IVS Group SA
MIL:IVS
Earnings Call Analysis
Q3-2023 Analysis
IVS Group SA
In the recent earnings call, IVS Group provided insights into their business performance post a significant business combination. The company operates in traditional vending, listing Italy, France, Spain, Switzerland, and Germany as key markets. Furthermore, it encompasses the Ho.Re.Ca business, new to the group, and a Coin Division. The report revealed remarkable revenue growth, with total fees in the first nine months amounting to EUR 387 million, a 33% increase from the previous year, driven by robust performance in Italy (+54%) and substantial growth in other European markets (+300%).
The vending business experienced a 33% boost in volume with 740 million vends. Additionally, the average price per vend increased by 3.6%, signaling a potential for further price optimization given the current price disparities within the group's various entities. Adjusted EBITDA for the period grew by approximately 30%, marking a rise to EUR 81.4 million from EUR 62.5 million in the previous year. The EBITDA growth demonstrates the company's improving profitability, even though significant amortization costs due to the business combination impacted net earnings.
IVS Group reported a slight increase in net financial debt, from EUR 417 million in December 2022 to EUR 422.8 million. This rise was mainly due to fluctuating working capital parameters such as stock and VAT credit. Despite this, the cash flow from operations improved substantially, suggesting a solid underlying financial condition capable of supporting potential debt reduction, dividends, or growth investments. The company also hinted at targeting EUR 0.8 million in efficiencies, particularly within corporate administration functions, expected to materialize in the latter half of the next year.
IVS Group's market share is nearing regulatory scrutiny levels at approximately 25%, constraining their ability to conduct large acquisitions in Italy without antitrust consideration. Moving forward, the company aims to execute smaller, strategic acquisitions permissible under current antitrust thresholds. The earnings call also touched upon the competitive landscape, noting the potential benefits of industry consolidation and reduced aggression from competitors. This context suggests strategic positioning for IVS Group amidst a changing vending market environment.
Strategic contract wins and bids in the travel and public business segments, such as the Madrid Metro contract and the bid presented for the Madrid Airport, were highlighted. These developments, alongside improvements in conditions of certain re-won contracts, signal a favorable outlook for contract-driven revenue, projected to bolster travel and public business segments in light of less promising performances in the manufacturing industries. The anticipated revenue from key contracts like Madrid Metro is estimated to be EUR 10 million, with the Linate Airport potentially adding a couple of million euros.
Looking ahead, IVS Group has published a corporate calendar which outlines key dates, including the Board approval of the 2023 results scheduled for mid-March next year, pointing to a structured and transparent approach towards corporate governance and shareholder communication.
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the IVS Group Interim Results at 30th September 2023 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marco Gallarati, Director of IVS Group. Please go ahead, sir.
Good afternoon, ladies and gentlemen, and thank you for attending the conference call on IVS results in the first 9 months of 2023. Marco Gallarati speaking, and is with me, the CFO, Alessandro Moro. Antonio Tartaro today is traveling and cannot attend the conference because he has contact problems.
Anyway, as usual, in the first part of the conference, we will give you a comment on the results of the period and another view on how we see the current situation, and an update on the work that is ongoing on the integration with Liomatic, GeSA and, Vendomat. And finally, we will give you some highlights on what we expect for the coming months and other future strategies. Alessandro will then give you more details on the interim report and the financial performances, and finally, we'll be available for your questions.
Okay. Well, as you know, 2023 will be the first -- we are including all the assets of the business combination with Liomatic, GeSA and Vendomat. You know that we have formally completed the business combination with asset at July 1, 2022. And consequently, the first 9 months of 2023 cannot be really compared to the same period of 2022 because of the nominal increase of all the relevant financial data is very high.
On the nominal side, sales were up by around 50%. Adjusted EBITDA was up to by 30%, although with the dilution of EBITDA margin coming from the higher sale of Liomatic intersale business, and also the adjusted EBITDA grew about 35%. On a more homogeneous basis, not the formal pro forma that was not in place in last year, but considering as if the business combination were already in place at the beginning of 2022. The increase was 80%. 8% in sales, 31% in EBITDA, adjusted EBITDA, almost 150% in EBIT and more than 1,000% in net profit.
These numbers are not really important in the sense that reflect the improvements and the positive effect that we are generating upon the business combination. That is important. And what is probably even more important than the larger size of IVS is that the new dimension and the presence in new markets, some pretty big as Germany and Poland, big markets. Not yet our presence but in terms of population, some fairly smaller as Portugal, but this new dimension is having a strong impact at the European level, let's say, carrying on a new key strategic level of relationships between IVS and the other leading players in the coffee sector, and generally speaking, in the food and beverage sectors.
