Earnings Call: Q2 2021

Sep 10, 2021

And thank you for joining today's call on the First Half Results twenty twenty one of Unit 4 SPA. Joining me today, we have, Andrew Mastrella, our Chairman Luzette Mastrolia, CEO and Chief Commercial Officer Rocco Saagci, CFO and Fabio Fattere, Group Financial Director. I'm Benedetta Mastrelia, and I'm the Investor Relator at Newland Foods. So before starting this presentation, I would like to remind you that this presentation may contain certain forward looking statements that reflect the company's management's current views with respect to future events and financial and operational performance of the company and its subsidiaries. These forward looking statements are based on Unalafood SBA's current expectations and projections about future events. Any reference to past Performance of dealerships shall now be taken as a representation or indication that such performance will continue in the future. So we move on to Slide 3 of the presentation, which is the first half twenty twenty one key financial highlights. Revenues for the period were €245,500,000 of euros down 3.9% versus the first half of twenty twenty. If we look at the Pasta and Dairy and German segment, we had very good growth. So Pasta grew 5%, Dairy grew almost 11% and Germany grew almost 7%. So despite the Difficult period, we definitely had some very good growth in some key markets and segments in our for Core Business. EBITDA was €21,700,000 with an EBITDA margin of 8.8%. There was a slight decrease, which was natural due to the decrease in sales. As last year, it was 23.1 million of EBITDA and 9.1 percent of EBITDA margin. Free cash flow was 17 point €4,000,000 and the EBITDA free cash flow conversion was 80.5%. So once again, this confirms the group's ability to generate free cash flow and to improve our net financial position every time. Net income actually increased as opposed to last year. We are looking at the 2020 pro form a figures. So this includes Centage and Adelater Italia from the first of January last year. So we had a very good growth of 4% despite the decrease in sales. And if we look at the E and F financial position as a consequence of the good performance, we Actually had an improvement of the E and F financial position, which was positive by €16,700,000 versus €5,200,000 at the end of 2020. If we exclude the IFRS 16 lease liabilities, we would have we would add €32,300,000 of positive financial position, so cash. Moving on to Slide 4, where we see a very quick M and A update. So we have In our pipeline at the moment, we're looking at 3 deals, which concern 3 companies located, 1 Italy, 1 in Germany and 1 in the UK, so our 3 main markets. And just a very quick recap on the Simintern's position. So as you know, on the 4th August 2021, we acquired Tim Hortons, which is a U. K.-based hot snacks producer. The integration process is going on smoothly. So we've been doing we've been having meetings and strategic meetings and commercial meetings. I know that you align the 2 companies and work together towards shared a goal in terms of commercial strategic views. On to the next slide, we have sort of an Today's overview of the business as it stands today. So although we're looking at the 1st of 2020, which Doesn't necessarily involve the Simontons acquisition itself. We wanted to give you sort of an update on what we where we stand today in terms of Revenues in terms of production and product categories. So Revenues are in excess of €600,000,000 EBITDA would be around €60,000,000 We look at €59,000,000 of EBITDA and net income around €70,000,000 So we've sort of enlarged our product portfolio. So we've added the instant hot snacks and all the products that are being produced by Simintas, which are many. At the moment, our geographic presence He is of course in Italy, which is 56.8 percent of our revenues and the UK became our 2nd largest market at 18.8% of our revenues. And it's followed by Germany, which still is one of the main markets for us of about 15.2 percent of revenues. And we still, of course, export to more than 60 countries, so we have an exposure to other countries. We've added 3 facilities, which are in the UK to our existing 15 facilities in Italy and the facility in Germany. This slide, we like to look at this slide because it gives you sort of an update of what we've been doing. So with that, a continuous expansion of brand and product portfolio. So we've added sort of this the last I'm here with Instant and Others. We're called Instant and Others at the moment, which shows you sort of the 3 key brands of Simmental's, which are Naked Chicken Tonight and Mugshot. And as you can see, our business model is very similar to that of a multinational corporation. So we've been really striving to achieve that type of multi product, multi brand, multi channel model that we've been that we've shared with you many times before. So we're really With this new acquisition, we have the chance to even further expand our product portfolio and to further diversify our product portfolio. So really good for us. So when we move on to Slide 7, Here we have a quick update on the raw materials and the commercial side. So raw materials, as many of you know, There's been a significant increase in the brown wheat price in the last months. However, we've been able to We negotiate prices with retailers. At the moment, we've had a 50% acceptance of the new price. We're still working on the other fifty percent. We've been very