Hello and welcome to the B&S Q1 2024 trading update call. My name is Saskia, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. If we require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to Peter van Mierlo, CEO, to begin today's conference. Please go ahead.
Thank you, Saskia. Good morning to you all. This is Peter van Mierlo. I'm CEO of B&S, and with me here on the call is Mark Faasse. We'd like to give you some color to the trading update that we've published this morning, and I will run you through the different segments. But first of all, overall we have a turnover level which is comparable to last year, and that difference is mainly triggered by the five segments actually growing their revenue. In the Food was almost 7%, and the highest was Travel Retail, 29%, and a decline in the liquor market, as we already communicated to you during our full year updates of a couple of weeks ago.
We do believe that we had a good quarter with limited growth and gross margin, which is logical if you compare the margins of the Liquor segment with the other segments. So that is something that I guess is well understood by the audience. The costs are more or less in line with last year. We did have some one-off advisory costs in the first quarter of 2023, and as a result, the other operating expenses decreased slightly, compared to last year. Staff costs are in line with last year in spite of all the inflation that we needed to cope with. So we are there, we're yeah, we're in reasonably good shape in that regard at this stage. If I look a bit closer to the different segments, then first of all, we have Beauty.
Beauty had a good first quarter, for different reasons. Growth came mostly from the B2C activities, the business-to-consumer activities, web-based sales directly to consumers across the world, but also B2R. So our platform sales did well. And business-to-business global trade ended up slightly below last year. Turnover and margin are improving, especially the investments that we've did in our warehousing, automation, IT investments, robotization of warehouse activities led to improving margins. Another good thing about Beauty is that we are diversifying our product offering, our assortment more. So there is a growth in our care and makeup products. Hair care, skin care, and other categories are growing faster than our fragrances businesses, which makes the segment also stronger. Food had a strong seasonal order intake, especially for maritime and export. The cruise season is coming up now.
We are in a better shape than last year in that regard. So, so that is positive in terms of market expectations and for the full year. Health, our smallest segment, as you all know, but they grew, they grew most with 29%. But it's mostly related to the vaccine business, the vaccine business, that's actually the vaccine business that actually is coming back also because of the Travel Retail business. And I'm sorry I'm mixing up the health, my CFO is correcting me rightfully so. So Health grew 20.8% and Travel Retail grew 29%, both, by the way, partly because of the travel business. But let me get to Travel Retail as last. Liquors had a difficult quarter as was expected, due to increased product availability, and leading to a decrease of 20% compared to Q1 2023.
Q1 2023 coming out of a very, very strong year, 2022, if you may remember, compared to what happened in 2023. We are still expecting markets to improve in the course of this year, but it was not an easy quarter, obviously, which was to be expected. Personal Care had another strong quarter in 2024, yeah, building on the success of last year. It is good to note, though, that the strong increase of Personal Care in 2023 actually started in Q2. So Q1 2024 we're still comparing it to a, well, compared to the success of 2023 to a relatively less strong quarter in 2023 being the first quarter of Personal Care. So it wouldn't be right to extrapolate current growth percentages over the full year. That's also not what we are expecting.
Nonetheless, it's especially due to the continued scarcity of premium product brand products that our Personal Care segment had another very strong year, so a very strong quarter. Travel Retail, as said, 29% increase due to higher number of passengers, but also definitely, as was communicated to you earlier, the new opened-up shops in 2023 growing to maturity, also still growing to maturity, a couple of shops that were opened in 2022 even. That takes time. That's not a fixed period. It's at least a year, but sometimes it can also take 18 months up to, well, 18 months would be the average, I guess, in terms of growing to maturity for new shops, especially in new geographies. That just takes time. We are still confident about Travel Retail due to the travel business coming back up to speed. That's important.
The new shops that go to maturity, as said, in the next 12-18 months. So we do believe that there's, there's, there's room for improvement, and that is also that's also what we already told you around the in our previous call, and the 29% growth in Q1 actually substantiates that, that perspective. And balance sheet, if I turn to the balance sheet, remained healthy, well within the covenants. So, in yeah, what is there to note?
