona-related. But I would say that from our product categories maybe 10% to 20% are corona-related right now just as a rough number. But we are working on extending the product range right now. But we should also be careful in doing not too much because the risk of inventory is there.

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James Letten, Berenberg – Analyst [9]

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My last one is on M&A. Which regions and segments are you looking at actively or is it going to be across the portfolio just opportunistically looking out what becomes available at a good price?

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Felix Zimmerman, TAKKT AG – CEO [10]

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I think overall we would be well advised to be flexible, but if you ask me what is the current focus is, we are looking certainly at opportunities right now more with a higher focus in the web focus area. That’s something where we are seeing good growth opportunities and where we’re also seeing that the potential targets are in a situation where the founder might consider to sell the business or at least to diversify a little bit. They are normally saying their wealth and open up for participation or a major stake in the company.

And we also see companies in that area that have been managed at a black zero and that might suffer now because of a strong dip in the top line and might have liquidity issues. And there I think we would be in a good position to help them as long as we understand the business model, I think that might be an opportunity.

In the traditional multichannel or Omnichannel segment I don’t think that we’re going to see there someone who is right now suffering in terms of liquidity. That would be the case and maybe have another issue. And therefore I think there are more the opportunities where maybe a generation is making the decision to move on and to sell the business. But I don’t think that they are then corona-related reasons why they are considering a sale.

So, to put it in a nutshell, more on the web focused area right now, but we are open-minded for each and every opportunity and we are looking at those. And as I’ve said, we started to reach out and raise our hands and to make transparent that we are ready. And again, the first positive signs have been seen there and now let’s work on that and let’s see whether there’s something in there where we can start to negotiate.

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Operator [11]

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Craig Abbott, Kepler Cheuvreux.

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Craig Abbott, Kepler Cheuvreux – Analyst [12]

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Just two questions from my side, please, at this stage. The first one is I know that normally you don’t give in these quarterly conference calls any kind of a monthly indication of sales. But I just wonder, given this is an extraordinary environment at the moment, if you could give us any kind of indication of what kind of magnitude decline of revenue you’ve seen in April.

And the other question is — I noticed that the inventories were up I think around 9 million or 10 million. Presumably related to part of your answer to the previous questions with stocking up on relevant products for Ratioform. I just wondered if — a couple things.

A, was there maybe some pre-stocking because you might be concerned about some supply chain disruptions coming? Or — because I think you also alluded to that just a moment ago. And how we should think about this evolving going forward even though sales are obviously very weak at the moment?

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Felix Zimmerman, TAKKT AG – CEO [13]

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So, maybe I start with the supply chain disruption and our overall philosophy when we talk about stock. I think an important part of our net working capital management is that we keep the quality of our working capital on a high level.

That means we should only invest, if you want to call it this way, in inventory we could sell over a longer period of time where we don’t see a risk that this might lose value because of changes in — whatever — customer behavior and their demand structure and so on and so on.

And we should make sure that we are not buying inventory that could become subject to deflation. So, where you are paying now a high price because everybody’s asking for that, and then all of a sudden you realize you cannot sell anymore with that price and then you suffer. So, I think it’s important to keep some discipline near that we are not buying everything and just to makes sales.

On the other hand, we haven’t seen so far any major disruptions in our supply chain. We have seen, as you all are aware, that the Chinese market is opening up again. Lead times are a little longer, but so far I’m not aware of any major issue within our organization that we were not able to deliver because of a significant disruption in our supply chain.

For that the supplier base is a bit too fragmented. And also our focus on forcing the stuff in the area where we are selling it means predominantly sourcing the stuff in Europe as well as the US for the local markets. And on top of that, of course, having the direct import. But even in the direct report I’m not aware of any major disruptions which could not be replaced by a local supplier.

So, that’s it about the inventory and the same is true also for accounts receivable. There again, discipline is very important. Make sure that you make a credit check before you take the order and sell something. Then you have a good quality and a good level of accounts receivable. And then you can manage that in a proper way also in a crisis.

