Fluidra S A : Presentación de Resultados 1T 2023 - Transcripción Audio

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FLUI.MC - Q1 2023 Fluidra SA Earnings Call

EVENT DATE/TIME: MAY 10, 2023 / 8:00AM GMT

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MAY 10, 2023 / 8:00AM, FLUI.MC - Q1 2023 Fluidra SA Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Bruce Walker Brooks Fluidra, S.A. - Co-CEO & Executive Director

Clara Valera Fluidra, S.A. - IR & Business Development Director

Eloy Planes Corts Fluidra, S.A. - Executive Chairman, Executive President, MD & CEO

Xavier Tintore Segura Fluidra, S.A. - Chief Financial & Transformation Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Alvaro Lenze Julia Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

Andre Kukhnin Crédit Suisse AG, Research Division - Mechanical Engineering Capital Goods Analyst

Christoph Greulich Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

Erik Salz JPMorgan Chase & Co, Research Division - Analyst

Francisco Ruiz BNP Paribas Exane, Research Division - Research Analyst

George Featherstone BofA Securities, Research Division - Research Analyst & Associate

Manuel Lorente Mirabaud Securities Limited, Research Division - Analyst

Miguel González JB Capital Markets, Sociedad de Valores, S.A., Research Division - VP

P R E S E N T A T I O N

Clara Valera - Fluidra, S.A. - IR & Business Development Director

Good morning, and welcome to our first quarter 2023 results call. I am Clara Valera, Investor Relations and Business Development Director. Joining me today on this call is our Executive Chairman, Eloy Planes; our CEO, Bruce Brooks; and Xavier Tintore, our CFPO. They will walk you through a few slides on our results, and then they will be available to take your questions.

You can follow this presentation in its original English version or in Spanish. Please select your preferred option in the drop-down menu at the bottom right-hand side of your screen. (Operator Instructions) The presentation is accessible via our website, fluidra.com, and has also been uploaded to the Stock Exchange Commission this morning. A replay of today's presentation will be made available on our website later today.

With that, I hand over to our Executive Chairman, Eloy Planes.

Eloy Planes Corts - Fluidra, S.A. - Executive Chairman, Executive President, MD & CEO

Thanks, Clara. Good morning to all of you, and thank you for your interest in Fluidra and for taking the time to join us this morning. Today, we are presenting our first quarter 2023 results and Bruce and Xavier will provide more detail shortly. But first, let me summarize the points I wanted to get across to you this morning.

First quarter performance was slightly exceeding our expectations. It is important to highlight that gross margin is recovering with good price breakthrough in all the geographies. Volumes in the first quarter were affected by channel destocking together with softer demand, driven by the macro environment and weather effects, in particular, in the U.S.

In this context, we are taking the right steps to strengthen our business for the long term. I'm pleased we are delivering our simplification plan, which is progressing well, as you will see during the presentation. While working capital and net debt remain elevated as our industry normalize, and we prepare for the pool season, our balance sheet is robust, and it gives us the financial strength to keep our global leadership in an industry with an attractive long-term structural growth.

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MAY 10, 2023 / 8:00AM, FLUI.MC - Q1 2023 Fluidra SA Earnings Call

As you know, we are holding today our Annual General Meeting. On the agenda, we propose a dividend of EUR 0.70 per share, a 50% payout, in line with our dividend policy and capital allocation framework.

And finally, I would like to point out that despite the volatile environment with our Q1 results, we are maintaining the 2023 full year guidance.

With that, I pass the floor to Bruce to present in more detail our results.

Bruce Walker Brooks - Fluidra, S.A. - Co-CEO & Executive Director

Gracias, Eloy, and thank you all for participating today on this conference call.

Moving to Slide #5. Let me start with comments on our overall performance and highlights for the first quarter and then turn it over to Xavier to provide more details on the financial results. The numbers you see on Slide 5 are the 2022 and 2023 financial highlights for the first quarter. Sales declined by 17% to EUR 554 million compared to very strong growth in the prior year period and driven by lower volumes, partially offset by higher pricing.

Let me remind you that the growth in the first quarter of 2022 was 14% when adjusted for currency and perimeter on top of a 60% growth in the first quarter of 2021. Adjusted for currency and perimeter, sales in Q1 2023 declined by 18%. This performance was slightly better than expected.

EBITDA was 29% lower compared to a strong prior year period, reflecting sequential gross margin recovery supported by price increase readthrough and the effect of lower sales. Fixed cost inflation was mitigated by cost control.

