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 Biesse Full Year 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Nicola Sautto, Group CFO and IR. Please go ahead, sir. Mr. Sautto, your line is open.

Sorry. Good afternoon, thanks to you. I'm here with Sandro Vitale, our Chief of Strategy. I would like to start the presentation with our worldwide presence. The Group Biesse has 3 manufacturing sites all around the world, the biggest one -- the biggest are in Italy, then we have 1 manufacturing site in India, 1 in Thai. Then we have 90 showroom all over the world, starting from Canada to New Zealand. The final number in terms of headcount as of December '24 was close to 4,000 people, significantly low compared to the last year 2023. If we consider the economic scenario, we can easily see that there is a slight down of inflation lower than the expectation and also in terms of interest rate, we have slower down but less than the expectation. We have several markets with growth predictions in terms of the GDP and fortunately, some of the market, we are very involved, for example, Brazil, India. And we have several markets with a very difficult scenario, if you're looking on Europe and U.S. We put in the presentation also some snapshot of the press release and just to underline that we are very influenced on the declaration of the U.S. president in terms of duties, just to remind that Americas, U.S. for us is our second market. So we are very influenced on this declaration. Then also in Germany and in France, there are other 2 of the -- our top markets, there are very negative trends in terms of economic trends. So also in these 2 markets, we have significant problems. Unfortunately, also in Italy, in the 2024 our sector posted a significant decline both in terms of sales and in terms of numbers of companies that shut down during the 2024. If we look to the number of the group, we closed the year with EUR 755 million in terms of sales with a reduction compared to 2023 of roughly EUR 30 million. Obviously, the number of '24 was not strictly correlated to the '23 because we bought, as you probably remember, the GMM Group in January '24, so the '23 numbers does not include the GMM figures. So if we are looking at apple with apple, the Biesse old perimeter, so before the acquisition of GMM posted a significant decline compared to last year of roughly EUR 140 million, partially compensated by the GMM Group that posted for 2024 a total sales of EUR 110 million. In terms of backlog, we closed the year with EUR 255 million, so a very, very positive backlog, notwithstanding the decline compared to last year, but the backlog remains solid and significantly above to the level that we consider as the minimum level of the backlog. In terms of EBITDA we closed the year with more or less EUR 59 million, so 7.8 percentage on the revenues. Obviously, compared to last year, the number is significantly low of roughly EUR 18 million. In terms of net results, the group closed with a positive result of EUR 3.8 million compared to the number we achieved in 2023 with a reduction of roughly EUR 9 million. Which are the biggest explanation between the net result of 2023, so EUR 12.5 million in terms of net result and the bridge to the EUR 3.8 million that we -- on which we closed the '24. The biggest impact was on sales, obviously, Biesse at the stand-alone closed with a significant reduction of EUR 140 million in terms of sales, significantly compensated by an increase of margin then we totally align with our project that we call One Company that started more than 1 year ago. We start to rightsize the structure of the group, reducing significantly the G&A cost of EUR 5 million, more or less, compared to 2023. And the biggest impact was on labor cost that we were able to reduce to EUR 20 million -- of EUR 20 million in the 2024. This impact was mainly due to the contract to the Solidarietà that we had mainly in Italy and also lower impact in terms of reward the employees because the numbers affected the MBO level, partially compensated by the inflation costs that we had every year on the labor cost. And the other positive impact compared to the previous year net result was on the nonrecurring items, mainly due to the fact that last year, so 2023, the group accrued a significant amount of restructuring provision. In 2024, we simply adjust, so in 2023, we had the full amount of the accrual, in 2024 we simply adjust demand considering the people go out from the company in 2024 and the projection that we had for the 2025. The Group GMM stand-alone posted a positive result of roughly EUR 1 million in 2024. In terms of headcount, this is a very important point for us. The group closed the year with 3,972 headcount. If we compare the number without the GMM, the impact of GMM for 2024 was 383 headcount. So it means that the Biesse Group were able to reduce and to rightsized the structure of not only of the plants, but also the HQ and the commercial area of roughly 335 people. So we reduced a significant amount. If we bounce back to the 2022, the reduction was roughly -- is roughly 600 headcount. The majority of the reduction is in Italy so in the industrial side and in the HQ, in the market, so in the Biesse that we -- the company that we have in the market we experienced with an increase in terms of headcount because our strategy is to reinforce the commercial workforce all around the world to -- we have a significant impact on the order intake and also in the sales. In terms of financial, so balance sheet and net financial position result, the net financial position at the year-end without the IFRS 16 was positive of EUR 25 million roughly, so it's a very, very good number, very positive number also compared to last year, we experienced a significant decrease, mainly due to the acquisition of GMM Group that we paid during the 2024 fiscal year, plus some CapEx that we made roughly EUR 16 million of CapEx in 2024 plus dividend distribution last year and also some severances that we paid during the year, in line with the restructuring fund that we accrued in 2024. In the financial -- in the balance sheet for the group, for the consolidation number, we have more than EUR 64 million funds related to the bad debt reserve, to the inventories, to the restructuring, to the agent provision and so on. So I think that the group is very well position it in terms of prudence to face the challenges of the 2025. My last comment before leaving the stage to the question is that in the last 2 hours, honestly speaking, I was very surprised to the trend of the shares. So in less than 2 hours, we moved from EUR 8.2 to EUR 7, more or less. I'm a little bit surprised considering that our numbers that I presented to you now and that we included in our press release are completely aligned on what we declared during the year. If you have the chance to look at our press release for the half year, we said that our provision for 2024 will be around the double of what we posted in H1 minus something because we know that the second half of the 2024 will be negative, less -- not perfectly in line to the first H1. So our number is completely aligned and also completely aligned to the analyst research that, for sure, all the investors had the chance to review. And also, we have a positive net financial position higher also than our expectations. So I'm a little bit surprised on the trend of the shares in the last 2 or 3 hours. I've more or less arrived to the end of the presentation. So I will leave the floor for any questions.