The integration, keep in mind that the integration work on quite complex and large business combination, at least larger for us, started only 1 year ago in a market context that is not so easy for cost, inflation and many other situation that everybody knows. But the business combination where we are even more convinced was a really good move for IVS. And I would say that the more we go invest in the integration, the more we find new areas of improvement, both in the cost side and in terms of new market segment opportunities.
An example, a good example is the Ho.Re.Ca. business, as it is probably more profitable than we expected and where we think that we could have really good opportunities for further growth clearly by leveraging on our logistics presence and skills through the vending network. Another good example is in the Coinservice division through the new subsidiary, N-and Group, that is giving very good results with significant growth prospects. And so possibility of extracting additional values also from the big amount of information that we have that we manage on consumptions for each product category and market segment.
Of course, these opportunities, the new European market, the new market segments represent a target for the next 3, 4 years. But the priority now is completing the integration with Liomatic and GeSA in the 24, 30 months time frame from the acquisition as we declared 1 year ago. That means that we have another 1 year and half, 18 months of job, especially in the operation and cost side.
With regard to the first 9 months of 2023, we are not fully satisfied, especially for the lower volumes than expected that we are seeing since the beginning of the third quarter. Probably this is an effect of the higher interest rates, lower loans from the banking system to industrial companies. Therefore, this means that we must absolutely reinforce our actions to face this weakening of consumptions and volumes that we have seen especially in the manufacturing sector, the factories, blue collars rather than in transport or in the service sector. And this data is in line with the economic larger data on the industrial production that has been recently disclosed by public bodies, saying that there was a decline in inter-industrial production of around 2%, 3%, but is more or less the same level of less hours worked and lower volumes that we have seen in those clients on a like-for-like base in the manufacturing sector that was sent for. Clearly, as we kind of move the market volumes, this means that we must realize our additional efficiency. Otherwise, the efforts that we are doing in increasing the selling prices will be absorbed by the lower volumes. With this regard, we have already identified some areas where there are very different levels of productivity and efficiency amongst the different subsidiaries of the group IVS. Former IVS was much more efficient under many parameters, and we have absolutely to bring also the other company at the same level.
We are also more and more selective on installing or keeping vending machines where the number of vends is not enough to be really profitable. In the [ short ] month time, being more selective means losing some volumes, of course, and losing some gross margin together with volumes. But after, it gives the opportunity to be more efficient because you can reorganize the business, the logistics using better the human resources and the CapEx. We'll not return on the scarcity of human resources, that is clearly especially in northern Italy, but this is a general issue that we have to face with higher concentration and more and more efficient logistics.
In terms of overall volumes in any way, we should reach the symbolic number of 1 billion vends in the full year. Again, in terms of numbers, the EBITDA level of EUR 81 million that we reached in 9 months represents a good base, of course, closing the year, considering also that the third quarter is always the weakest internal volumes and we had also 1 working day less compared to the third quarter 2022.
Below the EBITDA, remember that we have a significant part of amortization that are related to the acquisition prices of M&A activity that we allocated on tangible or intangible assets, for example, the client list of acquired businesses and the brands. And this part of amortization could be regarded as a cash profit. Alessandro will then give you more detail on that.
We have seen that the net financial debt increased a little bit mostly for a strong increase of net working capital, especially in stocks that we acquired during the quarter. The total increase of working capital was around EUR 20 million, and this clearly has an effect on the net debt. In fact, it is also due to payments of CapEx-related, for example, to the new contract of the Madrid Metro, that is not still generating revenues. We start to be operating in the next few weeks, but in any case, we have to spend the money to install the vending machines. And we had also, [ in part ] due to the increase of working capital in part to the CapEx, quite a strong increase in VAT credit. In any case, we are confident that this increase of working capital will be turned around by the year-end with a significant reduction in net debt.
Now I think I can let Alessandro to give you more details on the interim report and on the financial situation, and then we will answer to your question. Thank you.
Good afternoon, everybody, Alessandro Moro speaking. As usual, I will summarize to you the most important aspect of the profit and loss account, and then I will give you some more details on our financial situation and liquidity.
Well, according to the reorganization of the businesses areas, we have adopted our activities after the business combination. We have, first of all, the traditional Vending business. that includes the IVS previous activity in Italy, Spain, France and Switzerland. GeSA, that is that is only vending in Italy and new market that has vending operation in Italy, San Marino and a small subsidiary in Germany.
