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

Good day, and welcome to Quarter 1 2023 Trading Update Conference Call. My name is [ Bikila ], and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your hosts, Bas Schreuders, the CEO; Mark Faasse, the CFO, to begin today's conference. Please go ahead, sir.

Good morning all, and welcome to this call on our Q1 2023 trading update. My name is Bas Schreuders, Interim CEO of B&S. And with me here on the call is Mark Faasse, our CFO. As you know, following our upcoming AGM on Monday, May 22, Peter van Mierlo will be appointed as our CEO. So for the next calls it will be up to him and Mark. I do realize following the publication of our full year 2022 results, we all spoke not too long ago. So please allow me to be a bit brief today. I will take a few minutes to walk you through the highlights of the Q1 2023 trading update that we published this morning. After that, I would like to open for Q&A. As you may have seen from our press release, we delivered another quarter of solid growth in revenues to EUR 525.9 million for the quarter. This corresponds to a turnover growth of 16% or EUR 55.9 million, of which 14.7% was organic. The acquisitive growth related to the acquisition of last year of Europe Beauty Group. Foreign currency exchange effects contributed EUR 10.7 million or 2.4% to the mix. The revenue growth was broadly spread over all segments with stable revenues in the Food segment. All other segments showed strong increases with an outperformance in retail and personal care. Our overall gross margin was stable when compared to the same period a year earlier, a solid result in light of the inflation that continues to impact both our cost base as well as consumer behavior. We continue to grow our workforce mainly as a result of the opening of the new logistics center for FragranceNet in the U.S. and as a result of the newly opened airport shops and increased operations in our retail segment. All in all, this in combination with the aforementioned inflation, led to increased costs. Let me zoom in into our segments, starting with B&S Liquors. In this segment, we achieved 16.7% growth, mainly as a result of the increased demand for specialty items in the international markets, a continuing trend. Since the latter part of Q4 of last year, we have also seen, however, that there is an increased product availability in the market, which impacts our gross profit margins. In B&S Beauty, we achieved 13.3% turnover growth, of which approximately EUR 6 million resulted from the acquisition in France. The B2C business, which includes FragranceNet.com and Europe Beauty Group was the main contributor to the turnover growth. Our margins remained stable. Marketing and shipping expenses were also stable compared to the same period last year. For B&S Personal Care, turnover increased strongly, mainly as a result of its well-managed stock position, while the market was very tight. There was a very broad variety of items in stock, including an enhanced Private Label assortment, to meet the increasing customer demand. This led to a growth of 31.6% in turnover over the period. As mentioned before, revenues in B&S Food was stable. This was a mixed picture with strong growth in the Food Service distribution, which bounced back strongly after the COVID period, offset by a decrease in the Brand Distribution services. This decrease was due to the deliberate choice to focus more on margin development instead of volume growth, which has resulted in a strong improvement of our gross margin. B&S Health. Revenues in the segment increased by 14.3% compared to last year, mainly the result of the recovery that we have been seeing for the past couple of quarters in the travel-related vaccine business, which returned after the pandemic. Although we continue to see supply shortages, overall, market conditions have improved compared to last year, which is also a positive for the segment. And now our last segment, B&S Retail. It achieved a 42.8% growth in turnover, mainly as the segment was still impacted by the aftermath of the pandemic in Q1 last year. The number of stores opened and the number of flight movements this year is significantly higher, although not yet at the levels we projected. Then a few words on our financial position, which remained healthy in the period. Working capital and working capital in days decreased when compared to the same period last year, in line with increased availability, limiting the need for large stocks plus increased focus on stock rotation and more in general, focus on working capital management. That brings me to our outlook. Inflation is expected to continue being effective for the coming period, in our cost base as well as in consumer buying behavior. We continue to believe we can grow our top line, but not as cheap as last year, and we expect a slight improvement in gross margin. This will be driven by focusing on higher margin business rather than volume-driven sales. Staff costs are expected to continue to increase, and we will enhance our focus on cost control management. With that, I conclude my remarks on our Q1 2023 trading update. I would now like to open the call for questions and hand over to the operator.

[Operator Instructions] We'll take our first question from Tijs Hollestelle from ING.

Yes, let's start with the Liquor division. I see your comments in the press release today that a decrease in the gross margin. There was already quite a difference in the first half versus the second half of last year. And based on your remarks, I guess that the gross margin in the fourth quarter of last year was clearly below the -- what was it, 8.6% you recorded for the second half. And is then the gross margin then dropped even versus that number. Is that a correct way to interpret your statement?

