Good afternoon, and welcome everyone to this call. Before giving Stefano De Rosa the responsibility to give you the exact numbers of 2021, let me comment briefly what has been an extremely good year for us. Probably the best year since the company has been listed. In fact, I recall when we were talking about our long-term targets, and I was analyzing the number of 2021, if we consider only Europe and North America perimeter, we have reached an 18% EBITDA on sales, which is a remarkable performance in a not easy year. If you recall, since March 2021, there has been an important pressure from cost, from transportation, from raw material.
Despite this, these two big markets have been able to guarantee an extremely strong performance. We have seen only towards the end of the year a recovery from India and Mexico that clearly represent an important asset for our future. We have delivered a very strong performance in terms of cash generation. I would say that in this moment, we are even better than expected. We have generated a free cash flow to equity of EUR 72 million heavily beyond every expectation. What is important to highlight in this moment is that the environment after two year of COVID is still very complicated. For sure in this difficult environment, F.I.L.A. has one strong important asset or maybe couple of important assets.
Number one, the integrated supply chain. Never as today, the integrated supply chain represent a clear competitive advantage to reduce the cost impact, to manage the priorities in this world in which we have lack of raw material and the lack of transportation. This guarantee has definitely a better situation, especially against the private label competitors. Our asset in India and Mexico. I think everybody agree that China is changing its mission in our economic world. There is a strong inflation. I would say as a country, it's difficult to be, let's say, sure about how reliable are Chinese partners.
The fact that F.I.L.A. is already in India and in Mexico, well-established, will guarantee us to keep under control the cost, will guarantee F.I.L.A. to remain competitive, in our business, and will guarantee F.I.L.A. to be exposed to two markets that in the last two years have suffered a lot, but since January, have restarted with their normal course of business. I think now I will ask Stefano to present us the results, and then we will enter into more specific details. Thank you, Stefano.
Thank you, Massimo. Everybody, take a presentation and to go to page 4, just to start to analyze the core business sales trend. F.I.L.A. Group closed in 2021 with the core business sales value equal to EUR 653.5 million, with an increase of EUR 45.3 million compared to previous year. That means +7.5%. These variation include the FX, negative FX effect. Negative FX effect was equal to approx EUR 12 million. Main part is referred to USD. USD with a devaluation of 4% compared to the previous year. Excluding this effect, the increase of sales is equal to EUR 57.2 million positive, equal +9.4%.
These EUR 57.2 million of increase of sales compared to previous year are allocated for EUR 23.7 million in Europe, for EUR 17.8 million in Asia, for EUR 17.2 million in Central South America, and the remaining part, EUR 0.5 million in other country. This amount was partially affected by North America of EUR 2 million. North America, as we also, I think, discussed in Q3. This decrease is due to Fine Art decrease because we have an increase in America of EUR 20 million for school, but a decrease of approximately EUR 50 million of Fine Art. This is a decrease of sales of sales made in 2020, just for the boom of the Fine Art in those period. These sales were low margin sales.
This is also confirmed by the fact that the group increased the margin, in particular in North America, due to a better mix of sales, in particular in Fine Art. For the line, of course, this is reflecting an increase of more or less EUR 60 million in the School and Office. We can say that the increase of sales is due to the recovery of the School and Office sales. In all geographic areas, of course, big increase was in Asia, but also in India in particular, and also in all other geographic area. If we go to page 5, we can see in the graphic, in the cash graphic, that is totally reflected.
In the first graphic, we can see the increase of the School and Office product line. As we can see in the second graphic by geographic area, the increase of the weight of Central South America and Asia due to the recovery of the school business. If we go to page 6, the EBITDA analysis, the Adjusted EBITDA analysis, we closed. F.I.L.A. Group closed 2021 with a value of EUR 109.1 million of Adjusted EBITDA, with an increase of EUR 13.7 million, + 14.4% compared to the previous year. Of course, also in this comparison, we have an FX effect, negative for EUR 1.2 million, again, mainly referred to the US dollar .
Approximately totally referred to US dollar . Excluding this variation, the increase of the Adjusted EBITDA compared to the previous year is equal to +EUR 15 million, +15.7% compared to the previous year. It's important also to point, as also Massimo, I think, said before, that we have a consistent increase of the EBITDA margin that is equal to 16.7%, so 1% more than the previous year.
