NewPrinces S.p.A. (NWL) Earnings Call Transcript & Summary

I think we can start now and then -- so good afternoon, everyone, and thank you for joining today's call on the full year results 2020 for Newlat Food S.p.A. Joining me today are Angelo Mastrolia, our Chairman; Giuseppe Mastrolia, Chief Commercial Officer and Deputy CEO; Fabio Fazzari, Group Financial Director; and Rocco Sergi, CFO. Before starting, I would like to remind you that this presentation may contain certain forward-looking statements that are neither historical results or financial and operational performance of the company and its subsidiaries. The forward-looking statements are based on Newlat Food's current expectations and projections about the future events. So we'll start off with a -- to an overview of 2020. So 2020 has been an eventful year for Newlat Food, and we've had not only us, but all the different unexpected situations to cope with. So we're really proud to have taken advantage of this year in which we have -- we grew and in which we were able to actually close a very important acquisition, which was the CLI acquisition. In 2020, in fact, we acquired a controlling stake in Centrale del Latte d'Italia. And this acquisition allowed us to reach over EUR 500 million in revenues. And we also became the third largest operator in the milk and dairy sector in Italy. And we also acquired a significant market share in different really important regions in Italy. Another important milestone of this year and this last year was that we were able to integrate the CLI Group very efficiently. We had a reduction in admin cost, and we still -- we're able to improve the procurement conditions of the milk and dairy materials and to cross-sell our products into different regions. And so we -- as you will see, we had an extremely good result and an extremely well performing year in both Newlat Food and CLI. We also signed, as you may know, a few baby foods contracts, 1 in particular, which is an extremely important in terms of size. And these contracts altogether will help saturate the capacity in the Ozzano Taro factory. We also launched and designed, and we are planning to launch over 10 new products -- we launched around almost 20 new products, and which you will see a little bit more on later on. In fact, we will show you. In Q4 we also signed an agreement with the Tuscan milk farmers to fix the price of new EUR 0.360 -- EUR 36 per liter. And this is an exceptional agreement that we have reached, which was never agreed on before, no one ever did before us. And we think that this is replicable with other farmers. So this, in other regions, so this will give us a more stable and more predictable price base for the milk raw material. We will still have a very good year in terms of revenues in Germany, especially in the pasta segment, in which we sold more than almost 10,000 more extra tons versus 2019 in pasta in Germany. And we were also very successful in launching the Delverde brand, which was which is now sold in more than 7 retailers all over Germany. We also wanted to highlight that, although it doesn't show sometimes, we are really passionate about decreasing CO2 emissions. And this year, we also received a certificate from DBC, which is our -- one of our transport companies that we work with, and we increased our train transportation. Instead of using lorries, we use trains, and this helped us avoid around 502 tons of CO2 by transporting from Italy to Germany, especially from the [indiscernible] to Germany. Now we go on to the financial highlights. So in terms of revenues, the pro forma revenues, which we are looking at in this particular -- in this presentation, were particularly good. So we had EUR 516.9 million in revenue and an increase of 3.2% versus the 2019 results. We had a very good growth in pasta, bakery, and special products. And as I already mentioned, we had a really good growth in Germany, in which we grew at 10.6%. EBITDA was also extremely performing, and we increased our adjusted EBITDA by 44.1% versus 2019. And EBITDA margin was 10%. So adjusted EBITDA margin was 10%. So we reached our infamous goal of double-digit margin. We had very good margins in bakery in particular and dairy and special products. We also confirmed our ability to generate free cash flow by generating EUR 44.1 million of free cash flow, excluding M&A. And we have an EBITDA FCF conversion of 88.8%. Net income was -- reported net income was EUR 38.4 million. This, of course, as in respect of the negative goodwill arising from business combinations. So we had an adjusted net income of around EUR 14.5 million in awards in terms of pro forma revenues. And net financial acquisition was heavily improved. We went from negative EUR 38.1 million in the full year 2019 on a pro forma basis again to EUR 5.2 million in 2020. And if we disregard the IFRS 16 lease liabilities, our position will also show -- was even better, and it was EUR 24.2 million, so positive cash for us. Now I will leave to Giuseppe Mastrolia, who will introduce you to the commercial initiatives that we had in 2020, and we will launch in 2021 as well.