And we should continue during that even in a crisis, credit check, clear rules and make sure that we are not just making sales and then afterwards have issues when collecting the money. So, that’s something you can expect from us, that we continue to ask for a high level of quality in both positions. And with that, Claude, maybe you can say a few words about the current trading situation.

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Claude Tomaszewski, TAKKT AG – CFO [14]

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Yes, thank you, Felix. Thanks for the question, Craig. If we look at account trading in April, and, as you said, we don’t normally talk too much about this in a conference call, but this is a very, of course, unusual and specific situation we’ve got out there.

If we look at order intake I think that’s also important to say [not safe], order intake in April. It’s not that different to say but just to mention it once. We can see four out of seven divisions, if we go to the business unit level, which are trading in April between minus 30% and minus 60%. That is KAISER+KRAFT — that includes KAISER+KRAFT in Europe and then that includes an America National Business Furniture Central as well as Displays2go with, as I’ve said already before Displays2go being the division who was hit the hardest.

If we then move on we can see roughly from trading in April with a single-digit decline, a high single-digit decline. So, still quite able to hold almost the sales with also what Felix said, but all suffering from the other parts the product range.

And then in April we have seen two divisions which have shown a very small growth, only small but they are growing even. And Newport is possibly not such a surprise, but Hubert has grown in April and has been able to change quite successfully the offers and the products which their customers need and has had an excellent month of April has shown some growth compared to previous year’s month.

So, we’ve got, as you can see, three kinds of categories here with four divisions still being hit quite hard with Ratioform being not that much in decline but of course in decline, and then Hubert and Newport with a slight growth.

If we look at the segments, they are very similar, and also similar to the Group figure which I’m going to report in a minute. And the reason why they are similar is due to the fact that with Newport with a slight growth, at the same time Displays2go being hit the hardest, it is coincidence that the Web-focused segment has traded in April on a similar decline compared to the Omnichannel segment.

And that in total means that we are running in April with a little bit more than minus 30%. So, we are in the early 30s at the moment when it comes to current trading compared to previous years because — yes, a bit more, minus 30%, minus 32% has been the order intake we have seen so far in April.

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Operator [15]

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Juergen Elfers, Commerzbank AG.

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Juergen Elfers, Commerzbank AG – Analyst [16]

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I would like to also come back a little bit to the current trading. And I would want to start with the statement that has been made by Felix initially in this call that January and February were in line with expectations and then there came the call out of March.

On slide 14 of the handout you provided an organic growth of the first quarter of 7% roughly and I was going to wonder, you have — I believe you have never shared with us what the January and February expectations were.

If I were to use the 7% as a good proxy for the decline in January/February, I would believe that the last two weeks in March would have led to a serious decline of 40% which would have been higher than what you are currently reporting.

So, therefore in order to get those puzzles together, could you help us out with your expectations and possibly also how much in (inaudible)? That’s the first question. I would like to ask them one by one, if that’s possible.

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Claude Tomaszewski, TAKKT AG – CFO [17]

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Yes, let me try to answer this question and then you’ll have to help me with — successfully put the puzzles together or whether you’re still missing a piece. If we look into the first quarter, we have seen a single-digit decline in the Group in January and February, predominantly coming from the Omnichannel Commerce. And we have seen some growth in the Web-focused Commerce. Both have led, as I said, to a single-digit decline in January/February.

We have then seen a March which was, interesting enough, the first half of March almost flattish. It wasn’t almost but it was flattish, so it was 0%. And then we have looked at the second half of March which was minus 35%. And that hopefully puts the different puzzles together.

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Felix Zimmerman, TAKKT AG – CEO [18]

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Yes, I think that’s — one important point in the other one we should not forget is that we have always said that we are expecting a weak start into the year 2020 mainly because of the base effect we have seen last year where the first quarter 2019 was a quarter where we have generated an organic growth of 5%, the Omnichannel Commerce segment was 4.5% and Web-focused plus 7.2%.

And on page number 14 you see then the subsequent quarters Q2, Q3 and Q4. And I think we have been always clear that we don’t expect after Q4 2019 there is an organic growth of minus 7.1 that we all of a sudden start in January with a positive growth rate. And therefore we have said the developments in January and February have been in line with our internal budgets and our expectations.

