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

Full year results for the year 2021. Joining me today -- first of all, my name is Benedetta Mastrolia. I'm the Investor Relator at Newlat. Joining me today to discuss our results are Angelo Mastrolia, our Chairman; Giuseppe Mastrolia, Deputy CEO and Chief Commercial Officer; Rocco Sergi, CFO; and Fabio Fazzari, Group Financial Director. And today, we also have Fabrizio Carrara, who's our Sustainability Manager. So before commenting on our results, I would like to remind you that this presentation may contain certain forward-looking statements that reflect the company's management's current views for expected future events and financial and operational performance of the company and its subsidiaries. These forward-looking statements are based on Newlat Food S.p.A.'s current expectations and projections about future events. Any reference to past performance of Newlat Food should not be taken as a representation or indication that this performance will continue in the future. And this is not enough for a solicitation to sell any of the Newlat's securities. So we're moving on to the presentation on the 2021 overview. We've just gathered some of the key facts of 2021. The first one being the acquisition of Symington's, which happened in August in 2021. And this acquisition is extremely important for the group because it allowed us to have a greater international presence, especially in the U.K., which has become our second largest core market after Italy. And with this acquisition not only did we gain international presence, but we were also able to diversify our product portfolio by adding different and new product categories, such as instant hot snacks, home baking kits, traditional cooking sauces, croutons, flavored cous-cous, and more. All of these categories are, first of all, new, but also very complementary to the -- what... I'm receiving some feedback that someone doesn't hear me. Do people hear me?

Yes, we can hear you.

