Good afternoon, and welcome, everyone, for this call. In March 2019, the combined market India plus Mexico that two among the most strategic market for Fila and the fastest growing had a turnover of EUR 24,000,000 and generated EUR 2,500,000.0 EBITDA. In March 2021, India and Mexico have generated EUR 17,500,000.0 turnover and zero EBITDA. Of course, this does not calculate at all the regular trend of average growth of these two markets in the last five, six years that was between 1520%. I would like also to add another information.
In March 2019, the exchange rate between euro and dollar was 1.15 average. In March 2021, this exchange rate is on average 1.2. So I think that when Stefano de Rosa will comment after results, I think that you can appreciate now Fila is under a correct cruising speed. Of course, the situation is still complicated in India and Mexico, but with a huge potential in the future quarters coming as the situation over there is extremely complicated. One information that I would like to share with all of you is that fortunately, at the budget level for 2021, the group has been extremely conservative for Mexico and India.
And we had forecasted the, let's say, normal course of business starting from the month of June. This means that for the remaining quarters, the impact should not be that negative. One last information that gives some flavor, but I think it's important. I don't know if all of you had the chance to follow the situation in India. But during the month of February, everybody was talking about the disappearance of the COVID and everybody was trying to understand why in India the situation was improving so quickly.
Then the Prime Minister decided to reopen the school for almost one month until the March when the situation started to collapse again. Well, in one month, we have experienced 25 of school reopened in the entire continent of India. With this 25% in one month, India has generated the same turnover of twenty nineteen. This should tell you the unbelievable potential of this country in the future when the situation will go back to normal. Now I think as numbers speak themselves, I prefer to ask Stefano de Rosa to present the numbers and then go to the Q and A session.
Thank you. Okay. Thanks, Massimo. So I have to Durbarbi to go to page five of the presentation. We start with the core business sales and arrears.
As you can see, core business sales in Q1 twenty twenty one are equal to EUR 141,700,000.0. The narrative with comparable FX rate means an increase compared to previous year of 3.1% equal to EUR 4,600,000.0 of increase. The fixed are equal to EUR 8,700,000.0, mainly concentrated in North America for $5,400,000 then in Central America for $1,500,000 and in Asia for $1,500,000 and $1,500,000. So this is the allocation that takes. The increase of $4,600,000 by geographic area is allocated mainly due to the biggest strong increase in Europe for $8,600,000 This increase is 50% full and 50% for the finance.
Then this increase is partially affected by a decrease in North America for $2,700,000 I would like to point two things that Fanapto is very strong in North America. So the decrease is due only to the school business, of course, school sales. And North America is comparing the Q1 twenty twenty one with a very strong Q1 twenty twenty because if you remember in America, the COVID impact started from April. So these results is due to a different compared to different impact of the COVID, while in Q1 twenty twenty one, COVID was present. Then we have a decrease of 1,000,000 Asian geographic areas.
This is due to India school business, partially compensated by tariff business. And then in sectors of America, the decrease was equal to 400,000, of course, mainly due to Mexico. By product line, as you understood, the increase for EUR 7,500,000.0 is on fan art sales and industrial sales of EUR $700,000 These two increase were partially offset by the decrease in the school business. Fine Arts increase mainly in Europe for $4,000,000 for $2,000,000 and the remaining part between Asia and Central South America. If we I don't mention that you have also a split detail of PIXON Mexico in India in India sales, but Martin already mentioned the trend.
So I would like maybe to jump to Page six, where you can see exactly the trend of the sales where it clearly show a strong decrease in the weight of the finance sales compared to school sales as the increase in the Euro geographic area increased in 2021 compared '20 in the area of Europe, in the area of Europe, where the increase is mainly concentrated. Now HB seven, you have the EBITDA adjusted analysis. Our EBITDA is adjusted, normalized and the data are considered excluding IFRS 16 effect. The EBITDA in Q1 twenty twenty one is equal to EUR 20,100,000.0, showing at comparable FX rate an increase of 21.2. That means EUR 3,600,000.0 compared to previous year.