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Juergen Elfers, Commerzbank AG – Analyst [19]

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Thank you very much for this explanation. May I just ask a quick follow-up in order to get the puzzle right? I’m not digging into it for too much of an interest, but would it be fair to say that the single-digit decline you mentioned for January and February would be higher than the 7% — i.e., maybe 8% or 8.5% or 9% or so, so that you get to the 35% for the last 15 trading days of the quarter?

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Claude Tomaszewski, TAKKT AG – CFO [20]

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It is fair to say that on average you are almost right for January/February, whereas January was higher than the 7% and February was lower.

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Juergen Elfers, Commerzbank AG – Analyst [21]

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Okay, good. So, thank you very much for that one. Then I would like to ask on — just out of curiosity on the one-off costs of EUR7.6 million digested for KAISER+KRAFT, I believe you guided for a low double-digit million cost overall for the current financial year. So, would it be fair to assume that in the first two quarters you would digest the bulk of it, or how can you comment on that one?

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Claude Tomaszewski, TAKKT AG – CFO [22]

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If we look at the EUR7.5 million we have guided, I think that you’re right, you said with a low double-digit figure, correct, was what you’re saying?

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Juergen Elfers, Commerzbank AG – Analyst [23]

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Yes, exactly. (multiple speakers) the majority of which has already been digested.

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Claude Tomaszewski, TAKKT AG – CFO [24]

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That’s correct. The majority has been digested and we possibly see a few other costs due to also the management of that situation going forward. And the new implementation of the organization because, if we are honest, the predominant costs which sit in that EUR7.5 million, we talk here about our people.

And then if we, of course, then also implement a new structure and there’s some cost — there would be some cost involved in that, that would be the remainder which we might see then in in the second quarter. But it’s also fair to say it could even be spread out across the nine months.

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Juergen Elfers, Commerzbank AG – Analyst [25]

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Okay, right. Then just — so thank you very much for shedding some light on that one. Then I would like to come back to what you said about the short-term work in Europe. And I was not sure whether I did fully understand the answer correctly. So, for Europe you have 20% to 30% of people home to fight for short-term work allowance. Is that the correct interpretation of what you said?

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Claude Tomaszewski, TAKKT AG – CFO [26]

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Could you please repeat in order before I say yes or no to make sure I answer the right question?

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Juergen Elfers, Commerzbank AG – Analyst [27]

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I believe the question was on the costs — on the (inaudible) and the costs. And then answer was that 20% to 30% — and this is the question — have been sent home and are now virtually waiting on the state scheme for short-term work allowance? Or did you reduce the costs by 20% to 30%?

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Claude Tomaszewski, TAKKT AG – CFO [28]

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Okay, in Europe, we have — people were in Europe for the businesses which were impacted the most, so it’s different if you are not in decline, then it is often difficult to do the short-term work and use it as a regulation because it’s not possible then. So, for the businesses who are impacted, they’ve got an average reduction of 20% to 30%. So, people will only work 70% to 80% on average in these businesses.

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Juergen Elfers, Commerzbank AG – Analyst [29]

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So, they have not been sent home, but they’d much rather use let’s say 20% to 30% of working hours less?

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Claude Tomaszewski, TAKKT AG – CFO [30]

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That is the situation in Europe.

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Juergen Elfers, Commerzbank AG – Analyst [31]

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Yes.

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Claude Tomaszewski, TAKKT AG – CFO [32]

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Different situation in the states where also the businesses arrive at a minus 20% unemployment, but is managed differently because there 20% of the workforce is sent home completely and that’s just a different mechanism how that works in the states.

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Juergen Elfers, Commerzbank AG – Analyst [33]

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All right, good. Then just a final one for me on M&A. You are preparing to be ready when the opportunities arise. And I was just wondering, I think I heard you say we do not know how long the GDP decline will last and the corona-related recession will last. How can you then step forward with a fair value [bit] if nobody has got a clue for how long the recession will continue?

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Felix Zimmerman, TAKKT AG – CEO [34]

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That’s a very good question and reminds of me the situation in the year 2009 when we were in the middle of the financial crisis and we were able to acquire Central Restaurant. April 2009 was pretty dark out there and people were afraid to do anything. And I think then it’s a time of people who know what the business can deliver and find a good deal structure.