successful so far. So it's been very short period in which we've been able to renegotiate and has been successful. So that also showed in the successful renegotiations with B2B Partners. And there's 2 sort of key points for us. So the first one is that we have a fixed price contract in Germany, which sort of stabilizes our products below current prices until the end of the year. And we also have some fixed contracts in Italy until the end of November 2021. So for the next few months, we're still covered with sort of lower oil prices. And just to give you an idea, the sector is initiating sort of a general cost pass through. So all the producers are really trying to repay their prices on retailers. Very quick commercial updates as well. So we've had a good progression of the Boisonia and Delverde integration and sort of phasing process in Germany. So the Bouyguesonielberg packaging has been launched and it's as you've seen in the quiz after before, we have had We have very good results in Germany in the first half of twenty twenty one, and we expect to have good results even in the second half of the year. Regarding baby food contracts, the very infamous baby food contracts, we are expecting into start the commercial production on around Q1 2021. So I'm talking October, November 2021. And we expect to have around €5,000,000 of sales in 2023 and over 30% of EBITDA margin. So As we already mentioned, these products are very high margin products, very specialized products, which gives us a very good margin. And very quick update again on the launches of the products that we saw in the last Presentations line in May and in March this year. So we've been able to launch all the products that we were trying to launch in this period and some of them already on shelves, some of them are soon to be launched. So In terms of new product development and new launches, we've been able to sort of achieve our goals. Last slide before we move on to the sales breakdown is the Germany The situation in terms of Italian pasta. So here you can see sort of a slide which shows you the tons of pasta So that are being sold they were sold starting from 2011 going to today. So in the last 10 years, There was a steady increase in tons, especially if we look at 2016 when Newell started selling Italian pasta on the German market. There's been a constant increase in tons of pasta of Italian pasta sold in Germany by us. And 2020 was a particularly good performing, well performing year. And this year, we're seeing still some growth. So we're really Happy to see that this market is performing so well in terms of pasta, and we've been able with our commercial team to really sell more of our pasta around the country. Now we move on to the first half twenty twenty one sales. The breakdown and analysis by sector and by channel. So I'll move on to Slide 10. Slide 10, we have sort of a picture of the revenues that we had this year compared to last year in 2019, because as you as we know, there was a decrease since last year, which is the results of 2 main points. The first one is, of course, the exceptional results that we had in 2020, which were impacted by stockpiling, by panic buying and all those things that affected 2020. So therefore, that's for us, it's only good comparison base because, of course, There was a movement that wasn't sort of expected in 2020. And there was also an increase seeing an in store promotional activity in 2020, which is aimed at incentivizing customers' spending in this particular moment in time. If we look at the 2019 pro form a figures, We actually had an increase of 1.4 percent with an underlying CAGR of 0.7%, so still a good result. Also, if you look at EBITDA, there was actually an important increase. We went from EUR 14,200,000 to EUR 21,700,000. So again, if we look at these numbers, we can see that although this year wasn't necessarily the best performing year, who has definitely been a good year compared to 2019. Now we move on to Slide 11, where we have the revenue breakdown by business unit. So as you can see, we have pasta, which increased by 5%. It was mainly driven by the increase in sales in the German market. Then we had milk, which decreased as the result of lower sales volumes and also a sort of a less favorable product mix versus 2020. Then we have bakery products, which also decreased 2.9% as a result of decrease in sales volumes. Dairy Products increased 10.9%, which was an extraordinary growth in this situation. If we think of 2020 as a very good performing year. This result was exceptional. So we had new contracts signed with new customers and so new paralegal contracts in this particular business unit. Special Products were slightly down 3% due to a slightly lower demand, but in terms of absolute numbers, it's not necessarily a huge decrease. And then if we look at other products as well, there was a decrease, which again, absolute numbers is not as bad as the 8% decrease that we see here. Moving on to Page 12 of the presentation. We can see the revenue breakdown by distribution channel. So large and was down 5.5% as a sort of a natural reflection of the lower traffic in supermarkets this year compared to last year. B2B Partners also decreased 5.2% as a result of lower demand, lower consumer spending. And normal trade channel was basically flat. There wasn't much of a change since last year. But if we look at the Q1 2021 sales in which we had a decrease of over 17%. We can see that we've been able to catch up with