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

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the first quarter 2025 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 morning. With me is Sandro Vitale, our Chief Strategy. So we can start the meeting. I will go through the presentation, then I will leave the space for your questions. So in the first slide, we have the group worldwide presence. So Biesse Group is present in more than 19 markets with 3 main sites for manufacturing. We closed the first quarter with 3,800 more or less employees all over the world. Our key market is the EMEA with a total weight of 64% on the total sales of the quarter. And the second market is the North and South America with the 22%. In the next 3 slides, we try to put together some of the key topics of the markets. Unfortunately, our market performed very bad in the last 3 months. Honestly speaking, since 2023, we saw a significant decrease in the order, and the instability of the last 3 months and the uncertainties due to the evolution of the geopolitical context produced some several drop in the market. Also, the tariff policies obviously did not help us in performing well, specifically in the U.S. market. So just to give you some numbers. In 2024, the wood market decline of 6%. The Chinese companies increased their market share and become more aggressive in the international markets. And in the first 2 months of the year, the export globally decreased by 24% and Italy losing 4% of its market shares compared to China that gained 8%. In the glass and stone market, decrease was 7% in 2024. And in the first 2 months of the year, the export dropped of roughly 22%. And for the first time in the life, China will become the first exporters in the glass and Italy lose its first position, the historical first position. So our market is not performing in a very -- performing in a very bad way. So our performance as Biesse Group were significantly dropped by this condition. You can see these 8 key highlights that we put in the presentation. The first is the sales. So our turnover for the first 3 months was EUR 153 million compared to last year with a significant drop of EUR 42 million. The EBITDA adjusted was EUR 4.4 million compared to last year, EUR 16.8 million, so declining of EUR 12.4 million. Net result was negative of EUR 2.8 million. And these are the first 3 key highlights, obviously, negative key highlights. The next 4 key highlights are positive in our analysis. The first point is the order intake. As you can see, we closed the first quarter with roughly 4% of increase in the order intake, EUR 6 million more compared to last year. This increase was due to the performance of the last 7 days of March because in the first 2.5 months, our order intake was lower than last year. So we adjusted our production, our structure, our organization due to a significant reduction in the order intake in the first 2.5 months, then we gained an increase in terms of order intake only in the last 10 days of March. If we look at this number in April, just to give you an update on the current trading, our order intake in the first 4 months are EUR 9 million behind last year. So it's not a significant drop, but we are less than last year of roughly EUR 9 million. Our backlog remained very strong. And compared to December, we closed the quarter with more than EUR 30 million compared to December. So due to the fact that the order more or less was stable compared to last year and the significant drop in sales, our backlog was higher compared to December. The head count is 3,800 people, 140 less compared to December and 440 people less compared to last year. This is the process that Biesse started 2 years ago, and we will need to continue to rightsize our structure to align our structure to the new strategy of the company. The other positive -- in a certain way, positive KPI is the inventory. The inventory, as you can see, is higher compared to December of EUR 10 million. This means that sooner or later, this inventory will transform in sales. But this is also a negative indicator. It means the fact that in the first 3 months of the year, many machines -- sold machines, so machines ordered by a client and paid by the client, the client decided to not receive the machine in his factory, paying the last installment of the payment. So for us, it's a down payment, but we cannot transform this payment in the sales. So we saw this trend. And in the first 3 months, this trend was -- is very -- a key point due to the fact that our inventory is higher than December and we cannot -- we are not able to transform our inventory in the sales due to the difficulties of the client to pay the last installment of the machines. The last indicator is the net financial position. The net financial position remained positive at the level of EUR 5 million compared to EUR 25 million in December. So a significant drop compared to December, but still positive by the end of March. If we look at this number in April, our net financial position in April is more or less EUR 10 million positive. In the next slide, we can see the chart of the P&L. I already described the key numbers. So we'll go to the next slide and is the bridge of the sales. Here, you can see the reason of the significant drop in sales. Machine lines, EUR 39 million, is the majority of our drop. This EUR 39 million, as you can see in the chart below, is EUR 18 million due to the wood sector, EUR 7 million more or less to the glass, EUR 10 million to the stone so -- and EUR 3 million to the materia. So all our materia in the first 3 months performed worse than the last year. In terms of area, the significant drop was for the EMEA, EUR 23 million; and Americas million, EUR 13 million. In terms of country, as you can see, the worst 3 countries was U.S. due to the tariff and uncertainty after the election of President Trump, Italy and then France. So these are the 3 major countries with the most significant drop in terms of sales. We put also the 3 best countries, but for us, Taiwan, Nordic area, so the European Nordic area and Korea are very, very small markets. In the next slide, I put the bridge for the Q1 result versus the last year, so it's easy to understand that the red brick is due to the significant reduction in sales and this is the volume and margin effect. We compensated this negative effect with a significant reduction in terms of OpEx and staff costs or labor cost. So EUR 2.4 million less in terms of OpEx and EUR 3.8 million less in terms of staff cost. Then we had other positive numbers that are financial due to the positive effect of the exchange rate and taxes due to the fact that the pretax result is lower than last year. So we try to compensate with the reduction in terms of G&A and labor cost. But obviously, the significant drop in sales in the first 3 months was too high to compensate, to netted by this action put together by the group. In terms of head count, I already described the situation. We closed the quarter with 3,830 people with a significant reduction compared both December and March to last year. This is a key project for the group because we need to adjust and rightsize our structure to the strategy of the group, also after considering the acquisition of last year, the GMM Group. In terms of balance sheet, I only want to underline the fact that our inventory is higher compared to December, as I already described. And our net financial position remained stable -- remained positive even if -- with a significant decline compared to December. The other line of the net working capital is more or less stable. As you can see, the trade receivables, trade payables and contract liabilities, so the down payments for the machine are more or less the same compared to December and more or less aligned to the net working capital this year compared to last year. Then the last slide is the fall -- is related to the 3 years plan. The group decided to withdraw the plan, but not the strategic guidelines in the plan, which remain confirmed, and the group will continue to pursue with these guidelines. We decided to withdraw the economic and financial targets that we put in the plan due to the fact that the scenario in which Biesse is working and is playing now is very -- it's a very difficult scenario, so it's not easy for us to forecast. And so we need to withdraw the plan, but not -- once again, not the strategic decision and guideline in the plan, only the economic targets. I close my -- this is the end, so if you want to put some questions, please go ahead.

