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Edited Transcript of MZB.MI earnings conference call or presentation 7-Aug-19 3:45pm GMT

Q2 2019 Massimo Zanetti Beverage Group SpA Earnings Call

Villorba Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Massimo Zanetti Beverage Group SpA earnings conference call or presentation Wednesday, August 7, 2019 at 3:45:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Leonardo Rossi

Massimo Zanetti Beverage Group S.p.A. - CFO & Director

* Pascal Héritier

Massimo Zanetti Beverage Group S.p.A. - COO & General Manager

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Conference Call Participants

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* Luca Bacoccoli

Banca IMI SpA, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Massimo Zanetti Beverage Group First Half 2019 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Pascal Héritier, Chief Operating Officer of Massimo Zanetti Beverage Group. Please go ahead, sir.

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Pascal Héritier, Massimo Zanetti Beverage Group S.p.A. - COO & General Manager [2]

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Ladies and gentlemen, good morning, and good evening, everyone, and thank you very much for joining our first half 2019 conference call. Together with me, Leonardo Rossi, Chief Financial Officer; and Marina Cargnello, Investor Relations.

Let's commence Slide 2, first half highlights. The revenues increased by 1.2% at current exchange rates minus 1.8% at constant exchange rates, mainly due to a slight reduction in sales prices in particular in the Private Label channel as a consequence of the decrease in raw material cost. As you may know, the average cost of green coffee decreased between 15% to 20% year-on-year.

The gross profit per kilo is in line with the first half of 2018. This is a positive performance in light of the increase in volumes in the Private Label channel and the reduction in sales price due to the decrease in cost of green coffee.

Going to Slide 3, more details on the first half results. The total revenues were up 1.2% at current exchange rates and minus 1.8% at constant exchange rates. Volume in line with last year, 62,000 tons. The gross profit reached EUR 196.5 million, up 2.7%, with margin on revenues of 44.7% compared to with 44% of first half 2018, an increase of 70 basis points. EBITDA adjusted and excluding the effects of IFRS 16 application reached EUR 31 million, and EBITDA reported reached EUR 33.9 million, a plus 5.8%.

Net income adjusted and excluding the effects of IFRS 16 application reached EUR 5.1 million. The net debt before IFRS 16 application, EUR 205.6 million, compared to EUR 174.7 million as of December 2018. The net debt including IFRS 16 application amounts EUR 251.5 million.

Going to Slide 4, volumes by channel. Overall volumes were in line with last year. At Food Service, plus 1.3%, showing a slight decline in Europe and a solid growth in Americas and in APAC. The Mass Market, minus 4.2%, mainly driven by the softness in U.S. and by the timing effect on the relaunch of Segafredo range of products in Italy. Private Label, plus 3.5%, mainly led by the growth in Americas and APAC.

Going to Slide 5. We can see that the revenue from the Food Service channel was up 2% compared with the first half of 2018, thanks to the positive performance in the Americas and APAC and a slight decrease in Europe, largely due to the strategy of selecting high-traffic and high-visibility customers. The performance of the Mass Market and Private Label channels is explained by the slight decrease of roasted coffee sales price as a consequence of the reduction of the cost of green coffee.

Going to Slide 6, revenues by region. Americas showing it's minus 3.5% at constant ForEx. It's mainly due to the decline in the market in the cans category, a slight decline at constant ForEx of the Private Label channel and by solid growth at constant ForEx in the Food Service channel.

Northern Europe is driven by positive performance in the Mass Market channel and Private Label and stability in Food Service. In Southern Europe, it's mainly driven by the timing effects of the Segafredo brand relaunch in the Italian market. Asia Pacific posted a solid revenue growth, also reflecting the recent acquisition of The Bean Alliance company in Australia.

Let me give now the floor to Leonardo for a review of the financials.

