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

Yes. Good morning, everybody, and thanks for attending this call. Before starting with the presentations -- with the presentation, I would like to share a message also on the behalf of our Chairman that unfortunately is traveling and is not able to attend this call. So we are a bit disappointed about what happened this morning with some confusions on some numbers we reported with the level of revenue movement that was probably shared not in line with the real performance of the company and the fact that these confusions substantially drove the focus on an item that is not in reality, the key item for the quarter performance. And in particular, this probably didn't give the opportunity to highlight the strong value that the company creates also during this quarter, thanks to a very strong margin improvement in line with we substantially show in terms of expectations at the end -- the presentations of the full year '24. And also the additional free cash flow that we generate with another important step forward in the deleverage process. It's a pity. And I hope that the presentations could give to all the possibility to find the right focus on the element that also in this quarter gave us the possibility to create additional value, managing what is inside the company and not what like the deflation is linked to external factors and is not directly impacting our performance. Thank you, Benedetta. I leave you...

Thank you, Fabio. Okay. So we can start with the presentation. So good morning, everyone. I'm Benedetta Mastrolia, I'm the Investor Relations Manager of Newlat Food. Thank you for joining today's call. On the call today, we have Giuseppe Mastrolia, our CEO; Fabio Fazzari, Group Financial Director; and Rocco Sergi, our CFO. Before starting, I would like to remind you that this presentation may contain certain forward-looking statements that reflect the company's management's current views with respect to future events and financial and operational performance of the company and its subsidiaries. And these forward-looking statements are based on Newlat Food S.p.A.'s current expectations and projections about future events and any past performance should not be taken as a representation or indication of such performance will continue in the future. This presentation does not constitute an offer or to sell or solicitation of an offer to sell and buy Newlat's stocks. And these -- our securities are not registered in the U.S. Now we move directly to the presentation. So we've made some notes prior to the presentation to make sure that we are all aligned on the basis and what has happened also with the company name, just to give some clarity. So as you may know, on the 20th of April this year, the Annual Shareholder Meeting in actuary the extraordinary shareholder meeting resolved to change our company name from Newlat Food S.p.A. to NewPrinces S.p.A. And together with our subsidiaries, we will be referred to as NewPrinces Group. However, we are still waiting for the update on the company's register. Hence why you can still see the Newlat Food logo on the presentation -- on the official presentations and official press releases. So we will update the market once the change in [ nomination ] will be reflected in the company's register, which we hope will be in the next days. Regarding the financial figures, we are presenting, of course, combined figures -- sorry, consolidated figures for the first quarter of 2025, but we are using the combined figures for the comparative figures in -- for the first quarter of 2024 to be able to show the effect of the Princes Group into our company from 1st of January. As you may know, Princes has been consolidated into our group figures from the 1st of August. Now we move directly to the financial update. So as Fabio mentioned, there was, of course, a deflationary scenario in this period, which had an impact on our sales. However, we are really proud of the great achievements we've had in terms of margins, as you will see in these numbers, we had a great improvement in all of our margin numbers in our cash flow and net financial position and so on. So in terms of revenues, we had EUR 672.7 million revenues, which compares to EUR 699.9 million last year. We had a very good performance in some categories, especially in baby food in mascarpone in drinks and in tinned tomatoes. And as we mentioned in the press release, we had an impressive improvement in COGS, which offset the decrease in sales actually. So we had a decrease in COGS of 6% year-on-year, thanks to the new -- to all the new procurement approaches and the new strategies we have in place. We can see that in the next months, we might have even a further improvement in this sense. Looking at EBITDA, we had an adjusted EBITDA of EUR 54.8 million, which is an increase of 30.5% since last year. In terms of margin, we had an EBITDA margin of 8.2% as opposed to 6%. As you may remember in the last presentation for our full year results, we said we were looking to achieve 10% margin by 2030. So we think we are fully on track to deliver those -- that performance, actually very much on track to deliver the 2025 targets as well. We will see also the improvement in each business units later on. In terms of EBIT, we had an impressive improvement actually of almost 400%. So last year result was EUR 5.9 million, this year, we had an EBIT of EUR 28.9 million and with a margin, which, of course, improved by a lot. So we had an EBIT margin of 4.3% as opposed to 0.8%. In particular, we can see that there was a decrease in admin and sales and distribution costs, which were over 10% in both cases, over 15% for admin costs. Again, this is following the