Me Group International (LSE:MEGP) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the ME GROUP INTERNATIONAL PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform.

0:32 And before we begin, we would just like to submit the following poll and if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the team from ME GROUP INTERNATIONAL. And Vlad, good morning, sir. Good morning, and thank you all for joining us. My name is Vladimir Krasventy, I'm Head of IR and UK Commercial Operations, and alongside me is the CFO, Stephane Gervont. Good morning. So today, we report on ME GROUP's interim results for the six months ended 04/30/2024. We will start the presentation with highlights from H1. We'll then briefly remind you about ME GROUP, who we are and what we do. And then Stephane will talk you through the financial performance, and I'll talk you through the business review. Lastly, we will conclude with a summary of the first half performance and the outlook for the remainder of the year.

1:19 So, turning to the first half highlights. It's been a positive first half for the group with good financial and strategic progress, which put us on track for another record performance in FY 2024. Our laundry business, Wash. Me, is our fastest growing business area, and it delivered a strong performance with a record four twenty new machines installed and double digit revenue growth. Our photo.me business performance and demand for photo ID was robust, and we have continued to strengthen our partnerships with site owners in high footfall locations. Cash generation from operations increased by 25.5%, and we have a strong balance sheet that allows for organic growth, supporting investment in our growth strategy and delivering shareholder returns.

2:08 The Group remains focused on profitability, returns and cash generation, with these metrics being key performance indicators. So, ME GROUP at a glance. For those who don't know ME GROUP, I'm going to provide a brief overview of our business model and key strengths. So we are an automated service company that operates a diverse range of machines across 18 countries globally. We have two core business areas, which are our photo booth business and our laundry business, and we have other business areas which we classify as being ancillary.

2:39 What ties together all of our business lines is that our engineers service all machine types. We often have multiple product types on the same locations. So for example, at a Morrison supermarket, you'll find our photo booths, kids' rides, printing kiosks and revolution laundresses, and we operate the same revenue share commercial model across our product types. So in terms of our business model and key strengths, we have a number of key advantages in the markets we operate in. The first is that we have very predictable and stable cash flows, which enables us to invest and launch new products and geographical areas. We have industry leading technological innovations and a proven track record of launching new products. For example, the WashMe division was launched around 2010 and now represents over 40% of group EBITDA.

3:32 We also have long term relationships with key site partners in all the countries we operate in. And finally, one of our key USPs as a business is our engineering network. This allows us to launch new products in all markets that we operate in very rapidly. So I'll now hand you over to Stefan to talk through the first half financial performance. Thank you, Roland. We are pleased to report positive trading momentum driven by growth across our core business areas, primarily WashMe and also Futomi. Reported revenue increased by nearly 5% to €150,400,000 from €143,800,000 in H1 twenty twenty three. Throughout the first half, we experienced significant foreign exchange headwinds, which saw the Japanese yen decline by 15% against sterling and euro declined by 2.2%.

4:30 When excluding the FX impact, revenue was up 8.6%. EBITDA improved by 11% and it increased by almost 15%, excluding FX impact. The EBITDA margin improved to 34% compared with 32% in H1 twenty twenty three. Profit before tax was up 10% to €30,000,000 and was up more than 13% excluding FX impact. Profit before tax margin was 20%. As a result of this foreign exchange headwind during the first half, we are exploring options to mitigate our exposure to currency risks.

5:19 The Group remains highly cash generative, with cash generated from operations up 13.3%. Excluding FX impact, cash generated from operations was up 19%. The movement in gross cash is primarily due to loan repayments totaling 14 point $910,000 in H1 twenty twenty four, we repaid a similar amount in H1 last year. Net cash reduced, reflecting the ongoing investment to deliver on our growth strategy and payment of shareholder dividends.

6:02 We enter the second half of the year in a strong financial position with the means to fund the Group's exciting growth plans. Diluted earnings per share increased by almost 12% to £5.97 per share, up nearly 17% excluding FX impact. This performance has enabled the Board to declare a 16.2% increase in the interim dividend to £3.45 per share, a record for the Group, which will return a total of 13,000,000 to our shareholders. Our policy is to pay annual dividends over 55% of annual profits after tax, subject to capital requirements.

