Fiera Milano SpA

MIL:FM

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fiera Milan results as of 1st September 2023. [Operator Instructions]

At this time, I would like to turn the conference over to Vincenzo Cecere, Head of Investor Relations and Sustainability of Fiera Milano. Please go ahead.

[Vincenzo Cecere, executive]

Good evening, everyone. Welcome, and thank you for joining us today. This is Vincenzo Cecere speaking, Head of Investor Relations and Sustainability. And I'm here with Francesco Conci, CEO; and Massimo De Tullio, CFO of Fiera Milano. The purpose of the call is to provide you with an update on Fiera Milano's consolidated results for the first 9 months of 2023.

The presentation will be structured in per section. During the first section, Mr. Francesco Conci will give you an overview of the business, the main highlights and 2023 outlook. Then Mr. Massimo De Tullio will go through the divisional results and financial figures in greater detail. On a final note, an update on sustainability will also be provided. At the end of the call, you will be invited for a Q&A session, with the management available for your questions.

At this point, I'll leave the floor to Francesco Conci for the key messages of the 9 months results. Please, Francesco, go ahead.

[Francesco Conci, executive]

Okay. Good evening, everyone, and thank you for joining the call today. I'm pleased to welcome you today to discuss Fiera Milano's very positive performance in the first 9 months of 2023. In terms of key financial highlights, we have achieved remarkable growth. Revenues have reached EUR 177.8 million, reflecting an increase of EUR 16 million compared to the same period in 2022.

EBITDA has experienced a significant boost, reaching EUR 56.2 million, sorry, marking an improvement of EUR 6.3 million compared to the first 9 months of 2022. EBIT has also showed significant growth, amounting to EUR 17.8 million, an increase of EUR 3.7 million compared to the previous year. Net income standing at EUR 23.7 million, a substantial lift from the EUR 0.9 million recorded to the first 9 months of 2022.

In terms of financial strength, our net cash at the end of September 2023 stands at EUR 61.5 million, significantly improving from EUR 29.8 million as of December 31, 2022. The results have exceeded expectation, outperforming our internal budget projection and the consension of analysts, reaffirming our commitment to growth.

We are pleased to report double-digit growth in revenue and EBITDA. Revenue have increased by 10%, while EBITDA has seen a significant 13% improvement when compared to the first 9 months of 2022. Revenue for the Italian exhibition business have reached 93% of the 2019 levels, aligning precisely with market forecast of AMR Advanced Market Research, the finance research provider for our industry.

Furthermore, the square meters sold in Italy equaled 87% of 2019 levels, again, aligned to market forecast. Net results have significantly improved compared to the first 9 months of 2022, showing positive trajectory in our financial performance. During the period from December 31, 2022, to September 30, 2023, we have generated a substantial cash flow of EUR 31 million, contributing to our robust financial foundation.

Looking ahead to the fourth quarter, where we organized the largest owner exhibition HOST. The visibility we have reinforced our expectation of results exceeding the year-over-year projections. In conclusion, our remarkable performance in the past 9 months and the visibility on the fourth quarter has given us the confidence to revise the target for the full year 2023.

Revenues in the range of EUR 275 million to EUR 280 million both reaching the 2019 pre-pandemic level. EBITDA in the range of EUR 85 million, EUR 90 million. This is a significant improvement compared to our provision forecast of EUR 70 million, 80 million. In addition, our financial strength and solid cash generation during this period provides us with the ability to set a higher target for net cash at year-end. We are now targeting a range of EUR 55 million, EUR 60 million compared to the EUR 30 million recorded as of December 31, 2022.

This projection for 2023 align with the forecast outlined in 2021 in our strategic plan, CONNE.C.T. 2025, as evidence of Fiera Milano's ability to effectively navigating the challenging macroeconomic and such economic dynamics occurred from 2021 to the present, such as decrease of energy price will lead us to revise down further the EBITDA guidance some months ago.

Looking ahead to 2024, in line with the CONNE.C.T. 2025 growth trajectory, we are honored to share that Fiera Milano been selected to host CPHI, the world's largest pharmaceutical event. This exciting event is expected to draw over 50,000 visitors and 2,500 exhibitors for more than 170 countries.

In addition to our economic and financial goals, we are still committed to develop a more sustainable business model. The strength and our governance of -- and oversight side of ESG matters. We are establishing a new Sustainability Committee within the Board of Directors working on defining the strategic guidelines for a new sustainability plan.

In recognition of our increase in dedication in these issues, we are proud to announce that Fiera Milano has been honored with the Sustainability Award Top ESG score by ELITE Borsa Italiana. As a closing remark, I would also like to communicate in that next week, we are launching a share buyback program of 350,000 treasury shares to service stock-based incentive plan for our stock manager.