First of all, these are several commercial initiatives of 2021, that we are running. So first thing is that we are working on several projects in all the segments. We never stopped currently with R&D, with the development of new products and business, development with the organic growth of our portfolio of products in our baseline of customers because, as you know, new art of emission is always to diversify the customer base, finding new opportunities and new customers all over the world. So going into the single commercial initiatives, one, that there is really good and appreciated on the Italian market that will help us to consolidate and to try to achieve the first position as rusk producer. So it is Bifetta launch, what we're called is Bifetta launch. It is pretty fortunate pack that it was launched in the second half of 2021 -- sorry, in April '21. All the major retailers in Italy, Esselunga, Coop, Conad, Selex represent roughly more than 40% of the market share in Italy, listed the new product, the Bifetta. Our goal in terms of distribution is to gain as much as possible, more than the 80% of distribution within 1 year and to grab some new positioning on the shelf, a new market share from our competitors in the next year. As you know, all the Bifetta -- so all the rusk business and bakery business are business with high marginality. So that's why we are trying to focus our efforts here in Italy on this segment. As the secondary initiative I can tell to the listener that we launched to increase the price positioning and to improve our awareness internal brand because this year, Polenghi brand represent 150 years of history in Italy, and it is the most ancient brand business in Italy. And we launched for this birthday, the 100% milk from Lombardy region. What does it mean that we collect and packed the milk from Lombardy region direct to the supermarkets within 24 hours with addressability of all the raw material from the farmers to the finished product? And then you can go on to Page 8. What is the -- what I can tell about the -- I'm really proud and I'm really waiting for it because it would be a really important news for all the retailer and all the market is the first new final product under milk company name that is Mukki. We already have in our hands the brand Mukki Bimbo and so we will -- we are developing, and we will launch in September 2021. The first 100% organic recipe from Tuscany milk for babies in 2 versions. Here, you can see the liquid 1, but we will focus our strength even on the powdered milk for babies. And this is the only product that is 100% from Italian milk and especially organic coming only from region of Tuscany. Just to shows to the buyers, the idea is really well appreciated by the main retailers. And so we think, and we hope that we can generate a good -- it would create a strong awareness on the brand Mukki that will be distributed all over Italy and will improve our positioning and our marginality more and more in that segment with our own product. Then you see, as you know, we are pushing as much as possible with Delverde in Germany. We successfully launched them in more than 7 biggest retailers. Here you're see some examples of what we are doing in the point of sales. So we are trying to achieve new consumers through marketing activity directly in the shops with some sampling, with some creativity idea that can help the consumer to buy more than the traditional purchasing of pasta. So you can see the initiatives, and we are listed in some customers Rewe, Globus , Citti, Bartels-Langness and so and so. So on the other hand, of course, we are trying to get into main top retailer in terms of positioning because, as you know, is our most premium product in the portfolio that we have. Then beneath you can go on. Still on milk, we have 2 products that was launched in the second half of 2021. One is the 100% full-packed Mugello, that is a pack done 100% plastic free. It's all in carbon neutral and paper packaging. And the selection of milk that comes from a specific area of Tuscany. The same we have done in -- with Latte del Parco from Salerno area, in which we choose just some farmers that respect our technical requirements to fulfill the request of the more fresh and healthier on the table of our consumers in Salerno and in Florence and of course, as a philosophy for the brand, in general. As I already mentioned before, we have the anniversary of Polenghi this year. So it was born in 1870 and 2020 was the 150-annual anniversary of Polenghi. So we are launching the new restaurant that represents for us the new -- what we call the new spring of Polenghi because the flower comes in the Spring. And for this Spring, we will launch the new idea of packaging, use the fresh and those in the Polenghi line. Then Benedetta you can go on. Is coming next month, the first Mukki Special Donna that is a milk for woman. It is absolutely not commercialized in all the European countries. We never -- in our R&D department need a really important and committed job about Mukki Special Donna because you cannot find any alternative in the market that is, what is it? It's a lactose free and low-fat milks with vitamins, magnesium, iron, and folic acid, if you can read, and is a fresh product. So fresh product to drink and bring -- to welcome to gym for the -- and we can give to the consumer all the vitamins and the nutritional facts that they need for the day-by-day routine during this stressing period. Another important launch that will be on June is the UHT product, done under the brand Mukki, that is you understand is the brand that is going on the special milks. We choose as the representative of our special mix and this is sport milk really interesting. We call it training. And on 100 ml of product 25 grams of protein. So it's a source of BCAA and essential amino acids. It's lactose free and it has really low calories. The product is already tested, it will be UHT and we will compare with the other big players, but we assure you that our trustability of 100% Italian milk. It's only the opportunity that we can give to the consumer, okay? Then we can go to some new launch. We are launching under the brand Mukki and with even the other brands. The first 100% natural yogurt in recyclable paper. It's all recyclable. So from the cup to the top, and it's a unique product. And some retailers already asked that if we want to produce for them this kind of packaging. This is still thanks to our R&D department that developed this new production. Of course, going and we'll have 100% Tuscan milk. Lactose-free Mascarpone. We are launching, we want to gain a strong market share from IRI rather this lactose-free product is growing plus 48%, but its niche. But Optimus as the second player in Italy for the Mascarpone is necessary that we can fight on this segment as well. And so we will launch it in May 2021. Then we decided as a group to optimize the cost and the distribution to use 1 unique brand for the vegetable drinks, that is called the CuoreVeg, and is a vegetarian's heart. And so we have 4 different drinks that will be distributed all over Italy through our distribution center. It's -- it is soy, rice, oat, and almond milk. And so we think that with this -- the new brand could achieve good market share on the market. Then Benedetta you can go on. As you see from the last Buitoni-Delverde contract amendment with Nestle to gain more market shares for Delverde as soon as possible. We put an agreement with Nestle, the brand in the top of Buitoni. And so we add on the market in the 2 positions. So the positioning of Buitoni that is medium mild in positioning with this product, and then we will have the classic Delverde made in Fara San Martino, that is our super premium pastas that add another positioning. Of course, we underline our region that is the Tuscany region. Toscana nowadays is a brand more than where the Buitoni and that's why we want to underline that Toscana is something that is really important on our packaging. And these products will be on the shelves in April, May 2021. Okay. So you can see that we made some changes. So I think it's more esthetically pleasing packaging compared with the original one, is a new dark green that is more elegant from consumer research that we made through our marketing department. And then we will try to call on our philosophy that is called the Puro Gusto philosophy. It means pure taste from water, from wheats, from what we produce. That is really interesting. Then we have new fonts and cooking time easily to find. Okay, then we can go on Benedetta, then we have industrial overview.