[Operator Instructions] The first question is from Marc Saint John Webb Quaero Capital. Mr. Webb your line is open.

I didn't have a specific question to ask, but I do note that your presentation only lasted 15 minutes. I wonder if you can spend a little bit more time telling us about what happened in 2024, more in terms of what your clients are doing, which sort of clients are ordering less, which areas are ordering less, give us a bit more color about how business was going in 2024? And you say that you're surprised by the share price reaction. Could you help us understand how the end of the year finish compared to what you're expecting. But all of this, try to give us a bit more feeling for what actually happened for your business?

Thank you for your question. I give you my first reaction on the second part of your question, then I will ask to my colleague to add some more colors on the first part of your question. I'm not talking about the general value of the shares because I know that we started from EUR 15 in March, April. Now the value was before the Board of Directors was EUR 8.2 something. So the value of the shares per my expectation, per my understanding is very underestimated. I just want to comment on the reaction of the shares in the last 2 hours considering that the number that we presented once again are completely aligned to what we declare during the year and more or less, let me say, 2 million less or more compared to the analyst reserves. So I was surprised to the significant reaction in less than 2 hours. So this is only my point. Then obviously, we consider the value of the shares underestimated also considering that the market cap is below the equity of the group. So it's a very strange value of the company. Sandro?

Look, in terms of the geographies which I believe is what you're referring. So for sure, in '24, we say the effect -- the negative effect in the Italian market and in general, in the -- in other European markets affected by the end of public incentive, which has been a huge driver of the industry in let's say, '21, '22 and '23 with all the, let's say, the backlog still coming from the government money. And this was mentioned in the previous conference call and still this is creating some downturn in the industry. So kind of normalization effect. On the other side, for sure, the difficult situation in Germany, which I think is one of the -- for sure, is one of the biggest market in terms, especially for the good machineries. And you have seen also the result from some of the listed -- from the most important listed competitor just announced this week, which reflect the situation. And on the other side, still positive momentum in North America, which has been positive throughout the 2024, now is also affected by certain uncertainty, I would say, given the change in the international policy, which is creating some uncertainty, especially in the local market, in reality in more than the duties per se, but is really creating uncertainty. So this is more or less the key points in relation to the geographies. I don't know if this...

