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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Third Quarter 2024 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nicola Sautto, Group CFO of Biesse. Please go ahead, sir.

Good evening, good evening. Here with me, our Chief Strategy Office, Mr. Sandro Vitale. So we can go through the presentation starting from the first slide. This is a general presence of the group. We have more than 4,100 employees all over the world. The majority are in Italy, roughly 49%. We are 3 manufacturing area in -- all around the world. One is in Italy with several labs -- industrial labs located in territory. Then one in India and one in Bavelloni. And plus 19 showrooms in different countries. 63% of our revenues are located in EMEA and the second, the majority -- the second part of our sales are located in North and South America continents. The economic scenario is very weak. So as you certainly know, the inflation remains still high in the area covered by Biesse. And also the GDP outlook remained weak with a significant -- with lower level in the majority of countries and only some of the countries, for example, India, with a positive, a very significant increase in terms of GDP. Due to this effect, the cost of money remain high, and this is one of the problems that we have with our clients because they cannot obtain money from the bank system. So they cannot pay the remaining installment for the machines. Probably, as you know, we obtained an advanced payment of more or less 20%, 30% of the total value of the machine at the order. Then we have to the client another 50% of the total amount before the installation and the remaining 20%, 30% of the total amount of the order will be paid by the client with some days of delay. The client cannot pay to us the last 2 installments. So the installment before the installation and also the last installment. So we do not send the machine to the client. This backlog is called financial hold and the significant increase compared to last year, September '23 to September '24. So this is linked to the general problems in terms of credit and the economic scenario that I already mentioned. So these problems we -- has a significant reflection and impact also in our P&L and in our financial statements. In terms of other economic scenario in the other country, also in the other part of the world, the economic scenario remains uncertainty. For example, in Germany, but also in China, in Korea and also in the other part of the world. We -- you can see in the presentation some snapshot of the -- some significant situation all around the world. One of the majority -- one of the major impact is on the automotive sector, and is a significant inflation in our sales due to the fact that part of our company produced some machines related to this market. In the first 9 months of '24, the Group Biesse posted a total order of EUR 511 million consolidated, so considering also GMM. If we compare the number to September '23, excluding the GMM effect because we bought the company in January '24. The total order was EUR 488 million. So it seems higher the total value, but if we exclude the contribution of GMM, so if we compare Biesse in these two period, we reduced our order in 1 year of roughly EUR 40 million. In terms of backlog, the total amount of backlog is more or less EUR 280 million compared to EUR 290 million last year, with the contribution of GMM to the number of '24 of roughly EUR 26 million you can see in the detailed chart on the right. So it means that our backlog, notwithstanding the trend of the order remain very stable with a significant amount. So means that we will have the possibility to perform at least at the same level of '24 also in '25. So this is a very significant number for us due to the fact that give us the possibility to plan the production and to plan also the remaining part of the '25 with a significant -- in a stable way compared to the 2024. In terms of P&L, we posted EUR 561 million in terms of sales, significantly lower compared to last year. Once again, the number of last year was without GMM. So the -- in terms of -- if we want to compare only Biesse performance is Biesse posted a decrease compared to last year of EUR 120 million in terms of -- less in terms of sales. In terms of EBITDA, the final number was EUR 44 million compared to EUR 63 million last year with a decrease also in terms of percentage of net sales. Due to the fact that we were able to reduce our costs accordingly, the strategic plan that we presented at the beginning of '24, and we anticipated all the activities -- strategic activity listed in the business plan. As you can see in the bridge in the Slide 7, we reduced the cost in terms of, for example, labor costs of roughly EUR 70 million. So it's a big impact, but the drop in terms of sales and the related drop in terms of margin, we cannot balance and cover and offset completely with a significant saving in terms of cost. But the message is the Group remains focused on what listed in the plan in the strong confidence that the plan is correct. All the action in the plan are correct. And we want to anticipate all the actions included in the plan because we are strongly convinced that all the activities will bring us a significant improvement in terms of cost reduction, synergies, new organization in terms of production and on commercial side. In terms of EBIT, EBIT adjusted, we posted EUR 14.5 million compared to last year. And in terms of net result, EUR 2.6 million compared to EUR 15.9 million. In terms of pretax, it's quite important, and I want to mention you this number is EUR 6.8 million. So the result is EUR 4.2 million in terms of taxes. And you can see also in the quarterly financial statement that we published in our site, there was a significant tax rate of roughly 16%. The reason is related to the payment and the taxes on the dividend received by the group at the beginning of this year. So we paid and we calculate the taxes on this dividend. And we expect to have a significant reduction by the year-end due to the positive contribution of the patent box for HSD, our company involved in the -- included in the group. So we expect to have a significant decrease in terms of tax rate of roughly 20 points less. So from 60% to -- around 45%, 50%. The total amount, the tax rate will remain high due to the fact that we decided to not calculate deferred tax asset on some companies of the group for -- to be prudent. So maybe on the year end with the positive suggestion also from our auditor, maybe we can calculate this DTA otherwise, we already included this negative effect in our -- in the Q3 financial statement. In terms of bridge between net result. As you can see, the group -- we divided the Slide #7 in two different parts, one for Biesse and one for GMM, just to give you the sense of the effect of the contribution of both groups. In terms of the left part is Biesse effect. So the negative effect of Biesse stand-alone. So Biesse, HSD and all the commercial legal entity of Biesse was EUR 12 million, roughly less compared to last year. The majority of this effect is due to the lower in terms of revenues only partially compensated by higher margin compared to last year. But as I mentioned before, Biesse posted a significant decrease in terms of sales of EUR 122 million less compared to last year. So the EUR 43.9 million, the effect that is in the first column in red in the bridge is due to this significant decrease in sales, partially compensated by a higher margin compared to last year. Then as you can see, we were able to have a significant increase -- significant, sorry, saving in terms of labor costs, both to cassa integrazione reduction in terms of MBO and some significant part of the people that left the company in the last 9 months. The other significant change compared to last year. If we look on the Biesse side are on D&A. We changed the policies of capitalization. So we decided to not capitalize R&D cost this year. And we posted a lower devaluation compared to last year. The other effect is a positive effect also on taxes already mentioned, is positive because the pretax is lower compared to last year, already mentioned the tax rate that is 6.2% on taxes. The other positive effect is related to the nonrecurring, so EUR 6.2 million. EUR 6.2 million is due to the accrual of provision last year for restructuring that we do not include in 2024 because we already posted accrued in the previous financial statement on the Biesse side. And plus the positive effect of one building that we sold last year for a total amount of EUR 1.9 million. On GMM side, so the right part of the chart. As you can see, GMM has a positive EBITDA impact on the group of EUR 8.8 million. Then we -- they have a negative effect in terms of the amortization and depreciation. This is due to the -- both the investment and the fixed adjusted that we already have in their financial statement before the acquisition and plus the amortization of the purchase price allocation that we made in line with our auditors for the cost of the participation that we bought the group at the beginning of the year. In terms of nonrecurring, EUR 3.5 million. There are 2 negative effects on GMM side. One is for EUR 1 million roughly is the due diligence and success fee of the operation that we paid -- the GMM paid in January 2024. And EUR 2.5 million are related to the restructuring provision that we accrued on GMM, not for the Group GMM, let me say, so for GMM and Bavelloni and TWJ. We know that we have to reduce the people and in accordance with the plan and with the new structure that we want to put on the new group. So in accordance with this plan, we have to reduce significantly also the person in GMM and Bavelloni. In terms of group account, so the Slide #9. As you can see, September '24 compared to September '23. Please remember that September '23 did not include the GMM numbers. So if you look at only at Biesse, you can see that the number of headcount is lower compared to last year of 254, and this is apple with apple because this is only Biesse. In Italy, we reduced for the majority, 231 people. And the rest of the world means all the other nation all around the world with a reduction of 23. In reality, the reduction was only in India, for 53 units. So means that in the other commercial company all around the world, we had an increase of 30 people on the sales part. So we strongly want to reinforce our sales structure in the country, and this is the measure that we put in the number. In terms of GMM, we closed the September '24 with a total amount of -- sorry, 420 people. Last year in September '23, the total people was 433. So as you can see, at a slower decrease also in terms of headcount in GMM. This decrease will continue in the next month. And you will see the first significant impact probably at the end of the year. In terms of balance sheet, so the Slide #10. As you can see, the net working capital was 96.3%, significantly higher compared to December 41.7%. The reason is the consolidation of GMM in September, so December is not comparable. If we break down the EUR 55 million in terms of delta between the 2 net working capital, EUR 37 million was due to the consolidation of GMM and EUR 16 million due to Biesse. For Biesse, the 95% of the effect was due to the reduction of the contract liabilities. So the advanced payment that we received from the client once we -- they sign the order. So the reduction is strictly connected to the reduction of the order that I give you some comments at the very beginning of this call. During the first 9 months, the group realized EUR 9 million of CapEx and we expect to have more or less EUR 3 million, EUR 4 million in the Q4 '24. In terms of net financial position, we had a significant number of EUR 4.2 million. If you consider also the IFRS 16 effect is only an accounting effect. The net financial position was negative of roughly EUR 28 million, but the very important number is EUR 4.2 million. So the positive financial position before the IFRS. In the financial statement, as of September '24, we accrued roughly EUR 60 million in terms of funds. So that reserve -- obsolete reserve generic risk, restructuring provision and so on. So the group is -- and the financial statement is very, very prudent, and we accrued all the potential liabilities that we expect in the next 12 months. In terms -- one of the reasons, just step back to the net financial position, the reason for this significant decrease compared to December is mainly related to the payment of GMM, roughly EUR 69 million. The remaining part as we paid some dividends to the group to the shareholders, the CapEx that I already mentioned, netted by the EBITDA cash effect that we had in these 6 months -- 9 months, sorry. In terms of fixed assets, we had a significant increase compared to December and the reason is the consolidation of GMM. We already start with Deloitte, our auditor, to analyze the PPA for GMM, the total amount of the PPA is roughly EUR 35 million. So we already posted this number in the financial statements. Part of this EUR 35 million is allocated to the goodwill and the majority of the PPA is allocated to the other asset of the company. The last slide is just a shareholder distribution. So on the left side, you will see our Board of Director, on the right side the shareholder distribution of Biesse as of the end of September. So I finish the presentation. I left the floor for your questions.