Then okay. Yes, because someone said they can't hear my voice, but I think maybe it's their -- perfect. Okay. So I'll keep going. I hope the person that can't hear me will hear me later. So as I said, the better product diversification that came with Symington's also offers a high growth prospect for the company, because all of these categories are new and very interesting, especially for our core market. And thanks to the acquisition of Symington's, we also had an opportunity to gain a U.K.-based distribution and sales channel and sales managers and team. And this is a clear competitive advantage towards other Italian producers because, of course, especially after Brexit, but in general, having a local distribution channel is essential to gain market share. And in the last months, we've been able to actually work with our team to increase our exposure to U.K. retailers. We've been working on different opportunities with buyers, which we didn't have before. So extremely important to have a presence there. Another key effect of 2021 is the issue of a EUR 200 million bond that was issued in February. This allowed us to further strengthen our financial flexibility with over EUR 300 million of cash available for M&A deals. Moving on to a different topic, which is sustainability. In 2021, we were able to build a dedicated Green Team with a Sustainability Committee. As I said, we have the sustainability manager here today as well to present with us. And this allowed us to help set and also pursue those sustainability goals and plans that the company has for its future. In 2021, we were also ranked amongst the top 100 most environmentally conscious companies in Italy. The ranking was listed by Statista and published on Corriere della Sera in Italy. And another important topic is investment in people, especially in young people. In the last year, we really made an improvement in this sense. So we set up a new hiring scheme. And also, we put in place different incentivization plans, which we didn't have before. And we've also been working sort of upskilling people within the organization. And lastly, the last point is more investment in own brands. You will see later on that we've been working on social media, TV advertising, et cetera. And that is something that we really want to focus more on in the future. Moving on to the next slide. We have key financial highlights for 2021. Before commenting on these, I would like to highlight that all of these numbers are proforma numbers, so they include both CLI and Symington's from the 1st of January of 2020. So the proforma revenues were EUR 625.2 million, which was down 2.6% versus 2020. Of course, this slight decrease was natural because of the way that the market, let's say, reacted and changed following 2020, and panic buying happened in 2020. We went to more normal levels of consumer spending. In terms of different categories, we actually had some very good growth in dairy, which grew almost 19%, especially abroad. Pasta also grew 1%. Bakery also grew 1%, and special products grew 2.3%. One thing to highlight is that actually Germany grew again this year. Last year was the market that grew the most within our core market. But this year, we still recorded an inorganic growth of 4%, especially in the Pasta segment, also very good performance there. EBITDA, adjusted EBITDA was EUR 58 million, versus EUR 60.2 million in 2020. So the EBITDA margin was 9.3% versus 9.4%. Although, of course, there was a decrease in EBITDA following the decrease in sales, we still had very good EBITDA margin, quite in line with last year's EBITDA margin. And we had, as always, a double-digit margin in bakery, dairy and special products. Free cash flow was almost EUR 42 million. And we had an EBITDA free cash flow conversion of 72.2%, which confirms the company's ability to generate free cash flow once more. Looking at normalized EBIT, it was EUR 11.1 million versus EUR 10.1 million in 2020. And net financial position, proforma net debt was EUR 52.9 million versus EUR 83.5 million in 2020. If we look at the figure, by excluding IFRS 16 lease liabilities, net debt is EUR 13.8 million versus EUR 38.8 million in 2020. Now just showing you some very quick highlights on what we did in terms of marketing. As I said, we increased our exposure to marketing and we've done a lot of different types of marketing. One of the most important one was TV advertising for Granfetta, but we also worked on other types of advertising, such as billboards. For example, in U.K., we had pop-up shops for Naked, box advertising. Social media, we opened different social media accounts, which we didn't have before. We've done in-store promotions and more marketing pieces. These, of course, are just a few of those. Moving on to the next slide, which is Slide 7. We have served an overview of the products that were launched in 2021 and what's more to come in 2022. Some of these we already showed last year, which some of these were not yet launched in the last presentation we did last year. So this is to confirm that we've successfully launched all the products that we mentioned previously. And we've also added some more products that were launched under Symington's, for example, the Mug Shot 100% recyclable sachets, the Naked 5 minute noodle sachets. So a different type of format instead of the cup format. And also, the Chicken Tonight, Roast Chicken Dinner Kit was particularly interesting for the U.K. market, of course. And all of the other products, for example, Delverde and Sansepolcro Toscana, we already showed. So it's just an overview. On the bottom half of the page, we can see just 3 main product launches that will happen in the next few months. First one is Naked. As I said, Naked is a very important brand for Newlat right now. And we've been working on launching it in Italy and Germany by the end of the first half of 2022. We're also working on Crostino dorato, on the range extension of Crostino dorato, which right now has a very good market share, which is one type of product. So we're sort of expanding the range by adding 2 more types of products, one being the croutons for soups, which will be produced at Symington's, and the other one is more like a snack, Crostino, that can just be enjoyed as a snack with a small packaging. And last one, in Germany, we'll be launching the Birkel no egg pasta with also a refreshed very new packaging. So Birkel is mainly an egg pasta. So we will be launching a different type of product, which will enlarge the preexisting range of Birkel. Moving on to the sort of commercial and marketing strategy for 2022. We have identified 5 pillars, which are, first one is the Naked international launch. As I said, it will be listed in 3 major Italian retailers at least in the next months in 2022 and also in some German retailers. And we will also be working on the export side of sales for Naked. So by leveraging on the Newlat's existing export department, we will be able to sell and to present Naked to more of an international audience in different countries. Then the next one is the premiumization of the Bakery category in Italy. So as I said, Crostino Dorato will enlarge its range by adding to further SKUs. And also, you will see in the next months, we will launch a redesign of the Granfetta rusks products in order to reposition and premiumize the category, which was already quite premium compared to our other products. Then more focus on brand. As I said, we will be investing more on TV advertising, social media and billboards. This won't affect, I would say, investments in general, because we've done a lot of investments in facilities in the last year. So this will sort of balance out what we did in the previous years. And we will also focus more and more on R&D. We've been really focused on R&D in the last years. And we intend to continue doing so by adding new products and new recipes under existing brands. Another key point is the penetration of U.K. retailers. So of course, Newlat, now that it has a service base in the U.K., it will be extremely important for us to penetrate top U.K. retailers. As I said, we already have some very good discussions with U.K. retailers, thanks to the Symington's commercial team. So that's one of the top priorities for our commercial team this year. Another important piece is the range extension of U.K. brands. So we've been working on launching new products under existing U.K. brands by leveraging on the Newlat's existing production, but also by introducing some third-party producers for some additional recipes that we would like to add and to start to increase our market shares in the U.K. with some of these brands like Ragu, Mug Shot, Chicken Tonight, and more. Moving on to the next slide, which is sort of an explanation of why we think Naked is a