restructuring process that we are undergoing with the acquisition of Princes and the integration synergies that we are seeing right now with the integration of Princes. Net income. So last year's net income, again, on a combined basis was actually negative, EUR 2.3 million negative. This year, we have EUR 13.5 million. So we had actually an increase of over EUR 15 million -- almost EUR 16 million in net income compared to last year. And again, margin was, of course, improved. So net margin was 2% compared to the negative 0.3%. Free cash flow. So free cash flow last year was also very strong. At the end of the year, you remember, it was over EUR 200 million. This year, we are also delivering some very strong results. So we had a free cash flow generation for the whole group of EUR 45 million. That is, of course, thanks to the positive contribution of EBITDA, but also thanks to the improvement in net working capital, especially coming from Princes. And we had an excellent cash conversion of 84.4% as opposed to 74.7% in the first quarter of 2024. Going to net financial position. So net debt for the period, excluding IFRS 16, excluding our shareholder loan was EUR 200.7 million as opposed to a figure of EUR 246.2 million at the end of the year 2024. So in just three months, we were able to really reduce our net financial position by a visible amount. And same goes with the net debt figure, including IFRS 16, which improved massively going from EUR 346.2 million to EUR 302 million at the end of the first quarter of 2025. Now we go briefly into the sales breakdown and analysis. So you will see from this slide that something has changed. We have reorganized our business units. The reason being is we had many business units, and it was not easy, and it was very -- we thought it was a better presentation of our business units to have to six. So the changes that have been made are in three main business units. So foods now includes both foods, which is basically tinned pastas and soups and so on and also includes ready meals and bakery mixes. Italian now includes both pasta, Italian, which was the Napolina pasta as well as tomatoes and pastas under the brand Napolina mainly. Bakery and special products. And then dairy also changed, including milk and dairy products in the same business unit, while fish oils and drinks remained unchanged. So these are the main changes that were applied this time. So, in terms of performance, as we anticipated, we had a negative impact from the lowering of -- the average selling prices, which is, of course, a consequence of a deflationary environment. However, as we said earlier, we had -- we benefited from lower raw material prices, which then reflected into better margins in all the business units you see here. So in particular, if we look at the performance, we can see some of the performances, for example, Italian. Italian had a decrease. However, this decrease was due to different factors. On one hand, we had actually an increase in sales in the tomato, Italian pastas and baby food and pasta categories, which was offset by the lower average selling prices. And at the same time, we want to share with you that at the end of Q1, we had the first introduction of the Delverde tomato and pastas into the German market. That means that we will see more contribution coming from Germany, especially from Italian in the next few months, especially towards end of the year with the new -- with this new activity and new market activity that's going on in Germany. Fish also is worth touching on because fish had a very good performance in the full year results in 2024. We had an increase of 9% at the end of the year. So this year, we had the decrease -- this period, sorry, we had a decrease. However, that is again due to mainly a decrease in the average selling prices. But we expect to see more volumes coming from fish in the next quarter following the new commercial initiatives coming from the cross-selling of the fish products into the existing and Newlat channels and Newlat clients. So then we touch on drinks. So drinks was particularly good in this period. We had over almost a 7% increase year-on-year. This was mainly linked to the new -- relatively new co-packing contract with Capri Sun, which started in autumn last year. And we expect to see more contribution in drinks in the next months as well. Dairy was also -- had a good performance actually. It was slightly down, again, because of the lower average selling prices. However, we had a very good performance in mascarpone, which actually grew by 3% year-on-year in terms of volumes alone. If we go to the distribution channel breakdown, we can see, again, same concept of over selling prices going down. However, we had a very strong performance in B2B partners. That is because of two main reasons. One, because of the drinks new co-packing contracts and new clients. So the good performance in drinks overall as we have mainly a B2B and core business in drinks. And on the other hand, as you will remember, if you followed us for a while, we had a production halt in the baby foods plant at Ozzano Taro last year because of some renovations that we had in place. So now this year, we are back on track. We are fully integrating all the lost volumes that we had last year, and that has contributed to the overall increase in B2B partners sales. Moving on to geographies. So the geographies, we can see that, again, there was an impact from average selling prices. In terms of the Italian sales, we had a contraction, which was mainly linked to the dairy and Italian sales. In Germany, we had two main areas. So other than, of course, the average selling prices. One is the decrease in some sales because we exited some