Going down the P&L, cash EPS was lower year-on-year as a result of the quarter's operating performance and a higher cash interest charge.

Trading conditions in the first quarter of 2023 have also influenced our working capital levels. Operating net working capital to sales in the last 12 months was around 32% compared to 25% last year. As trading normalizes, the slowdown in procurement and production impacts payables. Xavier will provide more detail later.

Lastly, the ratio of net debt to last 12-month EBITDA at the end of the quarter was around 3.2x, seasonally above normal levels. We expect to generate cash as our working capital levels normalize.

Moving to Slide #6. Let me share our progress on the simplification program. This program, which will enhance our resilience and deliver long-term value, is mainly built on 2 core areas: one focused on improving gross margin and the other focused on reducing structural overlaps and streamlining our operations. It is also underpinned by our drive to foster an agile and dynamic organization, our culture and our values. My thanks go out to our teams for their continued efforts on this front.

We expect to deliver EUR 100 million of EBITDA over the next 3 years with 1/3 accumulating in each of the years and total one-off costs below 1x. We've made outstanding progress. As you see on the right-hand side of the slide, we have, to date, around 300 initiatives being implemented, which amount to savings of EUR 47 million on an annual run rate basis, representing around 50% of the total program.

We expect EUR 24 million will be reflected in our 2023 performance, up from the EUR 17 million we reported at the end of February. Most of the 2023 savings relate to our efforts to reduce our fixed cost base, simplifying our organizational structure to become more efficient. In 2023, we also expect a contribution from our initiatives to enhance gross margin, which will have a greater impact on an annual run rate basis in the future. These first phase of initiatives are centered around leveraging our scale and global strategic procurement efforts. We are confident on delivering 1/3 of the program's total savings in 2023. We will continue to provide you with regular updates.

Moving to Slide #7. I'd like to talk a bit about our focus on innovation and sustainable pool solutions, which goes hand in hand with understanding our customers and end users' needs. In particular, today, in light of the situation in some parts of Southern Europe, we have chosen examples of products that contribute to preserve water and reduce other environmental impacts.

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MAY 10, 2023 / 8:00AM, FLUI.MC - Q1 2023 Fluidra SA Earnings Call

First, on the left-hand side, the DEL AOP sanitizer aims to kill bacteria while reducing the need for chlorine in the pools creating a more natural swimming experience.

In the middle, you can see our AstralPool's automatic pool cover. Evaporation often accounts for the majority of a pool's water loss our automatic pool covers can deliver water savings of around 80%.

Lastly, our AstralPool's XC cartridge filter, through a process called backwashing, reduces the water needed to wash the pool filter by more than 80%. It also requires lower maintenance, reducing costs.

With these solutions, the water consumption of a covered pool in an average Spanish home will be less than 10% of the total household's consumption. These are just a few examples of our contribution to a more sustainable pool experience. Water is one of the most valuable natural resources in the world, and we all have the responsibility to take care of it as much as possible.

We continue to be focused on innovation, developing sustainable pool solutions to contribute to a better world and achieve the goals set in our responsibility blueprint of sustainable product sales amounting to more than 80% by 2035.

Moving to Slide #8. On the right-hand side of the slide, you can see the positive contribution of price to sales performance in the quarter and the volume decline. This compares to 14% organic growth in Q1 last year in addition to the 60% growth in Q1 2021.

Overall, sales were slightly above our expectations, but with varying moving parts. The unfavorable weather in the U.S. and a tougher global macro environment have been headwinds during the period. Although new construction was somewhat weaker, maintenance and remodel held up better than expected. Commercial pool sales were in line.

The adjustment of inventory in the channel has been slower than we anticipated, and we will -- we expect it will take 1 to 2 more quarters to adjust. Some of our customers needed to refill some product categories to prepare for the peak of the season, while others might be heavy in other categories.

By region, the general development was roughly as anticipated maybe with the exception of Central and Eastern Europe, where sales are lower than anticipated.

On balance, our expectations for the year are within the range of the guidance we shared with you in February as we head into the more seasonally important second and third quarter.

With that, I'll turn it over to Xavier to explain the financial results in more detail.

Xavier Tintore Segura - Fluidra, S.A. - Chief Financial & Transformation Officer

Thank you, Bruce. Let's turn to Page 9 and take a look at the P&L in some more detail.