Yes. Good afternoon, everybody. We also would like to give you an update and overview about the industrial structure and the potential that we have since we received a lot of questions on how you can face an increasing demand, how you can face an increase in raw material price, et cetera. We would like to show you, first of all, what is the current situation for the different production we have in terms of total capacities, utilization. And as you can see, we will have around 40% of spare capacity around the different production. With the acquisition of CLI, we improved our situation in milk and dairy in the sense that the work capacity has been reduced. But as you can see, we still have around 37%. And this is a situation that create for us interesting opportunities in the sense that as we can see in the next slide. If we want to use a famous Beatles song, we can say that all we need is volume. In the sense that we have a current structure of fixed and variable cost that allow us to improve our profitability very soon. This chart represents the potential increase that we compared in terms of profitability, assuming 2% of volume growth for the year, obviously, on the basis of all the other valuable things. In this case, you can see that only with a volume increase, we could have progressively passing from the 60% of spare capacity to the 72%, an adjustment of the portion of variable and fixed costs and a progressive improvement of profitability. This also to answer the question that we received what could be your profitability, not normalized profitability? If we close our spare capacity only for this reason, we could reach more than 11% of EBIT margin. And this, I think that is an interesting picture also because if you can assume that we need to face a year with a lot of volatility for raw material. This is not the case, but just for an example, we have a lot of room to manage this unexpected volatility, only managing volume inside ours . The next slide is substantially gives you the same message but is focused on Ozzano Taro plant. You saw in the previous slide; we show you that Ozzano Taro is 60% of spare capacity is the plant that could give us an additional efficiency increasing volumes. And we have new plant with the new contract that we signed last summer; we have the potential to progressively close this gap. And you can see that only assuming a reduction of spare capacity, we have a material improvement of the profitability. In the specific case of Ozzano Taro, I had to say that thinking about the new contract, we have 2 opportunities. One is what this chart shows the improvement in terms of capacity utilization. But the other important point is that we will receive also an additional improvement linked to the mix because the new products, including in the contract we signed in the summer are special products with a higher profitability versus all the other products that we have in our portfolio today.

