Gr. Sarantis S.A. (SAR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Gail, your Chorus Call operator. Welcome, and thank you for joining the Sarantis Group conference call to present and discuss the Sarantis Group Full Year 2021 Financial Results. At this time, I would like to turn the conference over to Mr. Kostas Rozakeas, Deputy CEO and CFO; and Ms. Eleni Pappa, Investor Relations and Corporate Communications Director. Mr. Rozakeas, you may now proceed.

Ladies and gentlemen, good afternoon. Thank you for your participation in today's conference call. Now I pass the speech to Mrs. Pappa in order to comment the results of fiscal year 2021. Mrs. Pappa?

Thank you, Mr. Rozakeas, and welcome to Sarantis Full Year 2021 Financial Results Conference Call. During 2021, consumer demand remained firm behind our strategic categories of face, skin care, body and hand wash, food supplements, garbage bags and food packaging, while categories such as fragrances, deodorant and sun care that were weaker last year benefited from the reopening of the market and contributed to the total sales growth of the year. Comparative, however, [indiscernible] and demand got more normalized, particularly moving into the second half of this year. 2021 turned out to be a very challenging year on the profitability front as surging energy prices and supply chain disruptions resulted in high inflationary pressures, affecting our costs and transportation costs. Nevertheless, our net profitability was protected while we managed to generate significant free cash flows, executing at the same time our strategic agenda to find investments and initiatives to support further our organic and acquisitive growth. Group sales were up by 3.8%, reaching EUR 409.20 million in full year of 2021 from EUR 393.38 million last year. Continued demand behind personal hygiene, supported by fragrances, sun care and deodorant contributed to the 6% sales growth of the personal care category. Garbage bags and cleaning tools were the [ same ] growth drivers in the home care products category, represented 1.6% sales growth despite high comparatives and more normalized consumption demand. Luxury cosmetics posted a 2.6% solid growth, benefiting from the reopening of the channel, while the continued demand behind food supplements resulted in a 9.6% growth of the sales and cares pack category. In terms of geography, Greece presented sales of EUR 142.78 million in full year 2021 compared to EUR 136.05 million in full year of 2020, up by 4.95% with the mass market channel driving the growth despite [indiscernible] consumption in the group's category and the luxury cosmetics presenting positive growth. The foreign countries exhibited growth of 3.14%, reaching EUR 265.42 million in full year 2021 from EUR 257.33 million in full year 2020. Excluding currency impact on the currency-neutral prices, foreign countries represent the sales growth of 4.9%. The group's profitability in full year 2021 was largely influenced by increasing cost inflation, mainly driven by higher commodity prices and freight costs. Balanced operating expenses and controlled advertisement and promotion expenses that are focused on strategic categories and allocated behind strategic initiatives helped to partly offset the impact of the inflationary pressures. Therefore, EBITDA was down by 4.71% to EUR 59.69 million in full year 2021 from EUR 62.64 million in full year 2020, with an EBITDA margin of 14.62% from 15.92% last year. EBIT reached EUR 46.82 million during 2021 versus EUR 50 million last year, reduced by 6.36%, and EBIT margin stood at 11.47% from 12.71% last year. EBT settled at EUR 49.57 million in 2021 from EUR 47.39 million in 2020, increased by 4.59% with EBT margin reaching 12.14% from 12.05% in the previous year. Net profit reached EUR 40.29 million in 2021 from EUR 38.7 million in the previous year, up by 4.12%, while net profit margin settled at 9.87% from 9.84% last year. Moving further, despite the very challenging market environment with COVID-19 pandemic still ongoing, disruptions in the global supply chains and inflationary pressures, we managed to preserve a healthy financial position. Net debt stood at 0.1x EBITDA, reaching EUR 5.96 million from EUR 10.9 million last year. Working capital requirements over sales improved to 30.17% (sic) [ 30.15 ]% in 2021 from 34.25% last year on the back of improved inventory management and portfolio optimization. Free cash flow conversion exceeded 50%. Our solid financial position and cash flow generation allowed us to make investments behind our business and implement successfully our strategic growth agenda despite the challenging backdrop as well as return value to our shareholders. Within 2021, the group paid a dividend for fiscal year 2020 of approximately EUR 15 million. For fiscal year 2021, the Board of Directors will propose to the general shareholders meeting a dividend payment of EUR 0.143108 per share, which is equivalent to EUR 10 million. Within 2021, aiming to upgrade further our production line and increase efficiency, we completed the investments relating to the expansion of our production capacity and the purchase of more automated machinery equipment at our production facility at Oinofyta. Moreover, the investments behind the construction of Polipak's new production facility in Poland continued and are expected to be finalized by the end of the first half of 2022. Focus areas this year also include the product portfolio optimization, targeted advertisement promotion, investments and innovation plans as well as investments relating to infrastructure, systems, processes that are aimed to increase further the group's simplicity, efficiency and effectiveness. Finally, throughout 2021, we remained active behind our acquisitive growth agenda. After conducting a thorough due diligence process in 2021, we entered into an agreement on March 2 this year for the acquisition of STELLA PACK, a Polish consumer household product company. At the same time, the group's strong financial performance is giving us the drive to continue playing an active role towards supporting the local communities as well as investing defined environmentally and social practices in terms of production and product consumption. Along with context, we focus, amongst others, on initiatives such as reducing our plastic packaging, developing eco-friendly products that include high participation of recycled materials, implementing environmental ISOs on a group level, reducing on energy and greenhouse gas intensity, installing photovoltaic systems and in implementing of the [indiscernible] system safety ISOs at a group level. Going forward and amidst a very challenging backdrop of tight supply chains and inflationary pressures exacerbated by the war in Ukraine, our focus remains on preserving our robust financial position and protecting our profitability. We will continue to pursue our strategic agenda, emphasizing on the group's growth pillars, market development, economies of scale affinities aiming to continue creating long-term value for our shareholders. At this point, we are at your disposal for any questions you may have.

