Belysse Group NV (BELYS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the shareholders call regarding the Q1 2023 results. [Operator Instructions] I am now pleased to present Cyrille Ragoucy, Chairman of the Board and CEO; and Andy Rogiest, CFO. Gentlemen, please go ahead.

Yes. Thank you very much. Good morning, everyone, and welcome to the Belysse Group and the First Quarter 2023 results call. If you have not already done so, you can download the earnings statement and this presentation that we're going to have we're going to walk you through from the Investor Relations section on belysse.com. Just as a disclaimer, as usual, I need to start by bringing your attention to the disclaimer on Slide 2. I will not read it out, but please do make sure that you have read it before the call. So first, I will start with a general summary of the first quarter call of 2023. Afterwards, Andy Rogiest, our CFO, will take us through the financial review, and I'll do a very small conclusion. And at the end of the call, as usual, we'll have a question and answer with the analysts following our stock if we have any questions. So turning to Slide 4. From a financial standpoint, we saw Q1 2023 consolidated revenue of EUR 77 million, which is an increase of around 2% year-over-year, with organic revenue growth flat versus Q1 2022, while exchange rate impact contributed to 2.2%. Our U.S. business saw its revenue growing almost 9% year-over-year, while our European business declined by 3%. Our Q1 2023 adjusted EBITDA was EUR 5 million. So it's -- compared to last year, it's minus 17.5% with an adjustment EBITDA margin of 6.5% versus 8% in Q1 2022. The net debt at the end of the quarter was EUR 156 million -- EUR 156.3 million and including EUR 31 million of impact from IFRS 16 leases, resulting in a leverage of 4.6x, and we had a leverage of 4x at the end of the last quarter. So I will let Andy give us more detail in those financials and Andy, the floor is yours.

Thank you, Cyrille. Let's move on to Slide 5, and let me guide you all through the group revenue and the composition of the different performances. So in Q1, we had a consolidated revenue of EUR 76.6 million, which is representing an increase of 2.2% year-over-year. Our U.S. business had a strong start of the year after the acceleration of the shipments at the end of 2022, but we saw volumes recovering in the second part of the quarter. The Q1 revenue ended at EUR 37.4 million, which was 8.6% above last year. As Cyrille mentioned, in Europe, we faced a decrease in revenue of 3.2% year-over-year and the revenues ended at EUR 39.2 million. The macroeconomic environment remains challenging, where we noticed a -- still noticing a weak demand across the market, but in particular, we want to mention the residential renovation market. So I propose to turn now to the Slide 6 to guide you through the Q1 EBITDA bridge. Thank you. So the Belysse Group consolidated adjusted EBITDA for the first quarter of 2023 was EUR 5 million. This is minus 17.5% year-over-year with the adjusted EBITDA margin now at 6.5%, and this was 8% in the same quarter last year. Our U.S. division realized an adjusted EBITDA of EUR 4.9 million, which is 18.1% lower than previous year. And the EBITDA saw a temporary drop in margins and in profitability due to the higher raw material costs we have been experiencing due to the change in the main yarn supplier last year. We talked already about this on previous calls. The transition and the negative impact on margins is coming to an end. In Europe, our adjusted EBITDA was again breakeven. Compared to previous year, we are now counting -- we have accounting negative volume effect by recovery and improving unitary margins. We are still having a high raw material cost that is still in our P&L of this first quarter, and that is related to our FIFO accounting methodology. If we can turn to Slide 7 for the cash flow. Thank you. So we ended the quarter with a cash balance at EUR 25.9 million. The cash outflow of EUR 12.6 million when we start from the beginning or the ending position at the end of 2022 was mainly driven by debt repayments and interest payments, which we included the half year interest payment of EUR 5.1 million for the senior secured notes and a seasonal increase in working capital. We move to the leverage slide, which is Slide 8. So our leverage is standing at 4.6x. This is the -- excluding the IFRS 16 leases. So with our Q1 net debt now at EUR 156.3 million, and this is including EUR 30.6 million related IFRS 16 leases. We have this increase being mainly driven by the seasonal decrease in payables. However, and we find it important to mention this, we were able to reduce inventory levels due to more efficient sales and operations planning. So in conclusion, our leverage is standing at 4.6x, which was 4.0x at the end of 2022. Our total available liquidity, which is including the headroom under the RCF remained strong and totaled EUR 64 million at the end of the quarter. So having said this, I will give back the floor to Cyrille for the closing comments.

Yes. Thanks, Andy. So -- we'll turn to Slide 9 for the conclusion. But pretty much what we saw is our U.S. business saw a slow start. And what we have seen as well is a shift in the middle of the quarter to a better shipment. So the volume accelerated in the second part of the quarter. This is -- and we have a solid backlog. So when I'm talking about backlog, actually, it's order book in U.S. So this is important to notice. And as Andy said, we're still -- we were -- we were still in the transition in the first quarter with the shift of our main supplier, and that has triggered some costs that we were anticipating actually, but -- and this is what we've done. So this is done now, and we shouldn't see that in the future. So that's good news. In Europe, we faced a very challenging macro environment with a weak demand in residential and in commercial. This is true on both sides, but particularly true as well in residential renovation. So covering that negative volume impact that we had in Europe, what we're seeing is a recovery in our unitary margin despite the high cost that we still have in our P&L due to FIFO accounting methodology, and you all know that pretty much between the time we have something coming in as raw material, it takes 5, 6 months or 5 months to move into our results. So this is -- and then we are talking about leverage, but I think Andy explained quite well. So we had a leverage of 4.6x. Obviously, not where we want to be, but we're working on this quite heavily. And are still one thing that is extremely good news is we're working hard on making sure that we have the liquidity and making sure that we have the cash. And we have lowered our inventory volume in the quarter, and we have done so successfully. And that's part, by the way, of BEYOND program. So it's -- we're not presenting BEYOND now because I think presenting 4 times in a year doesn't make much sense. But what I can tell you is we're ahead of the BEYOND lean program, way ahead actually in the first quarter. So that's good news. Okay. So that conclude our call. What I propose is if you have any questions, please fire them now.

