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

[Indiscernible] Thank you.

Thank you very much. Good morning, everyone. My name is Bas Schreuders, currently Interim CEO of B&S. With me here today is Mark Faasse, our CFO. Together, we will talk you through our full year 2022 results that we published this morning. As you all know, with a delay due to the review into our governance policies and practices, of which we have published the outcome at the end of March. With regards to the external audit, we are happy to share with you that we have received an unqualified audit opinion from Delloite. First, let me go through the highlights of this year. We will then discuss the figures in more detail and provide the outlook for 2023. Before we give you the opportunity to ask questions, we will also update you on our governance. Before we dive into the progress on strategy, I would like to spend a moment on the reasons for the delay of our publication. As you are well aware, we have been scrutinized in the media, among other things about the financial relation between our then CEO and our majority shareholder. We decided to initiate a careful review of our control framework and governance practices, which near completion end of February. At that moment, CEO, Tako de Haan, and Vice Chairman of the Supervisory Board Willem Blijdorp decided to resign from their respective positions with immediate effect such in the best interest of the company. At the end of March, we published the outcomes of this review. Although several matters identified could be considered unfortunate, and even inappropriate for instance, related party transactions that should have been disclosed in prior years or should have been avoided altogether. We were glad to find that these transactions have not financially disadvantaged the company and had no impact on our financial results or financial position. This also leads to the unqualified others opinion that I mentioned just earlier. In our press release as well as on Page 87 of our annual report, which will be published tomorrow, we provide the details of the related party transactions that were assessed. In the review, we also looked at transactions between the company and related parties such as rental agreements and at the fact that several employees also provided services to related parties. We have not only disclosed what needed to be disclosed, but also significantly sharpened our procedures and approvals to avoid any of such issues going forward. We believe that with this, we can now establish an updated and robust governance framework, which is fully in line with the Dutch Corporate Governance Code and the practices of a listed company. Despite the turbulent times we have experienced inside B&S as well as in the world around us. We have made a significant progress on our strategies in the year as we continue to diligently execute on our strategic agenda, and I would like to take you through that. To recap, our aim is to drive through -- to drive growth through digital innovation accelerated by expanding our global network with growth markets, developing our product portfolio driven by consumer demand and marketing premium consumer good brands to maximize conversion. We continued our efforts to further digitalize the business and strengthen our technology backbone. We expanded our reach into new geographies and territories including new digital areas and expanded our network and partnerships. We reinforce our proposition in the U.S. with the Beauty segment, opening a new warehouse in Atlanta and adding physical flagship stores to our online presence to manifest our omnichannel approach. Further geographic expansion was accomplished in the Beauty segment in the Middle East, Australia and Asia. Adding to this, our retail segment expanded and added presence in Venice, Qatar, Brussels, Palma de Mallorca and Barcelona to its airport shop portfolio. We also continued our acquisitive growth and acquired 70%, 7-0 % of the Europe Beauty Group. This group services consumers via closed online platforms, members only, B2B web shops and physical direct-to-consumer channels. We remain focused on delivering our strategy in each of our 6 segments. All in all, and amidst challenging market circumstances, this resulted in a turnover growth of 14.9%. Finally, before I move into the financial highlights of 2022, let me draw your attention to the Sustainability Strategy 2030 we published in August last year and called Reach with Impact. This strategy is the result of an organization-wide effort to integrate sustainability into our business strategy and marks an important milestone in building a future-proof business and we believe we are making great progress in this area. So let's discuss how these developments translate into numbers. Overall turnover amounted to 2,148 million, a 14.9% increase compared to full year 2021. The Beauty Group, the French company and the Beauty segment, we acquired for May 2020, contributed EUR 21 million turnover. I will give some more detail on the segments in the next slides. Normalized EBITDA came in at EUR 106.7 million compared to EUR 116.4 million a year earlier. We have normalized EUR 15.1 million due to 2 provisions we have taken over the year. So looking at the performance per segment. B&S liquor sales increased by 20.1%, while gross profit increase was limited to 9%. Staff costs increased mainly due to the higher number of employees, resulting in a decrease of EBITDA and EBITDA margin. The European liquor wholesale business saw positive effects of the listed COVID measures. We launched our B2C webshop, which was rolled out across several European countries in the second half of the year. The consumer inflation decreased margins in the second half. International liquor distribution was still impacted by the pandemic with industry-wide scarcity that continued during the year. This specifically impacted the fourth quarter, which is traditionally the strongest given the holiday season. The zero-Covid policy in Asia disrupted our sales in the region based on which we had to sell goods elsewhere at lower prices. Furthermore, in addition to the high inflation and the fear for global recession, there was also hit in local currencies in Asia. B&S beauty turnover increased by 8%, mainly due to the acquisition of the Europe Beauty Group. We witnessed a slight decrease in margins due to the consumer inflation. In combination with increased half costs, this led to a significant decline in EBITDA. The increased staff cost is merely an investment in the workforce to equip the online B2C business for future growth. The B2B and B2R sales continue to be impacted by product scarcity and also reduced spending levels. Online B2C continued turnover growth, driven by international geographical expansion. The exchange rates had a positive effect on the sales level in B2C. Margin growth was held back by higher marketing costs and inflation. B&S Personal Care sales increased by 9.1%, with gross profit increased by 9%. This performance was driven by increased sales to key clients. Further sales growth was held back by high purchase prices of the private label assortment due to raw material scarcity and increased transport costs. EBITDA was under pressure due to the higher personnel costs but grew nonetheless. B&S Food increased its sales by 14.8% with a decline in gross profit. The increase was mainly driven by the post COVID recovery in Maritime market, which was offset by the decline in the remote business. Our brand distribution services performed well with Duty-free and domestic distribution, both contributing to the turnover growth. Despite turnover growth, gross profit decreased both in absolute terms as well as in percentage of turnover as a result of the aforementioned provisions totaling EUR 15.8 million. Mark Faasse will further elaborate on this in his presentation. Excluding these provisions, gross profit increased as a result of the focus on higher yet sustainable margin business, further amplified by the digitized King of reach B2B platform approach. Normalized EBITDA stood at EUR 13.5 million or 4%. B&S Health sales increased by 1.9% with a margin increase of 7.2%. This was driven by the recovery of the travel-related vaccine business. EBITDA margin significantly decreased as a result of increased transportation costs in the export business, which could only be partly passed on to customers. B&S retail more than double turnover and almost doubled gross profit as travel restrictions over 2022 were lifted. This led to a sharp increase in passenger numbers and travel movements and an increased spend per passenger. EBITDA again turned positive this year at EUR 2.8 million and the fixed costs remained largely in line with last year. This brings us to the financial review. Mark, I would now like to hand over to you.

