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

Hello, and welcome to the B&S Q1 2024 Trading Update Call. My name is Saskia 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 Peter van Mierlo, CEO, to begin today's conference. Please go ahead.

Thank you, Saskia. Good morning to you all. This is Peter van Mierlo. I'm CEO of B&S. And with me here on the call is Mark Faasse. We'd like to give you some color to the trading update that we've published this morning. And I will run you through the different segments. But first of all, overall, we had a turnover level, which is comparable to last year. And the difference is mainly triggered by the 5 segments actually growing their revenue, in the -- Food was almost 7% and the highest was Travel Retail, 29%, and a decline in the Liquors market as we already communicated to you during our full year update a couple of weeks ago. We are -- we do believe that we had a good quarter with limited growth in gross margin, which is logical, if you compare the margins of Liquor segment with the other segments. So that is something that I guess is well understood by the audience. The costs are more or less in line with last year. We did have some one-off advisory costs in the first quarter of 2023. And as a result, the other operating expenses decreased slightly compared to last year. Staff costs are in line with last year in spite of all the inflation that we needed to cope with. So we are there -- we -- yes, we're in reasonably good shape in that regard at this stage. If I look a bit closer to the different segments, then first of all, we have Beauty. Beauty had a good first quarter for different reasons. Growth came mostly from the B2C activities, the business-to-consumer activities, web-based sales directly to consumers across the world. But also B2R, so our platform sales did well. Business-to-business global trade ended up slightly below last year. Turnover and margin are improving especially the investments that we did in our warehousing, automation, IT investments, robotization of warehouse activities led to improving margins. Another good thing about Beauty is that we are diversifying our product offering, our assortment more. So there is the growth in our care and makeup products. Hair care, skin care and other categories are growing faster than our fragrances businesses, which makes the segment also stronger. Food. Food had a strong seasonal order intake, especially for maritime and export. The cruise season is coming up now. We are in a better shape than last year in that regard. So that is positive in terms of market expectations and for the full year. Health, our smallest segment, as you all know, but they grew most with 29%. But it's mostly related to the vaccine business, the vaccine business that's actually -- the vaccine business that actually is coming back also because of the Travel Retail business. And I'm sorry, I'm mixing up the Health, my CFO is correcting me rightfully so. So Health grew 20.8% and Travel Retail grew 29%, both, by the way, partly because of the travel business. Let me get to Travel Retail as last. Liquors had a difficult quarter as was expected due to increased product availability and leading to a decrease of 20% compared to Q1 2023. Q1 2023 coming out of a very, very strong year 2022, if you may remember, compared to what happened in 2023. We are still expecting markets to improve in the course of this year, but it was not an easy quarter, obviously, which was to be expected. Personal Care had another strong quarter in 2024, yes, building on the success of last year. It is good to note though that the strong increase of Personal Care in 2023 actually started in Q2. So Q1 -- we're still comparing it to or compared to the success of 2023 to relatively less strong quarter in 2023, being the first quarter of Personal Care. So it wouldn't be right to extrapolate current growth percentages over the full year. That's also not what we are expecting. But nonetheless, it's -- especially due to the continued scarcity of premium product -- brand products, that our Personal Care segment had another very strong year -- a very strong quarter. Travel Retail. Travel Retail, as said, 29% increase, due to a higher number of passengers, but also definitely, as was communicated to you earlier, the new opened up shops in 2023 growing to maturity, also still growing to maturity a couple of shops that were opened in 2022, even. That takes time. That's not a fixed period. It's at least a year. But sometimes it can also take 18 months up to -- well 18 months would be the average, I guess, in terms of growing to maturity for new shops. Especially in new geographies, that just takes time. We are still confident about Travel Retail due to the travel business coming back up to speed, that's important. The new shops that go to maturity, as said, in the next 12 to 18 months. So we do believe that there's room for improvement. And that is also -- that's also what we already told you around -- in our previous call. And the 29% growth in Q1 actually substantiates that perspective. And balance sheet, if I turn to the balance sheet, remained healthy, well within the covenants. So yes, what is there to note? Well, we did -- we did release a press release around the transaction on the 24.2% of the minority shares in the Personal Care segment, which we acquired in Jan. of this year. for a total price of approximately EUR 47 million, of which 50% was paid in Q1 2024 and the other 50% will be paid in Jan. 2025, all in line with the acquisition contracts that when -- at the moment we acquired the Personal Care business. In terms of outlook, nothing much has changed. We still believe that we will meet our previously communicated outlook. The consolidated turnover growth is -- we did -- during our Capital Markets Day, we mentioned 5% to 7%. We believe it's closer to 5% than to the other part of that range. But also because we are stronger in the segments that provide higher margins, we still believe that overall result will be met compared to what we communicated to you earlier. Let me see. Yes, that concludes more or less the segmental review. Yes. As you've read in the -- as you've read in the press release, we also acquired -- we did an investment in the Government & Defense business, also in line with what we communicated to you earlier. That investment, we believe, will be positive for our operational cash flows and our net results. We believe that -- we expect the overall cash flow coming in for these projects will be in the range of 2% to 4% in the next coming years annually. And for this year, we expect the cash inflow also due to prefinanced aspects of that business to be in the range of 5 to 8. And we definitely believe that there's going to be synergies with other parts of the business. The numbers I just told you are not -- the synergy effects are not included. And so there's more room to grow there. And let me see. Looking to Mark, yes. I think I said more or less what we wanted to bring to the table and make sure that you were aware when you've read the press release. So back to you, Saskia, and maybe you can ask the audience to press star 1 if they want to have any questions.

