Good afternoon, everyone, and thank you for joining Newlat Food First Half 2020 earnings call. I'm Benedetta Mastrolia, investor relator at Newlat Food, and today joining me to discuss our results are Angelo Mastrolia, our Chairman, Giuseppe Mastrolia, Deputy CEO and Chief Commercial Officer, Rocco Sergi, CFO, and Fabio Fazzari, Group Financial Director. Before commenting on our results, I would like to remind you that this presentation may contain specific statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Newlat Food's current expectations and assumptions of future events and are subject to various risks and uncertainties that could cause actual results to differ materially from those projected or implied by these statements.
Before starting, I would also like to remind you that we don't have an M&A Q&A, sorry, a Q&A system, so once we get to the Q&A, I would kindly ask you to just unmute yourself and ask questions in an orderly manner. So before we go straight to the results, I would like to just briefly go through what happened in the last couple of months. So, as you know, on 31st March 2020, Newlat Food acquired a majority stake in Centrale del Latte d'Italia, CLI, and following the acquisition, all First Half 2020 figures will be presented on an aggregate basis in this presentation to help understand the actual movements and the actual performance of the group as a whole, and the comparative figures at 30 June 2019 will also include Centrale del Latte d'Italia from the 1st of January and also Newlat Deutschland.
Also, a brief reminder that after closing on 24 July 2020, Newlat reached an overall stake in Centrale del Latte d'Italia of 76.6%, 77.6%, 67.6%, sorry. If we move to page four, we have the key financial highlights. Aggregate revenues were equal to 255.4 million EUR, which were up 5.5% in the First Half of 2020 compared to the First Half of 2019. We had a double-digit growth in pasta, bakery, and special products, and now with the acquisition of CLI, Italy accounts for roughly 69% of revenues, and we had also an underlying organic growth of 3.5%. EBITDA, we look at adjusted EBITDA, which was equal to 23.5 million EUR, and this was an increase of 64.8% versus the First Half of 2019.
EBITDA margin was 9.2% as opposed to 5.9% in the First Half of 2019, and we had very good, high double-digit margins in dairy, bakery, and special products, as well as an overall increase in all the main business units in terms of margin. Free cash flow, we looked at free cash flow and we had an overall free cash of EUR 17.6 million in the First Half at group level, and EBITDA free cash flow conversion was around 75%, so this reinforces the previous trend in cash generation that we've shown in the previous presentations. Net income, we look at adjusted net income, which was EUR 6.9 million versus a loss of EUR 920,000 in the First Half of 2019. Reported net income was actually EUR 26.2 million as a result of a negative goodwill arising from the acquisition of CLI, which is equal to EUR 19.3 million.
If we look at net financial position, we had an aggregate net financial position which was negative EUR 17.7 million, so net debt EUR 17.7 million, as opposed to EUR 35.3 million in financial year 2019, so we had an overall improvement of EUR 17.7 million in the last six months. And excluding IFRS 16 lease liabilities, actually net financial position would be positive by EUR 1.7 million. If we move to the next page, we have an overview of our sales increase. So, as we said, sales increased by 5.5% in the First Half of 2020 as opposed to the First Half of 2019.
Of course, as you can see from the last results call, there was a slowdown in the month after lockdown was lifted, but still the overall increase was above industry average, and this, I would say, slowdown in the month of June in particular was because of retailers' attempt to normalize net working capital once the lockdown was lifted, as they had a sudden increase in inventory and they just ordered less as lockdown was lifted throughout Europe. However, after the closing of the period, we had July and August, which were actually particularly very good, in a very good position, and they were pretty strong at 6% increase on a year-on-year basis. In general, we look at cost of goods sold, which shows an improvement, and it was equal to 78.1% of sales as opposed to 80.3% of sales.
