IVS Group SA
MIL:IVS
IVS Group SA
MIL:IVS
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Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the IVS Group First Quarter 2019 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.
Thank you. Dear ladies and gentlemen, good afternoon. I am Antonio Tartaro, IVS Group CEO. With me are present, the CFO, Alessandro Moro; and Marco Gallarati, responsible for investor relations and chief of our Coin Service business. As usual, I will start this presentation giving a short picture of the overall situation for IVS Group. Then Alessandro will summarize the financial results of the year. Finally, we will be available for your questions.
Well, also in the first quarter of 2019 we had growing results. Smart growth as like-for-like basis, but still good.
On considering that the general economic situation in our [ mail ] market in Italy is pretty weak. I think that we have done better than the rest of the market. And that we can beat [indiscernible]. The effects of the [indiscernible] acquisition are not yet evident in profit or loss of our first quarter. As they are included for 1 month only, while the [indiscernible] that is to be included in net debt of group.
We are also quite satisfied about the progress in the French market, especially for the tender won on the Paris meeting. But we changed significantly in our local presence and the numbers from the year 2020 when the [ profit ] contracts will be operative with FNER observation.
And to the contrary, we are not satisfied about the Spanish business unit. In the market the [indiscernible] for the year 2017, we had a significant [indiscernible] exposure to corporate clients working in the automotive sector, which now, has [indiscernible] a strong decrease in -- of production and consequent fall of presence of workforce and our workers in the service factories.
This shutdown started in the final quarters of the last year, it still continues. We are taking some action, but in the short time, we feel that we needed to revise our logistic organization which represents the main portion of operating costs.
On the contrary, we could compensate the loss of these volumes with some new acquisitions made. In Switzerland, seen a very low cost on our sales, less than 1%. We have reduced a little bit our sales, but at the same time we are increasing margins.
Finally, always in terms of business unit, we improved our source of our service division, that is due particularly to the new business in digital money and new payment system carried out by our subsidiaries and [indiscernible]. Again, seeing those numbers in absolute amount compared to the main brand in the division, but highly significant. The [ amount and user ] of CoffecApp payment applications are growing and are beginning to activate strategic partnership with the big players in the food and beverage industry and the international players as well as a group like Alibaba [ Oral B ]. In fact, we are adding to a traditional business like metal coin, a new [indiscernible] business. And there are not so many players that are based in Italy, which can have both and incubate business structure, positive and economic result, especially in [indiscernible] market. You know that at the end of the year we signed the acquisition of [indiscernible] a [indiscernible] institution currently controlling the [indiscernible]. We are waiting for necessary approval from the Bank of Italy and expect to consolidate in our account also being acquisition since the second half of the year. And we start working on a 2-year plan. Despite all, IVS is, one time more, had shown that it has its commercial and [indiscernible] strategy and growth, will be able to offset the factor weak economic scenario, that whoever affected during this quarter, our like for like points. But not the other side, if we continue to do better but the market leverage and our competitors suffer more or where we not have the capacity to invest in innovation and better services to the client or the Italian overheads we are not able to avoid VAT increase. Acquisition will be again the principal player here for our strategy, as we did in the year 2014. Therefore, we will continue to increase our market share. That remain our strategic goal for the coming years. As we are convinced that to invest our gross cash generation can create significant value.
You have probably seen in our press release and presentations the effect of the application of the new IFRS 17 accounting principle on our balance and profit and loss. We think we provide all the necessary disclosure in the presentation, however, in general terms, we do not have any problem arising from the new accounting method. All our financial contracts, [ balancing ] loans, already has gone and calculated with the [indiscernible] accounts principal. We continue to monitor our financial market -- our market -- financial market regarding the possibility to rate finance with existing model, expiring on November 2022. And if there are the conditions to save a part of the present 4.5% interest rate, we will exercise the call option. We will see the scenario after European election at the end of the quarter in the month of May.
Now I pass it over to our CFO, Mr. Alessandro Moro.
