Ladies and gentlemen, thank you for standing by. I'm Poppy, your Chorus Call operator. Welcome, and thank you for joining the Sarantis Group conference call and live webcast to present and discuss the Sarantis Group first half 2022 financial results. All participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session.
Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Konstantinos Rozakeas, Deputy CEO and CFO, and Ms. Eleni Pappa, Investor Relations, Corporate Communications Director. Mr. Rozakeas, you may now proceed.
Good afternoon, ladies and gentlemen. Thank you for your participation in this conference call. I pass now the speech to Mrs. Pappa in order to comment the financial results of first half 2022.
Thank you, Mr. Rozakeas. Ladies and gentlemen, good afternoon, and welcome to Sarantis first half of 2022 financial results conference call. Following an already difficult 2021, 2022 turns out to be a very challenging year as well, exacerbated by the impact of the war between Ukraine and Russia. The deteriorating inflation, the energy crisis, the disruption in the supply chain, the threat of recession form a particularly tough environment to operate in.
During the first half of 2022, we have managed to present significant sales growth across the group, driven mainly by value and to a lesser extent by volume. We took advantage of our diversified product portfolio and our ability to exploit opportunities in high growth spaces, therefore supporting our volume growth, while we took pricing actions in selected categories.
Group sales were up by 9.34%, reaching EUR 213.48 million in the first half of 2022, from EUR 195.24 million in the first half of last year. The largest contributors to sales growth are the subcategories of deodorants, face skincare, sun care, body wash within the personal care category that presented growth of 13% versus the previous year's first half.
The home care category presented marginal sales growth affected by the normalization of the market and the high comparative basis of last year that influenced mainly sales in the cleaning tools sub-category, even though garbage bags and food packaging presented positive sales growth. The home care category sales were also negatively affected by the temporary suspension of Ergopack business.
In terms of geography, Greek sales presented a significant growth of 10.29% in the first half of 2022 versus the previous year's first half, outperforming the market. Greek sales amounted to EUR 76.37 million in the first half of 2022 compared to EUR 69.25 million in the respective period last year, benefiting from growth opportunities across the mass market, the healthcare and export channels.
The foreign countries exhibited significant sales growth of 8.82%, reaching EUR 107.11 million in the first half of 2022 from EUR 125.99 million in last year's first half. Excluding the FX currency impact on a currency neutral basis, foreign country sales presented a growth of 9.3%.
Excluding Ergopack operations, sales from foreign countries presented a 12.6% growth. Ergopack production facility, which is based in Kaniv and was temporarily closed following Russia's invasion in Ukraine, has been in full operation since the beginning of April of 2022. Since April, we have progressively restarted manufacturing in Ukraine, and we are currently distributing and selling under a strict credit control policy.
Therefore, Ergopack now manages to cover the majority of its distribution channels in Ukraine as well as its export network. Despite the temporary suspension of Ergopack activities that lasted for a month and a half, Ergopack sales during the first half of 2022 decreased by 22.9%. With respect to our activity in Russia, we have taken the decision to withdraw permanently from the Russian market.
Our presence in Russia was represented through Hoztorg, a commercial business with an immaterial participation amounting to 0.4% in the group's total sales. We estimate that the negative impact from the termination of our activity in Russia will be approximately EUR 1.2 million, which reflects the total equity of the Russian company.
Regarding profitability, the group's profitability in the first half of 2022 is influenced by persistent cost inflation that affected the group, the group's gross profit margin compared to last year's first half that was free from inflationary pressures. Operating expenses and advertising and promotion expenses were kept under close control in an effort to partially offset the pressure in the group's gross profit margin.
Therefore, EBITDA was down by 9.6% to EUR 22.58 million in the first half of 2022 from EUR 24.98 million in the first half of 2021, with an EBITDA margin of 10.68% from 12.79% in the first half of 2021. EBIT reached EUR 16.04 million during the first half of 2022 versus EUR 18.56 million in the first half of last year, reduced by 13.57%, and EBIT margin stood at 7.51% from 9.51%.