In general, still very good results for the period. If we move to page six, we have revenue breakdown by business unit. Now, with the acquisition of CLI, things have slightly changed, and pasta became the second largest business unit in terms of sales, and milk is now our main business unit. Pasta actually increased a lot in the period. It increased 13%, and this was, of course, as a reaction to the COVID-19 situation. There was an increase in pasta consumption all over the world, and there was also a partial contribution of Delverde. The milk segment saw an increase of 1.9%, which showed an overall increase in volumes, particularly. We had a very good performance in the bakery product segment, which grew probably organically the highest and grew by 12.9%.
Here, we had very good performance in the market, especially in the Italian market, with higher sales volumes and very low promotional activity. In terms of dairy products, these increased by 2.4% in the period, so still a good increase, and special products increased 12.6% as a result of the price renegotiations with Kraft Heinz and also the entry of new customers in our special product division. Other products, which are commercialized products, are usually products that are not produced by Newlat, but they're just commercialized and that are sold in the food service channel mainly, decreased, of course, as a consequence of the lockdown and restaurants being closed all over, but in terms of unitary value, it's not as evident in the profit and loss. If we move to the next page, we have the revenue breakdown by distribution channel.
The large-scale retail distribution channel increased by 9.4% in the period, so this was, of course, due to an overall increase in sales in this period. B2B partners also remained pretty stable with an increase of 0.3%. Then we had normal trade, which was slightly impacted in the first quarter by the COVID-19 lockdown, and it was negative 0.8%, but it saw progressively an improvement in the last few months. We have private label as well, which increased by 4.5% as a consequence of new contracts and more sales volumes, and then, of course, food service was the channel that was impacted the most in this period, and it decreased by 13.3%. If we move to the next page, so page eight, we have the revenue breakdown by geography.
As I mentioned, now Italy is around 70% of our sales with the inclusion of CLI, and Germany, however, still remains the second largest market by far, with 18% of share in our portfolio. Revenues in Italy went up as an overall increase in sales in the period by 3.6%. However, the market that performed the most and the best in the last six months was actually Germany, which saw an increase in 11.1%. We actually had the best. The month of July was the best performing month in the last six years in Germany in terms of pasta sales, which saw an increase of 80% on a year-on-year basis. There was very good performance overall, of course, after the closing of the period, but still a very good performance overall even during the period.
Then we have other countries which also saw a good increase of 8.8%, and this was, again, thanks to an increased consumption overall worldwide of pasta and other long-shelf-life, stable products. If we move to page nine, we have the EBITDA breakdown by business unit. As we said, adjusted EBITDA went up to EUR 23.5 million in the First Half of 2020. This was a very good increase of almost 65%, so 64.8% versus the First Half of 2019, and an EBITDA margin improvement which almost doubled and went to 9.2% compared to 5.9% compared to 5.9% in the First Half of 2019. This trend, of course, was also shown in the last presentations, and this trend kind of keeps on the ambition and the goal to reach a double-digit margin overall in the next couple of years.
The margin improvement was, of course, also a result of the quick implementation of synergies that we had in the second quarter of the year with Centrale del Latte d'Italia, which has shown, if you look at the marginality of milk, it went from 4% to 9.6%, so it was a great increase in overall EBITDA margin improvement, and we still, however, have very good high margins in all the other business units, especially in bakery, dairy, and special products, which all record double-digit margins. Especially bakery is still our bakery and dairy are still our best-performing segments in terms of marginality. Now we move to the next page where we have EBIT and net profit breakdown.
Here we are showing you the effects that the acquisition actually had on our profit and loss statement, especially on the EBIT and net profit figures, as they were both impacted in a positive way by the negative goodwill arising from the CLI acquisition, which you can see here, pointed by the arrow, which is 19.3 million EUR. so we normalize here. Then you can see the normalized EBIT, which was 11.2 million EUR, which represents 4.4% of sales, and it was also a very good improvement since last year, and it went up 522%. We also would like to underline that the effective tax rate was 26.7%, and net profit for the period was 26.2 million EUR.