Ladies and gentlemen, good afternoon. Alessandro Moro speaking. I will make a summary of the most important numbers of the first quarter that you can find also into the presentation in the Investor Relations section of IVS group website. As you have probably seen from the presentation, we have tried to give all the details to allow a clear comprehension of the differences arising from the application of IFRS 16 new rules. Well, starting from the volumes, the total number of vends was at EUR 221 million, with an increase of 3.8% compared to the first quarter of 2018. The quarter consolidated revenues amounted to EUR 114 million, a growth of 6.4% from EUR 107 million in 2018. More specifically, the revenues in the core vending business calculated like-for-like and -- at par working days, grew by 3.7% in Italy, and 2.5% in France. In both these 2 markets, we are quite satisfied as our commercial workforce has done a good job, taking some important new contracts.
On the contrary, we suffer in Spain, where we have a decline in both volume and sales, despite the price increase. This is mostly due to lower working hours in some big clients we had in Spain in heavy industries, especially in the automotive sectors, where we have a client who knows all the [ tire mount ] factories in Spain, [indiscernible] et cetera. We are working on some actions that will take some months to be carried out, but such a market slowdown does not depend on our commercial capacity. In Switzerland, which you see there is more, we had a decline in sales but an improvement in profitability as we have been able to cut [ loose ] some unprofitable contracts of the businesses we have acquired in the past year and also to cut more proportionally some operating costs.
Overall, also in this period, we had an acquisition rate of new clients higher than the churn rate, the rate of client loss. Again, although these values are always small in absolute numbers, this is a proof of our commercial capacity compared to the rest of the vending market. The average price per vend increased by around 1.5%, confirming our capacity to continue to increase the average prices versus weak market conditions, and thanks to the improvement that we continuously make in the service to clients and the research product mix. The acquisitions completed during the first quarter were 4, with an enterprise value of EUR 34 million and contributed to annual sales for EUR 2.6 million on a pro-rata basis, as well as most important has been completed at the end of February and in March. So we have the financial impact of the acquisition, but around just 1 month of contributions to [indiscernible].
Finally, we have a growth in Coin Service division of around 13%, both in main metal coin business, which represent 85% of the business units sales, and which grew by around 6%. And in the new digital money business carried out by the subsidiary Venpay.
In the last year, the start-up of this new activity generated some losses at operating level, which slightly affected the results of the business unit. In the first quarter, we have reached a small, but positive result. So the overall performance of Coin Service is improving.
Now I start to comment on margins where IFRS 16 changes has an impact. About adjusted EBITDA was equal to EUR 28 million, 24.5% on sales and increased by almost 15%. Net of new IFRS changes, it was EUR 25.2 million with an increase of 3.6%. On the full year, we expect an increase of EBITDA due to IFRS changes just a little less than EUR 12 million. The details of the changes of IFRS 16 new application are in the presentation and are mostly related to the leases of those real estate that we don't own directly.
In this quarter, the adjustments are very limited and therefore, there are only EUR 200,000 differences between the reported and adjusted EBITDA. The higher EBITDA arising from the IFRS changes is the -- in great part offset by the higher depreciation on the assets under lease contracts. So the increase in net profit is not significantly influenced by IFRS changes. The reported net profit was equal to EUR 6.9 million with an increase of 13% from the first quarter of 2018 and the adjusted net profit was just slightly higher, EUR 7.1 million. Most of the accounting impact of IFRS 16 changes are on the net debt, around EUR 63 million out of the net debt increase of EUR 80 million from EUR 285 million at the end of 2018 to present EUR 366 million with IFRS effect.
So excluding the effect of IFRS 16, the increase in net debt was at EUR 18 million, which has to be compared with the variation arising from M&A activity and CapEx of around EUR 45 million. So there is a good exposure generated from -- both from operating activity and from working capital that has normalized the cash used of the past quarter of 2018. As usual, when you look at our net profit, you should always consider that we change on our P&L, a significant amount of depreciation of part of the [ PPR ], especially related to prior list of the prime company as we can have a tax and cash claw benefit but that could be also regarded as an additional part of net profit. The total VAT credit, which is not calculated as a positive component of net debt is almost stable and equal to EUR 13.3 million. We have used part of the bank loan facility of EUR 150 million signed last year, with a small pool of debt, the interest rate has been fixed and the [indiscernible] interest rate will be below 2%.
