Global Blue Group Q1 2024 Earnings Call Transcript

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August 27, 2023

There are 2 speakers on the call.

Operator

Good morning, good afternoon. I'm Jacques Steins, the CEO of Global Blue. And I will present to you the Q1 figures of 2023, 2024 with Roxanne Dufour, the CFO of the group. So let me first start by the key takeaway of these Q1 figures. So very pleased to report a very strong performance in Q1, both in terms of top line and profitability.

Operator

So top line first, so an increase in terms of revenue of 68% at €95,000,000 and an increase of the adjusted EBITDA of 3 more than 300% at EUR 28,000,000. So based on that and if we annualized the EBITDA, including the seasonality, our Q1 figures on 12 months now reached EUR 141,000,000, which is EUR 20,000,000 more than last quarter, so the Q4 of 2022, 2023. Obviously, and I will come back in more detail on that. One of the reasons of the acceleration is the recovery or the start of the recovery of Mainline China. So we are benefiting from that, but we will continue to benefit from that.

Operator

It's just the start. And just to give you a sense of that, if we were to reach 105% of Chinese recovery, we are now only at 38%. As I was mentioning, we were we will be able to reach a EUR 200,000,000 adjusted EBITDA. I will go to the detail of that, which basically translate that for the next 18 months, with 18 months to 21 months, we still have a very strong tailwind coming from the China recovery. But beside that, we project ourselves post the Chinese recovery.

Operator

Obviously, we will continue to benefit from long term growth driver that I will detail more in this presentation. So let's start by the beginning, and I will let the floor I will give the floor to Roxanne for the detailed Q1 performance.

Speaker 1

Thank you, Jacques. Hello, everyone. I'm Roxanne Dufour, the CFO of Global Blue and I will take you through the group's financial performance for our Q1 ended on the 30th June, 2023. Again, as a reminder, our financial year runs from April to March. Here, this is the Q1 results announcement and all reconciliation to the nearest IFRS metric are included into the appendix.

Speaker 1

So let's move to slide 7 for the adjusted P and L related to our Q1. We are very pleased to report a solid start to the year with significant progress against all the key metrics. TFS and AVPS reported sales in store increased by €2,500,000,000 an increase of 75% versus Q1 last year. Group revenue increased by 68%, as mentioned by Jack, to €94,500,000 in the same period last year. Turning to adjusted EBITDA, we have delivered a significant improvement to almost €28,000,000 to versus €6,800,000 last year at the same period.

Speaker 1

Finally, we recorded an adjusted net income for the group of €2,100,000 again, a significant improvement versus negative €11,600,000 last year. Now let's turn to slide 8 to dig into the revenue performance. Here you can see we have had a solid start to the year with strong growth across the business. We delivered a 68% increase in reported revenue in Q1 this year versus the same period last year, equating to 67% like for like basis. I will go into the detail per division on the following slides, but you can see here TFS, ABTS and RTS contributed a further €37,600,000 in revenue with a further €1,600,000 scope effects from TFS and RTS.

Speaker 1

We have also an FX impact of €900,000 which get us at the end to €94,500,000 in Q1 this year in revenue versus the same period last year, which we were at €56,000,000 only. Turning now to the revenue performance per division. Starting with TFS, which accounted for 73% of the group revenue in Q1 this year. TFS delivered a strong performance with an increase in revenue of 73.5% on a reported basis. On a like for like basis, revenue in Continental Europe increased by 63.5%, while the revenue in Asia Pacific increased by 166.5%.

Speaker 1

The increase in revenue primarily reflects the ongoing recovery across all nationalities, coupled with the reopening of Chinese border in January 2023. And as Jacques mentioned, he will cover that in more details later. Turning now to AVPS. AVPS accounted for 20% of group revenue in Q1 this year. This division also delivered a strong performance with an increase in revenue of 49.2% on a reported basis, reporting a strong performance across both business segments.

Speaker 1

On a like for like basis, revenue in FX solution increased by 64%, while revenue in the acquiring business increased by 44%. As with TFS, AVPS is also benefiting from the ongoing recovery in the travel industry. Turning now to RTS. RTS accounted for 7% of group revenue in Q1 this year. As a reminder, LTS reflect the acquisition of Zig Zag in March 2021, consolidation of Yokota in September 2021 and consolidation of Ship Up from November 2022.

