Newlat Food SpA
MIL:NWL
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Newlat Food SpA
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So good afternoon everyone, and thank you for joining today's call on the first quarter 2021 results for Newlat Food. I'm Benedetta Mastrolia. I'm the Investor Relator at Newlat. And joining me today to discuss our results are Angelo Mastrolia, our Chairman; Giuseppe Mastrolia, Deputy CEO and Chief Commercial Officer; Rocco Sergi, CFO; and Fabio Fazzari, Group Financial Director.
So before commenting on our results, I would like to remind you that this presentation may contain specific statements that neither reported the financial results nor other historical information. Any forward looking statements are based on Newlat Food's current expectations and assumptions of future events and are subject to various risks and uncertainties that could actually cause actual results to actual differ materially from those projected or implied by these statements.
So we're moving on to the first slide, which is the key messages. I'd like to start off by highlighting some key aspects for this first quarter. So the first one is that we had an excellent bottom line performance. So we had a positive increase in net profit, and we also managed to improve overall profitability and cash flow generation. In terms of sales, we actually -- had -- despite there was a decline, which was previously expected, we were able to actually exceed expectations, both at analyst consensus level but also at some -- looking at our business plan budget, we were able to exceed those expectations. So we can say that we had a very good first 3 months of 2021. Another key point to highlight, which we get asked on a few times in the last call was the Kraft-Heinz contract renewal. So we can confirm that the Kraft-Heinz contract was renewed. So we found an amendment last in the last couple of weeks, which extends the current co-packing agreement for the baby food and special products for another 3 years until the end of 2023.
And this new amendment actually implies better economic condition to the unit and also will impact the profitability in Newlat Food. So it's extremely important results that we got in terms of this particular contract. Looking at the strategy and market overview on 2021 strategy for Newlat would be to keep the current positioning. So last year, as -- some of you may know, we have an enormous increase in sales because of the COVID lockdowns and stockpiling. What we've done this year is trying to keep the current market positioning and trying to focus on new product of development and products that can actually enlarge and improve the product mix. And we are trying to keep the promotions low again. So it's really working on those new products and trying to keep margins high.
We launched some products successfully last time you see on the products that were about to be launched this month, and they will be launched in the next month. And you'll see later on some pictures that what we've done in the last 2 months. And another point that we would like to highlight is that this year, we had to sort of reposition the shelf stable product. So basically, UHT milk and products like pasta and bakery, which are shelf stable and which had an increase last year because of, again, of the stockpiling. So this year, we're going back to sort of baseline levels. Then if we move on to Page 4, we have the key financial highlights.
So if you look at revenues, we had EUR 121.5 million in revenues, which is a decrease of 4.6% versus last year. We look at the pro forma data for last year, which includes CLI and Newlat at aggregate level. Again, as I mentioned earlier, we actually had by results versus last -- versus the analyst consensus and budget -- and budget expectations. We had a very good growth in dairy. We actually grew 30% in dairy despite the actually really difficult comparison base for the first per month of last year, we actually were able to even further improve this particular business unit. We also look at gross margin, which remained at the same level of 2020. So despite the decrease, we were able to work on the bottom and on the lower lines and really managed to really work on the profitability and margins throughout the whole net income. So in terms of EBITDA, we look at the EBITDA for 2021, which was EUR 11.04 million, which a slight decrease compared to last year, but the margin, the EBITDA margin was actually a lot higher at 9.1%. So last year was 8.8%.
