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

[Audio Gap] Simon Harrison, Princes Group's CEO; and Fabio Fazzari, NewPrinces Group CFO. Before starting, as usual, I'd 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. These forward-looking statements are based on NewPrinces S.p.A's current expectations and projections about future events. Any reference to past performance of NewPrinces should not be taken as a representation or indication of such performance will continue in the future. Also, this is not an offer to sell or solicitation of an offer to buy NewPrinces' securities, and this presentation shall not form the basis of any investment decision in relation to any of the NewPrinces' securities. Now we can move directly to Page 6 of the presentation, which is our financial highlights for the period. Before starting, I'd like to highlight that the group experienced deflationary -- again, in deflationary environment in the last 9 months. And we focus mainly on margin accretive growth as well as operational efficiency and a disciplined portfolio management. Because of our pass-through mechanics to our customers, this resulted in a lower revenue, again, because of the pricing conditions across the core materials of the group. In terms of revenues, now getting into the financial highlights. In terms of revenues, we generated EUR 1.94 billion in revenues as opposed to EUR 2.03 billion at the end of the 9 months 2024. There was also a currency exchange impact slightly, which is now around 6% from pounds to euros, minus 6%. In terms of breakdown by business unit, we had a really good performance in dairy with 2.3% increase, drinks, which traded up 4.6% and especially B2B partners, which increased by 8.5% year-on-year. We also had a very positive return in terms of gross profit with an increase of 9% year-on-year. As said, we focus mainly on our margins, especially given the really good performance of Princes in terms of margins. So we had an adjusted EBITDA for the period of EUR 157.4 million, which is an increase of 20.2% as opposed to the 9 months 2024 figures. Adjusted EBITDA was also pretty positive. So we had an increase almost 200 bps to 8.1% EBITDA margin as opposed to 6.3% at the end of the 9 months 2024. As said, this is mostly thanks to the implementation of a new cost strategy within Princes. Looking at EBIT, we look at the normalized EBIT, there was an impact both in 2025 and in 2024 of the business combination of the badwill coming from the acquisitions of Princes in 2024 and of Diageo Operations in Italy in 2025. So looking at the normalized EBIT, which excludes the badwill from these acquisitions, we had an increase in EBIT of 140% as compared to the first 9 months of 2024. Looking at the reported EBIT, we had a reported EBIT of EUR 147.3 million in the first 9 months of 2025. Net income was also impacted by the badwill. So looking at the normalized figure, we had an increase of EUR 43.8 million. So we had a net income of EUR 39.2 million as opposed to a loss of EUR 4.6 million at the end of the 9 months 2024. And in terms of reported figure, we recorded EUR 106.2 million net income for the period. Moving on to net financial position. We also had a very good improvement in our net debt figure. Excluding IFRS 16, we had a net debt figure of EUR 236.3 million, which is an increase of roughly EUR 10 million -- sorry, an improvement of roughly EUR 10 million as opposed to the end of 2024 number. Also looking at the figure, including IFRS 16, we had an improvement of around EUR 13 million. If we do exclude the investment of GBP 83 million in the investment for the Royal Liver Building and Cross Green facilities, net debt would have actually have improved by EUR 108 million as compared to the 31st December 2024 figure. Moving on to free cash flow. As you know, this has been one of our key focuses. And we had an underlying free cash flow, which excludes CapEx of EUR 163.4 million, which is an implicit EBITDA to free cash flow conversion of 104% for the period. Moving on to business units. As we said at the beginning, there was a resilient performance in terms of volumes despite the deflationary environment that affected our core raw material prices, which reflected in lower revenues. Looking at some of our core business units, we can highlight that drinks very well, thanks to new contract gains in drinks and which resulted in higher volumes for the period and an increase in 4.6% year-on-year. Dairy also performed quite well, thanks to an increase in milk sales as well as dairy sales and also a slight increase in the average selling prices. All the other business units were affected by lower average selling prices. Moving on to distribution channels. Again, we see the inflationary -- deflationary effect on all the distribution channels. However, we had a very good performance in terms of B2B partners because of 2 reasons. One is the new contract wins in drinks that we just