So the increase in EBITDA is really strong. And I would like to point this also in the North America because America has a decrease of sales, but not a decrease in EBITDA. The reason of this strong increase of EBITDA is the reason are mainly referred to. Of course, an operating leverage that is part of our ML, but the sales the sales mix being concentrated, particularly in finance and industrial business, generate a higher level of EBITDA. Then, of course, also part of the sales were made through e commerce channel, and these also helped the EBITDA to increase compared to previous year.
So this explains why the EBITDA increased more than the sales, but also in particular why we have a 14.2% of EBITDA margin compared to 11.5% of the previous year. These if you go to Page eight, of course, we can see that the improvement in the margin is reflected in the net result. Net result is equal to EUR 7,100,000.0. So with an increase of EUR 7,300,000.0 compared to the net result of the previous year, it was a little negative. Of course, these increases due to the EBITDA increase, but also to a lower level of amortizationdepreciation.
Last year in Q1, we were very conservative in the provision in the quarter related to the better reserves. And so this year, of course, there was no reason. And of course, the depreciation and amortization also less than the previous year due to the lower level of CapEx that we sustain in 2020. Then the other big point of improvement is that the financial results is back of EUR 3,600,000,000.0. This is an important point because interest net interest are totally in line with the are more or less in line with the previous year for the proceeds agreement, the long term, mid long term debt that we have.
But we had a strong improvement of interest, in particular in Mexico, because we optimized the source of finance for Mexico Mexico lowering the interest rate that normally they pay. And so this creates more or less EUR 500,000.0 of saving and interest cost. The improvement of the financial results is then due to the FX financial FX asset that we have on loans. As you know, the group has loaned in different currency compared to the country that borrow the money. And in particular, this positive difference is concentrated in U.
S, U. K, Russia, Brazil and Australia. What happened, just for a technical reason, but just two words about this, that in the first quarter of the twenty twenty one, the local currency was depreciated compared euro or the currency of the loan. And so we have a negative fixed asset. In Q1 twenty twenty one, all the local currency was stronger compared to euro, and so we have a positive effect in Q1.
So adding these two assets, we have a very strong positive FX effect on the net financial results due to the revaluation of the local currency compared to currency of the loan that is mainly euro. Related to the net bank debt and net financial position, Page nine, the last twelve months cash generation excluded positive FX rate FX effect, the La Tormar net bank decrease is more or less EUR 50,000,000. So we are in line with the normal value that we expect from the EBITDA from a summary EBITDA of more or less EUR 110,000,000 to EUR 108,000,000, which is the rolling EBITDA. And this is due mainly to the improvement of the net working capital and decrease of inventory that, if you remember, were high quite high in the closing in December. So this effort of improvement of the operating result plus a decrease of inventory made in U.
S. A, but also in Mexico and also in Italy, help to realign the cash industrial market generation to the standard value of fee. Because if you remember, we were in December around EUR 30,000,000. These assets can be analyzed also in the comparison of Q1 twenty twenty one with the Q1 twenty twenty, so the single quarter, not the last twelve months cash generation. If you can see that the free cash flow to equity is equal to when the cash absorption costs in this period, so it's negative for EUR 80,000,000.
But last year, the free cash flow to equity was negative EUR 40,000,000. And this EUR 20,000,000 improvement is focused for us in improving net result. And for that, the remaining part in the improvement of the net working capital. So I concluded the analysis of the quarter, and so we are ready for the Q and A session.
The first question comes from Niccolo Storell with Kepler. Please go ahead.
Good afternoon, Charles, to everybody. First of all, congratulations on the results, which are really, really, really good. The questions, the first one is on your budget. You say you expect a return to normal in June for emerging markets. If I remember correctly, in our last call, you said you were expecting a normalization from the month of April.
So I was wondering if you made this change for real and if this is affecting your overall budget for the year? And also related to that, if you don't think that assuming a return to normal from June could be something a bit optimistic in light of the situation that is under our eyes in India. And maybe also related to that, what should we assume is the impact on your budget from potential postponement of a return to normal in India and Mexico? Is it reasonable assuming EUR 1,000,000 of lower EBITDA for every month loss in these areas? This is the I understand it's a bit complex, but this was the first question.