Not quite. It goes -- you make a fair comment as compared with regard to the gross margin second half versus the first half last year. The gross margin of the fourth quarter as compared to the first quarter is slightly higher, but still below the average of the first half of last year, significantly.

Yes. And normally, it takes B&S a couple of months to restore the margin. And if there's price volatility at least to temporarily margin pressure, but if the markets stabilize a little bit, you're also able to reprice it and then margins are back, let's say, a bit more than 1 quarter. Is this dynamic still in place?

We would expect it to be definitely yes. But as you are aware, I think the current market circumstances are not as predictable as you -- exactly. So yes, let's -- for that, just to be quite frank, Tijs, we need to wait and see.

Yes. Okay. I see that's always the case, but it seems that inflation at least is slowing a bit, but of course, a bit increase again, I understand that it will be difficult.

But the dynamic should work as it has done in the past as well.

Yes. So your customers are still accepting, let's say, new prices. I mean you're just broken between demand and supply. So you can place your margin. That's what B&S always did. So that is basically the background of my question. Yes. Also on the Liquor division, last year, the second quarter was -- showed a little bit -- bit more than 40% year-on-year growth, of course, coming out of the lockdowns euphoria, I guess, and the consumers and all kinds of venues opening up. Would you say that, that quarter was an exceptional quarter or it was more an accurate reflection of the better normal last year? So -- and the reason I'm asking is, of course, to guessing the year-on-year comparison base for the second quarter of this year.

No, I would say it -- look -- as we see the current market developments, yes, it's well noted that the second quarter last year was an exceptional high increase as compared to the second quarter in '21 with all the known circumstances, et cetera. And as such, the second quarter for '23 would be expected to be more in line with the second quarter '22. As such that the second quarter '22 can be used as, I would say, a base comparison for the second quarter in '23.

Okay. That's very helpful. Yes, I'm not sure how many people are on the call, so I will continue with a couple of more questions. Yes, on the airport retail, so quite strong growth indeed. Reading between the lines and listening to your comments, you're not back at where you want, because I think pre-COVID levels were close to EUR 30 million in the first quarter. And meanwhile, you also added new stores there, you want some additional professions. What are the dynamics that still holding back, let's say, the revenue levels?

The dynamics are twofold. So first and foremost, of course, the main item are the number of passengers, which are, yes, are recovering as compared to the COVID periods, but yet not at the levels we projected for the first quarter. Secondly, we do see that the spend per customer is under pressure. So therefore the combination of the 2 results in the turnover we reported, which is clearly below what we were expecting ourselves.

Okay. Just also clear. Yes, one final for now then. Healthy balance sheet metrics you mentioned. I think that last year, the clean interest expenses on the bank facilities were a bit more than EUR 8 million. What do you expect for 2023 as most of your debt is variable, and I think probably also linked to the covenants. So what do you expect to be the full year ticket for interest expenses for B&S this year?

For debt, as per this trading update, Tijs, you are aware we don't go into details of the full year and also not for a period results. We do expect to give you some more color on the EBITDA margin and below to net result as per half year update.

Probably higher.

And that is a fair estimate. That's why you're quite a good analyst.

Tijs, to expect this. No -- honestly, yes, of course [ et cetera ], perhaps it might depend on the hunger of the bank, isn't it?

Yes. Different department gentlemen. Okay.

[Operator Instructions] We will move on to our next participant, Robert Vos from ABN AMRO - ODDO BHF.

You reported organic sales growth, excluding acquisitions of 12.3%, including it was 13.6% or so. So a very strong start to the year. But still you keep your outlook unchanged. As you say that organic sales growth will continue, albeit lower than last year when it was around 10%, I believe. So what -- is it you already addressed this in one of the many questions. Is it mainly the second quarter, which is a quarter to be aware of a tough comparison base, or are there other things to flag, segments to flag or maybe also quarters where you say, okay, be careful there because we had a relatively -- we have a relatively tough comparison base. Maybe you can elaborate a little bit on that because I'm trying to figure out how we get from the Q1 12%, 13% growth to below 10% for the year.

So again, as flagged by Tijs, as what I -- you indicated now yourself. So the second quarter last year was the most significant turnover growth quarter. The remaining quarters also indicated a significant role, but it decreased towards the end of the year, of course, because the fourth quarter in '21 already saw a significant part of the recovery. As such, the turnover base, I would say, for the quarters reported last year give -- as indicated, to Tijs well, give a good basis for our projection. So yes, the second quarter is the most significant increase last year. And as such, we do not expect to reach such a significant increase and a lot of bounce back in that second quarter. But overall, the turnover realization as we did last year, give a more fair basis to project our turnover for this year as such -- to a certain extent, back to normalized levels.

