Good afternoon, everyone. Thank you for joining today's call. My name is Benedetta Mastrolia, and I'm the Head of Investor Relations in Newlat Food. Today you are being presented the 9 months results of 2022 of Newlat Food. Joining me today to discuss our results are Angelo Mastrolia, our Chairman, Giuseppe Mastrolia, CEO and Chief Commercial Officer, Rocco Sergi, CFO, and Fabio Fazzari, Group Financial Director. Before commenting our results, 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 Newlat Food S.p.A.'s current expectations and projections about future events, and any reference to past performance of Newlat Food should not be taken as a representation or indication that such performance will continue in the future. This is not an offer or a solicitation to buy or offer to buy Newlat Food' securities. Now we move on to the presentation directly to slide seven of the presentation, where we have the key financial highlights of the first nine months of 2022. As regards revenues, we see that we had revenues of EUR 521.2 million, which is a marked increase of 15.2% versus the nine months 2021 performance figures.
Especially, as regards to Q3, we had a very good organic growth, compared to Q3 2021, as we had an increase of 25.6%. As regards to business units, we had the major increases in pasta, where we had an increase of 36.4%, and in dairy of a +26%. As regards our main markets, we had very good growth in all the major markets. In Italy, we had an increase of 14.6% in sales. In the UK, we had a marked increase of 25.1%, and in Germany we had an increase of 12% of sales.
Moving on to EBITDA, we recorded an EBITDA of EUR 39.6 million, which compares to EUR 43.5 million in the first nine months of 2021. In terms of EBITDA margin, we kept an EBITDA margin of around 7.6% versus the 9.6% recorded in the first nine months of 2021. Although the margins have been impacted by raw material increases as well as packaging and energy and logistics price increases, we were able to keep margins quite stable and also to recover some of the margin loss that we had in previous quarters in the last quarter of Q3.
As regards EBIT, we had an EBIT of EUR 11.8 million, which compares to 17.9 million in the first nine months of 2021. We had a very good growth of EBIT in Q3 2022, which is equal to EUR 4.02 million versus the EUR 2.75 million that were recorded in the second quarter of 2022. We had a good recovery in the third quarter in all the major financial figures. As regards net income, we recorded a net income of EUR 3.5 million, which compares to an adjusted net income of EUR 6.6 million in the first nine months of 2021.
We're looking at the adjusted figure because in 2021 we had a benefit from deferred tax liabilities which was equal to EUR 5.3 million. The reported net income was actually EUR 11.9 million. Therefore, we're looking at the adjusted basis to say clean the number of any benefits that we had last year. If we have a look at free cash flow, we were able anyway to generate quite a good amount of free cash flow of EUR 11 million. We had an EBITDA free cash flow conversion of 80%, which confirms again the company's ability to generate free cash flow even in, I would say, restraining conditions like these ones we're living in.
As regards net financial position, we had a very good recovery in net debt as well. We went from EUR 52.9 million at the end of the financial year 2021 to EUR 38.4 million at the end of the nine months of 2022. If we exclude the effects of IFRS 16 lease liabilities, net debt would have been EUR 7 million versus EUR 13.8 million at the end of 2021. Now we move on to the next slide, where we have sort of an update on the market positions that we have and we're experiencing and we're seeing in Italy.
As we already mentioned in previous conversations, we started to introduce the Naked Noodle brand in Italy and in Germany, and very recently received some exciting news about the Italian market, as we have been ranked third noodle brand in Italy by value. This is a great achievement if we think that the brand has only been around for less than six months, and it's only now being distributed sort of nationwide. We have gained already 1.8% of volume share and 2.4% of value share. This is much higher than other pre-existing competitors like Mars and Nestlé. In fact, Mars with Suzi Wan and Nestlé with Maggi are respectively fourth and eighth in the Italian noodle market by value, whereas Naked Noodle is third by value.
