Belysse Group NV (BELYS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the shareholders' call regarding the first half 2022 results. [Operator Instructions] I'm now pleased to present Cyrille Ragoucy, Chairman of the port and CEO; Andy Rogiest, CFO; and Ruben Pattheeuws, Strategic Project Director. Gentlemen, please go ahead.

Thank you very much, and good morning, everyone, and welcome to Balta Group NV First Half of 2022 Results Call. So if you have not already done so, you can download the earnings statement and this presentation from the Investor Relations section on baltainvestors.com. On Slide 2, I would remind you, but I will not read it, the disclaimer. But if you have not read it, please do so. So moving to Slide 3, I -- just before we get into this results call, I would like to draw your attention to a number of topics that you can see on Slide 3. And so in -- on April 4, 2022, we announced the completion of the sales of the Rugs, Residential Polypropylene and Non-Woven business together with the Balta brand to Victoria PLC. So that has obviously triggered -- the company is a lot smaller now, and so we looked at the way we are going to manage the future of the company. And taking into account the economic characteristics, the growth trend, supply chain evolution and key value driver, we think it's very different in U.S. and in Europe. Taking that into consideration, we changed the management structure, and we have now a management structure team in U.S. and another one separate in Europe for the whole year, with significantly less central functions. So based on this and based on those 2 significant analyses, and according to IFRS ruling, we have changed our quarterly reporting to follow the management of the company. It will now be -- the reporting will now be Europe on one side and U.S. on the other versus what we're doing in the past, which is Commercial on one side and Residential on the other side. So this is a big change, but I think it's clarifying the way the company is managed, and it's clarifying as well the way the evolution of the 2 markets are doing. So this is the way it's presented today, and this is the way you will see it from now on. So in addition with this closure, with change in the management -- in the executive committee happened, Jan-Christian Werner has stepped down as CFO and was immediately succeeded by Andy Rogiest. Andy is on the call today. Andy has the right background to help us move in this uncertain environment. So welcome, Andy, and welcome to your first call. And then the second change is Emmanuel Rigaux, Managing Director for Europe, decided to pursue opportunities outside of the group and has left the organization at the end of June. A search has been -- is under way for his replacement, and that was not foreseen. So I will start. If we go to Slide 4, I will start with -- and that's moving into the core of the call. I will start with a general summary of the first half and Q2, and Andy will take over to go through the financial review. We have also with us Ruben Pattheeuws, Strategic Project Director, who will give us an update on our BEYOND program. And we'll end this call with a question-and-answer from our analysts following our stocks. So how did that go? How did the H1 go? Balta NV continues to be faced with a challenging macroeconomic environment with inflated raw material, very high energy and transportation costs. And I guess all of you are following what's going on in the energy cost, and it's quite dramatic. Multiple price increase have been implemented across all lines of businesses in response to this input cost increase. In Europe, where cost inflation is continuing at a high rate, more price action is required and is being implemented as we speak. We have been able, in U.S., to move to or to implement those price increase as the costs were increasing. Our U.S. division, obviously, now represent more or less 50% of our business. And we saw -- so its strong market position in H1 translated in sales and EBITDA growth because we were able to pass on, as I said, the cost to our customer. In H1, we saw consolidated revenue of EUR 164 million, so it's a plus 24% year-over-year. Organic revenue improved by almost 19%, while exchange rate impact contributed to almost 6%. Revenue growth by division is Europe, plus 17%, and U.S. plus almost 33%. H1 adjusted EBITDA decreased to EUR 17 million, so it's almost minus 18% year-over-year, with an adjusted EBITDA margin to 10% versus 16% in H1 2021. And obviously, the difference between U.S. and Europe is quite staggering. In Europe, we have EUR 1.3 million EBITDA versus almost EUR 10 million in H1 2021. And in U.S., we have an increase to EUR 16 million, so it's a plus 42% increase year-over-year. So pro forma H1 net debt is at EUR 153 million. That's including EUR 30 million of IFRS 16 impact, resulting in a leverage of 3.7x, which is comparable to the 3.8 pro forma of Q1 2022. So I'll now pass the floor -- hand the floor to Andy, who will go a bit more into detail in those financials. Go ahead, Andy.

