Biesse S.p.A. (BSS) Earnings Call Transcript & Summary

Thank you. Good afternoon, everyone. So some of you may know this is my last conference call with Biesse. And I'm here in [Technical Difficulty] I'm joined by Nicola Sautto, who, as of tomorrow morning is Biesse Group's new CFO and Investor Relator. So of course, I welcome Nicola and wish him all the best for the coming years. Regarding the financial draft -- 2023 financial statements have been approved during today's Board meeting, let me just provide you a quick summary. And then, of course, we can switch on to any questions that you may have. Now starting with highlights regarding the fourth quarter. As you may have read from the press release, Biesse closed the fourth quarter with [Technical Difficulty] drop in terms of revenues. Moving on to EBITDA. The fourth [Technical Difficulty] closed with just over EUR 14 million. This is below 2022's fourth quarter. That was just under EUR 20 million. So this is a drop of some EUR 5.5 million, which represents approximately 28% [Technical Difficulty] in terms of reduction. [Technical Difficulty] closed at EUR 6 million. This is an improvement of EUR 1 million versus the fourth quarter of 2022. So it's a 21% increase. Moving on to the full operating results, so that is including nonrecurring events. We have a negative EBIT of some approximately EUR 4 million, which compares with just under [Technical Difficulty] in the fourth quarter of 2022. Now this is due to some [Technical Difficulty]. We have already started you may remember in Q3 of 2023 [Technical Difficulty] reserves for a restructuring that encompasses our activities in Italy. And in Q4, we completed that accrual. And on top of that, we also reserved for the closure. So the, let's say, exit from the Russian market. So these are the main nonrecurring items that are impacting our operating results in Q4. Moving on to our net results. Net results for Q4 was negative by some EUR 6 million. This compares with a positive net result in Q4 2022 of some EUR 5.5 million. So overall, the variation is close to EUR 12 million. And of course, the underlying reason behind this is, of course, the accruals that have been set aside. If we move on to our full year result. So Biesse closed 2023 with revenues of EUR 785 million. This compares to EUR 822 million in 2022 and so there is a reduction in terms of revenues of close to [Technical Difficulty]. EBITDA closed at EUR 77 million. So this compares with almost EUR 91 million in 2022. So minus EUR 14 million in terms -- in absolute terms and minus 15% in percentage terms. EBIT adjusted closed at just over EUR 40 million, and this compares with 40 -- close to EUR 48 million, so there's a $7 million reduction which is approximately a 15% reduction. Moving on to the full operating result, which bears the brunt of the accruals that we made. As you can see, there's a significant difference between EBIT adjusted and EBIT of approximately EUR 16 million. So operating result was EUR 24.2 million. This compares with just over EUR 50 million back in 2022. And finally, in terms of net profit, we closed the year with EUR 12.5 million -- EUR 12.5 million compares with just over EUR 30 million back in 2022. If we move -- switch over to the balance sheet, we closed 2023 with a significant -- still very significant, very strong net financial position. So a positive net financial position of EUR 93 million. This compares to the previous year's net financial position, which was close to EUR 117 million. So during the year, we have absorbed cash for close to EUR 24 million, and this represents a 20% reduction [Technical Difficulty] our net financial position remains very solid and very strong in the course of 2023. This is, in a nutshell, in our performance during the year. For those of you who have had a chance to read the press release, the overall comment is that, of course, 2023 has been a difficult year [Technical Difficulty] the combination of geopolitical tensions on the one hand. And on the other hand, a tightening overall global monetary policy have led to a cooling of demand. And this, of course, has been reflected in lower order entry [Technical Difficulty] domestic market, which benefited [Technical Difficulty] especially in 2021 and 2022, there was a contraction in our domestic market and this is mainly due to the reduction of government incentives that somehow distorted our domestic market in previous years. So all these factors altogether have resulted in lower order entry, which for 2023 stands at just under EUR 670 million. So [Technical Difficulty] and this compares with an order entry of EUR 768 million in the course of 2022. So the result of this being that our year-end backlog went from EUR 385 million at the end of 2022 to EUR 278 million at the end of 2023. Now in the course of the year, of course, we have continued to implement the so-called [Technical Difficulty] project. And of course, this is a multiyear project [Technical Difficulty] and that will bring about a greater level of flexibility, higher speed and, of course, a reduction, ultimately, a reduction in the structure that is based in Italy and more specifically at our headquarters. And at the same time, a strengthening of our structures around the world, so our subsidiaries that will be allowed for great for a higher level of independent and who will progressively have a higher degree of responsibility for delivering in their own markets. In the course of the year, we also worked on the acquisition that was completed at the end of [Technical Difficulty] this will, of course, something that started in the summer of 2023. And that saw our efforts in the second half of the year. And of course, this acquisition will have a significant impact starting this year in 2024 and for future years. And at the same time, of course, we continue to promote innovation and research. And we continue to invest in our activities in order to ensure the future of the group. So this in a nutshell is my comments as far as 2023 is concerned. I think we can now move on to the Q&A part of the call. So I am at your disposal if you have any questions that you would like to tackle if you have any doubts or if you would like to dive a little bit deeper into our numbers. Thank you.