[Operator Instructions] So we have our first question from Wim Hoste from KBC Securities.

Yes. Two questions then for me, please. The first one on the balance sheet. And specifically, can you provide some outlook comments for both CapEx and working capital? You mentioned that you did well on inventory, but how do you see -- also given the seasonality, working capital involved in the coming quarters? So that's the first question. The second one would then be on raw materials and the impact in P&L. Can you provide a bit more granularity on what do you see with regards to raw materials and when it might start to support P&L and also to what extent? So those were the questions.

Yes. So thanks Wim. So good morning, and thanks for your question. So I'll answer the first -- well, the second question first on the raw material. What we see is the index of the raw material is moving -- at least it's not increasing anymore. It's moving down a bit. But obviously, does not -- you know that we increased our price last year, but does not compensate totally the pricing, we have not totally compensated the price increase, but we should see the cost increase. But what we should see is coming in at -- within the next quarter or actually Q3, we should see the impact on our P&L from -- and the index is coming down as we speak. On the balance sheet, working capital and CapEx, as you know, and Andy might be able to answer a bit more. But we don't want to disclose what all those numbers. But what I can tell you is we have adapted our CapEx in Europe to the minimum that we need. And the working capital, we're working hard to lower our inventory. And usually, what we've done is increasing our inventory for addressing the closure of our plant, which is happening end of July, early August. And we usually build up inventory for that time. This year, we decided not to do it. So we will not have such a curve for a large inventory in Q2. Do you want to add something, Andy, or?

So on the working capital, also the slightly reduction in our costs and our purchase prices will also positively affect value of our inventories.

That's true. Does that answer your question?

Yes, it does. Thank you.

So we have another question from Henry [indiscernible].

Can you just give us a sense of the busting out of your EBITDA program the U.S. in the coming quarters, given that as you mentioned in the press release, you seem to have reached a kind of bottom on the real material impact related to the suppliers. So that's the first question. Then I think on the cash flow slide, you mentioned that you've done EUR 8 million of debt repayment and interest expenses and of which EUR 5 million was interest expenses. So can you just clarify what was the EUR 3 million remaining? And then on the rating side, given the trend of results, have you been in discussion with any rating agencies in order to -- yes, have you had any discussion with them?

So hold on, Henry, let me -- because it's -- so the last question is about refinancing, right?

Yes, it's mostly about the discussion you're having with the rating agencies because they used to downgrade ahead of repayments by, let's say, pulling out any to any refinancing risk. So I just was asking about the discussion you were having with them and maybe some qualitative elements about the discussion.

Okay. So the first question is the phasing back on the U.S. So I guess you're asking the question on our main supply -- well, the phasing out of our main supplier in U.S. So it's -- it's something that started in 2021, end of -- well, end of 2021. We went through hell in 2022 and replaced that supplier by 2 to 3 suppliers where -- so overall, we'll have 4 suppliers for yarn in U.S. The transition is done. And you -- we will not claim any additional cost in the future for that yarn in U.S. And I must say that additional costs that we had in U.S. for -- in 2022 for -- from that switch cost us dearly. So it's -- that's finished. On the cash flow side, there is -- I'll let you answer that, Andy.

Yes. So there's not only the interest payment or the half yearly interest payment of the senior secured notes, there's also the payments for our obligations we have regarding the [indiscernible] back as well as the IFRS 16 leasing, so to add up to the presented EUR 8 million.

Okay. And I guess on the refinancing side, the question is coming over and over. And I understand the question, by the way, it's not that -- so we're always scanning what's going on in the market. We're always looking at all our options. And so -- and we don't want to comment more than that we're working on it, and we're in close contact. We have some -- yes, we're in close contact with -- and all that. But this is something that has been on the work since we're scanning, but nothing new.

Okay. That's great. And maybe just a last follow-up Great. Maybe just a follow-up. Can we assume that the U.S. EBITDA has reached its goal in the first quarter? And from now -- I mean can we assume that from Q1 from a sequential perspective, the EBITDA of the U.S. will start increasing again from a sequential perspective?

Yes, absolutely. That was a question that we had last time, and I claimed that and I said and I still say that we will be back on track in U.S. for the year. So the -- today, we have -- in U.S., we have 13 over -- we'll be back on track around -- between 18% and 20% of EBITDA. We're at 13.2% yet. And Henry, I can see that you're sneaking in a -- which is good. No problem.

So we have no further questions. [Operator Instructions]

Okay. Well, if there is no more questions, thanks a lot for listening. Thanks, and we'll talk to you in the Q2 results that are in August 25. So talk to you then. Cheers. Bye.

Ladies and gentlemen, this concludes the conference. Thank you all for your participation. You may now disconnect.