low-margin, negative margin contracts that were previously in place on the Princes, but we had a good performance in the plastic category. So we will see perhaps in the next reporting season, a good performance from Germany as well. And U.K. was quite flat. We didn't have much of a decrease. It was slightly down, but it was the decrease was offset by the good performance in drinks. So really happy with the results achieved in the U.K. as well. Now moving on to the EBITDA breakdown by business unit. As you will see from the right-hand side graph, there was a very good increase in some EBITDA margins, especially in foods, in drinks and in Italian. So as we said, EBITDA margin overall increased by 30 -- EBITDA, sorry, increased by 30.5% and EBITDA margin as a group was 8.2% compared to 6% last year. So really good performance overall, and we expect to see even a further improvement in margins in the next months. In particular, as we said, foods increased by 320 basis points compared to the first quarter of 2024. Drinks also had an EBITDA margin improvement of 300 basis points. And then Italian had the best, let's say, increase, which was almost 400 basis points, and it went from 6.6% to 10.5% in EBITDA margin. So very good performance, thanks to the reorganization and the reintroduction -- reintroduction of the pasta production of Napolina into our own factories, which really helps improve the margin of the pasta category and the overall Italian business unit as well. Now we move on to the next slide, where we can see the free cash flow generation as well as our net working capital improvement. As we said at the beginning, we generated as a group a EUR 45 million free cash flow in the first quarter. And you may remember that we had a very strong performance in 2024. So the delivery of the free cash flow is still going on. We are still generating very good free cash flow from the optimization of net working capital, especially within Princes. And of course, EBITDA, as we just mentioned, was the main driver, but also net working capital improvement really played a huge role in delivering a strong free cash flow for the period. And we saw an improvement in the first quarter in the average days of inventory as well as the average days of payments outstanding. And we expect to see a further optimization in DPO and also DSO in the next quarters as we move on with our, let's say, restructuring strategy in terms of payments, in terms of net working capital optimization overall. Lastly, we just want to touch on the news that was shared a couple of days ago that we also published on our website, which is the announcement by the Ministry of Enterprises and Made in Italy, which announced that we have signed an exclusivity agreement with Diageo for the possible potential acquisition, which is subject to final agreements, of course, of the production facility of Santa Vittoria d'Alba in Piedmont in Italy. This production facility is specialized in the production of spirits, ready-to-drink products and low- or no-alcohol solutions. The reason we have decided to look at this potential deal is because we already have a consistent -- as we seen consistent business in drinks in the U.K. market alone, where we generate EUR 340 million. So we see a good potential for growth in this market. In particular, we've highlighted the strategic rationale in here. So you can see that on one hand, we can expand and complete our product offering because at the moment, we only supply soft drinks, so mainly fizzy drinks and juices and squash. So that would be a very good and complementary product to the current drinks offering we have. And on the other hand, we can reinforce the position by entering into a very high-growth and high-margin category, which is the one of spirits and alcoholic drinks. In terms of industrial capabilities, the Santa Vittoria d'Alba site is particularly advanced. So it has very high capacity. It is a very -- is a very strong -- has a very strong know-how and expertise in the production of these alcoholic drinks. And also, it is fully equipped. So no additional CapEx is required from our side. And this will also allow us to have a very strong differentiation in the market. On the other hand, we have some synergies or some, let's say, some pros in terms of optimization and in terms of operations because we now have some plans in the U.K., which are at full capacity. So we can actually alleviate the current restraints that we have, for example, in Glasgow within Princes to be able to provide more products to our clients. And this is also a very strong move in terms of flexibility because we can, again, expand the product portfolio and also expand the type of customers that we go to, which leads us to the commercial potential because we have a very strong opportunity to accelerate growth in both in COB and branded growth in this segment. So the ready-to-drink products, low- or no-alcohol solutions as well as spirits, which is a very high and strong and interesting category in Europe overall, because we can provide -- if, of course, we are successful in the acquisition, we could provide these products also on a basis, the customer-owned brand. That is something quite new to the market. So we would be probably one of the few companies that could provide this service to customers that could actually add very good growth and volumes to our current drinks segment. So this is all we can say at the moment. And any update will be communicated to the market in due course and following all the disclosure obligations following the applicable law. So the presentation was quite short. So I hope everyone had a good understanding of what happened in the first quarter. Now we can open the room for questions.