good product and we think that this year will be the year of growth for Naked. You can see on the top half of the page the instant noodle market in Italy. So the instant noodle market in Italy is pretty young. It's not mature at all. And as you can see how that has been growing in the last years. And in the last year, actually, both by volume and by value, by more than 50% -- by almost 50%. And this market -- so the Italian instant noodle market is extremely young, as I said, and only has basically one market leader, which is Saikebon, which has over 70% of market share. And then we also have a second player, which is a bit smaller, which is Nestle's Maggi, which has around 21% of market share. So these 2 producers alone cover more than 90% of the market. Therefore, we see that there is a lot of potential for growth in this market. It's a market that's very interesting, that's been appealing also to retailers. We've seen in the last months very good reception of the Naked products by Italian retailers. And that is because it's the right moment to introduce products in these markets because it's very young. And also, there's not as much as an innovation as there is in the U.K. So definitely having the Naked expertise and the Symington's expertise and recipes will be great value to add to this market. So we've been having very good reception in this market. And also, if we look at the size of the market, it's basically 10x smaller than the German market, for example, which is still growing. It's not as young as the Italian noodle market, but it's still growing around 10% in value and in volume. This market in particular also has a market leader, which is the Nestle's Maggi product, which has around 40% of market share. What's interesting about this market is not only that there's been growth in the last years, but also that Asian-inspired recipes have been driving growth in the last year. So that was perfectly into the Naked picture, because Naked, of course, as some of you may know, produces Asian-inspired recipes. So that will be exactly what we will be doing. Also, we will be driving innovation even in this market. And having a U.K. brand is extremely important because the U.K. market is much more advanced in terms of instant noodle market than the German and the Italian ones. So everything that comes in the U.K. first will come in Germany and Italy after a few years. So having a sort of the innovation and the drive for anyone else is a great addition for us. Moving on to the next slide. It's just one more point to add in terms of why we think Naked is very good for these 2 markets. So we've just compared this to our 2 main competitors, the Saikebon in Italy and Maggi in Germany. So as you can see, these are all the nutritional values per 100 gram of product that's consumed. So they're all sort of on the same level. And as we can see, calories are a lot lower than both Saikebon. And even Maggi is even higher than Saikebon calories. So we have very good sort of nutritional values compared to other products, almost 0 fat compared to 10 grams of fat for Saikebon and 18 for Maggi, even though it is a lot lower. So in general, we think that this product, which is also vegetarian compared to other products, which are not vegetarian, is a great addition because not only it will appeal to people that really like this kind of product, but also to people that are more health conscious and that wouldn't usually eat fun noodles or something like that. So definitely a great value that the Naked product has towards the others. Then the last slide for this part of the presentation is the ESG sort of milestones that we've recorded in the last year or 2. So as I mentioned, Newlat Food was recognized as one of the top 100 most environmentally conscious companies in Italy. We've also been implementing a workplace travel plan to encourage efficient and more environmentally-friendly methods for driving to work, so encouraging trains and bikes and different types of transport modes instead of cars and things. Packaging, as we already said in previous conversations, we have been switching from classic Tetra Rex to Plant Based and rPET packaging, which has much lower emissions compared to the normal packaging. And from 2021, the plants-based packaging that we're using are certified as Carbon Trust – Zero emission. In terms of logistics, this year also, we were awarded with DB Cargo for transporting cargo from Italy to Germany via train instead of trucks. And we saved more than 500 tons of CO2 emissions this year. In the last 2 years, we saved around 1,072 tons of CO2 emissions. In terms of social, we have had a lot of innovation. And we've been working with universities and research institutes to work on different products. For example, on digestibility of milk with A2 milk, and also by developing unique plant-based formulas for baby food. In terms of service, which was into the social side, we've been working with Banco Alimentare. We've also been supplying pastina, so baby food to families in need, which is almost more than 1 ton of pastina. And we also partnered, for example, with Rete 100% Campania for supplying recycled paper and cardboard packaging for pezzullo. In terms of governance, we mentioned this many times already, but we have 3 independent members: Eric Sandrin, who is the General Counsel Kering; Valentina Montanari, who is the CFO of Ferrovie Nord, Milano; Mariacristina Zoppo, who is the Director and member of the Control Committee of IntesaSanpaolo. We have 3 women in the Board of Directors, which is composed of 7 members in total. And 4 out of 7 Board members in the Board are not related to the Mastrolia family. And lastly, as we mentioned, we have an ESG committee as of 2021 to work on pursuing the sustainability plan for the future. Moving on to the next slide on operational overview. So in this slide, you can see a few charts which sort of underline the fact that we've been able to successfully deliver in all the pillars that we have in our strategy. So the first one being organic growth. So as you can see, in the last 5 years, we've achieved an organic CAGR of 2%. So despite the slight decrease this year in sales, we actually have a very good CAGR of 2%. Also, in terms of EBITDA margin, as it's one of our main pillars in terms of profitability, we've been able to increase EBITDA margin. This year, it's slightly lower than last year, but that was sort of expected from the market situations, but we have been able to increase EBITDA margin over time. Our cash conversion is also very important for our strategy. And we've been able to have the cash conversion of over 70% for the last 3, 4 years. And also, a very healthy and flexible financial structure, where we haven't exceeded the net debt and EBITDA ratio of more than 1.6, so always having sort of a balanced financial structure, which also shows you the ability of our company to deleverage over time. So now we move on to the next slide on operational highlights where we have sort of an overview of the CapEx investments. We've been able to keep investment around 2% of revenues in the last years. There was only a peak in 2020 because of some preplanned CapEx investments made by Centrale del Latte d’Italia. But apart from that, we've always kept it around 2% or more than 2%. Return on capital employed is also very important to look at. We've been able to have a very good return on capital employed despite also the recent acquisitions. Especially in 2020, we had a very good return on capital employed of 18% -- 18.4%, and this year was 16.5% because of the -- so the difference between the 2021 acquisition and 2022 -- 2020 acquisition, apologies, is that for CLI we had very quick integrations because of logistics and also timing than Symington's. So we will see more of the effects of the acquisition of Symington's in the next year. Spare capacity was also quite high still despite the fact that we've increased our sales in general in the last years. So we have a lot more room for improvement for including new organic revenues. And the very last chart is the sort of relationship between variable cost, fixed cost, and operating margin and utilization rates. So we can see that by keeping sort of similar variable cost and fixed cost, and by increasing utilization rate, we can drive margins up to around 12% operating margin, apologies, up to 11.7% to 12%. Now we move on to the full year 2021 sales breakdown and analysis to Slide 16. So as mentioned, there was a slight decrease this year compared to last year. And the 2 main factors that contributed to this decrease were the normalization of sales across the entire food industry because of a change in consumer buying behavior versus 2020, and also a rationalization of sales in order to keep margins stable following 2 main, I