Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the first quarter Intercos 2024 results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on the telephone. At this time, I would like to turn the conference over to Renato Semerari, Chief Executive Officer of Intercos. Please go ahead, sir.
Thank you very much. Good evening, everybody. Q1 2024 has been a really atypical quarter, unfortunately, not in a good way. The cyber attack occurred on February 18, has had a significant impact on our capacity to generate revenues and on our cost development. Hence, our Q1 results have been radically different from the true Intercos business pace.
For this reason, I would like to start from giving you a glimpse on the underlying business trend, which is really positive, knowing that the closure of the cyber incident, which was communicated on March 19, will be a bump in our growth path.
So, if you look at our makeup and skincare order entry in the first 4 months of the year, we see a +19% order entry growth versus year ago, with makeup growing 16% and skincare 34%. Also, the mix of orders is coming back to a normalized profile, with prestige brands orders growing faster than mass.
This proves that our expectations about an end of the destocking phase are materializing. This order entry allowed us to end April with a record high order book, +12% higher than year ago, with both makeup and skincare at double-digit growth. And also our order book now sees a more favorable prestige mass mix.
Coming now at the quarter one results, we had a really challenging quarter from the beginning, given the fact that the year ago base was very high, with a +34% of the first quarter of last year. In this context, despite a very positive start in January, our February and March results were heavily impacted by the cyber attack.
This led us to close the quarter one with a -5% decline of sales at constant rates, in line with our estimate communicated during our last call. As we will see, the magnitude of the disruption was uneven by regions and business units since the cyber attack had heavier consequences in Europe and US than in Asia, and has affected the most complex productions and makeup.
Also, our EBITDA was not only impacted by the loss of revenues and by the mix imbalance towards mass, which we inherited from last year's orders, but also by the higher cost we had to bear to keep business going despite no or low system availability during a month of the quarter. This brought us to a minus 30% EBITDA decline in quarter one. Debt remained at around EUR 100 million, below the one times EBITDA threshold, in line with December 2023. Let's go now look at the sales profile in more details, starting from the business units.
As previously mentioned, Make-up was the most affected business unit due to its geographic skew to Europe and US, which were more impacted by the cyber attack, and the fact that the complexity of its production process needs heavy assistance from systems more than the other business units.
Hence, Make-up registered a -13% decline at current rates, weighing 58% of total sales in the quarter. Hair & Body declined by only 2%, reflecting the underlying growth trend, especially of fragrances, and also the simpler production process relative to Make-up. Skincare, conversely, reported an excellent +23%, mostly driven by Asia and the easier production process. So Asia was really the hero that allowed us to grow in skincare. Moving now to regions.
The most affected region, as already mentioned, was Americas, which recorded a -16% decline. This was due to the severity of the cyber issues, plus the heavy skew to make-up of this region. EMEA was the second toughest, closing at -8% for the same reasons just highlighted for Americas, but helped a bit by hair and body and skincare in the region.
Conversely, Asia recorded an excellent +24% result, with both China and Korea in double-digit growth. As a result, Asia weight on total sales in the quarter got to 20%. Moving now to the sales by customer type, emerging brands were once more the best performers, recording a +15% growth and now reaching 46% of our total sales. This cluster was mainly driven by the Asian clients.
As I said earlier, Asia was a bit the happy island in this difficult quarter. Multinational retailers had instead similar declines, respectively, at -18% and -21%. Multinationals paid the toll to their makeup plus Western world sourcing SKU, while retailers also suffered from their slower than others pace registered in the last years.
So moving now to our outlook and guidance. Overall, the market trend remains positive, with Europe displaying across the board, a growing pace in both prestige and mass market, as well as growth in both volume and price. US has softened, especially in volume and mass, also driven by the fact that the Walmart wall reset delayed to May, means a delay in initiatives launches, and as we all know, Walmart weight on mass market for US is pretty heavy at around 30%.
We keep a positive outlook for the year, as we always expect that a slow start in the year and a better second semester, especially for U.S. Asia remains positive, especially thanks to local brands in China that continue gaining market shares, and also thanks to the impressive growth of the Douyin e-commerce platform. Also, we remain very positive on our innovation results.
As you know, innovation is the number one pillar of our business model, and during the first quarter, we had very positive indication from Cosmoprof, which is the main fair of the beauty industry for the year, which has been a very successful fair for us, with over 400 clients met and with very positive feedback on the trends and the products we presented.
Also, we remain positive about the underlying outsourcing trend, which are getting new confirmations, not only driven by the continued growth of the emerging brands, but also, driven by multinationals that are relying more and more on partners like us. And I think that the Estée Lauder outsourcing decision for powders production is a confirmation of this trend.
In this context, and given the fact that we have now, behind us, the cyber issues that affected our first quarter, we remain confident to confirm our guidance of at 2024, a +6% to +8% range versus year ago, which would make us outperform the market once more.