6:58 This bridge shows a more detailed breakdown of the revenue performance. Our WashMe business saw the largest revenue gain, contributing an additional €6,300,000 compared to the prior year. This growth was driven by demand for our laundry services and the ongoing expansion of our Evolution Network. Photomi contributed an additional 2,000,000 in revenue compared to the prior year, reflecting robust demand for official photo ID services and an increase in the number of photo booths in Japan. While our PrintMe, FeedMe and other vending equipment businesses saw slight declines, we consider these ancillary parts of the company.

7:49 When excluding the impact of FX headwinds, revenue increased to €156,000,000 at constant FX rate.

8:02 This slide illustrates the profit before tax bridge, moving from €27,200,000 in H1 twenty twenty three to €30,000,000 in H1 twenty twenty four. The PBT benefit from increased revenue was €6,500,000 due to the increased volumes, and the contribution from consumables spare parts provided a €2,100,000 boost to PDT. Commission paid was €2,400,000 higher, primarily due to the removal of the machines following withdrawal from a low margin contract. Profitability is a key indicator for the group and the board expect to deliver record profitability against in FY 2024.

8:51 The Group's net cash position at the start of the financial year was $33,900,000 The Group is highly cash generative, with $41,700,000 generated from operations and a further $1,000,000 was generated from sales of machines. Estate and infrastructure investment, tax, share buyback program and interest and finance amounted to a combined cash deduction of $53,500,000 Subsequently, closing net cash as of 04/30/2024 was 21,700,000

9:31 This is a new slide giving more detail on how we have deployed CapEx. As you can see from the graph, CapEx increased significantly by 26.6%, with photomic CapEx increased by an additional $7,700,000 reflecting the expanded rollout of next generation photobooks. Washing CapEx also increased by 1,200,000 with the investment almost entirely related to the production and installation costs associated with deploying revolution machines. CapEx on the remaining businesses is slightly down as our current growth strategy focuses on our investment on our core and most profitable business areas.

10:21 In Continental Europe alone, we committed €19,500,000 of CapEx, where the majority of our investments was focused. I will now hand over to Vlad to take you through the performance by geographic region. Thank you, Stephane. So, Continental Europe is our largest and most profitable geographical area, and we have continued to diversify portfolio, with Laundry now contributing 32% of vending revenue in the region.

10:53 Revenue for Continental Europe increased by 5.2% to £98,300,000 with operating profit stable at £21,000,000 WashMe performed particularly strongly in Europe, with vending revenue up more than 17%, with the expansion of laundry operations continuing at pace and a further two eighty two machines installed in the period. This has brought the total number of laundry machines in operation across Continental Europe to 4,492. Photomie revenue was also up 1.9%, with demand remaining robust. We are continuing to work closely with our established partners and key customer accounts, which include major supermarket groups such as Lidl and Carrefour to grow the vending estate across Europe.

11:44 Operating profit was flat at £21,000,000 but up 1.9% excluding the FX impact.

11:53 In The UK and Republic Of Ireland, new laundry accounts for 55% of vending revenue. Revenue increased by 1.9%, primarily driven by the group's exit from a photo booth contract in The UK in 2022. However, the nature of this contract means that this had a limited input on profit generation.

12:15 WASHME continues to perform strongly in The UK and Ireland, with vending revenue up more than 16%, and 141 Revolution laundry units were installed in the period, a record for The UK and Ireland, which increases the total number of machines by almost 24%. The growth in operating profit was extremely strong, with operating profit up nearly 29%, reflecting cost efficiencies and from the previously mentioned contract in The UK.

