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

Hello, and welcome to the 9 Months 2023 Trading Update. My name is Jess, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand over to your host, Peter van Mierlo, CEO; and Mark Faasse, CFO, to begin today's call. Thank you.

Good morning to you all. Thank you for joining our call trading update third quarter. Yes. As you've seen in the press release, we've shown a solid performance over Q3. And I'm sure that you have noticed that we didn't change our outlook and that was all for the right reasons. There are definitely different trends throughout the 6 segments, different markets. So maybe good benefit for you all. Let me reflect a little bit on each segment before we'll share some thoughts about the overall company. Why don't I start with Liquor, just like in the press release? Yes. Liquor has 2 subsegments, wholesale and global trade, which do not necessarily -- which are not necessarily impacted in exactly the same way due to macroeconomic or global geopolitical tensions. Wholesale is developing as expected, I would say. Global trade is still influenced by difficult market circumstances, which are mainly driven by the macroeconomic circumstances and geopolitical affairs. If I look at Beauty, Beauty is currently in Q4 is the most important quarter for Beauty. As you probably all know. Beauty is operating in 3 different subsegments, B2R, B2B and B2C. And the developments in B2C are promising. B2R is fine. B2B developing as expected. B2C is still dependent on consumer buying behavior, which is partly influenced also by macroeconomic affairs, but also by inflation, obviously. It is -- Q4 remains our most important quarter in terms of turnover and EBITDA. And I must say that the segment is very well prepared to accommodate the additional demand during the festivity seasons. And that's not only Christmas, right? I mean Q4 has globally a lot of celebration days which are different across the different continents in this world. If I look at Personal Care, yes, Personal Care has a very, very strong year or a strong year, I should say. It's partly driven by specific market circumstances, product scarcity and widespread inflation, they have both collectively contributed to our turnover, increased from last year. Strategically, the mix of revenue has also favored more the Brand & Private Label assortment, which is strategically, obviously a strong development. If I go on with Food. Food improved, the gross margin [ worse ] across the 3 subsegments in terms of Maritime, in terms of duty-free shops and in terms of export. It's developing well. I must say that the composition of turnover is more and more towards supply chain relationships with individual clients. IT is an important aspect in building that relationship. Web-based sales, also to better integrate our own IT system in the whole supply chain with clients makes it -- yes, it just shows a strong development this year, I must say. Health is steady, positive developments in the vaccine business, also additional focus on operational excellence, and it's moving into the right direction. Travel Retail, last but not least, yes, Travel Retail is still maybe not suffering any more, but the market has not completely stabilized again in terms of the number of travelers, passengers into different airports, and also the composition of the travelers is still different. So people from Russia, people from Asia are less presence than they used to be in 2019 and the business traveler is coming back, but more slowly than we had hoped for, I guess. And in terms of where Travel Retail also had [ the best ] open shops in 2022, also in 2023. So there's a lot of investment, and it will benefit from full year effects into the future. Yes, overall, yes, we're looking forward to share our thoughts on strategy and developments on November 21 in Dordrecht on our Capital Markets Day. In those 2 hours, we've planned the meeting between 10 and 12. And we'll make sure there's some coffee. And we will focus on each of the 6 segments, but also on the role of the holding. So in terms of what role the holding is playing towards those 6 segments in the whole company. Matters that we would like to address is an outlook per segment obviously. We will explain the role of the holding and the way we look at this the way forward. Operational excellence, we will talk a bit about the improved governance, additional strategic options that we are looking at. And our view on the group as a whole, our mission, our values, but definitely also our synergies between the 6 segments. I'd like to open up for questions. If that's the right timing, and we will do our utmost in answering those questions if there are any, please.

The first question comes from the line of Robert Jan Vos from ABN AMRO ODDO BHF.

Yes. A couple of questions. You are pretty clear on your group EBITDA margin expectation for the year ahead, it has not changed. So that's for us maybe the niche part. But looking within the segment, it's a bit more difficult. You had another stellar quarter in Personal Care, when looking at historical margins, I've seen that in most years, second half delivered higher gross profit and EBITDA margins in Personal Care than the first half. My question is, is this a pattern to expect for 2023 as well? And now that you have banked another very strong Q3. And related to that, do you expect to be EBITDA positive in liquors in 2023? That's my first question.