Now, as usual, I want to go a bit deeper into the order entry path, because, you know, on top of what I've already spoken about, there is, I think, further good news, looking more granularly at the orders intake trend. As you saw at the beginning of the call, the trend is extremely positive, but it's even more so if we consider that in the last three bi-monthly readings, we've been recording all-time highs, one after the other.
The second good news is that makeup is re-registering records, one after the other, and as a result, as we have already said, we have today the highest ever order book, which is 12% higher than year ago, and it's in double-digit growth for both makeup and skincare. I think that covers what I wanted to highlight for this quarter, and I'm ready to take on any questions from you.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch tone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. Once again, that's star and one for questions. The first question is from Kate Rusanova from UBS. Please go ahead.
Good afternoon, Renato, Pietro and Andrea. Thank you for taking my question. So my first question is related to your profit outlook for the second quarter. Since you are expecting to fully recover the lost sales, is it fair to assume that you will also recover the EUR 8.1 million of lost EBITDA as well?
And for the year as a whole, are you still striving for some margin improvement, considering the positive mix from prestige customers that is, that is expected to materialize in H2? My second question is related to your partnership with Estée Lauder. Can you provide any color on the potential size of the deal, when you expect to see the first sales to be recognized in your P&L, and whether this partnership will be margin accretive?
And lastly, my question is on the emerging brands in Asia, would you be able to provide some color on the profile of those customers? Are they mostly in mass, which categories they're mostly in, and whether they are margin accretive for you? Thank you.
Hold on a second. Hi, Kate. Thanks a lot for your questions. I'm trying to go as fast as you as you speak, also in writing them down. Okay, let me start with the profit outlook from on Q2. Expect the profit profile to be certainly a lot better than quarter one, and also clearly above last year.
Now, recuperating all what we've lost in Q1 will be difficult, I think, also because we had to bear extra costs. Again, this is a very important point to underline. You know, when you do not have assistance from systems, it means that you need to do a lot of things manually, and then you need to re-register whatever you've done manually on systems.
These generate extra costs that are not going to be recuperated simply because the volume comes back. So that is a one-off cost that will remain, I'm afraid, and, so that, at least that part will not be recovered, I think. Certainly not in Q2. We'll see how the things evolve for the second semester and how much we can profit from the mix swing in favor of prestige.
But I would be very, very surprised, positively, obviously, if we were able to recuperate everything in the quarter two. I don't think it will be the case, and it's not reasonable to expect that. In terms of gaining margin on the year, I still am optimistic.
Certainly, I'm expecting margin improvements in the second semester when this change of mix will come into effect in terms of revenues. So, on the second semester, certainly, yes. Then we will see what ends up being the case for the total year. But, you know, what we are betting on is a second semester that sees margin going up.
Estée Lauder deal, I won't, and I cannot give a dimension of how big it is. It's not gonna be massive, I want to say that. It's, it will depend a lot also on how Estée Lauder goes and, and many other factors. It's an effect that will come into play in next calendar year, in fiscal 2025. But it's, it's, it's a good business to have.
Again, I cannot say whether it's margin accretive or not. It's, it's too much detail on a listed company, so on two listed companies, actually. So, I, I won't be able to give that. It's, it's good business to have, all in all, and I think it's...
What is the most important for me, it's a clear sign to the markets, and when you have to rely on an external partner for an entire category of your business, you come to Intercos, I see, I think it signals something to the market and to the other clients as well, which is a, a very important point. The emerging Asian brands, they're especially Chinese. There is also some Koreans, but it's fundamentally Chinese.
They tend to be in the upper range of mass or in the lower range of prestige, you know, in the famous, masstige, kind of category. To be honest, and I think we've already mentioned that China is a, is a, let's say, a margin sweetener in our mix of countries. So it is, if you look at it on a global basis, it is a margin accretive business, yes. Then relative to other Chinese clients, it's all relative, but, you know, all in all, it's good, it's good business. I hope I've answered-
Thank you.
as much as I could.
Thank you.
Thank you, Kate.
Once again, if you wish to ask a question, please press star and one on your telephone. As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Francesco Brilli of Intermonte. Please go ahead.
... Good evening. Thanks for taking my question. Just a couple of questions from my side. A quick one on the orders, and in the record orders registered in the last observations, if you can provide us a flavor on the percentage of the prestige within the bulk of the makeup orders we can see in the charts?
Yes. Is that the question? Do you have a second one, or you want me to answer the first one first?
Just, yes, please go on with the first, please.
Okay, well, the mix is coming back to a 50/50 ratio. You know, you may remember in the best years, we were slightly more skewed to prestige for makeup. We went down significantly more in the range of 45, 40, you know, in between 40%-45% of prestige last year, especially in the second semester.
Now, we're coming back to 50/50, which is what I think it's a much better mix for sure. And, you know, on the long run is where we like to be, because we always like diversification in our business model, so we will always want to be pretty balanced in terms of which segments we're serving.
Thank you. Thank you very much.
