Ceconomy

Emmet McNally | emmet@9fin.com

Ceconomy’s €500m 1.75% 2026 SUNs still trade wide to a peer group of European retailers despite another set of earnings on Monday (15 May) that diminished working capital concerns. Crucial Q1 23 trading saw no material change to seasonal working capital patterns and Q2 23 proved the same. In fact, Q2 23 turned out better than Q2 22 on a working capital basis.

Q2 23 negative trade working capital of €670m was a €260m improvement on Q2 22 (-€411m) as the company worked hard to improve inventory efficiency, boosting stock turnover to 8.6 weeks from 10.4 weeks in Q2 22. Management remarked during the call that they see “absolutely no deterioration in payment terms” with suppliers, diminishing any remaining concerns there may be about an unfavourable shift. 

The group hasn’t suffered from the softer consumer landscape at a consolidated level, though there was some weakness in Southern Europe as a result of greater competition and a strong Q2 22 comparator. Like-for-like (LfL) sales grew by 2.7% YoY in the largest DACH market as the company won market share in Germany on the back of a strong performance in Bricks & Mortar (B&M).

The more optimistic FY 23 guidance scenario (slight increase in sales, clear increase in adjusted EBITDA) was reiterated by management and now carries more credence given the group is midway through its fiscal Q3 (April to June). Another snippet of guidance provided was the expectation for a full-year low triple-digit working capital inflow, suggesting the €236m improvement in H1 23 might prevail in H2 23. 

Finally, management was asked during the call about the prospect of bond buybacks given where the SUNs are trading, but the response was very clear: “We’re not currently entertaining any changes in our capital allocation or funding policy.”

Biogroup LCD 

Toby Udofia | toby@9fin.com

French medical laboratory company BioGroup (B2/B/B), reported weak results for FY 22 despite its acquisition spree during the year. The group saw a 14.4% decline YoY in actual revenues to €2.055bn, and a 22.3% decline YoY in pro-forma revenues to €2.122bn (pro-forma for nine closed acquisitions in 2022) due to a significant decline in Covid-19 volumes and pricing. The decline in topline contributed to the shrinking EBITDA, which dropped 34.4% to €687m, and 38.8% pro forma for acquisitions. FY 22 Covid-19 testing represented 29.4% of total revenues, a decline from 49.2% in FY 21.

Management successfully closed nine acquisitions in FY 22 (two in Q4 22) totalling ~€394m, with the seven acquisitions in France (totalling €346m) financed through cash. Implementation of synergies partly contributed to the increase in gross margins (85.6% vs 81.2% in FY 21). However, adjusted EBITDA margin declined to 33.4% from 43.6% the previous year, as a result of declining Covid-19 PCR prices. Following the drop in Covid-19 infections in 2022, Covid-19 PCR testing tariffs have seen a significant reduction in France. PCR tariffs have dropped from €73.59 in Q1 21 to €37.35 by Q2 22 alongside a general decline in volume of Covid-19 tests to 1.536m in Q4 22 from 4.672m in Q4 21

The company continues to have a strong liquidity position of €800m, consisting of €529.3m of cash and €271m undrawn from the RCF. When quizzed, management informed they plan to keep this cash on hand to remain reactive to M&A activity in 2023, and have no intentions to use it to pay dividends.

SIGNA Development

Hazik Siddiqui | hazik@9fin.com

9fin clients can read our full earnings review here. Latest CapTable available here.

SIGNA Development, which operates a property development and rental portfolio, has been hit by the powerful macro headwinds impacting real estate. Cap rate expansion in SIGNA’s operating regions saw its portfolio valuation in FY 22 falling to €2.97bn from €3.30bn in FY 21. This led to the LTV ratio rising sharply during the final quarter to 51.5% from 44.1% in Q3 22.

SIGNA has earmarked €500m+ of property disposals, with two transactions in ‘exclusivity stages’. Up to €50m of bond-buybacks are being contemplated, subject to the success of the disposals. No portfolio acquisitions are planned for this year as SIGNA focusses on closing the existing pipeline. The FY 2021 dividend of €114m, approved in summer last year and supposed to be paid in December 2022, has been postponed.

The 11% decline in property portfolio (LfL basis, based on €365m revaluation) was mainly down to rising cap rates, and not due to cost inflation impacting net operating income. The development portfolio faced the sharpest decline, while the yielding portfolio was ‘nearly stable’.

Upfield

Arturo Alaimo | arturo@9fin.com 

9fin clients can read our full earnings review here.

Upfield (Flora Food) (B3/B-/B) delivered strong Q1 23 results on 17 May due to the annualisation of pricing momentum carried over from H2 22. Q1 22 was a particularly weak comparator, owing to pricing lagging behind inflationary headwinds, making YoY comparisons optically very strong.

2023 contract discussions are closed and fixed with customers, bar some exceptions, and raw material hedging means the company is not set to benefit greatly from any softening of commodity prices. 

