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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the IVS Group First Quarter 2018 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Antonio Tartaro, CEO of IVS. Please go ahead, sir.
Dear, ladies and gentlemen, good afternoon. I am Antonio Tartaro, IVS Group co-CEO. With me are present Alessandro Moro, Group CFO; and Marco Gallarati, responsible for Investor Relations and in charge for our Coin Service business.
As usual, I will start this presentation giving a short picture of the overall situation for IVS Group. Alessandra Mora will then summarize the numbers of the first quarter of the year. Finally, we will be available for your questions.
Well, in this first part of 2018, IVS continued to grow as we are doing quarter after quarter since many years. As we had always stated, we grow by small but continuous step unless in the first quarter of the year 2018, we complete acquisition that are not so small as we are used to and that we indeed prefer in terms of return on the capital employed.
However, some strategic opportunity need us to complete. Indeed, in our vending market, in a historical moment, there are a lot of opportunity of medium consolidation, medium-sized consolidation. These are safe and continuous but a bit more expensive compared with the small one than we are used to do. However, they are [ safe process ] and continuous, and we are sure that in the long run, they are the way to make our company more and more solid and capable to generate higher value in the future. Considering the performance of this first quarter, despite some snow on our main vending market in northern Italy, tendered good results in April. I think that we should be on a good track to begin again the past -- to beat again the past record also for the full year results. And hopefully, this will happen again as we have a target of 1 billion vends per year to reach in a few years. That would correspond to sales in the range of EUR 500 million.
And if we were able to continue to grow in the same present stable way, margins and profits should also grow accordingly and increase IVS Group value. Could we be more aggressive in term of our growth target? Probably yes, but we will take the step according to better strategic opportunities for the group.
You know how the [indiscernible] industry can be resilient but resiliency is not just an external condition. It depends on the internal characteristic of the management of our business of the -- on the very active implementation of the client portfolio on the single unit margin that we are able to extract from each product, each vending machine, each client.
Resiliency and good profitability are the result of a very long-lasting and at the same time daily work. Of course, resiliency means that we could continue to generate the cash and profit for some years even stopping CapEx and reducing some cost of our structure. But in the longer run, we will dilute our capacity to grow and generate more value.
But as we are [ seeing in positive ] way, other companies whose performance are not so good could be resilient in a negative way because it is very difficult and require many years to turn around the business vending based on hundreds of thousands of vending machines and the thousands of clients over which maybe you need such micromanagement work. We have a real competitive advantage, and we believe this is a really strong value-add for us.
And this competitive advantage will be possible greater in the coming years. We are just at the beginning of the new important phase in vending industry. For example, digitalization had just begun to affect our sector, and it requires skill that we already have in part, and we are currently recruiting for the other parts.
We believe our competitors could not be so -- in so good position. We have already invested some significant money in terms of the CapEx and digitalization project as well as our new generation of vending machine, and we are spending some cost for technical innovation and other service, which apparently did not improve our [indiscernible] profit and loss margin.
And on the contrary, they reduced a little bit our EBITDA. Fortunately meanwhile, the Italian Industry 4.0 plan gives some relief to net profits through reducing tax rate.
It means that we are in medium-term approach to the growth and business. IVS strategy is continuous growth, not explosive but constant. So we will continue to follow the 3 major issues, efficiency in micromanagement work to optimize operating performance service, geographic growth with user preference for higher local density, innovation of the new strategic process.
We have and generate enough resource to execute this strategy and at the same time generate satisfactory result and profit. Finally, looking in the short term, in the second part of the year we will possibly do something in order to save some interest cost on our present financial sector. If market conditions do not change dramatically, we could possibly to save some money in our existing bond cost with a recall date on November 2018.
Now I pass it over to our CFO, Mr. Alessandra Moro.
Good afternoon. Alessandro Moro speaking. As usual, I will make a summary on the most important numbers of the first quarter that you can find also in the presentation posted in the IR section of IVS Group website.
The volumes, the total number of them in the first quarter grew from approximately EUR 204 million to EUR 213 million with an increase of more than 4% overall.
