Vantiva S.A. (TNM2.MU) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Vantiva First Quarter '24 Revenue Conference Call, chaired by Luis Martinez-Amago, CEO; and Lars Ihlen, CFO. [Operator Instructions] Just to remind you all, this conference is being recorded. We would like to inform you that this event is also available live on Vantiva's website with synchronized Slide show. During this conference call, statements could be made that constitute forward-looking statements based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the future results expressed, forecasted or implied by such forward-looking statements. For a more complete list and description of such risks and uncertainties, refer to Vantiva filing with the French Autorité des marchés financiers. I would like now to hand over the call to Luis. Please go ahead.

Thank you, Thierry, and thank you, all of you to be on the line. So I'm going to -- we can move to the first slide. I'm going to share with you the performance on quarter 1. My first comment is to say that this -- what you're going to hear is no surprise for us. I think it's part of the plan and part of the guidance that we communicated to you in January. So everything is based on the plan that we are executing. As you will see in a minute, we had a significant decline of quarter 1 revenues, and this is due to what I'm commenting already in several calls is a decline on the demand from customers related to the consumer expense to start with and the limited investment of customers that they are still depleting inventory that they have in their hands. We know that already for several quarters because, as you know, we have forecast from all our customers that covers a significant amount of time, several quarters. So we knew already that quarter 1 is going to be pretty weak, but is part of our plan for this year and is completely incorporated in the guidance that we provided to you. In addition, there is a certain challenging comparison basis with quarter 1 last year. Quarter 1 last year was stronger than normal because we were at the tail of the chip crisis and the demand was still high and several customers, the most important ones, were still taking a significant amount of product, that is part of the inventory that they are depleting and made quarter 1 last year stronger than a normal quarter 1, which is pretty seasonal. Okay. The next comment I would like to make is we have already some wins in the Connected Home diversification activities that I presented to you in previous occasions. We have two main facts today, one in what we call IoT for enterprises, and this we call now smart spaces. We are already in field trials with a number of important leaders of the targeted industry that we are doing with this. And we are very confident that, that will start getting materiality in the quarters and years to come. So I'm pretty happy to share that with you. And the second thing is there is a new initiative, which is called Homesite, which is a solution for remote home care. And we have just recently signed and you have a press release in our site, a very significant contract with the leader of this market, this industry in the United States that they are going to start deploying the solution on the American market very soon. So we are very happy and very encouraged by this because, as you know, core business is one of the pillar, but diversification is another one, and we start to see significant traction on this front. Concerning SCS, is resisting pretty well. The optical this market keeps the normal decline, but it has been in line with our expectation, no surprise there, but the diversification activities among them, the vinyl is showing quite significant activity. And this division has performed a bit better than what we expected in quarter 1, is still declining year-on-year, but the contribution of the diversification has been a good surprise with the strength of the vinyl market. One important thing, I promised to you in our call in January that in this call we are going to share a bit more about the synergies that we are executing and is part of the plan. As you remember, we told you when we announced the acquisition of CommScope that we are expecting synergies net of cost of neutral for this year, that means 0 and in the range of more than EUR 100 million for 2026. What we are communicating today is that from 0 we are at EUR 40 million in 2024, and we will be over EUR 200 million in 2026. This is proving that the acquisition is delivering more than what we were expecting in terms of synergies, and we are accelerating the execution of them that will position the company in a path, which is giving a bit more insight in our guidance that we gave you not only for '24 but to '26 in our previous guidance. Concerning the market, my last comment is that we expect the situation to start recovering in quarter 2, and we will see also the second half a bit, we will see the market recovery gradually moving forward. Okay. With this, we move to the next slide, you see the figures there. So we have -- you have in the Vantiva Group total, and you have the 2 main divisions there, and you see the declines, the 20% decline in the Vantiva global scope, a bit more than that for the Connected Home and a bit less than this from the supply chain services, okay? You have the figures there and nothing more to comment on this. And then the last one is the confirmation of the guidance. This is the guidance we provided during the last call. We keep targeting more than EUR 140 million of adjusted EBITDA and free cash flow which will be positive, okay? And as we told you, in 2026, we will have a healthy and sustainable free cash flow generation after financial [indiscernible] and restructuring. And with this, we will open the call for your questions.