The first question is from the line of Svyriadi Natalia with Eurobank Equities.

I was wondering if you could provide a breakdown or a more general comment on the cost hike and raw material costs, you said on freight cost and energy prices do you have there. What is coming first, energy, raw material or freight costs? And have you taken any pricing? We assume you have taken pricing actually. But could you tell us how much or how much you think you could pass on to consumers in pricing so that you can keep your margins at 11.5%, where we saw it in 2021? Could we expect this to be the case also in 2022? That is my first question. And I have another question on actual CapEx in 2022 apart from the STELLA PACK acquisition, if we think this will go through in 2022.

Natalia, thank you for your question. Regarding the cost, what we have observed, we have observed since March, end of March last year, significant increases in raw materials and transportation costs. And overall, our main elements like plastic, aluminium are affected. The category that is more affected is the household product category. We observed approximately 15%, on average, increases in our cost of goods. This is a combination of -- if this is the landed cost, meaning that it is a combination of raw materials and the transportation cost that is included in the final prices of the product that we receive and the raw materials that we receive. So this is the situation that we have observed and we still observe. And we have done price increases. We have started implementing some price increases last year in 2021 in order to offset the rising cost from the majority. The majority of the sales growth that you have seen in 2021 is driven by value. And we expect to continue this year in 2022, with further pricing actions in order to preserve the margin, the gross margin in a similar level as 2021's level. Now in terms of CapEx of, you said, 2022, the majority of Polipak's investment is now done, as I mentioned, and therefore, only the transportation, a little part of transportation from the old facility -- the new facility is expected, is remaining for this year. Therefore, we only expect only approximately EUR 4 million to EUR 5 million relating to Polipak for further CapEx. We are expecting grants for this amount in the following 2 years, within 2022 and 2023. So we do not expect a significant amount of CapEx for 2022, mainly what I mentioned, EUR 4 million up to EUR 5 million per Polipak plus the maintenance CapEx for the group, which does not exceed EUR 3 million.

So if I understand, the STELLA PACK acquisition, you're not considering in this year's CapEx, probably will be by the end of the year, if I understand correctly?

Look, we have already submitted all the relevant files to the Antimonopoly Committees in the relevant jurisdictions. And we expect to have the approval by the end of the year. But anyway, we could not consider the acquisition of STELLA PACK as CapEx. It's irrelevant. There's an outflow of course.