Okay. I'm afraid I still don't really get a good idea of what actually happened last year. Your sales are down 20%, can you give us a bit more color on what Biesse is doing? Did you bring out any new machines? Did you have any competitors gaining market share? Can you just tell us what is happening to your company? And give us a bit of a feeling as well, what happened in Q4 and maybe a little bit of a feeling about what's happening in the first 3 months of this year?

Okay. In the industry, the industry is down more or less 10% in '23 and 10% in '24. So if we look as the industry trend, more or less, our performance is aligned to the trend of the industry itself, which is down 20% in the last 24 months, this is for wood, stone and glass. In terms of portfolio, we are heavily reinforcing the portfolio of the acquisition of the GMM Group. As a matter of fact, we have a complete portfolio in the stone machinery and also completing the portfolio and the glass machinery. So on one side, there is a contingent effect of the industry, though we are investing heavily, enforcing the market structure and the commercial structure in the market to enforce the capability to serve the market locally. On the portfolio, I believe that the acquisition of the GMM Group provide a significant edge, especially in glass and stone differentiating and in the part of the multi-materiality which is clearly outlined in the strategic plan.

Just to give more color if you have the chance to see to the HOMAG financial result, HOMAG is the key competitor, it's the biggest company with EUR 1.4 billion, HOMAG especially concentrated on wood. So 2x than us, if we compare the total value in terms of sales of Biesse but honestly speaking, HOMAG is mainly concentrated in wood, Biesse is the only player in the world that has all the 4 materials. So we are completely different if you look only to HOMAG. In any case, HOMAG in 2024 posted a sales decline of 13%, 1-3, in the last quarter, 24%, okay? So in terms of ordering, in coming order. We need to also to understand that our market has been adopted by this -- the government aids that we had in '21 and '22. The Q1 '23 was the highest quarter in the history of Biesse only because in the last -- in the previous 2 years, the Italian market, the Italian government and also the European movement gave a lot of state aids to -- and they increase the sales from the client. And then after that moment, the sales and the order start to decline. So we are perfectly in line to the market trend. But on the other side, we started our strategic plan that is included in our website and all the action included in that strategic plan remain valid and we want -- we are accelerating the strategic initiatives because we are strangely convinced that strategic initiatives are the best way to approach this very difficult market situation. And we have an idea that at the end of our strategic plan, Biesse is the best positioned company to grab the potential increase of the market.

[Operator Instructions] The next question is from Alberto Francese of Intesa Sanpaolo.

Alberto Francese speaking. A question on the personnel cost reduction is quite important in 2024. I wonder if you still have some room for doing something more also in 2025? Secondly, as always related to cost of personnel, how much do you think would be the decrease of labor cost in 2025? And if you relate it to Biesse headcount reduction, and if you are looking or seeing inflationary trends on labor cost in Italy or in other countries where you're present?

So in terms of labor cost, as you know, we made an incredible job in 2024, starting from the 2023. My point is we do not [ cut ] the people, we rightsized the number of the people considering the new approach to the business. It's a very important differences because HOMAG reduced the number of employees of 600 in the same period, but we reduced the number of people because we are changing our supply chain, our plant, we reduced -- we rationalized the portfolio and we review completely all the operations related to the Biesse Group. So the reason why we reduced this because we are changing the baseline and the basics of the Biesse Group. Yes, we have additional headroom for the 2025 because the plan that we presented to the -- including our website is for 3 years plan, also '24 to '26. So some of the activities that we listed in the strategic plan are not completed to the final point. So we have other significant headroom that we see -- we can reduce significantly also in 2025, the number of people considering that we are finalizing some of the activities in strategic plan, for example, the plant rationalization. So we have numbers of plant in Italy that needs to be rationalized in terms of function and in terms of people. So for sure, we can reduce on that -- the number of people related to the industrial side but also in terms of other department, we can reduce because we are changing, for example, the product portfolio. And we -- already we did that because the new portfolio is live from the 6th of March, so 2 weeks ago. So we reduced, we rationalized the portfolio also in other department of the company we are working to find the best way to approach the new market needs. So yes, we have a significant headroom also for 2025.