Q1 23 net sales went up to €839m, increasing by 15.1% YoY, or 15.8% at constant currency. Normalised EBITDA is also up, increasing by 46.3%, or 46.8% at constant currency, to €180m. Margins benefitted from the pricing effect, standing at 21.5% compared to 16.9% a year ago. Pricing largely drove performance, with 24.1% growth that more than offset a 5.7% volume/mix impact.

Deleveraging continued in Q1 23, with net leverage going down to 6.8x, a reduction of 2.1x from a year ago and 0.4x from Q4 22. Management reiterated they expect to continue deleveraging through the year. The target of 6.3x for FY 23 that we set out in our Q4 22 review seems fairly achievable given current performance.

Schoeller Allibert

Hazik Siddiqui | hazik@9fin.com

On 17 May, Schoeller Allibert, manufacturer of plastic containers and reusable packaging, held an uneventful earnings call for current bondholders expecting an update on the 2024 SSNs refinancing, with management providing similar colour to the comments shared in their Q4 call. They added that no financial advisor has been appointed yet and they’re still in the process of finding one.

On Thursday S&P downgraded the CFR and bond ratings to CCC+ as the RCF became current on 1 May and the agency excludes the €30m RCF (24.7m of which is undrawn) from its liquidity assessment.

After a poor Q3 and Q4 22, Q1 23 finally showed some positive signs. Top line and EBITDA grew 1.5% and 3.8% YoY backed by volume growth, but partly offset by lower container sales prices as resin prices have started to normalise. Discomforting for investors, management said deals between RentCo and Restricted Group have not materialised in Q1 23 — RentCo did not report any purchases from the Restricted Group in Q1 23 even though all rental contracts were transferred to RentCo in December 2022. Management did mention that the rental order pipeline is growing and “it takes off a month before you finally sign these deals”.

Q1 typically sees a working capital outflow (€12.5m this quarter) as Schoeller funds inventory (€57m vs €45m in Q4 22) to cater to the peak in demand in Q2 and later in Q3. This unwinds in Q4 when inventory investments are lower on back of reduced demand.

Ideal Standard

Josh Latham | josh@9fin.com

9fin clients can read our full earnings review here.

Liquidity remains a problem at triple C-rated Belgium-based Ideal Standard, despite the company recently signing a €25m loan facility. Excessive cash burn of €79m in FY 22 left the bathroom products manufacturer with depleted cash levels of €35m at year-end.

Although the new facility will provide short-term relief against liquidity pressure, management will be looking for solutions to resolve longer-term liquidity. As we explored earlier in the year, the company could tap available debt capacity, but if not, another round of debt restructurings might be needed.

Management shed some light on Q1 23 results, stating that price increases deployed in early 2022 should feed into a positive price mix at the beginning of the year. This is evidence of the time lag the company faces when passing on costs to customers. Management reported a drop in volumes, and said “visibility remains limited” in FY 23.

Maxeda

Yusuf Sule | yusuf@9fin.com

An expected drop in revenue for Q1 23 has worsened the outlook for DIY retailer Maxeda (B2/B-/B), following stagnant FY 22 results.

“It’s sad to start the season with black bread,” said Guy Colleau (CEO).

Year-to-date (14 May) gross consumer sales performance declined 4.4% YoY due to poor weather conditions in Belgium and the Netherlands, with weather-dependent products such as plants and garden furniture falling 16.6% YoY. Non-weather related sales were otherwise flat at +0.3%. 

Colleau and Luc Leunis (CFO) were otherwise optimistic despite a difficult FY 22. Revenue was stagnant at €1,508m (+0.3% YoY) and Adjusted EBITDA declined to €107m (-4.5% YoY) for FY 22. Rising inflation pushed Maxeda to raise prices, maintaining a gross margin of 36.5% in FY 22 (+50 bps YoY). The declining EBITDA was predominantly a result of a €11m spike in energy costs. FY 23 energy costs are expected to be €4m-€5m higher than current levels. In the Netherlands, gas has been fully hedged while electricity only partially for FY 23, whereas Belgium remains mostly exposed. To counter cost pressures, in Q4 22 Maxeda implemented a cost reduction plan targeting supplier pricing, saving ~€15m for FY 23. 

Inventory de-stocking led to a inflow of €10m for FY 22 vs -€46m in FY 21, ending the year with €28m in cash (€19m estimated for Q1 23) and €65m of undrawn RCF. 

Management said they had been ‘bullish’ on inventory orders for 2022, and although performance had been positive, sales were lower than initially forecasted. As a result, the company has since reduced additional purchases from the Far East, and inventory is on track to “decline at a good level”.

Verisure

Hee Li Leung | heeli@9fin.com

Swedish-based alarm system provider Verisure (B1/B+) delivered strong Q1 23 results, with revenues growing 11.1% to €758m and adjusted EBITDA by 18.3% to €323m. 

The main positive driver was the company’s growing customer base (+458k from Q1 22 to 4.86m). Stable Average Revenue Per User (ARPU) and Portfolio EBITDA Per Customer (EPC) per month also contributed to the profitability, with a 2.5% increase and 0.9% increase, respectively. 