[Operator Instructions] The first question is from [ Arturo Lopez Vayani ] from Clear Value Advisors.

Yes. Perhaps you can help us to better understand the quality of the backlog, that would be my first question. And the second question, which I have is you launched a restructuring plan. Can you update us on that? And what are we at this stage on the plan? That would be the second question. Third one is basically you withdrew your 3-year plan. Perhaps you might want to share, sort of with lower visibility, what do you expect at this point for the year in terms of, I would say, client demand. From a qualitative point of view, what are you currently seeing? That would be great.

Okay. So Sandro Vitale speaking. Thanks for the question. So I start to note of your questions, I go one by one. On the quality of the backlog, I think I echo what Mr. Sautto just mentioned. So basically the fact that despite the backlog itself is at a record high, I would say, because it's almost close to EUR 300 million, which is a significant number, on the other side, we faced trouble in the invoicing phase, which is more an invoicing trouble more than a cash trouble in the sense that this reflects the difficulties of a portion, a significant portion of the customer base to access to credit basically and to financial. In certain markets, mentioning, for example, Italy, which -- where we have a significant exposure, this is related to public financing. So for the Italian-speaking people connected, there's e-mail related where we have, let's say, a significant backlog, not even registered as -- is not even accessible to financing for the customers. So let's say that the customers are there, but the capability to access the credit is, no doubt, deteriorated compared to the previous 3 years. This reflects the trend that in reality is not new, we have seen this. But in the first quarter was definitely deteriorated. Remembering that our customer base is largely composed by small, medium customers. It's completely different the situation on the large customers, where basically whoever is investing in a line, and Biesse is also active in the business of the integrated lines, is more keen to invest and follow the investment plan already in the pipeline, which -- where we didn't see a deterioration. Clearly, on the other side, the U.S. situation is completely different in the sense that in the first 3 months, we had noticed really a sentiment, a negative sentiment in the market from the customers in terms of more a waiting mood, I would define, which affected the entire market and still without a clear situation. And the impact on the tariffs, as a matter of fact, we don't really know what's going to happen. But no doubt that the U.S. is one of the critical points. I go on the second question, so you asked about the restructuring plan. I will not define the restructuring plan, but I would reiterate what is being stated in the public notice and what Mr. Sautto just mentioned that the company decided to withdraw the financial targets given the current situation and the environment. But we continue and we accelerate on the strategic guidelines of the plan, so on the targets related to the strategic plan, which are publicly available. And in reality, we will accelerate on that. That means especially on the rightsizing of the company, related to improving the process and streamlining the process and the organization and as well on the footprint areas. On the industrial footprint, we will continue with the activities of optimization, rationalization, and let's say, multi-materia footprint in a way that we will sell in line and optimize the production sites around the world. So this, let's say, that our plan is by the mid of '26 to complete the number of projects that were highlighted in the strategic plan '24-'26. The last question....