If we exclude, of course, we adjust the net profit for the income from the CLI acquisition, we actually had an adjusted net profit of 6.9 million EUR, which is also an extremely important milestone as we went from a negative EUR 920,000 loss in June 2019 to a very positive to a very positive result in this first half. We also highlight here at the bottom of the page, on the right bottom, that we have non-controlling interest as a result of the CLI acquisition, which were equal to 1.13 million EUR in this first half. However, after the PTO, which resulted in Newlat owning 67%-68% of CLI, we expect that minorities will have a lower impact of around 32.4% in the second half of the year. Now we move to the net working capital and figures.
As you can see here from the pictures from the table, we have a very good performance in terms of net working capital and cash conversion cycle, which improved in the period. We had an overall improvement in DSO, which went from 50 days to 68, sorry, which went from 68 days to 50 days in 2020. DPO was 140 versus 138, and these two were especially important achievements as they were reached through our extremely strong relationship with key accounts and with customers. Inventory days outstanding also improved, and in general we had a very good inventory turnover, which went up to 9.1 versus 8.6 in the first half of 2019. The main figure that you will notice that changed in the period was inventory, as it went up to EUR 44.2 million in the period as opposed to EUR 29.9 million last year.
This was mainly due to an opportunity that we took as there was a general decrease in raw material prices, especially in the UHT milk and in the milk raw material prices. So we took the chance, and as a company policy, we usually take advantage of the raw material price decrease to stock up on more long-shelf-life products, so there was a variation in that sense, but that's, I would say, normal in that sense. And, in general, net working capital was pretty in line considering higher sales as well. Now we move to the next page, page 12, where we have the free cash flow and cash flow statement. As we already said, we have a very good cash conversion ability, which is shown both at group level and also on a standalone level, both for CLI and Newlat Food.
As you can see in the red circles, here we have free cash flow for CLI was EUR 7.8 million, which means that the EBITDA free cash flow conversion post-tax was actually EUR 81.3 million. This is an extremely important figure for us as it shows that CLI now is able to actually deliver on its own without the help of NewLast. And overall, on an overall group level, we also had a free cash flow conversion of 75%, so extremely high on a group level as well. We have the last slide, which is the analyst consensus slide, where we summed up the forecast of our analysts for the next two years, and we summed up the six figures, which we consider the main performance indicators for the period that you can read yourself.
So we do, as a management, we do see that these expectations will be met, and we are extremely confident that these will continue even in 2021. And, in general, we would like to just reinforce our commitment to reach the goals in 2020 and 2021, and that's our commitment for the future, and that's really it. So the presentation is over, and now we can go to Q&A. As I said, you can ask questions, just unmute yourself and ask questions as you'd like. Thank you.
Hello. Hello, there. Thank you very much. Can you hear me? It's David Hayes from SocGen.
Hi.
Hi, guys. Thank you so much for the presentation. Just two from us, I think, to start off with. Just in terms of just trying to reconcile all the numbers, the slide 12 table, which is very useful where you break out NewLast and CLI and then the combination. Have you got the sales numbers for NewLast first half 2020 standalone and CLI 2020 standalone? So the effective line above the Adjusted EBITDA. And then the second question was, it looks like CLI EBITDA has gone from EUR 2 million last year, first half of 2019, to 9.7 million—sorry, to EUR 9.7 million according to that table in the first half of 2020, so EUR 7.7 million of growth. We're assuming that's got quite a lot of synergy benefits in that EUR 7.7 million.
I just wonder whether you can talk about the synergies that have already appeared in the first half and whether the same level of synergy and profit development is likely from CLI in the second half? Thank you so much.
Okay. I can start with the second question, and then we will provide also to you the number of CLI. Having said that, CLI published its numbers during the day separately because they are also listed in the STAR segment, so it's quite easy for everyone to do the calculation. About the contribution of synergies, I think that it's very important to highlight that in the second quarter of the year, we reached a lot of goals in terms of synergies because we substantially implemented very soon and very quickly most of the synergies, in particular on the cost side. We mentioned also in the release the negotiation of the supply contract for raw material, but also in packaging in particular, we renegotiated an important contract.