would say, points: 1 is the higher promotional pressure that we had in the first half of the year. And 2 is the increase in raw material prices, which was quite material in the second half of the year. However, despite this decrease, we have had some very positive feedback from the first 2 months of 2022. So we've recorded a very good positive organic growth in almost all of our categories, so Milk, Dairy, Pasta, Bakery and Noodles all have grown from 5% to 8% on average. And this is especially good results if we take into consideration that the first 2 months of the year usually are the, I would say, quietest months for the food industry, where there's usually less sales. So a very good improvement there. And again, as I said, we want to highlight again that we had a 5-year CAGR of plus 2%. Now we move on to Slide 17 where we have the revenue breakdown by business unit. So Pasta sales increased by 1%, thanks to new volumes in private label and B2B. And then we had Milk Products, which decreased 6.6%, following a decrease in sales volumes, especially considering the very high increase that we experienced in 2020. And there was also more promotional pressure, which impacted on the overall sales figure of Milk Products. The Instant Noodle market also saw a contraction that was sort of natural because of the return to pre-COVID demand in the U.K. And also, as for Milk, there was an increase in promotional activity in this segment. Bakery products instead actually grew by 1% because of higher sales volumes. Dairy products especially grew by almost 19%. So we had an increase, especially in abroad. But also, in the local markets, we had an increase of the mascarpone sales once again. So this product has been growing for the past, I would say, 5 years very exponentially. We also made more investments in our plant in Lodi to be able to increase volumes of sales in this category. Special products also increased by 2%. So the main driver of the growth was also the initiation of some contracts in baby food that happened in the second half of 2021. And then the other product segments recorded a decrease because of the -- so other products are usually commercialized products that we don't produce and those products saw a decrease because of the effects of the Food Service and Ho.Re.CA channels decrease in 2021. Moving on to the next slide. We have the revenue breakdown by channel. So the large retailers went down, mainly due to the lower sales volume of the milk sector. B2B partner sales also decreased slightly. Normal trade remained pretty much in line. There was a slight decrease of 1%. Private label is worth mentioning because it increased by almost 2%. That is because we had more sales volumes in the Dairy sector, also some new contracts in Pasta and other types of products. It's worth mentioning that there is a much larger contribution of private label this year compared to last year's results because of the Symington's acquisition, because of the Symington's business and as it has a big portion of private label sales in the U.K., it's actually one of the biggest private label producers in its categories in the U.K. Food service instead decreased once again. I mean, in terms of pretax percentage, it looks pretty big because of the very small size of the business, so there's not a huge impact on sales in this one. Moving on to the revenue breakdown by country. We have Italy, which decreased by say 5.8%, because of the, of course, very difficult comparison to 2020. Germany increased by 4%. As I said, Germany has been part of the best markets for us in the last years. And we had higher sales volumes both in Pasta and Dairy. The United Kingdom sales decreased. This is again related to the sort of back to normal lifestyle in the U.K., which has been widely widespread compared to, for example, Continental Europe, and factor, of course, the overall food market in the U.K. And sales in other countries actually increased by 19%, and that was because of the increase especially in Dairy and Pasta sectors. Now we move on to the next slide on the EBITDA breakdown. The adjusted EBITDA, as I said, was EUR 58 million in 2021 compared to EUR 60.2 million in 2020. That, of course, is a slight decrease, which is natural following the decrease in sales. But we were able to keep EBITDA margin pretty stable at 9.3% versus 9.4% last year. In particular, we would like to highlight a few things. So the first one is that the Pasta EBITDA margin increased from 8.2% to 8.5% despite the extremely high increase and spike in durum wheat prices in the second half of the year, which increased by over 50%. So despite that, we were able to keep margins very high. And that shows also our ability to sort of pass costs on to retailers. The instant noodles category also saw a huge increase in EBITDA margin, which went from 7.3% to 9.5%. That is especially thanks to the strong focus that we had in the Naked brand, which is a more value-added brand compared to other products. In general, we kept very high margin in the Bakery segment, which had around 18% of EBITDA margin, Dairy had almost 12% of EBITDA margin, and special products almost 11%. So this confirms once again the ability to sort of optimize costs and increase prices, thanks to our product offering. Moving on to the next slide on net trade working capital and net working capital. And here, we can see that there was an improvement in net trade working capital versus 2020. That is because of higher trade payables. One thing worth mentioning here is the fact that there was an increase in inventory versus 2020. And that is the result of the Symington's more capital-intensive structure compared to the Newlat one. So of course, producing sort of dried products, it's important for Symington's to sort of have a stock of products in certain situations. Especially for some spices, they come from Asia, for example, which have very long delivery times, and therefore, there was an increase because of more having to stock up on raw materials. And net working capital, in general, increased -- I mean, improved again. So we went from negative EUR 49.5 million to negative EUR 55.8 million. And that is also because of an effect of the very good trade payables that we had. So we had an increase -- or decrease in trade payables that benefited the net working capital numbers. Now we move on to Page 22 of the presentation where we have the free cash flow and cash flow statement of the company. So Newlat was able to convert around more than 70% of EBITDA in free cash flow in 2020 despite the increase in interest costs related to the issue of a bond in February. So in all the divisions of the company, which also includes Symington's, we're able to give a positive contribution in terms of net working capital in this year. And we would also like to mention that in 2020, Newlat bought back around 2.6 million of bond shares with an implicit return of 6% for each shareholder. Now we move on to the next slide, which is the CLI deleveraging process, which we got in place after the acquisition in 2020. So after less than 2 years from the acquisition, we were able to materially reduce the net debt of CLI, which went from over EUR 70 million to around EUR 42 million at the end of 2021, with a net debt-to-EBITDA ratio that went from 12.5 to 2.4. So there was a material decrease that we, of course, expect to even improve more in the next year. Now we move on to the very last slide, which is the outlook on 2022. So of course, as we all know, 2020 has been characterized by many different types of factors that produce uncertainty, one being inflationary wave and the war in Ukraine, which, of course, come hand in hand. And of course, the situation is very difficult to predict. But despite that, we have more or less the flexibility to confirm our aim to achieve by the end '22, a good organic growth of around low to mid-single-digit growth, a stable profitability and a good cash flow generation, enough cash generation to drive the group back to a net cash position in 2022, of course, excluding any M&A that may come. But going back to sort of a net cash position. And we also have some negotiations in place at the moment, which put us in the position to confirm, to reiterate our aim to get to EUR 1 billion consolidated revenues by the end of the year. Of course, that would include the proforma revenues, including the 12 months of the target. But for 2022, we are very hopeful that we will reach all of these milestones. And we've been working really hard on all of these factors, and we definitely are very hopeful for the future. So that was the end of the presentation. Now we can move on to the Q&A. So I would like to ask you to ask any questions by unmuting yourself or writing them in the chat, and then we can answer them. Thank you.

