In this week’s edition we cover CBR Fashion, Titan Cement, Keepmoat, SGL Carbon, Alain Afflelou, Rekeep, Salt, CABB and Boparan. 

See how bond and loan prices have changed following earnings releases.

Salt 

In FY 22 Salt performed well, delivering revenues of CHF 1,078m, a +2.9% improvement YoY. In the same period, the group reported EBITDA of CHF 450.7m with a margin of 41.8% — the “strongest in the industry” according to management and in line with prior years. Postpaid Services contributed the highest revenue growth, up CHF 20.2m YoY, helped by a +106,900 increase in its mobile subscriber base, the highest net addition in the past ten years. Aside from discussing the departure of CEO Pascal Grieder and fibre expansion plans, management highlighted their dissatisfaction with their Moody’s and S&P issuer ratings (B2/B+). 

To support their argument, Salt provided an industry breakdown of key credit metrics amongst peers. Pre IFRS net leverage of 3.4x was the lowest in class, but after taking into account a CHF 150m dividend payment in January 2023, net leverage is pushed to 3.8x. Moody’s has mentioned in the past how all excess cash flow tends to be used for shareholder remuneration. 

Nonetheless, the group held a strong cash position of CHF 356m at year-end, which was complimented by FCF generation of CHF 186.7m in FY 22. Other strong credit metrics, including an interest coverage of 7.7x, supported managements argument for a ratings upgrade. 

In 2022 Salt reached its network coverage goal, hitting 99.99% coverage across Switzerland. Looking to improve on this, management believe the SpaceX satellite collaboration will help coverage reach 100%. As of FY 22 Salt has ~1.7 million households with FTTH fibre. Management intends to increase this by 1 million in 2025 and a further 1 million by 2030. This goal will be aided via the successful Swisscom fibre agreement expansion. FY 22 capex was CHF 204.6m vs FY 21 CHF 184m, as a result of increased mobile network investment and subscriber associated costs (incremental IRUs).

CABB

German chemical producer CABB is looking to refinance its bond maturities “within the next 10 months”, mentioned CFO Markus Schürholz on Friday’s conference call (24 March). Schürholz hinted at a fully secured structure from the current mix of SUNs and SSNs.

CABB has deleveraged almost two turns since the 2019 refinancing deal, with net leverage falling to 3.9x from 5.8x. If CABB decides to go for a secured cap structure, i.e. repay SUNs using new SSNs, net secured leverage would rise to ~3.6x from current levels of 2.7x. The 2019 refinancing deal was marketed off a 4.3x secured net leverage, so a 3.6x secured net leverage looks achievable for the upcoming refinancing.

An analyst commented on the call that now may not be the correct time for a refinancing. “I think timing a deal now will not get you the kind of thing you want, even though, as you say, the company has performed very well recently. So that's my personal opinion,” they added. 

Management declined to comment on the potential for a dividend payment to sponsor Permira as part of the contemplated refinancing. The company has shelved the plans for an IPO. Read our Deal Prediction where we explore potential options for the company and sponsor. 

The group's FY 22 revenue reached €755.5m and grew +28.3% YoY, while Adjusted EBITDA climbed at €162.6m (+27.2% growth YoY) with margins well above the double digit territory at 21.5% (vs 21.7% in 2021). CFO described FY 22 as “best year in the history of the company”. Effective price adjustments across all products and robust production volumes — especially in the Exclusives and Specialties business line — amid rising input costs were the main driver. However, FY 23 outlook for EBITDA suggests a decline in growth at the single-digit range.

Operating cash flows (OCF) were solid for the year, at €150.7m, attributed mostly to the significant EBITDA development, while capex remained stable at €71.6m (+4.4% increase YoY) facilitating the company’s growth projects related to production facilities expansion and optimisation of existing sites. Liquidity stood at €124.4m supported by €69.9m of cash and €54.5m of undrawn credit lines.

Boparan

UK poultry producer Boparan mentioned potential incoming liquidity issues, as it reported strong Q2 23 revenue performance but disappointing EBITDA, with leverage ticking up sequentially on an RCF drawdown. 

The company stated that there may be insufficient liquidity in December 2023 in a “reasonable worst-case scenario”. Management were confident on the earnings call, however, of EBITDA improvement in H2 23 and the options available in a downside scenario. 

