Belysse Group NV (BELYS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Conference Call of Belysse Group NV regarding the full year 2023 results. [Operator Instructions] Today, we have with us Cyrille Ragoucy, Chairman of the Board; James Neuling, Chief Executive Officer; Andy Rogiest, Chief Financial Officer; and Ruben Pattheeuws, Group Director of Sustainability and Strategic Projects. Gentlemen, the floor is yours.

Thanks, Lynn. Good morning. So this is Cyrille. Good morning, everyone and welcome to Belysse Group NV full year results for 2023. If you have not already done so, you can download the press release and this presentation from the Investor Relations section on belysse.com. I need to start with 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 -- that you have read it, actually. So during the presentation, I will talk a financial summary for 2023, then Andy Rogiest, our CFO, will take us through the financial review. Ruben Pattheeuws, Group Director of Sustainability and Strategic Project will give us a quick update on Beyond program, and then I will do the presentation. And this will -- we will end the call as usual with the session with the analysts following the stock. So first, I'm pleased to announce that James Neuling, the current Managing Director of European Division, succeeded me as Group CEO as of today. I will continue to support Belysse as Chairman of the Board of Directors and as adviser to the management, as I am still committed to the success of Belysse. I welcome James in his new role. James, you have my full support. James, you might want to introduce yourself to the team?

Thank you, Cyrille. This is James Neuling speaking. Firstly, it's a great honor to take on the role as Group CEO. And I'm very, very pleased that Cyrille is remaining as Chairman, and I think that gives us an excellent continuity as a company. Maybe a short background about myself. You may have read that I began my life in Australia, and my work in Korea, I began in South East Asia in the Lighting sector. I was 8 years in the Lighting sector and ended up as the Regional Manager for Zumtobel, and Regional Manager in South East Asia. Zumtobel is a very high-end Lighting company and achieved a lot of their sales through the contract selling, and I think that's the strong part of the basis of the understanding that I could bring into the company, leading modulyss -- the modulyss contract business that we have and also now also assuming responsibilities we're overseeing the response for the U.S. business also. I did my MBA in Switzerland at the IMD School. And then I worked for GE Plastics, firstly, starting in a commercial role and then went on to manage and turn around the European Sheets and Film business. It went into Rio Tinto Alcan. It was under different guys than it was just Alcan and subsequently went through a couple of takeovers. I was concurrently running 2 divisions there and restructured and divested them both. I think, I'll talk more about the relevant parts of my background. In 2017, I entered the Flooring business. I was in charge of -- as Vice President, as I was in charge of Beaulieu Flooring Solutions, I think quite well-known family-owned flooring company. Prior to joining Belysse, I had an assignment working with Melrose, which was focused on the divestment of Nortek HVAC to the Madison Group. So I'm very pleased to have taken on this role and looking forward to working with the teams.

Thanks, James. So welcome in again, and in your role. So if we turn to Slide 5 to have the full year 2023 financial summary. So from a financial standpoint, we saw a full year 2023 consolidated revenue of more or less EUR 301 million, which represents a decrease of 10.8% year-over-year, with organic revenue growth impacting our results by 9.6% versus 2023, while exchange rate impact negatively affected our results by 1.2%. Revenue of our U.S. business declined by 12% year-over-year, while our European business faced a decline of 9.5% year-over-year. In terms of profitability, the full year 2023 adjusted EBITDA was EUR 33.7 million, which represent a decrease of 5.1% year-over-year despite higher EBITDA margin in both U.S. and Europe. The net debt at the end of the period was EUR 145 million, including EUR 27 million of impact from IFRS 16 leases liability, resulting in a reduced leverage of 4.5x compared to 5.2x leverage at the end of Q3 2023. Andy will go more into detail with those financials. So Andy, can you walk us through those financials?