[Operator Instructions] And our first question today comes from Robert Jan Vos from ABN AMRO.

Yes. I have a couple of questions. First, on the outlook. You mentioned that you still think that 5% is achievable, but that it could be impacted by the recovery in the Liquor markets. I do remember a similar comment in the press release of the full year results stating that you expect markets to bottom in the second half. Although it seems that the tone is a bit less confident than what you said a month ago. My question here is, am I right in assuming that you sound a bit less confident? And related to this, do you still expect that -- do you still expect a bottoming of the Liquor markets in H2? That's my first question.

You want to run one by one, Robert Jan, or first share all your questions.

Okay. No, let's just do it one by one.

I think -- and Peter will additionally provide some comments if I'm not complete. But I think it's a fair statement that we put the wording in as we did. And we did indeed change the wording as compared to the previous wordings. And that, from my perspective, yes, would state -- how we stated that, yes, there is uncertainty, which we, at this stage, share with the market that we do see this uncertainty, and how the margin recovery plays out will clearly potentially impact our turnover as well. Peter, anything to add to this?

Yes. Well, it all has to do with the minus 19%, right, Robert? And so if you look at the markets and the guys who've been working in this business for most of their lives actually, they do believe that it's going to bottom out. If I look at the first quarter, it's still minus 20%, which is obviously not helpful in that regard. So yes, we do believe that the decrease will definitely stop also because last year second or third quarter and fourth quarter obviously weren't the best quarters ever as well. So that makes the idea that we will bottom out in the second half year logical, but we haven't found the proof in Q1, I think -- and that's -- that's the reason why we phrased it as we phrased it. And that's the truth and the truth and nothing but the truth. Yes, that's just where we are.

Does that help, Robert Jan?

Yes, absolutely. Absolutely. Maybe a related question for the Liquor division. You mentioned that it mainly was -- that the decline was mainly realized in the international trading activities. Maybe one sentence about the European wholesale business, please?

Yes, that's not going -- it could be better, but it's definitely not worrying at all.

Okay. That's clear. Then on the G&D investments, the deal basically that you announced. I'm wondering why have you opted for this rather, well, I would say, unusual structure involving your majority shareholder? Furthermore, you mentioned initial investments, if I'm not mistaken, of EUR 9 million and some deferred considerations over the next 3 years. Can you provide a bit more color on that, please? What are the amounts of the deferred investments probably related to performance of the contracts or something like that? But a bit more color would be appreciated. And lastly, on G&D investments. What you said on the cash flows related to this both for this year and the next few years? I missed that a little bit. Maybe you can repeat those comments.