In terms of net income and sales, we were able to further improve this. So again, despite the decrease in sales we actually had a very good net income, which grew 2.4%, which went from EUR 3.1 million to EUR 3.2 million. If we look at free cash flow, we generated EUR 8.8 million in free cash flow, and we had an EBITDA free cash flow conversion ratio of 75.1%. And this, again, confirms our ability to generate cash and to altogether improving our financial position, which also improved, actually basically doubled. We went from EUR 5.2 million at the end of 2020 to EUR 11.8 million at the end of March 2021. If you look at it without the IFRS 16 lease liability accounting standard, we can actually say that net financial position would be positive by almost EUR 30 million. So we had also enormous improvement in this particular figure. As I mentioned earlier, we just wanted to show you some of the products that we launched in the last -- in the last couple of months. This one, which was actually a new product launch, but it's just us trying to expand the business for Pezzullo especially in Italy, which Pezzullo before this year was mostly based on the export market. Now we're trying to really push into the Italian market as well. So we were able to stock this at all times to the markets around Italy. So most big Pam supermarkets have Pezzullo pasta now. And also Carrefours in the Liguria region and some other smaller supermarkets. This one we saw last time, actually, it's the Mukki Special Donna, which is the special milk for women. So we were able to launch a little bit ahead of time in April. And so here, you just have a picture where it looks like, again, I guess all the other Mukki products. We said that as well, we're just showing you some more pictures.
So Bifetta is the preportioned rusks that we launched last -- actually in the second half of 2020, but starting from April 2021, we launched into the major markets in Italy. So here we just have an idea of what it looks like on shelf. It's very visible on shelf, and it's even the big, I would say, the design is really nice compared like to the other products on the shelf so it really stands out. And also, one thing I'd like to mention is we'd actually run some marketing within some research and the consumers are really happy about the product, and they liked both the fact that it is pre-portioned and it's easy to eat inside our home -- at home but also the product itself has been getting a good recognition.
Now, we move on to the Q1 2021 sales breakdown and analysis. So on Page 9, we have an overview of the revenues. So here, as I said earlier, we actually had a better-than-expected performance. Of course, Q1 2020 was a particularly difficult comparison base because of the stockpiling, because of the panic buying, because of the lockdown that happened last year. And also one thing that impacted last year is that last year, we only had a lot down starting from March, which didn't affect all the food service and the normal trade channels. So this year, of course, we had more widespread lockdowns all over Europe and throughout the world. So of course, that also was not a good start of the year, but of course, we were able to -- due to really performing really well, and we increased some of our marketing and store activities versus last year.
However, we kept really good profitability, as you saw in the figures. If we look at Q1 2019, again, pro forma with CLI, we can see that we actually had a very good performance. We actually increased revenues by 2.4% versus 2019, and we can say that we have a CAGR of 1.3%. So this is to say that although last year, we had an exceptional growth, which some of you may have thought was not sustainable, we were actually able to keep a good level of revenues that were generated from the lockdown. Even if we look at EBITDA, you can see here that we actually increased really considerably from EUR 7.8 million to EUR 11 million in EBITDA. So again, we can say that overall, we had very good results.
If we move on to Page 10, we have the revenue breakdown by business unit. So in general, this period saw a slight decrease in consumer spending versus 2020. Because, again, of the lockdowns that were impacting 2020. This year, there was sort of a stabilization in terms of large retailers, especially. So there was a lower traffic in the supermarket. If we look at pasta, this particular business unit, which last year increased considerably, remained pretty stable. So this means that despite the high increase last year, we were able to keep those listings throughout 2021. And this, for us, is a great result, and it's showing that our commercial team has been working really well with our clients and has no need all the commercial efforts in order to keep those listings to perform really well.
In terms of milk, this particular business unit decreased by 10%, 10.7%. This was both the impact of lower sales volumes and also lower sales prices. But again, this is against the 2020 lockdown in stockpiling and pandemic breakout. Bakery also decreased by 5.9%. This is an overall drop in the market in general, but also we saw decreasing the private label sales for the bakery sector. Instead, if we look at dairy, this grew by 30% almost, so 29.6%. Again, this is mainly linked to the increase in mascarpone sales. Our team really worked on the relationships with our customers, especially in Italy, France, Eastern Europe and Benelux, where we've been able to increase our sales and our products getting more and more recognition, and we're really happy that this particular business change is doing so well despite of the increase that you saw in the last 3, 4 years.