12:48 So revenue in Asia increased by 9% to £26,400,000 and this performance was mainly driven by the photo booth business, following the Fujifilm acquisition in 2023, which saw an increase of 3,611 photo booths in Japan. We also expanded our freshly squeezed orange juice vending operations in Asia with four seventy five machines in operation to date, four zero four machines in Japan and 71 machines in Australia. Operating profit was flat at £3,300,000 and the Board expects growth to accelerate in the second half of the year as the photo booth acquisition synergies are realized, machines are being relocated and operations are being optimized.

13:36 I'll now talk through our business areas. Demand for photo ID remains robust with revenue up 2.4% and up 7.5% excluding FX impact. Activity levels at our photo booths have remained robust through Q1 and Q2, and we have seen a strong performance in Q3.

13:58 The average revenue per machine in H1 decreased by 8.4%, and excluding FX impact, it declined by 3.4%. This can be attributed to the acquisition of the photo booth estate in Japan, which had lower revenues than our global estate.

14:16 CapEx increased significantly to £9,000,000 as we continue to invest in the rollout of next generation photo booths. EBITDA is also only marginally down, however, when excluding FX impact, it was up 2.7%, and EBITDA margin remained robust at 34. We expect to invest between 5,000,000 and £6,000,000 in H2 to support our plan to install 2,000 to 2,500 next generation machines by the end of twenty twenty four. We plan to have installed a total of 8,000 by the end of twenty twenty five.

14:54 WashMe is the group's fastest growing business area by number of units and EBITDA. Total revenue grew by nearly 17% to £44,100,000 up nearly 19% excluding FX impact. And total WatchMe EBITDA increased by 15% and contributed to 41% of Group EBITDA. This was driven by strong demand and a record number of Revolution Laundry units deployed at ten seventy eight units. The group remains focused on expanding its Revolution Laundry machine estate, with a record four twenty Revolution machines installed across our key geographies, at an average rate of 70 per month.

15:39 Revolution revenue was up 18% and Revolution CapEx increased to £12,000,000 We are on track to install a record number of machines in FY24 at an installation rate of 80 to 90 per month in the second half. The Laundry Services Consumer app launched in the summer of twenty twenty three has achieved over 21,000 downloads on Android and iOS platforms across Europe, with a 75% conversion rate to registered users.

16:14 We believe our consumer app will enhance the customer experience, reward loyal customers and drive repeat sales going forward through our targeted marketing campaigns. Our WashMe business remains a key growth driver for the group. So PrintMe is an ancillary business area with operations primarily focused in France, The UK and Switzerland. Revenue decreased by 10.3%. Excluding FX impact, revenue was down 8.6%. A total of two forty machines were relocated to a new contract with leading French multinational retail chain FENAC. EBITDA remained stable at £2,000,000 CapEx is expected to increase in the second half of the year with 500 new machines installations planned.

17:05 In recent years, we have integrated our printing capabilities across our photo booth estate and a number of machines, particularly next generation photo booths, now offer multi functionality for consumers, including mobile to print.

17:20 Our food vending equipment operations are a small and profitable part of the group. Total revenue in the period was £5,000,000 which contributed to 3.3% of group revenue. We installed an additional 100 fresh juice machines in Japan, bringing our total units in operation across Japan to four seventy five. While this business area remains attractive, it has developed more slowly post pandemic than anticipated. In May, the group sold its non core Sampao business, which specialize in the sale of fresh fruit juice equipment, for a total cash consideration of €4,600,000 to reinvest in core photo booths and laundry operations.

18:07 Other vending equipment comprises of two business areas and accounts for a small portion of group revenue and profit. Therefore, it's not reported individually as a business area. We will continue to operate other vending units where profitable. These machines are typically located in high footfall locations alongside the group's principal activities, benefiting from existing Cytona relationships and operating synergies. Currently, we have 6,114 machines in operation across 12 countries. So to conclude, we are pleased to have made good progress during the first half of FY24, and we have enhanced returns to our shareholders with a record interim dividend announced. We are confident the group is well positioned to build on the record performance delivered last year.