Thank you, now we are available for your questions.
[Operator Instructions] The first question is from Matteo Bonizzoni of Kepler Cheuvreux.
I have 2 questions. The first is on the pricing. We have seen a slight improvement of the trend, on the average price which was 1.6% tax all-in-all and 2.1% tax if we exclude the impacts of the acquisition. Can you elaborate on the sustainability of this trend for the full-year or indicate particularly in France it seems that the price has been up year-on-year around 3%? So, could you give the reason for that? [indiscernible] remark or something like or just [indiscernible]. And the second...
[Technical Difficulty]
Sorry, Matteo, we didn't hear you. Could you check the line, please? He's disconnected. Can we ask the operator to switch to the second. Maybe Matteo will connect.
Okay. The next question is from Alessandro Cecchini of Equita.
The first one is about profitability in the first quarter. So I calculated that personnel cost on things was the incidents was pretty in line with last year. I would like to better understand. Typically, you improve this percentage between personalized cost and top line. So I would like to better understand this trend. My second question, it's related to Page 20 of your presentation. If you can elaborate a little bit more on the top line component that is bending other revenues that went from 3.3 to 4.4. So a big increase. Just to better understand dynamics inside this component. And then I would like to better understand the churn, like-for-like volumes in Italy that you are observing in the second quarter. And finally, I read on some newspapers that you won a contract with Leonardo-Finmeccanica. I would like to better understand economics and if you have additional details.
Well, we come in from the [indiscernible] Alessandro because the Leonardo-Finmeccanica tender is not official, public official at this time. However, some internet site of gossip make the leak. At this date, I can confirm that 99% we will -- the tender will go to part of [indiscernible] of the tender. It means that we will keep our EUR 6 million of rent that we are now managing inside Leonardo premises. And we will have 6 more, and exploration of 6 more trains per year in Leonardo premises. It is normal activity, despite the name of the client, from our normal developing internal, our acquisition rate of commercial activity. What these -- as a Metro [indiscernible] that are [indiscernible] to see. The point is that we gain also tender with the names that are clear, [indiscernible] and so the -- but it is really normal for our divisions to have commercial divisions to acquire this type of client. The margins are pretty good. I see alignment with normal margins. The duration of the contract is not long like Paris Metro. This is slightly less than us so Paris Metro is clear, this contract is 4 years. So we look probably [indiscernible] for each for more 2 years. However, I will expect official by communication by [indiscernible]. Your second last question is the trend of like-for-like volumes in the month of April I suppose because the second quarter is currently running. Well, we think in the region of Q2 2019 half a day less than Q2 2018, but all these [ layers ] are different in the [ speed ] market. We also think that the weather will affect the consumption during Q2 2019, we hope to have a hot June, but where were volumes in the last 40 days of Q2, 2019 wherefore we double.
In April, the temperature were not so [indiscernible] as much. In absolute perimeter, the automatic vending performance was plus 2.48% on auto beverage and plus 5.72% on weeks. On the same client per unit and with the same working day in Italy, we have a negative trend of 1.62%, of which 0.56% on automatic vending and 12% on [indiscernible]. It is clear that the long holiday periods in April affected more the [indiscernible] than automatic vending. In fact in the first 2 weeks of May, the volumes show a plus 6.5% in [indiscernible] segment compared with the same weeks of May 2018. So the office grows more in holiday than [indiscernible]. Despite all the exposure to the same client for immature negative trend was totally offset by the positive [indiscernible] between commercial acquisition rate and [indiscernible] as Leonardo shows. Our research price is 15 [indiscernible]. It means that for us, and if Matteo is reconnected again, for us an increase in -- of 0.1 [indiscernible] per month is normal commercial activity. We can [ surmount ] that the exploit of the commercial export is better than [indiscernible] amount. And [indiscernible] and explore that commercially is below that level but in average we are expected to have that type of growth of average sales price. When you see that all -- overall average sales price, remember to net. They affect all acquisition because usually the bench acquired has an average price significantly less than our adjusted price. Not for all the [indiscernible]. One of the point where we recover margins from and extract efficiency from the acquisitions. Other questions with profitability in Q1?