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Leonardo Rossi, Massimo Zanetti Beverage Group S.p.A. - CFO & Director [3]

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Moving to the revenue bridge chart. As already mentioned before by Pascal, the revenues increased by EUR 5 million to EUR 439.5 million, plus 1.2%. Contribution from FX has been the 2.9%, EUR 12.7 million. Organically, revenues have shown a decrease of EUR 7.6 million, minus 1.7%. Out of these, volumes affected nothing. We have a price mix negative for EUR 11.6 million, minus 2.7%, whilst other products has a positive contribution of EUR 3.7 million, plus 1%.

It has to be noted that the recent Australian acquisition contributed to the revenues to the tune of EUR 5.5 million.

If we move to gross profit. Gross profit has increased by EUR 5.2 million to EUR 196.5 million, plus 2.7%. Again, we see a positive effect of EUR 3.7 million of FX mainly due to the strengthening of the U.S. dollars against euro plus 2%. Organically, the gross profit is increasing EUR 1.5 million plus 0.8%. Again, the volumes affected nil. We have a price mix negative of EUR 0.7 million in coffee minus 0.4% and other products increasing EUR 2.2 million or plus 1.2%. And again, the Australian acquisition contributed EUR 3.1 million through the final results.

On the right side of the chart, you can see our usual chart tracking the organic coffee gross profit per kilo without FX and without other contribution, and you can see that is nearly flat from EUR 2.54 a kilo to EUR 2.53 per kilo.

What concerns operating expenses in the first half? They have increased EUR 1.6 million, plus 1%, to EUR 160.8 million, net of the IFRS 16 minus EUR 4.7 million, and the FX impact, which has increased by EUR 3.2 million or 2%. The organic OpEx show an increase of EUR 3.1 million plus 2%. Out of these, services have shown an increase of EUR 1.5 million plus 1.7%.

Personnel costs have increased EUR 2 million or 2.8% and other costs have decreased EUR 0.8 million.

Again, out of these costs, the Australian acquisition has impacted EUR 0.9 million in services and EUR 0.5 million in personnel costs. So if we take out these numbers, the increase is actually 0.6% in services and 0.8% in personnel costs.

The EBITDA adjusted was EUR 35.7 million, increasing 11.4%. For the rest of the first half of 2018, it has been affected again by the application of the IFRS 16 to the tune of EUR 4.7 million, positively affected also by the FX by EUR 0.5 million. So meaning that net of these 2 effects, actually, the EBITDA has a negative of EUR 1.6 million, as the increase in operating expenses has been only partially compensated by the increasing gross profit. At the EBITDA level, the Australian acquisition has contributed EUR 0.6 million.

If we move quickly to the chart on the income statement below EBITDA, we can see the increase in depreciation by EUR 4.2 million, which is entirely affected by the application of the IFRS 16, and is mainly driven by depreciation fairly intangible asset, as IFRS 16 refers to operating leasing mainly went for building and facilities.

The increase in the income expenses, financial income and expenses of EUR 2 million, moving from EUR 3 million to EUR 5 million, is the result again of the IFRS 16 adding EUR 0.9 million, the loss from FX and hedging position of EUR 0.7 million versus a profit of EUR 0.2 million in the first half of 2018. So having another EUR 0.9 million and an increase of interest expenses from EUR 2.8 million in 2018 to EUR 3.4 million in 2019.

The profit and loss on equity and consolidated company is increasing EUR 0.4 million, and the tax expenses is decreasing EUR 1.2 million. And this brings back to a net income of EUR 3.5 million for the first half of the year.

If we analyze the free cash flow and the change in net working capital, free cash flow was positive EUR 4.9 million versus EUR 9.6 million of 2018. You can see by the number, it has been affected by the application of the IFRS 16 for EUR 4.7 million. The change in net working capital, which is negative for EUR 10 million, is mainly affected by an increase in inventories due to the fact that during this period of the year, the company built up a physical inventory in anticipation of the sales of the second half. And then a decrease in trade variables.

