Carel Industries SpA
MIL:CRL
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Carel Industries SpA
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Carel First Quarter 2020 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Francesco Nalini, CEO of Carel. Please go ahead, sir.
Thank you very much. Good afternoon, everybody, and welcome to our call for the presentation of Q1 2022 results. Thanks for being here.
As usual, I'm starting from Page 2 with the most important financial highlights. We're happy to report once again a very strong quarter. It's actually the fifth consecutive quarter where we reported double-digit organic growth rate. We saw the confirmation of a consistent acceleration in demand in several key applications, both in HVAC and refrigeration. On top of this, we had the positive contribution from our recent M&A activity that performed even better than expectations.
This led to a revenue growth of 32.1% compared to the same period of last year. Excluding the positive contribution coming from the exchange rate and from the acquisitions of CFM and Enginia amounting to approximately EUR 8 million, like-for-like growth is in any case above 20% at 21.7%. This was possible, thanks to the ability of the group to mitigate the raw material shortage scenario, which unfortunately is still with us in full, also due to the COVID-related restrictions in China. Fortunately, in the region so far, this is causing some delays but not any major disruptions to our supply chain.
EBITDA margin in the period was 21.1%, in line with the full year 2021 and discounting the prudential full devaluation of all outstanding receivables to customers in Russia for approximately EUR 500,000. We started in this period, as expected, to see some positive price effects amounting to a low to mid-single digit.
We also had operating leverage and this, together with prices, help to offset the higher raw material costs due to the shortage, while at the same time, supporting increased investments in our strategic priority, which is growth, investments in digitalization, innovation and operational resiliency. In terms of operational resiliency, we also increased our safety stock by approximately EUR 9 million, focusing on the most critical components for continuity and on the overlap and duplication of sources.
Moving now to Page 3. We can see some more figures on the results. Revenues at EUR 128.9 million are up 32.1% from the EUR 97.6 million of Q1 2021. This includes EUR 2.4 million of positive contribution from foreign exchange, and without that, growth is 29.6%; and also EUR 7.8 million from M&A, without which, growth is 24.1%. This growth is particularly remarkable if we consider that the comparison, which is Q1 2021 had already reported a very high growth of approximately 24%.
EBITDA at EUR 27.2 million is up 23.8% from the EUR 22 million of last year or 21.1% on sales, in line with the full year but down from the 22.5% of Q1 '21. Again, we started to see a positive price effect as expected of a low to mid-single digits, and we have operating leverage, and this offset cost inflation. But at the same time, we are scaling up our investments for growth in areas like digitalization, innovation and operational resilience.
Net profit at EUR 16.4 million is up 22.8% from the EUR 13.3 million of last year, thanks to the operating result. Tax rate is 20.5% in the period, in line with expectations. It's slightly higher compared to last year due to a slightly different geography mix. CapEx at EUR 4.7 million are up from the EUR 2 million of last year, mainly due to the construction of the new plant in Croatia.
On Page 4, we can see the revenue breakdowns. To the left, we see the breakdown by region. Almost all regions had an outstanding growth. EMEA grew by 31.6% net of foreign exchange or approximately 22% organic in spite of the still severe shortage situation. We continue to see strong demand from what we can call the secular applications, chiefly heat pumps, data centers, indoor air quality and efficiency of buildings as well as food retail.
In Asia Pacific, sales grew by 23.1%, net of the foreign exchange and basically in line with last year. And that's remarkable if we consider that GDP growth in China in Q1 was half what it was in 2021. We still have a very positive demand even if we do expect some normalization in the coming quarters, but at a good level of growth. Specifically in China, we continue with good performance in data centers, heat pumps, indoor air quality and food service, while food retail is still a little bit subdued.
In North America, sales grew by 29.8% net of foreign exchange, driven mainly by data centers, indoor air quality and food service. In Latin America, sales grew by 7% net of foreign exchange. Here we had a deceleration in growth compared to the previous quarter due to a couple of contingent situations.