[Operator Instructions] First question is from Silvan Betschart with Reichmuth and Co.

My question is regarding the D&A changes this year. Is it right if I got your comments correctly, it was more a conservative change that you have taken and put all the R&D through the income statement to lower tax payments this year. So it's not aggressive that you capitalize something...

No?

Okay.

No, vice versa. So we decided to be more prudent, also following the suggestion of our auditor, and we decide to put all the costs in the P&L.

And the second statement you made, if I may ask is you mentioned all upcoming restructuring costs you expect until year-end or even next year, you already accrued a lot through the income statement...

Yes, right. Right. Right. Yes. We accrued all what we expected. Probably by the year-end, we want to add some additional money, some additional value in the financial statement. We're just finalizing some calculation on -- especially on the GMM side. So what I'm expecting is to add EUR 1 million, EUR 1.5 million in December to the amount already accrued in the financial statement.

Okay. And last question, if I may. If the revenue side stabilizes on the current level, how much headroom with potential synergy and cost saving do you see at these levels? I mean, is the heavy lifting done? Or is this still big opportunities also to be profitable on this kind or even slightly lower levels of revenue?

So in terms of revenues, we see also based on the analyst research that probably you had a chance to see, we do not see in 2025 a significant change on both sides. So in terms of increase or decrease in terms of sales that we -- compare to 2024, right? So more or less, the level is stabilized. But we are expecting to have a significant saving, but it's not the right term because we are changing the structure of the Group Biesse. So our plan is not to save money. Our plan is to completely redefine the group in terms of operation. And after that or during this change to adequate the structure and make a rightsizing of the structure, okay? We already started on this process, but the process is an ongoing process. So our expectation is to have the possibility to stabilize also the EBITDA value in terms of percentage and to increase a little bit also next year. So we started a long journey, but we are strongly convinced that our journey will bring us to a new group with more efficiency, more synergies and a higher level in terms of EBITDA, in terms of percentage, obviously.

The next question is from Juan Antonio Fernandez with [indiscernible].