Does this answer your question, Rob?

Yes, pretty much. And is there anything to flag within the segments that we should be aware of? I mean, yes, retail is still not back to pre-COVID level. So I assume there's still clearly some upside potential. But is there anything to be aware of in the coming quarters in a specific segment?

No, nothing specific to flag at this stage, besides the general statement I just made.

Okay. That's clear. And I noticed, of course, that you repeated pretty much the outlook that you only gave -- I admit that a couple of weeks ago on the 17th of April. But should we assume that as the year progresses and you now only say something about the slight improvement in the gross margin. As the year progresses, is it fair to assume that you also say something about the EBITDA?

Yes. If we -- we have a clear view, as you might expect from us and just indicated to Tijs as well that we might be able to provide you some more color on these subjects as per the half year results, together with our new CEO, Peter van Mierlo.

[Operator Instructions] We'll take our next question from Henk Slotboom from the IDEA!.

It's his colleague, Maarten Verbeek, of the IDEA!. Firstly, please, a clarification. You mentioned that gross margin was stable. I presume that, that excludes the charge you took for the [ doubtful debt ] also since that was announced in the -- at the first half year figures, and attached to that when you make your outlook statement concerning gross margin. I also presume that is adjusted for the EUR 15.8 million charge.

First part of the [indiscernible], we took and communicated as per half year last year, that was one which was impacted the second quarter results. So yes, the quarterly Q1 on Q1 comparison is on a like-for-like basis. Furthermore, we did not provide any specific guidance on the gross margin for the full year. But of course, looking at the 2022 gross margin, that, of course, includes the nearly EUR 16 million one-off in there. Does this answer your question?

And that's first one. Yes. But the second one, you mentioned that you project still a slight improvement in gross margin compared to full year '22. Just to be clear, what's then your comparison base?

That's the normalized level we compare.

Okay. The normalized level. So excluding the EUR 15.8 million.

Yes.

Okay. And then secondly, already mentioned, but there's still a small difference in your outlook statement. Now you mentioned that you're going to focus on cost control management. Whilst a month ago, you still mentioned that you also want to maintain the other operating expenses at the 2022 level. So I was just wondering if that latter one is still valid or not.

Look, the fact that we mentioned it like this. We clearly look at the Q1 results. And there, as mentioned, we have some focused work to do.

Okay. But then still, do you -- are you willing to repeat that statement of April 17?

If we would, we would have included it explicitly.

We will move on with our next participant, Tijs Hollestelle, for a follow-up question, from ING.

Yes. And a follow-up. There was also a remark on the OpEx levels, the marketing costs. I noticed that the marketing cost almost doubled last year, so with a lot of companies there, I think also as a result of COVID disappearing. Or is the remark based on, let's say, the year-on-year comparison in the first quarter of this year. Or do you specifically expected to increase for the full year budget?

No. It's a quarter-on-quarter comparison. So what the remark originates from -- so that's the first part of your question. And then secondly, the marketing costs as such for the full year as compared to in line with our top line, we expect to keep growing. And especially, as you might assume, growing our B2C turnover, this might also increase along.

But a normal historic development with top line is a fair assumption.

Yes.

And in terms of -- I mean, wage inflation is also a big issue for a lot of corporates. Is there any specific timing for -- and first, let's say, an expected increase in a certain quarter that this wage inflation kicks in? Or is it just gradually taking in throughout the year for B&S?

Gradually, I would say definitely.

Okay. And how much do you guess is the average increase?

You keep coming back, Tijs, at bits and pieces of the EBITDA margin, right?

That's obvious. Okay. I will leave it at there.

We will move on with our next participant. Patrick Roquas from Kepler Cheuvreux.

A quick question from my side. It's -- I mean now you don't break down your organic sales growth and volume and price from our understanding for your model. And what's going on? Any indication what pricing was in Q1? Is that a high single-digit figure or more?

No. Without breaking it into indeed specific details, it's fair to assume that the turnover growth is a combination of both with the vast majority still being volume. But of course, pricing is within the full market also went up for us both our purchase and our sales prices. Hence, we have been able to keep our gross margins for the quarter, relatively flat.

[Operator Instructions] Dear speakers, it appears there is no further questions at this time, I'd like to turn the conference back to the host for any additional or closing remarks. Thank you.

Thank you, operator. Thank you all for joining us this morning. Should you have any additional questions, please do not hesitate to reach out to us. Wish you all a nice day. Thank you.

Thank you for joining today's call. You may now disconnect. Have a nice day.