At this point, I will leave the floor to Massimo De Tullio then for the business and financial review. Please, Massimo, go ahead.

[Massimo De Tullio, executive]

Thanks, Francesco, and good evening, everybody. Well, as Francesco already mentioned, the first 9 months of 2023 delivered a very positive set of results. So let's have a deeper look at divisional level how these results were achieved.

Moving to Italian exhibition business. It's important to highlight that compared to the pre-pandemic level, we are scoring a 92% recovery in terms of revenues, and this is in line with what AMR was forecasting for the Italian industry. And also in terms of square meters, we are recovering almost 87% of the pre-pandemic level, so 2019 levels, and this is as well in line with our AMR forecast.

Now when looking at revenues for Italian exhibition business, we have an increase of almost EUR 150 million. This increase compared to 2022 show 9 months 2023 compared to 9 months 2022 are showing this increase of EUR 50 million, which is almost due to increase in square meters and the service penetration provided by Fiera Milano.

It's important to outline that, basically, we didn't benefit from any particular immaterial calendar effect in the first 9 months of 2023. So this increase in revenue is basically an increase in performance that we scored. In terms of details, let's say that the events that were contributing positively to these impacts are basically the fashion industry once and also the, let's say, multiyear biennial events like PLAST and ITMA.

Now moving to the foreign exhibition business. We had EUR 3.1 million of revenues compared to the EUR 5.1 million revenues in 2022. This decrease is not, let's say, due to a reduction or a negative performance of the events that were hosted in 2023 compared to 2022, but is due to a, let's say, calendar impact because we didn't have, in 2023, some events that we hosted in 2022 and especially in Brazil like Fisp, Reatech and Ebrats average. While if we look at the, let's say, performance of the events that we had this year in 2023, and we had also in 2022, we scored a positive performance of these events.

Moving to the EBITDA. The EBITDA is improving by close to EUR 3 million, so EUR 2.9 million compared to the previous year. And this is -- this impact is mainly due to the China JV. So the JV we done over with all the legal entity we control in China. And looking at, let's say, the main events that performed very well this year compared to last year, we have to speak about Domotex. And clearly, we have to, let's say, outline that in China this year, we are restarting completely the business compared to what happened last year, in which we were almost stuck during all the...

When looking at the performance of the congresses, again, we are speaking about the positive performance. We see an increase in revenues of almost EUR 4 million compared to the first -- the 9 months of 2022. And this impact in revenues is also reflecting -- is causing, let's say, a positive impact also in terms of EBITDA, which is passing from EUR 9.7 million to EUR 10.5 million.

Again, we had a very important congresses that we hosted this year, like EULAR, the rheumatology one; and the urology one, the UAE (sic) [ EAU ].And also we also, let's say, despite we didn't have some impact, the positive impact of some congresses that we hosted last year such as EADB and ESCRS, we posted, anyway, a positive result in 2019 -- sorry, 2023.

And I want, at global level, to highlight that basically, we are very -- if we look at the total of the division, we are scoring EUR 178 million in the first 9 months of 2023 compared to EUR 184 million in the first 9 months of 2019. So basically, we are only 3% behind the, let's say, the level of revenues that we had in 2019, and here with no impact from clearly the COVID. So we are very, let's say, proud of being in this position after 9 years.

So what -- let's say, can we move into the -- I'm going to provide now a deep overview on the economic performance of the first 9 months, moving to the P&L. So basically, we had revenues for EUR 178 million compared to EUR 162 million in 2022. As already shown in the divisional view, it's a very remarkable increase, driven both from performance of events and congresses.

In terms of events, we had a positive impact of -- from Milan Unica, Lineapelle, MICAM and Milano Fashion&Jewels, so all the events, let's say, related to the fashion industry. And also, as already stated, the positive impact of the multi-annual events like ITMA and PLAST.

Despite, let's say, the absence in 2023 of Monster convenience for comfort and innovation alliance, basically, we were able to score an increase in our revenues. This increase in revenues, which is also due to the congresses, as already stated, caused and impacted positively clearly also the EBITDA, which was passing from EUR 49.9 million to EUR 56.2 million. So an increase of EUR 6.3 million in EBITDA, basically due to an increase in performance.