Yes. Certainly. So the -- so first of all, there's no structure -- after we signed these contracts in the last couple of weeks, the majority shareholder is completely out. So there's no structure with the majority shareholder. So that's one. Secondly, our investment into these contracts is EUR 10 million plus $8 million. It's just -- those are the amounts that were invested in those projects, in those currencies. And that's the reason why the acquisition price is at cost, and that's the reason why it's partly in euros and partly in dollars. So that's second part -- and that's just a deferred acquisition price, of which we will pay approximately EUR 9 million in Q3 of this year, and the other parts will be paid -- the other 25% or the other 25%, approximately, by the way, because you've got this currency thing, but will be paid in 2025 and in 2026. So it's a 3-year deferred consideration of EUR 10 million and $8 million, of which we will pay EUR 9 million in Q3 2024 and the other EUR 9 million will be paid -- or 50% in 2025 and the other 50% in 2026. So let me pause there. Is that clear? Because it is...

Yes, I think I was a bit confused by the 50% economic ownership. I thought you buy 50% of the economic ownership, but maybe you can explain that. Who holds the other 50%?

Yes. That's another third party, whose name we will not disclose during this call for market reasons. It's a trusted party. And that's the reason why we own 50% economic ownership. The other 50% is owned by our partner. So these are partnership contracts, as we try to put it in the press release.

Okay. That's clear. I thought that the 50% -- you buy 50% from your majority shareholder. That's basically what these deals do.

Completely right. Completely right. And he is out, so he doesn't have -- so there's no activity of the majority shareholder anymore into the future around the around these projects.

Okay. That's clarified then. That's very helpful. And maybe you can repeat the comments you made on the cash flows, because that, I mean...

So for this year -- so for this year and the following years, we expect a positive cash flow of these projects, excluding synergy effects and excluding other growth potential of this market. We expect a positive cash flow in of EUR 2 million to EUR 4 million. And we believe this year, the total -- so that's the profit that's the impact on our net results, Robert. And then apart from that, this EUR 10 million and $8 million has partly also been used to prefinancing working capital and other start-up costs. And so we expect the cash inflow in 2024 around -- between 5 to 8. And the margin and the range is, as we just said, why? Because the timing of these projects are difficult to pinpoint exactly. That's the reason why we have relatively large margins or relatively large range when I communicate these numbers.

Okay. Thank you...

So EUR 2 million to EUR 4 million to net results, EUR 5 million to EUR 8 million around cash, yes, for 2024.

And we're moving on to a question from Tijs Hollestelle from ING.

Yes, Robert Jan already asked the same questions I want to ask, but maybe also go a bit deeper on these contracts. What was the reason that the B&S entity did not invest in these contracts a couple of years ago?

I don't know whether -- yes. First of all, I wasn't around. I don't know. It's also the market opportunities right now, I must say. The first part of the contracts have a higher risk than the later parts of these contracts. That could have been something that in the past people were wondering about. I don't know, Tijs. I'm just guessing, to be honest. If we look at it today, we believe it's a sound investment, and also helps us building the government and defense market as a player, as B&S.

Yes. Because what I remember from the business, we had a deep dive a couple of years ago when B&S came to the stock market, is that, yes, there were a lot of contracts with the U.S. Army and the United Nations, in Afghanistan but also in the parts of Africa where these armies were active, and there wasn't huge strict compliance requirements and you need to have all kinds of permits, et cetera. So you had basically quite a strong position in that. And yes, what I understood from it is that you then work together with what they call prime suppliers, which are being checked by the U.S. Department of Defense and then they select B&S or maybe some other suppliers in order to provide 3 or sometimes 8 years of food and beverage to these armies in a certain area. So therefore, I'm a bit surprised to see that the large shareholders can also invest in these contracts because that seems counterintuitive what this business means. So can you give me a bit more background on what it actually is then, the contract?