[Operator Instructions] And our first question comes from Luca Riboldi of BANOR.

I have a couple of questions. First one is regarding the implementation of investment in the [Technical Difficulty] invest some money in the development plans in India [Technical Difficulty] in India. So if you could update where you are in this point and how do you see the [Technical Difficulty]? Second question, [Technical Difficulty] some of your customers or the main customers you have in Europe, we have heard that there are some new competitors in your business coming out of China. I would like to understand if it's really something we should not worry, but at least we should considering when we look at [Technical Difficulty] there is no chance for them to compete in Europe but even in Asia.

So let me start from India. I reiterate what I had anticipated and what you were referring to. So yes, India is very much a strategic country for us. It's -- and of course, our plant in India is very much a strategic investment. Now India has been -- the Indian plant has been consistently growing and we are extremely pleased with the performance of our operations in India. Now of course, the size of the Indian market is, for the time being, still relatively small, and so it does not have a significant impact on our bottom line, nor on our top line for that matter. However, our investments in India has primarily been a, let's say, a production hub thus far for export. Although we're seeing some very encouraging results. And of course, over the years, we expect India -- the domestic market in India to develop significantly to move away from a high -- from what is today a highly manual processing, especially of the wood market. And of course -- and so we expect to start reaping significant benefits from this market in the coming years. Now regarding India, yes, we have a very successful operation there, a very successful plant. Unfortunately, we are still until today, renting our facilities in India. And the objective is to invest and to have our own -- so our wholly-owned plant in the future. So in our plan, we have foreseen a significant investment in terms of PP&E. So the production plant and equipment related to India specifically. So that is very much one of our -- one of the stepping stones in our long-term plan. Moving on to competitors from China. Now, yes, we do have -- we do face some pretty fierce competition from Chinese competitors in the Wood segment. And Chinese competitors are coming up. There's evidence of that. So they started off a few years ago, and they weren't a threat. And over recent years, they have been developing successfully and they have been pursuing an aggressive export strategy, probably government backed. And so they are on our radar. In particular, 2 competitors, both listed companies in China, one is [Technical Difficulty] and the other one is [indiscernible]. These are players in the Wood segment. I want to emphasize this. Now as far as our main markets are concerned, for the time being, their presence is not significant. So if we look at European and, let's say, the European and the North American markets, their presence is still marginal, but they have been moving very aggressively in their own domestic markets, so the China market, and they have been moving aggressively in Asian markets by and large. And now, of course, with the latest developments, we have been de facto giving away the Russian market to them, because we can no longer, of course, export to Russia. So they have moved in and they are -- basically, they have no competitors in Russia, so they're just taking over the full market there. Now this mainly impacts wood, there are, of course, also competitors in the glass and stone businesses, although I would say their presence is less relevant, especially on international markets. And so we have a healthier competitive environment in those business segments versus wood. Now again, just a final comment. China for us is very much a marginal market. So China represents approximately 1.5% of our net sales. And so of course, we are much less hit versus our main competitors, which is HOMAG that has a very significant historical presence on the Chinese market, and that is where HOMAG is currently facing fierce competition from Chinese competitors.

