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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 Arxada, APCOA Parking, Aston Martin, Diebold Nixdorf, CGG, Groupe Casino, Ontex, Pasubio, Codere, Standard Profil, Befesa, and HSE24.

9fin clients can see how bond and loan prices have changed following earnings releases, and all earnings flashes here.

Swiss specialty chemical business Arxada delivered a poor set of Q4 22 results but delivered steady performance in both top and bottom line for the full year. Softer production volumes were due to efforts to improve working capital (CHF 21m net inflow in Q4), lower demand particularly in Europe and a maintenance shutdown of its Acetylene Generating Unit in Visp (pre-scheduled for every 2.5 years). These factors led to a 25% decline in normalised adjusted EBITDA in Q4. However, FY 22 normalised EBITDA remained flat vs FY 21 at CHF 413m as effective pass-throughs fully offset input cost inflation (+8% growth in COGS for FY 22). 

The drop in adjusted revenues (-4%) in Q4 was mainly a result of a 10% contraction in Specialty Products Solutions (32% of revenues) amid weaker demand for vitamin B3 and pricing challenges in the Chinese market, according to management. The Consumer Microbial Control (42% of revenues) and Industrial Microbial Control segments on the other hand remained resilient in Q4. As mentioned by management, Q1 23 outlook indicates an improvement in profitability on a QoQ basis, while revenue is expected to remain flat compared to Q4 22.

FY 22 operating cash flow of CHF 104m didn’t cover cash interest and taxes, with the group burning negative FCF of CHF 136m (equiv. €137.36m). Capex in 2022 came in line with the full year guidance (CHF 130m - 6% of revenues), while it is expected to ballpark at 5% of revenues in FY 23, as part of a more disciplined approach. In FY 21 & FY 22, the group achieved CHF 59m in cost savings (COGS and SG&A), reiterating its CHF 131m cost savings target for FY 23.

Pro forma adjusted net leverage increased by 0.4x to 6.9x versus Q3 22. However, excluding all normalisations and pro forma adjustments to EBITDA, the figure stood much higher at ~13.0x. Liquidity pressures from negative FCF amid elevated separation costs — related to the carve-out from Lonza, transformation costs, capex and WC requirements — prompted the group to draw an additional CHF 74m under their RCF, contributing to the elevated year-end leverage.

Centerbridge-owned parking operator APCOA Parking has seen recovery in mobility traffic across end markets except healthcare which is ‘lagging behind’ as visitor and patient numbers are still down on pre-Covid levels (FY 2019). The CEO added “can’t really call it [2022] a great year […] but a good step up for 2023”.

Part of the reason explaining CEO’s comment is that volumes are still 12% lower than pre-Covid. Given the high fixed-cost of the business — paying fixed rent to the lessor regardless of parking fees collection — volumes are particularly important for APCOA. However, despite lower volumes, tariff increases throughout the year abated volume pressure, with FY 22 sales 11.1% higher than FY 19. Tariff increases flowed through P&L and mitigated operational leverage – fixed cost impacting profitability — with contribution margins, sales less rent less operating costs, 29.5% higher than FY 21.

Favourable working capital terms is a bright spot for APOCA. The operator receives upfront parking payments from long-term customers, which leads to positive working capital inflow (€16.7m in FY 22). Capex stayed low at €23.8m (3% of FY sales) with CFO adding that “we have no Capex deferral building up that we need to be dealing with in the future”. 

Aston Martin reported 27% YoY revenue growth in Q1 as wealthy consumers chose to ride out recession fears. Looking under the hood, however, the operating loss deepened to £51m in Q1 23 due to higher expenses related to Valkyrie deliveries and greater spending on upcoming hybrid and electric models. 

Similar to Q4 (9fin clients can read our full earnings write-up here), the UK carmaker recorded a free cash outflow of £118m. This was impacted by higher year-on-year capex, which according to management is expected to peak in FY 23. Working capital outflows related to higher inventory levels at the end of the quarter also impacted cash generation.

Management guidance remained unchanged in the quarter, with H1 23 Adj EBITDA & FCF expected to be similar to H1 22. This implies Adj. EBITDA of ~£30m and further free cash outflow of ~£110m to follow in Q2 23. Despite cash burn, Aston Martin has a comfortable cash buffer of £408m (which includes the £50m repayment of RCF). Management is also guiding a turnaround in cash generation in H2, which is typical for the business. 