Clearly, in this increase in EBITDA, there was a positive, let's say, role played by the -- our JV in an offer because, as already stated, the complete restart of the China's exhibition has brought a positive impact of almost EUR 3 million. In terms of financial management, we have improved, let's say, we had a good result in terms of cash generation. We generated, let's say, almost EUR 30 million. And clearly, this was, let's say, invested in some, let's say, tactical activities like time deposits impacted positively also on the -- let's say, on the financial management and so on the financial income and expenses.

Basically then, looking at the bottom line on the net result, we are registering a EUR 23.7 million positive result. Clearly, there is the impact in the net income of the TUTTOFOOD operation.

And so the, let's say, acquisition of the participation in Fiere di Parma, and the, let's say -- so the impact of the operation. But if we look at the net result without considering, let's say, the discontinued operation, anyway, we scored EUR 7.2 million net result in the first 9 months of 2023, which compared to the EUR 0.9 million of 2022 represent a very huge increase in terms of net income.

Now if we move to the balance sheet, I would like just to focus on 3 main aspects. In terms of noncurrent assets, we had an increase from EUR 560 million to EUR 571 million. And this increase is basically due to the stake in Fiere di Pharma that we acquired as a consequence of the operation on TUTTOFOOD.

The net working capital is passing from EUR 560 million to -- sorry, from EUR 72.4 million to EUR 95 million. And this increase in the net working capital is mainly attributable -- sorry, it's mainly due to, let's say, the cash generated by the [ hosting bank ] that we will have in Q4, so in October that we already also, to be honest, in October 2023. So basically, 22.6 million are really related to the advices payment related to us.

And last comment is about, let's say, the net financial position pre-IFRS 16. Clearly, we are moving from, as I was mentioning before, from almost EUR 30 million in December 2020 to EUR 61.5 million. So a cash generation of more than EUR 35 million, EUR 31 million, close to EUR 32 million.

And if we go to the way we, let's say, generated this cash, clearly, there was the impact -- the positive impact of the 56.2 million EBITDA generated in the first 9 months, offset -- partially offset by the cash out related to the rental, which accounts for EUR 41.3 million. Then we have to account for CapEx expenditure of EUR 3.5 million and other, let's say, smaller impacts that led basically to a free cash flow of almost EUR 32 million, so EUR 31.7 million.

Finally, we can highlight also that Fiera Milano achieved an excellent financial stability, transforming the COVID-19 emergency into an opportunity to recognize its financial structure. So we are now both on, let's say, the current assets over current liabilities. And equity on fixed and assets, we have reached a very good, let's say, ratio. Now we are scoring a 0.79 ratio at December -- at September 2023, if we consider the ratio between the current assets and the current liabilities.

And when we look at the ratio between equity and noncurrent liabilities over fixed assets, we are scoring almost a 1 ratio, so basically in line and almost stable compared to what we scored in December 2022. So I will leave now the floor to Vincenzo to speak about sustainability and working about this topic.

[Vincenzo Cecere, executive]

Yes. Thank you, Massimo. Just 3 closing remarks on sustainability. So maybe you may recall, we already appointed some months ago a new Sustainability Committee that is an internal Board of the [ Red Cross Committee ], and we are already working on new sustainable plan in order to accelerate our sustainability targets.

In addition, we also increased the power of our photovoltaic systems. We are talking about 26,000 panels installed in the roof of Fiera Milano venues is -- it's one of the largest Europe photovoltaic plants or upside. The target is to increase the percentage of renewable sources, thanks to which Fiera Milano could purchase and energy. As finally, we are proud to share with you that we have been recognized by ELITE Borsa Italiana and Forbes with the sustainability world top ESG score. So we are recognized as one of the highest ESG scores among all the mid-cap Italian is cash. So I think we have concluded, and we can start with the Q&A session.

Thank you.

[Operator]

Excuse me, this is the. Chorus Call conference operator. We will now begin the question-and-answer session. The first question is from Emanuele Gallazzi of Equita.

[Emanuele Gallazzi, analyst]

I will start with the first 2 questions. The first one is on the Italian exhibition business. You mentioned the strong performance of [ Borsa ]. But can you just give a sense on how the events of the fourth quarter are performing? And any comment on the bookings of the first half of 2024? Any exhibition would be useful. My second one is more broadly on 2024. I know it might be, let's say, too early, but can you just share with us your view on the coming year?

[Francesco Conci, executive]

Okay. Thanks, Emanuele, for the question. I will reply on your question. So basically, about us, I can -- well, clearly, we are closing now the month's result and -- but we have evidence that basically HOST reported in terms of contribution margin and higher result compared to the pre-pandemic situation. So basically, host in 2023 brought to the company a higher contribution margin compared to 2019. So this is a quite remarkable achievement, even considering that in terms of square meters, we are basically almost 10% lower compared to 2019.