Total fees in the first 9 months were EUR 387 million, plus 33% compared to EUR 290 million at September 2022. Vending sales can be further divided into the following markets: Italy, with EUR 321 million, plus 54%; France, with EUR 32 million with plus 19%; Spain, EUR 25 million with a plus 12%; and the other Europe market with EUR 8.5 million with 300%.
The second, the Resales business includes Liomatic in Italy and its subsidiaries in Spain and Portugal and Vendomat that operates in Italy, and other minor controller companies. Total sales in Reselling business were around EUR 99 million. Just for the record, in September 2022, sales were EUR 29 million. But this is a new for IVS Group, and therefore, the comparisons to 2022 is not really significant.
The third is the Ho.Re.Ca. business that is also new for the group and includes some Liomatic group businesses in Spain and some small Italian business owned by IVS Italia. September 2023 sales were EUR 16.3 million versus EUR 5 million on September 2022.
The fourth macro business area is the Coin Division that has no changes from the business combination, but business since the last quarter includes N-and Group. Total were above EUR 28 million with an increase of 45% compared to the September 2022.
With reference to vending volumes, the total number of vends was 740 million, plus 33% versus September 2022. Average price per vend increased overall and average by around 3.6% compared to September 2022 from EUR 0.505 to EUR 0.523. As we said in the formal presentation, we still have quite significant differences in the prices applied in the different legal entities and market areas. IVS still has higher prices compared to the other new companies of the group. There is a significant space of additional type increase, although. But also, as you know, the time required to complete the cycle requires the least another year or even more.
EBITDA growth is around plus 30%. Total adjusted EBITDA was EUR 81.4 million compared to EUR 62.5 million in September 2022, and there would be a 30% increase too on a homogenous basis if considering the business combination completed at the beginning of 2022. In the presentation, you can find the case for each market area, and today, we have businesses with different margins. Especially in the core vending business, we still have quite a large gap to be recovered by the acquired businesses to reach the best performance areas. Moreover, we thought that may get well in the operating businesses, but we discovered also that direct and administrative function, we have much more space to recover efficiency.
Looking at the difference between EBITDA and EBIT, we have a substantial portion of amortization that are a part of the price to [ pay ] in the business combination that was allocated to specific assets like real estate or client list -- customer list, sorry. There is -- their value as of September is around EUR 9 million. That could be considered as a higher EBIT in pretax profit. Despite this higher amortization, EBIT adjusted in the period increased by more than -- more than 32%, close to EUR 22 million. The increase in percentage in adjusted pretax and net profit is even higher. We expect to have a very low tax rate for many years that -- thanks to the accumulated tax benefit of the past years.
Going to the net financial debt, it is equal to EUR 422.8 million from EUR 417 million as of December 2022. Net debt includes around EUR 64 million rising from IFRS 16 asset. The increase in the net debt mainly is mainly due to decrease of changes in net working capital, especially stock and VAT credit, as said by Marco. These components of our working capital will go hopefully down by the year-end. Also some CapEx are contingent and they include, for example, the vending machines installed for the Madrid Metro that has not yet started to generate the revenues, and the CapEx in the last quarter are expected to be lower.
In any case, the cash flow from operations in 9 months as of September 2023 was much higher compared to September 2022, EUR 77 million compared to EUR 59 million before working capital changes and financial expenses, and EUR 62 million compared to EUR 8 million in 2022 after working capital changes and financial expenses. It is to say that the group gross cash flow generation is sound and improving in the range of EUR 100 million. We are then in the position to decide where it is invested to adjust this cash flow that can be to debt reduction, to dividend or traditional growth in the new markets.
Thank you. We are now available for your questions.
[Operator Instructions] The first question is from Alessandro Cecchini of Equita.
The first 1 actually is on your activity, your pipeline in the travel public business. At the beginning of the year, you exited some contracts. Low performing in terms of, I would say, with the clients asking more redevances than expected. So I would like to know if now, the pipeline is more interesting? You are gaining some share also given probably lower redevances after the redevances? This is my first question.
My second question is that -- about the Italian business concentration. We had that other 3, I mean, medium players decide to merge so -- in the Italian business. So I would like to to better understand what are the -- I mean, your thought about this? The role of IVS, relative strength against this new, I would say, consortium?
And finally, my last question, so you are trying to find new efficiencies. So if you could elaborate a little bit more on this?
Alessandro, from my side, a couple of answers.
In term of contracts and conditions for new contracts, especially in the travel and public business, we said that we won Madrid Metro. That will start to generate revenues shortly. We have presented very recently our bid for the Madrid Airport. We will see the results. That also should be quite a big contract for us with a value of more than EUR 10 million of sales. Clearly, the positioning fees in the airport are pretty high, but also the prices are pretty high. So we expect clearly, if we bid, that means that we expect to have some money.
