Newlat Food SpA
MIL:NWL
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Newlat Food SpA
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Good afternoon, everyone. This is Benedetta Mastrolia, the Investor Relations of Newlat Food, and thank you for joining today's call on the Newlat Food's First Quarter 2023 results. Joining me today to discuss our results are Angelo Mastrolia, our Chairman; Giuseppe Mastrolia, CEO and Chief Commercial Officer; and Fabio Fazzari, Group Financial Director.
Before starting, I would like to remind you that this presentation may contain certain forward-looking statements that reflect the company's management's current views with respect to future events and financial and operational performance of the company and its subsidiaries. These forward-looking statements are based on Newlat Food S.p.A. current expectations and projections about future events and any reference to past performance of Newlat Food should not be taken as a presentation or an indication that such performance will continue in the future. Also, this is not an offer to sell or solicitation of an offer to buy Newlat's securities.
Now we move directly to Slide 7, where we have our financial highlights for the year, for the period. Before commenting going over our results, I would like to -- please note that the results are presented on a consolidated basis, which means that they include EM Foods starting from the first of January 2023, and they do not include EM Foods in the comparative figures of 2022.
So now we can move over to the results. Revenues. Consolidated revenues were EUR 207.3 million, which is an increase of 25.3% versus EUR 165.2 million in the first quarter of 2022. If we exclude EM Foods, we had an organic growth of 19.3% year-on-year. And we had the highest increase in Bakery, which had an increase of 46.3% and in Dairy of 42.3%.
If we go over to EBITDA, we can see that adjusted EBITDA was EUR 18.2 million, which is an increase of 39.3% versus last year's results of EUR 13.1 million. In terms of adjusted EBITDA margin, we actually had an improvement, both from last year and also from the end of year results of 2022, so we had an EBITDA margin of 8.8%, which is to show that there was a steady improvement in margins, thanks to the completion of the latest round of price increases that were passed on to customers as well as a stabilization of production costs. EBIT was EUR 9.8 million, which is an increase of 97% versus last year, where we had EUR 5 million of EBIT in the first quarter. If we look at net income, we had a net income of EUR 6.4 million, which is an outstanding result as it increased 166% versus last year where we had EUR 2.4 million in net income.
If we move over to free cash flow, we had an adjusted free cash flow of EUR 7.2 million and a cash conversion of 79%. Net debt, if we're looking at that, excluding IFRS 16 lease liabilities, we had a net debt of EUR 26.1 million versus EUR 34.6 million in the -- at the end of 2022. If we include IFRS 16, we had a net debt of EUR 73 million versus EUR 81.4 million at the end of 2022.
Moving over to the next slide. We have gathered some of the results of other big and diversified the companies in Europe and also worldwide. In terms of growth, Newlat, together with Mondelez, had the best results in the first quarter of 2023. And therefore, we had an amazing result if we compare the sales to some of the most important and best-performing companies in the sector. And this is thanks to a contribution of both growth of volumes and also a positive mix and price contribution.
If we move over to the next slide, we have sort of an update on EM Foods integration. As we said in the last call, we have been working on the launch of the Minuto range, which will be launched in Europe soon. And here, you can see some of the work that we've been doing in the last few months in terms of packaging and product development. So as you can see with developed older packaging with a very modern design using vibrant and distinctive colors as well as a very appetizing photography to -- through customers' attention. And we were also able to show the first mockups of the product and to show the products to our consumers and make them try to our consumers and customers at the TUTTOFood Trade Show this week in Milan. It's -- it was the biggest food show, Trade Show in Italy this year. And the reception has been amazing. We've had a lot of interest from consumers and clients who are really interested in the product.
