Luxembourg, 5 August 2015
Braas Monier well positioned for future organic growth and additional bolt-on M&A
After a promising start into the year in the first quarter, we have seen a positive volume trend and a strengthened market position in many European countries in the second quarter: volume growth continued in the UK and accelerated in the Netherlands and Poland. In Germany we reached the volume levels of the previous year. This positive trend was only dampened by a few markets that have not yet stabilised, such as France and Italy, and the strong decline of the Chinese market. Through strict management of fixed costs of production and SG&A costs, especially in difficult markets we have limited the negative volume effect on earnings’, Pepyn Dinandt, CEO of Braas Monier Building Group explained. With positive pricing and a strong components business, Operating EBITDA marginally exceeded the previous year’s quarter. ‘We have kept the company in good shape to profit from future volume growth and the roll-out of additional measures under our Top Line Growth Programme, including the execution of further value-accretive bolt-on M&A transactions that are currently being evaluated.’
Q2 2015 with positive volume and pricing trends in Europe and strong components business
Revenues increased in the second quarter 2015 by 6.2% to EUR 334.9 million, compared to EUR 315.3 million in Q2 2014. As in the first quarter 2015, in which revenues increased by 0.4%, this positive development benefitted from favourable exchange rate effects (EUR 7.0 million in Q2 2015) and included EUR 9.0 million of additional revenues stemming from the successful acquisition of Cobert (Spain/Portugal). Volumes in the UK grew significantly again albeit uncertainties in the run up to the general election prevented it from realising its full potential in the second quarter. The market recovery in the Netherlands and Scandinavia gained momentum, especially towards the end of the quarter. From April to June 2015, our European tile volumes grew by approx. 1% (excluding Cobert) compared to Q2 2014. On a Group level, like-for-like volumes were marginally down, driven by the accelerated downturn in China. Based on positive pricing in all reporting segments and a strong components business, revenues on a like-for-like basis grew by 1.1% from April to June 2015 compared to the same period 2014.
Revenues in the first half of 2015 were up by 3.7% to EUR 586.0 million (H1 2014: EUR 565.3 million). On a like-for-like basis, revenues from January to June 2015 fell 1.2% short of H1 2014.
High operating leverage in Europe masked by declines in China and temporary effect from change in stock
Operating EBITDA in the second quarter of 2015 reached EUR 60.5 million, thus marginally outperforming Q2 2014 (EUR 60.2 million). Higher tile volumes in growing European markets lead to an Operating EBITDA increase that more than offset the contrary impact of declining volumes in countries such as France and Italy. However, the negative performance in Asia, which is predominantly attributable to the strongly declining market in China, masked the European development on Group level. Average selling price improvements in all reporting segments compensated for moderately rising variable and fixed costs. Strict focus on cost management led to SG&A costs (like-for-like) ending lower than in the previous year’s quarter, with improvements particularly pronounced in countries with a declining volume base.
The first half year typically sees a seasonal build-up in working capital due to production levels above actual sales levels. Compared to the previous year’s quarter, this production overhang was less pronounced in Q2 2015. Under IFRS accounting, the lower change in stock resulted in a negative EBITDA contribution of EUR 2.4 million in Q2 2015, which is expected to reverse in the second half of 2015. From April to June 2015, positive exchange rate developments as well as the first time inclusion of Cobert positively affected Operating EBITDA by EUR 1.3 million and EUR 1.2 million respectively.
Operating EBITDA in the first six months of 2015 reached EUR 77.6 million, EUR 3.3 million less than in the first six months of 2014 (EUR 80.9 million). This decline originates predominantly from the lower volume development in the first quarter of the year.
Positive net result for the period
Braas Monier achieved a positive net result in the second quarter as well as in the first half of 2015. In Q2 2015, it reached EUR 17.0 million, compared to EUR 20.8 million in Q2 2014. The difference to the previous year’s quarter mainly related to one-time effects in the financial result of Q2 2014 following the IPO (June 2014) and the refinancing (April 2014). Fees and costs directly related to the IPO amounted to EUR 14.5 million. Around EUR 10 million thereof were reflected in the finance costs in Q2 2014. These exceptional costs were over-compensated by a positive one-time non-cash income of approx. EUR 13 million due to the extinguishment of a LIBOR floor included in the previous financing structure. Together with the improvement achieved in the first quarter 2015, the net result in the first six months of 2015 increased by EUR 4.3 million or 82.8% to EUR 9.5 million (H1 2014: EUR 5.2 million).