We got also other different synergies on the commercial side where we strengthened the structure and the approach also of the sales force. When we start announcing the acquisition of CLI, we told to the market that we expect the company to realize around EUR 10 million synergies, EUR 10 million improvement from the EUR 6.3 million they reported last year in terms of EBITDA. I think that we are perfect, we are probably maybe in advance versus our expectations to realize this lot of synergies in 12 months because we believe that we can get this goal until the end of the year. This means that substantially we expect a similar trend in terms of EBITDA in the second half to reach for CLI at least EUR 16 million of EBITDA.
In the second half, we expect to have an additional support in terms of synergies because, as you probably know, on July the 20th, we finalized the merger of the three entities in CLI. Today, we have only one company, Centrale del Latte d'Italia, and this obviously will have an effect in terms of cost reduction also in the second part of the year. All in all, the message is that most of the improvement that you can see in the second quarter in terms of profitability is related to a better than expected in terms of timing performance in terms of synergies.
That's great. Thank you so much.
I've got a few questions if I may. This is Doriana.
Hi, Doriana.
Good afternoon, everyone. Okay, my first question is on organic growth. Sorry, perhaps we can go one by one. The organic growth of 3.5% this period, can you split it between NewLast and CLI?
Yes. CLI got a 3.5% increase in organic terms in the second quarter, and the movement on the organic terms for Newlat was flat in the second quarter. CLI realized, as you probably remember, an 8% increase in Q1, and Newlat got a 6.8% increase in Q1. The performance of the second quarter is mainly related to, so the decline of the second quarter is mainly related to a normalization, a material normalization that we experienced in June when, at the end of the first half, all the retailers, after the strong investment in working capital they made in the previous month, decided to stop the orders to protect thinking about the end of the semester, the working capital.
This is also the reason why, starting from July, we experienced another acceleration of orders, and the 6% that we mentioned is more or less the same performance for CLI and for NewLast in July and August.
Okay, and do you have any expectations for the full year? How do you see the dynamics of the market?
We said already that, so the market expects 3.8%-3.9%. It depends if you want to consider the average of the median. We think that this level of organic growth is achievable, and we don't want to give other messages because the environment is volatile month by month due to these extraordinary situations that we are facing. We are confident, and we have visibility that this level of organic growth is achievable and if we will reach something more, we will be happy, but we don't want to give any precise guidance.
Okay. Thanks. And then in terms of the performance across the different categories, I look at the performance of Birkel, which was exceptionally good in terms of top line and profitability as well. Is there anything that has been favoring you during the lockdowns, and do you think this is going to reverse over the second half?
No. I'll give you just an introduction, and then I'll leave to Giuseppe to explain to you in details this particular situation that is very interesting. What I can say to you, what I can tell you generally is that we are very focused on bakery and on special products because they are two very important categories with high profitability, and we want to increase the weight of these categories on total revenues. So we expect to continue this trend. But I think that Giuseppe can give you more colors on this.
Yes. So thank you, thank you, Fabio, thank you, Doriana, and also on the growth that we had on the bakery, I can tell you that the growth is not driven only by the situation of COVID that we had in the last months, but we are still continuing. Now I have in front of me the market data that we have every month updated to August data, and I can see that we are the most increasing in terms of bakery products I'm talking about. We are mainly the first growing company in terms of bakery products with a percentage of growing in terms of value and volume that is quite the same, and we are the more, let's say that we have the best result on the market. We are achieving new market share, so market quota, not market share, because we have quite strong market share.
We are launching new products as well on the market. We have two subcategories, Doriana, just to let you understand. We are under rusk, under bread substitute. We are the second player. The bread substitute, they are growing really fast and really strong, but without any kind of promotional activity, so the rotation of the products is the highest rotation products on the shelf in the Panetti Croccanti, so in the bread substitute segment by itself, so just with the three SKUs, we are the second player on the market. Imagine that the first player has overall around 20 SKUs, and so I can tell you that the growth is still increasing due to the fact that the consumers are appreciating more and more the product, and the rotation is going really good. Now our goals in the next months is that we want to improve.