On this point, if I may. The restructuring costs, or how to say, the streamlining cost that you mentioned, can you confirm the size of it for this year?

We -- in 2024, we had in the financial statement more or less EUR 11 million of restructuring provisions. So we consider enough to cover all the actions that we need to put in place for 2025.

So we should not expect any further restructuring provisions for 2025?

Not higher than what we stated on 2024.

Okay. And then the last point was on the 3-year plan expectation, which I leave that to you.

Yes, look. So we decided to withdraw based on the fact that also other significant -- bigger company compared to us decided to withdraw their guidance for 2024 because the uncertainty of the market create a very difficult situation for the forecast. Obviously, we are strongly convinced that the negative performance of the first quarter will not be the same in the next 3 quarters. Difficult, but we cannot, for sure, reach our target in terms of sales. So we decided to withdraw the guidance because of the uncertainty. But we remain strongly convinced on our strategic guidance and we're strongly convinced that we need to accelerate all the processes in the faith that they are the only possible solution to change Biesse and to bring Biesse in the strategic position that we have in mind.

Okay. If I may, as a follow-up, you clearly made a strong decision in the Q1 Board. You are actually basically putting all the companies into one company. That means, basically, you're streamlining also the top management. That means you're going to streamline what is basically the, I would say, directors. Are you going to address, commercially speaking, all the markets are the same? It would be very helpful if you help us better understand what do you have in mind, if I may? And obviously, strong moves basically and a strong change from the past. Perhaps you might want to also add something with regards to competition, it would be great.

At this stage, there is no decision taken on anything related to the first line. Of course, the aim is to make the company leaner and faster in the decision process. But at this moment, there is nothing that has been decided. On the other side, in relation to the market, clearly, we look at creating cluster of markets that will improve efficiencies and will provide more sustainable economical structure on one side in terms of geographical coverage across the world and a proper size of business. On the other side, optimize the utilization of the resources across countries. So in this sense -- so I'm not talking, of course, about the legal entities. I'm talking about the way we manage the market commercially. This may evolve more in the direction of clusterized certain geographical areas. Regarding competition, there is not much we can comment in the sense that except much bigger competitor than us that is public available data. I would say that, especially in the stone market, we have seen a very difficult situation or at least we know of a very difficult situation for most of the competitors with -- considering that, especially the stone is a very fragmented market in terms of customer base. So very few big customers and a huge customer base of the small customers. So the small customers are very exposed to the difficulties to access the credit. On the wood, of course, the result of HOMAG, which is the #1 in the market, undisputed, they went -- but I cannot comment about competitor results, of course. What I can say is that we have different geographical mix, which we believe makes it difficult to compare the data on one side, and on the other side, there is no doubt that there is scale that is completely different. And if you proportion a little bit the scale, you will not get to a very different result, which, at the end that, in general, this industry require a significant evolution, which I don't believe is just about Biesse, but it is in general for this industry, which is still too fragmented and requires an evolution of the business model, which is what we want to pursue with our strategic plan.

And lastly, if I may, still in competition, would you fairly say that pricing pressure from Chinese competitors is basically over? Or you still foresee high pressure, given what's happening in terms of geopolitical? And if you find the Chinese actually being more aggressive in terms of pricing at this point?

Yes. As I already mentioned, we noted in the -- as you know, there is no official numbers of our market. So we try to analyze the market based on the information that we can grab from the market and from some newspapers and analysis, internal analysis. But we saw in the first 3 months a significant increase of the competitions of the Chinese companies, especially 2 companies, Nanjing and KDT. We saw an increase in terms of they become more aggressive in terms of price. And as already mentioned, for the first time in the glass market, they become the first exporter and this is due to the fact that their costs and their price are lower than others.

Okay. I'm sorry, I'm just going to make a last question, apologies for taking the others' time. As far as U.S. is concerned, how much of your sales are currently in the U.S.? And do you expect any tariffs impact, if I may? And how was the order intake in the U.S. in April?