One is the shortage that for logistic reasons, affected Latin America more than the other regions; and the other is a seasonal effect for food retail in Brazil, which is a relevant application for us in Latin America. The reason is basically that food retail typically peaks in Brazil later in the year, but last year, we had a peak in the first quarter due to the backlog generated during the pandemic. These 2 effects, in any case, are entirely contingent.
To the right, we can see the sales breakdown by market. HVAC grew by 30.2% net of foreign exchange or approximately 24% organic. Again, we confirm the consistent acceleration of the secular applications, especially heat pumps, but also data centers and indoor air quality. Refrigeration grew by 28% net of ForEx, with a good performance both in food service and food retail, with food retail, especially positive in EMEA.
And I'll leave it to Nicola to comment the items below the EBITDA on Page 5.
Thank you, Francesco. The Slide #5 details the group result from the EBITDA to the net profit. The first quarter 2022 result was impacted by higher D&A costs, mainly related to the M&A activities performed during last year and the consequent purchase price allocation process. In the period under review, the financial charges were pretty in line with prior year figures, with reference both to financial charges and ForEx gain and losses, too.
The tax rate of the period was 20.5%, with an increase compared to last year's figures, mainly related to a different country mix. The group net profit as of March 2022 was equal to EUR 16.4 million compared to EUR 13.3 million of the same period of 2021.
Slide #6 shows the net financial position evolution of the first quarter 2022. Excluding the IFRS 16 liabilities, the net financial position as at March 2022 amounted to EUR 37.9 million. It was equal to EUR 30.2 million at the end of the last year. The robust cash generation of the period was offset by strategic increase in net working capital. In fact, in the last quarter, the group decided to increase the stock levels in order to serve the strong demand and to face the shortage in some components. It should be noted that the DSO at the end of the period was pretty in line with the last year's level. The CapEx of the period were equal to EUR 4.7 million. They were EUR 2 million at the same period of last year.
I leave Francesco to go on with the presentation.
Thanks, Nicola. So now moving to Page 7. To summarize, on the demand side, the scenario remains very positive, both for HVAC and for refrigeration. We confirm the acceleration of what we call the secular applications that is heat pumps, data centers, indoor air quality and food retail. Thanks to a broad range of solutions and our resilience, we managed to mitigate the effects of the raw material shortage and reported for the fifth consecutive quarter, a double-digit organic growth rate, by the way, over an already very strong Q1 of 2021.
As you know, in the last 18 months, we have taken significant initiatives to further increase our operational resilience. We did the pivoting and duplication of 1/5 of all the microprocessors embedded in our product, of course, the most critical ones. We increased the time horizon of our supply orders and entered into specific agreements with vendors. We increased our safety stock of components critical for continuity and for the duplication and overlap of sources. And furthermore, the new plant in Croatia will increase our production flexibility.
Needless to say, there are still important challenges. The electronic component shortage is unfortunately still with us. The current lockdown situation in Shanghai and the possible expansion to Beijing could create further disruptions in the supply chain. However, fortunately, so far in China, we had some delays, but not any significant disruptions. Likewise, so far, we didn't see any supply chain disruptions related to the conflict in Ukraine.
To conclude, the very positive demand scenario and the resilience shown by the group over time will be fundamental to cope with those challenges. Thanks to this, we expect to report also in Q2 a significant growth even if with a lower magnitude than in Q1 due to temporary supply chain bottlenecks. We expect to report a low to mid-double-digit growth in revenues and a like-for-like quarter-on-quarter basis.
For the full year, we remain confident of good demand trends in the most important applications. However, due to the many uncertainties on the macro side as well as on the supply chain side, we prefer to wait a little bit before providing a precise guidance.
Thank you very much for your attention. We're now happy to answer to your questions.
[Operator Instructions] The first question is from Will Turner of Goldman Sachs.
A couple of questions from me. The first one is on the trade receivables buildup. Is there any particular region or customer that's the reason for such a large increase in trade receivables in the quarter?
