Interview withKai-Ulrich Deissner

"We do not adjust arbitrarily"

The financial ratios are sobering: Ceconomy recently reported red figures. The equity ratio is less than 5%. Nevertheless, CFO Kai-Ulrich Deissner sees initial successes.

"We do not adjust arbitrarily"

Mr. Deissner, Ceconomy increased its operating result in the past fiscal year. However, the margin on earnings before interest and taxes (EBIT) at 1.1% needs improvement. Where do you focus your efforts?

Our mid-term plan is an EBIT margin of 2.5%. While not yet leading in the market, it's a solid median. The drivers are a mix of strengthening the traditional retail business and developing new business models based on our trade business. When I joined twelve months ago, we had an EBIT of 200 million euros. We aim to increase it to 500 million euros by 2025/26, and we took a good first step last year.

The new businesses Services & Solutions and Marketplace are self-explanatory. But what is Retail Media?

We have online and offline sales channels. On the Marketplace, third parties offer their goods for sale. In Retail Media, we offer our sales space to third parties to place advertisements. Advertisers gain access to customers we can identify very specifically, enabling target precise advertising.

When did you start Retail Media?

About a year and a half ago. We are now in the midst of the ramp-up, and the gross contribution margins are growing. By 2025/26, we aim to generate a gross contribution margin of 45 million euros. We are making significant progress.

Retail Media allows us to leverage manufacturers' media budgets.

Kai-Ulrich Deissner

Are these, from your perspective, advertising revenues? There are no sales commissions resulting from this.

That's correct. But the crucial point is that we gain access to a revenue stream that we do not currently participate in. Of course, we already receive advertising subsidies from manufacturers today. Retail Media allows us to leverage manufacturers' media budgets. Today, manufacturers want to measure the efficiency of their advertising spending and need first-hand data for that – our data. It goes beyond pure online advertising towards data analysis. This is an additional revenue stream, and the market we address is much larger.

How do you ensure that manufacturers do not subsequently cut advertising subsidies?

We have to pay very close attention to this in discussions with our suppliers. This is an important issue. We distinguish very precisely whether the revenue stream is additional or substituting.

Revenues are one thing, results are another. Ceconomy adjusts high amounts each year. Isn't this adjustment misleading?

We do not adjust arbitrarily. Naturally, we also discuss with our auditor whether an adjustment is misleading. The adjusted figure provides information about the development of the operating business. The unadjusted figure, under the heading of "cleaning up the garage," shows how much is still in it. The adjustments last year were primarily driven by the deconsolidation of Sweden and Portugal, as well as the write-down on Fnac Darty. It is true that there have been significant differences between adjusted and unadjusted in recent years. It is my declared goal to reduce this difference significantly.

What are your long-term plans for the 23% stake in Fnac Darty?

We view this stake with a strategic perspective. In principle, I prefer being involved with the other European player than the other way around. And the markets for consumer electronics in Europe are extremely fragmented. In nine of the eleven markets where we operate, we are either market leaders or in position 2, sometimes with market shares of 20%. There is still plenty of room for consolidation in every country.

Meet the Person

Kai-Ulrich Deissner is drawn to challenges. That's why the 55-year-old joined Ceconomy as CFO in February 2023. He had the choice between a leisurely ride into the sunset at Deutsche Telekom, where he had been working since 2004, or a ride on a roller coaster, as the philology Ph.D. candidly tells. The decision was ultimately in favor of the electronics retailer. Why? Because in companies that don't shine economically, impossible things suddenly become possible. Deissner draws energy from this. It's by no means certain that Ceconomy will complete the marathon it started, unlike CFO Deissner, who indulges in ultra-long-distance running.

What does that mean looking forward?

In the short to medium term, I believe consolidation within a national market is significantly more value-generating than across markets. There are obviously conceivable synergies. On the other hand, there are many smaller opportunities whose case is much better in terms of dimensions.

The stake is highly volatile. Do you still hold on to it?

I see no reason to deviate from the strategic perspective. Perhaps regarding the write-down: The stake is written down to a conservative value. Therefore, from today's perspective, we assume that no further write-down will be necessary in the foreseeable future.