Just a little bit more on Minuto. So we've actually run a consumer survey in Germany last month, where we had -- we have 2 questions. So the first one was, did you know the brand Minuto before this survey? And the second question was how likely would you be to purchase this product if we were priced at a reasonable price point? So the results were pretty outstanding. So we already have an 86% knowledge brand awareness in the market in Germany, so 86% of consumers said that they know the brand Minuto already. And 78% of consumers said that they would purchase the product if it was available at a good price, at a reasonable price. And that is actually even more interesting, if we look at the brand and the category leader in the market, which had this 71% purchase intention versus our 78% purchase intention. So even if the product hasn't been launched in the market yet, we see that the consumers are really interested in the product and would be more likely to purchase our product compared to the long-standing market leader.
Now we move on to some more news [indiscernible]. So last year, about this time last year, we launched Naked Ultimate, which is the more premium range that we presented earlier in earlier presentations. So in the last year, we've been able to sort of see that this is a huge -- has been a huge success in the U.K. with retail sales value of GBP 2.2 million and 80% of consumers will recommend a product, which is a quite high score in this -- in this type of survey. And this type of product, this new range has been able to increment the Naked sales as we've attracted new and different customers from the original range customers. So we've been able to attract also younger consumers, who are more likely to buy this product in the original range because of its more pungent flavor and really new and sort of fresh design as well as the packaging being more sustainable than the original range. So we're really happy with these results.
Now we move on to the revenue highlights for the year. So as mentioned, sales were up 25.3% on a consolidated basis and organic sales growth was 19.3%. In terms of just volume, organic volume growth, we had 6% of organic volume growth, which is an outstanding result considering the industry average and our also historical average as well. In this period, we saw an acceleration of sales, both in terms of sales value, but also in terms of volumes, as I said, and an improvement on margins overall, so we had an increase in underlying demand, which is shown in the great results of volume growth. And this period was also characterized by new launches and new listings and very -- I would say, committed work from our commercial team in order to finally close up the final round of price increases, which were applied at the beginning of the year.
This year -- this -- in this period, we also had an excellent bottom line performance, which can be seen in EBIT and net income results, which were basically doubled and more than doubled in the case of net income as a result of, of course, an increase in sales, but also an improvement on the supply chain and sort of the decrease in the average purchase price.
If we move on to the revenue breakdown by business unit. We can see that all the segments were positively impacted by -- in this period, so we had an increase in all of them. And in general, roughly all numbers serve influenced by 1/3 of volume increase and 2/3 of price increase. In particular, if we look at the different business units, we had Pasta, increase of 18% sales. And this was both an increase in sales in general, but also thanks to the entry of new customers, the largest increase was recorded in the large retailers and B2B channels, especially in Italy and in Germany. And we also had an increase in the private label exposure of Pasta in other countries.
As regards Milk, we had an increase of 13.4%, which was mainly attributable to an increase in the B2B channel. In terms of Instant Noodles, we also included in this presentation, Bakery Mixes to the segment. So in this case, we're presenting Instant Noodles and Bakery Mixes as a whole segment as one segment. Of course, we can see here that the increase was 50.2% if we include Bakery products, but Bakery Mixes, sorry. So if we remove those, we can see there was an actual very good increase of 19% of just Instant Noodles. This was mainly thanks to an increase in all the different geographies, all the different reference markets, but also an increase in the U.K. thanks to the launch of the Ultimate product and also an increase in the average selling price mainly in the U.K.
As regards Bakery products, these grew of 46.3% and the Crostino sales were the ones that drove the increase. Dairy products also increased quite well, and we had an increase, especially in Mascarpone. And Special Products segment also increased 42% with the development of baby food and special products and B2B contracts. In terms of distribution channel, we had an increase in the large scale retail channel of 19.2%, and we had an increase of all the business units in this category. B2B sales were increased by 82%. In this case, there was the contribution of EM Foods, but the overall development of this channel was pretty good as well without EM Foods.