If we look also at the average price, we can see that the average price of Naked is much higher than the leader, which is Saikebon, where we have EUR 23.29 per kilo versus EUR 16.15 of the leader. This is only where the distribution is only 28% of the total. If moving forward, we keep doing what we're doing and we keep increasing our share as it looks like it's going to be the case, we can definitely increase this value even more and maybe surpass the other players that are ahead of us at the moment. Now we move on to the next slide, where we have a very quick business update on some key topic. First one is strategic or commercial initiatives.
As regards all the commercial initiatives that we've already described in previous presentations, we can confirm that they've all been successfully launched, so they're all going on smoothly. We can see from the results that they are paying off, starting to pay off now. In terms of commercial power, we also have been able to sort of demonstrate a very strong commercial power despite the price increases that we have been applying. This is also confirmed by the underlying volume growth as well as value growth. We were able to actually have a volume growth as well as a value growth in this period. As regards Symington's, we confirm again the reorganization of the Consett plant, which is still ongoing. We're still working on it.
We're working on new product development, and we're doing continuous investments in efficiency, like new product lines and automation at Symington's. From the latest budgeting of 2023, we have seen that there is going to be a positive contribution on EBITDA from Symington's in 2023. Another key topic is the EM Foods acquisition, which was announced less than a month ago. This new deal will increase our contribution in the Bake in the Box and cake mixes in Europe. We're also working on developing new lines in the flavor and fragrances business, which is a very exciting business and a very niche market as well, so very few competitors.
As regards raw material and inflation, we have been experiencing, of course, a strong inflationary wave, which is still present, and it remains quite difficult at the moment to make any predictions in for the near future. However, we, as mentioned in the previous presentations, we have some key fixed contracts that will help us not be impacted as much on in terms of energy increases in 2022. On the basis of the current environment, we've already been working on renegotiating prices and additional price increases for the last quarter of 2022 and the first quarter of 2023. Now we move on to the breakdown analysis of the sales by different areas of the business.
Moving on to the next slide, where we have the sort of a general overview of the period. As mentioned earlier, we had an increase in sales of 15.2%. The period was characterized by an overall acceleration in sales growth, which was the result of a combination of factors, them being number one, the volume growth of 3%, which confirms a strong and solid underlying demand of our products. New launches as well and new listings, which confirm also the strong commercial commitment of the company, as well as the quality and the appreciation of the quality of our products by our consumers and customers. The strong price increases that we've been putting in place in the last months.
This confirms Newlat's commitment to keep margins high and despite the very challenging environment. As already mentioned, we have been working on new negotiations for price increases for the next months. Now we move on to the next slide, which is on revenue breakdown by business units. In terms of business units, all the segments were positively impacted by higher average selling prices versus 2021 as a result of higher costs. In particular, if we look at the business units, we can say that pasta had a very strong increase of 36.4%, and this was a combination of higher sales volumes as well as a contribution from new customers.
In terms of milk, we had a higher demand in the food service and normal trade sectors, and we also had a very good growth in the fresh milk and yogurt, as well as in the butter and cream categories. In terms of bakery products, we had a very good growth again, and this was driven by higher sales in Cristina as well as in demand in the private label and B2B sectors. Dairy products also increased and the growth was driven by a strong demand in the mascarpone, especially in the USA with 20% increase, in Canada with 60% increase, Belgium with +16 %, in France with + 32%, and in Netherlands with + 20% increase.
We expect to see a good growth in the last quarter of 2022 as a result of the Christmas period. We expect to have a positive contribution from dairy even by the end of the year. As regards the instant noodles segment, we saw an increase as well as in this segment, thanks to the innovation of products that has been going on in the U.K., as well as the export to new markets like Italy and Germany, as well as other export countries. The special product segment also grew, thanks to the development of new countries within the existing contracts that we have in place in baby food especially. The other product segment also increased by 4.8%.
Now we move on to the next slide, which is about the breakdown by distribution channel. Again, here we had an overall increase in all the distribution channels. We had a growth in the large scale channels, large scale retail channel, which was thanks to the entry of new customers and also an increase in the average selling price. In this particular channel, we had a good growth of pasta and dairy. As regards B2B, normal trade and food service, these channels went up, of course, as a result of higher average selling prices, but also thanks to an increase in demand. We had a very good growth in these channels in the pasta and special product segments.