Thank you, Bas, and good morning to you all. I will now talk you through our financial developments in more detail. Our overall turnover increased by 14.9%, as earlier indicated, of which 13.7% was organic growth. At constant currency, turnover increased 10.1% or 9% when looking at the organic growth. Gross profit came in just below EUR 304 million compared to EUR 287 million for the full year '21. As Bas already explained and as we announced in February, we had to take provisions totaling EUR 15.8 million. These provisions relate to 2 isolated cases, the first and largest of EUR 12.6 million was already partly included in our half year '22 results. The provision stems from a business partnership we entered into, but which did not materialize as expected. As such, we had to wind down the partnership. It's important to highlight that this was not a supplier client relation and therefore, this provision has no reflection on the quality of our regular client portfolio. The other provision concerns an outstanding trade receivable for which payment has been pending for over a year. The duration is a result of the ongoing complex settlement process of a remote Food contract of our clients. Considering the duration of the outstanding, we have provisioned for the full amount. These provisions are one-off nonrecurring items, and as such, we have decided to normalize these in our results to give you a better view of our underlying performance. Our normalized gross profit comes in at EUR 319.8 million or as a percentage of turnover, this was a decrease to 14.9% and decreased from 15.4% last year. This was mainly due to the consumer inflation impact. Operating expenses increased from EUR 171 million in '21 to EUR 213.1 million this year. Of which EUR 4.4 million is attributable to the consolidation of the acquired Europe Beauty Group mentioned before. The remaining cost increase mainly stems from increased personnel costs as a combined result of the tight labor market and the investments in our workforce. Furthermore, increased operating expenses mainly due to increased marketing, advisory and IT costs. IT costs relate to the further development of the technology backbone of the group. This led to a reported EBITDA margin of 4.2%, down from 6.2% last year. When normalized for the one-offs, EBITDA margin stood at 5%. Depreciation and amortization were largely in line with last year. Further, as you might recall, last year, we had to take an impairment loss in the Food segment amounting to EUR 10.2 million. For '22, the goodwill impairment test did not result in any impairment losses. All in all, this led to a net profit of EUR 36.1 million of which EUR 26.1 million is attributable to the owners of the company. Normalized for the one-offs, net profit would stand at EUR 49.4 million compared to EUR 54.6 million over the full year '21. So net profit down approximately 10%. Now let me show you the elements that together led to the turnover increase for '22. Turnover outperformed 21 levels driven by the release of the COVID-19 restrictions during '22. Organically, turnover increased by 9%. The Acquired turnover contributed 1.1%, stemming from the Europe Beauty Group acquisition in the B&S Beauty segment. The EUR/U.S. dollar exchange rate had a positive impact for 89.6 million or as a percentage contribution of 4.8%. Then zooming into the developments in the fourth quarter, you will note that the organic turnover was relatively flat during the fourth quarter '22, as previously indicated. Acquired turnover contributed 2%, stemming from the Europe Beauty Group in France. The EUR/U.S. dollar exchange rate had a positive impact of EUR 26.1 million. All in all, this resulted in reported turnover growth of 6.6% for the fourth quarter '22. That brings me to our financial position. Solvency stood at a solid 32.8%. Our net debt has increased to EUR 334.9 million as at the end of '22, mainly the result of our investment activities. Net debt-to-EBITDA ratio stood at 3.7 or when calculated in line with the definition for our banking covenants at 3.5, which is well within our banking covenant of 4.0. Inventory rotation slightly improved from 88 days in '21 to 83 days in '22. For the return on invested working capital, we believe it makes sense to look at our normalized return, which stands at 23.4% compared to 24.8% over '21. For the increase in our net debt position, please let me elaborate on the bridge showing the movement from the year-end '21 to year-end '22. As you can note, net cash from operations amounted to EUR 98.8 million. Investing activities related to the payment for the acquisition of the minority shares in JTG within the Beauty segment, which we acquired in '21, but with a deferred payment early '22. And secondly, the acquisition of Euro Beauty Group in France as per May 22. Furthermore, we made investments, amongst others, in new shops for the retail segment, and we opened a new warehouse in Atlanta within the Beauty segment. All in all, net debt increased by EUR 37.2 million. Then briefly turning back at the working capital development. Inventory increased to EUR 417 million with inventory days as indicated, slightly decreasing from 88 days in '21 to 83 days in '22. Trade receivables decreased from EUR 195 million to EUR 176 million or from EUR 195 million to EUR 192 million, not taking into account the EUR 15.8 million provisions. Altogether, working capital decreased to EUR 456 million. We will continue our strict measures related to working capital. These measures are concentrated on aligning net debt and EBITDA so that we can keep operating within our confidence. And now for the outlook, I would like to hand over back to you, Bas.