I want to make a short question. It's about -- we are having a very good split with Biesse and GMM backlog orders. I want -- well, we are seeing like a -- only Biesse, we are following like a 20% revenues comparing last year. How about GMM? Is this going more or less in the same level of decrease?

No. No. GMM is more stable compared to last year. As you know, GMM is not included in these numbers. But if we compare the result of GMM in the first 9 months of 2023, more or less, we are aligned compared to what we posted in 2024, due to the fact that their market is less afflicted by the competitors. So the stone and glass and also the Techni Waterjet strategy and market is less affected by the competitors. So it means that their results remain more stable. But I will let Sandro to explain in more detail this effect.

Yes. I mean I think what Nicola is trying to say that this is part of the multi-material strategy. And as a matter of fact, we think the differentiation material with a stone, glass and exploring the metal as indicated in the strategic plan is exactly confirming the fact that that's the right way to go in the sense that we have the materials which are, let's say, less cyclical in a way or they have a different or slightly different cycle of business. So I think that differentiating the exposure to different material is roughly the way that should be this -- in the way we see this also in the numbers of GMM.

[Operator Instructions] The next question is from Angelo Meda with Banor.

Okay. It's not Angelo. It's Luca Riboldi speaking probably because we are from the same firm, we are both from Banor. So I'm Luca Riboldin from Banor. I have a couple of questions. The first question is about inventories. I've seen the inventories at the end of the third quarter 2024 is EUR 10 million more or less higher than Q3 2023, despite the lower revenues. So I would like to understand why? And the second question, if you could update us on the competitive landscape in the 3 main markets, Europe, U.S. and Far East Asia?

So I will explain to you the first question, and then I let Sandro exploring the second part. So please consider that the number of Q3 '23 is without GMM. So compared to Q3 '24 is included GMM. So we have a mixed effect. So the first effect is the consolidation of GMM only. But if we look at only at Biesse side, you will see more or less the same amount of inventory compared to last year. So your point is right. We have the same amount of inventory with lower sales. The majority of the fact is the consolidation of GMM, obviously. But if we look at Biesse, the reason is that, as I mentioned at the very beginning of the call, we noted an increase on the financial hold side. So we produced the machine. We send the machine to our subsidiaries all around the world, but the client do not pay the remaining amount. So we have this machine as inventory, and we cannot install and receive the final payment from the client. This is one of the reasons that I mentioned at the very beginning in terms of traded and financial travel of our clients. Please remember that the majority of our clients are small clients, small companies. So they are hurted very hard from this situation all around the world.

Okay. Then I will take the second question. So regarding the market and the competitors. So the market scenario, which I think you have seen something in the release that is still quite challenging, especially in the European area, particularly Germany, which is the biggest market is in -- almost say a dramatic situation, but I think this is quite known, and not just in our industry, but overall, all the other markets, somehow are following all the major markets. So we're talking about U.K., Italy, France, there is an effect of performance or uncertainty on possible public support, which you know well as -- let's say, in this case, the counter effect because that creates an expectation, which is not fulfilled for example, in Italy with the 5.0 initiative, which created more problems than -- than a positive effect so far. Regarding North America, it's a little bit more stable with the uncertainty of one side. There are many customers waiting for possible easing of the monetary policy, which also creates some uncertainty. On the other side, of course, there are the election, which also creates some tension. But for sure, Americas is more stable and in a better situation than Europe. Then in Asia Pacific, I would only mention China, which also is really down, again on the overall economic situation and even the stimulus package that is -- we are not sure how much will provide benefit, but also our exposure to China is very small. On the other side, India has some opportunity. The economy is growing, and we have a production plant there and a stable presence. On the competitor, I would not mention too much. I think you would find the result mainly from all the regions, which is in the [indiscernible] group. So it's public data, but you have seen more or less a 15% to 20% decrease in our revenues, which reflect the let's say, the trend in the overall industry. So you have also seen some of the other competitors. Now I would only mention public available information. So for example, situation from iond in the stone, which is quite challenging. Let's say that -- for sure, there is an overall complex situation, which is following the 2, 3 years of the post-COVID where we had a boom in the orders supported by public politics and the ease of monetary, which is not there -- no longer there. So this is providing a lot of uncertainty.

