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Alexandros Chatzigiannis

Despite a busy earnings schedule, 9fin aims to bring you up to date with results you may have missed during the week.

Below you will find a TLDR earnings summary for selected companies in the European HY market. The summary aims to capture earnings performance, recent updates and any guidance mentioned in the call.

In this week’s edition we cover Douglas, Canpack, United Group, Fedrigoni, Kiloutou, Tele Columbus, Cerba, Kloeckner Pentaplast, Cheplapharm, and Arxada.

See how bond and loan prices have changed following earnings releases. See all earnings flashes here and transcripts here.

Beauty retailer Douglas (B3/B-/B-) delivered growth in sales and EBITDA alike for Q2 23, highlighting performance in DACHNL and CEE countries. Positive volumes, growing basket sizes, and stable customer traffic in e-commerce, combined with stable cost of sales, led the way for top line (+19.9% LfL) and EBITDA growth (+32.9%). Price increases were generally well accepted by customers, resulting in some smaller basket sizes but at higher prices. 

Management noted it still struggled with energy costs, particularly in France, and also expects higher personnel costs in the near-term. With a strong recovery in reported EBITDA on a normalisation in business operations (i.e. less restructuring costs), management has greatly reduced add-backs to just €15m for the quarter (vs €46.7m in Q2 22).

Q2 23 capex mainly focused on openings and refurbishments of stores, and was ~8% lower than Q2 22. In early 2023 the company opened its first three stores in Slovenia, as well as others in Germany and Portugal. Working capital on the other hand grew by 18.6% to €257m, as the company built up inventories to tackle supply-chain issues, along with higher payables and receivables for bonuses and reimbursed marketing costs. 

Douglas also revealed its new business strategy “Let it Bloom 2026” for 2023-2026, focused on achieving a leading position in its markets, improving the range of brands and omnichannel platforms, and optimising its operating model. The group expects capex and working capital to be rebalanced to more efficient levels, and is targeting net sales to be more than €5bn by 2026 (€3.96bn LTM Q2 23), with EBITDA showing a corresponding increase. Management also mentioned the company’s intention to deleverage its current 4.9x net leverage under the Bloom strategy, but gave no specific target. 

Links: Full Earnings review; Transcript and Playback

Canpack (BB-/BB-) continues to deliver weak results, but is showing signs of improvement since Q4 22. Lower volumes and higher input costs during Q1 23 were only partially offset by higher selling prices, which drove adjusted EBITDA down to $108.5m (-17% YoY). However, the company is starting to benefit from higher selling prices, with adj. EBITDA increasing 142% QoQ vs Q4 22. 

European markets are lagging behind the Americas segment, as demand in North America is growing. Brazil is still performing poorly, offsetting the volume growth in North America, and management projects it to remain weak until the end of 2023. Ukraine is delivering positive volume momentum, but the decline in western Europe completely offset growth here.

Free cash flow continues to decline (-$34m) on the back of lower EBITDA performance, working capital outflow and higher capex. Net leverage therefore increased to 4.5x, compared to 2.1x a year ago. Management is still targeting the 2.5x-2x corridor for 2024. 

As discussed on Tuesday’s (30 May) call, United Group’s (B2/B) Towers Sale to TAWAL is progressing as planned with foreign direct Investment (FDI) forms filed in Slovenia and a merger filing made in Bulgaria. Performance was similarly positive. Revenues grew 6% YoY, with 4.7% coming from organic growth in Q1 23 as the company continues to grow its subscriber base, upsell products and increase prices – e.g. Vivacom Bulgaria (23% of Q1 23 revenues) increased prices by 10% earlier this year. Management intends to also raise prices in Nova Greece (30% of Q1 23 revenues) later this year but are waiting on regulatory approval. Adjusted EBITDA was up 9% YoY (8.3% from organic growth) also benefited from a decrease in content costs of 15% YoY to €45m, following the expiry of the Premier League contract in ex-Yugoslavian countries. 

Q1 2023 capex decreased by €19.8m YoY to €132.2m as United Group reduced radio network and site construction, and saw savings in IT project capex. Management noted a “€20m frequency payment” that would have increased Q1 capex will instead be pushed into the next quarter. The company expects FY 23 capex to reach 24% of revenues this year vs 26% in FY 22, as it continues with general fibre network expansions and subscriber related growth purchases e.g. customer premises equipment. 

Leverage was up slightly at 5.1x in Q1 23 vs 5.0x in Q4 22. Management attributed the rise to seasonality of EBITDA (Q1 being its slowest quarter). The Group estimate a net leverage of 4.0x post-tower sale transaction.