So U.S. is our second market. So our first market is Italy, obviously. U.S. more or less is 10%, 15% of our total turnover. Yes, obviously, we already have some significant impact on the tariff because we jumped from 5% to 10% in the last month. And as promised by Mr. Trump, starting from the 9th of July, the tariff will become 20%. So with 10% of increase. So obviously, we expect a significant impact if the tariff will be confirmed, not in 2025 because starting from the 9th of July means that for the first 6 months of the year, we will have -- we had only 5% of increase compared to last year. But for 2026, obviously, we will have the full year of impact. So we just try to analyze the different scenarios in terms of tariffs at the 10% level, both, and 20% level. We understand that we try to re-charge to the clients, obviously, part of that increase. We are strongly convinced that we cannot re-charge 100%. And so we see some decline in our order and in our sales due to obviously higher in the scenario of 20%. But in any case, also in the scenario of 10%, so the current scenarios, we will see some decrease in terms of orders and obviously in terms of sales. All the competitors are more or less in the same situation because if you exclude the local company based in America, so the American company that obviously are outside the competition for the tariff, but HOMAG has a plant in U.S., but HOMAG buys significant part of the machine in Italy and Europe. So they will have also tariff for that machine. So I think that all the competitors are more or less in the same situation. What is struggling in the market is the consumer confidence that, as you know, the U.S. market buy on the consumer confidence. So if the consumer confidence remain negative, regardless the weight of the tariff, the impact on the sales will be higher.

The next question is from Alberto Francese from Intesa Sanpaolo.

Alberto Francese speaking, Intesa Sanpaolo. Can you hear me?

Yes.

Well, Arturo made many questions I had in mind, so I would be briefer. I'm going to maybe a little bit more on numbers. In the first quarter, the other expenses and labor costs declined significantly versus the first quarter '24. Do you think that this level of operating -- other operating expenses and labor costs are sustainable? So it is a good basis for projecting our estimates for the full year '25? And related to this, you are mentioning EUR 11 million provision on rightsizing 2024, which you are spending in '25. There is -- I remember in the last call that you mentioned there is still room for rightsizing in the process, especially in the GMM integration. So what can we expect by the end of '25 or '26 in terms of head count reduction of this 424 is something that which further increase, just to have an idea where we are going to land in terms of rightsizing of your head count, so in general fixed costs.

Yes. No, we have fortunately a lot of space in reducing both staff costs and G&A. As you know, we started this process last year and we started to analyze every single line of the cost in each legal entities due to the fact that we need to create more efficiencies. And obviously, our labor cost weighted in the first Q at more or less 40% in terms of sales. So as you can imagine, the weight of the labor is the key priority for us. We have a lot of space to rightsize and you will see in the first quarter an additional reduction in terms of head count and also an additional reduction in terms of labor cost because in April and in May we made some additional Cassa Integrazione and we closed for some days the plants and also the offices. So we can reduce also in the next quarter the weight of the labor cost. And we can keep continuing to have a very strong attention and focus on the G&A. So compared to last year, also in Q2 and Q3, for sure, you will see a significant decline in terms of cost. I mentioned only Q2 and Q3 because, as you know, in the Italian market, June/September will be the final month for Cassa Integrazione. So we need to obtain all the efficiency that we can in the next month and try to balance the reduction in terms of order and in terms of sales.

Okay. The net debt increase from the full year '24, but working capital absorbed around EUR 7 million. So you mentioned some restructuring costs post the cash taxes. If you can give us a little bit more color on the reason of the increase in net debt other than the working capital increase that you already commented.

Yes, yes. So normally, in the first quarter, there are -- compared to December, obviously, there are an increase for the payment of the suppliers. So due to the fact that normally November and December are 2 months with higher sales, we bought raw materials and so we are going to pay in January and February a higher level of suppliers. So if you compare the payment of the suppliers in November and December, you will see a significant spike in January, in February and in March. So this is the first reason for the drop. Then you will not see this drop in the total amount of the payables because, in March, as I mentioned, we had an increase in terms of orders. So we bought a lot of raw material in March. So you had an increase in terms of invoices from the suppliers in the last -- in March. But the payment that you did in January and February reduced the net financial position. The second reason was the taxes especially on our subsidiaries, apart Italy, there was a significant payment. This normally, obviously, is the pay of the company taxes and VAT. So in January and February, we had a significant payment for taxes, especially for European and American companies. In terms of CapEx, there's no significant investment in the first quarter. So the main 2 reasons are the suppliers and the taxes.

Okay. And another point, in the revenue bridge showed in the presentation, you mentioned also the Mechatronic. How much are the Mechatronic revenues because I've seen only the trend, which has not been that negative. Let's say, what is the revenue in Mechatronics compared to the first quarter revenues?

Less than 10% of the total turnover.

[Operator Instructions] Gentlemen, there are no more questions registered at this time. Do you have any closing remarks? Sorry. There is a follow-up from Alberto Francese from Intesa Sanpaolo.

Sorry. On the order intake, you mentioned in April, which I think it's January-April, 4 months, is EUR 9 million lower. I noted it correctly?

Yes, correct. Correct. It's an up-to-date number.

And so the rush that we have seen in the last 10 days of March, actually, it didn't continue in April.

Correct. Correct.

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

Thank you very much for your time. Have a nice day.

Thank you.

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