last year's sales. So we've I'll state that and the results overall. Private label was actually up 5.1%. This was due to new contracts with new retailers, both bubbling pasta and dairy. And then we look at foodservice decreased by 9.9%. Again, in absolute terms, it's not a huge decrease, but that's the result. Moving on to breakdown by geography. We look at the 3 main countries for us, so Germany performed really well and it Over 20% of our sales are being only in Germany. Italy decreased by 7.3% as mainly linked to the decrease in milk sales, which we saw earlier. Germany, as I said, went up 6.9% and other countries remained stable in the period. Moving on to Page 14, where we have the EBITDA margin, EBITDA and EBITDA margin picture. We can see there was a slight natural decrease in EBITDA and EBITDA margin. So we had 8.8% versus 9.1 percent of EBITDA margin last year. Pasta EBITDA margin went down to EUR 4,070,000 versus EUR 4,250,000. Milk Products were down compared to last year And EBITDA margin was €9,200,000 bakery products also decreased and the EBITDA margin was €14,100,000 1%. Dairy Products EBITDA increased as a result of the increase in sales and we were also able to slightly increase the EBITDA margin to 14.8% versus 14.7% last year. So not a huge increase, but definitely a good result. Special Products also increased. The EBITDA and EBITDA margin of Special Products also increased. The margin was 10.8%. Then the EBITDA relating to other products is basically unchanged since last year. There was a slight decrease, which was naturally linked to the decrease in sales. Moving on to Page 15, we have the sort of the net profit and the income statement picture. So net profit was the figure that grew The most in the period, the only figure that grew in the income statement, which grew by 4%, and it reached EUR 7,100,000 this year versus EUR 6,900,000 last year in the pro form a and adjusted net income. And this is a great result if we think that we had a drop in revenue, which was almost 4% lower operating margin. And also, if We look at the interest payments of the bond that we issued in February this year. So it was a good result. We were also able to benefit from a tax loss carryforward. Here, as you can see, in the income statement. And we had an overall profit margin of 2.9% versus 2.7% last year. Moving on to Page 16, we have the free cash flow and our financial position, third picture. So as I already said, We have been able again to once again to show that we can generate cash from operations and we had a very strong cash conversion. Free cash Cash log was €17,400,000 and the EBITDA free cash flow conversion was 80.5 percent at group level, so Bob Newlard and CLI. This allowed us to even further improve our net financial position, which which was positive by EUR 16,700,000 versus EUR 5,200,000 at the end of 2020. And there was also a positive contribution on net working capital to the free cash flow number. Last slide, we move on to the net working capital and cash conversion cycle picture. So this year, in this Last 6 months, we've been able to further improve our days of sales and spending. So we've been able to showing the period to 37 days instead of 47 days, which is a great result, which also Stands from our strong relationships with clients who've been able to really shorten the period of sales outstanding without compromising our days of payables outstanding, which remained basically the same. And in this period, we've as a result, we've also been able to decrease our share receivables, which were €54,400,000,000 versus €73,500,000,000 at the end of 2020. And net working capital as a consequence was improved in a way, so we went to negative €58,900,000 versus €49,500,000 at the end of 2020. And just that's the presentation. Now we can We'll move on to the Q and A. So as we usually do, I kindly ask you to unmute yourself and ask questions and with others to ask or otherwise, you can write them down in the chat and we will read them up for you and answer your questions. Thank you. Hello. It's Victoria and I just want to stop Jen. Can you hear me okay? Yes. Hi, cool. Just wondered, is the removal of sales and profitability guidance related to uncertainties on input cost inflation versus price increases That can be achieved. And also related to that, can you give us an indication of the level of raw material inflation that you are experiencing? And our other inputs rising. We're hearing a lot about transport and packaging also rising. Do you expect an impact there? And when should we expect to see price increases realized? Or put another way, are there sort of contract structures that might delay The recovery of raw material inflation through pricing, such as contracts that are negotiated annually, for example. Yes, about the raw material, we can give you, I would say, a simple and precise message In the sense that we and I think all the sector was particularly scared at the beginning of this strong increase. And after that, we start immediately to contact our Clients to try to understand the possibility to apply this pass through immediately. I have to say that considering the magnitude of the increase and the fact that this is something that impacted all the sector is not something Specific by new or a single companies, all the sector is reacting. And We got already a lot of agreement for price increase. We have today A good situation in terms of raw material in Germany because as Bernadette anticipated, we