B&S Group S.A. (BSGR) Earnings Call Transcript & Summary

Hello, and welcome to 9M 2022 Trading Update Conference Call. My name is Priscilla, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Tako de Haan, CEO, to begin today's conference. Please go ahead, sir. Thank you.

Good morning, all. This is Tako de Haan, CEO of B&S. And with me here today is Mark Faasse, our new CFO. So welcome, Mark...

Thank you, Tako.

To the first official analyst call. I will take you through the highlights of the 9-month trading update that we published this morning. And after that, I would like to open the call for Q&A. So let me give you some detail on the first 9 months of this year. Overall, the turnover increased by 18.7% to EUR 1.527 billion. On a constant currency basis, turnover increased by 13.7%. Organic turnover increased 17.9% or 13% on a constant currency basis. Staff costs increased due to the challenging labor market and inflation. In Q3, supply chain constraints started to slowly normalize with the exception of the Beauty segment and the International Liquor market. Now let me zoom in a bit more on the market circumstances by segment. Starting with B&S Liquors. The 27.4% growth in turnover for this segment was driven by the absence of COVID restrictions in the European markets as well as continued increased demand for specialty items in the international market. However, growth in Q3 was less steep. This was due to the increased consumer inflation for the European market and supply chain constraints following the zero-COVID policies for the international market. Gross profit margins for the first 9 months slightly exceeded last year's results because of our strong stock positions. Continuing with B&S Beauty. Beauty increased turnover by 8% when compared to the last period of 2021. This was driven by acquisitive growth and a strong U.S. dollar. The B2B business in the Beauty segment continued to see the impact of an industry-wide product scarcity. This resulted in a decreased turnover yet at increased margins. The B2C business, FragranceNet.com business, increased turnover... [Audio Gap] U.S. dollar. In 2022, the margin levels for this business declined as a result of increased marketing and shipping expenses versus the same period last year. Next in line is B&S Personal Care. Turnover for this segment increased by 8.3% because of continued growth of our sales to key customers. This growth was supported by well-managed stock positions. It enables us to meet increased demand after the on and off shop closures of value retailers in Europe throughout 2021. Moving on to the B&S Food segment. Turnover grew 23.1% when compared to the first 9 months of last year. Our brand distribution services saw better-than-expected recovery of the duty-free and travel-related market. And also, our Foodservice business outperformed following increased demand in the Maritime market, supported by the automated order processing via our Nfinity platform. However, this performance was partly offset by the lack of growth in the remote business. That brings me to B&S Health. Turnover grew by 4.3% compared to the first 9 months of last year, mainly because of the recovery in the travel and flu vaccine business during Q3. Gross margins slightly decreased due to the increased transportation cost in the export business. These costs could only be partially passed on to the customer. Last but not least, B&S Retail. The retail segment increased turnover with 145% in the first 9 months of 2022. Turnover growth in Q3 was less steep, as Q3 in 2021. Because we benefited from easing the travel restrictions in that quarter already. That brings me to the outlook. For Q4, the performance of the Personal Care segment is expected to continue because of increased demand and strong stock positions. Furthermore, we foresee the performance of our Health segment to continue into Q4. Looking at retail, we project further turnover growth aided by the opening of 4 additional airport shops. On the other hand, in the Food segment, we anticipate a decrease in turnover yet at similar margin results. In our Beauty and Liquor segment, the current market circumstances are expected to continue. This will impact turnover, margins and operational expenses in the traditionally and seasonally strong last quarter of these 2 segments. To elaborate on these market circumstances, consumer inflation is likely to continue making an impact and therewith affecting consumer spending patterns, especially for the higher-end product ranges. Adding to this, the strong U.S. dollar is negatively affecting demand, especially in the international liquor market. This market traditionally peaks in the last months of the year in preparation for Chinese New Year. In the Beauty segment, we expect ongoing product scarcity to affect growth in the last quarter, in particular, for volume products. Given the fact that our Liquor and Beauty business historically peak in Q4, we expect the current market circumstances will substantially impact overall results for the full fiscal year. To conclude our session today, I want to make a general statement. Most of you will have noticed the recent article in the Dutch newspaper about a private investment by Mr. Blijdorp. We wish to emphasize that none of the B&S entities has or has had any interest in relation to this private investment. We understood from Mr. Blijdorp advisers that at the time of this investment, it was the intention to obtain exploration licenses for the production and export of marbles or similar stone types. This was not subject to the sanction rules in place at the time. The matter was investigated by legal experts already in 2016. The resulting conclusion was that the investment did not violate the sanction rules enforced at the time. We, therefore, have no indication that B&S violated any sanction regulations in this area. Do realize that this concerns a situation from 2016, so from over 6 years ago, even 2 years before the company's IPO. Nevertheless, given the recent publicity on this issue, we are studying the situation to assess if this requires any further action from our side. For now, we have no other information to share on this topic. And that ends our highlights for the 9-month 2022 trading update. I would like to hand over to the operator for Q&A.