The second one is on the finance. I see that you are keep on reporting very good numbers. I was wondering if you can comment on your expectation for the rest of the year when probably we start facing some tougher comparison versus 2020. So which progression is at the moment included into your budget? And last question on weakness in North America.
You said, Stefano, that this is related 100% to schools. Why this in the sense that, okay, last year we didn't have COVID, this year we have COVID, but my understanding is that schools in The U. S. Have remained open through the first quarter. Thank you.
Thanks, Nicolas, for the questions. Probably, I was not clear when I talk about the expectation in 2021 related to Mexico and India. I try to repeat. We definitely do not think that India in India, the situation will be normalized by the month of June. I was just highlighting that fortunately, at the budget level, we have considered India to go back to normal by the month of June.
In Mexico, the situation is starting to go back to normal, which means that in month of May, we have seen after thirteen months of extremely slow activity, we are seeing a very good month of May and we expect a very strong month of June because the situation in Mexico is going back to normal. We do expect a situation worse than what we have budgeted in India because I mean, we read the newspaper every day. But fortunately, all the rest of the world is overperforming and it continues over performing in April and May. So we don't see any particular need to change the view of the year. So we will be able to compensate the human disaster and not only human, but also economical disaster that we see in India.
I have highlighted the huge potential of that market because don't forget that India now has lost almost fourteen months. But when the country will go back to normal, clearly, we will see very strong numbers. And the demonstration is the month of March stand alone in which we had a peak of sales immediately followed by a shutdown of the economy. So we don't see any need to review our guidance for 2021, thanks to the fact that we are over performing in the rest of the world and Mexico is going back to a normal situation. For the second question related to finance, first of all, what I would like to say is that as of now, we are running as in line with what we have budgeted.
So there is not any particular surprise from on the performance. It is possible that from now on, you probably don't recall that there was a very strange situation last year in which we have a very confused and inefficient growth of top line. This year, we are working in a much more efficient way. So what we do expect is that we will continue gaining margins and we will continue generating very good cash. In terms of top line, clearly, in this moment, by the way, we are applying some aggressive price increase.
So it is possible that the growth will go back to normal, but we still have a very positive view. Let me remember you one point that I mean, everyone has a short memory, but we finished to fix the reorganization of the group in the last quarter twenty nineteen. So really, we have never demonstrated the efficiency of the group under normal circumstances, because starting from February, we had to face COVID situation. But the business of Fine Art has been extremely well organized so far, both in Europe and in North America. And our view has been always very optimistic.
So in this moment, we are just doing what we expected. Concerning point three, the weakness in North America, I think we again probably we were not very clear. North America is performing well and in line with budget, But as we are first of all, I have to correct one information. When you said the school were open in North America, this is absolutely not true. School have been open physically between 3040% of the schools in North America until March.
So schools are reopening in this moment. So the first quarter has been done with more than half of the schools closed. This has in a certain way influenced the priority of our customers. In other words, they have managed as priority number one, the demand of the school in short term. And they are now and when I say now, I mean April, Now managing the back to school 2021 that I fully confirm is a very strong back to school.
In fact, United States are having a very good April and May, at least in line with our expectations. So we are just going back to a normal seasonality. Usually, the months of the first three months can be influenced by customer that can decide to order back to school between March and April. So we are in line. There is no weaknesses in North America.
We are in line with our expectation, both in sales and in margins.
Perfect. Thank you. Thank you. Maybe a quick follow-up on India, given that your plant is also used to supply other regions. I mean, you have no the feeling that you could be forced to shut down the plant due to the health emergency.
I mean, the plant is currently running well and there are no kind of limitation to production also in sight?
No, we don't have any limitation. The problem of the plant that, by the way, is the most important plant we have in the world is that there is very little business from domestic market considering the situation. We are feeding the plant as much as we can to help, let's say, the amount we have reduced the numbers of workers by two thirds. So we have now currently 2,000 people working instead of the 5,000 we had just fifteen months ago. We are feeding with orders from North America and Europe also to help these 2,000 workers to work on a regular basis and not lose them.
What we see is that in the last three, four days, the infection have reached the peak and it is slowly going down. Today, the best estimation we have for school reopening, thanks also to the vaccination campaign, we estimate this will happen by September.
