Belysse Group NV (BELYS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the conference call of Belysse Group NV regarding the Q3 2023 results. [Operator Instructions] Today, we have with us Cyrille Ragoucy, Chairman of the Board and Chief Executive Officer; Andy Rogiest, Chief Financial Officer; and Ruben Pattheeuws, Strategic Project Director of Belysse. Gentlemen, the floor is yours.

Thanks, Lynn. Good morning, everyone, and welcome to the Belysse Group NV Q3 2023 results. If you have not already done so, you can download the press release and the presentation from the Investor Relations section on belysse.com. I need to start with bringing your attention to the disclaimer on Slide 2. Obviously, I will not read it out, but please do make sure that you have read it at one point. So I will start with the general summary of the third quarter results 2023. Afterwards, Andy, our CFO, will walk us through the financial review. And finally, Ruben, Strategic Project Director of Belysse, will give us a quick update on our BEYOND program, and then we will have a conclusion with some questions from the analysts. So on Slide 4. From a financial standpoint, we saw Q3 2023 consolidated revenue of almost EUR 74 million, which represents a decrease of 19% year-over-year, with organic revenue growth impacting our results 16% versus Q3 2022, while exchange rate impact negatively affected our results by 3.3%. Revenue in our U.S. business declined by 16.5% year-over-year, while our European business faced a decline of 23% year-over-year. Despite the lower revenue, our Q3 2023 adjusted EBITDA was EUR 11 million, slightly above Q3 2022, plus 1.1% year-over-year with an adjusted EBITDA margin of 15% versus 12% in Q3 2022. The net debt at the end of the period was almost EUR 151 million, including EUR 29 million of impact from IFRS 16 leases liabilities, resulting in a reduced leverage of 5.2 compared to a leverage of 5.5 at the end of H1 2023. With that, I will leave Andy -- give us more details and more in-depth in the financials. So go ahead, Andy, the floor is yours.

Thank you, Cyrille. Good morning to everybody listening in. Let's have a look at our Q3 financial performance. And we look at this at Slide 6, please, for the group revenues. So we had for the third quarter this year, a consolidated revenue of EUR 73.6 million, representing a decrease of 19.2% year-over-year. In the U.S., compared to last year, revenues decreased by 16.5% to EUR 42.4 million. The volumes and revenues were below a very strong third quarter of 2022, where we had higher volumes shipped as the installation of new production capacity enabled a catch up on the backlog of open orders. But nevertheless, we state that revenues stay at a similar level as we had in the previous quarter and they remain above pre-COVID year levels. In Europe, our revenue decreased by 22.7% versus last year to EUR 31.2 million. And that revenue of the quarter has been mainly affected by a continued decrease of volumes in the residential market, and this is due to a low footfall during summer, but also there was an effect of destocking at our retail customers. The volumes in the Commercial business remained at the level of previous quarter, which concludes this slide and brings us to the slide on the group adjusted EBITDA. So the Belysse Group consolidated adjusted EBITDA for the third quarter was EUR 11 million, which is a slight increase of 1.1% year-over-year and bringing an EBITDA margin or an adjusted EBITDA margin of 15%, where we had 12% in the third quarter 2022. Our U.S. business realized an adjusted EBITDA of EUR 9.9 million in this quarter, which is a minus 2.6% year-over-year. And in response to the lower volumes, the costs have been brought down to maintain profitability. Our U.S. business, however, was able to further improve its EBITDA margin to 23.2% in the quarter, which is up from previous quarter and up from last year. Last year, we were at 19.9% in the third quarter. And in the second quarter of this year, we were at 20.5% of adjusted EBITDA margin. I'd like to mention that in U.S. dollar terms, the third quarter -- third quarter EBITDA has even outperformed last year's results by 4% despite lower volumes. On Europe, EBITDA was EUR 1.2 million in the third quarter, which is close to 47% increase year-over-year with an adjusted EBITDA margin of 3.8%. So despite the currently low volumes, our margins have improved compared to prior quarter and prior year, mainly due to the -- since 2022 increased sales prices, but also thanks to lower product costs. As anticipated, the first and first out accounting of the cheaper raw materials and utilities purchased since the beginning of the year had its first P&L effect in September, and we expect that the full effect will be starting as of October. In addition, there were the positive effects of the executed fixed expense reduction program from early July. So we can go to the slide on the cash flow. So looking at the third quarter cash flow, we ended the quarter with a cash balance of EUR 29.8 million which is an increase of EUR 2.9 million compared to the end of June. And this was mainly driven by the results of the quarter. So the adjusted EBITDA of EUR 11 million, the changes in the trade working capital of EUR 4.4 million, while we were paying debt and interest for about EUR 8 million, and we were also having capital expenditures of EUR 3.1 million. The debt and interest payments, the EUR 8 million amount during the quarter, they included the half yearly interest payment of EUR 5.1 million for the senior secured notes. This brings me to our leverage chart. So our net debt at the end of September was EUR 150.8 million, and that is including EUR 29 million related to IFRS 16 lease liabilities, which is down versus last quarter. So our leverage reduced to 5.2x compared to the 5.5x we were at the end of June. Our total available liquidity, so this is including the headroom under the RCF remains strong and further improved to EUR 68 million at the end of the third quarter, and this is the plus EUR 3 million compared to the EUR 65 million we were reporting at the end of June. I will now hand over the floor to Ruben. Ruben Pattheeuws, who is our Strategic Project Director of Belysse for an update on the BEYOND program.