Thank you very much, Fabio. Now we'll go on to the sales breakdown and analysis. So as we firstly mentioned, 2020 was a positive year, in which we saw an increase of 3.2% in sales. And this year was a different trend. So the first quarter, as you know, the first quarter and the first month of Q2 were impacted by the COVID-19 first breakout for the first stock filing and the first panic buying, which increased our share exponentially. But then throughout Q3 and Q4 we saw a normalization of sales. So we did not see any different behavior from what was usually expected from consumer. And then in terms of the cost of goods sold, we had a very good year. So we actually decreased again our cost of goods sold, which was around 78.4% of our sales. And this was mainly attributable to our good management of raw materials and also of the finish products. We -- as I said earlier, we also signed an agreement with milk farmers, which will be replicable with other milk farmers around Italy. And this gives us visibility and also stability in our cost base for the next year. So we also expect to -- that at the cost of goods sold incidents will be stable or even better next year in 2021. Then we -- I move on to -- that should be okay. Yes. Now here we have a breakdown by dividing Newlat Food from Centrale del Latte d'Italia in which you can see the organic growth quarter-by-quarter and comparing periods. So as you can see from the 2 quadrants, we have a very good performance in all the quarters, both in Newlat and in Centrale del Latte d'Italia. Although we did have some shifts, which were caused by, of course, the difficult here in which we saw different trends and different buying behavior. But overall, both Newlat and CLI had a very good year in which we recorded a 3.2% and 3.1% increase -- organic increase in sales. If we move on to the EBITDA growth throughout the quarter. So we see that both companies again had a very good increase in EBITDA, which was all organic. So in terms of Newlat Food we had quiet, I would say, different spike. So in the first quarter we had a spike of 29% increase. Q2 was quite slightly negative but kind of stable. Then we move on to Q3, which we saw very high increase and a spike in -- of 65% and a slowdown in Q4. But overall, this allowed us to reach an overall increase in EBITDA year-on-year of 17%. Of course, with CLI, we had a different starting point, so we had more challenging point to start with. And we had an -- actually an increase of 189% in EBITDA compared to last year. Now we move on to the breakdown by business unit. So the revenues relating to pasta grew by 7.5%. And this was, as we mentioned, thanks to the performance of the -- in the German market. Milk products saw slight increase, where they were quite stable because it was impacted by different trends. One was the increase in sales in the large retailer’s channel. But also there was a negative impact of the HoReCa sector, which was heavily impacted by the lockdown -- lockdowns in Italy. There was also a slight value dilution from the less premium brands because of the decrease in raw material prices, which were reflected into the price. So overall, we had a good performance, but of course, we don't see a huge increase in this segment for these reasons. Bakery products also saw an increase of 9.6%. The higher sales are actually attributable to a very good performance on the market of Crostino bread and Crostino Integrale, which our substitute brands. They are actively performing really well in the market. They have consolidated the position as the second brand and the second product on the bread substitute market in Italy. Dairy products saw an increasing 1.3% in the period. This was mainly linked to mascarpone as always. And then we had also an increase in special products of 11.3% as a result of higher sales volumes and also new clients that are slowly coming into, especially in the Ozzano Taro and the baby foods segment. Other products decreased by 13.6%. This was linked to the products that we usually commercialize and sell through food service and normal trays like salads and products that we don't produce ourselves. Overall, the -- I would say, the weight of the different categories didn't shift particularly. We had an increase in pasta and -- but there was not a big shift in 1 direction or the other. So it was pretty stable. In terms of distribution channel, we also had, as expected, by the difficult here. We had a very good performance in the large-scale retail distribution channel, which increased by 7.3%. This is also -- this is, of course, due to the different consumer behavior of 2020. And we also saw an increase in the weight of this particular channel in our revenues. So we were more exposed to large retailers than we used to last year. In terms of B2B partners, we had an increase in sales even here by 3.4%. This is linked to different B2B partners that we have. And we also wanted to highlight that we also reached -- we finally reached an agreement with Kraft Heinz. So for the next year in terms of -- instead of normal trade channel, we saw a slight increase. But again, this is a channel that was impacted by the periods. So not a huge increase in this channel. Private label also increased, thanks to higher sales volumes in private label. And food service, of course, decreased by 43.3% as a result of lockdowns. But of course, this did not have a huge impact on our sales because we were not heavily relying on the food service channel. So we did not see any impact on our results. In