Speaker 1

Here you can see RTS revenue increased by 78% on a reported basis to €7,100,000 in Q1 this year. There was strong organic growth of 48.6 percent or €1,900,000 from Zig Zag and Yokuda and an additional €1,300,000 from the acquisition of Shipec. Turning now to slide 12 for the bridge from issued fees to revenue. Here, this is the bridge detailing a number of items to consider between the issued SIS to the reported revenue. And here, we are showing the comparisons versus calendar year 2019 pre COVID level.

Speaker 1

We are at 120% recovery for issued sales in store in TFS and ABPS and the issued SIS is here presented on a like for like basis, meaning at constant parameters. Then we take into account the scope effect of the UK abolishing the tax free shopping scheme in January 2021. And as a reminder, prior to the abolition of the scheme, the UK accounted for 14% of group TFS reported assets, which is no longer the case here. The impact from the UK abolishment is 12 points and there is a further 5 points impact due to FX translation and also 1 point impact related to the discontinuation of our business in Russia, which give us at the end 102% recovery in issued SIS in PFS and ABPS reported this time with PFS at 96% and ABPS at 128%. Then we have the refund ratio.

Speaker 1

Refund ratio meaning that once the transaction is issued, the traveler has to validate the tax reform and get the refund. Only at this point in time, the transaction is part of the reported SIS, which triggers the revenue. Today, the actual refund ratio is slightly lower than 2019, but it's mainly due to a nationality mix effect. Then there are transactions completed off period. This is where the transactions have been issued in a quarter, but validated and refunding in the following quarter.

Speaker 1

This gets us a 101% recovery for completed SIS in TFS and IVPS. Then we have some leakage from completed reported SIS to reported revenue. 1st for TFS, we have a merchant mix effect where there has been an increased level of business with larger merchants who get a higher rate of commission. We have an increase in average spend, which means a higher rate of VAT that is refunded and therefore a lower take up for global. 2nd, we have the AVPS mix effect where the AVPS business, which is lower margin, is growing faster than TFS.

Speaker 1

This gives us 87% reported revenue recovery for AVPS and TFS. Finally, we have the contribution from RTS business, which give us 94% revenue recovery for the group for Q1 'twenty three, 'twenty four. Turning now to adjusted EBITDA. The significant improvement in revenue together with the ongoing focus on the cost base led to a 4x increase in adjusted EBITDA in Q1 this year versus the same period last year, with a 55% revenue drop through in adjusted EBITDA. And I will take you through this in detail here.

Speaker 1

We begin with our adjusted EBITDA on the left side, which was €6,800,000 last year. As I covered on the previous slide, there was a strong revenue improvement across all the business lines and you can also see this here. If we look at the contribution, the additional contribution of each business, contribution being the revenue minus the direct variable cost, here we have a further €29,000,000 in Q1 this year. Looking to the divisional contribution, this is an additional €24,000,000 from PFS, almost €4,000,000 from FX Solution, euros 0.6 million from MTS and €200,000 from the acquiring business. Then taking into account €6,400,000 of fixed costs, €1,100,000 of scope effect and €500,000 of foreign exchange impact, the group delivered an adjusted EBITDA of €27,800,000 precisely with an increase in adjusted EBITDA margin of 17 points to 29% now in Q1 'twenty three, 'twenty four.

Speaker 1

Turning now to slide 14 for further detail on EBITDA. Here, we are showing the annualized adjusted EBITDA based on the quarterly recovery. The yearly extrapolation includes the TFS and ABPS performance in the various quarters applied to the year and excluding RTS business. You can see here a steady and consistent improvement in the annualized quarterly adjusted EBITDA from €43,000,000 last year same period in Q1 'twenty two, 'twenty three to €121,000,000 in Q4 financial year 2022, 'twenty three. Now during this quarter, based on the Q1 recovery, the annualized quarterly EBITDA is at €141,000,000 This has led to a significant improvement in margin from 18.7 percent in Q1 last year to 37.2% in Q1 this year.