Thank you, Mr. Tako. [Operator Instructions] We'll take our first question from Tijs Hollestelle.

My first question is about the comments in the Beauty division, higher margins. I guess that you're referring to the, let's say, the 6% EBITDA margin reached in the first half. This statement is not referring to the 9%-plus margins you achieved last year.

I think looking at the -- as discussed this morning as well, Tijs, so the Beauty segment and especially looking at the B2C business we do in that segment, in the prior years, I would say, the prior COVID years, we realized higher margin than we normally did, based on the high demand for online products. So therefore, what we see now is that those gross margins are normalizing and back to pre-COVID levels.

I mean there's normally kind of a historic relation that the gross margin in the second half of Beauty is lower. And that's because of the strong inflation, I guess, that your OpEx continues to grow as well, but despite that you're expecting a higher margin in the second half compared to the first.

Maybe slightly, Tijs, that is also because of the product scarcity and that drives the prices a little bit up.

Yes. But with regard to the general statement regarding EBITDA margin, yes, it is true that the larger part of the turnover is again, indeed, in the second half. Then when your fixed cost base, although already inflated, but when your fixed cost base has been leveled, then in the end, you realize a higher EBITDA margin. That's your question.

Yes. And then also on the Food business, you provided indeed guidance in the fourth quarter, you expect it to go down. Were you surprised by the increase in the third quarter because I read in your second quarter results release that you already offered, let's say, an increase in order, but the uptick in the third quarter is quite strong. What is then happening specifically? What are the dynamics for such a strong increase?

Now we did see a higher-than-expected recovery of all duty-free and travel-related business along with the increased turnover in the Maritime business, of which -- along with the cruise demand. And for the fourth quarter, I think the effect will be twofold last year -- because we do compare it with the fourth quarter of last year. What we did see last year was some additional turnover from remote contracts, which we do not expect to see this year. And secondly, turnover type business like the Cruise business is expected to gradually decline as the main cruise season has been passed.

Yes, that's clear. And also on Food, you had, of course, the impact of the doubtful debtor write-down, a significant impact on the cost base. Or is that the, let's say, the cost base in the second half progressing as normal?

Yes. Until this stage, yes.

So it's back to, let's say, at least a positive EBITDA number again.

Exactly, yes. Also the full year figures will clearly indicate, as you might expect, so the impact of this one-off to get a better understanding of the, let's say, through the cycle performance of this segment.

Yes. But it is really a one-off concentrated in the first half and no legacy in the second half in that matter.

To be quite frank, so the position itself has not yet been fully closed. But at this stage, this is the exposure we had, and we have to take into account our figures.

Yes. Okay. Yes, one final question on basically the dynamics in the Liquor division. So here, I mean a massive organic growth in the first half. I understand the dynamics also relating to the COVID situation year-on-year. But what were the other dynamics for the rather steep decrease in the organic growth in the third quarter? Can you explain that...

Tijs, we've seen in the Asian markets that they are closing harbors and opening harbors as the COVID hits. So that basically limits our possibilities to ship our international Liquor business there. And yes, the city are being closed -- cities are being closed in different Asian countries. So that impacts our distribution.

And the Asian Liquor business is also more profitable compared to the European Liquor business. Is that still the case?

No, I think it's especially regarding volume-wise. Look, if we -- and then also to give some highlights on the European liquor wholesale business comparison. We do see the early signals that consumer spending is starting to drop based on the inflation. So combined, the outlook for the fourth quarter for the liquor segment is as stated.

We will now move on to our next question from next participant, Robert Jan Vos from ABN AMRO.

Yes. A few questions from my end. Getting back to the Food business. I think at half year, you said that the expected growth in the second half will be driven by Personal Care, Retail and European part of the Liquor business mainly. There was no mentioning there of the Food unit. So it still seems a bit as if Q3 was really a surprise. So maybe a positive surprise to you as well. Maybe you can comment on that. And then related to the guidance you gave for the Food unit for Q4. And you said to expect a decrease in turnover. I assume that relates to the constant currency development, so excluding the impact from currencies. That's my first question.

Yes. To get back on the, let's say, food surprise, as I also indicated, yes, the performance and the recovery of the all the travel-related business like border shops, et cetera, that did perform better as compared to our expectations, that's for sure, along with the recovery of the cruise full Maritime business we serve. That was much better than initially anticipated. And then secondly, regarding the outlook for the Food segment that indeed your statement is correct.