terms of breakdown by geography, we -- as we mentioned, we had a very good year in terms of geographies. In terms of Germany, in particular, we increased by 10.6%. As I said, we launched Delverde in more than 7 retailers as you all saw earlier, and we had a very good year in terms of pasta sold in Germany. Italy also was pretty good, and we increased by 1.3%, especially in the longer shelf-life products. And other countries also saw an overall increase of 2.8%, thanks to an overall increase in demand. Now we move on to EBITDA breakdown by business unit. Now as we said, adjusted EBITDA is 51.4% of EUR 4 million in 2020 and was an increase of 44.1% versus 2019. EBITDA margins reach 10%. And we then reached an overall -- our goal, which we also announced during the IPO period that we want to reach a double-digit EBITDA margin. So we reached that. And as we mentioned earlier, the best performing segment in terms of EBITDA margin were bakery, dairy, and special products. Especially bakery here, you can see a 17.3%. So is extremely high compared to our usual average EBITDA and the EBITDA margin. So we're really happy to have been -- to have achieved this. This was thanks to our increase in volumes in these value-added products as Crostino, as we said earlier, which grew a lot this year. And we also, of course -- this was because of the sales increase, but also because of supply chain optimizations, which help us increased this particular figure. Then we also increased extremely in the milk EBITDA margin. So we went from 5% to 9.6%, which was a very good performance. We basically doubled our EBITDA margin here. And we had overall, a very good performance in all of our own product’s categories. So aside from other products, which are the ones that we commercialize, we have a very good performance, and everything was above 8% in EBITDA margin. Now we have an overview of our net working capital and cash conversion cycle. So we had a very good improvement, as you can see on the right-hand side of our net working capital. So we increase our payables in a way that allowed us because of our relationships with our clients and with our suppliers. We were we were able to also maintain a good and even improve our DSO, DPO and DIO. And we also had a stable inventory. So they remain stable despite the increase in revenue. So we were really good at managing inventories, and net working capital then basically doubled and was negative by EUR 49.5 million. Now we move on to CapEx. So CapEx was EUR 17.5 million in 2020 as opposed to EUR 20.7 million. This again is on our pro forma basis with CLI. And there was a spike, there was an increase in Q4 in CapEx, which is mainly attributable to the increase in -- to the CapEx that was originally planned by CLI, which was postponed because of the COVID-19 pandemic. So we had to postpone some works, especially the automatic warehouse in Turin, which we are building at the moment and which will also have an impact in the first half of 2021 results -- figures. We are also having a few technical investments in the baby food plants because of the new baby food contracts. And we also have some other investments, which are linked to the plant-based drinks that we are launching, and we have a few more initiatives in our head that we want to achieve next year. In terms of free cash flow, so here we have, again, the separate free cash flows of Newlat, CLI and the Newlat we consolidated with the CLI. So we had a very strong cash conversion in 2020. And it is shown here in the blue line. So you can see that we had both Newlat and CLI, a very good EBITDA, free cash flow conversion post tax. And we had 91.5% in terms of Newlat Food stand-alone and 84.2% in terms of CLI EBITDA free cash flow conversion. So both the company been able to have proven to convert EBITDA into free cash flow. So this, again, strengthens our point, which we've been talking about in the last few earnings calls, in which we said that CLI on a stand-alone basis, can start and can implement the leveraging process. As you can see -- as you have seen, actually, it's well undergone and we are seeing that the next year's -- CLI will be able to keep deleveraging without any problem, without any, I would say, Newlat's help. And so the overall free cash flow, as we said, is EUR 44.1 million and the EBITDA free cash flow conversion rate was 88.8% at group level. So very good results. And now we have just a few business outlooks points. So we expect that 2021 will see a constant, slow, like low single-digit revenue growth. We expect to improve profitability versus 2020. Q1 2020, of course, is not expected to show an increase as opposed to Q1 2020 because of the extraordinary period that was last year, and we will not be benefiting from stockpiling, which happened last year. So we are confident that 2020 overall will be a good year. But of course, we cannot compare to our extraordinary period, which was Q1 2020. And we just want to highlight and remark that we will be focusing on M&A opportunities again. And now we have liquidity of over EUR 300 million, also thanks to the bond issuing that we did last month. So with this in mind, we think that in the next year, we will be able to even look at look at opportunities in the market that we weren't looking at before. And we can really find interesting targets and really interesting opportunities to invest in. So that is our key and final message to share with you, and now we can start the Q&A. So if you want to ask a question, just go ahead. Thank you.