Consolidated revenue reached EUR 107 million to swap 6.1% from EUR 101 million on the -- of the first quarter of the last year. More specifically, the revenue in the core vending business grew by 5.5% with the following breakdown in the areas where IVS operate.
In Italy, plus 4.9% overall, including the small acquisition we made and plus 2.6% like-for-like, excluding acquisition and adjusted for the working days. In Spain, plus 17%, including the effect on January of the acquisition of Ibervending, which was not yet consolidated in January 2017 and plus 5.5%, like-for-like and adjusted for the working days.
So we had pretty good performances in our 2 main markets also with positive like-for-like adjusted volumes. The numbers of like-for-like vends grew in fact by 1% in Italy and by 2.7% in Spain.
In Switzerland, we had also a significant increase of 12% in total sales and 36% in volume overall, but it is due to acquisitions. The like-for-like and these adjusted change in volumes in Switzerland was 2.4%.
This is due to the fact that the Swiss branch suffered for the loss of a single major client and considering the relative size, which Switzerland is still very small, the loss of a single big client made a significant difference, although, in the following month, we recover a part with some new contracts.
Finally, in France, there was a decrease both in overall sales and like-for-like adjusted for the working days. In France, it is especially in the Office Coffee Service segment, which is still losing volumes. And in fact, we do not have the agreement with Nespresso, which allow us to turn the trend as we made in Italy.
In the Coin Service division too, there was a significant increase of our overall sales plus 14%, but this is not due to the main metal coin business, which grew around 4% with a similar growth also in margins.
In fact, the additional sales were made by the subsidiary [indiscernible], which is one of the subsidiaries of the Coin Service division, which has started a new business related to payment system and other connection appliances for the vending machines.
This new business generated approximately EUR 0.5 million sales, but its margins are still negative and that is why the coin division overall shows a decline in margins controlled with growing sales.
Coming back to the vending business. The average price per vend increased by 1.3%, EUR 0.464 from EUR 0.468 on the first quarter of 2017. The acquisition completed during the first quarter were 2, and they contributed in this period for less than 1% to consolidated sales.
The acquisition rates of new client continues to be higher than the churn rate. In reference to margin, adjusted EBITDA increased by 3.1% compared to the first 3 months of 2017 from EUR 23.6 million to EUR 24.4 million with an EBITDA margins on sales in the first quarter of -- was equal to 22.7%.
But considering the par number of working days, the increase of adjusted EBITDA was plus 4.2%. Moreover, if some factor occurred during first quarter 2018 were considered, the overall EBITDA and margins will appear higher.
Fourthly, in the P&L, we had a capital loss of EUR 0.3 million related to the sales of used vending machines made by our newly acquired businesses. Such a loss according to accounting principles was accounted above the EBITDA, even it could be regarding a different way as [indiscernible] of anticipated [ disposition ]. The second aspect is the effect on margin of the volumes lost in February due to the snowfalls.
The loss of approximately EUR [ 900,010 ] imply a lower contribution margin and a lower EBITDA in the range of around EUR 300,000. As already said, the new businesses started by coin division generated an operating loss of approximately EUR 250,000.
Finally, we can consider some other cost of professional and advisory charged to the core vending business but really not still related to ordinary business sales but to innovation and new projects. Overall, these items had an impact of around EUR 1 million on EBITDA. If they were included in adjustments, the EBITDA margin would exceed 23.5%.
Group net profit in the first 3 months was equal to EUR 6.0 million plus 19.6% from EUR 5.2 million at March 2017 after profit attributable to minority of EUR 0.3 million. The net profit adjusted for the extraordinary item was equal to EUR 6.8 million, always after minorities, plus 13% compared to EUR 6 million on the first quarter of 2017.
The reduction of previous tax grants related to former action rules was partially compensated by higher tax deductible via depreciation of new CapEx approved in the last months by the Italian government, the so-called Industry 4.0 decree.
The net financial position was equal to EUR 262.5 million from EUR 254.1 million as of 31 December of 2017. After payment for investment in the first quarter of EUR 24.4 million, of which around EUR 14.4 million for investment in fixed asset and EUR 10 million for acquisitions, including payments related to investments made in former period.