Victoria from Soc Gen. I just wondered if you could give us an indication of the level of pricing in 2021. And how much of the growth in the first 2 months of the year that you mentioned in the presentation is being driven by pricing? And then also, within that, what's assumed within the outlook? And I guess also associated to that, can you detail the situation in the Milk division and the promotional pressure that you're seeing there? Is this easing now?

Yes. Thank you, Victoria. Obviously, most of the contribution for the first 2 months of the week is linked to the price increase. But we have also planned other step, especially, for example, for Symington's starting in the next months. But we have to consider that giving you a sort of guidance, as we tried to do with the last slide that Benedetta showed, we need to be a bit careful to consider that the scenario worldwide is still full of uncertainty due to the war, due to the inflation wave. And this is the reason why we prefer to show in the slide what we are substantially really confident to achieve, not to get maybe positions that could be hit going forward by further dysregulation of the general geopolitical inflationary scenario.

And the situation in the Milk division?

Situation of the?

Sorry, the Milk division and the promotional pressure?

Divisional, I don't know...

Milk division.

The situation in Milk division reacted well during the -- is reacting well in the first half of the -- in the first months of the year, also because we have easier comparison base versus the performance that we got in the first 3 months, in the first quarter of last year. We are, obviously, also in this case, planning several price increases and several activities to try to get benefiting -- to get the benefits from the mix in these kind of divisions with new launches, new products, more focus on products in which we have a more interest markup. Obviously, also in this case, the market is really volatile. And the situation, generally speaking, on the -- for the inflation and also considering the packaging, not only the raw material, is still obviously full of uncertainty. But at the moment, and considering the trend that we could foresee for the first half of the year, we are confident that we can maintain this increase in revenues, together with also improvement on the profitability side.

Okay. And then my second question is just, in the presentation, you mentioned slower progress on the synergy capture with Symington's versus CLI. I just wondered what's driving that. And can you sort of indicate broadly your progress so far, please?

Yes. The difference substantially is that, after the acquisition of CLI, we got substantially, immediately synergies because we entered in a business that we already managed, with the aggregation of several different divisions, but inside a business that we already managed. It was in Italy, and no particular difficulties also in terms of logistics. And also, on the supply chain, we spoke substantially with the same supplier that we have for Newlat for renegotiation. It was a process that was very, very quick. In this case, for Symington, we recognize, in Symington, a lot of opportunities. But we need to put in place this, preparing the field for all the actions, in the sense that on the commercial side, we needed months to speak with the retailer, introduce the product, getting the listing in Germany and in Italy, preparing the packaging. So for example, we are ready to introduce the products in terms of production of the products to Italy and Germany, but we need also to be ready in terms of the new packaging. So there are a lot of internal parts of the process that take time. But apart from that, on the commercial side, we are really, really excited about the strong opportunity that we recognized in Symington. And the launch of Naked in Italy and in Germany is just the first step. We already plan other important initiatives for the next semester and also for the next year. About the synergies, on the cost side, for example, we plan, in this month, several initiatives for investments in efficiency automation for the 3 plants we have in U.K. We have a specific plan to reorganize the plan we have in concert with a lot of new businesses that we got just during these weeks, and that will be for 2022 and going forward a strong support not only for concert alone, but also for the general profitability of Symington's. We start to substantially make several prototype to be sure that we can give to Symington's the right raw material on the pasta side. But in 2022, we will start to produce internally the pasta raw material that Symington is using. This just to explain to you that the difference is just that to implement these initiatives in U.K. and in the new business, we take time. We start in September. I think that is a reasonable time. And this is the only difference versus the integration of CLI. But we are very, very excited for Symington's, because it's a company that every day in this company we discover a new opportunity that we could implement for the future.

Yes. I have a couple of questions. The first one is on the input cost environment and your pricing strategy. As you said, the first couple of months of this year already embed some price movement, let's say. And I'm wondering whether your indication in terms of guidance of stable profitability already factors in further actions during the year or, let's say, what kind of input cost environment are you considering, just the spot situation, as you please, now? And then if there is a further -- so I'm just wondering that stable profitability guidance, at what frame of input cost refers to and whether it implies or not further price hikes, just to get the idea if we have more flexibility in case it is needed going forward. And also another question on Symington's. So it seems that probably the EUR 10 million of synergies you were envisaging won't be achieved all this year. And so, let's say, what will be probably offset by the input cost increase? I'm wondering whether, let's say, this target in case remains valid of EUR 10 million cost synergies, and so we can have more upside maybe in 2023? Or is there any reason which brought you, say, to somehow reduce this EUR 10 million target? And the last question, sorry, is about working capital. You mentioned lengthening of payment times to your suppliers. I'm wondering whether this was just a timing issue or a more structural and sustainable achievement, which you really can consider also for full year '22?