Special products remain stable. So there isn't much to talk about in this particular business unit. And other products decreased by 7%. This, again, is a consequence of the restrictions that affect restaurants, bar and out-of-home eating in the first 3 months of 2021.
Moving on to Page 11. We have revenue breakdown by distribution channel. So if we look at large scale retail distribution channel, this went down by 1.4%. B2B partners channel decreased by 4.5%. This is a consequence of a decrease in the average sales price, which is linked, however, to lower raw material prices and stable volumes. So I'd say both -- I'd say it's a double -- there is a double effect on this one. In terms of normal trade, we had a decrease of 17.9%. Again, linked to the lockdown period, which made this particular channel suffer more than others. Then we look at private label. So private label also decreased 8.3% compared to the prior previous year. Again, this was in service stabilization effect from last year and food service also decreased by 5.4%, again, linked to the lockdowns all over Europe.
If you look at geography, we are pretty much the same way in terms of geographies. So we didn't see sort of an increase in particular markets versus others or decreases in particular markets. So Italy decreased by 5.3%. This is mainly linked to the milk decrease because Centrale Latte d’Italia, which is basically our main business, which is milk, there was decrease in those products, especially as a mixed effect of prices and volumes. In terms of inside of Germany, this decreased by 5.2%. And also there was a lower volume -- there were volumes -- volumes in pasta and bakery sales. And if we look, however, at 2019 sales, Germany saw an increase of 9%. So again -- although there was a decrease -- an overall decrease if we compare it to the 2019 results, we can see that this is just a normalization of volumes, and it's completely expected and normal to see these numbers.
Other countries remain pretty much unchanged. There wasn't much of a difference versus last year. If we move to EBITDA margin. So here, we see an EBITDA margin and EBITDA breakdown by business unit. As I said earlier, the EBITDA margin actually increased by 0.3%. So we went from 8.8% to 9.1%. This is, again, a confirmation that we're really working on keeping margins high and overall profitability high. The pasta EBITDA actually went from EUR 2.25 million in 2020 to EUR 2.06 million in 2021. And this is, however, very exceptional increase if we look at the 2019 results, in which we had EUR 1.8 million in EBITDA milk products also is pretty much in line with the first quarter 2020. However, the margin increased to 10.1%. So this is linked to a better procurement policy. EBITDA related to the bakery products decreased as the decrease in sales volumes with the consequence of the decrease in sales volumes and the margin was 13%, a bit lower than last year. But I would say one thing to add is that the first quarter is never the most, I would say, brilliant quarter in terms of performance. So there is definitely margin for improvement in the next quarters. Dairy products also -- this one actually increased because of the good increase in sales and it's also an increase in margins. So it went up to 15.5% versus 15.1% in 2020. That special products segment also decreased due to the greater economic -- greater push in terms of promotions, and EBITDA margin was 10.2%. And the other products segment remained pretty much unchanged versus last year.
Now we have a look at the net profit -- net profit and figure. So as I mentioned earlier, despite the overall decrease in revenue, we were actually able to improve net income versus 2020. So we see here in the circle that we had EUR 3.155 million in net profit versus EUR 3.080 million of net profit last year. So we grew 2.4% in this particular figure. And of course, this was also impacted by lower financial expenses and an increase in taxes, but this is the overall result, if you look at the other lines just distributing our cost and expenses in a different way that would benefit us in general. And in terms of EPS, if we look at it, it's pretty stable versus last year at 0.06. Now we look at free cash flow and net financial position improvement. So here, we have the free cash flow -- the cash flow statement with a free cash flow ticker excluding M&A.