We also paid around EUR 3 million in 3 [indiscernible] related to the antitrust fine of 2016. Finally, the group has approximately EUR 13.6 million of [ debt ] VAT traded not including net financial position.
In April and May 2018, we completed 3 additional acquisitions for a provisional price of EUR 2.1 million. On May, the Annual General Meeting resolved the payment of a dividend of EUR 0.28, plus 16.7% [indiscernible] EUR 0.24 over 2017. The dividend corresponds to approximately EUR 10.5 million and although that will be paid on July 11, it will be included the net debt in the second quarter.
Thank you. Now we are available for your questions.
[Operator Instructions] The first question comes from Andrea Lisi with Equita.
I want to ask some question from my side. First of all, how has the second quarter started in terms of organic volumes? Then what is -- given the CapEx you made in the first quarter, a reasonable amount of CapEx spent for the full year? And then in terms of M&A, if you have already targeted some medium-sized player because I heard you spoke about that growth with medium-sized target is -- could be an important driver of growth. And then in terms of positioning fees, I want to ask you if -- do you expect further increase in the coming quarters? And last, I want to have more color about the process of integration in Spain, how it is going on.
Well, starting from M&A target, of course, we have a pipeline. We are always in contact with 2, 3 medium company and several small company that wish to evaluate their branches to sell, the whole company or part of it. CapEx, we are increasing CapEx in the term of hot machines because we have Industry 4.0 plan from tax authority in Italy. So it is -- we have opportunity to save some money in terms of taxes, 56% for -- to be sharp in terms of the amount. And so we are increasing hot machine purchased and if this machine could be not so necessary, but the tax holiday will expire at the end of this year. And if you wish to have in the next year, you should pay in advance of 20% to the machine vendors. So we are a little bit more accelerating the acquisition process of instrumental tools [indiscernible] this tax authority. So the other question because you give us long...
Yes. Okay. [indiscernible]
Positioning fees is increasing [ as a number ] received during the last years. The source of this process that affected Italy, especially the north part of Italy, was the process [indiscernible] seller of our main competitor in Italy that forced them to make big pressures in terms of relevance. We call them relevance repositioning fees, and then they tried to acquire some volumes to just, I think, for the pre-selling process because when the selling process was over, we see the end of this process. Of course, all of this happened during the last year, but the effect you can see beginning to this part of the year of the -- our exercise, so you see that this one is what you see now in the number. It is something that is happened at the very last years. The last question is Spain [indiscernible]. We are liking to turn those process to improve Spain. We are consolidating. We are working on the filler tools. Our technical assistance is okay. We are beginning to realize the single contract. As you know, in the vending industry, everything is micromanagement, client by client, machine to machine. Now we are focused on our filler tools. We plan to cap 5 or 6 tools. And we are also another -- chatting with another operator that is interested to sell his branches in Spain.
Okay. Just to follow up, I want to ask you if you can tell me how the second quarter started in terms of organic volumes?
Well, in the first quarter of 2018, unfortunately it was affecting our main market, that is northern Italy by the snow. So we had snow in the northern part of Italy. We have also snow in Rome, but the larger in terms of volumes [ we have ], and so we lose more or less EUR 800,000 of revenue from this meteorological event. Did the second quarter begin well? I wish -- I see that with soft volume, but it is. We are over budget comparing over the last year in the month of April, mainly seems to be okay. We see not the normal meteorological [ talent ] during the last week, but if we will be lucky and hot system becomes early -- become early, we will have a good second quarter. [ Andrea ], as I told you, April is higher than the budget and higher than last year.
I can explain a little bit more about the CapEx. You have probably seen in the split part of the CapEx that more or less EUR 7 million after -- of EUR 12 million of total CapEx are related to the new vending machines. These new vending machine are all the new vacuum technology vending machines, for which we have a sort of exclusive agreement with the manufacturers. We -- for which we have the right to buy all their production capacity of this type of machine. This means that at least for another couple of years, we will be the only player in the vending sector in Europe which is able to provide the client with these machines, which are very well appreciated. So even if we accelerate the CapEx, it means that we occupy the market with the new technology. And once we have installed these kind of machines, it makes happier the clients for 1 or even 2 contract cycles without suffering the competition. So it is not a question of tax benefits but also of commercial strategy to accelerate because we are investing in this new kind of machines.