[Operator Instructions] We will be happy to answer any questions. Thank you. Yes. I think Arianna has a question.

Congratulations for the results. My question first on the organic business. So to what extent can we project a further margin improvement in the drinks business on the back of the co-packing contracts? This would be my first question. And then on the net working capital and the solid cash generation we saw, we have been speaking about that during the past conference call, but would you help us in catching up and better understanding what's left in terms of efficiencies? The current net debt target for year-end seems conservative. Would you comment on that? And will you able to provide an updated guidance on this item? And then if I may add two questions on the external growth. I would appreciate if you could provide more color on the agreement regarding the plant of the Santa Vittoria d'Alba. I was looking at the turnover per employee, it seems like an efficient plant. Would you elaborate on that and give, of course, if possible, more color on some KPIs, for example, regarding the capacity on that plant. And I was wondering also if there is some -- from the Diageo side, the need of outsourcing capacity. And the last question is a clarification on the EUR 3 billion target you disclosed for the food and drinks division. Would you please elaborate more on the drivers behind this? And is it including also the Plasmon potential acquisition?

Thank you, Arianna. So about the first question that was on the drink business. We expect the drink business to perform even better in the future, not only due to the very strong expectations that we have if we will be able to close the transactions that we announced, but also on the organic side because there are some contracts ongoing in discussions, in negotiations. And this is a business in which the volumes obviously play a very important role in terms of getting efficiency. We believe that starting from the coming quarters, we are going to see progressive improvement in this division because we expect to finalize -- positively finalize this contract. Drinks is also a division on which we are thinking about several different projects for the organizations and the reorganizations of the full divisions. It's clear that everything is at the early stage because it's part of the several projects that we have inside the NewPrinces Group. But we recognize in this business a lot of potentials. We believe that the potential acquisitions could increase massively the potential of this business. And we believe that already starting from the second quarter, you will see a progressive improvement of the profitability. About the working capital efficiency and the net debt, I want to highlight that once again, that the improvement on the cash flow generation is not only linked to the working capital. Working capital gave around EUR 15 million of full contributions in this quarter. The rest, the other two main drivers are, first of all, the EBITDA that is increasing in line with our expectations, achieving an important margin improvement around 100 bps versus last year. And this, I would like that could be considered as a proof that when we announced the ambitious target during the presentations of the full year 2024, we announced that with visibility. And together with the strong commitment that we have, we are now delivering in line with this ambitious plan. And the other part was obviously the reductions of the financial expenses for several different reasons starting from the movement of the interest rate, but also the better level of cost of debt that we have after the issue of the bond in February. So this means that half of the performance is linked to the net working capital efficiency in this quarter, in particular, on the inventory side, but the other half of the performance is strictly linked to the operating items. And this is, in my opinion, very important to be highlighted. I agree with you that the target that we gave last year as a guidance for the full year 2025 is conservative. We expect to be above that. I think that in any case, it's too early to mention a number, a precise number. I think that the quarter confirmed our capability to generate cash, and you can do calculations by yourself considering that we expect that the working capital, the net working capital could give an additional contribution this year that should be around EUR 100 million as our Chairman confirmed during the past presentation. So this means that we expect a very strong cash flow generation also this year. More color on the agreement with Diageo. Unfortunately, we cannot speak a lot about this agreement because we have to respect what the counterpart ask in terms of -- so not to obviously disclose or to give visibility about several topics that are still under discussions and that remain between parties until the deal will be closed. And this is the reason why we also try to give you whatever is possible at this time. So -- and in particular, speaking about NewPrinces and not about Diageo. And for this reason, what we can share is, as Benedetta mentioned in the slide, the strong opportunity that we see to complete our offering drink to get a very strong opportunity, especially in the segment related to the customer owned brands, doing something that at the moment is unique because we can operate into the market with a very strong technology that is the technology of the market leader. And we believe that this could create a unique opportunity from all the possible point of view. So we are very excited for this opportunity. But at the moment, unfortunately, we cannot share more for the respect of the agreement that we have with Diageo. About the target of EUR 3 billion, it's clear that this is not a target that is driven by -- or only by organic growth. It's a target that includes M&A contributions and in particular, the M&A on which we have visibility. I don't want to share you more at this stage because we have some negotiations that are in a very final stage. And I would prefer maybe to give you all the details when these situations will be finalized.

