Global Blue Group - Q1 2025

Transcript

Jacques Stern (President and CEO)

Good morning, good afternoon. I am Jacques Stern, the CEO of Global Blue, and today Roxane Dufour will be with me to present to you the Q1 figure. So let's start by an executive summary of the presentation. So first and foremost, on the back of the strong Q1 performance, and also a good July, we are confirming today our guidance of EUR 200 million of adjusted EBITDA for the fiscal year 2024-2025. Roxane will enter into the detail of Q1, but let me already highlight several key figures.

First of all, in terms of revenue, you will see that we have delivered a growth of 25% for this Q1, which is somewhat in contrast versus the overall mixed performance reported by a luxury company for the same period, which is a good news. Second, we are also delivering an adjusted EBITDA of 55%, a drop-through of 65%, and an adjusted EBITDA margin of 37%, which is an improvement of 7-point. This is really reflecting one hand our high operating leverage profile, as you know, but also our constant focus on the cost base. Last but not least, we are seeing an acceleration of the annualized adjusted EBITDA to EUR 205 million, compared to previous quarter at EUR 164 million.

So with that in mind, and also in the light of the fact that our operational performance and our robust cash flow generation is still not reflected in the share price, we are today announcing a 10 million share repurchase program, which has been voted by the board, basically yesterday, on August 27th. I will come back on that. So a lot on our plate to discuss today, and we will start by the first quarter figures, and for that, Roxane, I leave you the floor.

Roxane Dufour (CFO)

Thank you, Jacques. Good morning, everyone. Good afternoon. I'm Roxane Dufour, the CFO of Global Blue, and I will take you through the financial performance for this first quarter, ending on June 30th, 2024. Again, a reminder that our financial year runs from April to March, and here, this is our Q1 announcements, and you will find all the reconciliation to the non-IFRS metrics in the appendix. Let's move to slide seven for the adjusted P&L. We are very pleased to report a solid start to the year, with significant progress across the business when comparing performance versus the same period last year. Tax Free Shopping Solutions and Payments reported Sales in Store increased by EUR 1.9 billion, which is an increase of 33%.

As mentioned by Jacques, we achieved a Group revenue of EUR 180 million, which is an increase of 25%, driven by a particularly strong performance in Tax Free Shopping Solutions, and I will come back on that. In terms of contribution, which is revenue minus variable cost, we achieved a 29% increase, with significant growth in Post-Purchase Solutions. Turning to adjusted EBITDA, there are significant improvement here, with an increase of 55% to EUR 43 million, reflecting the high operating leverage profile of the business, together with the ongoing focus on the cost base. This resulted in a 7 points increase in the adjusted EBITDA margin to 36.5%, with a 65% drop-through. Finally, we recorded an adjusted net income for the Group of EUR 6 million versus EUR 2 million last year.

Let's turn now to slide 8, to go into the divisional performance. Starting first with Tax Free Shopping Solutions, which accounted for 78% of Group revenue in the quarter. The division delivered a strong performance, with an increase of Sales in Store of 42% and an increase in revenue of 33% to EUR 91 million. Jacques will cover this in more detail later, but looking at Sales in Store, there is a strong improvement in both Continental Europe and Asia-Pacific. The 20% growth in Continental Europe can be attributed to strong year-on-year progression across all nationalities, with GCC, +43%; Mainland China, +31%; and US, +17%.

The 91% year-on-year performance in Asia-Pacific reflects a solid acceleration in the recovery, with Mainland China, +224%; Northeast Asia, +146%; and Hong Kong and Taiwan, +69%. You can see here the difference in SIS growth of 42% versus revenue growth of 33%, which is mainly due to continental mix. This is because Asia-Pacific is growing during this quarter, grew much faster than Europe, with Sales in Store at 42% versus 31% last year. The VAT rate in Asia is much lower, at around 10% versus 20% in Europe, but this will normalize when the growth of both continents is similar. What is also important to highlight here, you can see that overall, pricing impact is now flat.

Moreover, the usual impact that we had previously from merchant mix, where we had an increased level of business with larger merchants, with whom we shared a higher rate of commission, is now positive. Then, if we look at contribution, here we delivered a 34% increase to EUR 77 million, with strong improvement in both continents, meaning Europe and Asia-Pacific. TFS has a strong contribution margin of 84%, with the variable cost mainly related to airport refunding costs, which is airport and agent fees. Turning now to Payments. Payments accounted for 17% of Group revenue in the quarter. Here, we delivered another solid performance, with sales growth of 5% and revenue growth of 8% to EUR 20 million.