How far along are you in the transformation process?

Let's use the marathon analogy. Unlike in the past of this company, we haven't just set the goal to run a marathon. We've put on shoes, trained, and started running. We also have a running plan. We know which 5 km sections we want to run at what speed. In my estimation, we are at about the 15 km mark.

What does that mean in terms of transformation costs?

We see that some goals are achievable more quickly. For others, we need to put in more work. Transformation costs are primarily driven by a large restructuring program we started a year ago. In total, it costs 100 million euros. Some will still occur in this fiscal year, then we'll be done. This is countered by cost savings of 130 million euros, recurring annually. The base is the fiscal year 2021/22. However, the transformation will not be completed at the end of this fiscal year.

Equity can only be increased if an unadjusted profit is written.

Kai-Ulrich Deissner

Your equity ratio is less than 5%. Does that give you a headache?

The crucial point for putting the company on economically healthier feet is the operating profit and loss statement. When I look at the balance sheet, I see reassuring elements such as the debt beyond the leasing liabilities.

How high are the leasing debts?

Those are 1.8 billion euros. Thus, only 800 million euros remain as pure financial debts. Given this balance sheet total, this is not a dramatic number. I also see elements that I am not satisfied with, and that includes the equity ratio. It is the declared goal to increase the equity ratio. But equity can only be increased if an unadjusted profit is written.

To what extent do the losses carried forward from the integration of Media-Saturn-Holding (MSH) play a role in the equity ratio?

One aspect of the MSH transaction was that we can now utilise the loss carryforwards. Nonetheless, the loss carryforwards also have a distribution ban. That means we are not allowed to distribute an HGB profit up to a certain limit. This makes the profit available to strengthen the equity ratio. It is also beneficial to the healthy financial structure of the company. By fulfilling the medium-term goals, we will have room again for a dividend decision.

You consider the financial debt unproblematic. But the rating is very weak. Are you still getting money on the capital market?

Regarding the credit rating, the timeframe is a determining factor. More than twelve months ago, there was a steady erosion of our rating. Meanwhile, we have a stable rating situation. The rating offers upward potential if we fulfill our plan. We see no hurdles in accessing the debt markets.

You posted a significant swing in cash flow last year. How sustainable is that?

If you look at the hierarchy of internal goals, net working capital and thus optimizing cash flow are at the top of the priority list. The significant swing in cash flow of almost 1 billion euros will not be repeated to this extent. We have promised a stable free cash flow of 200 million euros until 2025/26. In 2022/23, the free cash flow was significantly driven by the change in net working capital. Changes in net working capital will continue to be positive, but not to this extent.

You have reduced inventories. Doesn't this automatically have a negative affect on product availability?

Inventory management is one of our key levers. Let me give you an example: We have set up a central logistics warehouse in Göttingen for Germany, through which not all flows of goods are running yet. Improvements in logistics will allow us to further optimize inventory management and even increase availability because we can turn the goods faster.

Our anchor shareholders are not driven by a reliable dividend payout.

Kai-Ulrich Deissner

Ceconomy is neither a growth nor dividend stock. How do you plan to increase the attractiveness of the stock?

Our anchor shareholders look at the investment strategically and are not driven by a reliable dividend payout. However, the free float, which is currently invested, or investors who have entered in recent months, see significant upside potential because the market valuation deviates strongly from the intrinsic value.

The popularity was due to speculation that the major shareholder Haniel was negotiating the sale of its stake with What would that mean?

I can only say that we are rebuilding this company and feel really comfortable on the path we are currently taking. We do not comment on the speculation itself.

Ceconomy's market capitalization is roughly 1 billion euros. Yet, 20 people sit on your supervisory board. How does that fit together? Is it due to the shareholder structure with many different anchor shareholders?

It is not for me to assess whether the supervisory board is too large or too small. In the past twelve months, I have only perceived constructive, substantive discussions on the company's course in the supervisory board. As an executive of this company, I genuinely feel well-supported by the supervisory board.