This is due, as I mentioned before, to a better mix of sales in the Fine Art, in particular, to the big recovery of Europe in the school business, and also to the better production efficiency that we have due to all the projects that F.I.L.A. put in place in the last three years, including the integration of the ERP system. The last reason of this increase or this improvement of the EBITDA margin is due to the lower increase of OpEx costs. Really, in costs, this is due to the fact that management of the group is still focused on the ability to limit these expenses, especially in this period that is not very stable.
Also, as we did in 2020, also in 2021, there was a good control of the operating expenses just to contain, to limit this kind of expense. This expense increase more or less 6%, 5%, compared to an increase of 7% - 9% organic of the revenue. This causes, of course, an operating leverage in the EBITDA margin. If we go to slide 7, we see the net income adjusted reach a value of EUR 42.5 million, with a big increase, more or less EUR 20 million compared to the previous year. Of course, these EUR 20 million are allocated to the increase, to the improvement of the EBITDA for EUR 13 million. We have a saving also in
We have a saving also in the amortization depreciation of EUR 3.5 million due to the less level of capital expenditure, and also in the lower level of the receivable depreciation due to better period compared to 2020, that was a full COVID period. In the financial result, we have an improvement of EUR 10 million. This 10 million, as also we have seen in the previous quarter, is due for one, EUR 1.5 million to an improvement in the interest cost. This is due to two reason. First, in the main Senior Facility Agreement , the loans that we used for the acquisition, we reached a better margin due to the mechanism of the margin ratchet that will reduce cost of the debt of 50 basis points in June.
This had an effect of more or less EUR 1 million, and then the remaining part is due to the saving that we did in the working capital in some areas, especially South America, due to the use of some intercompany loans that minimize the use of the local loans, so reducing the local interest cost is very high, more or less %. The other part is referred, EUR 9 million is referred to the positive FX effect. This is due in particular to foreign loan in foreign currency. We have more or less EUR 45 million referred to the Senior Facility Agreement in the U.S. Due to the FX movement in 2021, these generated an effect.
We had a depreciation in US dollar and the FX rate of 9% in 2020 and an appreciation of 8% in 2021, resulting in the 17% FX effect in the US dollar and on EUR 45 million of euro loans. This caused EUR 8 million of positive FX effect in the U.S. Also, the remaining part of this explanation, the net income adjusted result is due to the increase of tax of EUR 7 million, but this is due to the improvement of the result that we had this year compared to last year. Coming to slide number 8, we can analyze the evolution of the net debt. We can see that the net bank debt decreased by EUR 52 million compared to previous year.
Excluded FX effect, again, mainly referred to the US dollar, so U.S. North America. A decrease of the net bank debt is equal to EUR 65.3 million. This is due, as you can see also in the following slide 9, to the better result in the cash flow analysis, to the better margin, of course, generated by the group, but also to a better management of the working capital. As you can see, the trade working capital ratio on the sales improved from 44.7% of 2020 to 42.4% of 2021, so more or less 2 percentage points . The leverage ratio is near three, with a big improvement compared to previous year.
Covenants, of course, are fully respected. EBITDA cash generation was more or less near 100%. This is due to the, in particular to the release that we had in the working capital, some part of the working capital, in particular in the North America area related to the inventory. End of story, we can say that, as Massimo mentioned before, the free cash flow to equity generated in 2021 is equal to EUR 72.3 million. Okay. Now I think that I finish my presentation, and we can let's face the questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. The first question comes from Niccolò Storer with Kepler. Please go ahead.
Good afternoon, everyone. I have three questions, please. The first one on working capital. You did pretty well in 2021. If I'm not wrong, you have reached a low level which have not been seen until 2017. What should we expect next, assuming that 2022 is going to be another year of growth? Should we expect stability of this working capital to sales ratio at around 42%, hence a cash absorption? Or is there room for further improvement? What are you targeting? Second question on price effect on 2021 growth. You increased your revenues by 7.5%. How much of this 7.5% is pricing?
The last question on your financial charges. What should we expect for 2022, excluding all the noise of FX effect, et cetera, as pure cost of debt? Thank you.
Thank you, Niccolò. Stefano, I think you can answer the question number two, number three . Question number 1, I would like maybe to add some comments after you have given the ratio. Stefano?