Thank you.
The next question comes from Alessandro Giacchini with Equita. Please go ahead.
Hello, everybody, and thank you for taking my questions. The first one is about actually
Alessandro, sorry. We hear you very, very bad.
Hello? Now it's better?
Now it's much better, yes.
Okay, perfect. Sorry. So my first question is about, I mean, the context in term of inflation. So we are, I mean, about many companies, about freight rates, headwinds, about raw material and so on. So I would like to probably the first quarter you benefited from, I mean, some purchases made last year.
So I would like to better understand the current situation in input costs and what are you doing in order to offset it. This is my first question. My second question actually is a follow-up on U. S. So I would like to better understand actually the trend that you are experiencing now in the second quarter organically versus 2019.
So to have in mind what kind of trends you are seeing normalized trends, of course, not against 2020 that was very bad. And finally, about CapEx. So first quarter CapEx were very, very limited, $2,000,000, 3 million if I am not wrong. I would like to know with this current situation what kind of CapEx are needed for this year? And if after two years of very limited CapEx, you need, I mean, a bump next year in 2022 in order to recover maybe some investments that you didn't do in this couple of years.
My last question on Asia, actually, in the first quarter, we saw actually very limited decline in Asia, but of course, India very negative. So I would like to understand other countries probably perform very well. So I would like to better understand on this. Thank you.
Thanks, Alessandro. I will start answering the first question of inflation. Inflation is something that is regarding all the countries in the world. So there is no specific information to be given for different parts of the world. The biggest cost increase is related to plastic.
We have in plastic, the cost increase in the area of 100%. We have also an important increase in related to paper, but here we go down to 25%. And then the other big category of product is pencil. And in wood, we have no inflation. So for what Sila is concerned, I would like to remember that also we have a substantial part of business related to paper made by Kapton.
And here, we do not have any cost increase. Concerning plastic and paper, we have actually starting from April, announced a price increase effective depending on the countries from January or January. This price increase will offset or offset the majority of the cost increase. We have made a simulation that as by the way, as at budget level, we have already considered an important increase in raw material in this moment, we need only to compensate the delta. So we are assuming that by July, the cost increase will go back to budgeted level.
So in this moment, it's true there is inflation. The situation, while we speak, is little by little normalizing in terms also of availability of products. In terms of cost, the cost do not grow anymore. They tend to be stabilized, maybe slightly going down. We hope that with our price increase, we are going to offset the impact.
Concerning U. S, I ask you please, when you analyze the number, to consider that against euro, the dollar as of now has lost between 78% or 9%. So if you translate the numbers that you have in front of you into dollars, you see that U. S. Is already performing quite well and U.
S. Is accelerating. So when you ask me about the current trading, U. S. Is running at least in line with budget.
And when I say in line with budget, I mean also that U. S. Is improving profitability as expected in 2020. But unfortunately, we couldn't execute the, let's say, the normal year due to COVID situation. So for U.
S, we are happy of what we see in terms of capability of the management and profitability of the country. Concerning CapEx, maybe I ask Stefano to answer precisely. Okay. Yes. The total CapEx, remember, Alejandro estimates for this year were around the $50,000,000 And of course, there was a slowdown of CapEx in Q1 due to the uncertain situation, especially in India and Mexico.
So at the moment, it's a temporary slowdown. It can be recovered depending upon the situation that we will see in the next month. So the saving that you that we have in this moment may be concentrated in these two areas. And we are aware that labor that for us was normal to sustain the development of the other year. So
on. Okay. And on the other Asian countries?
Asia, yes. As I mentioned in the beginning, we have a decrease in the area of EUR 1,000,000. This is a combined result because it's due to the school business in India of $2,000,000 Then it's totally compensated by the finance business of Princess and Hong Kong that is plus $1,000,000 So Asia has this effect. Also China is going well, but the main effect is Hong Kong selling brushes mainly. And so this is a combined effect.
Okay. So on the so basically, you are confident that in the second quarter, you can protect that is very relevant for you in term of seasonality to protect profitability with price hikes. So in so sorry, so I was wondering if so your analysis on pricing and raw material, you could protect profitability in the very important quarter that is the second one despite the starting price hikes one month later than the start of the quarter the second quarter. Yes.