Speaker 1

Turning now to slide 15 for a breakdown on D and A and net finance cost. Here on the left side related to the D and A, we have a slight increase of 0 point €3,000,000 to €9,000,000 And on an annualized basis, this equaled to a D and A of €36,000,000 which is in line with CapEx guidance at €35,000,000 Then on the right side, you have the net finance cost details. Costs increased by €700,000 to €10,700,000 this year. And this is mainly due to an increase in interest cost of €5,400,000 versus last year. And this increase in interest cost is directly linked to the increase in interest rates.

Speaker 1

Last year, the blended rate was at 2 point 7 2 percent and now it's 5.60 percent. And this is the interest related to our senior debt and revolving credit facility. This was largely offset by the other finance costs decreasing by almost €5,000,000 As a reminder, last year, we had a major impact due to the foreign exchange losses related to the Cetiras and Knighthead Equity Transactions and the supplemental shareholder facility. Those are denominated in USD, while Global Group report new. Now let's move to Slide 16 for an analysis on our cash flow.

Speaker 1

After an adjusted EBITDA of €27,800,000 you have €7,800,000 of CapEx in the quarter and this is essentially related to technology development. It's very pleasing to report a positive adjusted EBITDA less CapEx of €20,000,000 while we continue to invest in strategic projects. Turning now to working capital. As we see the travel industry recover, we see increase in volume, which leads to an increase in our working capital needs. As the travelers get refunded upfront and about a month later, we collect the VAT from merchant authorities.

Speaker 1

Here you can see that we have a working capital outflow during the quarter of €47,400,000 But again this is completely in line with the increase of the volume during this period during the summer. And automatically what's in our business, you have a tailwind of this working capital and you have an inflow that corresponds to this outflow that will be after the summer season. Most all the time this is in Q3 that we see this inflow coming back. The second point that is important to mention on the cash flow, this is the interest that are related to the senior debt that has been paid for the last 6 months during the quarter and it has impacted the cash flow by €19,400,000 And as an information, the next payment is at the end of November 23. We pay every 6 months, most of the time.

Speaker 1

Finally, our net financial debt increased by €58,000,000 which I will cover in the next slide. As of end of June 23, our net financial debt amounted to €608,000,000 Both our senior debt and revolving credit facility have a maturity date at the end of August 2025. As a reminder, the financial covenant is based on the level of total net leverage lower than 4.5 times. We were in compliance with the 1st testing date as of 30 plus on March 23 with the total net leverage at 2x and we anticipate that we will be in compliance with the next financial covenant testing on September end of September 23. You can see we have a strong balance sheet with €182,000,000 of cash and cash equivalents at the end of June.

Speaker 1

Turning now to slide 18 for the key takeaways. First, we are very pleased to report, based on a solid recovery, a significant increase in revenue of 68% to €95,000,000 2nd, thanks to the strong revenue growth and the ongoing management of the cost base, we are very pleased to report a strong improvement in adjusted EBITDA to €28,000,000 which is 4 times of what has been reported last year at the same time with a revenue drop through of 55% in adjusted EBITDA. Finally, if we annualized the adjusted EBITDA based on the quarterly performance of this Q1 for TFS and L EPS that shows a consistent improvement from €47,000,000 last year at the same period to now at €141,000,000 This concludes the financial section and I will now hand over to Jacques to present the latest trends and the long term growth driver for Global Group.

Operator

Thank you, Roxanne. So I will start by the latest trends. So and in particular, lead to July, you can see on these tables on Slide 21 that basically in July, we have posted something which was really in line with Q1 Apart from acceleration of the growth in APAC, we're on the back of the Chinese recovery. We have a 23 point increase like for like issued sales in store at 134% versus 111% in Q1. And in Europe, basically more or less at the same level, around 120%.

Operator

Let's deep dive now into the detail. So in Europe, as I was mentioning, we have seen July more or less at the same level than the Q1. And we continue to see an increase of spend, which is healthy around 30%, 29% to be precise. So which means that we have a recovery in terms of number of shoppers of 92% like for like versus 2019, where thanks to the average spend increase, the spend is reaching a recovery of 182%. When we look to the detail per nationality, we are basically seeing that in July, the nationality beside China and Russia are more or less consistent around 150%, 160%, with some, I would say, slight movement for U.