We have two questions, I think, from Salvatore and Paola. I don't know who wants to go first.

Just a quick one. And well, first of all, congratulations again on the results. One thing for me, I'll try again maybe to get some color on the acquisition from Diageo is are you looking -- obviously, probably you will give more details later on, but are you looking to do this fully on cash? Or are you looking at other instruments to finalize this? And also one question in terms of segment. Obviously, the private label or white label is again a big sector for you, a big segment. Are you looking to expand particularly this given the fact that probably you have some capability and capacity to do that without deploying too much CapEx? Do you have a KPI target in terms of a proportion of the revenue that is going to generate this segment?

Thank you, Salvatore. Honestly speaking, at the end of the Q1, we have more than EUR 0.5 billion of cash available in our balance sheet, and we are absolutely relaxed to be able to close all the acquisitions pending at the moment using the cash available. This is not an issue for us. About -- so the other specific question. So at the moment, the opportunity could be derived in different terms in the sense that when you are available to operate with an asset like this one with the skill of the people inside this asset that produce since many, many years, very interesting products. I think that you can develop your business in different ways with maintaining a lot of potentials for success and to try to create a lot of value from this asset. At the moment, for us, it's very important to continue to follow what is our mission as a NewPrinces. So to try to build up -- to continue to build up this platform that is a platform multichannel, multiproduct, multi-brand, but also very important because we are a manufacturing company, first of all, is to continue to aggregate different industrial know-how in the food sector. And this is a very strong opportunity for us. We are very, very excited for that. In the future, we will disclose in the details the strategy, the commercial approach, the opportunity. But at the moment, I think that it's probably too early to speak about that. Another question is from Paola probably.

Congratulations again for the results. I will start in fact from your impressive EBITDA margin improvement, which you achieved in Q1. If you can give us some color, if possible, on let's say, to what extent this has been driven by raw material deflation and to what extent by the efficiency gain you are achieving from the integration with Princes? And Following this what we should expect for the full year in the sense that already multiplying by 4 what you did in Q1, we would be at the top end of your EUR 210 million, EUR 220 million guidance, whilst we might probably assume that your synergies will be more and more visible in the next few quarters. So is there any chance to be even more positive on this full year guidance for EBITDA? And on the other side, what is the trend in raw material you are expecting for the next few quarters? Further question is on the working capital side. You mentioned that most of Q1 improvement was on inventories. So maybe you can share where do you see most upside in the coming quarters in working capital, if it's still on inventories or on the other main metrics. Further question is instead on your reference in the press release to a potential listing in London. Just if you can clarify the rationale for that on the one side, and the, say, what would be the perimeter potentially being listed on the London Stock Exchange? And very last one on Diageo. I appreciate there is some confidentiality constraint at the moment. I just wanted to try, let's say, if you can elaborate a little bit more on the priorities for you once you have this plant in terms of product, in particular, are you thinking more or are you seeing, let's say, greater opportunities in alcoholic beverages, in non-alcoholic, in RTDs. So just to understand whether -- I mean you can share where you might be focused on?