So that's excluding the impact from currencies.

Yes.

Okay. Okay. That's helpful. Then a question on FragranceNet. I think you mentioned in the press release that FragranceNet reported revenue growth originating from the strong U.S. dollar. Are you referring to the 9 months or the third quarter or maybe both? That's the first part. And secondly, can you share because the U.S. dollar strengthened by 17% in Q3? So can you share what FragranceNet's sales growth has been excluding this currency impact in Q3?

So without getting into too much detail on a company-by-company basis, but indeed, the impact itself, the U.S. dollar impact on B2C, so as FragranceNet turnover is impacting both the Q3 as well as the year-to-date Q3 turnover. And dollar-for-dollar comparison, the turnover was struggling throughout the year. And looking now at the third quarter, looking at our sales as the -- let's say, the example I was giving this morning as well, we are now currently looking at the discount coupon rates, which are given to customers to keep the turnover on a dollar-to-dollar level at the old levels. So although we do struggle in this segment, we see the turnover picking up again in the formal levels.

Okay. That's clear. Yes, then maybe on the guidance, it is rather qualitative of nature, but I think to me, it's obvious that Q4 growth, pluses and minuses there, of course, is very likely to be lower than the 10% plus that you reported in Q3. Is that a fair conclusion? That's the first question. And secondly, you mentioned EBITDA profitability guidance of 5% at the half year results for this year. It's not reiterated nor withdrawn in the press release. So what should we think of that? Maybe you can elaborate on that.

Okay. So turnover-wise, let me start turnover for the outlook, which we try to give and should be read as an indication that from a comparison quarter-to-quarter, we expect the fourth quarter to be relatively flat instead of the peaking turnover growth, which we have seen up to the third quarter. So definitely not the 10% you just referred to. So I would say it would be relative -- based on the comments we gave, the conclusion would be that the growth will be relatively flat for the fourth quarter. And then secondly, with regard to the EBITDA statement, which we provided as per half year. Look, the challenging economic circumstances, which we provided also in this report as well will make it very challenging. That's for sure. But we -- at this stage, we did not see any reason as to withdraw that statement. We're still following the half year guidelines that we published.

Okay, that's very helpful. If I may, a couple of other points. You mentioned you talked about increased labor costs in the press release. Yes, is -- obviously, wage increases. Is it in any way also related to an absolute increase in the number of FTEs? That's my first question. And secondly, I saw that temporary staff cost were materially subdued in 2020 and 2021, obviously, related to COVID and lockdowns and what have you. But is it fair to assume that these costs -- because we don't have that granularity at half year results, is it fair to assume that those costs will increase sharply in 2022, so the temporary staff costs?

Yes, and twofold, I think. So that's the temporary staff cost, so that's basically the rates which we hire the external labor is also impacted by the competition we face on those type of labor. So in the logistics department, if the other companies around us are increasing the market rate for this type of labor, of course, our company is affected similar.

And we also, of course, added more staff to the retail shops. And those costs also went up because there's a fierce competition for retail personnel. And yes, it's driving the wages up.

So and then get back to your first or second part in your question regarding the number of employees. I think, in general, we can state that the number indeed, also based on the volumes we processed, went up.

Okay. That's clear. And then finally, I'm sorry that I dwell on a lot, but I took the opportunity. Yes, I have a question about the beauty company in France that you acquired. You said in May that it realized EUR 33 million turnover in 2021. Of course, that's very likely there's seasonality in the business towards second half and probably Q4. But even when you take this into consideration, the EUR 4.9 million sales contribution in Q3 seems a bit low. Can you elaborate? Is that seasonality? Can you elaborate on this?

So the seasonality is definitely there. So it's a beauty company serving both business to consumer to e-commerce as well as the some -- what's the correct word again, the difference on the pay...

[ On the paydown decrease ].

Yes. Thank you. So yes, basically, what we saw there is also that this business is impacted by the scarcity of products. So product availability is one of the main items which confront -- this business was confronted in the third quarter as well. So from the order -- the purchase orders put down, sometimes from every 100 items ordered, an amount of 50 or 60 were delivered.

Thank you, Mr. Robert. [Operator Instructions] It appears there is no further question at this time. I'd like to turn the conference back to you, Mr. Tako, for any additional or closing remarks. Thank you.

We have no additional closing remarks, but we would like to thank each of you for your participation this morning. If there are further questions, you know how to reach us via Investor Relations at bs-group-sa.com. Thank you.

Thank you for joining today's call. You may now disconnect.