As regards the private label channel, we had an increase compared to 2021, and this was mainly due to an increase in the pasta private label business. Moving on to the breakdown by geography. Even here we had an overall increase in all the main geographies. All the markets were impacted by higher average selling prices. In Italy, for example, the sales went up as a result of higher sales volumes in pasta, in instant noodles and in the bakery sector. As mentioned earlier, the introduction of Naked Noodle and Naked Rice was very well received by Italian retailers and customers. This has been a great contribution to the overall increase in sales.
In terms of Germany, the revenues also increased following higher sales volumes, especially in pasta and dairy. Also thanks to the introduction of the Symington's instant noodle range, which has been performing very well there as well. In terms of United Kingdom sales, we had a growth of 25.2%. The increase is linked to higher volumes in pasta and the instant noodle sector following some new initiatives and some new launches in the market. As regards other countries, we had an increase of 4.95% in the period. This was also linked to other products such as dairy products and pasta. Now we move on to the EBITDA breakdown by business unit.
EBITDA was EUR 39.6 million in the first nine months of 2022, which compared to EUR 43.5 million in the first nine months of 2021. If we look at Q3, only at Q3, we actually had an EBITDA of EUR 14.2 million, which is one of the, I would say, the peak of the year with an increase of +19.2% versus the second quarter of the year and an increase of 11% versus the first quarter, apologies, of 2022. Despite the very challenging scenario, we've been able to keep and mitigate the dilution of profitability as much as possible. This of course, there was a mismatch between cost increase and cost pass-through.
Of course, there's still been a dilution, but we kept it as minimal as possible. However, we are still very confident that the company will recover its profitability in a short period of time once the current environment kind of settles to a sort of a normal and stable situation. This will be possible thanks to our portfolio diversification, industrial efficiency, high own brand positioning, as well as a strong financial flexibility. Now we move on to the free cash flow and sort of overview of the quarters slide. Free cash flow generation remained quite solid at EUR 11 million despite the investment that we had in our net working capital, which was, I would say, necessary in such a difficult market environment.
We expect to still have a cash generation in Q4, which will drive to further reduction in net debt. As regards the evolution of financials in the quarters, we can see that we had very strong organic growth both in volumes and in value in Q3 where we had an increase of 25.6% during the third quarter. As regards EBITDA, we had a very strong recovery in Q3 where we had an increase of 19% versus Q2 and an increase of 11% versus Q1. EBITDA margin was also higher than Q2, so we had a 7.8% EBITDA margin in Q3 versus a 7.1% EBITDA margin in Q2.
As regards net profit, we were actually able to recover sort of the loss that we had in the second quarter. We were able to record a net profit of EUR 1.35 million in Q3 alone, versus the well, you can see here in the bottom of the table what was the situation before. We were able to basically keep a very good result despite the inflationary scenario of this period, and we were actually able to perform better than the last quarter. Now we move on to the last slide, which is the 2023 expectations one. As mentioned, we are experiencing a very complicated scenario due to the impact of energy costs as well as a geopolitical uncertainty that's still persistent.
Despite this, the company confirms its commitment in further price increase campaigns, which will work on the pass-through of energy costs. Also, we are committed in improving industrial efficiency and product innovation plans, and we remark our commitment to a strategic focus on the M&A, and we have some interesting opportunities already in advanced stages, and we hope we can share with you very soon. Now we are ready for the Q&A. I would like to invite anyone who wants to ask any questions to unmute themselves and ask the question. Maybe if you want to write it down in chat, you can write it down and we will read them out for you. Thank you.
Hello, it's Victoria from SocGen. Can you hear me okay?
Yeah.
Okay. Thanks very much for the presentation. I just wondered, sorry if I missed it, did you confirm the contribution from pricing in the third quarter? My second question was just if you could remind us, please, on energy costs as a percentage of sales.