Certainly. Good morning. We're turning to Slide 6 on for the financial review, on Slide 7. Good morning to everybody listening in and dialing in. So we first will have a look at the fourth quarter results and the financial performance of that quarter. So we saw on that Q4 group revenue for about EUR 72 million, representing a decrease of 12.7% year-over-year. So in the U.S., the revenue decreased by 18% to EUR 37.5 million compared to last year. This decrease reflects a further softening of the overall market demand. And in Europe, revenue decreased by close to 6% versus last year to a level of EUR 34.2 million. The decrease in the revenue can be explained by the lower volumes that is a result of the continued weakness in the market demand. So we're turning to the next slide on the EBITDA or the adjusted EBITDA. For the fourth quarter, we have recorded an adjusted EBITDA of EUR 10.4 million, which is plus 36% year-over-year with an adjusted EBITDA margin of 14.5%. This was 9.3% in the fourth quarter of 2022. Our U.S. business realized an adjusted EBITDA of EUR 6.9 million in the fourth quarter of 2023, which is minus 7.7% year-over-year, and the adjusted EBITDA margin of the quarter was 18.4%, which can be compared or which should be compared to 16.4% in the fourth quarter of 2022. So the relative margin has improved year-over-year, mainly due to the higher unitary margins and reduced fixed expenses. EBITDA, the adjusted EBITDA for Europe was EUR 3.5 million in the fourth quarter, which is an astronomical high increase versus last year and the adjusted EBITDA margin of 10.2%. This sharp increase is the result of the lower raw materials and energy prices, which are now reflected in the cost of goods sold. And this combined with the positive effects of the fixed expense reduction program that was executed this summer in July. We turning to Slide 9 on the cash flow for the quarter. So we ended the quarter and we ended the year with a cash balance of EUR 35.8 million, and the positive cash flow of EUR 6 million in the fourth quarter was mainly driven by the adjusted EBITDA, representing EUR 10.4 million, the changes in trade working capital of EUR 11.7 million, while movement on other working capital negatively impacted our cash by EUR 6.3 million. During the quarter, we also paid EUR 4 million of income taxes. Looking at the full year performance at Slide 10. First of all, talking about the group revenue. As stated by Cyrille, we had a full year revenue of close to EUR 301 million, representing a decrease of 10.8% year-over-year. In the U.S., the revenue decreased by 9.5% to EUR 160.8 million. Our sales volumes were lower compared to a very strong year 2022 as this was the result of a general market demand softening. Additionally, we had unfavorable currency translation also contributing to the lower reported revenues in Europe. Nevertheless, we were able to pass through the cost inflation with higher average sales price levels compared to 2022. In Europe, revenue decreased by 12.2% to EUR 140.1 million. The lower revenue here is driven by weak market demand. Also here, while average sales prices were or are materially higher after the implementation of several price increase waves in the course of 2022. This to compensate for the strong cost inflation we have been experiencing since then. Turning to the slide on the full year EBITDA. So as a group, Belysse Group has recorded an adjusted EBITDA for the full year 2023 of EUR 33.7 million, representing a decrease of 5.1% versus last year and realizing an adjusted EBITDA margin of 11.2%. Our EBITDA margin in 2022 was 10.5%. The U.S. business realized an adjusted EBITDA of EUR 30.6 million in 2023, which is minus 7.8% year-over-year. Expressed as an adjusted EBITDA margin, this corresponds to 19.0%. At a constant currency rates, the full year adjusted EBITDA for 2023 was down by 5% rather than minus 7.3%. The impact or the negative impact of the lower volumes was partly offset by higher unitary margins and lower fixed expenses. The European EBITDA was EUR 3.0 million for the year 2022, which is plus 34% and realizing an adjusted EBITDA margin of 2.2%. This performance is driven by the lower volumes in both commercial and residential business lines throughout the year. The improved raw material and production costs as well as reduced fixed expenses, brought positive effects, but we're only benefiting our results in the second half of 2023. So let's turn to Slide 12 for the cash flow. We ended the year as earlier stated, with a cash balance of EUR 35.8 million, which can be compared to our cash balance at the end of 2022 of EUR 38.5 million. The negative cash flow of EUR 2.7 million in 2023 was mainly driven by positively the adjusted EBITDA of EUR 33.7 million, the positive changes in trade working capital of EUR 16.3 million, while the movement of the other working capital negatively impacted our cash by EUR 14 million. The debt repayments and interest payments amounted EUR 21.5 million and EUR 11.8 million were paid on capital expenditures. Turning to the Slide 13 on the leverages. So our net debt at the end of the period was EUR 145.3 million. This is including EUR 27.1 million related to IFRS 16 lease liabilities and has come down versus the last quarter. Our leverage has further -- has now reduced to a level of 4.5x and to be compared to 5.2x at the end of the third quarter in 2023. Our available liquidity, which includes headroom under the RCF, has remained strong, has further improved to a level of EUR 73 million at the end of the year and can be compared with EUR 68 million at the end of the third quarter in 2023. Pro forma for the refinancing, so this is calculated as if the refinancing had concluded before year-end or at year-end and with the notes repaid at 31st of December, we -- the pro forma leverage is at that point or at that calculation, 4.3x and available liquidity amounting to EUR 38 million, which is also reflecting the new RCF, super senior RCF, we have in place after the refinancing. So I will now hand the floor to Ruben -- Ruben Pattheeuws, who is our Group Director of Sustainability and Strategic Projects. He will give you an update on our Beyond progress. Ruben?