First of all, Tijs, let me compliment you that all the information which have been shared previously have landed so well at your end. So you're still on top of the requirements in this business line. So regarding the permits, which B&S owns, so to be permitted operator, et cetera, and all the compliance, which you need to cope with in order to be able to act in this in certain type of contracts, not all contracts. But we still have and operate those permits. And we keep improving our quality standards in order to remain compliant with -- and retain those permits. Of course, each type of contract differs regarding requirements. The counterparty involves either being a prime vendor itself or a government-related agency, or whatever, the party in need of the remote contract needs in this business line. So it's not clear to stay -- say -- sorry, that each contract requires the same compliance, but yet the G&D business line, which we operate, needs the certificates, which we, at our logistic departments, which we are very proud of, that we are able to comply with those standards in these, I would say, the high-end contracts available in the market.

Okay. That's perfect. So the over 50% of the contract is owned indeed by what you call a prime vendor. So you don't have to give us the name, but it is one of those companies who do this more often and are well known in the market.

The last part is indeed confirmed more or less also, and Peter previously already indicated. But yes, for market reasons, we do not disclose the counterparty.

Yes. And sorry to say, but with all that happened with the governance, this for me is a bit of a surprise because the stock market reacted a bit negative this morning, which I thought, okay, it probably relates to this. Are there any other of this kind of potential transactions going forward b&S have to do with the large shareholder?

No. No. No, whatsoever. By the way, Tijs, I think this transaction is -- otherwise, we wouldn't have entered into it, obviously. It's a good transaction for B&S. It builds on the possibility of this marketplace, which is a large market. I mean, unfortunately, we need a lot of peace soldiers in this world. And that's -- and everything was happening around the world, it's hard to imagine that this marketplace will disappear. And that's also true for the needs of NGOs working in areas in the world where bad things have happened. So we sincerely believe that with our Food segments and with our Health segment, there are synergies to be gained, in the field of sourcing, in the field of logistics, in the field of cross-selling. And we were able to acquire this position against cost, so which I think is a fair -- is a good price place to be, especially with the expected cash flows coming in. And at this stage, I would definitely not relate that to governance issues. I think that is, I think, the way we've entered into these contracts, that would be, I don't know, out for me, that's not the lens that's the right lens.

Okay. That's helpful. Then another question, I was a little bit circling back to Robert Jan's question about the liquor business, as you already gave us some background and I think you also helped us in the call a couple of weeks ago. So the quarterly revenue development there, you probably also see that is now getting at a more easier comparison base because last year in the second quarter was already quite a significant drop. So what is your view right now about the trend? Is it basically flat? Or is it potentially that the market can still worsen? And maybe it's a stupid remark, but is there also not kind of a seasonal impact. So that if I look at the numbers I have on the historic data, it's about EUR 20 million of additional turnover in the second quarter versus the first, all things equal, which is partly average, but can you help us on those dynamics?

No, that's fair to say. Look, if you compare -- and of course, the indication at which we shared also, the reference to the 2022 also being an exceptional year for Liquor. But it is fair to say that, look, if you look at the Q2 numbers, which we reported previous years, so in 2022, the Q2, for example, was an extraordinarily high year with approximately EUR 180 million in turnover for the Liquor segment, which dropped to EUR 147 million Q2 last year. So there's definitely significant volatility. And yes, historically, we have seen a seasonal pattern also for the Liquor segment, which the second half of the year historically is the larger part of the turnover for this segment.

January is especially slow, right?

Yes.

January is especially slow, but then again...

Chinese New Year as well.

Yes, depending on the -- yes, definitely also important. But January in Q1 2023 was just as present as in Q1 2024. So that cannot be an explanation, obviously. But no, you're right. I mean we will be comparing to less strong segments. So that's definitely a reason why we think that the outlook in terms of turnover is still achievable, in terms of gross margin and EBITDA, we feel just as opinionated as last time. So it actually doesn't really differ. A lot of things being equal, we -- that's also the reason why we stick to this to the outlook.