In terms of normal trade sales, we had an increase of 31.8% as a result of a higher average selling price and also an increase in demand in new clients. In terms of private label, we had an increase of 16.6%, especially in the Dairy and Pasta business and foodservice remained pretty stable in this period. If we look at the geographies, we had an increase in all of the geographies with a -- I would say, average increase of 19% in all of the geographies especially in Italy, Germany and the U.K. We had an increase, thanks to higher sales volumes in Pasta, Instant Noodles and Bakery in Italy. In Germany, we had an increase, which was mainly thanks to an increase in sales volumes of Pasta and also a good contribution from Instant Noodles. The United Kingdom sales grew, thanks to our sales volumes again in Pasta and Instant Noodles. As said earlier, the Instant Noodles segment was particularly incremented by Naked Ultimate launch. And the Pasta sales were sort of driven by the launch of Ragu, which was launched last year.
The other countries, sales increased by 76.2%, which, of course, includes EM Foods in this case. But if we do remove EM Foods from the results, we had an overall growth of 20%. Now we move over to the EBITDA breakdown by business units. So as can be seen EBITDA -- adjusted EBITDA was EUR 18.2 million in Q1 2023 compared to EUR 13.1 million in 2022. If we look at adjusted EBITDA, this was 8.8% versus 7.9% in the first quarter 2022. And in general, there was a clear improvement in most of the EBITDA margins in both -- in Q1 this year compared to Q1 last year and the end of the year 2022, so we are sort of comparing both the Q1 2022 and last -- end of full year 2022 results.
If we look at Pasta, we see there was a steady increase from last year's results. So if we look at Q1 2022, we had just 4.1% of EBITDA margin. By the end of the year, we were able through mainly price increases to reach 6%. And now we are back to 8.1%, which is a very good increase considering all that's been going on in the last year. The Milk market, in particular, was one of the markets that suffered the most -- the highest increases in raw materials, especially in Q2. In this case, we can see that in Q1 2022, we had a good margin of 8.2%, which was brought down to 6.8% by the end of the year 2022. And in this last quarter, we were able to bring it back up to 7.8%, so it was almost a full recovery of margins in this period for the Milk segment.
Next, we have some more insights on the Bakery and Dairy products here. We can see that Bakery had a clear improvement of 310 basis points in going from Q1 2022 to Q1 2023. It is quite remarkable to see the increase in the Dairy segment as EBITDA margin had suffered pretty badly from the raw material price increases in 2022, especially in the second quarter of 2022. And this year, the last 3 months, we've been able to increase margins -- EBITDA margins to 15.2% if we compare it to last year's results of the full year results of 2022, we can see that it more than doubled because it was 7.2%.
Now we move on to the next slide, where we have more on free cash flow and also sort of an overview of the EBITDA margin, which improved quarter-by-quarter going from second quarter of 2022 to the first quarter of 2023. So as can be seen on the table on the left-hand side, we can see that there has been a recovery of the net working capital, which is just minus -- in the change in net working capital, which was just minus EUR 0.5 million. And this is shown in a great generation of free cash flow, which was EUR 7.2 million in the first quarter of 2023.
And on the bottom side of the page, we can see sort of the progression of EBITDA margin. As mentioned earlier, the sort of [ worst ] price and cost increase was suffered in the second quarter of the year -- last year, as we can see the margins were lower, and they had sort of a low -- all-time low for the year in the second quarter of 2022 with 7.13% of margin. And we were able to steadily increase quarter-by-quarter, the EBITDA margin to finally reach 8.8% EBITDA margin in the first quarter of 2023. So there's been sort of a clear display of how the commercial actions put in place has been successful and have been useful in order to increase our margins overall.
Moving on to the next slide. We have more on M&A. So this is sort of what we said last time. So the market right now is really interesting for Newlat Food as there is -- as the interest rate increase leaves less room for private equity. Also, the current credit market environment is very favorable for us. And we are looking more -- there's more sort of an increase of industrial players being involved in this -- in M&A in general.
