Kloeckner Pentaplast

Read our FY 22 earnings preview here and an earnings review here. 

Kloecker Pentaplast’s (B3/B-) management reneged on their undertaking to provide FY 23 guidance during Tuesday’s (28 March) FY 22 earnings call. Amidst a change in CEO in early April, the German plastic packaging group has arranged an Investor Day for 3 May during which the new CEO, Roberto Villaquiran, will outline his vision for KP along with guidance for 2023. 

FY 22 earnings offered up few surprises as headline numbers were signposted by a trading update published in late February. Some dots were filled in, however, with Q4 22 levered FCF of €65m driven by a €107m working capital unwind which facilitated the repayment of €75m of RCF drawings. 

Management struck a positive tone on the call, despite stopping short of providing explicit quantitative guidance. Q1 23 EBITDA is set to eclipse the prior year figure of €62.6m, a positive given consumer de-stocking during the quarter, and FY 23 EBITDA looks set to grow year-on-year (YoY) to drive a de-leveraging expectation reiterated by management. 

Miller Homes 

Read our Q4/FY 22 earnings review here. Latest CapTable available here.

Thanks to a strong forward orderbook in the third quarter of 2022, Miller Homes (B1/B+/B+) achieved record house completions and EBITDA in the fourth quarter. The UK-based homebuilder delivered impressive Q4 22 results, at a period when chaos reigned in the housing market amid fallout from the mini-Budget. 

Supply chain is returning to pre-pandemic levels, and the company expects to reach a “manageable cost inflation” level in FY 23. However, the growing share of affordable housing (lower margins than private sales) could impact FY 23 Average Selling Prices (ASP) and weigh on margins. Affordable housing made up 26% of Miller’s FY 22 completions, and is guided to reach 30% in FY 23.

Management guided that so far this year, sales rates have rebounded to 0.60 from a trough of 0.26 in Q4 22. With spring being a strong season for reservations, the rate increased to 0.70 in the first three weeks of March 2023, but according to them, this should not be seen as a proxy for FY 23 sales rates as reservations are likely to cool in the summer.

Cautious land bank management (bought 745 plots vs 1,595 in 2021) and record high completions saw cash balance reach £189.8m from £100.7m in Q3 22. Current high cash levels will likely normalise once Miller Homes resumes its land buying. Dividend distributions to Apollo are off the table as the company would need to reinvest the cash into working capital as sales rates recover.

AnaCap

Latest CapTable is available here

UK investment firm, AnaCap (B2/B) faces cash generation pressure to pay down its €90m RCF with currently €88.5m drawn, before the facility size is cut to €60m in June as part of an ongoing A&E. Management said it will limit new capital deployment to enhance liquidity into 2023, €94.8m across FY 22, and repay the RCF. Overall, AnaCap posted impressive top-line numbers with €130.3m of Core Collections, up 6.4% YoY.

Adj. EBITDA performed strongly in FY 22, however the 18% YoY growth to €116.8m can be partly attributed to the 30% sale of its stake in Phoenix Asset Management for €12.3m cash, alongside €7.5m of smaller disposals. Excluding these exceptional items, the group would have reported normalised EBITDA of ~€97m and net leverage of 3.7x.

Record gross collections drove an increase in FCF to €92m, with an estimated €16m of excess cash remaining after replenishment costs. Additionally, net financing costs increased a further 7.7%, due to the floating nature of their outstanding notes. Nevertheless, Interest coverage remained strong, finishing Q4 at 5.8x vs 2.7x a year before.

Net leverage of 3.06x is currently at the low end of management's long-term guidance (3.0x to 3.5x). LTV is also on the decline, falling to 65% from a peak of 68% in Q2 22, and comfortably below the 75% RCF covenant. AnaCap said it is in advanced discussions with banks to extend its RCF maturing in June to December 2023, alongside an expected facility size reduction to €60m. This could place the company in a difficult situation, as it must stump up some cash to repay the €88.5m currently drawn under the RCF. 

Liquidity is the focus for management in 2023, who aim to reduce leverage further before refinancing their Senior Secured FRNs due August 2023, after a failed attempt in February 2021. Management commented it is currently considering both public and private refinancing options, and discussions with market participants will begin over the coming weeks.

Asda

UK supermarket chain Asda (B1/BB-) reported underwhelming FY 22 results with flat LfL sales (+0.2% YoY) and a 24% slump in adjusted EBITDA. Q4 sales were up 5.4% YoY which is attributed to volume growth in Food and General Merchandise. The group remains #3 in the UK (14.3%), just behind Sainsbury’s (14.8%) and market leader Tesco (26.9%), although it continues to see market share losses to discounters. Management declined to comment on rumoured merger discussions with EG Group. 