have contracts that cover Our meet until the end of the year. For the Italian production plant, we have raw material until Mid end of November? Sorry, Thiago. So you remember on the milk, we have the conduct for 2 years in Tuscany. This is a very important cover of the Yes, Andrew. I was just finishing about Durum wheat. In this sense, I have to say that what we expect is to complete this price increase that was so far extremely successful And to add substantially at the end of the year, substantially a neutral impact in terms of Negative impact from raw material inflation, so in the sense that we should be able to pass through all of the impact. As Mr. Mastroglia was saying before, on the milk side, we are today well covered in the We signed several contracts fixing the price for 3 years And this means that we do not expect to have a particular impact on the mix side. Good afternoon, everyone. It's Thiago Miki from BNP Paribas. The first question is on M and A. You have 3 deals according to your presentation and cash For about €400,000,000 at the end of June. So could you please tell us the magnitude of these deals? I mean, are you going to employ all the cash you have? And if there is a particular deal, which might exclude the others? And then the second question is on the statement in the press release Referring to your budget forecast and industrial plan, you are ahead of these figures. Can you please share with us What do you expect for the full year, I mean? The margins is going to recover according to your statements about raw materials and so on. So A bit of granularity on this would be really helpful. Thank you. Yes. Thank you, Dario. About the M and A, we are in talks for deals that Altogether could cover about around €200,000,000 to €220,000,000 this is more or less the size. If will be less, We will be extremely happy. This means that we are going to pay a very interesting price. But apart is joking, We are concentrating on the 3 targets that could continue the strategical process that Benedetra show in the slide That substantially includes all our products and our brands in the sense that we want to continue The process to diversify geographically and also by product Our company introducing new products that could create diversification, but also that Could create potential synergies in terms of raw material, commercial asset, etcetera, also With the other brands that we have inside our platform. This is the strategy that we are pursuing And I hope maybe to be able to announce something very soon. About the other question was about profitability. About profitability, I have to say, we made important decision on the commercial Tried to avoid to participate to campaign that could have a materially negative impact on the price positioning of our products And the dilution of the profitability that you have seen for the first half is mainly related to the fact that Reducing volume, we have an operating leverage impact on our gross margin and EBITDA margin. Starting from this point, we believe that the potential negative impact coming from raw material We'll be totally offset by the pass through. On the other side, we are experiencing Starting from July, our recovery of the top line performance, organic performance. And this means that If we will continue on the trend that we are seeing Starting from July and until September, the 1st week, we had visibility of The 1st week of September, in this sense, I think that our profitability could be Very close to the level of past year that was a very strong Level of profitability. So I do not expect to have a dilution of profitability. Thanks. Good afternoon. I have a question here about the type of targets you are proceeding on the M and A acquisition Strategy. Only to know a little bit about it. I will not ask about the industry because that could be too revealing. But I'm mostly interested to know if you are looking for companies that are profitable and are companies that are in good shape But you are looking for companies that need a little sort of restructuring as you have done on the past and made successfully. So I want to understand the type of things you are proceeding. Thank you. Thank you, Gabriel. We are looking for Both in the sense that we have a strong track record in terms of restructuring of Underperforming assets. This is, for example, what happened in Germany, but also in Italy in Ocenotaro. We are looking for this kind of potential Deals, we are looking for deals with potentially multinational company, which are being very interesting because We can get an asset with a very strong knowhow and Sometimes, as happened in the past, we can also think about a long term relationship with This is something that in the past for Newland Group created a lot of value. And we are also looking at, as was the Case of Symington, of company that are already performing alone, but could generate a lot of Additional synergies inside our group. This is substantially the profile we are looking for. In terms of size, obviously, for us, it's very important to try to negotiate for target That could have revenues at least minimum €50,000,000 but our Your target is with the size of Simitom, at least €100,000,000 of revenues And the possibility to accelerate our rush versus the target of €1,000,000,000 revenues. I think that as soon as we reach this target of €1,000,000,000 and with the new sites of our group, But also the M and A activity could benefit from the fact that we will be a