Thank you, Paola. So starting from the input cost side. So the view that we shared is substantially based on different things. First of all, we already planned and we already executed several price increases. And obviously, we cannot exclude to go on with additional increases during the year if the situations to be worse than expected. This is obviously on the table. But I can explain you the fact that our visibility is coming from the fact that, on the energy side, we are probably lucky, but in the past year we signed a contract that today maintains fixed cost of energy until mid-2023. And this allows us to have enough visibility on this side, not to consider any material increase on this side. In terms of raw material, we made several contracts with the key suppliers that include a range of fluctuations, considering the effective increase of raw material or an effective increase of the cost of the processing of this raw material. But substantially, this contract and this fluctuation range allow us to be materially below the spot rate of the raw material that you can see in the market. And this is another point that could allow us, especially in this first half of the year. Then in the second half, also considering that especially for wheat, and wheat, the harvest season will come, the newer season, we need to see what happens for the second half of the year. The third point is that we are working hard also on the mix side, because we explained in the slide that showed you the spare capacity that we had. That increase in volumes give us an important contribution in terms of operating leverage. And we already got new contract on the B2B, on the private label side. And probably, we still work on that to try to get new volumes and to try to get a mitigation and a margin improvement also coming from additional volumes that we can have this year. All these things together, considering the new initiatives on the commercial side that will start from April 1 of this year, especially the ones related to Symington's, allow us to be this kind of comfort to be substantially able to maintain this level of stability on the margin side. About the cost synergies of Symington's, we got this -- we gave this target to be able in the midterm, in a couple of years, to realize this EUR 10 million of synergies. The target is still valid because, as I explained before, we needed a bit more time to implement the actions. Most of the actions already started, the other will start during the first half of this year. But what we believe is achievable in terms of cost synergies remains substantially intact versus the communications that we gave at the time of the acquisition. Obviously, what we plan is also to try to reinvest part of this benefit in new initiatives, because, as I said before, for us, Symington is really a source of ideas and business opportunities. And we want to get, especially in these particular situations, all the opportunities that we see inside this company. And probably part of this benefit coming from the synergies will be immediately reinvested in new initiatives, new industrial initiatives to get additional efficiency and to also increase the capacity of this plant, capacity in terms also of the diversification of production and also in new marketing initiatives to support the brands, to support the new commercial initiatives that we could have in all the countries. But the view that we have about the synergies is still valid, and that we are absolutely sure that we can get this target. The last question was on working capital. In this side, I try just to explain you that most of the contributions came from the fact that, as we announced during the presentation of the 9 months results, we were already trying to implement several initiatives in Symington's to align the working capital policy of Symington's versus the policy that we have in Newlat. And most of the contribution is coming from this reorganization and this efficiency that we got from the working capital management in Symington's. Obviously, this means that the benefit is recurring because this is something that we implement, not just...

Can I try now to speak?

I can hear you.

Apologies, again, as I was struggling with my computer. Just a couple of questions for me, if I may. The first one is, if you could -- again, I joined later. So I think Paola was also asking about the same thing. You went through a set of action that you're planning to implement this year. And it sounds like this confidence from your side that you will be able to hold your margin stable despite the inflation in raw materials. Aside from the price, I mean, what are you seeing on your side? Are you suffering from any disruption in the supply chain? Are you suffering from -- is there a possibility that some of your suppliers might actually not honor your contracts that you've already locked in, in lieu of force majeure or anything like that, that might actually put you -- your price already locked into at risk? So that's my first question. And then the second question comes back to some of the other things that I'd like to get an update on. First of all, Germany did very well past year. Can you give us an update in terms of what's going on with the Buitoni co-branding, and whether it has been already done or still should be completed this year? And the last aspect is the new contract on special products. I noticed that the spread capacity in special products is pretty high. Have you been increasing capacity? Or -- I was surprised that the number in the presentation was actually quite high.

Yes, we are. About the contract with the supplier and the risk not to receive the products or not to receive the products at the price that we negotiated is something on which we are not worried for. A reason that is important to highlight because it's something that is really important in our group. As we already said also in the past year, the timing of the IPO, explaining our supply chain structure, we implemented and we still are implementing stronger relationship with the most important and the key suppliers that we have. This means that also in this particular difficult period, we have a contract with a fluctuation range that substantially should recognize in case there is a material increase and an effective increase of the energy cost or the raw material price increase to our supplier, but at the same time protect us by, first of all, an important spike in raw material following maybe the spot price. And also, on the other side, allow us to be sure to receive and to have substantially raw material during the year. This is really important because it's a protection on which we invest. We invest in this relationship, in this spare substantially negotiation of contract that we try to put in place to protect our side and also to recognize to the other side the improvement they need because the situation in the market is really becoming difficult. And it's important because it's also something that allows us to have visibility about at least for 6 months and especially for this year. In this sense, we don't think that from this side, we could have a material issue. Obviously, when we speak about inflation, we have to consider the fact that it's not just a matter of raw material, it's not just a matter of wheat or milk, it's a matter of logistic, of packaging, of everything. And for this reason, we are reacting not only on the price increase and using this important contract that we have with the suppliers, but also to try to develop business, to try to get volume, to close the spare capacity and to get also from this side an important help in terms of operating leverage. In this sense, speaking specifically about the baby food business, obviously, as we explained several time, 2021 was a year of development of the contract that we got with the multinational corporation for baby food in 37 countries. We started the delivery only in Q4 for one country, for Mexico. And we believe that in 2022, with the implementation of this delivery, obviously, also the spare capacity will decrease, and also from this side, we could get some help to protect our margin. Also, this is part of the equation from which we derive the guidance to maintain stable the profitability this year.