Stefano?
Sorry. I was on mute. Sorry, I did not realize. Niccolò also added that about your question, duration net working capital sales, we would prefer to be quite stable 2022 maybe, as we already explained, due to all the logistic issues.
Stefano, we hear you very, very bad.
You are quite far away from the microphone.
Okay. It's better now?
No, it's much better. Yes.
Okay.
Yeah, yeah.
I say that, for 2022, we do not expect a big improvement in the net working capital ratio. That is quite good. I mean, that will be quite limited, but it is our choice because in this moment, it's very complicated to manage all the logistics issues. We prefer to have, we said, a good level inventory, I mean, to guarantee, to provide all product to customers. We were quite conservative in our estimation. That doesn't mean that we cannot improve. At the moment, we prefer not to promise big improvement, but to be stable, so not deterioration of this ratio, just because the scenario is not very easy. About the cost of interest, for 2022, we have said that our my expectation...
You know, I have an average cost of 3.9, 3.8, 3.8%. This is due to the Euribor component that is very low. It's 2%. The US dollar that is very high, 4.8% more or less, then the mix is 3.8. It's due, as I like to point out, not due to the high cost of debt, but to the high cost of the hedging. Because when I hedge Euribor to 0.3%, and the LIBOR when it was hedged was 3.1%. You can imagine that was far from the current, the current, I mean, 2021 value.
Of course, now we are facing an increase of interest rate that also limited, as you can see, our mark-to-market value that decreased to EUR 9 million more or less in 2021. In this moment, I think that is near or a little lower than EUR 5 million. If you remember in the COVID period, we reached EUR 23 million of this mark-to-market value. Of course, there was some reimbursement that also caused some decrease. We are facing now an increase of interest rate. To answer to your question, our cost is 3.8% with an average cost of our debt in this moment.
The level of interest that I'm expecting for 2022, this year, is more or less EUR 18 million of total cost of working capital and the senior facility limit. Massimo, I don't know if you want to talk about the price increase, how much of the 7% is due to the price increase.
That is not a number that I have on top of my mind because I would like to remember that until December 2021, we have worked without two countries that represents more than 20% of our global turnover. It's an extremely difficult analysis. What I would say is fair to comment is that since March 2021, we have been exposed to inflation. I remember many questions on our capability to cover the cost inflation and protect margins. I think the numbers are simply telling you what we have been able to do. Concerning working capital, our strategic decision is not to insist in further improvement.
Only for the environment situation we are in this moment, many supply chain of our competitors and our customers, specifically related to private label, have been disrupted. We have also some difficulties, so we have difficulties to plan. We have sometimes delay in receiving raw material or work in process . This is not the best moment to continue our effort in improving the working capital. We are not going to absorb despite the huge inflation we are experiencing. Our target is to keep working capital as it is. This should allow us to have a good 2022 because definitely the big problem of 2022 is not only inflation, but the inefficiency of the supply chain around the world.
As a follow-up, this means that if you plan to keep working capital on sales stable and you also plan to increase revenues, this means that working capital will absorb.
a few million in 2020-
Correct.
Okay.
Limited. We can say that. Yes, you are correct, but okay, the solution will be limited of course. It's normal.
Stefano, the line is very bad.
Yes. The solution is normally this increase, but the EBITDA cash conversion should be stable under 90%. Anyway, we will keep a good level of generation.
Mm-hmm. Okay. Okay.
You are correct, Niccolò.
Thank you.
The next question comes from Alessandro Cecchini with Equita. Please go ahead.
Hello, everybody, and thank you for taking my questions. The first one is actually we are talking about inflation, we are talking about pricing. Just if you can elaborate a little bit more, if you expect that the price hikes that you launched at the end of 2021 and likely the current price hikes, you expect to cover the whole of the inflation that you could have in terms of raw material, in terms of logistics and so on. This is my first question for, of course, 2022. My second question still on supply. You stated about your key competitive advantage to have an integrated supply chain.
I would like your feeling that you are, I mean, gaining market shares, yes, you know, against private labels, but I would like to understand if you are still gaining market shares in mature countries like U.S. and Europe against other, I mean, companies like you, so not private label. My third question is about, of course it's very difficult, but if you could share with us sort of your best indication, if you have it, for 2022 EBITDA sort of range, if you may. Finally, my last question on the performance of fourth quarter only. You executed very well in terms of top line with the U.S., if I am not wrong, North America, that was negative in the fourth quarter. It's probably linked to Fine Art.