Operator

S. And GCC, which are a little bit more soft, where the mid and long haul are around stable around 130%. On the other hand, we see that China has been slightly negative in July in terms of the level of recovery versus Q1, so mainly 40% versus 47%. Let's go a little bit more into the detail of China. So basically, in China, we are seeing that the air capacity is recovering nicely, which is great, But the number of international shoppers in July has been far lower than the air capacity.

Operator

Probably there, the combination of the cost of the flight, but also the delay to obtain a visa to come in Europe, explain why you have this lag between the recovery in terms of international shopper and the air capacity. But we are benefiting on the other hand, like for most of the other national inventory in Europe, over an increase of average spend for Chinese spending in Europe of 34%. If we move now to APAC, I was mentioning an acceleration in July. We have reached 134% versus 111% in Q1 And they are clearly on the back of a substantial more increase of spend. In Europe, we were talking about 29%, here we are talking about a new period of spend of 40%, which means that at the end in July, we were capable to have a recovery in terms of number of shoppers of 96% and a spent recovery of 134%.

Operator

When we go into the detail of the nationality, a bit like in Europe, July was more or less stable for all nationality excluding China at around 175% on the back of a very solid performance from Hong Kong and Taiwanese residents, almost 900% recovery versus 2019. And obviously, the nice increase of the region has been possible, thanks to the increase of China, where from 60% in Q1, we are now moving to 100% in July. And if we go to the detail of the understanding of that, it's mostly coming from the average spend because you see that in terms of recovery of international traveler at 46%, we are more or less equal to the air capacity. And clearly, the increase of the spend by Chinese when they are shopping in APAC is explaining the 100% spend recovery with this average increase of 119%. So in summary, what we can say on the latest trends is very solid business excluding China, in Europe and APAC with a level in July, which is more or less stable, so 100 and 55%, 60% in Europe, 175% in APAC.

Operator

And clearly, what makes a difference is the increase in APAC of the Chinese recovery at reaching for the first time now 100%, with Europe still lagging, probably as mentioned, because of the combination between the cost of flight, the time to issue visa and also the desire from Chinese travelers to enjoy a kind of more short haul in Japan and Korea, which are the 2 destination which are benefit from most of the recovery in APAC. So let's turn ourselves a little bit more in the next months and what are the key driver for this continuous recovery, in particular, of the Chinese. So few elements there to share with you. First of all, the willingness from Chinese travel remains very high, above 70%. You know that we survey every month something like 10,000 Chinese in order to test their appetite to travel.

Operator

And since now a couple of quarter actually 3 quarter 2 quarter plus July, we have seen that it has reached around 70%. Secondly, we should not forget about that. And we are seeing that in APAC already, the potential average spend to be much higher than in 2019 will be driven by the saving in terms of luxury spend that Chinese have done during COVID. During COVID, I remind you around €30,000,000,000 to €40,000,000,000 per year of luxury personnel will have not been spent. So it's a kind of mass of around EUR 100,000,000,000 which has been unspent.

Operator

And clearly, this is why we are seeing such a level of very high average spend increase per share in APAC. And hopefully, we will see that in Europe in the coming months. Clearly, in terms of main element for the recovery to develop air capacity is a key element and we are seeing and foreseeing a nice increase month after month. A couple of points, both in Europe and in the pack, as you can see in this slide. Obviously, as I was mentioning, capacity to get a visa to move to Japan, Korea, Singapore is almost immediate now in the pack.

Operator

So when you want to travel, you are tempted to go there because you can do it straight away. Where in Europe, in order to get your visa, it's a couple of months and therefore you need to plan much more, which is again something which will continue to play, but probably which will vanish, I would say, in the coming months just because the countries in Europe are reopening visa center 1 after 1 in China and therefore easing the process in order to get those visa. So as I was mentioning, China is for the next, I would say, a couple of quarters, clearly, the still option for Global Glu to continue to increase the profitability of the book. If I remind you what Roxanne was saying a couple of minutes ago, today, in the Q1, we are reaching an annualized EBITDA of 141%, which include a recovery for Chinese traveler of 38%. And on the right of the chart, you have a sensitivity, which based on a different level of recovery of Chinese, but the same level of recovery for the TFS and ABPS on the other nationality would end up to those simulations.