Yes. Hi, good afternoon, Victoria. During the nine months, the contribution of pricing and volume remain substantially stable, split between 30% and 70% of the growth rate reported. 30% is volume, and 70% was driven by value, by pricing. In terms of the weight of the energy cost on our P&L, the weight is 3% of revenues. Obviously now we are starting experiencing the new level of the energy price that we will experience in particular in 2023, but we already start in this month. Obviously we expect this ratio to increase accordingly with the tough situations that we have on the market.
The starting point is 3% of revenues.
Can I just check quickly? Thank you for that. Is it that you'll get spot prices, coming in from now, or are they hedged prices that are at a higher price? How does that work?
No, we are not linked to the spot price. There is a negotiation in place because we had in the past a fixed contract for the energy. Now we are renegotiating this contract with the counterpart in Italy and Germany. UK still sticks to a fixed rate until September 2023. Obviously it won't be the spot price, but it will be unfortunately higher than the level we are paying today.
Is it an annual contract for Italy and Germany?
In this situation, we want to stick to a not very long duration of the contract because we believe that the situation is absolutely so exceptional and we hope that we are going to see a normalization going forward.
Okay, thank you. Just sorry, quickly on the pricing and volume contribution. You said for the nine-month stage it's 30% volume. Is that the same for the third quarter as well, specifically?
30 is, yes, 30. For the third quarter, the contribution, yes, is more or less the same. Probably a bit higher in the third quarter because you see that in the third quarter we have a very strong increase in revenues versus the other quarter plus it's above 25%. Anyway, yes, the situation is more or less stable in terms of the split price, volume.
Okay. Thank you.
Hi. Good afternoon, everybody. Can you hear me?
Yes. Hi, Paola.
Hi. Good afternoon. I have a few questions. First of all, looking to the current quarter, I would appreciate if you can comment about the price actions you are negotiating. When should we expect some relief from that, and to what extent? If you can give us some color on your expectation for Q4, given that we are at least halfway at this point. Second question instead is on the margin trend of the third quarter. In particular, if you can elaborate a bit on the performance of Symington's, which, I mean, probably, I don't know if I have the correct numbers for the third quarter reference last year. It seems that the
That say most of the margin drift was experienced at Symington's compared to Q3 2021. On your divisions excluding CLI, so excluding milk and dairy. If you can elaborate a little bit by division, mainly on, you know, pasta, bakery and Symington's. Thank you.
I think that I can answer all together the question in the sense that I think that it's a bit misleading to be so focused only on pricing and the price section, in the sense that the goal of the company for all the nine months, and it is the goal for the year, is not only to pass through the increase of the raw material and other costs, but also to maintain a healthy volume trend. This is very important because this means that at the end of this difficult environment we will maintain or we will have a better underlying situation for our business.
This is important because we also manage during the year all the action on the pricing together with a direct strategy on volume, not to lose market share, not to lose volume into the business. As of today, we reach a very strong result. The situation is improving because if I consider October, for example, we are getting several, I would say exceptional, but very strong results in different business division. I can give you an example that we discussed before this call internally. The example is pasta that is getting an exceptional but very positive performance in October.
We reach only in Italy an EBIT that is close to EUR 1 million for one month. This is absolutely amazing. We hope obviously to maintain this performance for the next months, but this is clearly an exceptional performance. It's important to highlight to you how strong is, how effective is our strategy in this sense, and the fact that, as soon as we are going to see a stabilization of the inflationary trend in the market, we need just a very short period of time to regain the margin that we lost in this particular difficult scenario.
This means that commenting division by division is difficult to define a trend because all the divisions are facing different raw material trends, different volume trends. There are different commercial strategies behind because the commercial strategies are planned market by market. This means that the trend could be different so among the different divisions, but the strategy is the same, and the strategy is to try to get at the end of the year a level of EBITDA in absolute terms that could be as close as best possible to the level of last year, because our goal is to try to reduce as much as possible the dilution, not in terms of margin, but in terms of return on capital.
The combination of the strategy that we are put in place and the reduction of the net financial position altogether could give an important contributions to get the goal we have in mind to reduce the dilution of the return on capital employed.