Strong cash flow profile maintained
Operating Free Cash Flow rose in the first six months of 2015 by EUR 22.3 million to EUR -45.5 million (H1 2014: EUR -67.8 million). This improvement was mainly driven by the absence of one-time effects that burdened the cash flow in H1 2014, particularly fees paid for the refinancing in April 2014 (approx. EUR 17 million), fees and costs directly related to the IPO (approx. EUR 3.5 million) and approx. EUR 10 million higher outflows for legacy provisions. Adjusted for one-time cash costs, adjusted free cash flow from January to June 2015 stood at EUR -55.8 million, EUR 8.6 million below H1 2014 (EUR -47.2 million). The decline compared to the previous year’s period mainly results from EUR 7.6 million higher investments in property, plant and equipment, mostly a carry-over effect from 2014.
Equity position strengthened, lower interest expenses expected
As a result of the positive earnings contribution in the second quarter as well as a positive accounting effect related to the treatment of pension liabilities, total equity rose from EUR 73.9 million at the end of Q1 2015 to EUR 120.6 million at 30 June 2015 (31 December 2014: EUR 92.9 million).
The leverage ratio, defined as net debt to Operating EBITDA (LTM), stood at 2.3 times at the end of the first half of 2015, thus at the same level as one year earlier. The company’s Term Loan B (EUR 200 million) as well as its Revolving Credit Facility (EUR 100 million, with approx. EUR 10 million drawn as at 30 June 2015) contain ratchets directly related to the leverage ratio, one of which was triggered with effect as of April 2015. Based on the current leverage ratio, the Group is benefitting from a margin step-down of 50 basis points in both instruments, accounting for annualised savings on interest expenses of approximately EUR 1 million.
Uneven market development expected in 2015
For 2015, Braas Monier expects strong growth in European markets such as the UK, and the Netherlands as well as moderate growth in some parts of Scandinavia and South-Eastern Europe. Encouraging signs are seen in Spain and Portugal with the number of housing permits increasing. A stable market development is expected for Austria. The German market is expected to decline slightly. The Italian and French market have both not lived-up to original expectations in the first six months of 2015. Based on the current macroeconomic development and leading indicators, management is confident to recoup at least in France some of the missing volume in the second half of the year. The current business year should form the low point of both markets. In the emerging markets, growth is foreseen in South Africa and a flat development in Malaysia. China is not expected to recover in the second half of 2015 and to stabilise only in 2016. The components business is expected to show a good improvement in performance supported by rising national and international building standards, especially in regards to energy efficiency and safety. With regard to the Chimney & Energy Systems business, expectations are for an overall slight decline of the markets. Braas Monier will continue to strive for above-market growth by rolling out further initiatives under its ‘Top Line Growth’ programme to existing and new countries.
Revenues expected to grow at least by a mid-single-digit percentage figure in 2015
Based on these assumptions, Braas Monier expects revenues to grow at least by a mid-single-digit percentage figure, driven by the first time inclusion of Cobert, which is expected to generate revenues of approx. EUR 38 million and contribute approx. EUR 5 million to Operating EBITDA (including synergies). Average selling price increases are expected to at least offset variable cost inflation.
From a cost perspective, management expects slight increases in input costs (raw materials and wage inflation). The currently low energy prices might have the potential to ease some variable cost inflation if they were to stay at these levels throughout the year. Revenue growth together with an on-going focus on strict cost control will further drive growth in the company’s profits.
Future growth supported by value-accretive M&A and product innovation
Upon completion of the acquisition of Golden Clay Industries (GCI) in Malaysia the business in the Asia-Pacific region will be strengthened further in H2 2015. In the context of additional potential bolt-on acquisitions, active discussions are currently held in a number of countries.
Following the successful product launch of WrapTec in Denmark, market research in Europe has been intensified in the course of the second quarter of 2015, to extend the product’s offering to further markets. Product launches in further countries such as the UK are scheduled for Q4 2015.
Sustainable Capex is expected to be at a level of around EUR 62 million excluding carry-over of approx. EUR 5 million from 2014. In the light of the macro-economic development in some countries, management has re-evaluated a number of intended growth projects. Projects which no longer fulfill the strictly required internal hurdles rates based on the current business outlook were postponed (e.g. the relocation of a plant in China) or further optimised. In several cases, this led to either a reduction or a postponement of Capex needs. In 2015, additional Capex for future growth projects will thus amount to approx. EUR 6 million, approx. EUR 2 million less than original expected.
1 before inter-company eliminations