To summarize, we see the second quarter running in line with the first quarter.
Okay.
With the good news of Mexico.
Okay. Thank
you. The next question comes from Francois Robillard with Intermonte. Please go ahead.
Hi, everyone. Thank you for taking my question. First one is about your sorry, the change in your net debt. I see that the ForEx movement affected your change in net financial position by minus EUR 9,000,000, Slide 10. Although, if you have all debts in foreign currency, the effect should have been kind of the opposite.
Can you just comment on that? And second question, I'm sorry if I missed this point if you said it earlier. Can you just recall the exact weight of India and Mexico in Q1, both in terms of sales and EBITDA and how they did year on year and compared to 2019? Sorry about that.
So Francois, you mentioned that to us, you mentioned that we have an effect of the net debt net debt. I don't know if you mentioned to the last twelve months, you were referring to the last twelve months of the single quarter.
Slide 10. The effect is the one with I'm referring to Slide 10, the line with asterisk on it.
Yes. So this effect is limited to the difference of EUR 9,000,000 that you're mentioning? Yes. Yes. Is it mainly due to USA, I think so?
Yes. USA difference in the position of USA that was compared in December, we have a punctual effect on depreciation of The U. S. A. And so this creates some part of The U.
S. A. Debt in euro some negative effect. Concerning the second question, I repeat what I said during the opening of the call. In March 2019, India and Mexico did the EUR 24,000,000 turnover and EUR 2,500,000.0 EBITDA.
The two countries combined were running at a pace in the last five years of plus 15% to plus 20% every year. In March 2021, the two countries combined have done EUR 17,500,000.0 turnover and zero EBITDA. This should help you to better understand the numbers of the first quarter twenty twenty one.
Okay. Thank you. And just
Sorry, I record just in a single number. So that I want to be more precise about the FX. We, as you know, big part in the U. S. Dollar debt, and it was 1.23%, the conversion rate in December.
Now it's 1.17%. So the stronger so the stronger effect of the weight of the dollar create a negative difference compared December in the fixed.
Okay. Thank you.
The next question comes from Nikhil Abadale with Exane BNP Paribas. Please go ahead.
Hi, good afternoon to everybody. I have a quick question related to the contribution of ARSHA in, let's say, January and February because that will be non organic growth, how much it has contributed?
So yes, it's not very material. And for sales, the difference is more or less EUR $07,000,000 for the two months of difference. And of course, it's very it's million for the EBITDA. So this is but it doesn't change the trend because I think it decreased from million to 2.9% in decrease of sales and the increase of the EBITDA from just from 0.1%. So the difference from material.
Anyway, 0.7% for sale and 0.2% for EBITDA.
Thank you very much.
The next question comes from Giorgio Martorelli with Humber Capital. Please go ahead. Mr. Martorelli, your line is open.
Sorry, I was on mute. Thanks for taking my question. I would like to evaluate the visibility on the geographical contribution to the EBITDA. I run very quick math on the EBITDA of the key geographies and even in the charties, it turned out that the European market was extremely profitable in the first quarter of twenty twenty. It's a high double digit, which is the biggest margin improvement in the group.
And I was wondering if you how you can explain such a large profitability improvement, its mix with the contribution of Fainaut is the implementation of cost savings and Central Warehouse and if this margin improvement can be improved further with thanks to the operating leverage in the second quarter of twenty twenty one? Thanks. Good evening, Giorgio. The analysis is correct and Stefano will give you some details. But there are a few basic comments.
Number one is that Europe now is clearly enjoying the central warehouse, which by the way, as I said fifteen minutes ago, there is always a short memory, but also UK had a project of Central Warehouse running during 2019. And of course, now it is perfectly efficient. The Central Warehouse in Lyon is extremely efficient. Arsh is a higher than average turnover. Europe last year has been affected by COVID before other parts of the world, before United States, particularly before Mexico.
So Europe, you remember, Italy completely shut down the last week of no, the March, if I'm not wrong, immediately followed by Germany, France, UK. So clearly, if you analyze the difference quarter by quarter, unfortunately, you have to follow the wave of COVID. And Europe has been hit earlier than other parts of the world. Stefano, maybe you can add some more color. Yes, I can just reinforce what you say, Marcio, because I analyzed the GM and the gross margin.