Trend costs.
Trend costs or the pipeline?
Well, the trend costs, the personnel costs are on budget, they are still affected from the stock option plan, of course. We give full discover of that in the page, the special page, the dedicated page of our presentation. I think that is almost sustainable, so we have no problem, we don't see any trouble in terms of personnel cost. So if you can give more color on your question, maybe I understand what it was you were asking for. And the first question was...
Just your [ rebuttal ] from Mateo. Okay. And the slide at page 20.
Yes, yes. As you see, the volumes is negative since a lot of [indiscernible]. The volumes was calculated as the same client. So that is negative. So you see the acquisition, you see the price increase and the volumes. We pay a lot of -- of volumes decrease. In Spain, related to automotive plant trend, as I say in my speech. And that's the minor effect you see in the negative. Current to that, I exposed the results of April so I think that we can -- we will be positive in this Q2, especially if June will be better in terms of weather compared to average.
Okay. My question was about the chart about the vending other revenues that were EUR 4.4 million.
This came from a client where we increased the [indiscernible], the supplier of food, it is [Italo train ]. Because we provided the merchant with the items for [ catering ], and they increased the number of trains so as a part of that increase came from that. Second part it came from their app because the revenue is strong and CoffecApps have changed from there which as you know, we develop and support CoffecApp by the [ VS ], but the app is not linked to IVS. So we sold the license and the components to other vending operators that are interested in moving into project. Last but not least, are increasing the revenue and the sponsorship from a brand addition, a branding of our public machines.
Okay. So just to be more precise on the trend of April, if I understood correctly, same client base trend of volumes was minus 1.5%, roughly speaking, but you offset this decline with new clients so with the acquisition rate. So it's overall flattish organic volumes and on top of that, you have a positive price mix?
No, the acquisition, yes. Because the acquisition in Q1 was not significant because of the largest acquisition we signed and we execute during the Q1.
No, no, no, okay.
Entering in our profit and loss for the beginning of March, that's all.
No. Okay, yes. No I was talking about excluding acquisition of cost...
Acquisition, on like-for-like basis you can expect to flat on same client bases you should expect negative, about commercial efforts are able to offset.
Okay. On volumes. On top of that, you have of course, the...
Average sales prices usually.
The next question is from Matteo Bonizzoni of Kepler Cheuvreux.
Yes, sorry for before but the internet [indiscernible] and the line dropped in any case, I have been able to [indiscernible] by listening to your answer. On volume and pricing. Just a follow-up question, a minimal issue, there has been some increase in the financial charges, if you like more than EUR 4 million [indiscernible]. If you can elaborate a little bit about that, then what would be the amount of payments and [indiscernible] for the full year?
[indiscernible] took an interest into the [ yellow state ], but a different basis.
Mateo, remember that the title, the IFRS 17 reclassification -- 16, sorry, reclassification impact IFRS charges, because the amount we pay as rent of premises, and part of [indiscernible] these were reclassificated in our profit and loss, between amortizing and increasing amortize and depreciation and a complement in interest charge. We saw...
Yes, our market was the component of financial service...
EUR 0.6 million, the effect of IFRS.
In -- the small loss of the presentation is...
And there is, there are also an impact of some cost, amortized cost of previous national loans closed during the period. And this was due to the new loan of BNP Paribas pool.
The IFRS impacted dramatically the profit and loss of the companies. And from my point of view, they didn't see the target that we -- for what that was elaborated. But, however. We are not a member of the [indiscernible]. More questions, if you have?
[Operator Instructions] The next question is from [ Jean Rae ] of [ GVC Tesco ].