The Food segment was the best performer with a 5.9% growth in Q4 attributable to the revamping of the existing range as well as the launch of new lines. The group’s clothing line has however struggled in Q4 due to the implementation of a new inventory system which affected stock availability, recording a 5.1% sales decline. 

Unsurprisingly, Asda has been subject to inflationary pressures on both the supply side and cost base, with grocery prices hitting a record high of 17.5% this March. Due to its decision to keep retail prices low and not pass costs through to customers, alongside energy, freight rates and wage increases, EBITDA took a 24% hit during the year and 19% during Q4. 

The group has offered to dispose of 13 of the 132 Arthur Foodstores acquired from the Co-op,  identified by CMA as areas of competition concern. These stores would contribute an additional £13m in EBITDA in Q4 and £42m for the year, but their results haven’t been consolidated due to the ongoing CMA investigation.

Capex spend was conservative at £276m compared to FY 21 (£420m), with 15% invested into “Project Future” relating to Asda’s IT separation from ex-owner Walmart. Total FY 22 project spending amounted to £238m (£49m as capex and £189m as Revenue Expenditures). Asda continues to treat Project Future costs as a one-off (exceptional) item, with future costs expected to remain significant for 2023 and 2024.

Net leverage stood at 4.2x (vs 4.1x in Q3 22), with most significant maturities not due before 2026. Management reiterated they are committed to repay the £200m bridge facility used to acquire Coop’s stores. The grocer’s liquidity position remains strong at year-end, with £695m of cash, and a fully available £500m RCF. 

Stonegate Pubs

British pub operator, Stonegate (B2/B-), continues to be hit by inflationary pressures. Like-for-like sales grew by 12% to £522m in Q1 23 (ended Dec-22), mostly due to volume increases compared to prior year which was still being affected by Covid, but adjusted EBITDA struggled, falling by 5.4% YoY to £104m. With a new CEO joining in February, the group continues its efforts in recovery, implementing inflationary mitigation measures for FY 23, and resuming its disposal program. 

Despite boasting strong like-for-like revenue growth across all operating segments, energy, labour and food costs has severely impacted profitability. Management estimate a further £85m (excluding utilities) of cost inflation will impact FY 23 profitability. To tackle this, a mitigation plan has been put in place, which includes price increases (£80m), menu engineering (£6m), and a recently launched profit protection plan (£6m).

Capex spend totalled £49m for the quarter, significantly higher than the £25m seen in Q1 22. This comprised of £6.3m related to expansionary schemes, £7.7m used to convert leased properties to company operated, with the rest spent on general maintenance. 

Stonegate is continuing with its disposal programme, selling 67 sites in FY 22, which generated net proceeds of £42m at a premium to valuation of £7.2m, at a multiple of around 15x. As we outlined previously in our asset disposal analysis, under the bond covenants Stonegate can apply net proceeds to pay down debt, invest in additional assets or make restricted payments. In Q1, 21 sites were sold earning net proceeds of £9.6m. Management hinted that there are more disposals in place this year, following on from rumours of the sale of 1,000 pubs according to Bloomberg. But management guided that the sales process is likely to happen later this year, as it looks for more favourable market conditions. 

At Q1-end net debt stood at £3,781m. Meanwhile pre & post-IFRS 16 net leverage came in at 7.7x and 9.6x, respectively. The group aims to maintain sufficient liquidity headroom throughout FY 23, with a minimum cash balance of £50m, in order to prepare for debt liabilities. Stonegate currently holds £122m of liquidity, including £73m of credit lines due in Sept 2024 and cash balances of £68m. A worrying factor which may lead to triggering covenants is the group’s cash, which has fallen by £65m this quarter, partly as a result of debt repayments and prepayments in relation to contracts with energy suppliers. 

It also faces £100m of amortisation payments in September on its Unique securitisation facility, with a £20m-£25m shortfall, likely to be paid via utilising its liquidity facility. Combined with large amounts of debt maturing July 2025, the high leverage poses a risk, which may require further selling of assets, or a sponsor injection (from TDR Capital) for an A&E or refinancing. Management suggested that a 5.5x leverage figure may be required in order to refinance. 

Upfield

Read our Q4/FY 22 earnings review here.

Upfield (Flora Food) (B3/B-/B) delivered on-target Q4 22 and FY 22 earnings on 29 March, with revenue and EBITDA in line with those derived from management guidance at Q3 22. De-leveraging was strong, with FY 22 reaching 7.2x down from 8.4x in FY 21, ahead of 9fin’s expectations. Q4 22 liquidity was such that the company could afford to repurchase a combined €250m-equivalent of their PLN-denominated and GBP-denominated TLBs in February.