If we move to the net debt. We started the year at EUR 174.7 million. We paid the interest for EUR 3.5 million. The free cash flow net effect of the IFRS contributed the reduction of EUR 0.2 million. We have nonrecurring investment of EUR 21.7 million, which reflects the cost of the Australian acquisition and the Portuguese one. We paid the dividend for EUR 6.7 million, and then we have FX and other for EUR 0.8 million. So without the IFRS 16, the net debt would have been EUR 205.6 million. Then we have the net debt effect of the IFRS 16 for EUR 45.9 million, so that in the end, the total financial indebtedness is EUR 251.5 million.

What concerns the mix between fixed interest rate and variable interest rate? Nothing has changed versus the end of last year as we have maintained our H2 IFRS contract.

Now I'll leave the floor again to Pascal for final remarks.

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Pascal Héritier, Massimo Zanetti Beverage Group S.p.A. - COO & General Manager [4]

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Going to Slide 14, 2019 outlook and considering the results achieved in the first half and current trends, our expectations for 2019 are a slight increase in revenues resulting from the improvement in the product and channel mix and growth in volumes in line with market trends, an increase of EBITDA around 3%. Then taking into account the M&A already announced in the first half of 2019, the net debt is expected to be around EUR 195 million. Please note that those guidance excludes the effects of IFRS 16.

Now we are ready to answer to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Luca Bacoccoli with Banca IMI.

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Luca Bacoccoli, Banca IMI SpA, Research Division - Research Analyst [2]

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2 questions from my side. The first one is on Segafredo new product range launch, which was delayed, and I was wondering if you can provide us with the rough impact on the overall top line because of this delay.

And the second one is more general question with regards to the outlook, where you -- basically you have changed the guidance for the top line despite the weak first half top line. So I was wondering, what are your assumptions in the outlook?

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Pascal Héritier, Massimo Zanetti Beverage Group S.p.A. - COO & General Manager [3]

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Okay. Luca, as we didn't understand very well completely the question, I would like to just recap. You want to understand what is the effect on the results on the Segafredo Zanetti Italy launch that has been a little bit, I would say, delayed. And it is from the first half, we were expecting in June, and it has been in the second half? And the second question was on the guidance. Can you repeat the question?

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Luca Bacoccoli, Banca IMI SpA, Research Division - Research Analyst [4]

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Yes, well, it's pretty simple. What are the assumptions behind the guidance? Because you are not changing the goal for this year in terms of top line growth despite the first semester was pretty weak, at least from my point of view. So I think that you are assuming a recovery, I don't know, in the Mass Market or maybe in the ratio.

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Pascal Héritier, Massimo Zanetti Beverage Group S.p.A. - COO & General Manager [5]

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Okay. I'm very sorry because we -- look, we cannot hear you very well, but I will give you an answer concerning the Segafredo Zanetti launch. The expectation was in April, and it has been done in June. Shall we stop it to deliver the products to the market? No, it's on shelves on most of the supermarkets. So the launch has been now effective since, I would say, end of July, beginning -- end of June, beginning of July. In fact, we have evaluated the impact roughly around EUR 1.5 million on the EBITDA, and there was no promo as well on the second quarter, particularly in Italy, because they were destocking of the old range of products. This is the first impact. And concerning the guidance, we have decided due to, let's say, this impact on the results coming from Italy and as well certain softness in the U.S. to be conservative and keep 3% as the growth expected for the EBITDA.

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Operator [6]

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(Operator Instructions) There are no more questions registered at this time.

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Pascal Héritier, Massimo Zanetti Beverage Group S.p.A. - COO & General Manager [7]

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So if I understand very well, there is no other question?

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Operator [8]

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Yes, exactly. There are no more questions registered at this time.

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Pascal Héritier, Massimo Zanetti Beverage Group S.p.A. - COO & General Manager [9]

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So thank you for -- to all the participants. And if you have other questions, please feel free to contact us anytime. The next call for 9 months results of 2019 will be on November 7, 2019. Thank you to everybody, and goodbye.

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Operator [10]

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Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.