It's Victoria from SocGen. Okay. Several questions from me, please. The first one, I just wondered what the driver behind the fall-in gross margin in the fourth quarter was versus the 9 months stage? And then my next question is on the milk capacity and contracts that you signed. I just wanted to confirm if there were 1-year contracts and also how much of your total milk capacity are from the Tuscany region. And then my next question is when the sales begin to the new multinational IMS, and the milk formula contract, do we see sales in the fourth quarter? Or will we see them come through in the first quarter of '21, please?

Okay. Thank you, Victoria. About the profitability versus the 9 months. I have to say that substantially, we got an increase recovery in terms of organic growth in CLI that achieved a negative performance on organic terms in Q3, and this gave a positive contribution. On the Newlat side, obviously, we came from an extraordinary Q3, in which we achieved very strong performance on the organic terms. As we show in terms of operating leverage potential that we have that with an uneven increasing volume, we can generate that important material improvement in profitability, and this has happened in Q3. And obviously, in Q4, the performance -- the organic performance was more close to a normalized level for our company and for our business, and this creates this difference in terms of profitability quarter-on-quarter. But what I can tell you is that 2020 in general, in terms of organic growth and in terms of profitability show volatility between 1 quarter and another. And this was driven by external factors. Going forward in 2021 will be a year with a more stable development in terms of profitability and revenues, more than the 2020 -- what we saw in 2020. About the contract with the supplier. We signed and communicated about the agreement that we reached with the supplier in Tuscany. But I can tell you that we are finalizing also the agreement with the other supplier. And just to give you more feeling and more color about how the situation is, I can tell you that now we are not making pressure on our supplier, but we are receiving pressure to close because after the deal that we announced all the suppliers are committed to close a deal with us. And also considering the recent development of the milk price probably this is the good way for all the players, for us and for the supplier. So we are substantially relaxed on this front in the sense that we will close the agreement also with the other, and we will give to the division meat and dairy a lot of visibility for the next 3 years. About the contract with -- the contract, the new contract that we got in baby food in the summer. What I can tell you is that as several times Benedetta explain. This is the contract that will cover 36 -- 37 countries around the world, including China and is focused on a special formula, special formulations that we need to adjust to be compliance with the different rules that we find in the different countries. This means that 2021 will be a year, especially in the first half of testing. We are producing prototype to be sure that the final product is in line and compliance with the rule we have to face and to respect in the different countries. And I think that starting from Q4 this year and the next year, we progressively -- we will progressively see the development of the revenue phase of this contract.

It's Dar Michi speaking from Exane. I would like to ask on the M&A side, if you could please detail on which pillars the scouting strategy is based on? And in qualitative terms, the potential targets you are looking at? And then in light of the impressive performance achieved in the consolidation of CLI, which are the additional synergies you expect, let me say you are targeting from the lease of your milk and dairy business unit in 2021?