So again, this confirms the strong cash conversion of the company. As you see here, we made EUR 8.8 million in free cash flow and the EBITDA free cash flow conversion post tax was 75.1% at the group level. And we had a further improvement of the net financial position, which basically doubled went from EUR 5.2 million at 31st December 2020 to EUR 11.2 million. at 31st March 2021. And we also had the positive contribution of the net working capital to free cash flow as you see here. So despite the very strong performance in 2020, we still had an improvement in this particular figure.
Now we move on to the last slide, which is the key takeaways for this call. So first one is that the management is really confident that the vaccination campaign and the slow reopenings will help -- will built a positive environment for the food service to recover and to sort of normalize the modern trade volumes. So this gives us hopefully, a better performance at least in those particular segments. New product development and innovation. So as you saw, we're launching new products. We have other products soon to be launched, which will be probably launched by end of June. Some of them will be launched in the second half of the year. And those products are really value-added products that we're trying to launch. So we expect these products to improve the product mix. Then we look at milk and dairy aggregation. So we are likely to see the milk and dairy lease to deliver better, I would say, improvement between Q4 of 2021. In terms of M&A, we confirm that the company is enrolled in 3 important and strictly confidential M&A processes, which are in Italy and around Europe. And a very last point is on baby food development of this particular segments. So with the Kraft-Heinz contract being renewed, and the new contracts that we signed last year, we are hopeful that we will be able to see a gradual positive contribution of these contracts starting from the second half of the year. So this is mainly it. Now we can open the call for questions. I think I saw some questions popping in, so maybe I can close the screen and then we can move on to the questions. Thank you.
Okay. So there's a few questions coming from Dario Michi, I believe. Dario you want to ask them yourself.
Can you hear me?
Yes. Yes.
Yes. Okay. Sorry. I'm afraid I'm not able to switch my monitor on because I'm connected to PC from the office, which hasn't . So the first question is on the operating leverage. I saw volumes went down in Q1, but margins were up. So it's quite surprisingly as a trend? How were you able to reach this goal? The second question is on M&A. You mentioned 3 potential targets. Could you please give us some update on this in the latest call, you were referring to 2 options on the table? And then -- on the milk price, we saw press articles referring to the dynamic of the situation with potential claims from the farmers about the dynamic of the feed for cows and the low price on the market. Are you experiencing some kind of pressure in this direction? And do you see some here and there trying to point to an increase in the milk price?
Thank you, Dario. About the first question relating to the operating leverage, it's important to highlight that -- what we put in place in the first quarter is a particular focus to increase the quality of our revenue base in terms of the mix contribution, the profitability contribution from the single products. Since, we get a lot of important positioning, in the past months, we want to consolidate this position, and we avoided, for example, to participate to some aggressive promotional activities because we want to have in our portfolio a better contribution in profitability for a single product. And this is the reason why together with all the other positive contribution coming from the integration and the synergies of CLI. This is most important point that creates this positive trend in terms of gross margin. And you see this similar trend also in EBITDA and EBIT. About the second question on M&A, I'm afraid, but it is really important for us at this stage of the negotiations to not to share -- nothing because we are seriously involved in 3 process and we need to maintain sort of confidential information to avoid to start with speculation or other maybe article or something that could create damage in our negotiation. I'm afraid but at this stage, we decided to be very, very cautious because we want to go on with this process. What I can tell you is that one of this is within advance. And this is the reason why we are confident to close at least 1 of these 3 by the end of the year. The third question on the raw material, I have to say that, as we already explained last time, we experienced some movement, especially on the wheat side starting from 2020, the second part of 2020, but nothing special. So we are not experiencing seeing any particular trend that would create a material impact so far on our income statement.
Maybe, Paola, you have some questions.
Yes, I have a couple of questions. The first one is about the strong uplift in the revenues. You mentioned fast growth, significant growth in the . I was wondering whether this is related to the agreement you announced with Amazon for the supply of the Amazon Fresh business. And if so, should we be aware of any specific impact in this quarter, which might maybe normalize in the following two months or how should we read this moving onto growth, which seems a bit exceptional, let's say, Second point is about what you mentioned for the Kraft-Heinz front. Is it possible for you to give us some color on the meaningful benefit that we are expecting from those on costs or contract or what we see in terms of revenues or margins for this business. Thank you very much.