Q2 23 (November to January) revenue increased by 23.8% YoY to £782m, driven by pass-throughs of inflationary costs. Adjusted EBITDA disappointed, however, with the £15.6m figure only delivering a 2% margin compared to a 2.4% like-for-like (LfL) margin in Q2 22. The EBITDA quantum and margin were also down sequentially, with Q1 22 EBITDA of £17.8m delivering a 2.4% margin. 

Leverage ticked up sequentially to 4.8x from 4.5x on the back of a £50m drawdown of the company’s £80m RCF to support liquidity. A £37.2m FCF outflow was impacted by working capital (£8.1m cash investment) and the payment of the coupon on the company’s bond (cash interest of £23.4m). Nonetheless, leverage remained on track with management’s target to be below 5x.

Liquidity of ~£67.1m comprising £37.1m cash and £30m RCF capacity is of concern, as noted by the company in its financial statements. In the event of a “reasonable worst-case scenario” (20% EBITDA reduction and WC outflow) the group may not have enough liquidity over the volatile Christmas period in December 2023. Management outlined on the call that the foreseen liquidity shortfall in the worst-case is “not material” and portrayed a confident tone with leverage expected to remain below 5x and cash flows to improve on the back of a working capital unwind.

In a worst-case, management outlined a variety of options available including supply chain solutions, inventory management, M&A and debt options.

The £475m 7.625% SSNs due 2025 lost around six and a half points post-earnings, reaching a cash price of ~67.5-mid on 24 March 2023 and are down a further two points on 27 March 2023.

The company reported earlier in March that CEO, Ronald Kers, who has been in the role for five years is moving to peer Valeo Foods later this year after serving six month notice period.

CBR Fashion

CBR Fashion (B/B2), the German mainstream fashion retailer, reported positive FY 22 results, despite a -16% decline YoY in Adjusted EBITDA in the fourth quarter. FY 22 revenues increased 19% to €642m, exceeding the most recent FY outlook of ‘above €620m’. The return on wholesale revenues contributed significantly to growth, with preorders up 16.4% in Q2 and 25% in Q3, although there is a slight reversal in preorders for Q1 2023 (-5.35% YoY).

EBITDA margins eroded by 2.2% in FY 22. Increased material and sourcing costs were only partially passed on to customers and higher logistics and shipping costs decreased e-commerce margins to a four year low. Covid-19 lockdowns in 2021 led to CBR carrying increased inventory levels into 2022, reflected in unsold write-down losses. Management’s outlook for EBITDA margins for 2023 is 20-21%, in line with 2022’s 21.2% result.

The company stocked new season inventory during the year, as a hedge against future sourcing issues seen in 2020/21, which resulted in slower inventory turnover and elevated working capital by 41% YoY. In March 2022, CBR also launched a new menswear brand called ‘Street One MEN’, requiring additional expansion capex for store refurbishments and IT infrastructure.

CBR paid a €42.6m dividend to PE sponsor Alteri in Q4, leaving €67m cash and liquidity of €117m with an RCF of €50m. Shareholder distributions totalled €127.8m in 2022, with payouts allowed by bond covenants as long as net leverage remains below 3.0x. Leverage increased from 2.65x in Q3 2022 to 2.96x in Q4 2022, while management seems comfortable with a minimum liquidity level of €100m.

Adjusted FCF (Adjusted EBITDA excl. capex) stood at €127m in FY 22 (vs €119m in FY 21), while 92.9% cash conversion exceeded the 91% guidance. Considering the ~€9m working capital increase, FCF would reduce to €118m, with a cash conversion of 86.3%. Management continues to assess its capital structure, but did not disclose any plans to use cash for debt repayments or business expansion.

Titan Cement 

Titan Cement (BB), a Greek manufacturer of cement and building materials, delivered robust FY 22 results, with record sales growth of 33.1% YoY, thanks to solid domestic volumes, inflated costs passing-through pricing strategies and favourable FX fluctuation. Despite significant inflationary headwinds in 2022, mainly from energy and transportation costs (energy costs peaked at €479.8m in FY 22, a 72% spike YoY), the group’s profitability and margins recovered well in FY 22 with EBITDA reaching €331.2m (+20.3% YoY) and EBITDA margin standing at 15.6% in Q4 vs 12.3% in Q4 FY 21.