Okay yes, sure. So regarding your first question, the deviation between performance first half, second half of the year, especially for this segment. Yes, historically, the second half also for Personal Care tends to be slightly better than the first half, which is a trend which we expect to continue. But yet, please also take in mind -- bear in mind that as per, I would say, Q4 last year, the tailwind for this segment already started. So we saw already some improved gross margins there based on the composition, product availability, the items which Peter just mentioned. And then secondly, on your question regarding liquor although it is a trading update, we normally don't provide too much detail regarding profits, we can highlight that we do expect a positive EBITDA for the full year.

Okay. That's very helpful. Maybe continuing with Liquor. There was this EUR 1.3 million mentioned at half year, which was still left in doubtful debtors for which no provision was taken at the time. And also, I believe, EUR 3.6 million for which there was provision taken. Can you update us on this last part of that -- those doubtful debtors in Liquor? Is there anything to mention there?

Yes. What I can mention is that we did not take into account any further provision on this subject, but also that the subject has not yet been cleared. So it is still something which is ongoing, but the situation did not worsen as compared to half year, so we're currently still working and expecting to be able to provide more insight on this one as per full year. But as such, to conclude, there's no indication and/or reasoning as to provide for further amounts as per date.

Okay. Also very clear. And then I also had a question on the paragraph about cash flow and financial position. You explained that you agreed a different distribution of the covenants throughout the year. Basically, my question is was this needed? Was this necessary -- or in other words, at the end of Q3, did you stay within your previous thresholds as well? Or was it also necessary to have the...

No, no. Robert Jan, this is important. I think in general, Q4 is just an important quarter of the year, right, as I have already explained. And as a result, it would be helpful also into the future if our confidence are slightly different in Q3 as in Q4, and we started that conversation with the banks, and they all actually cooperated very nicely. And as you've seen, we were still within the borders of the original one. But anyway, so in the end, yes, so we did not utilize the change ones, if you refer to that. So it was not -- if we did not change, I hope Jan, that's probably your question -- then as so we're not prepared at the new imposed covenants.

Yes. That's exactly my question. So very clear. And my final one is it...

We could have run the business also within your original covenants, but it's just better to do it this way. That's the reason why we ask for adjustment.

Okay. Very clear. And my final one is, is it also possible to quantify the year-on-year absolute revenue impact from the new locations or the new shops opened in retail? How big of an impact was that compared to last year Q3?

I definitely don't know, this is by heart, Robert Jan, but there are some -- there are definitely shops that have opened in 2023. I believe, approximately 5, but it could also be 6 or 4.

In '23, we opened -- that' the '22, so in '22 there were 3 additional shops and in '23 12 additional shops opened...

Yes, yes, France operations, so -- but if you're really interested in that, then we're happy to explain that in the future calls.

Your next question comes from the line of Tijs Hollestelle from ING.

Yes, I also had some questions on the gross margin like Robert Jan. But in Food, the dynamics are also the same because it's also a very, very strong gross margin in the first half of this year compared to the prior periods. So you do see that continuing in the second half?

Gross margins improved with -- the first half year gross margin improvement will continue in the second half year. Yes, more or less so. Becoming a little bit more challenging. But yes, so again, there, there's also the -- indeed continuing as compared to the first half. Yet, I would say, at current market circumstances, we can do more or almost to keep those levels alive.

That's helpful. And I mean, I think that you already did a pretty good job on managing the OpEx in the first half. Is there -- where are the most challenging situation on the cost inflation in the OpEx within the division? Is there any specific area? Or are you really worried about a certain cost component? Or can you still manage that general cost inflation quite well?

Your question implies that we are worried, right? So we're not worried.

I'm worried, yes.

You're worried. Look, as previously mentioned, looking at our staff cost development as well as OpEx, in general, yes, it is a trend which, of course, we has truly our attention. And I think it's across the market, which this transition is notable. I would say that the increasing trend is, at least in this quarter, we have seen that there is still an increase, but yet less steep as compared to prior quarters. So that's, to a certain extent, at least promising, I would say, but without going into too much detail, that is something which is on a day-to-day operation ties, which is our full and clear attention, as Peter just mentioned in the interim, but at this stage we are not worried, Tijs.

I'm less worried now, that it's good. I also had a question, maybe it's a stupid one, but the liquidation of Big Bazar, did that have an impact? Was that a client of B&S?

No, not anymore. So no impact.

No impact. And also in general, are you concerned about liquidation risk at your client base?

No, not more or less than normally. Look, our base client protection is in credit insurance. So especially with these type of customers that's easy to come by to have those lines insured. But of course, having them insured, of course, is not keep you away from analyzing that your clients be able to pay their bills. So credit controls on top of things, especially also in these circumstances is [ price ]...