Another smaller examples, smaller compared to Madrid Airport is that in the past, and maybe you remember, we had lost the Linate Airport. A part from the [ tablet ] was under restructuring wars, but the conditions of the positioning fees were [ twice ], in our opinion. We were out from Linate for 2, 3 years, I would say. And now, we'll start again the next year to stay in Linate Airport with a new tender that we won. We have totally different conditions. Clearly, Linate is not anymore a huge airport but that just represents some changes also in this sector.
As far as the transaction involving other Italian vending companies like Buonristoro, I guess. First of all, we cannot move any more in the vendo market with big -- this build means in the range of EUR 50 million because our market share is already quite close to 25% direct Vending plus the Resale business, so we should go to antitrust authority. But basically, we are not interested in doing other big acquisitions in Italy. It is possible that we will make some small ones in specific regions or provinces, and that is allowed because the sales would be below the EUR 5 million that are the minimum threshold for antitrust reasons.
As far as these other players, some were in a quite bad shape after COVID and didn't certainly recover in the last 1.5 years. So they were -- and we're obliged to try to merge strengths or weaknesses. Hopefully, those weaker players that maybe were pretty aggressive in terms of offering low prices or higher rebates in this new shape will be less aggressive, so it's a good news for all the sectors if there is a little bit more concentration.
Other question?
Efficiency in direct costs, I think that Alessandro is directly involved and explain it a bit more because they are basically administration and other related costs.
Yes, we expect it to see that in the -- during the next year, around EUR 0.8 million for direct efficiency in the function of the corporate and particularly administrative, but we are going to work on the other faction too, and probably we finalized this work on the direct function around the first half of the next year. And so we can go -- we can see the effect in the second half of the next year.
Keep in mind, mathematically speaking, that the agreements in the business combination, provided that the legal entities would have been kept separated for a certain period, let's say, 2, 3 years, depending on the situations. You can understand the reason of the people in the Board with the management of the other companies and so on.
So the integration work that we have done in the last 12 months was a bit more concentrated on the operational side. First of all, the procurement, then the offer lasting branches and the IT system and so on. And we didn't care very much about the overhead. That is quite difficult because overheads are an area to be produced while they're -- while these agreements are in place.
Now everyone, not only in IVS, but also in GeSA, Liomatic, Vendomat, is aware that we have to accelerate. So also in their quarters of the acquired companies and in the legal entities, we will intervene a little bit more in that by cutting costs.
Okay.
If you can elaborate on potential sales in Madrid Metro and in airport -- Linate Airport? So additional sales? So just to have a rough idea combined these 2 contracts.
Very generally speaking, because this is a new contract -- that would be a new contract, airport. I am aware that to date, it's managed by select -- by other players, so we don't have exact [indiscernible].
No, Metro. Metro and Linate Airport.
Okay. Okay.
Metro should be in the range of EUR 10 million on a stable basis, a little bit less probably. Linate should be a couple of million euros, range like that.
Okay. And you are not -- I mean, after the cancel that you had at the beginning of the year, you don't have -- you are not losing contracts, other contracts because you would like to exit? So just to understand this one?
Some contracts we have lost in the past month, for example, also for the counterparts that was not prepared to change or reduce positioning fees. For example, the Florence main hospital in Careggi, that was a contract we had for a very long period. We have lost it for a couple of years, but now, the Tuscany region made a new tender and we won 1/3, 1/2 of the parts of these big original tender. And that includes, again, the Florence Careggi hospital at much better conditions for us.
So if we have to announce for testing period to a contract that is not profitable, it's okay for us. We will concentrate our resources on other contracts. And by the way, the same client is coming back and better conditions, so.
Okay.
So just to understand that, you expect next year to have a positive, excluding [indiscernible] positive net sales from public and travel?
Sorry, Alessandro. I specify that the revenue combined from -- arising from Metro Madrid and the airport in Linate is EUR 15 million on the whole duration of the contract because the revenue in Metro Madrid is around EUR 2 million for the year, okay?
Okay. Okay.
So -- okay. And so basically to understand, you are probably having a positive spread between -- in the travel public next year, given these kind of contracts?
Yes, the public travel is compensating some way the weaker volumes in the manufacturing industries states.
[Operator Instructions] Mr. Gallarati, there are no more questions registered at this time.
Okay. Thank you, everybody. We will have the next conference mid-March. If I remember well, yesterday, we published also the corporate calendar for the next year. And the Board approval of the 2023 results is mid-second half of March.
So thank you, everybody, and have the next appointment. Bye. Bye. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.