You can see the key driver for the increase in revenue versus sales growth is an increase in margin on both Treasury Gain and Acquiring, and also a positive impact from FX gain and others. Then, if we look at the contribution level of EUR 11 million, EUR 10 million is from FX Solutions, with an increase of 2%, and EUR 1 million is from Acquiring and Gateway, which is an increase of 15%. It's important to note here the difference in contribution margin with FX Solutions at 96% and Acquiring and Gateway at 13%. Acquiring being a pass-through model incurring payment of interchange and network fees to financial institutions. Turning now to Post-Purchase Solutions. Post-Purchase Solutions accounted for 5% of Group revenue in the quarter. The division reported a revenue decline of 11% to EUR 6 million in the quarter.

But as previously disclosed, revenue continues to be impacted by our decision to move away from carrier sales to some of the ZigZag clients, which is a service that generates revenue, but with a lower contribution. So the end of this service has a positive impact on contribution, and the contribution growth here was strong at +14%, with a contribution margin of now 61%, and here, variable costs are mainly related to the logistic carrier cost of ZigZag. Turning now to detail on adjusted EBITDA. As I said earlier, the significant improvement in revenue, together with high operating leverage profile of the business and the ongoing focus on the cost base, led to a 55% increase in adjusted EBITDA in the quarter, with a 65% drop-through. We begin with our adjusted EBITDA of last year, which was EUR 20 million.

Then, with the additional contribution of EUR 21 million related to the business and the fixed cost and foreign exchange impact of EUR 6 million, the Group delivered an adjusted EBITDA of EUR 43 million, with an increase in adjusted EBITDA margin of 7 points to 36.5%. Turning now to slide 12 for the D&A, depreciation and amortization. You can see here the breakdown of the D&A. They have increased by EUR 2 million in the period to EUR 11 million. This is due to one million euro increase in the capitalized software amortization, which reflects the increase in CapEx related to software over the last two years. Following the ramp-up of the investments in software CapEx, annual software CapEx amortization should converge in the coming years with the annual software CapEx spend per year. Turning now to net finance costs.

Here, we are showing an increase of EUR 4 million in net finance costs versus the same period last year. This is mainly due to the increase in interest rates on the senior debt, which is over 8% in this quarter, versus 5.6% in Q1 last year. Looking to 2024-2025, the expected senior debt cost is EUR 45.3 million, which includes EUR 3 million from a swap on Euribor for half of the senior debt. Turning now to detail on the annualized adjusted EBITDA. So here we are showing the annualized adjusted EBITDA for the Group based on the quarterly performance. You can see here a steady and consistent improvement in the annualized quarterly adjusted EBITDA and a strong acceleration in this quarter.

We are now at EUR 205 million versus EUR 164 million in the previous quarter, with a significant improvement in margin of about 2 points. On the EUR 41 million improvements in the annualized adjusted EBITDA, 3 points to consider here. First, Europe that has reached 100% revenue recovery in Q1 versus 82% in the previous quarter, driven by the strong increase of sales from U.S. and GCC. Second, we have APAC that is now at 159% revenue recovery in Q1 this year versus 124% in the previous quarter, driven by a strong increase of sales from Mainland China. Finally, the level of fixed costs are quite comparable with 2019, despite higher inflation over the last three years, and the re-hiring of talents to support the business increase.

Now, let's have a look on our cash flow statement. After an adjusted EBITDA of EUR 43 million, and the level of CapEx at EUR 10 million in the period, this is here essentially related to technology development. So we have a significant improvement in adjusted EBITDA less CapEx at EUR 33 million versus EUR 20 million last year. You can see here a working capital needs outflow of EUR 39 million, and I will cover that in more detail in the next slide. So after CapEx, working cap, and lease payments, there is a pre-tax unlevered free cash flow outflow of EUR 10 million versus an outflow of EUR 31 million in the previous period. So we have ended the period with a solid improvement in cash flow, with an overall outflow of EUR 34 million versus EUR 53 million last year.

Finally, there is an increase of net debt of EUR 43 million, and again, I will cover that in more detail later. Let's turn to the working capital explanation. So here we are showing the working capital variation on a quarterly basis. As a reminder, our working capital is driven by the timing of the refunds that we make to international travelers and the timing of the VAT payment that we receive from merchants and tax authorities. We typically refund travelers on average 30-45 days before we are paid by the merchant or authorities. As a result, there is a cash flow seasonality throughout the year, with a larger net working capital need during this spring, summer, when international travelers they are traveling much more frequently, and during the winter this is followed by a working capital unwind during those months.