Many thanks, Mark. For 2023, we do not see major changes in the macroeconomic environment. We continue to see uncertainties related to inflation, and we expect the consumer buying behavior to remain a factor impacting turnover and margin levels in 2023. It should be noted that the 2022 reported matters relating to the governance of the company will in line with the 2022 results and financial positions not have any material impact on the '23 results nor on the financial position of the company in 2023. For '23, B&S projects continued top line growth, yet less steep as in '22 and a slight improvement in gross margin when compared to '22. This will be driven by focusing on higher margin business rather than volume sales. Provided market circumstances will not substantially worsen. Organic turnover growth projections of 7.5% are expected to be feasible. However, given the rising interest rates and economic uncertainty, we do not expect to meet the medium-term objective of 7.5% acquisitive turnover growth. We assume the increase of staff costs to continue and expect to maintain the other operating expenses under control as a result of strict cost control management. Before we give you the opportunity to ask questions, let me say a few words on our governance. I'll start with some remarks on the outcomes of our governance review. The relevant transactions being the transactions that should have been disclosed in the first place have all been included in the annual report, which will be published tomorrow. Although these events are evidently unpleasant for the company, we are confident we are making the right changes in the process to move forward as a listed company. In the upcoming AGM, the confirmations of the appointments of Derk Doijer and Bert Tjeenk Willink and the appointment of Kim Smith to our Supervisory Board are on the agenda. Please be aware that although we attach great importance to the Dutch Corporate Governance Code, there is no legal obligation under Luxembourg law to adhere to the 30% quorum, and these appointments are, therefore, legally valid. Having said that, we strive to comply with the quorum and still have one vacancy in our Supervisory Board, which we aim to fill as soon as possible. And upon these appointments, after admittedly a very turbulent year our Supervisory Board will be complete and well balanced. Furthermore, I'm pleased that we could announce today that our Supervisory Board nominates Peter van Mierlo to be appointed as our new CEO. Upon his appointment at the AGM on May 22, I will step back into my former role as one of the members of the Executive Board. Following the AGM, the Executive Board of B&S will consist of Peter van Mierlo as CEO; Mark Faasse, CFO, Neils Groen; and myself. That ends this presentation, and I would like to open the call for your questions and hand over to the operator.