Just wanted to sort of clarify the help that you expect from the baby food volume that should build up through 2022, and also the synergies that you expect to extract from Symington in 2022 are part of the guidance for flat margin, correct?

Yes. The part of the synergies that we expect to get, yes. But also, part of the guidance is the fact that we have also a plan to reinvest part of the synergies in new initiatives, in new investments on the industrial side in U.K., et cetera. So everything is part of the guidance.

Okay. And if I were to ask in terms of the medium-term outlook, I know it's difficult to answer, but if things normalize, then is it reasonable to expect that your margin should go in line with the volume growth you expect to generate?

Obviously, we are working to create value and to improve margins. But on this point, I take the opportunity to highlight a different point of view. Because if we need to show you a margin improvement, we probably don't need to wait next year. We can do this immediately this year. Because you have to take into account that we have no policy of cost capitalizations, nothing. So the fact that the conversion rate is so high is because our EBITDA respects substantially all the costs that the company had during the year. If we start to capitalize costs or apply other accounting policy, we can deliver profitability improvement already this year despite the environment on which we discussed about. The most interesting point of view, in my opinion, is to consider what the group made, not only in the past years, but also this year in terms of cash flow generation from the recurring free cash flow. Because I think that when we speak about value creation for the shareholder, the value creation is not a matter of profitability, it's not a matter of earnings. It's a matter of cash. And I think that despite also the difficult scenarios that we had during 2021 and the difficult scenario that we are facing this year, the capability of Newlat to generate cash remains very, very high. The fact that we expect next year to close, excluding the M&A contributions, the year with already a net cash position, this, in my opinion, is the most important message when we speak about value creation. And it's important to highlight this point because sometimes I heard comment with a comparison between the profitability of Newlat and the profitability of other peers in the sector. You need to take into account also this. So the CapEx spending that you see is related only to grow CapEx. We put in our P&L as a cost the maintenance CapEx every year. We don't have other source of profitability linked to capitalization, accounting policy, et cetera. On this side, I think that it's very, very important to highlight once again the cash generation profile that, I repeat, is in my opinion the first source of value creation for our shareholders. Paola, if you have a question.

Yes. A couple of follow-ups. As you were speaking about the baby food segment, can you provide us an update also about the -- for this segment. I think corporate was not mentioned in the slide in this respect. And also, maybe just a qualitative comment on the discussion. So we will trade about price hikes. I'm wondering also, based on the comments you have made for the promotional pressure in the Milk segment, where are you finding maybe a less favorable, say context, less favorable situation to pass through your price hikes? So maybe if you pass your price hike, then we should be careful about the promotional attitude that this price hike might trigger afterwards. So is there maybe a country like maybe Germany or a channel or category where we should be more careful about this possible cannibalization of price hikes linked to promotions?

So on the promotional side, I can tell you that, especially last year and especially in the first half of last year, the market was really aggressive, so with the promotional activity, also because we were coming out from a year that was materially impacted by a strange trend linked to the COVID-19 pandemic situation. And one of the reason why we reported also this negative revenues trend in Central and Latin Italia was because we avoided last year to follow in several times the promotions that we saw in the market. Penalizing volumes, this is true. But as you could see, tried to maintain a very good level of profitability despite this volume decrease and despite the pressure that we mentioned on this particular segment. Going forward, we are ready to react very quickly, considering what could be the scenario that we are going to face. So it's difficult to say today what could happen in this market after 1 month or 2 months because the situation is really volatile. But we are ready to react and to substantially manage our production, our commercial activity, with the first focus that we always had, to protect the profitability and our capability to generate cash substantially. Volumes is important, but it's not the primary focus that we have. We are strictly focused on the value equation. And in this case, as happened also last year, we are ready maybe to stop promotions or not to follow promotional trend if this is something that is going to have a material negative impact on our profitability. But in this particular context, it's really difficult to show you what we are going to do in 2 months, 3 months, because the only thing that I can tell you is that, once again, last year, in these first months of the year, one of the benefit that we got is to have a really flexible structure that could really react very quickly to the market condition. This is something that we are sure could help us in the coming months. The first question was on baby food. On baby food, we started with the Mexican delivery the end of last year. Also, we will continue this year with this country. And in the first half of this year, we should start the delivery in at least other 2 countries. And we will give you more precise details during the first quarter and the first half release of results, but the project is going on very well. And we believe that we could substantially get the numbers that we already shared with you about 2023 and 2024 for contribution on our EBITDA.

So we should assume special segment was growing as well in the January and February yet?

Yes.

I've got a follow-up question, if I may. I just want to ask, from a strategic point of view, where is the focus now? You normally give us an update in terms of your target for acquisition. And I was wondering if you can give us also a sense whether you are more prone to develop your private label business versus the branded business. And if there is anything from a strategic point of view, which would lead you to push more one versus the other.