In terms of targets, possible targets, we're still working on targets that we said -- that we mentioned last time. So we're working on one transformational target in the U.K. with over EUR 1 billion turnover. We're also working with a special product company in Italy that we're trying to acquire, but also just recently, we've been able to find a new target in the Bakery sector in Germany. And as regards to the deal that we've been talking about for over a year now, we're still in talk with -- in that particular case. So there's a few things open right now. We hope that we can close at least one deal by end of the year.
Now on to the last slide where we have sort of an outlook for the year 2023. The management of Newlat Food is very committed to achieving consolidated revenues with a double-digit growth, adjusted EBITDA margin of around 9% and free cash flow, which is expected to surpass EUR 30 million in -- by the end of the year and a free cash flow yield of 14%. And as I just said, we are very focused on M&A, and we really hope to -- and we do expect to close another acquisition by the end of the year.
So that's it for the presentation. Now we can open the call for questions.
[Operator Instructions] So thank you so much.
Good afternoon, everyone. Arianna Terazzi from Intesa Sanpaolo. Can you hear me?
Yes.
Okay. I would ask you an update on current trading, namely, if you could elaborate on the kind of volume growth, are you seeing in the current months across the various categories? And also if you are seeing pressure in terms of possible downward revision of your prices. Thank you.
Thank you, Arianna. But generally speaking, the current trading reflects substantially what we experienced in Q1. And this is the reason why with the visibility we have today, we update you about the guidance for the full year in terms of growth and in terms of profitability and cash generation. At the moment, in Q1, we completed our latest plan in terms of price increase. And we have no particular pressure at this moment in terms of cutting price.
I have to say that -- and to highlight once again that the growth that we achieved in Q1 and the growth that we are experiencing today and considering the order book that we had also in the coming 2 months, we have substantially still volume growth. It's not just a matter of pricing and no pressure in terms of cutting price. So this is the reason why we expect the margin improvement that we achieved in Q1 to be improved in the next quarter and to be around 9%, as we said in our guidance statement for the end of the year.
I have still question on profitability. So okay, good to know that you are not experiencing any pressure on downward pressure on prices for the time being. Let's say, I would like to understand to what extent have you already benefited from the downward trend in input costs and basically what and Milk -- or to what extent are this going to be further helped for the next few quarters? And another question, if I may, is on the contribution of EM Foods, which we can expect for the next few quarters and the ramp-up that you are imaging in terms of your initiatives going forward.
Thank you, Paola. In terms of profitability, we -- it was not driven by benefit from a particular slowdown in raw material or packaging or transplantation price. The situation, generally speaking, is still a situation that needs the price increase that we made because we need to think about not only particular single raw material but there is the where and there is a pressure in several areas, starting from the raw materials. So Milk, for example, it was a bit down since the beginning of the year, but still materially high versus the average level, for example, of '21.
There is -- we experienced pressure on transportation, logistics, energy. So there are several areas that all together create a picture in which, yes, it's true that some ways, we experienced some stabilization or bit of slowdown, but the situation remain still, I would say, tough of the basis, and it is justifying the price increase that we made.
For this reason, we highlight in our press release that we are really happy about the job that we achieved in the past months because with the situation still tough, we have been able to pursue substantially a percentage very close to 100% of the price increase that we experienced. For this reason, the improvement of the profitability I can say that it is sustainable because if we are going to experience a scenario in which most of the raw materials really will drop down, we can -- we have no problem to cut price again. What we look at is the profitability. And we are absolutely sure that this level of profitability could still be improved, but it's something that has a base on which we can move forward, it is absolutely sustainable.
In terms of EM Foods, it's clear that the contribution of EM Foods was not positive in the quarter, but because EM Foods is sort of a startup, we are developing out of project. We invested in the integration in renewing some areas. We have a lot of projects that are going to start in the coming months, also on the commercial side. And we believe that very soon that the contribution of EM Foods could be positive and supportive for the group.
