Global Blue Group Holding AG (NYSE:GB) Q1 2025 Earnings Call Transcript

Global Blue Group Holding AG (NYSE:GB) Q1 2025 Earnings Call Transcript August 30, 2024

Jacques Stern: Good morning, good afternoon. I am Jacques Stern, the CEO of Global Blue. 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 €200 million of adjusted EBITDA for the fiscal year ’24-’25. Roxane will enter into the detail of Q1, but let me already highlight several key figures. So 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 seven point. And this is really reflecting one hand our high operating leverage profile, as you know, but also our constant focus on cost base. Last but not least, we are seeing an acceleration of the annualized adjusted EBITDA to €205 million, compared to previous quarter at €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 27. 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’ll leave you the floor.

Roxane Dufour: 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 30, 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 nearest IFRS metrics in the appendix. Let’s move to Slide 7 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 Solution and Payments reported Sales-in-Store increased by €1.9 billion, which is an increase of 33%.

As mentioned by Jacques, we achieved a Group revenue of €180 million, which is an increase of 25%, driven by a particularly strong performance in Tax Free Shopping Solution, and I will come back on that. In terms of contribution, here we — which is revenue minus variable cost, here we achieved a 29% increase with significant growth in Post-Purchase Solutions. Turning to adjusted EBITDA, there are significant improvements here with an increase of 55% to €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 €6 million versus €2 million last year.

Q&A Session

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 €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 plus 43%; Mainland China, plus 31%; and US plus 17%. The 91% year-on-year performance in Asia-Pacific reflects a solid acceleration in the recovery with Mainland China, plus 224%; Northeast Asia, plus 146%; and Hong Kong and Taiwan plus 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 much faster than Europe, with Sales-in-Store at 42% versus 31% last year, and 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 €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 SIS growth of 5% and revenue growth of 8% to €20 million. You can see the key driver for the increase in revenue versus SIS growth is an increase in margin on both Treasury Gain and Acquirers, and also positive impact from FX gain and others. Then if we look at the contribution level of €11 million, €10 million is from FX Solution, with an increase of 3%, and €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 Solution 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 Solution accounted for 5% of Group revenue in the quarter. The division reported a revenue decline of 11% to €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 plus 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 €28 million, then with the additional contribution of €21 million related to the business, and the fixed cost and foreign exchange impacted of €6 million, the Group delivered an adjusted EBITDA of €43 million, with an increase in adjusted EBITDA margin of 7 points to 36.5%. Turning now to slide 12 for the D&A, deprecation and amortization. You can see here the breakdown of the D&A. They have increased by €2 million in the period to €11 million. This is due to €1 million 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 €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 ’24-’25, the expected senior debt cost is €45.3 million, which includes €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 EBITDA for the Group based on the quarterly performance. You can see here the steady and consistent improvement in the annualized quarterly adjusted EBITDA and a strong acceleration in this quarter. We are now at €205 million versus €164 million in the previous quarter, with a significant improvement in margin for about two points.

On the €41 million improvements in the annualized adjusted EBITDA, three 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 SIS from US 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 SIS from Mainline 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 statements. After an adjusted EBITDA of €43 million and the level of CapEx at €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 €33 million versus €20 million last year. You can see here working capital needs outflow of €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 annualized free cash flow outflow of €10 million versus an outflow of €31 million in the previous period. So we have ended the period with a solid improvement in cash flow with an overall outflow of €34 million versus €53 million last year. Finally, there is an increase of net debt of €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 to 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 travelling much more frequently and during the winter, this is followed by a working capital unwind during those months. So you can see the same trend here with a higher outflow of €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 ’24, our net financial debt amounted to €566 million, up from €523 million at the end of March but with a leverage ratio that is maintained at 3.4 times. Net debt has increased in the quarter because of the working capital seasonality, and as I explained on the previous slide, this will reverse unwind in the winter season which will positively impact the net leverage ratio, and we reaffirm the objective of being below 2.5 times. Turning now to the key takeaways, here the main highlights for the period. First, we are very pleased to report a very, very strong start to the year with a significant increase in revenue of 25% to €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 adjusted EBITDA to €43 million which is an increase of 55% of that reported last year with a 65% drop through.

On that basis, if we annualize the adjusted EBITDA based on the quarterly performance of the group, there is an acceleration to €205 million. And finally we deliver the strong improvement in the net leverage ratio to 3.4 times versus 5.7 times in the same period last year and we reiterate our objective of being below 2.5 times. So 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 Group.

Jacques Stern: Thank you Roxane. So latest trend, which means July for Tax Free Shopping, so 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’ll come back on that. And also in APAC with a growth of 64% versus 109%, I’ll come back on that. And 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 US 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 minus 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 US despite the weak ones in France, you see 15% which is really good and also Mainland China where we had a positive plus 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 quarters 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 — it’s [ph] 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 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 currency, around 30% to 35% if you compare to 2019. And because in our business, we have a very strong elasticity, in particular for Chinese, so three times, which means 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 three times the currency variation. Because of that, clearly, Japan has been the place to attract Chinese consumers 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 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 pull of attraction in Japan, which distorts 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 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 a 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, very strong also. We have reiterated our financial guidance of €200 million, as mentioned by Roxanne. But despite that, we see no rewriting of the Global Blue shares. And so, with that in mind, again, strong operation, performance, financial guidance reaffirmed, and happy day 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 shareholders, 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 now, from today, but also for the year. And also the strong delivery of cash flow, which helps us to deliver, to leverage the business. So it’s a good transition for me to talk about guidance and long-term target. So here, we, as mentioned, reiterate ’24-’25 with this €200 million EBITDA target. But, and equally important, for the year onwards, after ’24-’25, 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% — €45 million CapEx, of which 80% capitalized software.

We are also reiterating what was mentioned by Roxanne a few minutes ago, that we continue to be in a business where we’re expecting a neutral working capital, a tax rate of around 24% to 26%, and this objective of being below 2.5% in terms of leverage ratio. A 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. So here, we’re not talking about the luxury market, we are talking about the overseas luxury market, with an expectation of growth of 6% to 8%. And basically, on top of that, 4 to 6 points of growth, which are coming from management initiative, digitalization, gain of new clients, and also opening of new country.

So 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 a 7% to 11% revenue growth, with two elements which are negatively impacting the SIS growth, which is pricing evolution, even though we have seen in the presentation of Roxanne that it was zero for this quarter, but we maintain a prudent approach of an impact of 130 basis points per year. And secondly, negative mixed effect coming from matured countries or continent. You have seen also in Q1 that if we strip out the mixed 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 payment, which is 9% to 13%, both in terms of Sales-in-Store and revenue, and there also a good combination of macro growth coming from the markets, 5% to 7%, and the rest, which is 4% to 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 a luxury brand that increase 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 consumers are what we call high-network individual 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 have helped us to confirm our guidance of €200 million of EBITDA, and also have given us the confidence to announce a 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.

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