We built up a new SKU on the bread substitute. We are trying to reach all the customers with these third SKUs, and the feedback is quite positive until now on these new SKUs with the multiserial recipe. And then we are launching a new, really innovative packaging on RASC, so on the fette biscottate. And we are confident that we can gain a good market share that will not, let's say, cover the actual market share because we are in a competition side that is totally different from the current one. So we are proposing a new service level of RASC with this new launch that will be done in the end of September, beginning of October. And I think, and I hope that all the plans that we are doing in this business will be respected. I'm quite confident that everything will be respected.
Another thing that I want to underline, the growth in pasta is really strong, and I can tell that on the sales side, during the COVID, we had really an extraordinary attitude with our customers. We didn't lose any customers in this period because we used to have a fair share idea, so we serve all our customers in the best way as possible, and so this pays us back in terms of, let's say, relationship with the customers. That's why there's a bit of private label that is increasing because most of the customers saw that NewLast has a really good attitude with the customers. So they asked us, compared with other competitors in the past and even in other products, if we want to be their partner even on this segment because they saw the loyalty and the attitude that was really positive.
I can tell you, continuing on the revenue breakdown by business unit, that as you see, special products increased a lot as well, and the dairy products gave us really good satisfaction during this period, even if the dairy business was not so satisfying, but in general, for NewLast, the mascarpone growth mainly is a really strong growth compared with the market with what is doing Parmigiano-Reggiano or other kinds of Italian cheeses all around the world, so as for your questions, yes, the bakery products, this is not one standalone situation, but it's a situation that is still growing. I'm confident that the end of the year, this new launch will be good and that the trend is not stopping. I can tell you that the trend of growing is not stopping even during July and August about bakery.
Okay. And did you launch Delverde , the new line, the new sort of natural?
Yeah. We are working more and more on the market, so first of all, I can tell you that our mainly thing, mainly strategy now is launching 20 SKUs, so we choose 20 SKUs of the Delverd that are the top SKUs, really high quality, so organic, whole wheat organic, and everything that is, let's say, a special, what we say, a special product on the German market. We achieved before the summer period, we achieved five big retailer customers. Now we are around eight, and we are confident that we can and we gain more market share than before, so now adding the Delverde, Birkel, 3 Glocken, and then the other brand of pasta that we have in Germany, we are increasing our position on the German market, and the launch is going really good, so we are focusing a lot on the markets, a lot in the UK.
We increased our sales by more than 40% with a strong relation with one of the biggest retailers that are in the U.K., but they are even all around the world. This is really important on our point of view, and we are developing our business in other strong countries such as Australia, such as Russia, where we have a really good sales. We are a high premium. I'm talking about Alberta now, of course, and so we are concentrating our strength now, actually, in the markets, so the German market is our priority. On the Italian market, we are developing new packaging ideas, some new ideas to launch as much as possible with the wellness heritage, the new Alberta concept that is beside that to renew the proposal to the consumer.
We will have, just to give you a highlight, the window, let's say, that all the retailers have in Italy are mostly from September to November to introduce new SKUs on the shelf. So now we will see in the next months what will be the start of the presentation, and you will get feedback on how it's going in the next maybe talk that we can have in the future. I don't know if I give you an exhaustive.
No, thank you very much, Giuseppe. That was really, really helpful. Just one last question, very briefly. You mentioned that Germany was up 80% in July. Is there any reason behind this enormous jump? Did you launch anything? Was it just timing for the retailers to restock? What was it?
To be honest, it was many things at once, so we, of course, really started to, let's say, the fact that we had that really good fair share attitude during the COVID period paid us back because we gained more opportunity to get a promotion on the shelf. Promotion is not only cut on price, but it's given to have more space because we were really good in delivery of goods during the COVID period, so we got three good flyers from good customers that pump up the volume a lot, and I can tell you that this is still going on. In September, we are already delivering at the end of August, beginning of September. We are hopefully doing another really good month, and the reason besides that is that we had a really good service during COVID.