Thank you, Cyrille. Good morning to everybody. Very excited to be here with you, first time I have the opportunity to talk to a broad range of investors at the same time. So let's have a look at the bridge on the revenue we are showing for the first half year. And as mentioned, we saw the consolidated revenue being at EUR 164.2 million, which is a 24.3% year-over-year growth. So organically, the revenue improved by 18.6%, while the foreign exchange effect of the U.S. dollar contributed for an additional 5.7%. And when we look at the different regions or the different segments, Europe grew by 17.1%, while U.S. operations grew by close to 33%. And as earlier mentioned by Cyrille, we see that there are different economic characteristics that are clearly playing in Europe versus U.S., and this is what has also translated or which also visible in our financials. So on the Europe division, we realized for the first half year, for the first 6 months, revenue of close to EUR 83 million, which is 17% higher than the first half of 2021. But digging into that growth value, we see that on a like-for-like basis, our volumes for the semester were flat. And so the revenue increase in Europe is mainly driven by the several price increases we have been implementing in our different channels. We have also -- a minor part of our business is online selling of some polypropylene products. But as I said, we are in Europe trading commercial in the Commercial segment and also in the Broadloom business, where we see that the Commercial segment is more resilient in demand than the European Broadloom business. When talking about the U.S., we -- that is now half of our revenues. They had the growth of the revenue up to EUR 81 million, which is almost 1/3 increase of their sales if you compare to 2021. So there, we had a sales -- strong sales position or a strong market position which was not only leading to the high revenue just because of the pushing through of the cost increases, but there is also a volume growth that is helping that overall increase. So if we turn now to the next slides where we go a bit deeper on the EBITDA values, we saw that the consolidated adjusted EBITDA for the first 6 months of the year decreased to EUR 17 million, which is a decrease of almost 18% compared to last year. And our adjusted EBITDA margin dropped to 10.3% where last year, we had for the same period, we were at 15.6%. So the effect where we have been communicating already in the first quarter, we have been able to move up the margins back in Europe by the extra sales price increases. But comparing the 6 months, we see that there is a significant margin compression because of the higher input costs and the not immediate corresponding sales price increase to pass it on to our customers. So the adjusted EBITDA for the first half was at EUR 1.3 million, which was compared to last year at EUR 9.6 million, so that was as a result of the surging of the cost and the time delays of our sales price increases towards the customers. For the U.S., there is a different story to tell or explanation to give. The adjusted EBITDA increased for the first 6 months up to EUR 15.6 million, which is to be compared to EUR 11 million in the first 6 months of 2021. And the EBITDA margin rose from 17.9% in half year 21st -- half year '21 to 19% in the first half year of 2021. So we are reflecting there volume growth and the offsetting of the increase in goods cost. We can turn now to the leverage slide, Slide 8. So our H1 2022 liquidity remains solid. We ended with a EUR 32 million pro forma cash balance, and we still have EUR 41 million of headroom under the RCF, so under the revolving credit facilities. So the net debt position of the pro forma net debt position was significantly reduced with the transaction proceeds and so did improve our pro forma leverage despite what we typically incur in the second quarter of the year. So despite the cyclical inventory build, investments we have been making in working capital to support the U.S. business growth, and the inflationary effect of the -- on the stocks -- on inventories and the working capital values in Europe. So I will hand now over the floor to Ruben, who is our Strategic Program Director, for an update on the BEYOND.

Thank you, Andy. If we move to the next slide, just as a reminder, BEYOND is our 4-year program consisting of 3 courses of action. First of all, there's the increased focus on sustainability through both innovative products and innovative production processes. There's the incremental drive for efficiency through Lean strategies. And thirdly, there's an emphasis on agility through digital initiatives. So in the meantime, we have been further detailing this road map, we've defined targets, and obviously, we also started implementing a first series of initiatives. If we move on to the next slides, you'll see that's for sustainability. We have set targets for 2025 and 2030 on total CO2 emission, water consumption, the use of recycled contents, in particular, in our commercial tiles, and the recycling of our production waste. In addition, we also continue to expand our Cradle to Cradle certification and our certified modulyss collections, including a number of new launches later this year, in fact, in the upcoming months. So currently, we have 4 Cradle to Cradle certificates, 3 of which are Gold, 1 Silver. We have 22 certified qualities, which is nearly half of our collections, and 7 of those will be in those new launches later this year. That will bring us to a total of 662 certified SKUs, nearly half of them Gold, the other half being Silver certified. And in addition to that, we are also investigating various options to make our products more circular across their full life cycle, so from design until the end of life. If we turn to Slide 12. Talking about efficiency, that will be centered around an extensive Lean program, delivering EUR 8 million cumulative savings over the next 4 years, supported by EUR 12 million of CapEx investment. At this very moment, we have more than 40 new bottom-up initiatives identified. And in addition, we also have a larger pipeline of programs that will be further evaluated in terms of potential and implementation time line. Year-to-date, those initiatives have brought us EUR 1.3 million in P&L savings versus 2021, which is approximately 50%, or 5-0, higher than the targets that we initially set ourselves. Also worth noting, for procurement, we have not defined any savings commitment at this point, considering the current highly volatile raw materials and energy environment. Moving on to the next slide. The agility pillar will tackle various aspects throughout the whole company ranging from quality to customer interaction, more agile operations as well as a fit-for-purpose new ERP landscape. So that's quite a broad undertaking, if we talk agility. Moving on to the next slide. We have a case study regarding sustainability. So next month, we will launch [ our score ], which is modulyss' first fully Cradle to Cradle Gold-certified collection consisting of 7 different designs with each 16 colors. And both backing options will be Cradle to Cradle Gold certified, and it's really a collection that is designed to shape and transform spaces like never before. Lastly, to demonstrate BEYOND in action on the next slide, we've picked, I would say, quite a typical case study in efficiency, which is around energy savings in our yarn cabling departments in the Tielt plant. There, we have found a new optimum because of the high energy prices between the running speed of the machines and the energy consumptions, and this will yield EUR 350,000 in energy savings per year. While, and that's also important, while maintaining the same labor efficiency. With this, I would like to give the floor back to Cyrille for closing comments.