Sales declined by 17% in the quarter to EUR 554 million. Gross margin reached 52.1%, 70 basis points lower than prior year with sequential gross margin improvement from 51.6% in the fourth quarter of 2022. As explained by Bruce, we have seen good pricing read-through of 7%, which is offset by the impact of lower manufactured volumes due to adjusting inventories, product mix and still some inflation impacts.

Operating expenses reached EUR 168 million, a decrease of 8%, with lower logistics and transportation costs where we are seeing deflation, contribution from our simplification program and investments in IT and R&D.

EBITDA reached EUR 121 million, a decrease of 29% driven by the impact of lower volumes and margin contribution, which cannot be offset by reduced expenses. However, this is the third year in a row of EBITDA over EUR 100 million in Q1 and more than doubles the value of 2019 and 2020. EBITDA margin reached 21.8%.

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MAY 10, 2023 / 8:00AM, FLUI.MC - Q1 2023 Fluidra SA Earnings Call

EBITA of EUR 99 million was down 34% with a margin of 17.9%. Below the EBITA line, amortization is flat at EUR 17 million. Nonrecurring expenses of EUR 9 million include simplification, one-off cost of EUR 6 million, stock-based compensation of EUR 2 million and M&A cost and other nonrecurring expenses of EUR 1 million.

Net financial results amounts to EUR 17 million, EUR 9 million lower than last year despite higher interest rates as 2022 had a EUR 12 million write-off of noncash fees generated in the refinancing.

Tax rate was at 26% versus a 27% rate in 2022. Net profit reached EUR 41 million compared to EUR 75 million in 2022. As you know, we track cash net profit a good indicator for Fluidra as we have a significant amortization charge, entirely purchase accounting related, that impacts our net profit and EPS calculation. Cash net profit amounted to EUR 60 million, down 41% on the prior year.

Page 10 shows the free cash flow statement as well as the net debt evolution. Free cash flow for the first quarter has been a use of EUR 160 million versus a use of EUR 149 million in 2022 with very similar components. Operating cash flow is broadly flat year-on-year with lower EBITDA being compensated by lower investment in net working capital.

If we zoom into net working capital, which you have in the appendix on Page 18, it is important to highlight that receivables are up 6% despite the net sales decline due to the normalized terms on early by orders, which will be collected in Q2. While last year, all orders were collected within the month as there was no early buy in October 2021. Notably, inventories were lower than in the prior year. But as we correct inventory levels with lower purchases, which in turn mean lower payables by more than EUR 130 million.

All in all, we continue to execute on our plan to normalize net working capital, working towards our year-end target of around 20%. On the investment and financing fronts, cash usage is very similar to what we used last year.

Finally, net debt reached EUR 1.478 billion, up EUR 238 million. Our leverage ratio is 3.2x that compares to a 2.1x in 2022. This is a temporary effect driven by not yet normalized net working capital, as we have discussed earlier. We are confident that this effect will correct in the following quarters.

And with that, I will give the floor to Eloy for closing comments.

Eloy Planes Corts - Fluidra, S.A. - Executive Chairman, Executive President, MD & CEO

Thanks, Xavier, and thanks, Bruce. Moving to the Slide 11, I would like to summarize a few key takeaways. Our industry is normalizing and performance in the first quarter was slightly exceeding our expectations, which factor in a weaker quarter compared to a very strong performance in the prior 2 years, channel inventory correction and a challenging macro environment.

We are executing our simplification plan, which will continue to deliver value into the future. As we have shared with you today, we are well on track to achieve our target for the year and to deliver margin enhancement in the years to come. Our focus is now on cash generation and the normalization of our levels of working capital. Our leverage is seasonally higher as expected. While it is above our target level, our balance sheet remains solid and provides flexibility to navigate through this macro environment. We expect to the leverage from here as the year progresses.

Earlier this year, we shared with you a wide 2023 guidance. The pool season is commencing and while the macro environment is uncertain, our outlook remains within those expectations. We are, therefore, maintaining our 2023 guidance. And looking into the future, we are confident in the attractiveness of our sector and our ability to create value for our stakeholders. We are well positioned to continue to lead the pool and wellness market with our broad product and geographic footprint, our leadership in connected and sustainable pools and our simplification program to transform Fluidra, enhance our margins and become a more efficient organization.

Thank you all for your participation today. And now we open the Q&A that Bruce and Xavier and myself, we are ready to take today your questions. Thank you.

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