bigger and more diversified player. Hi, Blair. Perfect. Thank you very much. You're welcome. Alsou, it's Gabriel again. Alsou, I was looking at the cash flow statement that you published in the presentation and you were saying that the free cash flow is EUR 17,000,000 this first half of the year, But it looks slightly higher for me. Could you explain a little bit on how you reached this EUR 17,000,000 free cash flow Lebo? I think Gabriel that there are two reasons that could This high level of working capital. The first one is the fact that we continue To do a very strong efficiency action on the working capital side. Okay. He's giving us €7,000,000 around €7,000,000 in the first half. The second point is related to the structure of the P and L of the group in the sense that We are not capitalizing nothing in the sense that all The expenses in New Lat referring to R and D, referring to other expenses that sometimes could be capitalized In Newmont, our directly put in the P and L, in the cost base. And this means that the EBITDA that We generate in the P and L is really close to the free cash flow that you could Generally, it's because you don't have to make any kind of material adjustments. These, I think, are the two Reasons in particular. Yes, perfect. Thank you. Again, Dario, Coming back to the M and A, might you consider also to buy minority states or just the majority? Thank you. No, we don't consider any other investment. Thanks. Sorry, I knew very quickly, Asaf. Thank you. Hello, Espana Carboni speaking. Hello, everybody. Yes. Hi. Good afternoon, everybody. I apologize, but I'm not able to switch on the camera at the moment. I have a few Question, first of all, I would like some comments from you about the sourcing Situation for Simington's and so what should we think about inflation of raw materials and their impact on Chainlinko's profitability looking to the next few months and next year. Second question is about the baby food, the special segment. You in the slide on Page 7, you mentioned that you expect Sales for EUR 5,000,000 in 2023. I'm just struggling to reconcile this indication with A past presentation from you, I think, in March, when We were anticipating, if I'm not wrong, you were anticipating the EUR 58,000,000 revenues and About EUR 7,000,000 EBITDA in full year EUR 2023. So I'm just trying to understand if this is a Part of that ambition or what are you referring to? Sorry about that. Maybe I'm a bit confused. And a further question instead is on working capital. You had a further improvement here, this time of both in terms of Receivable time, I'm wondering whether the current situation in terms of Romeo Gutierrez on one side and the need to pass through with grocery chains on the other side might lead An opportunistic approach to working capital in this respect going forward, so maybe accepting A bit less favorable cashing times or payment times in order to get better conditions with your suppliers and clients. Thank you. Thank you very much. Thank you, Paola. So starting From Simmental's, Simmental's is a company that Process has raw material, part of our production in the sense that pasta for them is raw material, He's not with raw material. This means that they could experience some months of delay versus what is our section of the raw material increase. And in this case, they have been lucky because we start immediately also with Simmental to ask for a price increase to the U. K. Customer. And they already realized a successful 1st round of this increase, they are continuing also for the Beckley products. And we believe that also for Simonton, Considering what is feasible from this first approach, the results, the full results will be Also in that case, absolutely positive. What is important to highlight, Again, also considering what you mentioned in terms of working capital potential impact from This general situation of raw material increase is that when the situation is A situation that is impacting all the sector. You saw in the past days that other And the bigger player, we are speaking about the impact of the raw material, the fact that the market must Change in the future to absorb this movement. This means that the situations that we are facing, Fortunately, it's not something that is impacting only Newlatt or only the midsized player. It's something that His structural is impacting all the sector and this means that the pass through to the consumer, to the retailer at first And to the consumer, he's a bit easier to be taken because he's An impact for all the sector structural situation. This means that I think there are no particular room for Specific action from Newlatt or specific commercial agreement, I think that the way is Only 1. So the modern trade in particular must accept this pass through because it's something related to the market and is not related to maybe an increase of demand. The market is what it was. We have this year this news in terms of Amazing increase of raw material and I think that all the players, including the retailers, must be adapted to this new scenario. About the Betty Food, we shared today what is The first substantially green light that we received from our partner for products that will be sold starting from The last month of 2021202223, only in one country, it's only in Mexico. This is the first green line we had during the first half of the year and the activity is continuing now A very deep activity to generate prototype, to test All the products, the