Investments for the year focused on the US expansion (65% of total capex for FY 22 and +100% YoY), remaining consistent with Titan’s $300m growth investment program between 2021-2023 which includes several energy cost saving projects, capacity expansion in logistics and sustainable investments. FY 23 outlook for group’s capex fluctuates around €150m, while starting from 2024 the spending pace is expected to decelerate.

Operating free cash flow (OFCF) was slightly positive for the year, at €18.8m, but dropped by -82% compared to €104.7m in FY 21. This was due to large investments in the US, with capex reaching a 15 year high, alongside a spike in working capital (+109% increase YoY) due to elevated cost of inventories built-up to keep up with the strong demand. In March 2023, management proposed an increase in dividend payouts of €0.6 per share, a 20% rise YoY. Dividend payments and share buybacks amounted to €60m in FY 22.

Despite leverage returning to the lower bound of its 13 year range at 2.4x, management stated their intention to further deleverage, suggesting a FY 23 base case net leverage target of around 2x. Titan’s debt maturity profile indicates no material debt expiration up until November 2024, when the €350m SUNs mature, with the majority of debt being fixed rate bonds and bank debt. As of December 2022, the group had €105.7m liquidity consisting of cash and cash equivalents, as well as undrawn bank committed and uncommitted lines of €234m and €111m, respectively. 

Keepmoat 

Full earnings review, and latest CapTable are both available for 9fin clients.

The September mini-Budget unsettled the UK housing market as first-time buyers, Keepmoat’s key customers, pulled back from buying houses as banks withdrew mortgages. The UK housebuilder saw cancellation rates doubled initially, which then started to normalise since the reversal of the Budget.

Keepmoat reported an EBITDA of £12.2m in Q1 23 (November to January), down 19% YoY due to build cost inflation surpassing sales price increases. Houses sold to government-approved organizations — Registered Providers (RPs) — increased in Q1 to offset weak private demand. Houses to RPs are priced at a slight discount (tentatively 5%) relative to private customers which also impacts margins, told management.

Scope to increase house prices is limited given the current state of the UK housing market, CFO Mark mentioned in the Q4 earnings (in February 2023). Therefore, margin improvement would likely be achieved by managing cost and increasing house completions.

A forward order book of 2,554 units gives strong sales visibility for Keepmoat with 100% sales secured for Q2 23. Following the typical pattern of land purchasing in Q1, Keepmoat’s cash balance fell to £49.6m from £84.5 in Q4 22. The £70m super senior RCF remains undrawn as of the end of Q1 23.

SGL Carbon 

SGL Carbon (B2,B), a German producer of graphite and carbon fiber solutions, reported strong FY 22 performance driven by successful pass-throughs of high raw materials and energy costs. FY revenue increased to €1,135m (+12.8% YoY), below the most recent €1,200m guidance, due to a decline in selling prices and maintenance costs in Q4 22 (vs exceptional Q3 22 performance). In March 2023, the group extended its existing RCF and is planning to address its outstanding €250m SSNs due 2024 later this year. 

FY 22 EBITDA before exceptional items (EBITDApre) reached the lower end of the €170m-€190m recent guidance while management estimated 2023 sales will be close to 2022 levels and EBITDApre in the €160m-€180m range. 2023 profitability will be impacted by continuing volatility in energy and raw materials prices, as well as higher labour and financing costs. The company will not be able to fully pass through cost increases to consumers, according to management. The disposal of the business in the Gardena US site (~€30m revenues, per management) and expiration of the BMW i3 contract may also put pressure on profitability.

Despite hedging 2022 energy requirements, energy bills increased by around €25m-€30m YoY, according to management. The company also largely covered its 2023 energy requirements in the second half of 2022. However this was done at record high energy prices during the second half of 2022, and therefore management could not forecast the impact on this year’s profitability. 

FY 22 free cash flow continued the negative trend seen in previous quarters declining to €67.8m (vs €111.5m in 2021). However, a substantial part of cash flow in 2021 came from the sales of land in Meitingen (Germany) and Gardena (US) (€30.6m). Restructuring costs (€24.7m) related to the two-year program aiming at improving cost efficiencies weighed on cash generation. With the plan ending in 2022, there will not be such costs in 2023. Inventory build-up due to rising volumes affected net working capital (WC), resulting in an outflows of €8m (vs 2021’s €18.3m inflow). 