Yes. Okay. That's clear. And one additional remark, the, let's call it, client concentration risk in the Liquor business, it's very diversified. That's not that it's depending on...

Very much so.

Okay. That's clear. Okay. And then one final question. It was about your remarks in the press release about the cost base, which I found were quite positive, slightly higher gross margin. The employee costs, what do you say, are stable year-over-year. Do you mean in absolute euro amount stable or as a percentage of turnover stable?

As compared to euro for euro-based comparison. So the absolute number.

Okay. That's then quite positive.

Yes, with turnover not moving very much, I guess, it doesn't really matter when you do in percentages of euro isn't it? Sorry about this, Tijs. No, no, but it is true. And if you look at the development of costs in the last 5 years, then that's not all very positive, right? So we really need to focus on cost control as well as working capital, by the way.

Yes. That's gone quite well. I mean, of course, in the second half, there's a different turnover level, that's what I meant indeed, but you seem to be battling the inflation quite well. And then your remark on the other operating expenses. The consultancy costs were EUR 2 million in the first half of last year. Was that -- is that the amount you're referring to now in the press release this morning?

Correct. Well done, Tijs. Yes. .

Very much, yes.

Up next, we have a question from Maarten Verbeek from The Idea.

Maarten Verbeek from The Idea. Just like to get back to the G&D contract. And particularly, how does it work that, in this case, Mr. [ Plaido ] entered into a contract that seems to be, in this case, a competitor of B&S Plc, as a major shareholder. What kind of arrangements are there to avoid this kind of conflicting situation?

Well, we -- we believe that we have a very clear arrangements with the majority shareholder in that regard that has -- those arrangements have been concluded upon already last year. We already talked about that quite a bit. But there's also a lot of information on this in the annual report actually in terms of what has changed compared to 2020, compared to -- well, compared to the beginning of 2023 and 2022. So we do feel comfortable.

Also linked to your outlook statement, you mentioned that you expect a consolidated turn growth of approximately 5%. I presume you imply an organic growth of 5%. That's A. And then secondly -- sorry?

That's correct. Yes.

Okay. And then of these 2 new contracts, how much do you expect them to contribute to your top line? And when do you expect them to -- and kick in into your P&L accounts?

That will kick in, in 2024. By the way, because it's a 50% partnership, these contracts will not be consolidated. That's one. And I mentioned 2. I heard myself saying so, but that's not the right number. So forget about 2, if you want to, please. So they will not be consolidated. So they will enter into the P&L under eye of interest, I believe, if I -- yes, Mark is agreeing with me, so that's the right answer.

At the bottom of our P&L. So because it's not consolidated, it will mean at a -- income from our subsidiary, at the bottom line, which we have also for other partner in our P&L, although being limited, but there is where it comes in, in our P&L.

Okay. And then you mentioned that the contribution of these 2 contracts will be EUR 2 million to EUR 4 million on a net basis, so that will then come into that line. Is that, by the way, on a 50% or -- based off of your 50%? Or is it on basis of 100% business, the 2 million to EUR 4 million you mentioned?

No, no, no. That number will hit our P&L at the bottom of the P&L, as Mark just said.

So that's the 50%. But then I'm also a bit puzzled by the fact that you don't consolidate it, but still it will have a contribution to your cash flow.

Yes, it will.

How does that work then? Because...

Well, you can only consolidate -- under the IFRS, you can only consolidate entities where you are fully in control. If you're not fully in control, you're not allowed to consolidate. There is some literature on this in relation to another listed retail company, which I won't mention. But you can only consolidate if it's -- if you've got this -- so that -- and we've chosen not to consolidate.

I understand. But if you don't consolidate them, you still mentioned it will contribute EUR 5 million to EUR 8 million to your cash flow.

If I could cash in, then -- if somebody -- yes. That's not irrational, by the way. That is -- in my world, those 2 things have nothing to do. I mean -- they have nothing to do with one another. If somebody repays you invested money, then that's cash in, whether you consolidated yes or no.