Earnings before tax started at EUR 14.77 million in the first half of 2022 from EUR 18.38 million in the first half of 2021, reduced by 19.64%, with the EBIT margin reaching 6.92% from 9.41% in the previous year's first half. Net profit reached EUR 11.59 million in the first half of 2022 from EUR 14.63 million in the previous year's first half, down by 20.78% while net profit margin started at 5.43% from 7.49% in the first half of last year. These financial figures represent the group's continuing activity. That is, the activities excluding the ELCA Cosmetics contribution since the group's participation was sold on June 16, 2022.
Previously, ELCA Cosmetics was consolidated as an affiliate company through the equity method. On June 15, 2022, the group proceeded to the sale of its 49% participation in the JV with the Estée Lauder company, ELCA Cosmetics, in the context of a win-win decision for both sides. The aggregate purchase price amounted to EUR 55.2 million. The amount of EUR 14 million was paid on 16th of June , 2022, and the balance will be paid in two equal installments of EUR 20.6 million in January 2025 and in January 2028.
After the group's plan, we are already in the process of replacing the profitability of the joint venture by executing a specific strategy that focuses, on the one hand, on intensifying the group's acquisition plan, and on the other hand, on concluding new distribution agreements. To that end, we have already announced the acquisition of Stella Pack, a Polish consumer household products company, a successful business of approximately EUR 65 million of sales and EUR 8.5 million of EBITDA pre-synergy.
At the moment, we are waiting for the approval of the Monopoly Authority that is estimated to be finalized by the end of the year. This acquisition, due to its homogeneity with our core business, will add significant synergies at all business levels from sales to administrative services, warehouses, and factories, covering fully the joint venture profitability.
Moving further, despite a very challenging market environment, disruptions in the global supply chain and inflationary pressures, we managed to preserve a steady financial position. Net debt stood at 0.4 x the EBITDA, excluding ELCA Cosmetics, reaching EUR 18.72 million from EUR 5.96 million in full year of 2021. The increase in net debt is due to temporarily higher working capital needs that result from higher receivables and higher inventory levels.
The increase in trade receivables is largely due to seasonality and is expected to smooth out in the second half of the year. The increase in inventory is related to the increase in input prices and reflects our efforts to save cash costs and our production capacity.
Our solid financial position allows us to successfully make investments in our business and implement our strategic growth agenda despite the challenging backdrop as well as return value to our shareholders. Within 2022, the group paid a dividend for the fiscal year of 2021 of approximately EUR 10 million. Moreover, within the first half of 2022, the largest part of investments in the construction of Polipak's new production facility in Poland has been completed.
Product portfolio optimization, targeted advertising and promotion investments and innovation plans, as well as investments relating to infrastructure, systems, processes, and models that are aimed to increase further the group's simplicity, efficiency, and effectiveness continue to remain amongst our focus area.
Finally, as mentioned, we have remained active in our agenda for accretive growth. Af ter conducting a thorough due diligence process in 2021, we entered into an agreement on March 2nd, 2022 for the acquisition of Stella Pack, which is expected, as mentioned, to be finalized by the end of 2022. Going forward, amidst a very challenging backdrop of inflationary pressures, high energy costs, tight supply chains, our focus remains on preserving our robust financial position and protecting our profitability.
To this end, we continue to review our plans and are ready to activate further measures to mitigate the inflationary pressures. We will continue to pursue our strategic agenda, emphasizing on the group's growth pillars, market development, economies of scale and synergies, aiming to continue creating long-term value for our shareholders. At this point, we are at your disposal for any questions you may have.
Ladies and gentlemen, at this time we will begin the question- and- answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from the line of Iakovos Kourtesis with Piraeus Securities. Please go ahead.