[Operator Instructions] We will take the first question from Robert Vos from ABN Amro.

Yes. I have a few questions. First, I think, is for Mark. Can you elaborate a little bit on the financial expenses? You mentioned in the press release increased lending rates. But your net debt increased only limitedly at 16% or so. The average net debt and the financial expenses increased by a lot more than that is there anything else in there? And what should we expect from financial expenses going forward? That is my first question.

Okay. So looking at the financial expenses of '22, of course, there's the first increase in the lending rates included. Secondly, what also is included in the line item are cost for contracts of those underlying financial contracts. So that basically what's in the financial expenses '22. What's expected for '23, of course, like the rest of the market, we are being confronted with the increased interest rates, both on the -- within the euro environment as well as in the dollar environment. So what we do, of course, like I think every company does is make our projections and to make sure that we keep operating well within our covenants. So we take care of our lending capacity as well as the projected financing cost along with it.

Okay. But it's fair to assume that they will increase quite a bit further in 2023? Or is that too strong?

No, maybe not too strong, but looking at the interest rates, which, of course, you are perfectly aware, I would assume that those will increase, yes.

All right. My second question, you provide guidance on top line and also on gross profit margin, but there's no mentioning of EBITDA. In the remarks, you talked a little bit about costs, particularly personnel cost, but you also talk about marketing, advisory and IT costs. I know we will get additional color tomorrow. But can you give an idea by how much marketing IT and advisory costs increased in 2022? And related to that, personnel costs increased by 25% roughly in 2022. And you mentioned also, of course, there's an acquisition and you mentioned increased number of FTEs in one of the divisions. So you said that specifically. But can you split this between the increase in FTEs and higher wages? And what's your view on personnel costs for 2023?

Okay. So as included, so first, let me start with the last part. So the expectations or at least the fact that we mentioned it in the outlook is based on the fact that, of course, it's a subject for our company as well. As we have seen in '22, we expect to continue the labor market to remain tight in '23 as well, but yet keep investing in our workforce where needed. All in all, looking at the staff cost increase, it's a combined factor of both increase in FTE as well as the cost for staff. Without going into too much detail, I would say it's fair to state that it's a comparable increase in both the number of FTE and looking at some of our segments, which we keep investing in our workforce because we also keep expanding the operations like, for example, in the Beauty segment, which where we opened new warehouse operating in Atlanta. So as you can imagine, such an operation also includes or needs additional staff as well as the shops in the retail segment. Fair point, Bas. Does this answer your question, Robert Jan?

Yes. Partly. I was wondering whether you could provide some kind of guidance on the like-for-like increase because of wage increases. And so without the FTE increase that -- that's something we have to estimate, of course, but maybe some kind of indication on the like-for-like...