Okay. Thank you very much. Just a last comment, if I may. You flagged about raw material, which are having different trends by segments. If you can leave us some comment on what you have been seeing most recently on your main raw materials, milk and wheat, and how do you expect this to play in the next few months, in particular, if you remind us of how you are positioned in terms of stocks for that in this respect. Thanks.
I can tell you that, generally speaking, the situation remain tough because we are experiencing a bit of stabilization, but stabilization at very high level. This means that the situation remain tough, especially in the milk market. We expect, going forward, to have some changes in this trend because are unsustainable for the market, and we expect to see, going forward, a reduction from current level. At the moment, the situation remain tough. We are buying at very interesting and good level, durum wheat, for example, now, at level that are a bit below the spot market. We believe we are doing a great job on this. The situation remain, generally speaking, not stabilized with a lot of volatility.
This is the reason why we put in to the press release cautious comment, even if we are experiencing very interesting solid results evidence in October and in the current months. We want to remain cautious because what we are experiencing today, even if there is stabilization, sometimes we are buying at lower price. There is a starting point of cost reduction. We don't have the visibility to say that this is the new trend or this is just a rest, and we will see a new acceleration in the coming months. There are a lot of variables that are not clear, starting from the war in Ukraine.
Generally speaking, the inflationary wave is still present, and we don't have a clear view of what will happen in the future. This is also the reason why our contract, generally speaking, remain with a short duration because we believe that going forward the situation must stabilize, and maybe the price could be better for everything, raw materials, energy, et cetera.
I think, Mr. Castagna wants to say something.
Thanks.
Yes. Hello. Thank you. Congratulations on the result, especially because of the very challenging scenario. My question is rather on the strategic end of things. You compete into the milk and pasta segments. You've grown quite steadily into having a considerable market share in that segment, especially in Italy. Seeing forward, do you see more likely that you will consolidate a bigger market share on that end, or you might try to look into a more vertically integrated strategy? Meaning that you will use the milk as a raw material for cakes and other sweets like you did with pasta and the Symington's acquisition. Because you've mentioned the return on capital employed, and milk and pasta have probably low margins.
Will it be easy for you to compete with the big ones on the volumes or you will go more on the specialty side? Thank you.
Maybe, Fabio, I can give a bit of light concerning the strategy. Yes, you are right. We are in the commodity business. As you may know, we are owner of all brands. We are a brand, branded company, and we are owner of premium brand in our portfolio. What is happening in the supermarket chain is that the premiumization of our brand is, let's say, taking out from the offer of supermarkets, all the middle, let's call it like this, all the middle companies, so in between, and thanks to the fact that we have brands that are leader, like, in milk segment, you mentioned like Mukki, like Tapporosso, like Tigullio and so on.
Now we are the premium, then there is one national player, and there is a private label segment. The same on pasta. We are in Germany, to give you an example, we are leader with our Delverde pasta, but the place on the shelf is just for us and other two competitors. What we are gaining now, it's we are gaining more market share even on the private label segment to increase our sales and to gain market share without affecting our products. I can tell you that on the other side, of course, we are already thinking about even a verticalization of all our the usage of all our raw materials, as you say, as you mentioned before.
We are working on both ways concerning. We are in one way in a situation in which our brands is they are not affecting our. Even if we are commodities, our premiumization is giving us a really good position on the shelf and no worries concerning the price power that our products have. On the other side, we are verticalizing all our commodity production to produce noodles, pasta for producing noodles. We already launched Minuto in Germany with our own pasta produced in Mannheim. We will produce in the next period, of course, product based on milk, and the milk will come from Italy as well.
I remind you that we are the only owner in Italy of a powder plant that can produce by itself powder. We produce powder for babies, but potentially we can produce powder of milk as well. It's just to give you a more general idea. Fabio.
Thank you, Giuseppe. I can add just maybe two things. One is strictly linked to what Giuseppe mentioned, and the fact that our competitive advantage is to compete in our market that could be defined as a commodity market is not only the market position of our brands, but also the industrial know-how that we have. First of all, it's important to highlight that the results that we are achieving in the milk and dairy segment are also linked to the fact that the combination of Centrale del Latte d'Italia and the new milk and dairy business is getting synergies and giving us more efficiency than in the past. This obviously help us a lot in facing this particular scenario.