Thank you, Andy. As a short reminder to everyone on the call, our BEYOND program, which started in January 2022 consists of 3 pillars. There's the increased focus on sustainability through innovative products and production process. There's the incremental drive for efficiency through lean programs. And lastly, there is the emphasis on agility through digital and operational improvement initiatives. If we turn to Slide 11 for an update of our lean results. Year-to-date 2023 results for the lean program amounts to EUR 2.7 million P&L savings versus prior year against a target of EUR 2.0 million. So we are so far exceeding the plan by 35%. The key focus continues to be on quality, material, energy and labor efficiency as well as further automation. And it's also worth noting that we continuously add new initiatives to the pipeline of the lean program. If we then move to Slide 12 for sustainability. We wanted to share one of our carpet tile take back programs as sort of a case study. We collaborate with local partners in Belgium, the Netherlands, U.K. and France to recycle old carpet tiles in the most sustainable way possible. And by doing so, together, we're working to minimize waste and contribute to a greener future. The example we're sharing today is the one in the U.K. where we partner with Uplyfted to provide a U.K.-wide supply and fit service of like-new carpets tiles, tailored to providers of social housing. We were in the very beginning part of Uplyfted pilot's collaboration, and we were also the first carpet tile manufacturer to sign an agreement to work with them for the take-back of our carpet tiles. In the meantime, several take-back cases have already been realized with more to come. And with this, I will give the floor back to Cyrille for closing comments.

Yes. Thanks, Ruben. That's pretty exciting, actually, what we're doing on sustainability. So just to recap. So our third quarter 2023 consolidated revenue was EUR 74 million, adjusted EBITDA was EUR 11 million, resulting in an adjusted EBITDA margin of 15%. In U.S., revenue stayed at a similar level as previous quarter and remain above pre-COVID levels. Our U.S. business was able to further improve its EBITDA margin to 23% in the quarter, up from previous quarter and last year, 20.5% per Q2 2023 and 20% in Q3 2022, respectively. In U.S. terms, Q3 2023 EBITDA has outperformed last year's results by 4%, even with lower volumes. In Europe, despite the current volume margin, margins have further improved compared to prior quarter and prior year, mainly due to the 2022 sales price increase and lower product costs. Combined with the positive effect of the executed fixed expense reduction program that we've done early July, EBITDA was at EUR 1.2 million positive compared to previous quarter and the same level that the period last year -- at the same period last year. So leverage decreased to 5.2x as I said before, and Andy said it as well. And our total available liquidity, including the headroom under the RCF improved to EUR 68 million at the end of the period. Assuming all else remained materially unchanged from the current trading environment, Belysse is expecting the full year 2023 EBITDA to recover to 2022 level and year-end leverage reducing to around 4x, so a leverage of 4 around 4. Let me conclude by saying that the quarter was in line with our expectation. We saw lower purchase price that we were experiencing as of Q1 flowing in our P&L in September. And we are seeing the full effect of that result -- of that Q1 procurement cost in October. So we'll go back to Lynn for Q&A now.

[Operator Instructions] We have a first question from Wim Hoste from KBC Securities.

Yes. I don't know if you hear me?

Yes, we can hear you, Wim.

I have a couple of questions. Maybe first on the savings program, you're ahead of plan. Can you update us whether you're now also targeting the full EUR 8 million ahead of the initial full year period? Or if you can offer a bit of additional guidance on that? So that's the first question. Maybe I ask them one by one. I guess that's easier for both you and me.

Okay. No problem. So Ruben is going to answer that question and -- Ruben, do you want to...

Sure. So in terms of your question, if I understood correctly, you want to know now that we are ahead of the plan this year. And as a reminder, we also delivered more last year than anticipated. So the question is, do we anticipate to overachieve versus the EUR 8 million initially promised. And the answer is definitely yes. That's always been the ambition, and we feel very confident, almost halfway through the program, but we're on the right track to overdeliver.