Will, this is Nicola. The growth in terms of account receivables is only for the increased volumes. There are no relevant issue with customers. And if we are going to analyze just the overview, it is decreased compared to the previous quarter. And so it is just the effect of the volumes because even March was a very strong month in...
Okay. That was interesting. And then in terms of the order development or at least the growth in the quarter, it came in quite a bit stronger than what I was expecting. Was -- do you think in the quarter, you've experienced any kind of prebuying? Obviously, there's been a lot of -- for a while now, but I feel like in the first quarter, there's been a lot of companies commenting on that they may have been prebuying as customers try to get hold of equipment given the longer lead times that there are across many industries.
Well, yes, probably -- probably we'll -- there is this phenomenon. It's very difficult to quantify, but it's probably there. I mean the supply chain is definitely trying to stock up as much as possible, which translates into orders more than actual revenues of our shipments because there are not enough materials to actually stock up the supply chain downstream. So it's more in terms of orders.
Having said that, we believe that the strong underlying trends that we have in some of our applications are pretty structural. So it's not easy to really read the end demand. There is definitely some, let's say, some trends like the one you mentioned in terms of trying to restock the supply chain downstream. But at the same time, we are very confident that there is structural trends underlying.
The next question is from Emanuele Negri of Mediobanca.
I have 4 questions, and I'm going to do this in a series. So the first one is about the working capital. What kind of working capital do you expect to have on sales for the end of the year in terms of incidence of working capital on sales?
And then the second one is about profitability. Do you confirm your margin guidance of around 19%, 20% for the end of the year?
Then it's something you talked about during the presentation, but I want you to -- I will ask you to elaborate a bit more on potential impact of lockdown in China on the business if this lockdown is going to be more severe than what you're observing today.
And then just to confirm, about the second quarter sales guidance you gave, is this at constant perimeter? I think it is, but I want just be sure about this.
So thank you for the question. I answer to that. I'm Nicola, answering to the first question. In terms of working capital in the -- even in the last call that we had, we were giving a guidance of around 16% on, let's say, with reference to the year of the working capital on sales. And now we think that we can compare this guidance, it should be something around 16%, 17% on the other level.
Okay. Concerning profitability, we confirm our target of profitability between 19% and 20%. Again, our priority is growth and not increasing profitability. So for this reason, I mean, we definitely intend to continue investing. We resumed strong investments in like digitalization and innovation.
Let's say that we're starting to see a significant price effect now. We are not passing through all the cost increases to customers because we have long-term relationships with customers. So that's our commercial strategy, but that combined with the operating leverage is offsetting the cost inflation. But then, again, we definitely prioritize investments for growth. So yes, so we, in general, for the mid-cycle confirm our profitability target of 19% to 20%.
And the lockdown in China, it's very difficult to say because the situation is very uncertain. So far, we did have some delays due to the fact that, for example, the -- some vendors had delays due to the lockdowns, the fact that the Shanghai court is closed, so we are using the Beijing one. So for these reasons, we did have some delays, but no stop or no major disruptions. It seems that the situation in Shanghai is going to slowly gradually improve in this moment. So we are optimistic. But having said that, it's very difficult to say.
Maybe as a comparison, we can recall that in March 2020 -- or February 2020, when the Chinese plant was shut down entirely for the COVID, we managed to absorb almost entirely the shutdown of the plant by moving production elsewhere. But let's say, the situation seems to be gradually improving in Shanghai, and we are located near Shanghai. So it seems -- we're optimistic on that standpoint, but it's uncertain, of course.
Concerning the second quarter, yes, it's like-for-like. So it's the same perimeter. Is it, Nicola, with fixed exchange rate guidance on second quarter? Yes. Yes, it's a fixed exchange rate and like-for-like.
Gentlemen, there are no more questions registered at this time.
Okay. Thank you very much for your attention and for your questions, and looking forward to speaking with you for the presentation of the half year results. Thank you very much.