Thank you. So -- about the first question that was on margin improvement. So as I mentioned at the beginning of the call, I think that the margin improvement is the most important aspect of this reporting because, first of all, this is the driver of the cash flow generation. That is the other important results that we achieved. And because it's a combination of several different actions that are linked to the synergies or the actions that we announced after the acquisition of Princes Limited last year. And now we are substantially successfully get all this target that we announced and that we had since the beginning after we analyzed the situation of Princes. Because the raw material impact, yes, the raw material are -- show a decrease, an important decrease that was compensated by the reduction of prices that we apply, and this is linked to the performance of our top line. This means that at the margin level, we don't have any benefit linked to the lower price of the raw material because the effect all in all is nil. What we have at the margin level is a better negotiations on the procurement side. This means that the reduction of cost and raw material not linked simply to the raw material price that was down, but by new negotiations that gave us opportunity to have a material decrease on the procurement side. This is visible on the COGS trend that were down 6% year-on-year in the quarter. And the other aspect is linked to the volumes to the fact that volumes gave us the opportunity to generate operating leverage. For this reason, I made this statement at the beginning because it's important to say, yes, there is a negative movement on the top line, fully linked to prices, linked to the raw material that are down, this is a nil effect. What is important is that our business is still growing or stable in other category. Volumes are there and the growing volume allow us to achieve operating leverage and to drive the EBITDA margin up for 100 bps. This is the key reading of these results, and we are very proud because in a very short period of time, we already start to deliver a very important results in terms of margin improvement and cash flow generation. About the working capital, we expect working capital to give additional contributions to improve in the coming quarters. In particular, we expect to maintain this improvement on the inventory side and to have an additional contributions from the DPO because our target is to overpass the 70 days. The target is more ambitious, but step by step, the first one is to overpass the 70 days. So for this reason, we expect that in coming quarters, step by step and especially at the end of the year, which is usually the quarter that allow us on the DPO side to get the best benefit for the renegotiations that we usually do in the last month of the year, we are very confident to achieve another EUR 100 million of contributions from the net working capital. The potential listing in London is something that we announced together with other potential actions that we have on the table because we are looking everywhere to try to get the opportunity to increase as much as possible the value creation for the group. This means that together with all the other, it's something that at the moment is a potential idea. We don't have details because we didn't discuss details. It's something that we can consider. For this reason, it's difficult for me in this preliminary phase to think about a perimeter or a structure or whatever because it is very, very in a very, very preliminary phase. So it's together with the other projects, something that we can consider. It's not sure that we are going to do that or all the other projects that we mentioned. But this is to share with you the fact that we are looking at 360 degrees to find everywhere the opportunity to create value with the new big group that we have. About Diageo opportunity, I can tell you something very simple. We believe that all the categories are important categories for the market because the no-alcohol is growing in an impressive way. The opportunity for ready-to-drink is really amazing. It's something that, for example, in Italy is not really developed. In U.K. is amazing, the growth of this category. The other spirits are products that are in the market since many, many years, well known. So there is a strong focus of the retailers to try to enter in this segment with a customer-owned brand. And we would like to follow all the possible trend that we can get. So simply answering to your question, the first thing that we have to do after the acquisition is to get volume. And...

If I can add something, Fabio, to this. What is really good on the other side is that the private label business in the alcoholic drinks and drinks in general, it's the main market in Europe, #1 is Germany. Second market is U.K. So they are all market in which we are really strong already. And the market share of private label is increasing in both markets. And we are looking even to the Italian market. We get the data in the last days. And in Italy as well is increasing. So it's -- as Fabio said, customer owned brand is a trend that retailers are trying to follow on really good in all the different products. And ready-to-drink, mixed alcoholic and non-alcoholic are a trend that is growing everywhere. But what is really important is the size of the market for Germany, U.K. and Italy that is growing as well. And of course, we have all the out-of-home food service that we don't have the data yet because these are more hard to get and these are other channels, but all the out-of-home is a huge market for out-of-home and food service for this kind of products. That is another market in which I think we will have strong capabilities and big opportunities.

[Operator Instructions] Otherwise we may end the call here. Here no more questions coming in. I will take that as a no. So in case you have any follow-up questions following the call, you can always ask us and send us an e-mail or call us and be happy to answer any doubts, any questions you might have. Thank you for joining today's call, and we hope to see you again very soon. Thank you.

Thank you. Bye.

Thank you. Bye.