In terms of competitors about the 2 Chinese companies that you were mentioning a couple of conferences ago. They are just still more or less in the same position. Or do you find them more active competing Europe, U.S. or just in Asia?

But for sure, I mean, they -- for sure, they look very aggressive in the export and no doubt. This is typical in this moment of all the Chinese industrial company, and there is a very difficult situation in the local market. So for sure, trying to expand. On the other side, let's say that we don't see, especially in the Americas and in Europe, in the Western Europe, we don't see them growing too much. For sure, they grow in all the typical markets, typical like South America, Africa, Middle East, Eastern Europe and Asia Pacific. But this was already a trend that, of course, they are already. So not significant change, I would say, in the last 3 to 6 months. But for sure, we need to prepare to an aggressive competition, which on the other side may present a benefit for other industry to be more efficient. I think what Nicolas was mentioning before, I think it is a challenge for all the Western companies, not just in this industry,that is how we address differently the business model to make it more sustainable, more efficient in order to compete with all the possible competitors.

The next question is from Alberto Francese from Intesa Sanpaolo.

Alberto Francese, Intesa Sanpaolo, I have a couple of questions. The first regards the revenue in the last quarter of the year in this third quarter, the total Biesse plus GMM was something less than the third quarter EUR 10 million revenues less than in the third quarter of '23. Can we expect a similar trend also in the last quarter of the year? Is something lower than it was in the last quarter '23? Second question regards the staff reduction, labor cost reduction. The question is we -- can we take this reduction as something recurring also in the next years for our estimates for our projections? And if the answer is yes, if you can give us more -- some color for the reason that you can run Biesse with a lower number of people rather than it was in the last 3, 5 years?

Alberto, so in terms of revenues of this quarter, yes, we posted -- we realized lower sales. Please consider also the August is not a very important month in terms of sales. In our press communication, we said that if you consider the year-to-date on September, you can mathematically project the final quarter is a very -- in a very stable way, let me say. So compared to the final number of the analyst research, I think we will lower compared to that number in terms of sales, low single digit, let me say. But in terms of EBITDA, we will remain more or less close the number of the projection, right? So -- there's no -- there are significant -- without any impact in terms of sales, low single digit. But in terms of EBITDA, in terms of absolute value, and also in terms of margin, more or less, we should be close to the number of the projection of the -- your research. In terms of labor cost, we try to stabilize the savings because there are many people, as you can see in the chart of the headcount that left the company in the last -- in the last month, but the trend started 1, 2, 3 years ago. So we tried to stabilize this number and to continue to reduce the number due to the fact that, as I mentioned, we are changing the structure of the group in terms of production, operative and commercial side, right? So this is not a one-off effect or an effect that we want, again, today to save, let me say, the P&L is part of the project of one company, right? So the project started in the previous 3 years and in the plan that you see in our website is a project that will impact all the aspect of the companies. So the target is to have a more efficient and more scalable and more -- yes, efficient and scalable group and companies. So the plan is to continue to have this such type of savings without impacting the turnover and the profit due to the fact that the new model that we want to create is a completely different model. So we need to rightsize the people and the cost in line with the new model. So it's not an effect that we want to put in the P&L this year, and we'll see what happened in 2025 and 2026. It's a new different model. It's the one company project that you already know.

[Operator Instructions] The next question is from Silvan Betschart with Reichmuth and Co.

A follow-up question to the inventory. One change you mentioned is that your clients are not able to do the second payment. I mean how do you value this in the book? Is there any risk that there are -- if there are no payments that there are negative effects on the P&L down the road? Or is this very conservatively in the inventory?

No, we already take in account this possible risk. So we do not see additional risk down to the road. So we already accrued a fund related to the inventory. The only risk that we see and is already in the numbers is just a delayed payment from our clients. So the machine sooner or later will be sent and installed to the client, it's just a matter of when. So some clients are postponing the installation of the machine, but the machine is created and produced for them. So they will -- they are obliged under the contract agreement to receive the machines sooner or later. So we already included in our profit and loss and also in our balance sheet, the risk of this inventory and the only risk that I see is what is to have a postponement in terms of cash.

[Operator Instructions] Mr. Sautto, there are no more questions registered at this time.

Okay. Thank you very much for your time.

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