[Operator Instructions] The next question is a follow-up from Marc Saint John Webb from Quaero Capital.

Please forgive me for my very generalistic questions because I haven't heard from you for several years, so I'm just catching up. I'm just trying to understand, I gather from just looking at your figures that your sales are down roughly 18%, 19%. HOMAG sales are down 13%. And you said the market in 2024 is down 10%. So is there a new leader being emerged in the market? I mean why are you both losing market share in 2024?

The market is down 20% in the last 24 months, then in certain geographies is down much more than the 20%, the 20% is the average global number. If you look at markets like Germany or Italy, the market is down 50% because as a matter of fact, is half of what was in 2021, '22, I would say, then the '21 and '22 still had carry on the backlog in '23. That's why most of the companies made a record year in '23 and then start depletion of the backlog in '24, which was down, and then we got a normalization of the market. So these are the numbers then that -- they are pretty aligned to what we have seen from HOMAG, which had a -- has a [ beef ] now, we're not yet to discuss about that HOMAG but also different geographic span. So the 20% is what we have seen in the industry that in the last period, but it was quite expected a moment of normalization of the market was heavily pumped up by the government aid, especially in Western Europe, given the COVID situation, most of the government provided, let's say, free support. So this is the effect that we see now of reshoring of the industry. So...

Okay. Now I understand that now. It'd be useful if you were to give variations by geographies to help us actually understand that rather than having to discuss it, discover it through questions. Second thing, could you just help us understand how the year ended and how the year has begun in 2025, If I can include that in the same question. So just to get a bit of a feeling, are you still in the absolute bottom of the downturn, things just keep on getting worse or has at some stage, things started to improve. Can you help us understand that? I don't know whether it's sort of evolution of sales or it's evolution of order intake. But are you still sort of seeing a market collapsing or things started to turn at some stage?

So in terms of the projection for 2025, honestly, we do not see a significant increase compared to what we seen in 2024. The first 3 months to 1.5 months give us the confidence that nothing has changed the comparing on 2024. We noted some significant problems that honestly speaking, we do not expect to have and I'm not talking about the U.S. market due to the declaration of the President has a significant reduction in terms of order intake, not only for us, but as a market standard. So we do not see any significant changes in the trend. This is why we do not foresee a significant budget significant difference compared to what we achieved in 2024. I don't know, Sandro, if you want to add.

No, just to say that I believe what was declared by -- also by HOMAG, we are quite aligned that we don't see until the second half of '25, we don't see market condition to change. So still is very rough and the turmoil in the U.S. with all the duties is not helping for sure. So we look month by month, how is the trend.

And just a second question there. I wonder if you can give us an understanding of how your cash flow is likely to evolve? We see that you're a company that had a significant amount of net cash, it's down to just under EUR 25 million. How is that sort of net cash in your balance sheet likely to evolve over the year?

Considering the fact that we hope that our EBIT remained significantly positive also for 2025. We are not a capital-intensive company. So our normal dimension of the CapEx is starting from EUR 15 million to EUR 30 million. It depends on the fact that during the year, we need to renovate or build a new industrial plant. So considering that we are on average in terms of capital expenditure every single year. I think that our net working capital will remain more or less stable compared to what we have in 2024. So I'm not expecting to have a significant drop in terms of net financial position if we were able to confirm that what we have in mind for the budget, I expect to have a slight increase in terms of net financial position at the end.

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

Thank you very much. Thank you very much for your time.

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