Yes, good afternoon. I have a number of questions. If you can provide us with an update on three key performance until now, and if you plan further pricing initiatives towards the second half of the year, which seasonally seems to be more important. In which countries do you plan to focus for acquisitions going forward apart from Stella Pack in Poland? Do you have any identified targets that you would like to share with us? Thank you.
Thank you, Mr. Kourtesis. The business so far in Q3 is doing very well, and we continue to present the same pace of growth in terms of turnover. Keep in mind that the comparison of first half 2022 with the previous year is a little bit has a base effect. I mean that from May 2021, we have had experienced the price increases in raw materials and so forth. The first half of 2022 is a little bit pressed by this comparison.
As we are going forward in presenting this good growth rate in terms of turnover, then the profitability will be the comparison in profitability will be normalized for the year, I mean, from 2023. As regards to the price increases, we do not see any further price increases in our products in the second half of 2023. Mainly because the prices in raw materials are stabilized, and in some cases are going down. We do not experience any further pressure in the cost structure in order to be offset by price increase.
If I may, should we expect an improvement in gross profit margin towards the second half of the year?
This is correct, yes. As long as the raw materials are going down, then the gross profit margin of each company and all the companies will be better off. In terms of regarding the focus in M&As, as you know, because you know the history of the company, we are focused in Central and Eastern Europe. We do not see any target here in Greece that are worth to mention as an acquisition. There are a lot of targets in Central and Eastern Europe. Our main priority now is how to, after the approval of the monopoly committee, how to integrate the Stella Pack's business and then to go, as we do all the time, go further in M&A plans.
Okay. If I may, a couple of questions. Do you plan to seek any representation of a major brand in Greece? Would you consider such a possibility? What are your plans for the dividend, if you have some direction at the moment, of 2022? Thank you.
Dividends that are going to be distributed next year?
Yes, for next year. Yes. In 2023 for 2022.
Yeah, it seems too early. In general, I would say that we will follow the practice so far that we distributed approximately one third of the net profitability.
Including the impact from Stella sale?
No.
No.
No, because these funds will be a reserve for us in order to be invested in M&As.
Okay. About the potential representation of a major brand in Greece, do you have?
No.
Yes.
Don't have any plan.
Oh, okay. Thank you very much.
Thank you.
Thank you very much.
The next question comes from the line of Natalia Svyriadi with Eurobank Equities. Please go ahead. Ms. Svyriadi, can you hear us?
Good afternoon. Can you hear me now?
Yes, we can. Thank you.
Okay. Good afternoon, and thank you for taking my question. I was wondering if we could have a bit more on the CapEx remaining in the current year, and if we are looking for anything else in the next year or only the Stella Pack acquisition, which I assume will take up quite part of the investment. I also have a question on Polipak. We saw profitability declining pretty much in H1, and I was wondering what is behind this decline. Is it the investment? Is it the cost of the relocation of the factory? You know, what should we be expecting with the new premises now in Polipak?
Thank you. Thank you, Ms. Svyriadi. Regarding the CapEx, I would say that on top of what you see in the first half of 2022, you will see some EUR 6 million in the second half of 2022, split into EUR 3 million for maintenance and EUR 3 million for a land acquisition here in Greece. In respect of Stella, I would say that there are no significant plans in 2023 for CapEx spending there.
Mm-hmm.
Because our main goal the first year is how to integrate the business with the current business we have in Poland. Of course, we will study the potentials, and we will see what is the areas for improvement. I cannot see any significant CapEx spending in Stella in 2023. Of course, 2024 will be a spending in CapEx, but it depends on you know, the studies that we have in 2022.
Okay.
As regards to Polipak, yes. As regards to Polipak, it is a mix of issues. It is a cost pressure. You see that there is significant growth in the business, but in the first half of 2022, we had a significant pressure in the prices of cost materials, significant increases. We had a lot of expenses in order to relocate the factory from the old location to the new. It's a mix of issues that press the Polipak business. Of course, again, I will reiterate that we compare with a very smooth first half 2021.