[Operator Instructions] The next question comes from [indiscernible].
Just 2 questions from my side. You mentioned 4 items, 4 exceptional growth items, which added up to EUR 1 million roughly, and most of -- 2 of them are really exceptional one-offs. The capital loss on the sold vending machines and the snowfall but then the loss of the new business in -- within the coin division. And also the advisory and other costs, which you incurred. Could you give a guidance for the coming quarters with regard to these cost items? And then the second question, if I understood correctly, the acquisitions you did in the first quarter were bigger than usual and also on higher multiples than usual. Could you possibly be more specific with regard to the multiples you paid? And also give an indication on the rest of the M&A pipeline for 2018, whether you will likely continue on this path of higher multiples [ great ] on M&A, whether you will get back to your usual behavior with regard to M&A.
Well, the acquisition of the first quarter is -- I confirm, is higher than usual because it's different than usual. We acquired the Nespresso concessionary license in the north/central part of Italy. So this was the fee that we pay to consolidate our Nespresso project. As you remember the last year, we acquired [indiscernible] branches that focused on Nespresso part, of the professional line of Nespresso part. So Nespresso has a fragmented distribution on Italian territory with a lot of seller concessionary and exclusive distributors. We have acquired or consolidated part directly from Nespresso and the part of acquiring branches. The acquisition of the first occurred in January was the concessionary [indiscernible] of Nespresso distributor or Nespresso for last year [indiscernible] markets in the central part of Italy. So what we acquired was the distribution, and this acquisition was through [indiscernible] the usual process that is calculated, where the cost of the prices is calculated on the number of vends -- for monthly vends. We have a lot acquisition in process of a small -- are really small and medium and small branches and continuous target based on the driver of vends. And in this historical moment, there are several opportunities that remain a strategic point and corner with a medium company but this medium company is normal acquisition process based upon the EBITDA multiple. When we approach this type of acquisition, usually they are expensive and more expensive in term of price. However, we -- if the strategic opportunity will give us a chance to consolidate a part of the market in Italy, France, Spain and Switzerland, we are ready to see the opportunity until the end to evaluate the right way.
[indiscernible] With regard to acquisition, yes, we probably made some more additional acquisition in the rest of the year. Someone could be a little bit bigger than average. And in that case, we are buying shares in companies and considering that they are maybe very profitable companies are the multiples that can be higher than the 3 or 4x EBITDA we usually buy for smaller businesses after the integration. With reference to the [indiscernible] on those items, which we have not considered within the adjusted EBITDA, you are right, some items are really extraordinary like the capital loss on the sale of user vending machines, which is EUR 350,000. And other EUR 150,000 are [ in line of ] cost of external adviser rewards which are related to new projects. Digitalization, move to touchscreen new generation of machines, these expenses could have been possibly capitalized and not included in the cost in the P&L considering that we break that sales, we prefer to consider them as costs. The same more or less applies for the start-up cost of this new business of the Coin Service division, for which we have really strategic project in mind, so even if we spend some EUR 100,000, we think that is good investment and is a really investment we need again it [ comes in the ] cost and not capitalized. And finally, yes, the snowfall was an exceptional weather situation. It's not a huge amount. Sometimes we are lucky in that [indiscernible] when it's been town like Rome, like Naples, like Paris, these [indiscernible], we really stop operation. Whilst on the contrary, when it's very hot, maybe we sell 10%, 15%, 20% more water, it's not the same situation. So it was just to give an idea of some special situation that they -- in any case, we tried to put all these items in the cost. Our accounts are very clean and transparent. And if we save the taxes, we continue to consider them as cost and not as CapEx on -- in accounting point of view.
Accounting principle actually fair so...
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
Okay. Thank you to everybody, and we would be happy to hear you during the next quarter conference. Thank you, and have a nice evening. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.