19:00 Looking ahead, the second half of the year is typically seasonally the group's strongest trading period. Our WatchMe operations are growing rapidly, and we're on track to deliver a record number of installations in the second half of the year. Photomedi has seen strong demand from Q2, which has continued in the year to date. We have a strong balance sheet to support organic growth as we continue to capitalize on significant market opportunities for photo booth and laundry services. R and D and technological innovation is ongoing with new services in the pipeline, which will continue to diversify our portfolio and product offering, such as automatic key cutting machines. ME GROUP is a dominant player and market leader in the growing automated machines market, and the group remains focused on profitability, returns and cash generation, with these metrics being key performance indicators.

19:56 The Board remains confident that we will deliver another year of record profitability in line with current market expectations. Thank you very much for joining us for the presentation, and we'll now take some questions after a brief moment or we can review the questions and select them. Perfect. Vlad, Stefan, if I may just jump back in there and thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the company take a

20:26 few moments to review those questions that were submitted already, I would just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Vlad, Stefan, as you can see, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. And guys, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, And then I'll pick up from you at the end. Thank you. Great, so we'll now start to answer the questions. So, the first one is how will the reduction in manufacturing costs affect future profitability? Yeah, I take this question also. For sure, this the reduction cost in the reduction of the cost is critical for us.

21:18 And you have seen that in the RNS that we have done extremely good progress in R and D for the reduction costs at first for the photo booth, where we have decreased the revenue by 28%. Mostly, it is due to the fact that we, as you know, we are planning an extremely huge program of machine for the next generation photo booths. And this will, of course, mechanically decrease the the the cost of the machine. The second point in the in the laundry business, the laundry side on the laundry side, we have decreased the cost of 13% and this is mostly due to progress that we have done in the R and D.

22:08 So this is extremely critical for our business, you can imagine, because it allows us to maybe sometimes to go in additional sites, where maybe at first glance, the profitability is not exactly the same. Yes, absolutely. Just to add to that, I do want to correct Stefan, our photobuses are not going to decrease revenue by 28%. Cost is decreased by 28%. What I would say is it has a major impact profitability. As you've heard through our presentation, profitability is our key metric that we charge all new sites by. And by reducing down the cost of our two core areas being photo booths and revolution launderettes, it will immediately make those business lines more profitable. And also, as Stephane says, allow us to go into locations where previously the upfront investment may have been too significant versus what the revenue expectations were going to be.

23:05 So the second question is, Sao Paulo was an expensive failure that failed very quickly. Why did we misjudge this and what have we learned? What I would say is I think that is not the way that we see it internally. We think that it's a great thing that the group continues to experiment with different business lines and different innovations. And whilst SONPAIR did not fit into our overall model after a few years of integration, we would say that we moved on from this strategic choice very quickly and also there was no material write down on that. So at first, there was no material write down, absolutely clear. But also, we have we have, during the year, we have we have we have made profit.

23:50 And at the end, it was it was not a failure. It was a success. But for sure, the situation is no different, and we have seen that supply is decreasing his his own revenue. We have decided to stop it because once again, it was not our core business. Yeah, and we have as a company, we have a responsibility to our shareholders to focus on the areas where we see the fastest growth and the most profitable business areas. So, again, we absolutely see future growth of the company being in photobooth and particularly Revolution L'Audrettes, and we're very proud to be delivering on that growth. So the next question is, are there any new territories that you plan to enter? There are lots of territories that we are absolutely planning to enter in terms of medium to long term. For the revolution of lingerie in particular, you have to look at what is the largest lingerie market globally and that is The U. S. So certainly from a group perspective, long term vision is to expand into lots of different territories, but The U. S. Is a natural one that would appear to be very interesting. So we are continually looking to launch new countries. Of course, we want to do so in a sustainable fashion and make sure that we have an operating network that can service those machines, but we're absolutely looking at new territories.