We can see an improvement of 1% compared 20%, And this is due to what Maximo says, sales mix and sales mix, channel of sales because I want to focus that to selling finance in e commerce is a double effect on the EBITDA margin. Then, of course, operating leverage, as you mentioned. Maybe I didn't mention one another important point that is also that we are still saving some OpEx compared to previous year because with the better control that we have just to the two that we have at the moment, SAP. Also due to the project that we started last year to be focused on the OpEx to contain the effect and negative effect of core business, we still are in the position of OpEx saving compared to this year. This is due also to the uncertain events of the moment that we have.
So most of companies, people don't travel. So marketing costs, traveling costs are lower compared to one the previous year. And in this moment, we are also still conservative in the increased expenditure because being horizon also very clear, we are still conservative in spending this kind of cost. So we have a saving also in the OpEx area. So this increase also in addition to the gross margin improvement.
Just to mention that compared to 2019, we have more or less three points of gross margin improvement. Because if you analyze just the detail that we inserted in Page four, the comparison of 'nineteen. You can see that with a lower level of sales, also if FX are not comparable, we have a better gross margin. It is better EBITDA. It is due to the big increase compared 2019 in the gross margin square due to the all the project, the mass emanation to and to the savings, which is better.
Okay. Thanks.
The follow-up from Fransaro Villar. Please go ahead.
Yes. Thank you very much. Can you just give us an idea of how the volumes went? I mean, can we get some more details on the breakdown of your top line this quarter between volumes and prices? Because if I recall correctly, you also implemented a first price increase earlier in the year.
So how did this first price increase impacted your top line and how did your volumes do mostly? Thank you.
Francois, so far, we have increased prices not more than 1% because generally speaking, even when we announced a price increase in November, we give the opportunity to customers to buy normally until the month of February with prices of 2020. And now we have announced a second price increase. So I would say, so far, it's mainly volume.
Thank
you. Price increase will be effective really by June 1.
Okay. And just one last question, if I may. So historically, you mentioned the Fine Arts EBITDA margin of about 20%. Is this still true now that ARFF is fully integrated or is it a couple of points higher? What's your view
on that? I do confirm that Fine Art is working with a higher than average EBITDA. If you like to have a precise analysis, frankly speaking, we need to prepare. And for next meeting, we can be more detailed. But generally speaking, I have always given the one third of Fine Art with 20% EBITDA, one third of industrial countries school business with an EBITDA between 171814% EBITDA of, let's say, let's so called developing countries.
In this moment, fortunately, we are losing some turnover in countries in which the average EBITDA is below the average EBITDA of the group. So clearly, the impact is slightly lower. The problem we have is that in these new developing countries, in this moment, the turnover is not even sufficient to cover the overhead. So in fact, the impact that's why I brought to your attention the numbers of 2019. Because in this moment, we have a turnover in those countries, but this turnover is not even sufficient to generate a positive EBITDA.
So it's a negative contribution to our percentage. But the three main legs of the business are still divided in this way.
Thank you.
It's a follow-up from Niccolo Stojev with Kepler. Please go ahead.
Yes.
I missed your answer on the minus 5% you reported in Asia and then back down by count. Can you kindly return on this, please?
The The EUR 1,000,000 is made of EUR 2,000,000 school India and plus EUR 1,000,000 financed Hong Kong, the pre settled Hong Kong. It is our company specializing in Brussels.
At the minus two India in percentage terms, do you have a figure to share?
Yes. Sorry, I'll take it up. 2,000,000 is the total loss that we the total negative difference that we have compared Q1 twenty twenty. So your question is sorry?
No, I mean, you have minus EUR 2,000,000. I was wondering how this translates into percentage. I know it's minus 20, minus 30, minus
10. Just one second. Just one sec, right? Yes. They're globally on Asia.
So just to give you the detail. It's more or less 15%, fifteen %.
This is before negative effect.
The only is the exceptional is 12%.
Okay. Thank you.
There are no more questions at the moment.
So it seems that