Well, we did release a press release a little while ago around the transaction on the 24.2% of the minority shares in the Personal Care segment, which we acquired, in January of this year, for a total price of approximately EUR 47 million, of which 50% was paid in Q1 2024, and the other 50% will be paid in January 2025, all in line with the acquisition contract, that, when, at the moment we acquired the Personal Care business. In terms of outlook, nothing much has changed. We still believe that we will meet our previously communicated outlook. The consolidated turnover growth is, we did during our Capital Markets Day, we mentioned 5%-7%. We believe it's closer to 5% than to the other part of that range.
But also because we are—we are stronger in the segments that provide higher margins, we still believe that overall result will be met compared to what we communicated to you earlier. Let me see. Yeah, that concludes more or less the segmental review. Yeah, and as you've read in the press release, we also acquired. We did an investment in the Government and Defense business, also in line with what we communicated to you earlier. That investment, we believe, will be positive for our operational cash flows and our net results. We believe that we expect the overall cash flow coming in for these projects will be in the range of EUR 2 million-4 million in the coming years annually.
For this year, we expect the cash inflow, also due to pre-financed aspects of that business, to be in the range of EUR 5-EUR 8. Yeah, we definitely believe that there's gonna be synergies with other parts of the business. The numbers I just told you are not, the synergy effects are not included, and so there's more room to grow there. Let me see. Looking to Mark. Yes. I think I said more or less what we want to bring to the table and make sure that you were aware when you've read the press release. So, back to you, Saskia, and maybe you can ask the audience to press star one if they want to have any questions.
Certainly. Thank you. As a reminder, ladies and gentlemen, to ask a question today, please signal by pressing star one.
That is star one for your questions. And our first question today comes from Robert Jan Vos from ABN AMRO. Please go ahead.
Yes. Hi. Good morning, all. I have a couple of questions. First on the outlook. You mentioned that you still think that 5% is achievable, but that it could be impacted by the recovery in the liquor markets. I do remember a similar comment in the press release of the full year results stating that you expect markets to bottom in the second half. Although it seems that the tone is a bit less confident than what you said a month ago, my question here is, am I right in assuming that you sound a bit less confident? And related to this, do you still expect bottoming of the liquor markets in H2? That's my first question.
You wanna run one by one, Robert Jan, or first share all your questions? Yeah. Okay. Now let's just do it one by one. Okay. I think Peter will additionally provide some comments if I'm not complete. But I think it's a fair statement that we put the wording in as we did, and we did indeed change the wording as compared to the previous wording. And that, from my perspective, yeah, would state enough how we stated that, yeah, there is uncertainty, which we at this stage share with the market, that we do see this uncertainty and how the market recovery plays out, will clearly potentially impact our turnover as well. Peter, anything to add to this?
Yeah. This all, well, it all has to do with the - 90%, right, Robert?
Yeah.
So if you look at the markets and the guys who've been working in this business for most of their lives, actually, they do believe that it's gonna bottom out. If I look at the first quarter, it's still - 20%, which is obviously not helpful in that regard. So yes, we do believe that the decrease will definitely stop, also because last year, second or third quarter and fourth quarter, obviously, weren't the best quarters ever as well. So that makes the idea that we will bottom out in the second half year logical, but we haven't found the proof in Q1, I think. And that is, that's the reason why we phrased it as we phrased it. And that's the truth and the truth and nothing but the truth. Yeah. That's just where we are.
Does that help, Robert Jan Vos?
Good. Yeah. Absolutely. Absolutely. Maybe a related question, in the Liquors division. You mentioned that it mainly was that the decline was mainly realized in the international trading activities. Maybe one sentence about the European wholesale business, please.
Yeah. That's not going—you know, it could be better, but there's definitely not worrying at all.
Okay. That's clear. Then on the G&D investments, the deal basically that you announced, I'm wondering why have you opted for this rather—well, I would say unusual—structure involving your majority shareholder? Furthermore, you mentioned initial investments, if I'm not mistaken, of EUR 9 million and some deferred considerations over the next three years. Can you provide a bit more color on that, please?
What are the amounts of the deferred investments, probably related to performance of the contracts or something like that, but a bit more color would be appreciated? And lastly, on G&D investments, what you said on the cash flows related to this, both for this year and the next few years, I missed that a little bit. Maybe you can repeat those comments.
