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Edited Transcript of FRIGO.AT earnings conference call or presentation 12-Dec-19 2:00pm GMT

Q3 2019 Frigoglass SA Earnings Call

Kifissia Jan 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Frigoglass SA earnings conference call or presentation Thursday, December 12, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charalampos Goritsas

Frigoglass S.A.I.C. - Group CFO

* Ioannis Stamatakos

Frigoglass S.A.I.C. - IR Manager

* Nikolaos Mamoulis

Frigoglass S.A.I.C. - CEO, MD & Executive Director

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Frigoglass Third Quarter 2019 Results Conference Call. (Operator Instructions) Just to remind you, this conference call is being recorded today, Thursday, December 12, 2019.

I now pass the floor to one of your speakers, Mr. John Stamatakos. Sir, please go ahead.

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Ioannis Stamatakos, Frigoglass S.A.I.C. - IR Manager [2]

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Good afternoon, and thank you for joining us on this conference call to discuss Frigoglass 2019 Third Quarter Results. Today, I'm joined by Chief Executive Officer, Nikos Mamoulis; and our Chief Financial Officer, Harris Goritsas. After the presentation, we will turn the call over for your questions. For those of you who do not already have the slide presentation, it is available on our website, frigoglass.com.

Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements, which should be considered in conjunction with the cautionary statements set out in our press release and which would also apply to our discussion today. (Operator Instructions)

Let me now turn over the call to Nikos.

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Nikolaos Mamoulis, Frigoglass S.A.I.C. - CEO, MD & Executive Director [3]

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Thank you, John. Hello, everyone, and thank you for joining our call. Similar to our previous calls, I will start the presentation by providing an overview of the third quarter, Harris will take you through our financial performance, and then we will discuss the outlook of the year.

Moving to Slide 3 of the presentation, I will share the highlights of the quarter. We are pleased with our performance in the third quarter. The results remained strong, with double-digit sales growth and EBITDA margin improvement. For 1 more quarter, results demonstrate our strong commitment for sustainable and long-term profitable growth. With this performance, we are highly confident that 2019 will be another year with significant top line growth and profit margin expansion post-2017 recapitalization.

Overall, third quarter sales increased by 20% with both our divisions reporting double-digit growth. The performance of our commercial refrigeration business remained solid following an acceleration of cooler placements from key customers, accompanied by market share gains with breweries in East Europe. Growth momentum in Asia also remained strong. Demand continued to be strong in our Glass container business, while we were also benefited from pricing initiatives and from a stronger lira.

We are pleased with group's comparable EBITDA margin expansion by almost 120 basis points to 16.1%. This is a result of better cost absorption, input cost savings and several productivity improvement initiatives. The operating profitability improvement was translated into cash flow generation with adjusted free cash flow growing by 12% to EUR 26 million. This came despite the increased CapEx related to next year's furnace rebuild in Nigeria. Cash flow generation contributed to the net debt to last 12 months EBITDA improvement at 3x, which is consistent with our long-term focus for further deleverage.

Turning now to Slide 4. Commercial refrigeration sales grew by 23% driven by double-digit growth in Europe and Asia. In East Europe, growth momentum accelerated in the quarter, with sales increasing by a strong 52%, reflecting strong placements from soft-drink customers. Our strong execution on commercial initiatives resulted in market share gains with breweries in this region.

Sales growth was also supported by increased demand for Frigoserve's broad service offering mainly due to customer and territory expansion within the region. We have recently expanded in Hungary and broadened our offering in Poland to include refurbishment activity. In Western Europe, sales were up by 7%. Growth was mainly driven by continued demand in Belgium and the U.K. Sales in Africa and the Middle East were down 25%, reflecting mainly orders phasing from key customers in South Africa. On a positive note, we achieved sales growth in West and East Africa. Our Asia business continued to perform well with sales increasing materially. Demand in India and Southeast Asia remained strong.

Moving to the next slide. Volume growth and pricing initiatives resulted in a 13% sales growth in our Glass business. Currency translation also had a positive effect. Demand in our core Nigerian market remains solid, demonstrating the solid fundamentals and low beverage consumption in the market. Glass remains a predominant packaging material for breweries mainly due to the growing environmental awareness. Growth momentum also continued in the complementary metal crowns business with sales increasing by high single-digit rate, driven by higher year-on-year demand. Soft demand for plastic crates from a key brewery customer resulted in a double-digit sales decline in the quarter.

Let me now hand you over to Harris for the financial review.

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Charalampos Goritsas, Frigoglass S.A.I.C. - Group CFO [4]

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Thank you, Nikos, and hello to everyone on the call. As in all our calls, I will take you through our financial results for the period. As a note, before I start, I will make reference to comparable EBITDA, which excludes the impact of IFRS 16.