Strong de-stocking pressures on the value chain led to a lower demand for luxury packaging and labels company Fedrigoni (B2/B+), with a high level of inventory compared to sales volumes hurting cash generation. Management expects de-stocking pressures to phase out in upcoming quarters, which should help improve performance. 

Q1 23 revenues declined by 5% YoY to €491.8m while adj. EBITDA decreased by 9.5% YoY to €75.6m. The decrease in volumes YoY (~20% according to management) was only partly offset by increasing selling prices on inflated input costs. 

However, some of those input costs (mainly raw materials and gas) have started to decline in 2023, but the benefits to the P&L are yet to be seen. The high level of raw materials sitting in inventories (purchased at “skyrocketing” prices) and having hedged at higher gas prices for ~70% of 2023 requirements, are the main culprits.

Working capital swings along with higher interest expenses led to a cash outflow (cash from operations net of capex and interest) of €114m during the quarter. Cash on balance sheet, therefore, reduced to €95.5m (vs €261.2m in Q1 22).

Fuelled by recent acquisitions of GSV and Grupo Vendap, French equipment rental business Kiloutou (B2/B+) reported a strong Q1 23, with revenue increasing 42.8% YoY (10.2% excl. recent acquisitions) to €286.1m and IFRS EBITDA growing 52% YoY (21.8% excl. recent acquisitions) to €94m. 

Price pass-throughs helped keep inflation at bay improving margins to 32.9% from 30.9% in Q1 22. Not all was positive however, as delayed capex payments from 2022 continue to impact FCF, which amounted to -€44.7m for the quarter. Fleet capex investment remains another major headwind for cash generation, totalling €60.8m (€38.9m for maintenance, €21.9m for growth). 

Expecting a slowdown in the construction market, management guided FY 23 capex to be roughly 15% lower than FY 22 as mentioned on the previous earnings call. In contrast, given uncertain macro conditions, management remains optimistic about the rental market as it believes renting will look more attractive than owning to customers. 

After burning €53m of cash in Q1 23, the German cable operator is left with only €52m cash, which it is likely to burn through this year. Without divulging too much information management revealed that some form of communication on a potential refinancing and / or liquidity event can be expected in June. A shortlist of options has been narrowed down to just two and the company anticipates a supportive lender group going forward.

On a results basis, existing problems persist. The structurally declining cable TV business continues to lose customers while capex levels remain high as the group pursues its fibre expansion strategy. Net of the bulk migrations effect, Tele Columbus lost 11 thousand cable TV RGUs in the quarter, while the smaller internet and telephony segments continue their growth, with IP revenues up 8.2% QoQ, or 8.8% excluding the ANTEC divestment.

Capex on the fibre rollout continues at an aggressive pace and is unlikely to slow down with a 4% increase YoY. The fibre expansion strategy in 2020 proposed a €2bn investment into the company’s network between 2021 and 2030. CFO, Dr Jeannette von Ratibor, confirmed that despite the liquidity pressures they are not delaying capex spend.

Links: Earnings review; Transcript and Playback

SVP Global — the junior creditor turned majority sponsor through a 2012 restructuring — has opted to inject €150m into German plastic packaging group Kloeckner Pentaplast (KP)to accelerate a value creation plan and aid deleveraging. Two members from SVP joined Wednesday’s Q1 23 earnings call alongside KP management (transcript and replay available here) and were set to hold one-to-one meetings with investors that afternoon.

The company’s cap stack responded positively to the news, the €300m 6.5% 2026 SUNs in particular. They were up 11.1 points on Wednesday afternoon to 65.7-mid, yielding 21.8%. The €400m 4.25% 2026 SSNs jumped ~3.2-points on the day to 86.4-mid yielding 10%.

The €150m equity cheque from SVP appears to be a straightforward injection. Managing director Bouk Van Geloven said on the call that the cash would hit KP’s balance sheet by the end of June (i.e. Q2 23) but would not be drawn on the division of funds between funding growth plans and aiding deleveraging.

The company drew down the €150m 2025 RCF by €134m during Q1 23. Management said this was because of concern around the “continuity of some of the banks” in the syndicate. Q2-Q4 23e cash generation implied from 2023 guidance only covers around half of this drawing and management intends to fully repay the facility by year-end.

With the SUNs still indicated in the mid-60s, repurchasing some of these would maximise the de-leveraging effect. According to an analyst on the call (see the transcript here), SVP had previously bought some of a HoldCo PIK note that was refinanced by OpCo debt as part of a 2021 refinancing. However, that may not go down well with secured creditors as there are ~€1.65bn of secured loans and notes sitting ahead of the SUNs in the cap stack (see here).

Ultimately, the timely display of support and perceived equity value from SVP is a credit positive for KP and there is every reason for SUN holders to be more optimistic about the investment thesis now.