In first half 2021, the previous year, the cost pressure. The prices of the raw materials are very low. They are very low. We have a base effect here. It's a mix of a lot of issues.
Okay. Is it safe to assume that, after the relocation costs are over and since we start with a better base effect in H2, we won't see the same negative result in H2 in Polipak?
Yes. I mean, yeah. Correct. The situation will be normalized in the second half of 2022, and it will be.
Mm-hmm.
Comparable and very good in the next year, I mean, 2023.
Yes, definitely. Could I have also a follow-up? You said that running, current running rates are at the same pace. That does that mean 9% turnover is continuing?
Is continuing, yes.
Wow. I didn't expect that.
A little bit better because in the first half we had close to two months stop in Ukraine. We are better off.
That's very good, very strong. I was expecting a bit lower, so I was.
No, no. We are doing very good. Thank you very much.
That's very good. Thank you very much.
As a reminder, if you would like to ask a question, please press star and one on your telephone. The next question comes from the line of [inaudible] with [inaudible] . Please go ahead.
Hi. Thanks for taking my question. First, do you think it is achievable to maintain the same level of profitability at the EBITDA level in terms of margin, I'm talking, as you had last year? Considering the second semester with a more, I guess, easier comparison basis and a decrease maybe in raw material prices, do you think that's achievable or not?
The last year's profitability and margin had a very good first half due to the very low material prices in first half of 2021. In comparison with 2022, I would say that 2022 has all the price increase of the raw material full year. It is very difficult for us to achieve the previous year's profitability margin. Our challenge is to present the profitability close to the previous year.
Do you think the full year margin will be higher than the first half margin, right?
Yes, of course. If we see the drop of the raw materials as expected, then the gross profit margin will be better. The more the raw materials are dropping.
Mm-hmm.
The better gross profit margin for Sarantis Group.
Yeah, sure. I understand. In terms of other costs, obviously, this year has been synonymous with high salary inflation as well. Could you probably provide more details to investors on how have you increased employee salaries? I know some companies have distributed a one-month annual salary exceptional, I guess, to their employees. Is it something you're doing, or are you renegotiating salaries? In the first half, what kind of salary inflation have you witnessed?
Beginning of the year, we had an average of 4.5% salary increases in the group. We examine the situation now. We see the inflation, not only in Greece but in all the countries. We are going to take the relevant decision by creating proper budgeting at the end of this year. Of course, we'll have some salary increases, but depends on the stabilization of the inflation.
Okay. No more increases, let's say.
No more. What we have done.
Understood.
Yes. What we have done, we have done.
Okay. Okay, that's very clear. Maybe a question on the Stella Pack acquisition. In the press release, you mentioned that they made EUR 8.5 million EBITDA last year. You aim for at least EUR 12 million EBITDA for the recurring EBITDA, let's say, coming. That makes a EUR 3.5 million difference. How much of that is coming from synergies, and how much of that is just coming from increased activity in Stella Pack? Can you quantify the synergies expected for Stella Pack, and how do you plan to do it? Is it closing of plants, switching your production to one of their plants, et cetera?
Thank you very much for this question. The majority of this EBITDA increase is coming from synergies. You must have in mind that Stella Pack is identically the same with Sarantis Polska in all the aspects. We are going to have good synergies in all the departments. I mean that taking into consideration or assuming that by the end of the year we will take the approval from the monopoly committee, then we'll start gradually to incorporate the business of Stella Pack in our group. The first thing that we should do is to eliminate all the overlapping functions. We have a lot overlapping functions in commercial department, in sales, in marketing, in back office function, everywhere.