The second point linked to pasta is that, Newlat could count on, an industrial, know-how that is unique. We have the possibility to produce, all the kind of pasta that are today into the market in terms of format, in terms of process, in terms of, special products, gluten-free, proteica, et cetera. This put us in a strong position in the sense that, if you don't have this technology and you need the product, the investments is not easy because, all these assets are really costly.
This means that when we get a new contract in B2B, for example, the contract is really interesting because we are negotiating with a counterpart that need this production, and there is lack of offer for this kind of product. This is the advantage together with what Giuseppe mentioned before that allow us to compete well in a market that could be seen as a commodity one. There are a lot of angles by which you can see that in reality you need a very strong know-how and a lot of work behind this result, even if it could seem a simple market.
Another thing, the second point is relating to the M&A, in the sense that our strategy is not only to try to maximize the spare capacity we have to grow through a new B2B contract, a new listing for our brand, but also to participate in the consolidation process that we see in the food market everywhere. Because in this industry, in particular in milk and dairy, but I think honestly, in all the categories, the size is very important. There are still a lot of players with mid- to small size in Europe, and our strategy is to try to consolidate further this industry and to create this big platform, very well diversified in terms of products, brand, industrial know-how, country, et cetera.
This is another important part of the strategy that could allow us to increase value for our shareholder.
Thank you very much for your explanation. It's very clear. A follow-up, it's very short. Is on the M&A side. Have you seen in the latest months an increase in offerings, especially in the lower and lesser capitalized companies due to these constraints? In terms of opportunities, do you think they are increasing? I know you're focused on you have your deals already in advanced stages, but do you see deal flow coming with more offers?
Yes. I have to say that today we have three potential deals on our tables. One is well in advance, but the other are anyway interesting deals. Not necessarily linked to a mid, small size company. What we are experiencing today is that looking at 2023 there are opportunities already into the market. Single companies, but also brands or entire divisions that multinational corporations want to divest for a strategic reason. I don't know. Yes, we are experiencing an increase, an increasing scenario in terms of opportunities.
What is also important for our strategy is that, the situation in terms of interest rates and the market of funding is also creating a good situation in the sense that, maybe until six months ago, there were in the market a lot of financial players, mainly private equity, that wanted to buy everything, not because it's a good opportunity, but because they had to buy. Today, I think that these situations could make all the players more selective in terms of which kind of deal I want to close, I want to really close.
probably, for what we are experiencing, there are also interesting deals that maybe could make not a lot of sense for financial players, but are more linked to an industrial players like Newlat. This could obviously reduce probably for some deals the competition into the market. We are very happy about the general situations that is coming out from the current scenario in the M&A market.
Yes. Positive side, on the crisis. Thank you.
Yes.
Related to that, I wondered if I could ask whether, with the bond raise, if you conducted any interest rate swaps, and is there any sort of floating rate exposure that we should be thinking of?
No. In terms of the average cost of debt, I do not expect it to have a material impact from the current situation in terms of interest rate. I think that on average, we are financed at a very strong level of rate. We remain on average below or around 2%. I think that considering current bank spread, it's a very strong result. I do not expect to have a particular impact.
I can say that probably we could expect to have a lower impact on our P&L because considering the situation in terms of short-term rates, today also two months, three months, or overnight deposit is giving you a positive rate, and probably we could have, in the coming months, a better management of our cash available. This means that we could expect also to have maybe a better situation in terms of P&L impact in this sense.
If there are no more questions, we may end the call. I don't know if anyone has any final questions. Okay. Thank you so much for joining to this call, and we're at your disposal for any further follow-up questions. You have our emails. We're available to answer all your questions. Thank you so much, and have a nice evening. Have a nice weekend. Thank you.
Thank you. Bye-bye.
Bye-bye. Bye, everybody. Thank you.
Thank you. Bye.
Bye.