capability of the products to maintain all the active principle and the quality facing a very Long trip versus, in this case, Mexico, but also other region. And this is the first in line that we obtained from our partner. And we have visibility for this region What could be substantially the revenue base and the profitability? The numbers that you mentioned and that we show in March Are the number for the full project. But as of today, we obtained the green light only from Only for one of these and we communicate that we are working in terms of prototype and testing also for the other countries. And as soon as we receive other green light, we will communicate new this new green light adding revenues and EBITDA to the level that we communicate today. Okay. Perfect. Thank you very much. Maybe we are just missing the question about receivables, just to understand how much we I think that I think that no, I put this answer together with the first one. I think there are no room for specific Because it's not something a scenario in which we could try to find an opportunistic solution. And I think that nothing is going to change in this sense. And about the working capital, We said announcing the full year results that until we remain with this Cash availability, we could try to use this maybe to obtain discount paying maybe with a lower BPO, But it was not the case in the sense that we didn't find this kind of opportunity. This scenario is a particular one this year. I don't think that in the second half, we could find this kind of of Solution. And on this basis, I think that the working capital will continue to give us a positive impact also in the second half of the year. Okay. Very good. Thank you. Just a quick question on client sales. The principal repayments of lease obligations Have increased a little bit this year, expect the last year. Which type of This is our it's for some facilities or some offices. There is a natural process Of the renovation also expired contract and you know that in this case, you have an increase of the NPV because The average life of the contract is substantially increasing. If we start with the base of 10 year, Maybe you have some contract that going close to the date of expiration, you renew this contract and you Start again with 10 years NPV and the average value increase, but it's just a natural, I would say, Natural Evolution of the Visig. Okay. Perfect. Maybe there are no additional questions. It's Paula Cabone again. May I have the question about the mix segment, It's possible because we had a bit of pressure here in the 1st part of the year. Do we expect to have any improvement going forward in the next few quarters? Thanks. About milk, yes, we expect to have A bit better performance in the second half. But obviously, in the Specific situation we face in the first half, you have to consider that especially Simple milk is something that usually retailer use in their basket to try to attract Traffic with the best offer, etcetera, and the sector suffer We report a new scenario after the COVID. We avoid to put our And in this situation, try to maintain as much as possible our price positioning. And this is Obviously, one of the reasons why we performed so bad. We expect maybe in the second half A reaction in this sector, especially also considering the fact that in the first half, we didn't Benefit from the contribution of the Oracast sector that was substantially Impacted by the COVID the lockdown related to the COVID. If we will Getting contribution from the normalization of the ORE activity, I think that this could help to recover on the milk side. Okay. Thanks. Welcome. I think there's one more question from Stefano Lustig, which says About the minus 7% in Italy, how far was the performance from the market? Sorry, Bernetta, what's the question? So if you open the chat, you can read it too. So it says, above the minus 7% in Italy, how far was the 4 months from the market. The performance was Depends product by product. On average, I would say that the performance was better than the market. We perform extremely better in some categories also helped by The brand substantially we have, I'm thinking about the bakery side, for example. But all in all, I think that the decrease that we reported in terms of Revenues in Italy, in particular, was absolutely better than the market. I can No, what I can add, Fab, is that sorry, Mr. Lustig. So Our minus 7% is not only driven by the we are totally in line with the market. That is a stable market. The minus 7% is driven by mainly the out of home and food service decrease that we had In the first period, so because of COVID transition. That's why we had the minus 7. So it was part on Due to a low consumption in the supermarket and in the retail, so A bounce back from the last year explosion. And then on the other side, a path comes even from the foodservice business. So it's not on market data essentially. Yes. And anyway, The point is that considering this impact from the out of home, so the performance was absolutely, In some cases also better because we have a lower exposure to the Orecad and the other better than the markets. TURCO. In case you have any additional questions after TURCO, you can send us an e mail at investorsnural.com, and we will be glad to answer all your questions. Thank you, and have a nice evening. Thank you, everybody. Thank you, Alex. Everybody, have a nice weekend. Thank you. Bye bye. Thank you. Bye. Thank you. Bye. Thank you.