So you can see, this the same trend here, with a higher outflow of EUR 39 million in the first quarter, which will reverse during the winter season, and which also is in line with our guidance of neutral working capital on an annual basis. Turning now on an analysis related to our net debt position. At the end of June 2024, our net financial debt amounted to EUR 566 million, up from EUR 523 million at the end of March, but with a leverage ratio that is maintained at 3.4x.

Net debt has increased in the quarter because of the working capital seasonality, and as I explained on the previous slide, this will reverse and wind in the winter season, which will positively impact the net leverage ratio, and we reaffirm the objective of being below 2.5x. Turning now to the key takeaways. Here, the main highlights for the period. First, we are very pleased to report a very strong start to the year with a significant increase in revenue of 25% to EUR 180 million. Second, thanks to the strong revenue growth, significant operating leverage, and ongoing management of the cost base, we are pleased to report a strong improvement in adjusted EBITDA to EUR 43 million, which is an increase of 55% of that reported last year, with a 65% drop-through.

On that basis, if we annualized the adjusted EBITDA based on the quarterly performance of the Group, there is an acceleration to EUR 205 million. Finally, we delivered a strong improvement in the net leverage ratio to 3.4x versus 5.7x in the same period last year, and we reiterate our objective of being below 2.5x. This concludes the financial sections, and I will now hand over to Jacques to present the latest trends and the long-term growth driver for Global Blue.

Jacques Stern (President and CEO)

Thank you, Roxane. Latest trend, which means July for Tax Free Shopping. For the first time, we are now reporting on year-over-year versus recovery. Having said that, you will find in the appendix all the details for the recovery, if you want to continue to follow these metrics. But we thought now, with the normalization of Mainland China, it's a good time to move to year on year. Let's forget 2019. So if we go to the slide 20, which gives you the main element worldwide basis, you see that Europe has in July performed slightly lower than Q1, 12% versus 19%. I will come back on that.

Also in APAC, with a growth of 64% versus 109%, I will come back on that. You see what is interesting on the right side, in terms of nationality, that basically we have very strong performance of China, even though we are now coming to the period of normalization with a reopening, which is more than 12 months. But we see in particular very strong performance of country like U.S. which is now recovered for more than two to three years. So it's a very good momentum. Let's go now a little bit more in detail in Europe.

And you can see that the main element in Europe in July versus Q1 was the weak performance of France at -2% versus 10% growth in Q1, which is really explained by the pre-Olympics negative impact in Paris. Basically, for almost 10 days, Paris was totally empty before Olympics. Clearly, the Olympics has been positive, but we will see this impact in August. The rest of the country has been more or less in line with Q1, namely Italy, Spain, or a slight acceleration in Germany. If we move to the nationality, I was mentioning the very strong performance of the U.S. despite the weak one in France.

You see 15%, which is really good, and also Mainland China, where we had a positive +33% versus last year. So overall, I would say in Continental Europe, if we strip out the pre-Olympics momentum, which has been more or less the same than Q1. If we move to APAC now, clearly we have seen a kind of hyper-growth for now, a couple of quarter. And in July, we have seen a certain slowdown of this hyper-growth. Still, we had 64% growth versus last year. But particularly in Japan, we have seen a kind of slowdown of this hyper-growth at brackets only 103% versus 172% in previous quarter.

All nationalities are, I would say, contributing to this phenomenal level of growth, but probably to mention that the recent softness or strengthening of the Japanese yen have mechanically, with the elasticity of the business, created a kind of a slowdown of this hyper-growth in Japan. Last slide on the latest trend, which I think is interesting for you to understand what happened with China, is a slide which show you that because of this weakness of the yen versus the RMB or the euro, all currencies around 30%-35%, if you compare to 2019.

Because in our business we have a very strong elasticity, in particular for Chinese, so 3x, which mean that when we have a move of currency of 30%, it means that it's an impact, positive or negative, it has been positive of 90%, so 3x the currency variation. Because of that, clearly, Japan has been the place to attract Chinese consumer during Q1. You can see that on the left, where in 2019, 33% of the overall spend of Chinese abroad was done in Japan, where during the same period of Q1 in 2024, it has been 61%.

And so it's not by surprise that we see a recovery for Mainland China of 62% in Europe, and a very strong recovery in Japan and in APAC in general, at almost 200%. So I think what you have to keep in mind is Chinese recovery, it was 122% in Q1. And clearly, we are seeing because of the weakness of the yen an attraction, a pool of attraction in Japan, which distort a little bit where the recovery happened, i.e., more in Japan, less in Europe.