Operator

So if I take an example at 100% of recovery versus 38 in Q1 of China, Chinese would end up at EUR 195,000,000 and with a margin of 43.9, which is why we are mentioning that at 105% of the recovery of the revenue from Chinese, we would be exceeding €200,000,000 of EBITDA. And just reminding everyone, at the top of our profitability before COVID, which was the calendar year 2019, we reached €187,000,000 So definitely the current but progressive recovery of Chinese shoppers will help us to grow to this type of level pre COVID quite quickly now. And obviously, the next question is perfect. So for the next 18 months, 21 months, Chinese will drive global growth. The question is, what next?

Operator

Well, what next is really what is important or as important, which is what are the long term driver for Global Blue. And just to remind you that we have 4. The first one is the dynamic of the overseas luxury market, which is driven by basically 2 components, 1, the emerging market middle class and the other one, which is the increase of ad networks individual. And just to remind you that on the period 10 years before COVID, if the luxury market was increasing by 5.8%, The TFS market has increased by 10%, which is explained by this high correlation of the TFS with the increase of middle class. And if you believe in this middle class in emerging country, which are traveling, which are shopping abroad, you can understand why it's a positive for Global Group, but also high networking digital because in our business around 25% of the spend is done by 1% of the traveler.

Operator

This is people who are spending €50,000 per year and these are the ones which are the bread and butter of the luxury market. 2nd driver, it's around the capacity of the group to open new country. Again, 10 years before COVID, we were capable to open 7 new country, which contributed at the time to 2% of SIS growth during this 10 years. And just to remind you that today, on 180 countries, which have adopted VAT, we are covering today only 72 of them with a VAT reference scheme and on which only 43 where we operate. So more new country and therefore it's a component of our long term goals.

Operator

The third one on the tax rate, which is important and which is also important for the payment business that we have is digitalization. And just a slide or a graph here to remind you that we still have a penetration which is around 50%, I. E. When you take 100% of eligible volume of business and you see how much has been refunded, only 50% of that has been refunded because forms have not been issued in the store or because people have not the time at the airport to validate and be refunded their form. But at the end, penetration is a key driver for us because digitalization means a smoother experience, less friction, which increase basically the probability of consumer to use tax rate.

Operator

Two figures to illustrate that, when you look to this success ratio of around 50%, as I was mentioning, When you look to digital country, I. E, where you have a validation, where you have a digital validation through a kiosk, we have a success ratio of 55%, whereas in non digital country, it's 42%. So digitalization is an easy market subject that we work on in order to also there contribute to more sales in store in the past 10 years before COVID, it contributed to 2%. And it's more or less the same in the EVPS business or in the DCC business, less cash, more credit card means more opportunity to propose a DCC and therefore more opportunity to grow the business. Last but not least, thanks to our diversification into the retail stack, we are now exposed to the online market.

Operator

And thanks to our 2 companies, Shipup and Zig Zag, which are playing in this online world, we will benefit to the long term growth driver of the e commerce, 10%, as you know, even though today a little bit less post COVID, but after a very big positive wave. Last but not least, just to remind you that we benefit from the inflation. Luxury company are increasing their price at a level which is higher than the inflation. So here you have the 2023 price level versus 2019. So if our costs are increasing more or less at the level of inflation, slightly less, so 20% if we look back compared to 2019, the luxury goods price have increased of 27%.

Operator

And as our business is based on the percentage of the volume that our retailer are doing, we have a positive equation moving from that. And really last but last, I would say to remind you that we are a defensive play because if you read back to the last recession in the current 2008, 2009, we were capable to post that sales in store performance, whereas the luxury in the travel industry were negative. Why that? Because again, we come back to the high network individual, which are less touched by recession and which are an important part of our business in proportion more than the ruptures. So in summary, for this Q1, very strong performance, both in terms of revenue growth and profitability, an acceleration of this adjusted EBITDA, more or less EUR 20,000,000 per quarter, which showed the impact of the reopening of China, in particular, in the last two quarters.

Operator

On that basis, if from 38% recovery, we have capable to reach 105%, we could reach the 200% mark in terms of adjusted EBITDA, which is an important mark for Global Blue. And beside that, very comfortable to re express that we have strong long term driver and we are quite well positioned in terms of both recession and hedge against the fiscal inflation. So thank you again for listening. And as usual, we will take question and meeting in the coming days. Thank you.

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