German specialty pharmaceuticals manufacturer, Cheplapharm reported strong Q1 results with revenues growing 21% YoY, mainly thanks to acquisitions closed in Q1 and successful pass-throughs of cost inflation in the supply chain via price increases. Margin growth surpassed management expectations, with YTD gross margin increasing 26% YoY to 71%.

Early 2023 has been highly acquisitive, with €454m or deals closed during Q1. The Izac acquisition for the commercial rights for Zyprexa and Eli Lilly drugs would contribute €205.1m to the LTM Adjusted EBITDA, to give PF Adj. EBITDA of €1.02bn. Management plans to continue its business expansion strategy through M&A, with FY 22/23 investment targeted at €1.41bn. As it stands, the group is well on its way to surpassing this target with €1.04bn closed and €1.24bn recently signed from project Izac, to total €2.28bn of investment volume over 2022/23 so far. Management believes, based on the company’s robust M&A pipeline, that it will be able to deliver investment amounts of similar magnitude in subsequent years.

The group successfully placed €750m, €325m SSNs and €425m SSFRNs in Q1 to fund the Izac acquisition, also upsizing the RCF by €150m to €695m (Credit QuickTake here). During the earnings call, management confirmed that a future IPO may still be on the cards, but guided there will be no activity on this in the next six-to-nine months as markets remain unfavourable.

French lab provider Cerba (B2/B) delivered weak results on Wednesday with a 32% decline YoY in sales to €532.7m in Q1 2023. Despite positive synergies from recent acquisitions such as Viroclinics, the group has been unable to cover the drop in Covid-related revenues, which now represent only 3% of Q1 23 revenues (excluding Austria). EBITDA margins have also declined YoY to 26.4% from 40% from the decreasing proportion of covid-19 revenues and highly active acquisition strategy seen in 2022, however they remain above 2019 levels of 25.9%.

Q1 saw Covid-19 revenues decline €360m as a result of Covid-testing activity falling by a whopping 89% YoY, despite the positive impact from recent acquisitions of €88m. The implementation of French tariff adjustments in February affecting the prices of routine testing resulted in a €8m impact on core business in the quarter, which grew only 4% YoY. 

Interest expense has increased by 47.2% YoY to €64.4m (vs €43.7m in Q1 2022), mainly as a result of the expensive €600m and €220m term loans issued in early 2022 sitting on Cerba’s debt stack, charging E+400 and E+550, respectively. EURIBOR was 2.5% on average during the quarter compared to negative (floored at 0%) a year ago. This may create room for concern regarding the interest coverage trajectory.

The company has greatly cut its M&A spend for 2023 compared to the previous year. It completed three acquisitions in the last quarter, with M&A spend down to €27.7m from €802.2m in Q1 2022. When questioned on Q2 2023 trading, management gave no answer but stated that based on Q1 figures, it expects positive organic growth in the quarter.

Alexandros Chatzigiannis | alexandros@9fin.com 

Swiss specialty chemical business Arxada (B3/B-) delivered a disappointing set of Q1 results, as the group struggles to deal with softening demand across all its major business units, combined with a lack of short term “visibility” in the chemicals industry. This resulted in further cash burn, with the group drawing once again on its RCFs during the quarter to preserve liquidity levels.

The industry-wide customer de-stocking trend has led to lower volumes (-15% YoY), only partly offset by price increases (+4%), meaning quarterly revenues dropped by 12% YoY to CHF 528m (€533.28m). Regarding profitability, CHF 13m of cost savings and a CHF 22m price contribution were not enough to offset the volume and inflation headwinds leading to normalised EBITDA erosion of -33% YoY. However, both top line and bottom line performance met management guidance provided in Q4 22 earlier in May, leading to muted price actions on their SSNs & SUNs.

A slightly positive operating cashflow of CHF 8m was not sufficient to cover cash interest and taxes leading to another quarter of negative FCF. On the call, management sounded optimistic that plans to normalise inventory, disciplined capex management (FY 23 guidance of 5% margin) and cost reduction initiatives would improve liquidity by the end of this year.

Kloeckner Pentaplast SUNs jump on sponsor equity injection — Q1 23 earnings review

Lowell reveals audit disclaimer in FY 22 figures

Kiloutou grows stronger but capex continues to bleed cash

Tele Columbus’ refi options list down to two; further comms in June

De-stocking continues to hurt, improved pricing QoQ — Canpack Q1 23 earnings review

Arxada hurt by further demand shocks in Q1; draws again on RCFs

Loxam’s price-induced growth; monitors markets for 2025s refi

Fedrigoni FCF generation hurt by de-stocking and working capital — Q1 23 earnings review (9fin)

Earnings Digest — Douglas blooming; KP saved by SVP; Cerba’s new normal

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