Yeah. Thank you. Yeah. Certainly. So first of all, there's no structure after we signed these contracts in the last couple of weeks, the majority shareholder's completely out. So there's no structure with the majority shareholder. So that's one. Secondly, our investment into these contracts is EUR 10 million plus $8 million. It's just you know, those are the amounts that were invested in those projects in those currencies.
And that's the reason why the acquisition price is at cost. And that's the reason why it's partly in euros and partly in dollars. So that's second part. And that's just a deferred acquisition price of which we will pay approximately EUR 9 million in Q3 of this year. And the other parts will be paid, the other 25% and the other 25% approximately, by the way, because you got this currency thing, but will be paid in 2025 and in 2026. So it's a three-year deferred consideration of EUR 10 million and $8 million, of which we will pay EUR 9 million in Q3 2024, and the other EUR 9 million will be paid for 50% in 2025 and the other 50% in 2026. So let me pause there. Is that clear? Because it is quite transparent.
Yeah.
I think I was a bit confused by the 50% economic ownership. I thought you buy 50% of the economic ownership, but maybe you can explain that.
What, then?
Who holds the other 50%?
Yeah. That's another third party, whose name we will not disclose during this call, for market reasons. It's a trusted party. And that's the reason why we own 50% economic ownership. The other 50% is owned by our partner. So these are partnership contracts, as we tried to put it in the press release.
Okay. That's clear. I thought that the 50% you buy 50% from your majority shareholder. That's basically what this deal entails.
Yeah. Completely right. Okay. Completely right.
Okay. That's that.
And as he's out, so he doesn't have any, so there's no activity of the majority shareholder anymore in the future around these two, you know, around these projects.
Okay. Yeah. That's, that's clarified then. Thanks for that. That's very helpful. And maybe you can repeat the comments you made on the cash flows because that I missed that a little bit.
Yeah. So for this year and the following years, we expect a positive cash flow of these projects, excluding synergy effects and excluding other growth potential of this market. We expect a positive cash flow of EUR 2 million-EUR 4 million. And we believe this year that the total, so that's the profit. That, that's the impact on our net result, Robert.
Mm-hmm.
And then apart from that, this EUR 10 million and $8 million has partly also been used to pre-financing working capital and other startup costs. And so we expect a cash inflow in 2024 around between EUR 5 million-8 million. And the margin and the range is as we just said. Why? Because the timing of these projects are difficult to pinpoint exactly. That's the reason why we have relatively large margins over a relatively large range when I communicate these numbers.
Okay. Thank you.
So EUR 2 million-4 million net result, EUR 5 million-8 million around cash. Yeah. For 2024. Yeah.
Okay. Clear. Okay. That's it for now. Thank you.
Thank you.
Thank you. And we're moving on to a question from Tijs Hollestelle from ING. Please go ahead.
Yeah. Thanks, operator. Morning, gentlemen. Yeah.
Robert Jan already asked the same questions I wanna ask, but maybe also go a bit deeper on these contracts. What was the reason that the B&S entity did not invest in these contracts a couple of years ago?
Yeah. I don't know whether yeah. Yeah. First of all, I wasn't around. I don't know. It's also the market opportunities right now, I must say. The first part of the contracts have a higher risk than the later parts of these contracts. That could have been something that, in the past, people were wondering about. I don't know, Tijs, but I'm just guessing, to be honest. If we look at it today, we believe it's a sound investment and also helps us building the government and defense market as a player as B&S, so.
Yeah. Yeah.
Because what I remember from the business, we had a deep dive a couple of years ago, when B&S came to the stock market, is that, yeah, there were a lot of contracts with the U.S. Army and the United Nations, in Afghanistan, but also in the parts of Africa where these armies were active. And there was a huge, strict compliance requirements, and you need to have all kinds of permits, etc. So you had basically quite a strong position in that. And yeah, what I understood from it is that you then work together with what they call prime suppliers, yeah, which are being checked by the U.S. Department of Defense.
And then they select B&S or maybe some other suppliers in order to provide free or sometimes eight years of food and beverage to these armies in a certain area. So therefore, I'm a bit surprised to see that, yeah, the large shareholder on his own can also invest in these contracts because that seems counterintuitive to what this, yeah, this business means.
So can you give me a bit more background on what it actually is than the contract?