Yes. I would say, given the current market circumstances, I think you will realize that -- and that's why also we did not provide any further outlook on this subject because it's very hard to predict.

Okay. And then maybe a final one before I stop. If you are reconciling the group EBITDA, with the divisional EBITDA, you see that the holding and elimination line increased quite a bit, almost tripled from 3 million in 2021 to 8.6 million in 2022. Anything specific that explains this and what to assume for this going forward?

No, I would say going forward, to start with debt that we will indeed, as in -- as we had in the past, as you well noted -- this expected also always remain an item, which we include in our financials. So roughly estimating, I would expect that somewhere along the line in between those factors, looking at the '21 [ versus ] the '22 impact as you see the cost remaining at the holding and eliminations column, so to speak, that will be roughly in line. So it will be an average of those 2 years. There's no specific or extremely specific reasoning for the item -- or the amount of '22.

We will take the next question from the line Tijs Hollestelle from ING.

My first question is also about the OpEx. Robert Jan was already asking about it you can clearly see with your financial disclosure that the OpEx levels for Fair to New Year, all the divisions were higher in the second half compared to the first half. It's understandable given the inflationary environment as well as a surprise for me at least. But you also mentioned in the press release the cost alignment measures. So calculating the OpEx levels going forward. Is it fair to assume, let's say, an increase in the first half of this year compared to the second half for all divisions and then further increase from the first half this year into the second half? Or are there any, let's say, cost alignment measures you've taken in any of the divisions that could offset that so that the EBITDA margin calculation is purely driven then by the gross margin, so the dynamics behind the P&L. So if you could comment on that would be very helpful.

I think you made a very long statement, Tijs, and I would say I would align with the first part of your statement. So yes, we do expect the OpEx levels to increase in the first half as compared to the same period last year. But yet also the increased cost as we have been confronted with as per the third and the fourth quarter, especially, of course, also triggered for us and these cost alignment measures that we focus on strict cost control in order to remain those OpEx levels not to further increase and jeopardize EBITDA margin too much.

Okay. That gives me a feel for it. Then the second question is, I appreciate the details you gave about the trade receivables, the remote Food contract in the kind of one-off impact. Is there -- are there any, let's say, overdue receivables moving through time. So meaning that is there any bulk of receivables which you have not paid for, which could be an overdue receivable at the end of, for instance, this year?

No, not notable. If it would be the case, then we would have needed to be providing for those as well.

So that was really exceptional because normally B&S get paid quite immediately.

Definitely, yes, or we remain title to title documents. So yes, these are truly exceptional items and as indicated, these do not provide any or, I'd say, not comparable for the -- our full portfolio. So this does not impact the quality of our client portfolio as such.

Then on the cash flow and the bank covenants. You already mentioned that the stated leverage ratio is a little bit different from the definition the banks are using. Could you share the adjustments you're allowed to make on both the EBITDA and the net debt position?

Yes. Our net debt position is the same. It's mostly on the exceptional items. So looking at the exceptional items we have been confronted with this year, as we have also indicated in this press release, is we can also partly incorporate in the calculation of our covenant. But yet still, if we look at the reported figures, standing at 3.7 is also still well within our covenant taking into account that we had to take those exceptional one-off hits totaling just below EUR 16 million and still are within our covenant.

Yes. There's no correction for the minority stake impact on the reported EBITDA?

No.

And there's also no restricted cash or cash locked in projects or so?

Sorry, the line dropped just a little bit. You said?

Yes. There's also no other correction for any restricted cash and the gross cash on the balance sheet or cash flow that's locked in projects or joint ventures or so? It's all clean on the on that side of the balance sheet?

Yes.

Okay. That's helpful. Yes, also a question on the cash flow impact from the trade working capital. It was EUR 23 million in total in 2023 and about EUR 10 million or EUR 11 million from other short-term items. So that helped, I think, also the balance sheet. How much management action was behind this. So how much effort did you put in getting as much cash in the company at the end of the year?