Very clear. Just a follow-up question about the competition in Asia, consider that you are going to have a much higher production in the Indian plants. If you have to compete in India with the Chinese you think you can compete on the Wood segment, of course and talking about. Do you think you can compete the same level or even better? And do you think that talking to some of your customers, the problem of the Chinese competitors seems to be they've known the maintenance business behind the selling of the machine. So probably it's difficult for the moment for the Chinese to enter the European and the U.S. market. But I would like to understand what is your view also on this point.

Yes, I agree with you. The reason why their presence is [Technical Difficulty] let's say, European and North American countries is that they do not have a service network. And so of course, we have a [Technical Difficulty]. Now in terms of cost effectiveness and cost competition versus Chinese manufacturers in India. At the time, and I'm referring to 2019, when we decided to close our operations in China, it was specifically, we have made a comparison between production costs from our Chinese plant versus our Indian plant. And our Indian plant was -- had some significant savings, significant -- was significantly lower in terms of production cost versus our Chinese plant. And so this was one of the reasons that led us to the decision to close our operations back in 2019. So to answer your question, yes, I believe we can effectively compete with Chinese manufacturers on the Indian market with our -- given our manufacturing base in India. Now of course, a lot depends on -- also depends on government incentives. Now the Chinese companies benefit from all kinds of hidden incentives that are provided by the Chinese government. Now to what extent are they willing to go? This is an open question. But overall, I'm quite confident that we can effectively compete with the Chinese on the Indian market.

[Operator Instructions] And our next question comes from [Technical Difficulty] of UniCredit.

Well, as the first thing, I would like to [Technical Difficulty] for your next opportunity. And a question, I would like to go a bit through the levers that Biesse can use in this 2024 to sustain its economic performance. And if these levels can help [Technical Difficulty] in the coming -- like coming years in the medium term or also in 2024.

Now, okay. You've seen -- we've just commented our 2023 results. So of course, the most evident result is the -- sorry, the most evident phenomena that I highlighted in our numbers is the accruals that we have set aside for restructuring. Now those will have an impact this year. And so the -- let's say, the impact is in terms of headcount reduction in Italy. And this headcount reduction, of course, will generate savings in the course of the year. And of course, these savings will be fully [Technical Difficulty] in 2025, you will have the full year impact of these, let's say, headcount reductions in Italy. So this is, I would say, one lever that is -- that we can expect to see in the course of the year. Another lever is, of course is, of course, the addition to our figures of the GMM group. So the GMM Group represents net sales of approximately EUR 120 million. So between 100 and -- let's say, between EUR 110 million and EUR 120 million in terms of net sales. So this is an important lever. And of course, the GMM Group is engaged in the stone business and in the glass business, sorry. And also, thirdly, in what we refer to the other materials business. So the acquisition is [Technical Difficulty] with our strategy, [Technical Difficulty] non-wood businesses because we have -- we believe that we have an established leadership in the wood business, where we are the factor #2 in the world [Technical Difficulty] which is the undisputed leader of course. But if you look at our figures historically, 70% of our revenues were coming from wood and the remaining 30% was split between stone, glass and other materials. And so we want to grow in these other business segments, where -- and we believe that these other business segments have some pretty interesting features from a competitive level point of view because they tend to be, in some cases, less crowded than wood. And so of course, there's an intrinsic advantage, and we believe that we can express and we can express a good potential in those other businesses. Thirdly, I think that the third main lever is, of course, the progressive implementation of the One Company project. Now the One Company project started back in 2021. So 2024 is really the fourth year of the implementation of the One Company project. And of course, this umbrella project brings with it a whole series of streams that [Technical Difficulty] objective to really make the group lighter on the one hand and faster on the other hand. So our bottom line should start expressing some of this potential in 2024, although, of course, not only partially still, but nonetheless, we should be in a better position to react to market changes given the actions that we have put in place over the past 3 years. So I would -- I think that the main levers are these 3 levers that I have just commented.

There are no more questions at this time.

Okay. If there are no more questions, I thank everybody for attending this call. And of course, we are at your disposal in case you want to further discuss, you know how to reach us. So we're here and we're willing to answer any questions you may have. Thank you very much. Thank you.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.