We saw this is a payback from the retailer that gained more trust in our company. Imagine that we used to—we are one of the biggest transporters of pasta by train. So we got even some awards for sustainability in transport in the last months. And we are one of the, yes, of the largest companies that are transporting everything by train. This helped us a lot to not have a stock out on the customers on both Italian pasta and German pasta. So this was a mix, some promotion and some payback, let's say, from the customers that appreciated our behavior during the emergency.
Okay. Thank you. I will leave the other people to ask questions now. Thanks.
This is Paola Carboni from Equita. I would like to ask a question.
Please go ahead. Hello?
Paola. Hello?
I'm not sure if you're on mute.
Invited to?
No.
To Q&A?
Yes. Now can you hear me?
Yeah.
Yeah. Thank you.
Okay. I was muted. Sorry about that. Okay. Yes, I have a few quick questions. First of all, on the trend of July and August that you commented with +6% overall. But then in the press release, I just wanted to better understand. You mentioned July probably growing by 12%, if I get it right. So I was wondering, I mean, I understand there's a lot of volatility linked to the stocking or restocking from the trade. So I was wondering to what extent the implied flattish performance of August, if any, if that's correct, can be an indication for the next few months. And so what's your perception in terms of final demand? Further point is if you can update us on your scouting on the M&A side.
In the press release, you mentioned you are ready to catch new opportunities, and we all know that you are still very active on this process, so if there is anything you can share with us and lastly, on the project of concentrating all milk and dairy activities in CLI, I was wondering how, I mean, where are we in this respect with this project? Thank you.
Okay. Carboni, Paola. Starting from the question related to the performance July and August, July was stronger than August, benefiting from the reverse of June, as explained before. Obviously, there is an abnormal volatility month by month in this period related to a lot of things, but in particular, the strange environment that we are facing this year. August usually is not a particular performing month in terms of seasonality, and the good news is that end of August and the beginning of September continue to perform in line with the trend that we announced as a combined trend for July and August. This is also the reason why we are very confident and we have visibility to say that the level of organic growth that the market is expecting today is achievable for us, then we can be a bit above this level. I don't know, it could be.
We would be happy. But I think that for a business like the food business in general, because I don't remember 6% of organic growth from the big companies like Unilever, Nestlé, or Danone, or Kraft Heinz, because it's a very extraordinary performance in this business. So I believe that if we close around 3-3.5%, as we mentioned before the year, for us, it would be a very strong year because in our industry is a very strong performance. And this is the reason why we are very happy considering what is happening in the market and what mentioned Giuseppe before, the fact that in a lot of important markets for us, we are experiencing an increasing not only in demand, but also in the space that we receive from the retailer.
This is very important because it allows us also to combine not only the strong demand from customers, but also the opportunity to launch new products, to put new products on the shelves. This is very important for the future of Newlat. About the M&A, what I can tell you is that as we show in the slide, we usually share with the analysts during the presentations, etc. We continue to be focused on several targets. Today, we are very focused on one in particular that is based in a northern market, a market that we like because our market share is still small, but we receive a lot of demand from retailers in this market. We believe that increasing our structure, our presence in this market also through M&A activity, we can realize a lot of synergies, but also we can increase a lot our business.
Today, we are going on with this precise target in a northern market, and we hope to be able to close very quickly this deal and to announce this deal by the end of the year. This is our idea, our aim. Obviously, we are not alone in negotiation, but we will see what happens. What I can tell you and to the other shareholders and analysts is that the commitment of NewLast on M&A remains very strong because, as I usually say, joking, this is our second core business, and we continue to believe that is the most important way to grow and to create value for our company.
About the latest question on the combination of milk and dairy structure, I think that starting from 2021, we will concentrate the milk and dairy business in Centrale del Latte d'Italia that will become another important center for future aggregation in this business. So we believe that this will create a lot of additional value for the. Any questions, please? No? If nobody has questions, we can close the conference call. Thank you, everyone, for participation. And we are available also by email for any questions by phone for everyone. Thank you for participating.
Thank you very much.
Thank you. So.
Thank you.
Thank you. Bye-bye. Bye.
Thank you. Bye. Bye-bye.