We can run the new company, I mean the consolidated company with a 10%-20% personnel in addition to existing personnel of Sarantis Polska. We expect to have a lot of synergies in terms of diminishing the overlapping department. The most crucial and most interesting thing here in Stella Pack is that we have overlapping issues in the production. Stella Pack maintain some factories producing the same product that we produce in Sarantis Polska or in Poland. After the easy thing, I mean, with the government, we have to start examining the relocation of the production between the factories. What products will be produced in Stella Pack factories, what products will be produced in Sarantis Polska, and what products will be produced in Polipak.
It's going to be a synergy in the production facilities. This is very interesting that we are doing, I would say, first time in our history. The most crucial thing I would say, the synergy does not stop here. The most interesting thing in Stella Pack is that we maintain two factories in recycling. They recycle plastics, and they produce plastic granules in very good quality. The business of Stella Pack, the half of the business of Stella Pack is garbage bags. They recycle plastics, and they have vertical production in garbage bags because they produce the raw material.
This is very interesting for us, and we are going to proceed with further studies in order to see what's going on there and what is needed in order to expand the capacity of these factories. Because as you know, we maintain a big production, Polipak related to garbage bags. If you add the two needs, now they produce their need, okay?
They consume all the production of raw material, of the recycling raw material. Now, putting in place and having a player like Polipak, we need to see what's going on there and what is needed in terms of CapEx and expansion of the capacity of this production unit. It's very interesting because Polipak is now buying from third parties with much higher unit cost.
Mm-hmm.
I cannot say, of course, I cannot say, and I have not determined this in our announcement when this synergy will come because we need some time. There are fast synergies and at a later stage synergies. The total will be, of course, from EUR 8.5 million EBITDA to EPL, but give us some time to have it. I believe that 2024 will be a year of the full synergies. Probably in 2023 we'll have 30%-40% of this amount that will increase in EBITDA in Stella.
Okay. That's very clear. Thank you.
Thank you.
Maybe one last question, quickly on the strategic partnerships. One of the problems the joint venture with Estée Lauder created was problems concerning anti-monopoly. In Eastern Europe, you weren't able to close partnerships with other, let's say, cosmetics producers because you had this joint venture. Now that you've sold your participation, are you able to sign new partnerships, potentially with other big names, in Europe, or even elsewhere, maybe Japan as well? Are you able to do that now, or do you have to wait until you get paid the full amount?
No, we are free. We are free to have strategic alliances with other brands, and we are in talks. There is no barrier from the sale of this. There is no competition clause anyway. We have a similar business in Sarantis Group. We are going to expand this similar business to other brands that we were not able in the past to do so.
Is this something you plan for this year or next year? You mentioned.
I cannot estimate because the discussion is very fresh.
Okay. Okay. That's very clear. Thank you.
Thank you. Thank you very much.
As a reminder, to register for a question, please press star and one on your telephone. As a final reminder, to register for a question, please press star and one on your telephone. The next question comes from the line of Carlos Suárez with InterCapital Asset Management. Please go ahead.
Hi, good afternoon. I would like to ask if you could tell us what percentage of sales does energy represent? In the future, the spike increase in price, how is it going to affect your margins? Thank you.
Excuse me, you mean what is the percentage in our cost? What is the energy as a percentage in our cost, not in sales?
Yes, refer to as a percentage of revenue.
We do not sell energy. We buy energy in order to produce. All in all, the energy is 4.5% as a cost factor in our production cost. The main contribution in our cost is the raw materials, packing materials. It is from 70% to 85%, depends on the product. The rest is energy, labor cost, depreciation, et cetera. Energy is 4.5% on our total costs. We are not dependent on energy because even if the energy presents a growth of 30%, this does not affect us significantly as a part of cost factor.
Okay, understood. Do you expect this 4.5% you mentioned to increase in the second half of the year?
We expect this factor to be increased in the future. You know, we are light producers. We are not dependent on energy, so don't have any significant problem.
Okay, perfect. Thank you very much.
Thank you.
Once again, to register for a question, please press star and one on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Rozakeas for any closing comments. Thank you.
Thank you very much for your participation in this conference call. Good afternoon, ladies and gentlemen.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.