mentioned, but also an increase in the baby food category. So within the Italian category, we had a really good performance in that sense. So that results in a 9% increase in the B2B partners channel as opposed to last year. There were some effects, for example, in food service and normal trade. This was also a strategic move. So we decided to exit some low-margin contracts, especially in food. And also, we sort of rebalanced our oils and Italian products within this channel to be able to have a better margin overall. Moving on to geographies, same impact of deflationary environment across all geographies. In Italy, we had a very good performance in milk and dairy, as we just mentioned. And there were some headwinds in terms of pasta and bakery and also some lower volumes in fish, which were the results of some strategic exits from some previous low-margin contracts that were in place within Princes. In Germany, we had, again, a strategic decision to exit some low-margin contracts in Tomatoes and Pulses, and we try to optimize our portfolio within Germany. However, our volumes within pasta and Italian have been pretty stable and positive. Same deflationary effect also across the U.K., across different business units. However, we had, as we just said earlier, a good performance in drinks. Moving on to probably some of the most exciting part is the EBITDA increase. So as we said, EBITDA -- adjusted EBITDA increased by 20.2% as opposed to last year. We had an EBITDA margin of 8.1%, which is very well ahead of the curve of our 10% midterm target that we declared at the beginning of the year. This was the result of a very disciplined margin improvement strategy, which was done through mix improvement, cost optimization, supplier -- supply chain improvements as well as procurement -- general procurement improvements across the group. Two notable improvements were in Foods and Italian. Foods improved by almost 200 bps, and this was the result of some lower direct costs compared to last year and also, as we just explained, the strategic exit of some low-margin contracts. The most notable improvement, however, has been in Italian. Italian almost generated a 6% margin improvement 600 bps -- 570 bps margin expansion as opposed to last year. And this has been a recurring instance. So since the 9 months 2025 results through to Q1, H1 and now to 9 months 2025, we've seen a stable improvement in our margin in Italian. So we went from 8.1% in the 9 months 2024 to 10% in Q1 to 12.3% in H1 and now to almost 14% at the end of 9 months 2025. So really strong and also the result of some improvements done at group level. So for example, the integration of production within the Napolina Pasta within the existing NewPrinces facilities as well as some efficiencies in terms of logistics from Italy to the U.K., which resulted in a very good performance in terms of margin. Now very briefly on cash flow generation. So as we mentioned at the beginning, we had an underlying free cash flow generation, which excludes the CapEx for The Royal Liver Building and Cross Green facilities of EUR 163.4 million. This is, as you can see, the result of 2 main factors. One is, of course, a higher EBITDA -- adjusted EBITDA, but also really good improvement in net working capital of EUR 64 million. And this resulted in some very positive results in terms of our leverage ratios. So net debt-to-EBITDA went down to 1.58 from 1.95 at the end of 2024 and a gearing ratio of 80%. So very much aligned with some healthy, I would say, leverage indicators as a testament to the Group's financial flexibility and also ability to deleverage quite quickly over the course of the last year. Very briefly on M&A. We know this has been quite an important part of our recent news. So the 2 acquisitions currently announced, and pending are Carrefour and Plasmon. Carrefour Italia is supposed to be completed very soon. We are indicating end of the year. We expect to end -- to complete by the end of the month. But of course, we're being cautious. And in terms of Plasmon, the Plasmon acquisition will be concluded at the end of Q4, so around the 31st of December 2025. Just a couple of points on these 2 acquisitions. So we expect that there will be a positive impact on net debt and equity following these 2 acquisitions despite the investment in Plasmon of EUR 120 million, we expect that there will be an improvement in net debt by at least EUR 100 million. This is -- there will be a recognition of badwill, which will be on top of the current one that we have from the Diageo acquisition of EUR 67 million. And there will be a positive impact of at least EUR 200 million on equity. So really positive results from these 2 acquisitions as well. We will, of course, inform the market as we complete these acquisitions, hopefully soon. Now I'll hand over to Fabio Fazzari, Princes Group's CFO, to walk you through some of the Princes Group results for the first 9 months of 2025.