Thank you.
So about the trend in dairy is not particularly related to the Amazon project. It is a trend related to the normal business. There is also an impact related to the fact that we got this year the Easter in the first week of April. And this is a category that is sensible to this kind of holiday or situation. But it's fully related to normal business, no particular action or a particular contract or specifically this Amazon initiative. About the Kraft-Heinz contracts, we didn't disclose any quantitative element because, obviously, there is an agreement of confidentiality because the information are really sensible in terms of -- on the commercial side.
What I can tell you is the agreement we highlighted the positive the positive impact of the agreement because it's not just simply an agreement for a price improvement or price increase, general price increase. It is an agreement with structure equation that is really important because it's creating a better development of the profitability of Newlat at inside the contract. And also, there are also other point inside the agreement that creates an additional protection on our profitability, also thinking about potential volatility of volume. So we achieved a more structured contract with a material improvement that we will achieve starting from the second part of this year on our profitability. You will see the number, but unfortunately, I can I cannot share with you more because we have this confidentiality agreement.
I believe there's 2 questions coming from Gabriel Colominas. I will read them out if you like. So the first one was -- which is the strategy in private label? And the second question was what is IFRS 16 CapEx and where it is coming from?
[indiscernible] going to give an answer. So during this period, we want to support our customers with the some private label. That's what we are running. And we are managing some good new private levels in 2021 in bakery and some other products that can give us a good marginality as well. And we do private label where we find the opportunity to reinforce our relationship with the customer. So the strategy is to avoid private label where we can improve our impact in the branch as well. Which was the second question?
Yes. So the second question was what's the IFRS 16 CapEx? And where is this coming from?
Yes. The IFRS 16 CapEx is a definition for sort of contributions in terms of investments that you do every year to have this right of use of the assets. Trying to be more clear with you -- when you calculate the free cash flow starting from the EBITDA, this EBITDA is higher than the normal one because it includes the fact that you don't consider the costs of rents of leasing. And this obviously must be factored in the free cash flow calculation. And what you see in the table is the portion of cost of leasing, cost of rent that you have to eliminate from the EBITDA to calculate the real cash flow that the company achieved.
[indiscernible] because when you take the numbers directly from the cash flow statement, you get the free cash flow [indiscernible] with the last figures of the quarter. And while it's EUR 1 million higher, which is significantly for Newlat, if you take just the numbers in the cash flow statement. So that's why I was asking that?
Yes.
And about the first question on private label, Centrale Latte was doing some private level before or is doing some private level now or it's not related for activities of the Centrale Latte is related with private label?
What you mean exactly?
No, the private label activity, there was some private label activity in Centrale Latte?
Yes, there were some private label activity already done. But as you may know, our focus was always on our brands. Of course, private labor is a bit increasing. So as our relationship with the customers is to achieve new customers and new markets, new goals, maybe if you find the opportunity to start with our own -- first with the private label and then afterwards with our brand basically, this could be an opportunity. So it's a door where you can start the dialogue with the new customer, maybe in some countries where we are not so strong, maybe a bit weak or something like this, I think this is the strategy more or less, but it has always improved the relationship with the brand as bond. So our strategy is this.
One final question. There's is no expected [indiscernible] in terms of KPIs for 2021, right? And there is no information about objectives of sales and everything. I don't remember if it was.
We are up compared with the budget as we said, but we don't have fixed [indiscernible].
We are more linked to the general development of the profitability and the return on capital, not simply to the volumes or to the revenues. This is also because, as you know, the history of the company and the strategy of the company is linked to M&A. There is a big focus on M&A. For this season it's really important to consider the value that you are able to create in the aggregation despite the single volume of the side of the business because this could create confusion when you add a company every year.