[Operator Instructions] The first question is from Emmanuel Matot from ODDO BHF.

Quick questions, if I may. First, why are you more optimistic about the potential of synergies with Home Networks? Second, are you losing currently significant market shares due to customer overlaps? And when do you expect those customer overlaps to behind us? And a third question, when you say you do expect EUR 40 million of synergies this year net of cost, what is the level of cost you are taking into account to have an idea of the growth synergies?

Okay. Thank you, Emmanuel. So on your first question on the synergies, where it's better is -- most of this is acceleration that we are executing a very quick integration of the 2 activities. And we have a bit more than what we were expecting in the original plan, but more acceleration that we have put in the plans very quickly in place, and we are able to execute on the plans in an accelerated way in order to advance the benefit of it. Your second question in terms of market share. We have not lost market share due to the customer overlaps. In the call when we announced the transaction, what I said is that this is one of the beauties of this transaction because there were a significant amount of synergies coming back to your previous question, and very little dissynergies. We were in very few customers together. And this customer has been managed even before the closing date with them on how to manage the possible overlap between the 2 business, the 2 products, and this is minimum in the business case. Most of this is the acquisition of new customers, and we are managing the transition very well, and everything related to the decline is purely industry based, okay, decline in the industry. And then we can enter in a long debate where the industry in terms of regional customers are declining more, will recover more, but that will be a long conversation and very qualitative. So in general, we are not losing market share, and we are not being impacted by customer overlaps. And for the third question, I will give the floor to Lars.

Yes. So on the amount of gross synergies, we are not yet communicating on this, okay? We will see when we get to the H1 closing, and we have to give a full detail on the P&L, we will also see the amount of restructuring costs that has occurred on our accounts by then and what has been booked for all the plans that are in line this year. So we can show some more visibility on that at the time or H1 closing.

Okay. So I will wait end of July.

[Operator Instructions] The next question is from Antoine Lebourgeois from Bryan Garnier.

Firstly, regarding the synergies linked to Home Networks. Can you elaborate on how you plan to realize these synergies? And moving on to my second question, can you provide an update on your liquidity position, and specifically, can you explain why you decided not to fully repay your short-term loan in February and extend the maturity date to June 2024?

Okay. On the synergies, and this is what we commented during the transaction. There are different pockets and maybe Lars will comment, but mostly is -- the most important part are the fixed cost synergies, the OpEx synergies that we can extract. And the second big focus is what we call the COGS, the cost of goods sold that we go to suppliers, we equalize prices or we negotiate because of bigger volume, okay? Those are the 2 big families that you should consider for the synergies and where we, as you see, we are getting good surprises. Okay? On the liquidity?

Yes. On the liquidity, so we are not making any statements on the overall liquidity now for the first quarter. What is important to know is that, again, as a listed company, our auditors are continuously checking our going concern, and we are still not having any issues with that, with what we are going to put in the URD that is going to be published at the 30th of April. So all in all, liquidity is in line with our current expectations. On the reason why we pushed out 50% of the bridge loan to June. As you can see, we are doing more synergies than expected. And just in order to make sure we had enough cash for the restructuring activities, we decided to because we could keep on to the second portion of the bridge loan a bit longer. And right now, it's on track to be paid back by the end of June.

Any other question?

There are no more question registered.

Okay. So if there is no more questions, thank you for being on the call this evening. Sorry for the late call. Hopefully, next time it would be a bit earlier in the evening. And if you have further questions, feel free to call me whenever you want. Good evening.

Ladies and gentlemen, this concludes the conference call and webcast. Thank you all for your participation. You may now disconnect.