Okay. Then a question on Europe. Yes, you mentioned destocking in the press release and also in the call. Can you offer us a bit of insight? Or do you have a feel on what kind of stock levels your customers are currently operating on? Is there further room to reduce that? Or do you believe that stock levels have reached bottom and can only go up from here? And then also, you mentioned different trends in residential and commercial. Can you remind us on how big those 2 segments are within Europe? So that's a question on Europe, and then I have another one on the U.S., which I will ask afterwards.

Yes, Wim. So on the destocking side, obviously, everybody today is trying to work with a low stock level. So our customers have -- our dealers, customers have worked with -- or have depleted their stock level, and this is what we're seeing today. And that's why 2024 was such -- 2023, sorry. So it was a pain. But we feel that today they have depleted that stock. They won't come back to the stock that they had before, but now we'll see the demand flowing through and coming to us. The difference between commercial and residential is in commercial, we're selling, as you know, a big part, well, 50% in -- through direct sales, and that's project based. So that's the main difference.

Yes. So the revenue breakdown in Europe between residential and commercial is now 50-50? Or is that not...

It has not really moved. It's 50-50, yes.

Yes. Okay. And then last question. Can you comment on the order books in the U.S.? Also interested in your comments or thoughts by segment or by different end markets?

So I won't comment on the different [indiscernible]. I don't need to comment on the different end market. You know that office level is obviously a pain in U.S. today. The order book today is not as strong as what we had before, but it's still healthy, but not as strong as what we could see in last year, obviously. At the same time last year, we had some -- a lot of backlog that we went through. But even at the start of the year, we had a healthier backlog. But even today, it's okay, it's a healthy backlog compared to what we're used to see in the normal years. And obviously, it's more spread in -- so we're in a higher education. We're in multifamily homes. We're in office, we're in government buildings. We have some extremely large projects coming in, and we're negotiating large projects with large entities. So I'm cautiously optimistic on U.S. It's -- U.S. is -- as you can see, this month -- well, this quarter, we had lower volume, but we were able to keep our EBITDA to the level that seems -- that's still healthy.

Understood that, that was extremely healthy, the money EBITDA margin in the U.S. And then the final question, please, can you offer a CapEx guidance for this year? I think there was about EUR 8.5 million spent so far this year. So CapEx guidance for the remainder of the year. And then maybe also looking towards '24 is -- for example, the cost reduction programs, et cetera, that you are doing. Are these leading towards some investments you still have to make? So any thoughts on that would also be helpful.

Okay. So Andy is going to answer the first part of your question on CapEx 2023. I'll answer the rest.

Yes. Thank you, Cyrille.

You can answer the rest. If you allow.

The CapEx guidance for this year will be that the investments will be in line with what we have been investing in previous year. So yes, we maintain our programs, our investment programs. Talking about the fixed expense reduction program linked to any additional investment, it was rather a revision of our supporting organization structure linked to the response to the volumes. So there's effect additional CapEx linked to that. So...

Yes. So what -- nothing -- if you're talking about the reduction program and the debt on fixed cost reduction, it's all done. It's -- so it has been taken in 2023. If you're talking about BEYOND, we obviously have some CapEx coming in, in 2024 for reducing our cost and then making sure that we're ready for the future to -- on the growth of the demand.

Can you share a number for '24 CapEx guidance?

Will be in more or less the same level than in 2023. Until we can see the market moving up, we'll be very reasonable on the CapEx side.

Okay. So then we have another question coming in from Maxime Stranart from ING.

Maxime?

Hope you can hear me well?

Yes, we can hear you.

Okay. Brilliant. Two questions on my side. First of all, looking at the adjusted EBITDA margin over the third quarter quite positively expand that compared to the first half of this year. Is this the new normal? Or do you believe you can still improve this margin at group level? Secondly, looking at the balance sheet, obviously, the bonds will mature at the end of 2024, if I recall correctly. Any new detailed information you may provide the market with regards to this. That would be all for me.

Yes. So the -- on the bond side, as we always said, we're scanning the market always. So you know the market today, it's -- so we're scanning it and we're working on it. But we don't have anything to share as of today. On the EBITDA margin, I think when you look at U.S. today, it's on Q3, at least, it's extremely healthy. We always said that we would be between 20, 21, 22, but 23 is on the high side. Europe, 4% is low, and we're expecting more than that. So if you look at Europe, our expectation would be around between 10 and 15. That's our expectation. And this is what we're working on as of today, and this is what we're without sticking my head to out too much, but this is what we're expecting in Q4.

Okay. Very clear.

Any additional question, Maxime?

So this concludes the questions from the analysts covering our stock. And I think we can [indiscernible] the presentation.

Okay. Thank you very much, Lynn. So thanks very much, everyone, to have listened to our call. Thanks for the question as well. As a reminder, we will present our full year 2023 results on the 1st of March 2024. Thank you all for your presence and talk to you later. Bye.