9fin clients can read our full earnings review here.

Diebold Nixdorf’s Q1 23 earnings call on 3 May took place without a Q&A session, with management attributing its omission to ongoing discussions with lenders and banks to address short-term and long-term liquidity needs.

It was revealed in the earnings release that any “deleveraging transaction will substantially or fully dilute shareholder equity”. That’s not very material as the company’s market cap is a mere ~$66m as of writing, but it does point to the potential for a new equity injection that effectively wipes out existing shareholders.

Their options are not exclusive to an equity raise, however, with management also disclosing that Diebold has partnered with financial advisors to explore the sale of non-core assets. Thus far, only the European Retail business assets are held as for sale, but this does move the narrative a little and may point to plans to divest of more assets. As we have said before, there is the possibility that Diebold looks to divest its Retail business, as peer NCR is in the process of doing. Though the Retail business has never been expressly outlined as non-core by management, we understand there are limited synergies between the Retail and Banking divisions, creating a rationale to divest.

The near-term outlook remains supported by so-called robust demand, with the Banking product backlog growing by double-digits YoY in Q1 23 and the Retail product backlog by mid-single digits. Unit shipment volume expectations for 2023 are unchanged with good order coverage of 88% for ATMs and 68% for SCOs (self-checkouts).

More negatively, the adjusted EBITDA target for 2023 has been revised down to $380m - $420m from $470m previously, with the majority of generation to come in H2 23 ($64m Q1 23 EBITDA; $256m annual run-rate). Our stress test of the previous earnings outlook, first outlined in October and unchanged until now, saw $420m in FY 23, now the top end of company guidance. Regrettably, management did not elaborate on the factors contributing to the downgrade.

Q1 23 was a strong start to the year for CGG (B3/CCC+/B), the oil and gas support activities provider, driven by higher exploration spending in the Oil and Gas industry. Its largest segment Data, Digital & Energy Transition (DDE) totalled $144m in revenues, underpinned by Earth Data sales growth of 48% YoY to $65m. Additionally, Sensing and Monitoring (SMO) revenue blew past guidance with 95% YoY growth and breakeven EBITDA ($0m vs -$12m in FY21), supported by early deliveries of Marine assets ($34m) and growing revenue from non Oil & Gas, as highlighted by CCG’s new contract with Biosimulytics.

The positive trend for DDE continues into Adj. EBITDA of $71m in Q1 23, a 22% YoY growth, underpinned by stable Q1 Adj. EBITDA margins of 49%. Margins so far sit above management’s FY 23 objective of 39-41% and have historically troughed in Q1 before trending upwards in the following quarters.

Net cash generation in Q1 22 was weaker at only $3m (vs $69m in FY21), but the swing can be explained by last year’s favourable working capital dynamics. This year's working capital was impacted by lower collections of Q4 revenues and higher Q1 sales to be collected in Q2. Overall Q1 23 yielded lower operating cashflows for the business, dropping 58% to $55m vs $130m in Q1 22. Capex increased 23%, mainly spent for the construction of a new UK HPC Data Center, set to go live in September, with Industrial & R&D capex guided to reach $70m in 2023.

Liquidity fell slightly to $396m despite cash generation, as the RCF facility size contracted to $95m. Overall guidance for FY 23 remains unchanged from Q4 22 despite the positive Q1 results, as management notes quarterly volatility will remain high in 2023 and is too early to uplift current guidance. However, management was optimistic regarding new offshore exploration research indicating a 20%+ rise in spend and proportion of total E&P spend - a first since 2015.

Q1 23 was arguably a quarter to forget for Groupe Casino. The group struggled to mitigate rampant double-digit food inflation in its French banners. The convenience store division showed modest topline growth (+4.9% YoY) on the back of continued expansion (200 stores added in the quarter). But supermarkets/hypermarkets divisions saw serious revenue decline (-9.9%) despite cutting prices by 5-10% during the quarter to reduce the gap with competitors. The net result was that EBITDA in France was €106m lower than the same period a year ago.