Maybe I can answer to the question. So concerning the private label, for sure, one of the main objectives that we are facing now is the U.K. market, in which the market has done 70% on private label. Of course, we will add on even the offer of our branded product. But I think on Pasta in the U.K., the great opportunity is on the private label market. So we are talking about the potential. Ideally, private label market is around 100,000 tons of pasta immediately in the next 2 years that we will tender as a private label. So this would be a great opportunity. Then in general, we are focusing, of course, as we already said, and as Fabio already said, we are focusing a lot on the ready meal products produced by Symington's, both in the U.K., in Italy and in Germany. But even increasing the products in the category in the U.K. as well. So we are launching for a new product called the Naked Ultimate, that will be the first 100% paper recyclable noodles import on the U.K. market. The launch is in the next 2 months. So if I have to give a range of which are our priorities, of course, first of all, it's the ready-meals product, because the portfolio of Symington's is such a big assortment that first we started with the ready meals on the Asian flavor. Then we would pass on other products like ready-to-bake powders or to make brownies or pancakes, other products or mashed potatoes, and then we will try to get into other markets. So first, ready meals. Then secondly, the pasta business on the private label in the U.K. Of course, developing our brand in the other countries, maybe in Germany. And thinking about the Dairy, the potential in the U.K. as well, because through our sales team, we are getting into tendering on mascarpone private label and ricotta private label in the U.K. as well. So in Italy, we are trying to focus, of course, on brands in the Milk business, with our main brands that are Optimus, Mukki, Polenghi, and the others, and of course, continuing the export with the brand, Delverde, from Italy to other countries.

There's a big difference in the profit margin that you make in your branded versus your private labels.

Now concerning the marginality that we have, so there's a slight difference, of course, in terms of percentage. But if we think about how big is the market, of course, the total value could be really high. So if we talk about the U.K. business private label, in general, yes, the margin is lower by 4% to 6% lower than branded or maybe even higher. So the difference could be even higher, until 10% of difference in terms of margin. But on a market like the U.K., it's the only way to get into this kind of market. And the good thing compared with others in which we can get more margin than similar competitors that we can guarantee having a base in the U.K. Whereas in the U.K., we can guarantee them a service level that is higher. So we have 2 kind of prices. One is the prices experts. And they have to pick the product from Italy, then deliver by themselves in the U.K. And the second one is with the service done in the U.K., in which we have a wider margin. And most of the retailers are orientated to take the second opportunity because of service level that can be more efficient compared with buying from an Italian company that doesn't have warehousing in U.K. and nobody have the same.

And I remember there was plan to use one of the factories from Symington as a dedicated pasta factory. Is that the plan as well?

Yes. It's warehousing, the warehousing. So we will use the leads. So the headquarter where we have a warehouse that is up to 25,000 pallets that we will use as stock area for the pallet to serve the U.K. market.

Yes. Just to clarify 2 things, Doria, about this option, how we are using the warehouse, because what we explained last time in terms of -- to have a single plan dedicated to pasta is only in case the Brexit became so hard that we will be substantially in difficulties to send pasta from Italy to U.K. In this case, we have flexibility to try to convert a plant and to produce directly in the U.K. But this is only in case we will have material pressure coming from our Brexit or whatever could create pressure on this. It's not on the table for tomorrow. So this is just in case. The second point is just in avoidance of doubt and confusion. So Giuseppe was speaking about the industrial margin of the products, not EBITDA or EBIT. And speaking about private label, you have to consider that at times you will have a lower industrial margin, but compensated on the P&L of the company by the fact that you don't have to invest into the brands. Because at the operating level, considering also the investments that you have to do into the brand and considering our situation in terms of spare capacity, the difference is not so material.

Okay. And in terms of -- just sort of a sense. In terms of your aggregate portfolio, how much is private labels? Would that be just the segment that is shown in your channels fleet? Right?

Yes. How much is that for the private label today on total value?

Broadly 10%.

10%.

Okay. And the update on M&A in terms of what sort of business you are going after. Which area do you think you might create more value?

Yes. On M&A, we are always active because this is an important part of our strategy. We gave this guidance, this view today, we shared this because we are going on very well with an important deal that we already described even in high level in the past conference call and it's related to the deal for the new category in Italy, Germany and France. We are going on well because our counterpart approved us as a unique counterpart to go on in the negotiation of this deal. We already share time table. And for this reason, substantially, we are sure that we could get an important deal by the end of the year. Obviously, we are starting now all the activity in terms of structure of the contract, the due diligence, et cetera. Everything could happen. But honestly, we are in a very, very good position. And we are well in advance to close this deal that we are working on starting from January last year. It's not something that happened 2 weeks ago. And so for this reason, our confidence increased also after the latest development also in terms of negotiation and interaction with the counterpart. We already follow also other deals. But at the moment, this is the one on which we are very, very focused because it's really a transformational deal for us for several reasons that I hope to be in the position to share and explain to you very soon. On this point, on the M&A, I grab the opportunity because we received also question on this from investors or other analysts. This is a deal, despite the size, that allows us to at least get or probably to over past EUR 1 billion revenues. We can do this deal without any kind of capital increase for other extraordinary situations. We have enough money in our pockets to complete this deal without any kind of extraordinary activity to raise funds for this deal.

There are no more questions. We can end the call. Is there anyone who might want to ask a question? I guess not. So thank you so much for joining the call today. Of course, we are available for any follow-up questions that you may have. If you want to send us an e-mail or give us a call, we are available to answer all of your questions. Thank you so much. And have a nice evening, everyone.

Have a good weekend.