Just if you could elaborate a little bit more what you did in North America fourth quarter? If you did the same that you did in the third quarter. Thank you.
Sorry because I get lost. I forgot the first question.
Uh-
The prices.
Yes. I think we may have covered it.
The answer is very simple. Absolutely not. We are not covering today's situation. If you asked me this question in January, I would have answered you absolutely yes, because we have increased prices at least two times, if not three times, depending on the countries. In June, in late 2021, and now in the first quarter of 2022. This would have protected us until the Ukraine war. After the Ukraine war, the situation is absolutely extraordinary. We have two problems. We have to decide whether to apply another price increase to cover the extraordinary situation. Number two, to give an estimation of how long will be this situation and try to resist, or to cut some G&A and some overhead in order to partially compensate.
When you launch a price increase, that is made, generally speaking, when you approve a budget, so in October, November. The environment situation was completely different. In this moment, as we are a company of large consumer goods and we work with our brands, of course, there is also a notice period that you have to give to customers to increase prices. The situation got suddenly very unstable after the announcement of the Ukraine invasion. In this moment, we have a gap in the budget between our prices and the cost situation. We think that our decision will be to apply anyway a new price increase. This new price increase, in many cases, you have to give at least 60-90 days notice to the customers.
I think we're going to decide before the end of March, and we will apply probably around the month of June. By the way, it was impossible to manage in a different way because I think until mid-February, nobody could imagine the invasion of Ukraine. That said, I have a couple of comments. We have a very solid ground that is guaranteed by a very strong 2021, so we are a company with very high average profitability. Clearly, even if the situation is difficult, it's temporary, number one.
Number two, it's true that we are facing unusual inflation from cost side, but after two years that we have lost two important markets like Mexico and India, now we see those markets completely back in, let's say, full speed and full business, which will help us to compensate the problems we have created by inflation. Last but not least, as we have struggled in the COVID period with the school closed, now even if there is a war, fortunately, the schools of the world are open. Our business is not really impacted by the global situation. As we have always said, we have really a resilient business.
All these elements, anyway, guarantee us a good view, a positive view on 2022. Of course, we need to adjust the numbers almost on a monthly basis, depending on the cost of inflation that we have to face. We know that even under these circumstances, we expect a growth in EBITDA for 2022. Probably we are going to have a stronger growth in top line. Not sure EBITDA will be able to follow proportionally due to the unexpected peak of inflation, but EBITDA will grow. I don't recall the last part of the question. Can you please remind me?
Yes. It was actually about yes, the fourth quarter performance in North America.
No, sorry, before that was the question of market share. In terms of market share.
Yes.
We have some public information that definitely the biggest part of growth that we have made last year was against the private label. In Europe, we have grown also against our traditional competitors. I cannot say the same in North America, where the situation is more stable. Again, the big loser is the private label. All in all, a positive situation that I would like to stress. One point, the situation will continue. Private label had a substantial market share in our world, more or less around 1/3 of the market. This historical weakness is giving us clearly a new opportunity. Inflation is further damaging the business of the private label.
For the fourth quarter, Stefano, I think you should answer because I don't have the number in front of me.
Ale, yes, I don't have the specific detail of the fourth quarter North America, but there was a bubble in third and fourth quarter in 2020 for the Fine Art last year in 2020. You didn't see a total decrease of North America in Q3 2021 due to the fact that we have a strong increase of school sales in Q3 2021. There was also an increase, but not so strong as it was in Q3, in Q4. This created, in school business, little negative gap in total sales due to the Fine Art. Again, the gap I told you is more or less EUR 12 million, no, EUR 15 million, if I remember well, of Fine Art decrease.
The increase in sales to full year compared to previous years, EUR 12 million, the school business. This gap was created in particular in Q4 due to the strong increase in Q3 on the school business and an increase, but not so strong as in Q3 that we had also in Q4, the school business.
Okay. Many thanks.
The next question comes from François Robillard with Intermonte. Please go ahead.