Thank you, Dario. About the first question regarding the M&A. Our M&A strategy is focused on 2 main pillars, which are the diversification of our geographic positioning and to continue to diversify the platform in terms of brand and products. And this means that we are also looking for categories that are not including in our portfolio today because the mission of Newlat is to continue to create and improve the profile of multi-brand and multi-product company. On this side, also the multinationals are very important. And this means that we are also looking for some target outside Italy to develop our international revenue base. In terms of qualitative criteria, I have to say that today, we are looking for companies, if we speak about the basic production, the basic product with revenues at least of EUR 100 million. If we have to negotiate for companies that are focused on special production like free from or like other special products, obviously, in this case, the market is not populated by very big companies. And in this case, we also could value company that could be with a lower revenue base than the level that I mentioned to you before. In terms of the additional synergies in CLI, yes, of course, we expected to generate additional synergies, and is the reason why we signed this contract to give -- to rent to CLI the milk and dairy division of Newlat Food. The new synergies are on the industrial side and also on the commercial side, but we don't want to share with you any kind of quantitative indications about this. What we can tell you is that yes, of course, we believe that we can generate additional synergies.

This is Doriana from HSBC. Congratulations for these good results. I just wanted to ask you a little bit more about the expectation for 2021. You indicated revenue volume up below single digits and continue momentum in margins, which I suspect is coming from the top line improvement. Do you see any volatility in the current months? And do you see did any opportunity that -- I mean, in other words, can you give us a little bit of a sense of which areas do you see performing better than other? And also can you clarify whether the contract with the milk price fixed at EUR 0.36? What sort of benefit will give you if the market price that's going down, for example, you cannot benefit from that as you have done in the past?

Yes. So about the expectation of 2021, I have to say that our expectations are based on what is the normalized growth for the food business and therefore, the food business considering what is our geographic diversification today. So considering Italy and Germany at first and also the other contribution. In this sense, we believe that for our business at the normalized level of growth, the organic growth could be at a low single-digit level. And this is the reason why we share with you this expectation. Obviously, we are in March only 3 months, the visibility is low, also considering that environment is not stable because as you see around Europe, around the world, the big uncertainty also considering the COVID-19 emergency that doesn't stop. And for this result, we are confident to share with you this level of growth. The margin improvement is linked to I think the same driver of this year in the sense that if we increase volume, as I showed you in the slide, can generate operating leverage. But we expect also that the innovation and the introduction of new products in the market could create benefit also in terms of mix. And this is something that could create an additional positive contribution in terms of profitability and there is nothing magical or extraordinary. As I said before, volumes for us are the most important way to continue to generate value because we have an industrial structure that allow us to generate a lot of operating leverage with volume increase. About the contract that we signed for the with a supplier in Tuscany for milk, it's true that the trend is still a declining trend, but you know that in raw material for the nature of the market we had to aspect a rebound, a realignment of the price in general. What we want to avoid is to have volatility. I think that the price that we defined in our contract is a fair price, also considering the mix of the raw material inside this average because we are buying Tuscany also particularly high-quality and organic milk. And we believe that for us, the most important thing here to avoid volatility and to increase visibility for a company involved in the milk business for which raw materials are around 50%, 52% of the cost base. I think that if you neutralize this variable, your capability to do business increase because your visibility increase. And this, I think it's the most important thing in managing a company like this. And this is the reason behind this agreement and behind the aim and the commitment we have to close very soon also the other agreements.

It's Paola Carboni speaking from Equita SIM. I have a few questions as well. Yes, first question is actually still on your expectation for 2021. I understand the environment is still very uncertain and volatile. I was wondering if you can share with us what could have been and what would look like at the start of the year. So basically, the year-to-date trend. If we had to compare it with the 2019 pro forma in order to clean, let's say, from exceptional base of last year? And also if you, in case, have any kind of projection or commitment from your modern trade clients about how the next few months could look like. So I was wondering if your expectation together with being based on the normal growth pace of the sector have also -- are also grounded on something and more to see if you can -- more relating to the current business, let's say? Then another question still in 2021, you have largely spoken about the milk prices. I was wondering how do you see the picture for West? And what's the situation for you in terms of sourcing for this also important raw material? And the last one is in terms of working capital; you have managed to offset longer cash in terms of with longer payment terms. What would you expect on both sides for next year, especially if you expect to maintain the improvement that you managed to achieve in these payments?