And a deal structure can be, for example, structured in a way that you talk about earnout scenarios, that you talk about step-by-step approaches and so on. So, creativity is important and there I think we have shown in the past that we were able to be very creative and flexible. So, I don’t think that someone right now would buy a company but just pay a multiple on expected earnings for 2020. I think that would be too simple.

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Operator [35]

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Mark Josefson, Pareto Securities.

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Mark Josefson, Pareto Securities – Analyst [36]

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I have a question with respect to CapEx. Obviously some of this is set in stone. The Q1 was up slightly, but you indicated clearly that Q2, Q3, Q4 should see a reduction. Do you have a ballpark figure what we should be looking for in terms of CapEx for the full year?

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Claude Tomaszewski, TAKKT AG – CFO [37]

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Indeed we’ve got one, so thanks for the question. We tried to manage CapEx this year in a way that it is approximately half of what we have seen before. So, at the moment our ambition is to get this done this year for a CapEx figure of EUR12 million.

And the reason it is EUR12 million and even not even EUR6 million, EUR7 million, EUR8 million is we’ve got three major more strategic projects (inaudible) running and ERP implementation at KAISER+KRAFT and two web shop implementations where we feel that needs to be done despite the crisis.

But that also gives you a feel that that is a very ambitious target overall and — but I am quite confident that that will be the ballpark ambition for this year, EUR12 million — for the full year.

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Mark Josefson, Pareto Securities – Analyst [38]

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Yes indeed. And with respect to the tax rate, I know this depends an awful lot on what happens over the next six months or so. But and in terms of Q1, you’ve indicated I think close to [27%] or so. Should that be the rate that we apply for the full year?

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Claude Tomaszewski, TAKKT AG – CFO [39]

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Thanks for the question. As you say, it’s a bit of a difficult guess for this year when it comes to tax rate. We at the moment in our modeling, we apply a tax rate of 26% to 27% for the full year.

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Mark Josefson, Pareto Securities – Analyst [40]

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Thank you, thank you. And (multiple speakers).

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Claude Tomaszewski, TAKKT AG – CFO [41]

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That includes current taxes and default taxes of course. Our cash tax rate will be lower and then the deferred proportion will get a bit higher and that has to do with what happens if our profit is reduced. But the tax rate we are reporting would be 26% to 27%.

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Mark Josefson, Pareto Securities – Analyst [42]

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And I think you may have answered this when responding to Juergen’s question. But you flagged the EUR7.5 million of (multiple speakers) if you like, with respect to KAISER+KRAFT or with respect to TAKKT 4.0 in Q1. What is the likely impact of TAKKT 4.0 in terms of exceptional charges for the remainder of 2020?

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Claude Tomaszewski, TAKKT AG – CFO [43]

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Yes, we’ve always said that this year we might see a lower double-digit figure one-off cost to get into our new organization. Overall (inaudible) and we have said that might be something between EUR10 million and EUR15 million. At the moment I would estimate that we have seen the majority of the one-off costs, but there will be some going forward in the next nine months depending on also how much we are able to execute and realize within the year 2020.

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Mark Josefson, Pareto Securities – Analyst [44]

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Good luck with the rest of the year.

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Operator [45]

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Thilo Kleibauer, Warburg Research.

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Thilo Kleibauer, Warburg Research – Analyst [46]

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I would also like to come back to the one-off expenses for TAKKT 4.0. Can you maybe give some more background what are the concrete measures you implemented at KAISER+KRAFT? And at what extent and at which positions — where do you plan the headcount reduction?

And so, I mean if the bulk of one-off costs is at KAISER+KRAFT, so is TAKKT 4.0 more a kind of label for a restructuring program for your traditional KAISER+KRAFT business? Or should we expect in the remainder of the year one-off expenses in other divisions? That would be helpful?