First of all, Tijs, let me compliment you that all the information which have been shared previously have landed so well at your end. So you're still on top of the requirements in this business line.
So regarding the permits, which B&S owns, so the to be permitted operator, etc., and all the compliance, which you need to cope with in order to be able to act in this certain type of contracts, not all contracts, but we still have and operate those permits, and we keep improving our quality standards in order to remain compliant with and retain those permits. Of course, each type of contract differs regarding requirements. The counterparty involved, either being a prime vendor itself or a government-related agency or whatever the party in need of the remote contract needs, in this business line.
So it's not clear to say, sorry, that each contract requires the same compliance, but yet the G&D business line, which we operate, need the certificates which we at our logistics department, so which we are very proud of, that we are able to comply with those standards in these, I would say, the high-end contracts available in the market.
Yeah. Okay. That's terrific. So the over 50% of the contract is owned indeed by what you call a prime vendor. So you don't have to give us the name, but it is one of those companies who do this, yeah, more often, or more well-known in the market.
The last part is indeed confirmed more or less also in how Peter previously already indicated.
But yeah, for market reasons, we do not disclose the counterparty.
Yeah. Yeah. And sorry to say, yeah, but with all that happened with the governance, yeah, this for me is a bit of a surprise, yeah, because yeah, the stock market reacted a bit negative this morning, which I thought, "Okay. I probably relate to this." But are there any other of this kind of potential transactions going forward B&S have to do with the large shareholder?
No. No. No. No, not whatsoever. I thought by the way, Tijs, I think this transaction is otherwise, we wouldn't have ventured into it, obviously. It's a good transaction for B&S. It builds on the possibility of this marketplace, which is a large market.
I mean, unfortunately, we need a lot of peace soldiers in this world. And that's the but, and everything that's happening around the world, it's hard to imagine that this marketplace will disappear. And that's also true for the needs of NGOs working in areas in the world where bad things have happened. So we sincerely believe that with our food segments and with our health segments, there are synergies to be gained in the field of sourcing, in the field of logistics, in the field of cross-selling. And we were able to acquire this position against cost, so which I think is a fair, is a good price place to be, especially with the expected cash flows coming in.
So, at this stage, I would definitely not relate that to governance issues. I think that is the way we've entered into this contract. There would be, I don't know. But for me, that's not the lens. Tha t's the right lens.
Okay. That's helpful. Thank you. Yeah. And then another question. I was also a bit circling back to Robert Jan's question about the liquor business. As you already gave us some background, and I think you also helped us in the call a couple of weeks ago. So the quarterly revenue development, you probably also see that is now getting at a more easier comparison base, yeah, because last year, in the second quarter, was already quite a significant drop. So what is your feel right now about the trend?
Is it basically flat, or is it potentially that the market can still worsen? And maybe it's a stupid remark, but is there also not kind of a sea-seasonal impact? So that if I look at the numbers I have from the historic data, it's about EUR 20 million of additional turnover in the second quarter versus the first, all things equal, which hardly ever is. But can you help me a little bit with those dynamics?
No. No. That's, that's, that's fair to say. Look, if you if you compare, and of course, the, the indication, which we shared also, and, and Peter referenced to, the 2022 also being an exceptional year, for, for liquor.
But it is fair to say that, look, if you look at the Q2 numbers which we reported previous years, so in 2022, the Q2, for example, was an extraordinarily high year with approximately EUR 180 million in turnover for the Liquor segment, which dropped to EUR 147 million at Q2 last year. So there is definitely significant volatility. And yes, historically, we have seen a seasonal pattern also for the Liquor segment, which the second half of the year historically is the larger part of the turnover for this segment.
January is especially slow, right?
Yeah.
January is especially slow. But then again-
Depending on Chinese New Year as well.
Yeah. Depending on the calendar yeah. Definitely also important. But January in Q1 2023 was just as present as in Q1 2024.
So, that cannot be an explanation, obviously. But no, you're right. I mean, we will be comparing to less strong segments. So that is, that's definitely a reason why we think that the outlook in terms of turnover is still achievable. In terms of gross margin and EBITDA, we feel, yeah. We feel just as opinionated as last time. So it actually doesn't really differ. All other things being equal, we, that's also the reason why we stuck to this, to the outlook.