Hi, everyone. Thank you for taking my question. First one is on CapEx. What kind of CapEx plans do you have as of now for 2022? And the second is on India and Mexico. You say that your operations are back at full speed. Can you confirm that we can expect something closer to pre-COVID levels already from for the whole of 2022? And if you can give us some more color on your expectations for these markets. Thank you very much.
If I can start, I will talk on CapEx. CapEx level was near 11% in 2021, lower in 2020, of course. In 2022, we estimate a CapEx level more than EUR 20 million, so near 90%, 80% of EBITDA ratio. In the following year, it's not easy now to foresee the scenario. In our plan, we estimate to be back in near 20% or little of CapEx when in 2023, 2024, 2025. For 2022, will be a little over EUR 20 million, so near the level of pre-COVID. This is our estimate level of CapEx.
Concerning India and Mexico, we do expect already from this first quarter to be better than the 2019 first quarter, so not comparing at all 2020 and 2021. Of course, the two countries, we have two different trajectories. India, we do expect to have a solid growth throughout the year. Mexico, of course, historically has an organic growth more in the single digit area, which we do expect that will perform this year.
While India, we think India is and will be the most important country for our business for the next decade, considering the number of children, considering their power of expenditure, considering how important is for them the instruction. Considering that China is going out the radar for the supply chain. China is clearly less and less available to support the Western country in their needs of production. Clearly, India is the most important asset, not only F.I.L.A. has, but in terms of country, is the best option when you have to exit China and build up your future supply chain.
To make a long story short, we do expect 2022 better than 2019. Thank you.
The next question comes from Ludovic Duchêne with Pilock Capital. Please go ahead.
Yeah. Hi, good afternoon. Just two questions on my side. First, congratulations for this set of results. Regarding top line for 2022, how much you think you may add in terms of pricing in the coming months, given the cost inflation that you mentioned. That's the first one. By how much. Because then, like, I guess there is like a debate between price increase and potential further market share win, especially against the private label. What kind of additional top line goals I should add. The second question, you reply already, it's difficult to predict about margin given the cost topic as of today.
If we consider India and Mexico that restart basically, which is 20% top line more or less, and probably a bit more in margin, I'm not sure, but it seems to me it's margin positive in terms of margin mix. Shall we expect any kind of counter effect by 2022 versus 2021 in terms of margin upside if all things stay equal? Last one would be capital allocation. Any update regarding with net debt you want to reach before to consider anything? Thank you.
Thank you. Thank you. First of all, thank you for the compliment. We do appreciate. What we are going to announce in the next few days is another price increase that will vary between 5%-6%. We have not yet finally decided. By the way, every time we have to recalculate cost and margins and prices, it's a nightmare. It's extremely complicated because we have to add also the impact of the dollar, negative in terms of cost and positive in terms of income when we analyze North America. I can guarantee you it's complicated. That said, let me make a comment. In this case, it's a nice comment.
We have been, I would say, penalized in the last two years by the fact that we were exposed to India and Mexico. I can guarantee you that with the war close to the doors in Europe and with this extremely weak economy that in this moment is unfortunately a feature of all the European countries, the fact that F.I.L.A. is exposed for more than 40% to North America, another 15% to India, and more or less 10% to Mexico is a very strong asset.
Mm-hmm
... for the group. What has been a weakness until yesterday has now become a strength in just a few hours, just because what the war is creating. What I see is that, in terms of absolute value, we will see a growth in terms of the EBITDA. Clearly, as we see Mexico growing, India growing, inflation growing, what I fear is that we will struggle in terms of percentage. Because, anyway, we are entering the back-to-school , and in this moment, the war is still there, the oil is at historical level, the gas is at historical level. What I fear is that, we will not see an improvement in terms of percentage of margin.
This extra 5%-6% that we are going to charge will be communicated to customers, we think, next week, and it will cover the situation of today. Again, if we continue to inflate the top line and we just cover the cost in terms of percentage, mathematically, we cannot improve. In terms of, let's say, consumption, of our consumers, here I am less concerned compared to our businesses for two reasons. One is because the unit value of our product is still very small for the pocket of almost every family in Western countries. Even if we have gone through, three or four different price increase, our unit value remain very small.