The cash position in France was €286m supported by €2.1bn in confirmed RCF available to cover w/capital swings. But the headroom on the RCF covenant is €211m (debt), with secured leverage of 3.16x against a covenant of 3.5x. Cash outflow was hefty in Q1 23 at €673m but was said to be seasonal and in line with past years. 

Most importantly, if Groupe Casino investors were hoping for more clarity on two proposals being considered (a three-way merger, and a debt-for-equity swap), they got none! On the Q1 23 call management disappointingly said that “no further comments will be made on the content of these press releases.”

Ontex turned another corner in Q1 23 (earnings on 4 May) as pricing alone outpaced input cost inflation for the first time. Ontex tipped the scales in Q4 22 as pricing and cost initiatives combined to outpace input cost inflation. Q1 23 went one step better as pricing alone outstripped not only raw material cost inflation but also opex inflation in Core Markets. A €58m pricing contribution outweighed €56m of input cost inflation.

Core EBITDA (€40.7m) was further boosted by a better mix (i.e. better adult care and baby pants) to the tune of €5m and €16m of opex savings, the fruition of cost initiatives undertaken in 2022. A 9.1% margin was 40 bps better QoQ and 370 bps higher YoY.

The company has closed the divestment of its Mexican business, with latest disclosures showing a total consideration of €265m, an increase from the €250m previously reported (more here). Though immaterial in the near-term, as the deferred consideration has increased (now €40m vs €25m previously), it nonetheless represents better than expected asset value which we view as a credit positive.

Management is confident the company is on track to meet its 4.75x maintenance covenant level in June when testing resumes (testing waived in 2022), with Q1 23 net leverage of 5.3x set for a moderate boost from the Mexican divestment (level not disclosed) and the continuation of a strong comparative performance in Q2 23.

Pasubio (B1/B), the Italian producer of leather car interiors, reported resilient FY 22 results with revenue increasing 8% YoY to €357m, driven by higher volumes and pass throughs. FY 22 pro-forma adjusted EBITDA was stable at €70m (vs €67.4m in FY 21). According to management, the company has successfully passed-through higher raw hides and chemicals costs to OEM customers, as well as utilities and wages, which represent the majority of the cost base. 

Although the last quarter of the year is typically negatively impacted by seasonal effects, Q4 Adj. EBITDA increased 36% YoY due to a strong rebound in demand and higher selling prices. 

In 2022, the European light vehicles market was hit with supply chain issued, causing volumes to decline 0.4% YoY. The luxury and premium car market (which accounts for 90% of total revenue), however, increased by 10% YoY. This shows the markets resilience when faced with challenging market conditions, as OEMs prioritise high-margin production.

According to the management, the company has already closed most of the pass-through negotiations with customers for 2023. As usual, the company has also covered around 85% of inventory needs for the year, which is in line with the company’s strategy to fix material costs as soon as it has concluded pricing agreements with customers. Raw hide prices are expected to remain stable for the year and management project some revenue growth in 2023, with EBITDA largely outperforming other peers in the market. 

9fin clients can read our Restructuring Review here. 

Spanish gaming operator, Codere delivered encouraging FY 22 results this Thursday (4-May) with revenue up 67.5% vs FY 21 (+23.3% for Q4 22) which exceeded pre-pandemic levels. This is largely attributable to the full lifting of Covid-19 restrictions in all markets, most notably in Argentina, Mexico and Italy. Latam units performed well, and particularly Mexico where smoking and advertising restrictions are being lifted. Argentina also recorded an outstanding +135.6% in revenue vs FY 21 despite lower game room activity due to the 2022 World Cup in Q4 and depreciation of the Argentine peso.

Likewise, Adj. EBITDA rose by 135% vs FY 21 but remains 38% lower compared to 2019. Management says margin recovery is in line with expectations.

On the liquidity front, FY 22 FCF after dividends and interest remains negative at -€56.2m, up from -€45.5m for LTM Sep-22. Management highlighted that additional liquidity would be crucial to ramp up maintenance capex needed in Spain, Argentina and the company headquarters. The group also predicts cash availability for debt service for 2023 will be €22m, but as previously flagged, non-recurring payments (€49m) will negatively impact Cash Flow Available for Debt Service (CFADS). These include deferred supplier payments, deferred capex for slot machines purchased in LatAm, higher money repatriation costs for Argentina and deferred gaming tax and license charges. CFADS is forecasted to turn positive in 2024.