Management did not state how the redemptions were funded, but the notes to the financial statements state that the solicitation process to reduce the loans was done “using financial headroom”. There was certainly plenty of headroom under the 40% springing covenant on the RCF with senior secured net leverage at 5.6x vs a cap of 8.5x.

Pricing contributed 36.5% to Q4 22 revenue with volume and mix offsetting by 14%. That meant that for FY 22 in total, revenue was boosted 29% by pricing and hit with a 10.5% volume and mix impact, of which 6.5% was underlying.

The 2023 earnings outlook doesn’t look much changed from November, with management guiding to mid-single digit sales growth, continued EBITDA growth and further de-leveraging. Input cost inflation is expected to persist in the near-term, but the annualisation of 2022 pricing initiatives still has a big part to play in H1 23 in particular.

KCA Deutag

Upon wider integration of the $550m Saipem Onshore Drilling acquisition (announced in June 2022), KCA Deutag (B/B+) reported positive Q4 results with further realised acquisition synergies expected in 2023. A $78m revenue contribution from integrated Saipem assets boosted quarterly revenues to $348m, and managed to offset revenues lost from exiting Russian operations last year ($56m).

$49m of organic EBITDA in Q4 is supported by an additional $26m from Saipem. Management said they expect total annual recurring EBITDA synergies to reach $24m, primarily from overhead cost savings, once Saipem is fully integrated, and continues to believe this number is obtainable. The acquisition is expected to be fully completed in H1 23.

Cashflows remain positive after a $22m impairment of Russian operations payables, supported by lower working capital after large receivables payments were collected and tighter inventory management. Current annual interest payments of $52m (FY 22) are forecasted to sharply increase to $120-125m in 2023 due to the new floating notes and increased RCF. Management commented it does not expect to make any cash payment on the $200m PIK notes in 2023. 

Leverage rose sharply to 2.5x from 1.3x in Q3, but is expected to drop as more Saipem operations come online. With a pro forma EBITDA of $359m including $136m of full-year Saipem onshore drilling contribution, leverage stands at 1.7x.

Morrisons

Asda’s peer, UK grocer Morrisons (B2/B/B+) reported unimpressive Q1 23 profits, in line with what it had predicted at the end of 2022. To boost performance, the group has put in place a three-year £700m cost saving program and a further £500m of working capital improvements targeted for the medium term. Regardless, performance continues to be hit by cost inflation and consumers continuing to switch to discounters.

LfL quarterly sales grew 2.1% YoY, with the Fuel business being the main contributor (+2% YoY). The retail segment, including supermarkets and online channel, lagged behind (-0.6% YoY) Asda’s recent Food segment performance (+5.9% YoY), but as management mentioned, it has been on an upward trajectory in recent quarters. The conversion of McColls’ stores acquired from its distressed wholesale supplier last year is still underway, with ten stores per week converted to Morrisons Daily, contributing 1.3% to LfL growth alongside new stores. 

Since September 2022, Morrisons’ lost its Big Four position to Aldi, who now has a 9.9% market share (vs Morrisons at 8.8%). Both HY grocers Morrisons and Asda have been largely hit by consumers shifting to discounters, but Asda seems to be affected at a lower degree.

Underwhelming Q1 23 Underlying EBITDA of £201m (£155m including leases), declined from £338m a year ago, as a result of loss-making McColls acquired in the period, the timing of lower commercial income which is expected to unwind in Q2, alongside negative sales volumes and cost headwinds. Underlying EBITDA is expected to be £70-£90m higher YoY (vs £71m in Q2 22) in Q2 23 driven by the cost savings program and the unwinding of the commercial income timing headwind resulting from the change of the fiscal year end.

£195m of proceeds from seven sale & leaseback transactions and a reduction in capex (-£20m) helped Free cash flow (FCF) jump to £279m (vs £205m in Q1 22). Since then, a further £80m has been agreed, taking total value of transactions to over £300m so far, while management reiterated the company is not a “distressed seller” although it continues discussions with other investors to further optimise the freehold portfolio. Capex guidance for 2023 continues to be lower compared to FY 22 (£276m).

Despite the £440m inter-company loan repayment, net leverage continues to be high at 6.8x vs 5.8x in Q4 22. Management estimated interest payments for 2023 will be around £400m, but they failed to provide a leverage target for the full year.

9fin Secondary Content

Kloeckner Pentaplast delays 2023 guidance amid CEO change – Q4 22 earnings review

Miller Homes outperforms in Q4 22, FY 23 volumes to decline

Upfield delivers on FY 22 targets, improves leverage and pays down some TLB – Q4 22 earnings review

Salt gets salty over ratings