Second, because after two difficult years in the schools, we see a lot of budget available and not even invested in the past from school district that now is available, and they are spending. They like to spend, they want to see children to use product to spend time in the school. We see a very strong demand in this moment around the world in the school business. All in all, a good year, a year in which, probably we cannot protect in terms of percentage our margin, but in terms of total value, I think we are going to do a good job. The last question, sorry, I don't recall.
The leverage decrease.
Yes, please. Stefano.
Yes. Maybe I can start to answer this question. If I get your question, is the estimated leverage decrease maybe prior to other M&A or I don't know if I get your question. Our plan is to decrease our leverage ratio 0.5 every year. You can imagine we closed the year at 3x level this year at 2.1. We project to be near 2.5 in 2023, and so on in the next year. Our priority is to deleverage. I think that for another year, more or less our focus will be on the leverage.
In terms of M&A, I think that if you are invested in F.I.L.A., I think you have the chance to analyze the performance of some of our competitors that are public. I think we are outperforming them heavily. I do expect in the future an important phase of concentration, of aggregation. Not in short term, I think the war has further complicated any kind of decision of M&A, for different reason, including the fact that it's complicated to still complicated to travel in the east side of the world. In the other side of the world, this inflation is complicated, the owners of potential targets, so they are not in the mood of selling in this moment.
I think that our performance clearly tell us that F.I.L.A. will be a protagonist in the M&A strategy in the future. I don't see that in short term.
Okay. Thank you.
Short means six to 12 months. By the way, sorry if... Let me tell you that in this moment also thanks to the recovery of India and Mexico, the group has an important organic growth ahead of us. The M&A is still a very strong feature of not only F.I.L.A., but also of the business itself, because it's still very fragmented. The reality is that we don't need the M&A to guarantee a healthy growth in the future anyway.
Perfect. Thank you. All the best.
We have a follow-up from Niccolò Storer. Please go ahead.
Yes, just a clarification on price increases. You said that the next round of 5%-6% will cover the situation as it is today. This means that will cover the situation post-war or pre-war?
Post-war.
Post-war. Okay.
Please remember that we are not. Sometimes legally, we owe a notice period. For example, in France, you are obliged to give a notice period. The cost I have today. The price will increase in June. Anyway, there is a discrepancy and what we calculate, of course, is our price increase, the impact that has in terms of total contribution and the estimation we give to the cost. The problem is that the costs are today and the price will come in three months.
Related to that, which are the cost items where you see the highest impact? Is transport? Is raw material? I don't think it's energy for you, but.
No, no. Energy is not, fortunately, not big for us. By the way, it's not a problem of items. In this moment, it's more a problem of overhead. Energy has an impact on all the items like gas. Transportation, more or less the same, but we don't see an increase in transportation. I would say that we could have expected a reduction in transportation, which is not happening. We have some extra cost on paper, let's say beyond our expectation. We have plastic that is in this moment 10% higher than our budgeted cost, but it is still 100% higher than it was one year ago.
Yeah.
What we need is to cover this 10%, the difference between our budget and the actual cost. We are going to increase. What we don't know is if in June this will be enough because the situation is so unstable that we prefer to wait one month after the beginning of the war, and now we think the situation is consolidated, so we have decided the level of the new price increase. The problem is that we are talking more of price increase than usual business with customers.
Okay, it's also fair to say that most of the increases have already been seen in 2021. Now we are seeing again something more, but probably the biggest jump has taken place last year.
The biggest jump in reality will take place between January and March this year because it's a bit long. If you remember, the inflation started in March.
Mm-hmm.
As we are an integrated group, we had a quite important level of work in process. In March, we have already advanced a lot the production. I'm talking of 2021.
Mm-hmm.
The cost impacted us probably towards September, but we have been able to keep under with efficiency and with the price increase you have seen. I told during the beginning of the call, North America and Europe, we have delivered an 18% EBITDA. Really a substantial high profitability in line, by the way, with our long-term budget. Now, after we have seen the trend of the cost, we have already applied a strong price increase. For example, in North America, an average price increase of 7% have been passed through the customers between January and April 2022. The problem is that this 7% has covered the increase we have had between July and December 2021. With the new cost increase, this 7% is not enough, so we are going to announce another 6%.
Mm-hmm. Okay.
The biggest price increase will come in 2022.
Yeah. Thank you.
This concludes our Q&A session. I would like to turn the conference back over to management for any closing remarks.