Okay. But that means -- okay. Okay. And then...

There's a difference between -- I get you. The difference between operational cash flows and total cash flows was in between our financial cash flows. So some of the business will come back to us in terms of financial cash flow.

Okay, clear. And then fine-tuning of a cash question about the other operating expansion, because you mentioned they were -- because you have this difference of this advisory cost. If you would correct for that one, so if we look at it like-for-like, because you mentioned it decreased because of that advisory cost. But if you look like-for-like, is then at the same level? Or is it even -- did it decline a bit, your operating expenses?

Look, please bear in mind that, although we try to be as transparent as possible, that it remains a trading update, which historically, yes, we share any turnover levels, et cetera, and provide you some highlights on the business lines which we operate. So it is fair to say that indeed we refer to the EUR 2 million so that the EUR 2 million is the -- which we indicate, is the driver of the decrease in the operating expenses. So it is fair to say that the operating expenses, excluding the one-off, did not decline as much. So to be frank, the -- I would say, it's more or less a status quo as compared to Q1, but we leave it there in regard to the detail sharing on the results. As I just mentioned, please bear in mind that this is trading update, which we focus on the performance. Turnover lies on the segments. Does it help, Maarten?

Yes, absolutely. And then lastly, this has to do with the turnover. The Easter ended the quarter. Did it have any impact on your turnover performance? And maybe specific to certain segments which was either benefited or negatively impacted by Easter at the end of the quarter?

Yes. I like that question because I've been asking that question quite a bit in the last -- not so much more in the last 3 weeks, but the week before that, yes, I did. I believe overall Easter is a minus. But don't forget that February had 29 days. So you need to balance those 2, I guess, to measure it out. I haven't made the calculation on working days, but I'm sure that we all can do that ourselves. But it's -- Easter is a negative because of the lack of a working day in certain parts of the world.

And we have a follow-up question from Robert Jan Vos from ABN AMRO.

Thanks for yet another opportunity. I was listening to the comment that Peter made about Personal Care, and there was a bit of word of caution for Q2 because you said growth really started in Q2. But if I'm not mistaken, you had also growth in the 30s in the first quarter of last year. So what is then the maybe other reason why you want us to be a bit more cautious on the...

Thank you for asking that question because that was not what I was -- the only reason for Personal Care, I mean it grows now in the Q1, was another 10%. And I'm cautious that you would take the 2023 numbers and extrapolate the 10% growth of the first quarter completely, because of the strong orders Personal Care had in 2023. So it's nothing more, nothing less. It's got nothing to do with any other aspect. It's just the mathematics of strong quarters compared to weak quarters, et cetera. It's actually the opposite logic as we do with Liquors actually. There's nothing more, nothing less to it.

Okay. That is helpful. And if I may, on Liquors, I think you said that Q1 certainly not yet provides the signals of a recovery. I hope I quoted you well there. But we are now in mid-May. Would you say the same for, let's say, the first 6 weeks in the second quarter? That's my final question.

Yes. If we would have more peer insight, Robert Jan, then we would have more clearly put that in the outlook as well. I think that's a fair statement. So if we would have a clear review, that we would transparently also share that in our outlook.

It's exactly in the middle, Robert Jan, that that's just -- it's exactly some weeks because we do follow the business on a weekly basis, as you may expect. And it's not that we have a super clear picture. It's also not that we do not expect nothing to happen in the remainder of the year. So it's just a mixed bag at this stage.

Okay. Thank you.

That's -- yes, I'm relatively easy sharing information to a certain extent, but we also need to abide the rules. But I'm sure you understand that even better than I do.

Yes.

Thank you. And as there are no further questions in the queue at the moment. I would like to hand the call back over to your hosts for any additional or closing remarks.

Well, thank you so much. A relatively straightforward quarter, I think. Thank you for studying it all, and thank you for your questions. And I'm glad we had the call, so we are even more on the same page than we normally are. Thank you, and enjoy the day.

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.