25:06 So the next question is great news on the 16% interim dividend increased to 3.45p. Given the policy of paying one third annual dividend as an interim, this suggests a potential total dividend of 10.35p. Does this mean that we can expect annual dividends to be significantly above the 55% of profit after tax threshold this year? Or is there upside potential to the current EPS forecast? No, not really. So far, the idea is always to respect the policy of the group, so it's 65% of the net profit. But we have decided to pay a little bit more dividend in the first in the interim dividend.

25:53 That's it. So, what consumer trends are you seeing in the laundry services market and how do these support your long term growth plans? So, that's a great question. We see continued uplift in consumer use of our machines. It's for a couple of different reasons, but one interesting bit of research that we did recently is that we see that only 40% of our users in a small scale study were ex lingerie users. So we're seeing a lot of new usage of our machines and new customer usage of people who weren't previously using lingerie. There's a couple of reasons behind that. The primary one is convenience. So for a lot of our consumers, they can do a week's worth of laundry at our machines in around forty five minutes.

26:40 That is hugely convenient for a lot of our customers. And the best part is while they're waiting for their laundry to be done, the machine locks and we send them a text five minutes before the laundry is about where the cycle is about to enter. That means that they'll often go and use the supermarket and do their weekly shop while they're doing their entire week's worth of laundry. So we're seeing really strong positive customer demand for our services, particularly Revolution Laundry. And as we deploy more machines, we'll capture more and more customers. So, what are the hurdles to implementing more than 1,000 Evolution units per year? In terms of bottlenecks, which is, I guess, what the question is, it's certainly not from the production standpoint. So we have very flexible production so we can ramp up the number of machines that are being produced.

27:30 One of the bottlenecks we would say is that we have a very particular commercial model and we want to make sure that we grow sustainably. So what's really important for us is that every machine that we place and install, we feel very confident that it will generate the required revenues and required profitability for those sites. So it means that we are very, as we say, picky in regards to where we install machines. So we're constantly throughout all the countries we're operating in, our commercial teams are driving around the countries and finding the best locations for our Revolution laundry units. So the next question is: What internal audit is carried out and what are the key internal audit findings, both positive and negative? So as you know there was you may know me there was three so far and on the operational side.

28:37 Processes, yes, it's extremely important for us, especially for the country that are far from the for example, let's say, let's talk about Asia and so on, to know if the process the group processes are followed. So it was it was the main the main the main mission of of the internal auditor at first, and also on the operational side because it completes the Mazar audit. Great, so the next question is what is driving the step up in new laundry units in H2? So one of the reasons for that is just the seasonal nature of our installations. So for the first half of the year, I think I mentioned it in the presentation, but in December, a lot of our major retailers and a of our major partnerships are very reticent to allow new machine installations.

29:30 They don't want any building works on their sites before they're very busy seasonal periods. So December tends to be a lighter installation month for us. Also alongside the fact there are lots of bank holidays and periods where people are off. So the second half of the year doesn't have any of those periods. And we see very strong demand from our site partners to increase the number of Revolution Laundry units on their estate, we expect a very strong H2 in terms of Revolution installations. So we have time for one last question. So the question is, could you talk us through the decision to sell the property in Grenoble? Also, what is the long term view on investment into Energy Observer Development So regarding the decision to sell the property in Grenoble was done, I would say it was taken around a few months ago.

30:26 We have decided at the end to sell it because we have we wanted to stay finally in the manufacture in Groneaux as it was. We have decided to modernize it. And in this case, it was not a good idea to remove all the staff to the new site. That's why we have decided to sell it. So we have so far two two promises. It seems to be well advanced, and we think that we may have sold it before the end of October. Perfect, so that concludes the Q and A section.

31:16 Just as a last word, we want to thank you all for your attendance to this webinar, especially after a disappointing Sunday for many UK investors. We're very proud of our performance in the first half of the year and we will look to continue to deliver both growth and profitability in the second half of the year. So thank you all very much again and we look forward to speaking to you soon. Perfect. Vlad, Stefan, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of ME GROUP INTERNATIONAL PLC, we would like to thank you for attending today's presentation.

32:03 That now concludes today's session. So good morning to you all.