I'm afraid that considering the number of projects and the different timing, et cetera, we would like not to share a more precise detail in terms of EM Foods, but I think that [indiscernible] would get the general situation of this particular division.
I have a question in the chat, asking about the cash conversion cycle. What from [ Jorg, ] thank you, [ Jorg ], for your question. What I can tell you is that first quarter is just the first step of the improvement that we planned for the full year. As you saw the contribution in terms of change in net working capital, we're still a bit negative in the quarter but materially improved versus the end of the year. And our plan, our expectation is to have for the full year still, again, a positive contribution in terms of net working capital. And this, obviously, this improvement is coming for an improvement of the cash conversion cycle.
There is a question [ Akash ], please.
I would like to ask how the M&A impacts the margins of the company?
The M&A, you mean the latest acquisition?
Yes, exactly.
Yes. As I said before, it was a bit dilutive at this stage because it is in a developing phase, it is just the first quarter, we are managing this company, and we are in the pipeline, several projects starting for the second half. In a normalized situation, the M&A obviously, is something that should improve the profitability of the group not to be dilutive. Even if our role on M&A is to take into consideration the return on capital employed, which is the real -- I would say, evidence of the value creation because of profitability to be very high.
But if you pay a lot this acquisition, you had substantially dilution in terms of return on capital employed. So 2 things, the target in terms of M&A from the value creation is based on return on capital employed. In terms of the current situation, the recent acquisition will improve in the coming months. And in a normalized situation will be absolutely in line with the profitability.
There is another question from [indiscernible] please go ahead.
Yes, can you hear me?
Yes.
I would like you to add on a little bit of information regarding the return on capital employed, if you may, to let us understand what are your general framework to evaluate the M&A. We know that on the table, you are negotiating a few deals and can you add a little bit of color? What are the things you're willing to consider, what are the criteria if mainly our synergies or potential new markets or consolidated positions? I don't know what are generally the things that you look in the M&A?
Yes. First of all, it's important to highlight that we have general rules, but each singular potential deal is obviously different than the other because there are a lot of company-specific aspects that we have to take into account. But generally speaking, I have to say that we have a very disciplinated policies in terms of the multiples on which we can acquire a company, which are absolutely, I would say, in a range that can be between -- depends obviously the specific situation of a company that could be no higher than the 7x the momentum.
We consider along the potential synergies that we can achieve. You know that we are a company with spare capacity in several areas. And it is important for us, for example, as it is for the deal that we are negotiating in U.K., maybe to get the opportunity to internalize some productions and to cover the spare capacity we have. In this way, obviously, we have an improvement in terms of profitability and return on capital also for the group stand-alone because we are going to reduce substantial capacity and to dilute the fixed costs.
Then it is important to considering the assets. If a company includes also real estate assets, it's something that we value also as a positive thing that could maybe in some case, we could apply a premium. And this is because it's something that could reduce the volatility in negotiating brand, and you have obviously something to add in your balance sheet. Profitability is important, but it's important for us to balance the equation between how we are going to spend for a company and how much is the EBIT that we can realize from this company.
This is more important than the single profitability of the company because in terms of profitability, usually, we would like to drive this target in terms of synergies, new commercial opportunities. So the integration in a big group to generate natural synergies, for example, in procurement, et cetera. These are, I would say, the general role we have. But as I said at the beginning, each case is different than another. We have to value obviously case by case. But it's just to give you a general information about our approach.
A question from [ BSF ] It's about the possibility that we announced in terms of the acquisition of the Sansepolcro Plan. This is a project that we announced to the market is a project that remains on the table. And as soon as we will have additional news on that, obviously, we will communicate this to the market. It's one of the projects that we have on the table today, including a several potential deals in M&A.
No other question?
I guess if there are no more questions, we can go. And if you have any questions going forward, we can always -- we're always available to answer your questions by e-mail or if you need anything else, we're always available. So thank you so much.
Thank you, everybody.
Thank you.