Management noted they have acted on pricing in the inflationary environment to maintain unit economics, which is reflected in EPC. Management considers the slight increase in attrition rate from 6.5% in Q1 22 to 7.4% in Q1 23 to be a stable and modest increase, with which they are comfortable with, but noting it’s well below historical highs, for example ~9% in 2014. They suggested attrition is stabilising and would not expect it to hit 8%, considering attrition has been between 6.2% to 7.4% for the past seven years. 

Capex increased by 10% to €205.1m compared to Q1 22, mainly used for new customer equipment, direct costs related to the acquisition of customer contracts, and general incremental investments to enhance current product offerings. The result is a low cash balance of €38.7m, but due to large headroom offered by the €700m RCF (of which €35m was drawn and €10.1m in utilised letter of credit), liquidity stands at €693.6m. 

Net leverage has steadily fallen from 6.0x in Q4 22 to 5.8x in Q1 23. Of note is that during Q1, Verisure issued the €450m SSNs due 2028 to repay its drawings under the RCF, and in April 2023, had repaid its €200m FRNs due 2025using RCF drawings. 

McLaren

Josh Latham | josh@9fin.com

9fin clients can read our full earnings review here.

McLaren received strong shareholder support at the back end of 2022 and start of 2023 — with £100m generated through the sale of the heritage assets and a further £70m via equity funding in March. While the sale of a collection of vintage Formula One racing cars and other rare vehicles stumped up much needed short-term cash for the group, it came at the expense of creditors — with further assets moved outside the restricted group.

With high cash burn recorded in Q1 23, and expectation of further inventory build up due to “logistical issues”, the company may have little runway left. According to 9fin calculations, McLaren is likely to run out of cash by Q3 23, at the current FCF burn run-rate.

The recapitalisation process is still ongoing, however. And although management remained tight-lipped on timings and amounts — a figure of £500m was previously reported but not confirmed — the company is likely to receive further shareholder support in 2023. McLaren had previously said the recapitalisation should be concluded by end Q2 23, but no timeline was given on Thursday’s call (18/05).

KCA Deutag

Matthew Hughes | Matthew@9fin.com

KCA Deutag (B/B+) has fully closed the Saipem Onshore Drilling transaction, with the latest transfer of 44 LatAm rigs. Top-line growth has continued with $380m in revenue, marking an 18.8% YoY increase from Q1 2022, despite ceasing Russian operations in 2022. Saipem assets contributed to 30.5% of Q1 revenue, emphasising the expanded business scale post-acquisition.

Organic Group EBITDA grew 11% from Q1 22, while Group EBITDA ($85m) was further supported by $45m from integrated Saipem assets (53% of Group EBITDA) with $3m of recurring EBITDA synergies achieved in Q1 (FY run-rate of $14m). Management remains confident their target of €31m of annually recurring total synergies will be met, though achieved synergies so far are only at 48% of the target.

Cash generated from operations was squeezed to $19.3m in Q1 23, from $44m in Q1 22 largely due to a $68.4m increase in receivables due to a billing system problem causing delayed invoices in Saudi Arabia, with catch-up payments expected in Q2. An additional $35.1m in Saipem acquisition costs alongside capex and lease payments reduced cash by ~$48m QoQ to $182.4m.

Leverage stood at 2.4x, with management expecting levels to fall to between 1.6-1.8x (using Q1 23 net debt) upon the growth to $380-410m FY 23 of Group EBITDA projected by management as further acquisition synergies materialise.

Lowen Play

Nour Rahmi | nour@9fin.com

German private arcade and casino operator Lowen Play, restructured in Q2 22, reported FY 22 numbers for the first time at the consolidated group level. Going forward in 2023, Q1 results are encouraging, with €105.6 in Gross Gaming Revenue per machine (AWP) per day (€97.1 in Q4 22 and €81.2 in Q1 22). This compares with 2016-2018 levels, however, the company warned that the upcoming Q2 and Q3 will be slightly weaker due to seasonality effects. 

As arcade sites sale efforts carry on, Lowen confirmed that 12 site sales have been finalised, while 10 are under negotiation regarding terms and seven offers in progress. The share of loss-making arcades (negative Adjusted EBITDA contribution) improved to 11% of sites in Q1 23 compared to 15% in Q4 22 and 21% in Q3 22, while total number of arcades has slightly decreased to 399 vs 415 in April 2022. Regulatory restrictions including OASIS, the self-exclusion system launched in 2021, continue to hit top line and profitability, alongside cost inflation impacting personnel costs and machine leases among others. 

Lowen is engaging with German lawmakers and gaming and gambling associations to push for a reversal of certain restrictions, specifically on the gaming ordinance, but management did not share a timeline. Another development includes entrance into the digital casino market through its proprietary platform. But here again, the company faces strict regulations such as advertising limits and maximum monthly deposits.

Management expects a gradual recovery and forecasts €242m in revenue and €64m in EBITDA for FY 23. On the capex front, Lowen is looking to optimise maintenance capex and will be quite selective with growth capex, with investments such as media campaigns for the digital business subject to cash availability. Cash stands at €59m as of December 2022, and the company has also fully repaid drawings under its €40m RCF.

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