Thank you, Andy. So if we flip to Slide 15, starting with the first pillar of our Beyond program, namely Sustainability through Innovation. We see that our total CO2 emission per square meter produced has been reduced by 22% compared to the 2018 baseline. One of the drivers of that was that compared to 2022, the share of renewable electric energy that we've used has grown from 30% to 36%. Also the certified recycled content in our commercial carpet tiles has further improved to 52% in Europe and 34% in the U.S. And for both regions, this is the highest share of certified recycled content that we've achieved so far. We also continue to expand our Cradle-to-Cradle certification and our Cradle-to-Cradle certified collections. I won't go through all the detailed numbers on the slides. But one thing I would like to call out is that we were the first carpet tile manufacturer that successfully completed a level Gold Material Health Assessment in the more stringent Version 4 of the Cradle-to-Cradle standards. And you can see that the numbers both for Europe and U.S. have gone up significantly in terms of Cradle-to-Cradle certified collections and backings. If we move to Slide 16 for the second pillar of the Beyond program, which is Lean. You see that our Lean program has delivered EUR 3.4 million of savings in 2023, which was 19% higher than the plan of EUR 2.8 million. As a short reminder, the objective of this Lean program is to deliver EUR 8 million of cumulative savings over a 4-year period. And last year, we implemented more than 50, 5 0 initiatives with a key focus on quality, material, energy, labor efficiency and further automation. Moving on to Slide 17 for the third pillar of Beyond program, Agility. If you look at the digital front, last year was mainly focused on the further technical IT split of the company following the transaction with Victoria. If we look more on operational level, we have been mostly working to further improve our delivery performance and service level to our customers, while at the same time lowering our inventory levels. We have 2, I think, very good examples of that. One is our quick ship program that we implemented, because we understand that in the fast-paced world of design and build, time is of the essence. We started this quick ship program, which consists of no less than 188 different products across 23 collections, where we make sure that the products are ready for shipment within 2 to 4 weeks. And the second example, we wanted to call out is an additional line that we've installed in one of our plants. And this is with the intention to print commercial carpet tiles, and it's very much aimed at producing small runs in custom designs, allowing up to individual designs per tile. So it's really targeted at bespoke designs, which should be of interest to the architect and designer community. With that, I'd like to hand over to Cyrille for the conclusion.

Okay. Thanks, Ruben, and thanks, Andy as well for those updates. So we will turn to Slide 18 for the conclusion of this presentation. So our full year revenue in 2023 was EUR 301 million. Adjusted EBITDA was almost EUR 34 million, EUR 33.7 million, resulting in adjusted EBITDA margin of 11.2%. Our U.S. division, Bentley Mills was able to successfully complete its yarn transition project at the end of Q1, but was recently confronted with a slowdown of market demand influenced by high inflation and increased interest rates. Thanks to its unique positioning in the soft flooring market and a flexible cost structure, Bentley was able to maintain its EBITDA margin. Our European division faced a pronounced slowdown in market demand in both the residential and commercial segments. The beneficial effect of actions taken since last year within sourcing and supply chain and the general normalization of raw material and energy prices, became only visible in our account at the end of the third quarter. These delays were caused by the fee for accounting practice in combination with the sub volume. To compensate for the lower volume, a fixed expense program was executed in July with savings seen in the second half of 2023. Towards the end of the year, all actions taken helped the European results to start recovering, resulting in a double-digit adjusted EBITDA margin in the fourth quarter. Our leverage decreased to 4.5x, and our total liquidity remained strong. At the end of the year, in December, Belysse Group signed EUR 120 million credit facility to repay the existing senior secured note due in 2024. The repayment of these notes took place on the 5th of February 2024, which provides the company with sufficient time to recover for the weak market environment. So with this, I'll let the floor to Lynn for question and answer. Just as a reminder, from now on, we will have call only twice a year. In between, we will publish a trading update. So our first trading update will be published for Q1. So Q1, Q3 will be trading updates, and the first one will be published in May. So Lynn, the floor is yours for question and answer.