So what we did in terms of price positioning and also increasing the service penetration led us to achieve a result of this level. And in terms of Q4, overall performance is, again, I think all -- in addition to what we see good performance is also from ITMA, the exhibition that is taking place in these days. We see also improvements on the other annual events and also in our other biannual events like [indiscernible] -- so the Borsa or the new alliance, I would say, on the exhibition -- on the exhibition on the building exhibition of 2024.

So Q4 is -- I think, is what is letting us to increase, basically, on top of what we scored in the first 9 months, the guidance, as already stated. Regarding 2024, clearly, we are now working on the budget and also on the new plan for the company. So we don't have already some figures to be shown or messages to be shared in terms of update of the guidance. We are confident, at least, to confirm the previous guidance of 2024, despite, let's say, all the increases that we are facing in energy costs and also all the inflation impact on the other costs.

So for us, in this moment, we are confident, at least, to say, to confirm, in this moment the previous guidance of 2024, despite, let's say, all the increases that we are facing in energy costs and also all the inflation impact on the other costs. So for us, in this moment, we are confident at least to say, to confirm in this moment the guidance, then in the next month, we will have the result of our budget and planned exercise. And we will give you clearly an update.

[Emanuele Gallazzi, analyst]

And just a clarification, when you say a confirmation of the 2024 guidance, I think, related to the CONNE.C.T. business plan, you are referring to the selling the EUR 80 million of EBITDA for 2024?

[Francesco Conci, executive]

Yes, we...

[Emanuele Gallazzi, analyst]

Sorry, 75 -- EUR 65 million and EUR 75 million. It wasn't on...

[Francesco Conci, executive]

Exactly, I was...

[Emanuele Gallazzi, analyst]

Yes, yes. Okay. And other 2 questions from my side. One is still on the exhibition business. Basically, during the presentation, you pointed out the strong performance of the ancillary services. Again, any, let's say, further details or comment on the performance of the ancillary services would be useful. And my last question is on the capital allocation. As you expect to end 2023 with a strong net cash position, what we should expect in terms of capital allocation? I'm referring to, I don't know, dividends or M&A?

[Francesco Conci, executive]

Yes. Thanks, Emanuele. So again, about services, I have to confirm, more or less, what we already stated in the last conference about the semester results. We are increasing basically in all the services line, so stand fittings, restoration and services to the exhibitors, let's say, the technical services to the exhibitors.

So currently, we reached, in the first 9 months, weight of services in terms of revenue compared to the revenues provided, let's say, generated on the Italian exhibition industry, a weight up to 43%. We expect this way to decrease a little bit when we will look at the full year-end results or the full forecast also because of the seasonality, also because of the, let's say, different weight of services in the different exhibitions. So we -- let's say, this is anyway a very huge increase if we consider that, in 2019, the weight of services of revenue from services was close to 30%. So I think this was the message you needed or, let's say, the kind of reply you needed.

And in terms of capital allocation. Well, let's say, next year, we will be, for sure, impacted from some investments we have already communicated because we have already communicated investments in the media center that will happen in the [indiscernible] center. And we are now evaluating the other opportunities, clearly, also in terms of potential M&A operation. And clearly, we are also evaluating the possibility of these waiting dividends. So these are all things that we have to discuss in our board in the back month.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

[Vincenzo Cecere, executive]

If there are no other questions, we thank...

[Operator]

Yes. Sorry. There is another question. So the next question is from [ Mario Copelo Castana ] of [ Vispute Holding ].

[Unknown Analyst]

Congratulations on the results. I would like to receive a little bit more information regarding the services. If you can help us understand what you are aiming to achieve in terms of revenue and the margin contributions in terms of the overall business?

[Francesco Conci, executive]

Okay. So well, I can provide you, let's say, which is our goal for 2023 in terms of target revenue for, let's say, for the year from services. I can tell you that we are looking at probably something in the region of EUR 55 million, EUR 60 million from services in terms of revenues. I cannot provide you with information about the contribution margin because, clearly, it depends also on the mix on the services that we will provide.

For sure, services has a lower, let's say, contribution margin in terms of percentage compared to the contribution margin coming from the sold square meters. But it's also the, let's say, the line of business that is allowing us to, let's say, compensate what we are already -- we are still missing, let's say, from the pre-pandemic level. So this is our goal in this moment...

[Operator]

[Operator Instructions] Vincenzo Cecere, there are no more questions registered at this time.

[Vincenzo Cecere, executive]

So thank you, everybody, for participating. And should you have any other questions, please do not hesitate to contact are Investor Relations Conference contact. Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.