Yeah. Okay. And that's clear. And one additional remark, the yeah. Let's say let's call it client concentration risk in the liquor business, yeah, it's very diversified. That's not that it is depending on.
Very much so.
Very yeah. So okay. Okay. That's clear. Okay.
And then one final question. It was about your remarks, and especially it's about the cost base, which I found were quite positive, slightly higher gross margin. The employee costs, what do you say? Yeah. Stable, year-over-year. Do you mean in absolute euro amount stable or as percentage of turnover stable?
As compared to. Euro for euro base comparison, so the absolute number.
Okay. That's then quite positive.
Yeah. With a turnover not moving very much, I guess, doesn't really matter what you do in percentages or euros, doesn't it? Where am I making mistakes? No. No. Sorry. Sorry about this, Tijs. No, no. But it is true.
If you look at the development of costs in the last five years, then that's not all very positive, right? So, we really need to focus on cost control, as well as working capital, by the way.
Yeah. But that's gone quite well, because I mean, of course, in the second half, there's a different turnover level, that's what I meant indeed. But you seem to be battling the inflation quite well. And then your remark on the other operating expenses, the consultancy costs, were EUR 2 million in the first half of last year, is that the amount you're referring to now in the press release of this morning?
Correct.
Yeah. Okay. Thank you.
Well done, Tijs.
Yeah. Very much. Yeah.
Yeah.
Thank you.
Up next, we have a question from Maarten Verbeek from The IDEA! Please go ahead.
Good morning. It's Maarten Verbeek of The IDEA! Just like to go back to the G&D contract, and particularly, how does it work that in this case, Mr. Blijdorp has entered into a contract with that seems to be a yeah. In this case, a competitor of B&S, whereas he is a major shareholder. What kind of arrangements are there to avoid this kind of conflicting situation?
Well, we believe that we have a very clear arrangement with the majority shareholder in that regard. Those arrangements have been concluded upon already last year. We already talked about that quite a bit.
There's also a lot of information on this in the annual report, actually, in terms of what has changed, compared to 2020, compared to, well, the beginning of 2023 and 2022. So, yeah. I yeah. We do feel comfortable.
Okay. Then, also linked to your outlook statement, you mentioned that you expect a consolidated turnover growth of approximately 5%. I presume you imply an organic growth of 5%. That's. And then secondly, how— sorry?
That's correct.
Yeah. Okay. And then, of these two new contracts, how much do you expect them to contribute to your top line, and when do you expect them to kick in into your P&L accounts?
They will kick in in 2024. By the way, these because it's a 50% partnership, these contracts will not be consolidated. That's one. And I mentioned two.
I heard myself say so, but that's not the right number. So forget about two if you want to, please. So they will not be consolidated. So they will enter into the P&L, under other income, I believe. Yeah. Mark is agreeing with me, so that's the right answer, at the bottom of our P&L. So because it's not consolidated, it will remain as income from subsidiary, at the bottom line, which we have now also for other partners in our P&L, although being limited, but there is where it comes in in our P&L.
Okay. And then, you mentioned that the contribution of this, of these two contracts will be EUR 2 million-4 million on a net basis, so that will then come into dead line.
Is that, by the way, on a 50% or you based off of your 50%, or, or is it on basis of 100% business, the EUR 2 million-EUR 4 million you mentioned?
No. No. No. No. That, that, that number will hit our P&L at the bottom of the P&L, as Mark just explained.
Okay. So that's the 50%. But then I'm also a bit puzzled by the fact that you don't consolidate it, but still, it will have a contribution to your cash flow.
Yes. It will. Yeah.
Because actually, how does it work then? Because I can only-
Well, you can only consolidate under IFRS, you can only consolidate entities where you are fully in control. If you're not fully in control, you're not allowed to consolidate. There is some literature on this, in relation to, another listed retail company, which I won't mention.
But you can only consolidate if it's if you've got this so that and we've chosen not to consolidate.
No, I understand. But if you don't consolidate, then you still mentioned it will contribute EUR 5 million-EUR 8 million to your cash flow.
Yeah. If I get cash in, then if somebody yeah. That's not irrational, by the way. That is in my world that's those two things have nothing to do. I mean, they have nothing to do with one another. If somebody repays you invested money, then that's cash in. Whether you consolidate that yes or no.
