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9fin team

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 HSE24, Adler Pelzer, Pasubio, and Standard Profil.

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

Links: Transcript & Playback; Earnings Review

HSE24 reported underwhelming Q1 23 earnings while still undergoing an inventory fire sale, as previously mentioned in their Q4 22 call. As inflation and weak consumer sentiment persist, the DACH region’s revenue declined 6.1% while the Russian segment’s topline rose by 11%. Execution of price increases and lower freight costs however played in the retailer’s favour, slightly improving gross profit and contribution margins to 3.5% and 1.1% YoY respectively. Only the Fashion and Home & Living segments recorded revenue increases.

Cash flow levels remain concerning with FCF excl. adjustments down €4m YoY at €9m for the quarter. Higher inventories in Russia led to net working capital (NWC) outflows of €4m, however working capital measures at the Russian entity should help reverse this trend with management expecting a positive NWC effect going forward. Covid-19 related adjustments have also normalised, and only amount to €1m vs €10m in Q1 22.

Liquidity and cash remain flat compared to Q4 22 at €74m and €39m respectively with an unused €35m SSRCF. Cash balance for the DACH segment improved slightly during the quarter (+€7m) while it deteriorated by the same amount at the Russian entity. Q2 23 is expected to be impacted by a €16m interest payment. Finally net leverage increased by 0.2x to 5.8x as a result of poor EBITDA performance. 

Future outlook remains cautious since ongoing inflation pressure and weak consumer confidence continue to threaten liquidity.

Links: Financial QuickTake; Transcript and Playback; Pro Forma CapTable

After a successful refinancing in May, Adler Pelzer (APG) unveiled a strong set of Q1 figures, beating previously set EBITDA guidance. The refinancing also strengthened the capital structure, pushing maturities back four years and adding a much needed €55m RCF. Interestingly, the notes hold an abnormal 4NC1 feature that allows the company to come back to market in just a years time, albeit at a cost of over 12 points (104.75 call minus 92.5 OID). 

In terms of Q1 results, strong momentum in the automotive sector coupled with the combination of recent acquisitions supported topline growth — up 19% to €580m. Although margins were slightly impacted by higher cost of materials and services, the company still managed to post EBITDA of €47m, which was €2m higher than expected. Aches appeared in working capital, however, with the group realising an outflow of €33m in Q1. According to management, this was mainly a result of strong invoicing at the end of March, with cash collection to be realised in Q2.

Looking forward, management are expecting FY 23 EBITDA of €186m (or €20m higher than FY 22). This would translate to margins of 9.1%, which is a step in the right direction, but still lower than the 11.8% average the company held from FY 19 to FY 21. Management also revealed stronger than expected order intake of €140m in Q1, with a budget of €420m set for the full year.

Pasubio (B1/B), the Italian leather car interior manufacturer, continues to benefit from the 2022 year-end momentum with Q1 23 sales slightly increasing by 2% YoY to €94m due to pricing and higher volumes. According to management, the increase in sales is driven by both pricing and volumes equally. 

As we outlined in our Q4 22 earnings review, Pasubio is benefitting from increased volumes in the luxury and premium car market, which accounts for ~90% of revenue. These markets are more resilient during challenging macro conditions, as OEMs prioritise high-margin models. Q1 23 adjusted EBITDA was up 12% YoY to €17m due to the pricing efforts mentioned before and the reduction of raw material costs during the quarter. In 2022, price pass-throughs implemented in around 50%-60% of the contracts reduced some inflation risk. These pass-through mechanisms now feature in around 80-90% of contracts in 2023. According to management, the company has also been taking advantage of a dip in raw hides and chemicals prices, by increasing inventories when necessary.

Cash of €23.6m remained in line with FY 22-end, despite a €5.6m coupon payment, which was a slight uplift due to the floating rate nature of the debt. Despite holding hedges on 50% of the notes for the next two years, interest expense is set to rise to €10m by the end of June, management said. Net leverage ratio decreased to 4.7x compared to 5.0x at 2022 year-end, due to the improved EBITDA performance.

Links: Transcript & Playback; Earnings Review; Cap Table

Standard Profil (SP), the Germany-headquartered automotive seals supplier, started 2023 on the right foot. It secured much needed price increases from OEM clients (for 90% of its 2023 production volumes) and negotiated cost compensation for 23 inflationary effects (€15m was recovered in Q1 23 and more will flow through Q3 23 numbers). Raw material and energy costs have started to go down since the start of this year. As a result, cost pressure is easing and SP saw its revenue, profit and margins markedly increase YoY in Q1 23 with similar results expected in subsequent quarters.

Revenue is guided to jump by 24% to €495m in FY 23, normalised EBITDA is set to nearly double to €75m-€80m and capex to fall to €45m-48m. Trade w/capital will be the biggest headwind for SP. Depending on where it lands, we estimate FCF could be neutral at best or up to €20m drain at worst in FY 23. In any case, the company can rely on up to €91m of liquidity and the support of its sponsor. So, for now we are reasonably satisfied that, even though SP is walking a tightrope on liquidity, it should avoid falling off a cliff this year.

Net leverage is not a concern in FY 23 as it’s guided to improve to below 4x on the back of the stronger EBITDA. And its single April 2026 bond maturity is not a priority as it is comfortably distant, but management dismissed talk of bond buybacks.

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