About the various development in '21, I have to say that joking, we have a lot of things to learn, but one thing is we've learnt very well. And is that in this kind of uncertainty, we need to be prudent and to avoid to share any kind of quantitative expectation. And for this reason, we align our expectations to what is the natural and the normalized level of growth for the sector and for the market. I have to say that, obviously, we have to face a very challenging comparison base in Q1. And this means as Benedetta showed before that we expect to have a negative growth in Q1 because it's impossible for our business and also for the typical seasonality in Q1, you are coming out from Christmas season in January, January usually is not a very strong month. And in fact, last year, our performance was mainly into March and to the extraordinary contribution that we received from the start of the emergency for the COVID-19. This means that Q1 will be negative. We expect to recover in Q2, that was negative last year for Newlat because in June, most of the retailers tried to manage, better manage the working capital. And this means that the first half will be a little bit volatile also this year for these adjustments, this realignment only for comparison reasons. In the second half, we expect to have a more linear and a more normalized situation. This is something what I can share with you. We would like to avoid to give any kind of precise indication because it's really not the case considering the environment. About the second question on wheat. What I can tell you is that we face a bit increase of wheat in general, at the end of last year. But our portfolio in terms of raw material is changing year-by-year because our mix of product is changing. And this means that probably in absolute term, our bill in terms of raw material will be higher, but not for an increase of raw material, but also because the mix will be different. And as of today, we do not expect for the next 3, 4 months to have a material negative impact from raw materials neither from packaging, neither from wheat raw material and for milk is not the case also because even if we don't finalize yet the contract with the other supplier, the spot price is going down. So I think that the picture is quite favorable. In terms of working capital, the simple message is that the improvement that you are seeing today in our accounting won't reverse next year. So this year, we got plus EUR 16 million of cash contribution from working capital. We are not going to have a minus EUR 17 million next year because this is something that is sustainable in the sense that it is a result of several different things. First of all, we align the situation on CLI in terms of days of payable outstanding to our situation. And we've got also the opportunity to increase in volumes. We got also the opportunity to get benefit from our supplier. To be honest, this year, we started trying to accelerate the payments or reducing the average pace of payable outstanding for 1 reason because especially after the issue of the bond that we have today around the EUR 300 million of cash available. And if there is a possibility to reduce the days of payable standing gap in important discount on raw material. This is a way that we will follow, especially in the first half. And then obviously, we opt to use this cash for M&A, but we want to opportunistically use that is -- so our position in the first half in Q1 to get maybe some discounts from our supply.

Can I ask a quick follow-up question, please?

Yes.

Just looking back at the margins by division. I just noticed that there was -- all division improved their EBITDA margin, but the special products. And that should actually -- it's a bit -- sorry, it's a bit contradictive, vis-a-vis the repricing of the contract that you did at the end of last year -- at the end of 2019, if I remember well. Is there any reason that you can share why that particular division did not do as well in terms of margin?

And the reason, Doriana, is pretty simple is that is a division in which we are working hard in terms of additional investments and some other costs related also to adapt the structure production that we have. And this is one of the reasons behind this maybe strange or not be linear dynamics. But the baby food division, the special products division is a working progress division. It's difficult to expect linear dynamics from this division. What we expect, obviously, is to get the results of these investments in the coming years, in which we will have a more linear development.

Can I infer from what you just said that the contract -- the new contract that you signed is going to be accretive to margins?

Yes, the new contract will be accretive on the margin side for 2 reasons: the operating leverage and the fact that the profitability on average is better. But you have to take into account that this is a plan and revision in which we invest a lot in terms of R&D. Because we got, for example, this new formula because we develop -- we got this new contract because we develop new formulations, we adapt formulation, et cetera. We don't capitalize the R&D cost, and this is obviously something that would impact the profitability in the short term, giving you the idea that the movement is not linear. I think that if there are no other questions, we can close the call here. I think, as we always do that, we are available for follow-up or other questions by e-mail, by phone, as you prefer.

Thank you so much. Thank you.

Thank you. Bye.

Thank you. Bye.