Thank you, Benedetta. In this first slide, we can see a summary of the performance in the 9 months of Princes Group plc. Despite the general inflation headwinds that we are going to see more in deep in the next slide, it's important to highlight the strong results in terms of profitability that the company achieved with the adjusted EBITDA that is up 23% versus the same period of last year on a like-for-like basis with 180 bps of improvement always on a like-for-like basis. It's an additional improvement after the 170 bps of margin improvement reported at the end of the first half. And this is the proof that the target of 300 bps could be achieved next year, and that the integration and the synergies delivery is going on in line with the original plan. We also need to highlight the strong cash flow conversions, free cash flow conversions on an underlying basis, so excluding the investments for The Royal Liver Building and Cross Green warehouse. The underlying free cash flow generated was EUR 136.5 million, 123% in terms of cash conversion versus the EBITDA reported. In the next slide, we have a bit of details about the single divisions in terms of the revenues dynamic and the margin improvement. As you can see, all the divisions show a very important improvement in terms of profitability despite the headwind that we face in terms of deflation that obviously impacted the top line. You can see the delta reported by the top line and also the impact that we had in our P&L in terms of direct material deflation. In the next slide, we have some example of the trend that we experienced in this period. Olive oil was -- experienced a material cliff after the -- since the beginning of the year, but also the same for Durum Wheat that impacted obviously for some packages and also other materials. Obviously, these are just an example to give you a bit of feeling of what is happening into the market. In the next slide, we have a more in deep explanation of the quality of our earnings that is, I would say, underlined by this 123% of cash conversion. This despite we experienced in September a peak in terms of inventories due to the tomato season. But despite that, the change in net working capital continued to be strong and to drive most of the cash conversions with GBP 67 million of contribution. The CapEx remain under control, and we can confirm the target of GBP 30 million, GBP 35 million for the end of the year. And it's important to highlight that the contributions from the net working capital was also driven by a further improvement in terms of the management of payable. We got at the end of September 68 days versus the 63 reported at the end of June 2025, but it's important to note the material difference versus the end of March 2024 the period before the acquisition of Princes Group by NewPrinces. In the next slide, we have a summary of the net cash positions that we reported at the end of the period. We have a net cash of GBP 18 million on which we made several different adjustments related to the cash pooling with NewPrinces, the impact of the perimeter that was acquired linked to the new IPO perimeter and the impact positive of the IPO proceeds. So on this basis, the Group at the end of September could come down GBP 268 million of net cash, but it's important to highlight that inside the balance sheet for a conservative approach that wanted to leave substantially clean the net working capital movement to allow investors to appreciate the strong improvement on the net working capital. We decided to account under the IFRS 9, the non-recourse receivable finance. This is fully non-recourse. So all the risk are on the shoulder of the bank. There is no cash out required to close this amount. So substantially, this is a pure cash that is on the liability side of the balance sheet just for an accounting decision. If we consider also these contributions, the company could count at the end of September on a real GBP 558 million (sic) [ GBP 458 million ] of net cash. So we are very well prepared to think about the new opportunity in terms of M&A. In the next slide, we have a bit of view about the important investments that we made on the real estate side. This is The Royal Liver Building, a historical building in Liverpool. We can say that is the building that substantially conserve all the history of the city. And together with this building in the next slide, we show the acquisition of an important warehouse that we have in Leeds that is also the headquarter of Symington's with the office inside. So an important investment altogether allow the company to have a saving of EUR 3.7 million per year of rent. And if we consider the cost of the financing, but also the cash in that we are going to have from the other tenant in The Royal Liver Building, we can summarize that this investment is going to give to the company a yearly free cash flow generation of EUR 3 million, net of all the other costs and a total investment yield of 11%. So this explains substantially the reason why we remain always focused also to grow in terms of real estate assets to optimize our capital structure. In the next slide, we have the summary of the midterm ambition. We can confirm that we expect starting from 2026, the top line to grow around 3% of organic revenue growth. On top of this, we expect to have EUR 1 billion, EUR 1.5 billion of potential contributions from the M&A strategy. We expect to complete the margin improvement of 300 bps during 2026. And we confirm that the CapEx spending for the year for Princes Group could be around EUR 30 million and EUR 35 million. At this stage, considering the cash that is available in our balance sheet, we don't have a particular issue in terms of leverage. But in case of a very big acquisition, our target is not to go above 2x net debt on EBITDA and to maintain an attractive return on capital above 20%.