Yes, yes. Okay, okay. Of course, yes, understood. Correct. Do you also have any view on Q1 running rates?

The performance in Q1?

Yes.

Yes. We are up 4% in sales and [ annualized ] 50% volume growth and the rest, value growth.

Okay. Is this including Ukraine, the closing in Ukraine or are we -- like-for-like? Yes.

Yes. It's everything, everything. Regarding Ukraine because I guess that there is a following question regarding Ukraine. And now that you mentioned Ukraine, allow me to comment on that. After the beginning of war by the end of February, we suspended all the operations in Ukraine. And given that our warehouse is close to Kyiv, we stopped the operations due to the presence of Russian troops in the region. After 1 month and after the withdraw of the Russian troops, we opened the warehouse and we started to continue the operations in Ukraine. And we sell -- as you know, the Ukrainian operations are divided 50-50 to local sales and to exports. So we started to operate. We started to -- we opened the factory. We opened the warehouses and we started selling our products. Due to the out-of-stock situation of months, we experienced a 25% increase of the sales in April month-on-month. So now we operate normally and we sell our products in the western part of the country. Because in the western part of the country, normally was around EUR 20 million, now it's EUR 50 million due to the internal migration. So Ukraine now is operating as an [indiscernible] of business, I would say.

No, that is very interesting.

Your next question is from the line of Giannoulis, Dimitris with ResearchGreece.

Can you tell us a bit more about the revaluation gains you booked in the second half with respect to this Romanian land plot? I mean what was the purpose of the acquisition? And if I understand currently, you have already sold it. So can you please just elaborate a bit on this transaction? Number two, I just wanted to clarify if you have already done price increases in the second half of 2021. I didn't catch that actually. And the third question, do you have an estimate for the net debt of 2022, including the STELLA PACK -- assuming that the STELLA PACK acquisition will go through and will you be paid within the year?

Look, regarding the increases, we started gradually to increase from the second semester of 2021, and we will continue right now to increase our sales mostly in the market. So we have not completed the adjustment of pricing of our products in the market. With regards to the debt, allowing not to reveal the net debt including STELLA because I will define indirectly what is the price for STELLA. And taking into account that we are in negotiations with others, in the standard lease in Europe with similar products, we are in discussions with others to acquire brand names. We do not want to define this acquisition price. But anyway, the net debt, excluding STELLA, will be, at the end of the year, will be 0 as we estimated.

Sorry, that's including STELLA?

No, without STELLA.

Without STELLA.

Without STELLA. Because I don't want to give more information regarding the acquisition price. It will be timely announced when we complete the transaction. Please remind me the first question.

The Romanian land plot, I mean you do...

The Romanian land plot. So the actual sale was in January 2022. This was a land acquired 25 years ago and we had a very good incredible capital gain by selling this land plot. So the auditors and, of course, the accounting department, knowing the actual price of the land, revaluated the land at the end of 2021 as it is mandatory by IFRS.

Okay. And one last question, please. The -- when it comes to ESTEE LAUDER, did you book your equity contribution, I mean, in terms of equity consolidation based on the 49% for the whole year 2021? Or was it split 49% for the first half and 40% for the second half?

No, no. The call option was not done timely by ESTEE LAUDER. So we continue to be shareholders of 49%. By that, as you understand, we consolidated the 49% of the results.

And this will be the case for this year as well, 49%?

No. Because we expect to serve the call option and then we will adjust accordingly.

So it will be 40% for this year?

Yes, of course.

The next question is from the line of de Figueiredo, Emmanuel with LBV Asset Management.

I just have 1 question. With respect to 2022, is it reasonable to assume that the EBITDA margin will be equal or lower than in 2021?

We struggled to have the same margin, provided that the Ukrainian business will be shield. This is our assumption, that the war will be ended and we'll continue the operations properly. So if this is the assumption, then we'll go for the same margin this year. If Mr. Putin decides differently, then I don't know, probably a little bit less.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Rozakeas for any closing comments. Thank you.

Ladies and gentlemen, thank you once again for your participation in today's conference call. Good afternoon.