I've spoken about the order entry, yeah, not the portfolio of orders, because there the result. Okay.
Okay. Thank you. And then the second one I had is just a curiosity. If you have some insurance or something that we should consider as a positive factor going forward for following the cyber attack, that can cover part of the losses?
Yes.
Yeah.
Si.
Yes, Francesco, this will be treated as a one-off, as we are treating the direct costs related to the cyber attack. So, we are still seeing, checking with the insurance company, but then it will be treated as a one-off, of course.
Okay. Thank you very much.
We really hope it's gonna be a one-off. We don't want to go back to this at all.
Hopefully, yeah. Thank you.
Thank you, Francesco.
Once again, if you wish to ask a question, please press star and one on your telephone. As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Tilly Hine , from Morgan Stanley. Please go ahead.
Hi. Good evening, all. Thanks for taking my question, and congratulations on the update. Very clear to see the strong underlying performance of the business, despite everything faced in the quarter. I just had a quick follow-up on your EBITDA outlook for the full year.
You've given a, a very helpful bridge on slide 5. So would it be fair to assume that the, the EUR 6.2 million of lost EBITDA that was related to volumes could be recovered in the remainder of the year? And then that EUR 1.9 million related to the production inefficiency is the sort of unrecoverable part, and sort of check if that's a fair way to interpret those data points.
Hi, Tilly. Yeah, I think that the volume part is what we are targeting and what we want to get back for sure. The production inefficiencies, as I said earlier, is you know, something you cannot rewind on things that you had to do. So that is probably the toll that we have to pay for the mess that the cyber attack generated.
Obviously, it doesn't mean we put a cross on anything. You know, we'll try to do our best to do better and try to recover as much as possible on anything we've lost. But you know, with the visibility we have today, it's obviously the volume-related part of the EBITDA that is the most obvious to recover.
Very clear. Thank you. And then just one more on your sales guidance for the full year. Given your expectation to recover the top line, you know, in the remaining quarters, and given how strong the order intake performance is, what's sort of holding you back from raising that sales guidance for the full year?
Well, you know, it's a bit difficult to raise the expectations after a quarter that has been what it has been. Consider that to do a +6%-+8%, it means we are, you know, we are betting on a +10%-+12% in the nine months to go, which is a, I would say, a very good pace.
It's about twice as much of the, it's a bit more, a bit over twice as much of what the market is going to do. Obviously, if we keep a rate of +19% till the end of the year... better than that, but, I don't think that it would be reasonable to, to do it now.
We need, you know, the year is still very long, and we need to see what happens. But, you know, bear in mind that we are telling you from now on, we're gonna be doing +10%-+12% for nine months, which is, you know, not marginal, I would say.
Very clear. Thank you so much, and congratulations again. Thank you.
The next question is from Molly Wylenzek from Jefferies. Please go ahead.
Good evening, guys. Thanks for the question. I have a couple, if that's all right. Should I interpret the plus 5% market growth estimate as a small upgrade from your full year release, 4%-5%? That's the first one. Second one is just if the order book level is, to some extent, inflated at the moment due to the backlog of Q1 orders that you need to sort of catch up in Q2 due to the cyber attack.
And the third one is just on Pietro's resignation, you know, sorry to see you go, Pietro. Just how far are we into the search process, and do you have any sort of timeline on that? Thank you.
Hi, Molly, thanks for your questions. The first question is, yeah, I mean, it's difficult to predict where the market is gonna end, but, you know, it's between 4%-5%. I think that is what is legitimate, and what is confirming with the data we have to date. The second question you raised, sorry, I forgot that.
The Order book.
Ah, the order book. Well, there is a bit of backlog, obviously, so there is an element of that. But, you know, the most important thing I always look at is the pace of the order entry, because that is telling you what the clients are demanding, and is the indication of how successful are the products that you've given them in the past, or the reorders, and how good you are in generating new projects.
Yes, there is a bit of backlog, and this is normal, although April was back to, let's say, a normal month in terms of revenues. But the fact there is a big backlog, there is a little bit of inflation there, for sure.
Coming to Pietro, I am the saddest in the room here, to be very frank. You know, you know Pietro, you know how much I like working with him. I think that after thirteen years, we cannot crucify him for wanting a new adventure. We are nowhere for the time being because he gave his notice today, so we're gonna be starting as quickly as we can, but it's not even 24 hours elapsed from the news. So it's very fresh.
But I'm remaining for three months.
But he's remaining for three months, so we have a bit of time. Otherwise, I would have crucified him. We have three months to run and see how to organize ourselves.
Okay. Thanks very much for that, and thank you, Pietro, for all the help over the years.
Thank you.
He will be still in the next
Yeah, sure. I will be here.
The next quarter release.
Yeah.
He will still be here.
Perfect.
With a suitcase, though.
Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Renato Semerari, there are no more questions registered at this time.
Thanks a lot.
Thank you.
Good evening to everybody. Thank you.
Bye-bye.
Thank you. Bye.
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