Cash stood at €129.9m, split between €76.1m on the retail side and €53.8m for the online unit, down from €144m in Sep-22 (€71.7m/ €72.3m). After unveiling its restructuring plan on 13 April, the company announced it had received over 90% bondholder support, and expects to complete it in Q2 2023. Management did not provide more information on the new CEO, who assumes the position this summer.

Standard Profil (SP), the Germany-headquartered automotive seals supplier, continued to suffer from rising raw material costs in Q4 22. Despite decent revenue growth of 27% YoY, gross margins came in at negative 5.6% in the quarter (vs 25% in Q4 21). This profit figure was slightly impacted by €17m of IFRS accounting changes, but it still makes it clear that SP is struggling to pass through cost pressures.

The company is in advanced discussions to claw back some inflation costs, but it does not expect to finalise anything until some point in May. According to management, OEMs have become “more resistant” to price increases. SP received a €10m equity injection from shareholders in April 2023 to support the ongoing negotiations with customers. Management confirmed this injection wasn’t a request from OEMs, but more a signal of shareholder commitment.

Following the earnings release the bonds dipped from 61-mid to lows of 55.8-mid. Management guidance remained fairly positive, with double-digit sales growth expected in FY 23, and full-year guidance of above €480m given. Raw material price levels are also expected to decline throughout the year, however certain inflation pressures, including labour costs, are likely to persist.

Spanish steel dust recycler, Befesa started 2023 relatively well in terms of sales, despite its initial low expectations, as revealed on Thursday’s call. The company achieved a 23% increase YoY in revenues to €322m thanks to their US expansion, specifically the ramp-up of its zinc refining operations which were integrated in September 2022. However, external headwinds including lower zinc LME prices, record-high coke inflation, and lower steel dust volumes caused an 18% decline YoY in adjusted EBITDA to €50.7m.

Following the earthquake in Turkey in February 2023 the group was forced to temporarily shut its Turkish steel dust recycling plant for ~1.5 months resulting in lower than expected production volumes. This caused a reduction of ~€4m in Q1 adjusted EBITDA YoY from the reduced output. Overall steel dust recycling plant utilisation is down YoY from 88% in FY 21 to 71.4% (74.9% when normalised for Turkey) in FY 22.

Management expects another challenging year in 2023 with a lot of volatility in zinc and coke prices. The group expects an FY 23 EBITDA of €200-230m and a proposed dividend distribution of €50m sometime in the year. Additionally, there is an expected spend of between €85-95m on capex for the year, with €20m focused on the refurbishment of their plant in Palmerton, US, and €65-75m for regular maintenance capex.

German-based TV- and E-commerce retailer, HSE24, continues to burn through obsolete inventory to preserve liquidity. Flash sales and free shipping as well as clearance costs and supply chain frustrations meant HSE made €32m in EBITDA from €221m revenue in Q4 22, a margin of 14.5%. An improvement on the 9.9% Q3 22 margin, but still a fair way out from 2020 and 2021 margins of 20.4% and 20.5%, respectively.

Management also provided some early Q1 23 detail. The DACH region’s revenue declined by single digits YoY, but further positive working capital effects continue to benefit cash flow. Freight rates have returned to “healthy” pre-Covid levels and further price increases are needed to protect margins.

Easing inflation, and improving consumer confidence in Germany gives management confidence that margin improvement will materialise. With €31m of accessible cash at Q1 23-end the €16m interest payment on the 15 May will stretch liquidity. The €35m super senior RCF remains undrawn, providing a buffer if required. Leverage continued its upwards trend, reaching 5.6x, much greater than the 4.0x level it marketed its bond issuance in April 2021.

HSE24 — Fire sale burns inventory, but preserves cash

Sitting ducks — Labeyrie teeters on liquidity, covenant, refi brink

Ontex consolidates strong Q4 with another decent print — Q1 23 earnings review

France’s OGF expands top line in 9M to December; EBITDA stable

Groupe Casino — No further questions, or answers

Atalian taps advisors for refi; urged to tackle maturities proactively

Ecotone hits CCC+ on 15% Q4 22 EBITDA drop

Standard Profil hit with negative margins in Q4

Tele Columbus bonds sink on shock Q4 22 results

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