Okay. But that means okay. And then-
-it's a difference between I no. I get you.
This is the difference between operational cash flows and total cash flows. What's in between are financial cash flows. So some of that business will come back to us in terms of financial cash flow.
Okay. Clear. And then, fine-tuning of Tijs' question about the other operating expenses because you mentioned they were, because you have this difference of this advisory cost. If you would correct for that one, so really look at it like for like, because you mentioned it decreased because of that advisory cost. But if you look like for like, is it then at the same level, or is it even, did it decline a bit, the operating expenses?
Look, please bear in mind that although we try to be as transparent as possible, that it remains a trading update, which historically, yeah, we share the turnover levels, etc., and provide you some highlight on the business lines, which we operate. So it is fair to say that indeed, we refer to the EUR 2 million so that the EUR 2 million is which we indicate is the driver of the decrease in the operating expenses. So it is fair to say that the operating expenses, excluding the one-off, did not decline as much. So to be frank, I would say it's more or less a status quo as compared to Q1, but we leave it there at regard to the detailed sharing on the results.
As I just mentioned, please bear in mind it is a trading update, which we focus on the performance turnover-wise on the segments. Does that help, Maarten?
Yeah. Absolutely. And then lastly, this has to do with the turnover. The Easter ended the quarter. Did it have any impact on your turnover performance? And maybe specific to a certain segment, which was either benefited or negatively impacted by Easter at the end of the quarter.
Yeah. Yeah. I like that question because I've been asking that question quite a bit in the last not so much more in the last three weeks, but before that, yes, I did. I believe overall, Easter is a minus, but don't forget that February had 29 days.
You need to balance those two, I guess, to measure it out. I haven't I haven't made the calculation on working days, but I'm sure that we all can do that ourselves. It's, it's, Easter is, is, is, is, is a negative because of the lack of a working day in certain parts of the world.
Thank you very much.
Thank you. We have a follow-up question from Robert Jan Vos from ABN AMRO. Please go ahead.
Yes. Hi. Thanks for, for yet another opportunity. I was, I was listening to the comment that Peter made about personal care, and it was a bit of word of caution for Q2 because you said growth really started in Q2. If I'm not mistaken, you had also growth in the 30s in the first quarter of last year.
So what is then the maybe other reason why you want us to be a bit more cautious on the growth?
No. Thank you for asking that question because that was not what I was – the only reason for personal care. I mean, it grows now in the Q1 with another 10%. And I'm cautious that you would take the 2023 numbers and extrapolate the 10% growth of the first quarter completely, because of the strong quarters personal care had in 2023. So it's nothing more, nothing less. It's got nothing to do with any other aspect. It's just the mathematics of strong quarters compared to weak quarters, etc. It's actually the opposite logic as we do with liquors, actually. It's nothing more, nothing less to it.
Okay. That is helpful.
If I may, on liquors, I think you said that Q1 did certainly not yet provide the signals of a recovery. I hope I quoted you well there. But we are now in mid-May. Would you say the same for, let's say, the first six weeks in the second quarter? That's my final question. Thank you.
Yeah. But yeah. If you would have more clear insight, Robert Jan, then we would have more clearly put that in the outlook as well. I think that's a fair statement. So if we would have ever clear review, that we would transparently also share that in our outlook.
It's exactly in the middle, Robert Jan. That's just you know, it's exactly in the middle.
There are some weeks because we do follow the business on a weekly basis, as you may expect. It's not that we have a super clear picture. It's also not that we do not expect nothing to happen in the remainder of the year. So it's, you know, it's just a mixed bag at this stage.
Okay. Thank you.
And that's, yeah. I'm relatively easy in sharing information to a certain extent, but we also need to abide the rules. But I'm sure you understand that even better than I do.
Yeah. Thanks.
Thank you. Thank you. And as there are no further questions in the queue at the moment, I would like to hand the call back over to your hosts for any additional or closing remarks.
Well, thank you so much. A relatively straightforward quarter, I think.
Thank you for studying it all, and thank you for your questions. I'm glad we had the call, so we are even more on the same page than we normally are. Thank you and enjoy the day.
Thank you for joining today's call, ladies and gentlemen. You may now disconnect.