I would like to start about a little bit more about the digitalization of the business. The first question is about, how fast is it going? I agree as a group, respect their competitors. And the second question is about, I read in the presentation that you have 20,000 machines where you can use this Coffe application. And that means that if the legislation [ ideologist ] later [indiscernible] the [ petition ] of the bank, I would be able to deposit and withdraw money off of these machines -- in these machines?
Okay. Yes, you can share the wallet on the, CoffecApp by credit card or by cash. So it is a really full wallet. And when we will acquire, completely acquire, we are looking for authorization from Bank of Italia. The [ Moneynet ] of course, we will improve [ Moneynet ] offer to the clients to use that, who elected to [ chair ] to the payment counter with the money that you can put inside, physically inside our machines. The point is that we have the [ instruction ] of [indiscernible] from the territory, because we already collect 99% of our turnover from new physical money from our vending machines. So to collect more money, it is not a problem for us. However, maybe Marco Gallarati [indiscernible] can give you more color about the business.
In terms of numbers, the digitalization means that we have installed the app and all the appliances necessary to transmit the data. On more or less 20,000 vending machines, automatic vending machines, so it is...
More like 30.
Okay. 30,000 means -- 15% of the total number of vending machines. So it's a big number but we still have space to grow. But in term of download, we are growing constantly. We are more or less at 2,000 and -- 2,050 -- 200,050 -- 250,000, sorry, downloads out of our own fleet of vending machines then there are also the partners, which increase that number. And we have as I guess, more or less 60,000 users, plus the users of the partners on the vending sector. So considering that we have only 15% of the machine installed, the numbers are starting to become quite visible and big. It means that a significant portion, which is now, very small yet, but it will grow, no doubt, of our sales will grow through the app. It means that we know each single client by name and this is the reason why we have been asked by big food and beverage producer to make comarketing [indiscernible] with Ferrero, with Coca-Cola and other big names like that, that give us some additional money. But especially can improve and increase with direct market to the final consumer, which is something totally new for the sector. You ask what is the situation for the competitors, we think that we have 5 years' advantage because we started to invest in this sector 5 years ago. And we don't know if our major competitors have the capacity, the money and the time to do something like that. As far as we know, our major competitors are starting now to have the vending machine connected with the telemetry, so they are well, well behind.
We do not see in the market other projects able to do what CoffecApp enabled us to make on the machines.
You have also to consider that here, the key issue is not having the app. Everybody can have the app. And many people are proposing our apps. The big work is to install and to have the telemetry already installed on thousands and thousands of vending machines.
The big work is to install the machine, and to install the app in the machine so the clients, to enable app to the machine that is not for single -- cost is not so high, there is a few hundred euro, but the point is not that when you connect the machine, you have to modify the organization of vending operator to be able to see, which kind of product you sold, through spiral 21, to spiral 22, it means that you have to change the organization of your whole company to collect that data. This is the real advantage of IVS compared from the -- our competitor.
We have a market, a very distinguished market approach in terms of an [indiscernible] category of product developed as to manage the data and give to our food producer partner, Clearview, on who are buying the product on which machine, at what time of the week, with [indiscernible] and at which price. So vending machines are in terms of intelligent marketing, a unit platform for them to understand their clients, directly name by name, and not mediated by the guys that goes for them to make purchasing, gross distribution. Or they can reach their cellphone through our vending app. It's a complex and really time-consuming work if we tell to be applied on big numbers of vending machines. And if you don't already have a unique platform, a unique information system that in Europe, we are probably the one having this. You cannot -- you cannot even start this kind of job.
Maybe you can have 10, 50, 100 vending machines transmitting data, but it's not big. We are talking about hundreds of thousands. So it's a really new frontier for the vending sector, which is not yet evident in the account apart from some cost and CapEx that we have already made, and we see the results in the future. We are starting just now to see the first small revenues and results.
More questions?
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
Well, thank you to everybody to this, our conference call. We'll be happy to give you again for the Q2 results. Thank you. And have a nice evening.
Thank you. Bye.
Ladies and gentlemen, thank you for joining, the conference is now over. You may disconnect your telephones. Thanks.