For sure. Do you plan to publicate ROIC, the return on invested capital on a yearly basis?
Yes, we usually we do.
It's Victoria from Soc Gen, may I ask the question, please.
Yes.
My first question is on [indiscernible]. You talked about higher promotions. I just wondered if you expect continued higher promotional activity in the second quarter or whether there was some pull forward of promotions into the first quarter? And equally, we were wondering whether you'd be able to comment on the initial customer reception to the Buitoni packaging since Delverde has been added? And then my second question is on input costs. Just wondered if there was an update on any of the farm contracts, specifically on milk prices?
So on the first question, if you want, Fabio, just a quick light on the fact that the difference between last year and this year in terms of promotion Victoria is that last year, there was no promotional at all due to the pandemic issue. So the price was sold full price everywhere. So we started with, let's say, normal promotional campaign. As always, we always done in the past. So nothing, let's say, not so much pressure on promotion compared with the normal year. Last year, the sales was well done without any promotion in relationship and in liquid supermarket chains.
Maybe Giuseppe you want to give an update also about Buitoni, Delverde introduction.
Yes. It is really, really positive on my side with the introduction we started, we were starting with [indiscernible] to distribute the product. And so all over the German market, we have some feedbacks on our customers that are really happy, they really appreciating our new strategy because they see more potential and new opportunity for the consumer and for the market to develop and to have a brand awareness and brand development. They see in Delverde more potential than with Buitoni because it's more new and more healthy product and the fact that we can build up our own product structure to be able to complete our portfolio with some other products that could be shelf stable or related to the past brand -- it makes our customers really happy. So now we ensure for with the 3 main customers of Germany, Germany does not have [indiscernible] customer, we have a large retailers, as you may know, and we have a really positive feedback from the 3 major ones already done in these months. So the feedback is really positive until now.
About the last question, Victoria, which contracts are you referring to -- the baby food contract we got in summer?
Now with the farmers, for the milk, that provide the milk?
No. Firstly, we definitely signed the contract that we announced, and we are substantially defining other new contracts with other farmers to try to close substantially the circle also with the other supplier. The positive news is that today, the average price of the raw material remains substantially stable.
So probably there are no more questions.
I think someone raised their hand, but I know who it is. Maybe there was an accident, there are no names..
May I add just one question, as 10 minutes are left.
Yes.
Coming back to the point of agreement with farmer and the sourcing prices for milk. Since your contract for , if I'm not wrong, cents, per liter, while the milk prices are currently a bit lower. Do you think this might be a threat in terms of more aggressive attitude from peers, from competitors, which are better positioned to benefit from a bit lower price of milk, I don't know if I have been clear?
No, I think that generally speaking, if we analyze our competitor, Granarolo is cooperative, and this means that they are not so accustomed to play on the milk price volatility in the short term. And generally speaking, the average price in the midterm is substantially more or less the same linked to the average in the sector. The reason this attitude to play with a speculative approach on the short term, also because what we need and what also the other player need is to try to create a partnership with the retailer and with the supplier. And for this reason, it's important to try to get an agreement in which both parties are happy to sign because otherwise in a different situation, and unfortunately, it happened also the situation in which is the milk price is growing, you don't have any kind of especially options to open a negotiation and to try to find something to dilute this negative effect. This is the reason why -- everywhere in wheat, in milk, we always try to build a strong relationship with the supplier to try to have always a negotiation to talk with them and to try to define a midpoint that could satisfy both parties.
I think that probably there are no further questions. Anyway, I would like to remind everyone that for any kind of follow-up, we are always available to answer your question. You can contact directly the Investor Relations office with the e-mail that you can find in the presentation. And we are available to try to answer you very quickly.
Thank you so much for joining the call. And hopefully, we'll see you next time. Thank you.
Thank you, everybody. Thank you.
Bye-bye.