[Operator Instructions] We have a question from Maxime Stranart from ING.

I hope you can all hear me well.

Very well, Maxime go ahead.

Perfect. Sure. First of all, congrats to James for the appointment. Two questions on my hand, first of all, interface issued quite a bullish guidance earlier with any view on this, does it translate into your number as well and your expectation for 2024? And then secondly, the profitability in the U.S. was slightly below expectation in Q4. Any reason for that? And how you see this evolving into '24 as well? That's all for me.

Okay. So Maxime, thanks for the question. So the first question that you're asking on interface, bullish guidance in 2024. I think, it's taking risk in doing -- giving those guidance. Why? Because we don't know -- it depends on a lot of external factors. And one of those external factors is people coming back to the office. The second one is interest rates. So when will the Fed take a step to lower interest rate. So -- and by the way, as of today, we can say because of inflation announced yesterday, it seems to be going down in the right direction. But there is still uncertainty in that. So what we're expecting is the market to come up in the second half, but this is why we're not giving guidance is because there is still a lot of uncertainty in doing that. So I think interface is good for them, but I think it's a risky forecast. The second thing is the profitability in for Bentley in the second half or actually for the year 2023. What we saw is a slowdown in the market and really a slowdown that we were not anticipating in late part of Q4. We had a very strong end of the year in 2022. We did not have a strong end of the year in 2023. What I'm not saying, so we have a slow start in 2024 for January. We see February and March as recovering and getting back on track. Okay. Does that answer your question, Maxime?

It does. Thank you, and have a pleasant day, and well congrats to Cyrille as well for reign done over the last couple of years.

Okay. Thanks a lot for both of us.

Okay. I see we have a second question from Andrea Gabellone from KBC Securities. Yes, Ms. Gabellone, the floor is yours.

I have 2 or 3 of them. Perhaps, first of all, on the cost saving initiatives, very clear on the EUR 8 million plan over 4 years. What can we expect for '24, considering EUR 3 million approximately is already captured?

Hi, Andrea. This is Ruben speaking. So for 2024, we expect for now EUR 1.7 million of savings, which would mean that by the end of the third year or beyond, we've already always achieved our EUR 8 million target. So we're still very much on track, I would say.

All right. Very clear and positive. Then a couple of questions on the order book. So you were just mentioning that in the U.S., the startup of this year, January was a bit soft. What about Europe?

It's James Neuling speaking. For Europe, we see in residential, we're reaching what we're expecting in terms of volumes, albeit with a slightly different mix. And in the commercial sector, we're slightly ahead of our early expectations. So we remain modestly optimistic and in line with what Cyrille said earlier. I would not take a bullish stance. No.

On the order book, Andrea and on the backlog, we -- compared to last year, we're a lot better off in commercial business on -- in Europe, in U.S., normal backlog. And we had a very low backlog at the end of 2023. What we see is the backlog growing in U.S., and we're back to a normal backlog today.

All right. Very clear. Maybe the final question, if I may, on material prices. I think they helped pretty well for '23. How do you see the dynamic in '24? Of course, many variables there as well, but if you could give us some color on that, please.

So what we're seeing as of today is not exactly flat, but not that far from flat. So there is some uncertainty with what's going on in the -- in between or in the Suez Canal or near the Suez Canal, which impact our -- could impact our pricing and could impact the European pricing as well, because it's a global market. And we can't look at it only Europe, Asia, it's a global market. So what we could see today, there is an impact, but transportation has an impact for our cost of 5% more or less. So it's -- we have, from a raw material standpoint, we have almost our raw material, we're okay until way within 2024. From a cost standpoint.

Yes. Okay, clear. And maybe just to come back on you were mentioning 5% transportation. That's the current share of your cost structure? Or can you clarify, please?

Yes. No, that's the impact. No, it doesn't -- that's the impact of importing from Asia not going through the Suez Canal. Our maintenance cost are part of our raw material. So what I'm saying is you -- what you might read in the paper has an impact, but it's a manageable impact for us.

Okay. Understood. That was all for me.

Thanks, Andrea, for your questions. Any additional questions? No?

I don't see any further questions.

Okay. Well, thanks a lot for those questions. Thanks for assisting to the call. As I told you the next call will be for the Q2 results, and that's going to be in August towards the end of August. In May, we will publish a trading update, which will give you where do we stand with the company. Thank you very much, and have a great day. Bye.