With regard to its capital structure, the group renewed its €175m RCF due 2024 into a new €100m RCF and a €75 Term Loan facility due 2026 (undrawn as of December 2022). During the call, management said they will have to address its €250m 4.625% SSNs due 2024 later this year. The bond is callable at par from 30 March 2023.

Alain Afflelou

French optician chain Alain Afflelou (B2/B/B) reported resilient Q2 (ended December 2022) results with total network sales growth of 3.2% and EBITDA growth YoY of 11.2%. Sales growth is largely attributable to volume since management stressed that the group did not pass on any price increases to customers. Indeed, inflation has a limited impact on its French operation while the group focused on price-oriented offers to navigate these concerns in the Spanish market, such as NextYear, its buy now, pay later offering.

After an exceptional FY 21 resulting from the ramp up of the government’s 100% Santé initiative, the company’s hearing aid unit (10% of FY 22 network sales) recorded a slight decrease of 3.6% in sales for the six months ended January 2023 and a 2.7% decline during Q2 2023. The government, through 100% Santé, covered 100% of hearing, dental and optic care treatments. More notably, the Spanish business (14.8% of FY 22 network sales) benefited from strong performance in both its optical banner and hearing aid business, delivering 10.4% and 13.2% YoY growth in network sales and segment EBITDA respectively.

Alain Afflelou’s strategy is currently focused on expanding through its franchise model, adding 46 stores to its network since January 2022. Management highlighted that this strategy comes with limited capex expense. The initiative is partly offset by the group’s decision to progressively close down its discount stores branded Optical Discount. This unit has historically required higher advertising expenditures, yielded lower royalty rates and subsequently weighed down on the group’s profitability. In 2022, the group has reduced its discount network by 57 stores and is in the process of converting the remaining locations into Alain Afflelou stores. 

The group’s long-term goal is to reduce its directly-owned store (DOS) perimeter and foster its expansion through franchises. This is done through its Adelante programme, providing financial support and training to franchise candidates. When quizzed on the progression of the DOS perimeter sales process, management reiterated that AA was willing to take its time and did not want to sell at a discount. The group did not however provide any timeline or milestones regarding this plan. 

We note a working capital outflow of €7.4m linked to communication and exclusive products which management assured was temporary and was ‘already back to normal as of March 2023’.

Leverage stood at 5x (vs 5.1x in previous quarter), while the company boasts a comfortable cash balance of €61m, up €25.2m vs January 2022.

Rekeep 

Italian facility management provider Rekeep (B3/B) reported shaky FY 22 results, despite having positive growth in both revenue and pro-forma EBITDA of 15.4% and 9.1% respectively. However, growth in EBITDA was attributable to a tax credit offered for inflated energy costs, which contributed €27.7m in compensation, €22.9m of which was from Q4 22.

Excluding tax credits, EBITDA fell by €16.8m to €103.1m compared to FY 21, due to loss of customers early in the year, particularly in the facility management segment, and insufficient backlog to cover the loss. Inflated energy and transportation costs, and the lingering Covid impact also contributed to the decline. Rekeep’s commercial business also fell short of FY 21 (€898m in contract value), to €762m in contract value for FY 22. Contract backlog however, has increased slightly by 3.4% to €3.1bn, 76% of which was in the healthcare market.

Energy prices has had a negative effect on net operating working capital (NOWC) and net leverage. As energy suppliers accelerate terms of advance payments and guarantees, the time lag with customer invoicing has worsened, straining the company’s free cash flow. To finance the increase in NOWC, the company has been using specific working capital finance tools rather than bonds or term loans, with additional €23.8m in reverse factoring and €33.5m in non-recourse factoring. NOWC increased from €42.6m Q4 21 to €68.5m Q4 22, reflecting an increase in volumes for energy management. Capex is stable at 3.1% of LTM revenues.

For FY 23, the company aims to manage costs whilst discussing price increases with customers, revamp the laundering business, and prioritise deleveraging. Net leverage was at 3.3x, lower than 3.9x in Q3 22. Rekeep had €198.5m liquidity available as of 31 December 2022, composed of cash (€84.2), short term financial assets (€7m), and an undrawn super senior RCF (€75m). 

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