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Felix Zimmerman, TAKKT AG – CEO [47]

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So, maybe I’ll start to answer the overall question with TAKKT 4.0 is a label for restructuring at KAISER+KRAFT. That’s not the case. TAKKT 4.0, as you know, is a clear decision to change the organization as set up off the TAKKT Group. And instead of running it as a portfolio of seven independent companies, we want to move on with a concept to create, as we have done at the beginning of the year, already for reporting purposes.

But we are now implementing it step-by-step to create two more integrated segments with a clear focus on the needs of the customers that are using Omnichannel or Web-focused Commerce models. They have different needs with different requirements and therefore those companies in those segments need to be managed in a different way. That is a very short summary of TAKKT 4.0.

And within TAKKT 4.0 certainly KAISER+KRAFT is the major player in the Omnichannel Commerce segment. And we have discussed several times during the last I think also quarterly calls here about the performance of KAISER+KRAFT. And yes, it was a difficult environment in Europe, but we have also observed an underperformance of KAISER+KRAFT versus the market indicators.

And therefore we have decided we should start with KAISER+KRAFT, get them ready for the engine concept and make them kind of a vital part of that Omnichannel segment. And therefore I think it’s fair to say TAKKT 4.0 is a much broader approach and is not the label for restructuring KAISER+KRAFT. And with that I would like to hand over to Claude who could give you a little more details about that one-off expense and for what we have used it.

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Claude Tomaszewski, TAKKT AG – CFO [48]

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If I look at the measures we’ve done here at KAISER+KRAFT, yes, it is a restructure not purely just to do a restructure but to prepare KAISER+KRAFT for the new organizational model. And Felix explained that’s why it is a vital part of our TAKKT 4.0 organization to go into these two segments.

And what has been done so far as a measure is predominantly — is that management of the workforce and the people at KAISER+KRAFT were — even more than 100 people are impacted by that reorganization at KAISER+KRAFT then to fit into the Omnichannel segment. And that is the cost we have seen so far in the first quarter.

We have to account for this because everybody has been informed and has a clear plan. And now KAISER+KRAFT is working on that plan in the next quarters then to also execute and — but the costs have already been accounted and adjusted for that measure.

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Thilo Kleibauer, Warburg Research – Analyst [49]

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Okay if it’s possible, I have also a second question regarding your TAKKT (inaudible). So, you built up in recent years capital startup investments. So, what is the situation here in the portfolio in the current crisis?

Will you expect some difficulties here, some investments where there is a critical liquidity situation or maybe if there’s the opportunity to step up a good shareholding in an attractive investment? So, what is your view on the startup portfolio in the current situation?

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Felix Zimmerman, TAKKT AG – CEO [50]

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So, we look at the startup portfolio (inaudible) every month and have a constant dialogue with the entrepreneurs, with the management, with the owners there. And we have a kind of rating established there where we are seeing, oh, there we might have an issue in the foreseeable future or there is no risk from today’s perspective. Of course the picture changed a little bit.

Very important to keep in mind different companies and different investments there approaching different business models. And for example, the investment in the call it platform (inaudible) is doing well. So, I think they are doing a great job right now and they do benefit from the current situation. While others are suffering a little bit because the people are not spending a lot of money into additional new software.

But people are looking for opportunities, for example, to improve their marketing. So, activities that are allowing personalized and more targeted marketing based on digital data is doing a great job and performing nicely as well as companies that are supporting online activities and providing better information like (inaudible) doing that.

So, kind of a mixed picture there. But I think overall you are right. It’s a higher risk profile now, but nothing that is so severe that we will say, oh my God, that is major for us as we have limited our investments per investment. And as we have also made clear when we invested that we are — or that we’re adding clear rules if we want to continue to invest and provide liquidity or I would say no.

And there I think it was good that we were from the very beginning very clear so that we are not ending up in a situation where we have to catch a falling knife. So, in a nutshell, I think overall, yes, you’re right, higher risk profile. Mixed picture, some are doing very well, some are suffering.

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Operator [51]

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(Operator Instructions). There are currently no further questions in the queue.

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Felix Zimmerman, TAKKT AG – CEO [52]

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So then, it’s my pleasure to announce that we will publish the 2020 half-year financial figures on July 30. Thank you very much for your participation, have a good day and a good holiday tomorrow and goodbye from my side.