So now we can open the call for questions. I think we do have some questions from our analysts. So Alberto Gegra from Equita, I think, was first in line, so you can go ahead and ask your questions. Now we will send all the questions in the chat as soon as possible.

Can you hear me?

Yes.

So my first question is on the outlook. In particular, in the press release, you were confirming the flattish trend for the sales on a comparable basis for this year. So this implies an improvement in the top line in the fourth quarter. So if you can maybe elaborate on the driver behind that. And on profitability as well, if you feel confident to confirm the previous indication of EBITDA for this year between EUR 210 million and EUR 220 million. Then on the net financial position, if you can clarify if Diageo had any impact on the net financial position as of September? Then maybe talk about the main drivers of operating and nonoperating working capital particularly compared to the situation in June. And one last, if you can confirm that all the cash out for the Liverpool building is -- has been completed?

Yes. Thank you. So a lot of questions. I hope that I remember everything. About Q4, yes, Q4 is the strongest on the business side of the year. We expect to have a good performance according to the visibility that we have as of today, the quarter is going on very well, and we expect to have a strong quarter in Q4. Too early to say how much it will be this impact, but we expect to have a good impact during this quarter from -- on the business side. This obviously could give an additional support in terms of profitability. We expect, in any case, to have the EBITDA between the range that you mentioned and that is the range that we gave at the beginning of the year. So we have full visibility that we will be inside this range. So this is absolutely confirmed. In terms of the net financial position at the end of September, we closed the deal with Diageo. So the impact that we got from the closure of the deal was EUR 7 million positive on the cash side, and this will impact the Q4. In terms of the net working capital, I can tell you that September is usually the weakest, if I think especially at Princes Group plc, is the weakest month in terms of net working capital contribution because we have the end of the tomato season, and this obviously is impacting the inventories. Starting from September and going forward, this impact will be reduced. So I would expect to have in Q4 a better contributions from the net working capital linked to the contributions of all the other actions that we have in place and also a reduction of the inventories due to the starting of the commercial activity on the tomato side, in particular, that was the negative impact in September.

The last question is the Liver Building, the final -- we finished the total payment as of September is totally included the investment any effect on accounting. We don't have future effect for the Royal Liver Building. We have adjusted the free cash flow to generate over the income to revenue about the tenant to use the other office in Royal Building.

There's a question from Arianna Terazzi.

First, I would ask you -- I have a follow-up on the top line guidance. Is this at constant ForEx or what kind of impact are you factoring in? And then on profitability, you recorded an impressive increase in Italian EBITDA. Does this somehow include a timing effect or some mismatch on raw material cost variation versus the price list applied? And what level of, let's say, steady-state margin are you assuming for the pasta for the Italian business unit? Second, on Diageo Princes ready-to-drink, it was already discussed during the previous call, but now after closing, can you share something more about the visibility on volumes going forward after the transitional period? And lastly, my last question, I would appreciate more color on the transfer of Princes ready-to-drink and Plasmon to Princes.

Okay, Arianna. So about the top line, it's clear that we were speaking about the organic development. So we expect a stronger development in Q4 due to the -- in particular, to the fact that is the quarter that on the commercial side is the strongest of the year. It's clear that as we represented in the presentation, so the FX is starting having an impact. And in Q4, the impact if this remains the exchange rate should be obviously higher than the impact that we experienced in the 9 months because it's an average of the 9 months. But in Q4, in particular, it should be also in this case, the highest of the year. Having said that, we believe so this is an impact on the accounting side, but the performance that we expect continue to be strong despite any kind of movement on the FX side. Regarding the profitability, the drivers of the profitability were several different. It's clear that -- specifically on pasta, we got also an important development, specifically for Princes regarding the integration of the production inside the Group. And we expect that this should be for the Princes business, in particular, the strong level on which we can build up the future development. Also in Germany, speaking about new Princess, we got an important improvement that it will be absolutely sustainable and the base on which we can develop further additional improvement in the coming quarters. About Diageo, what we can tell you is that for sure, Diageo business starts with a strong base of revenues and profitability because it's a company that generates EUR 220 million of revenues with roughly EUR 20 million of EBITDA. So it's accretive for the rest of the group because it's a margin -- a profitability that is for sure, higher than the average. We expect this base of business to remain because at the moment, we start to produce for the Diageo business that was already inside the plant, but we are also developing a lot of new businesses with other counterparts, B2B and retail. And we expect this to develop further in 2026. So I have to say that at the moment, this part of the business is having a strong of attention, a strong of interest from other parties in B2B and retail, and we expect to have next year a very strong development of the business.