So let's turn to Slide 7 and the financial overview of the third quarter of 2019. Looking at group's sales of EUR 97 million, growth was 20% with double-digit increases across both our business segments. Growth momentum continued in the commercial refrigeration business in Europe and Asia as well as Glass in West Africa due to the resilient market fundamentals we see in Nigeria. Comparable EBITDA increased overproportionately to a strong 30%, leading to an EBITDA margin expansion of 117 basis points, now at 16.1%. Over and above sales growth, the margin improvement was a result of several cost reduction initiatives, primarily focused on procurement and manufacturing. We reported net losses of EUR 2 million compared to net losses of EUR 3 million last year. This reflects the improved operating performance, and last year's losses related to discontinued operations.

Moving to Slide 8 now. I will comment the performance by business segment for the third quarter. Sales growth accelerated in East Europe following incremental cooler placements from key breweries and soft-drink customers, as Nikos mentioned. Asia also had a good performance with sales increasing by double-digit following the strong execution of our commercial strategy there. Overall, sales in the commercial refrigeration business were up 23% to EUR 70 million. Comparable EBITDA grew significantly ahead of sales, reaching EUR 7 million. This resulted in a margin improvement of 250 basis points to 10% following the better cost absorption, the benefits of lower input cost and Frigoserve's performance.

If I turn to Glass, demand for Glass containers and now pricing initiatives resulted in a double-digit sales growth. We reached sales of EUR 27 million, 13% up year-on-year. Comparable EBITDA increased by 11% to EUR 9 million with the respective margin contracting by 80 basis points to a solid 32% following the under-absorption caused by the lower demand for plastic crates.

Moving to Slide 9 and the performance by business segment for the 9 months of the year. This quarter's strong results solidified our year-to-date performance for both our segments as they delivered double-digit sales and comparable EBITDA growth alongside EBITDA margin expansion. In the 9 months, we reached EUR 9 million net profit for the group compared to losses of EUR 1 million from continuing operations last year. This positive performance had an impact on our group's equity as well.

Turning to Slide 10. I will comment our cash flow for the 9 months. Adjusted free cash flow from continued operations reached EUR 26.1 million as of September 2019, which is marginally higher compared to the same period last year. This marginal improvement primarily reflects higher year-on-year EBITDA and tax benefits related to last year's investments we had, offset it by unfavorable working capital and increased CapEx. CapEx was EUR 2.1 million above last year due to prebuying of materials for our upcoming furnace build in Nigeria, while net working capital was impacted by the higher trade receivables due to the sales growth in the third quarter. Finally, our net debt to last 12 months EBITDA was improved to 3x. This improvement is consistent, as Nikos said, with our long-term focus on further deleveraging.

I will now hand over back to Nikos for the business outlook and the concluding remarks.

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Nikolaos Mamoulis, Frigoglass S.A.I.C. - CEO, MD & Executive Director [5]

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Thank you, Harris. Looking now at Slide 12 and the outlook for 2019. We are pleased with our year-to-date performance, increasing our confidence that we will end up the year with a significant top line growth and EBITDA margin enhancement. An exceptionally, for the fourth quarter, strong order from a key customer solidifies our confidence for the full year.

Looking ahead, our focus remains towards the strong execution of our coolers commercial strategy as well as growing our Frigoserve business through the opening up of new geographies and the enhancement of its product offering. Continuing cost efficiency measures and overall operational excellence also remain among our top strategic priorities that will support profit margin expansion going forward. We are taking specific actions on both initiatives, with their impact already reflected in our results. Finally, capital expenditure for 2019 is expected at approximately EUR 30 million, in line with our previous guidance.

The main projects that are driving our CapEx at this level are the furnace rebuild in Nigeria and the SAP system implementation. We are well on track with both projects. The furnace will be up and running in mid-2020, whereas SAP is going live next month in the first pilot implementation.

With that, I will hand over to the operator to take any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from [Manis Hadilacki] from [Better Securities].

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Unidentified Analyst, [2]

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Just a question from my side. Can you give us the impact from the furnace maintenance that you are carrying in first quarter of 2020? What would be the impact in the turnover?

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Nikolaos Mamoulis, Frigoglass S.A.I.C. - CEO, MD & Executive Director [3]

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We are rebuilding a furnace, and we are expanding its capacity. So it is an end-of-life furnace that was due for a rebuild. And due to the high demand, we have decided to -- the new furnace to have 50% more capacity. So I won't give you a specific number. But what I can tell you is that the time to furnace will be down for the rebuild, the output in total of this specific furnace will be offset by the incremental output given the biggest size and capacity of the furnace.

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Unidentified Analyst, [4]

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So we can assume that there will be a higher capacity utilization in the upcoming months and in the upcoming quarters, is that correct?

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Nikolaos Mamoulis, Frigoglass S.A.I.C. - CEO, MD & Executive Director [5]

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Yes, the assumption is correct.

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Operator [6]

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(Operator Instructions) Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to the speakers. Thank you.

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Nikolaos Mamoulis, Frigoglass S.A.I.C. - CEO, MD & Executive Director [7]

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Thank you, operator. We are well on track to deliver the second post-2017 recapitalization year with significant top line growth and profit margin expansion. This is, I think, my only closing remarks, and I would like to thank you all for joining our call today. We look forward to speaking with you again soon. Thank you.

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Operator [8]

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Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.