Okay. Also, yes, coming back on the bank covenants. I also appreciated the comments in the press release because the stock market is kind of spooky at this time about these things. Can you remind us a little bit how well B&S is able to manage the cash flow? Why because it is indeed very typical seasonal -- and I can -- if I remember it correctly from the past, sometimes there is kind of a timing issue between collecting the cash on the receivables depending on the timing of the Chinese New Year.

Correct.

Is that correct? And it is relatively late now? Does that mean that you can collect the cash, let's say, later this year, the risks are higher?

No, there is a factor. But look, in the end, if we look at our historical pattern, so we've always -- if you look at our historical pattern, we always have deleveraged, I would say, towards the end of the year in line with the historical pattern and the seasonal pattern just indicated, which is also the -- was the main subject for this discussion in the first place. So we expect to see the same deleveraging this year again. And please bear in mind that the, I would say, limited or more limited deleveraging last year is clearly, of course, also impacted by the significant one-offs we had to account for in our EBITDA as per the year-end last year.

That's true and those are dropping off from the LTM EBITDA towards the end of this year?

Exactly, Tijs.

Okay. Yes, that helps. I now have something else. No, I cannot recall. So yes, your comment on the amendment of the bank covenants. That is because you can manage the cash flow, if you want. But from a commercial operational perspective, you'd probably like to have somewhat more room. So if you can make a deal which is quite big that you can, you're not being restrained by your own balance sheet to run the commercial business? And is that the way I should look at that comment?

Yes, exactly. Which is most important for the end of Q3 because of the size of Q4, and the fact that these types of deals tend to become -- come on the market surrounding quarter ends. So that's also why you want to have this room to maneuver if these deals come on the market.

The next question comes from the line of Martin [indiscernible] from the IDF.

It's [indiscernible] A couple of questions from me, please. Firstly, to get back to previous topic, the covenant, which you have adjusted due to the seasonality of the business. In the previous covenant, there was also the possibility that you would have additional space when you have made an acquisition, so instead of 4, you have room to 4.5. Is it still applicable?

All the other items remained the same, Martin.

So more or less, we have to add 50 bps on top of the quarterly numbers you have mentioned in the press release?

Not sure what you're now referring to, but all the other items as indicated also in our -- the disclosure in our financial statements, which give a clear overview on all the components of our financing remain the same.

Okay. With respect to Liquor, you mentioned that gross profit and margin was down year-to-date has already been discussed in Q2. There was a charge. If we would solely look at Q3, did the gross margin of Liquors improve?

Without giving too much detail, again, it is a trading update. Please bear in mind. But look, the market circumstances in Liquor throughout the year has been markedly the same, but especially in Q4 last year, the market circumstances started to change. So if we compare quarter to quarter, I would say, the first 3 quarters of '23 have been as challenging as Q4 of last year. So these trends continue throughout the year to date.

Okay. And lastly, when I look at your annual report, then a week ago on October 29, '23, there was the first tranche of 12.5% of FragranceNet, which should be close, which should be acquired. But did it happen?

Well, there is my compliments because that's completely correct. But to exercise the option, we could have done that one month before, and we could have done that one month after the 23rd of October, and we are in discussions with the minority show all the shareholders about this aspect. And we'll inform you after -- we'll inform the market after we finalize those discussions.

Could you more indicate how much money it is involved? And would it also threaten your bank covenant position?

The latter is no. And the first question, we will answer after we've reached a final agreement.

The next question comes from the line of Patrick Roquas from Kepler Cheuvreux.

Two questions from my side and also good to hear that there's coffee on the Capital Markets Day. And -- the first question is could you give any indication on volumes in Q3, which I assume were down? And then secondly, you expressed confidence to remain within your bank covenants by the year-end. But does this take into account the possibility of a disappointing Q4 in case consumers spend much less than they normally do because of the economic situation?

Well, let's start with your last question. I would think that is your main one. Of course, we do take into account scenarios which are, I would say, less favorable Q4 developments as our base case. So yes, we have room to maneuver and remain within our banking covenants, Patrick. Regarding your first question on the volume versus price in our turnover. This is yet an item subject, which I think it comes back every now and then in this call as well. We are still working on methodologies to be able to provide you with this insight. But at this stage, we simply do not -- we are not able to provide you this detail.

There are currently no questions in the queue. [Operator Instructions] We have no further questions in the queue. So I'll turn the call back over to your hosts for some closing remarks.

Thank you very much for calling in, and thank you for the excellent questions. Again, we're looking forward to meet you all in 2 weeks' time plus 1 day, I guess. And we'll make sure that there's coffee and maybe a cookie or something. So -- but again, looking forward to meet you all.

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