No, I want also to say to underline maybe Fabio don't know the progress. We have a good opportunity now to evaluation the dismissal from Campari side, many brands, you know the Campari, we have in progress some contact with them to buy evaluation to if there are some brand interesting for us. We believe, yes. In any case, we inform the market in the future if we have a material progress.

And about the Plasmon and Diageo businesses. So Plasmon is confirmed the closing, as Benedetta already said by the end of the year. And these 2 assets will be discussed by the related party committee of the 2 company, NewPrinces and Princess. They will be part of the Princes Group perimeter. We need to define which will be the way if we follow the way that we already consider for the rest of the Italian business, so the lease of the operating assets or an internal sale of these assets, we will inform you as soon as the 2 committees will decide the best way for the Group.

There was another question that maybe we will let Alberto ask the question again, then we'll go through the ones in the chat.

Just a couple of follow-ups. The first on Carrefour. Since it is expected, as you said in September to generate around EUR 80 million of free cash flow in the fourth quarter, assuming the closing to be, let's say, by the year-end, should we assume that you will receive Carrefour with EUR 80 million of net cash? The second question on the rationalization of portfolio and the fact that you exit some low-margin contract. Are you okay with the current portfolio of customers? Or should we expect this trend to continue in the following quarters?

No. At the moment, we believe the view of the portfolio is completed in generally, but it's clear we have monitoring very strong on the margin. But at the moment, we want to considering to totally conclude the review of the not -- conclude the review portfolio customer regarding the nonperformance contract.

And about Carrefour, I can confirm that the closing accounts are at the end of September, even if the closing will be in the next weeks. So nothing has changed versus the picture that we gave in September. In September, we said that according to the budget of the company, we should find this cash performance of Carrefour. And if the performance is confirmed in line with the budget, this is something that we will find inside the company because independently then the date of the closing, the closing accounts are at the end of September.

We have a question from [ Gabriel from Alliance ].

Let's speak about supply chain facility. And if I don't go wrong, I understood that you didn't consider about EUR 190 million cash arising from factoring -- direct factoring facility. And your group is becoming a fully vertical integrated group. And in this new habit, how do you think to manage liquidity internally to the group as regards to supply chain with specific instruments, for example, revolving facilities or securitizations? And will you go on with the traditional instruments like, for example, factoring?

So regarding this, we have a different option on the table. Honestly, we have many offer also for securitization package, et cetera. At the moment, the situation of the cash available in the Group is very positive because we have a very big amount available. And honestly, we manage in the best way because we have the necessity to have the yield from the deposit meantime to maintain the good relationship with the bank to maintain also the some credit line open. In the future, maybe we can evaluate the different strategy depend on the -- for example, on the Carrefour side, we have many offer to securitization all credit we have with regarding the franchisee maybe we take in consideration also this option. But at the moment, we didn't need any supporting extra support from cash necessity. Our position is very positive at the moment. We have in cash available not the net financial position about September EUR 700 million, if we are on the mistake. At the moment, we are up to around EUR 1 billion, this is totally positive situation about our capability to manage any necessity regarding the cash to supply, et cetera, et cetera. In any case, we believe we have also interesting instruments internally the Carrefour Group is Carrefour finance and maybe we can use these instruments to improve our yield regarding our cash -- we have in the balance sheet.

And so treasury management is centralized at group holding at the moment.

At the moment, no, is -- we have the Princes Group to maintain a very strong cash in bank with the cash management independently. On this, for example, total September half to half on Princes Group, we have about GBP 300 million to deposit on the HSBC and the rest we have on the NewPrinces Bank.

Okay. So we have a couple of questions from the chat. First one is, can you provide some details regarding CapEx and admin costs? Will the cash allocated to PPE remain proportional to the currently reported amount? Or was it a one-off expense related to Royal Liver Building purchase? And regarding administration, are there any possibilities for substantial improvements in this area?