Look, as a company like ourselves, I think working capital, as you are perfectly aware, is a focus point always. As I think with comparable companies, keeping the inventory turnaround levels at the healthy levels is a day-to-day operation. So yes, management effort has been put in, but not more or less as compared to other periods, I would say. So it's a regular part of our business.

Yes. So it's a natural number we're looking at -- it's not that we see a reverse immediately on the first of January in some of the trade working capital positions.

No, I would say they will be limited just.

Okay. Yes, I'd like to continue on the cash flow. Also the cash taxes were somewhat higher than the taxes that showed up in the profit and loss. Are there a lot of deferred tax payments? Is there more to come?

No, this is basically as you indeed duly noted. But they're not -- how do you say it, a waterfall of old tax or deferred tax payments expected to be for -- to come in.

Okay. And one final on this on the 2023 cash flow movement. As far as you can see it today, what can we expect? Is it EUR 10 million dividend payment in July? What are the expected CapEx levels roughly? And if you could, any, let's say, comment on the potential natural move in the trade working capital line items for this year, that will be very helpful for us.

Yes, I can imagine. But at this stage, Tijs, this as you might be aware, also with the new CEO coming in with the investment planning is roughly stated in the final. But at this stage, we don't give any further details on this outlook, unfortunately, but will expect to give you some more color on those items as per half year '23.

Yes. Okay. But it's already positive, you don't see any big cash outflows for this year you can already predict or see it coming?

Everything we see coming, Tijs, that we take into account naturally.

We will take the next question from line Patrick Roquas from Kepler Cheuvreux.

I've got a couple on corporate governance and a couple on financials. So first on governance. As you talk in the presentation about measures taken to strengthen policies and practices. Can you provide a couple of examples here? And second, is it a consideration to move B&S Group from, let's say, corporate under Luxembourg legislation towards Dutch legislation or to kind of more comply to, let's say, corporate governance that I think here and in the U.K. is applicable. Those are the first 2 questions.

Well, in fact, if I say we have strengthened our governance. I must start by saying that the procedures and rules within our house are pretty solid. And in that sense, my own words, I guess, it boils down to more discipline to adhere to the rules as they apply. And that is something we have in our daily message to the staff from management to everybody on the work floor to adhere to those rules. And in fact, nothing new here. And as we have stated in -- on this matter is pretty unfortunate that we did not -- well, adhere to the rules, as we are supposed to be -- but mind my words, it's between the ears of everybody, and it should -- well, give us confidence that it should not happen in the future. As regards legislation, yes, and applicable law. You know that we're dealing with B&S Group SA being a Luxembourg company, and therefore, Luxembourg law applies and the articles of association, obviously, are established according to the rules and regulations of Luxembourg. But then again, as you are very well aware of, we have opted to follow the corporate governance code. In that sense, we obviously are also 100% linked to whatever applies here in the Netherlands.

All right. Then on the financials. You talk about product scarcity, especially in Q4, nevertheless, I think we've heard quite a couple of FMCGs and also fragrance and beauty companies talking about destocking, especially in beauty and personal care. So what is, let's say, the -- what is different for you here? What has been different for you?

I think this statement, it's look at in general, but especially, of course, in our Beauty & liquor segment where we have been confronted with the product scarcity throughout '22, and also still -- and of course, the product inflow has been changed as compared to the rest of the market or in line with the rest of the market, I would say. But you have been seeing that also within our Beauty segment, and to certain extent, Liquor, but also that these product scarcity and also the in and outflow of products remain volatile throughout the year and also throughout the fourth quarter.

Okay. And then on the outlook, you've given some quality statements for the outlook in general. Any additional comments for your key divisions in Liquor, Beauty and Personal Care? And secondly, I kind of read a sense of the possibility of sharing unprofitable business. Is that the case? And if so, could you give any quantification here?

That has not been intended in how we have done the outlook, Patrick. So in general, no, the outlook we provide is for the company as a whole. So we do not provide any further specifics on the individual segments. I hope you will appreciate.

It appears there's no further question at this time.

All right. Well, if there are no more questions, then I wish to thank all participants, and thank you all for joining us today in our review of the 2020 results. Should you have any additional questions, please do not hesitate to reach out to us. Have a nice day, and thank you and goodbye.

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