But clearly, with what I've just said, which is a softening or strengthening of the yen after the weak point of the yen that we have seen in July, clearly, we can expect that in couple of months we can see a more moderate growth in Japan and probably a better growth in Europe with this change in the currency in Japan, so that was really the latest trends, and to conclude, let's say that July has been quite good and in line, I would say, with our expectation.

With that in mind, and as I was mentioning before, Q1 being really strong, July being, I would say, a very strong also, we have reiterated our financial guidance of EUR 200 million, as mentioned by Roxane, but despite that, we see no re-rating of Global Blue shares, and so, with that in mind, again, strong operation performance, financial guidance reaffirmed, and a rapid de-leveraging, and no impact on the share price. The board of directors have decided yesterday to launch a 10 million share buyback program, a program which will be for six months, and where the main shareholder, Silver Lake and Partners Group, will not participate.

This program translates really the confidence of the company and the management on, I would say, our operational performance from today, but also for the year. And also the strong delivery of cash flow, which help us to deliver to de-leverage the business. It's a good transition for me to talk about guidance and long-term target. Here we, as I mentioned, reiterate 2024, 2025, with this EUR 200 million EBITDA target. But, and equally important, for the year onwards after 2024, 2025, we are also confirming our long-term target. In terms of revenue, 8% to 12% revenue growth.

In terms of drop-through, with a 50% objective of revenue to drop through into EBITDA, but also in terms of CapEx, with 40%-45%, EUR 45 million CapEx, of which 80% capitalized software. We are also reiterating what was mentioned by Roxane a few minutes ago, that we continue to be in a business where we are expecting a neutral working capital. A tax rate of around 24%-26%, and this objective of being below 2.5% in terms of leverage ratio. Couple of slides to remind you what are the key elements which are helping us to confirm those mid-term guidance. First of all, a growth expected of 10%-14% in terms of long-term SIS growth, which has two components: one, which is really the market.

Here we're not talking about the luxury market, we are talking about the overseas luxury market, with an expectation of growth of 6%-8%. Basically, on top of that, 4-6 points of growth, which are coming from management initiative, digitalization, gain of new clients, and also opening of new country. A kind of balanced growth between market and company initiative, and very much in line with what was delivered pre-COVID, which was 14%, which is the graph on the left. In terms of translation into this SIS, Sales in Store into revenue, we are expecting 7%-11% revenue growth, with two element which are negatively impacting the SIS growth, which is pricing evolution.

Even though we have seen, in the presentation of Roxane, that it was zero for this quarter, but we maintain a prudent approach of an impact of hundred and thirty basis points per year. And secondly, negative mix effect coming from mature all countries, all continents. You have seen also in Q1 that if we strip out the mix effect between APAC and Europe, which we call continental effect, the rest of the effects were positive, i.e., we are seeing a normalization of those impacts. So from that point of view, also, the Q1 was very reassuring in our capacity to reach those figures for next year. Also, a guidance in terms of Payments, which is 9%-13%, both in terms of Sales in Store and revenue.

And there also a good combination of macro growth coming from the markets, 5%-7%, and the rest which is 4%-6% coming from management initiative. And there also a guidance which is very in line with what has been delivered pre-2019. Last but not least, I remind you that Global Blue is well hedged against, one, the inflation. We have seen it in the last two years. It has boosted the Sales in Store recovery for Global Blue, as the luxury brands have increased their price at a higher speed than the inflation. But also we are, which is probably more important today, hedged against the recession.

You have here figures of the last European large recession in 2008, 2010, where you see that Tax Free Shopping was basically posting flat year-on-year growth versus domestic market for luxury, which was negative by 8%. And there also, you understand why, you know why? It's clearly because our customer base is, I would say, less sensitive to recession. 70% of the consumer are what we call high-net-worth individual or affluent. And therefore, they are less more resilient and less subject to recession. So just to have that in mind. And obviously, to conclude this presentation, you have heard already those figures, so I will not come back to the detail.

But just to reaffirm that the good quarter one in terms of revenue and EBITDA, but also the good figures in July that help us to confirm our guidance of EUR 200 million of EBITDA, and also have give us the confidence to announce the share buyback of 10 million, which has been approved by the board yesterday. With that in mind, Roxane and myself will remain at your disposal for any one-on-one. Thank you for that, and let's meet again for Q2.