‘In a challenging environment, we have consequently executed our ‘Top Line Growth’ programme enabling us to clearly outperform in our two most important markets, Germany and the United Kingdom. In addition, we continued to tapped further growth potential via our bolt-on acquisitions in Spain/Portugal, Malaysia and by acquiring selected assets in Italy’, says Pepyn Dinandt, CEO of Braas Monier Building Group.
Uneven and challenging market environment
Housing permits in the Netherlands, Poland, Spain, Portugal, and Sweden have significantly increased over the last quarters, indicating a clear path of market recovery on a wider European basis. A continuously rising number of housing reservations in France suggest growth to come back over the next quarters in one of Europe’s largest roof tile markets as well. In some other markets these positive trends have not yet become visible. Despite a number of encouraging lead indicators, the Italian market still has to stabilise and the current volume increases in growing European markets are still comparatively low. In China, overcapacities in housing stocks have caused a severe market downturn, intensified by an overall slowdown of the economy. The VAT introduction in Malaysia in April and additionally political instability in the country caused a significant weakening of the market in the second and third quarter.
Q3 2015 with positive volume trends in Europe and growth in the components business
Revenues in the third quarter 2015 increased by 2.9% or EUR 10.0 million from EUR 342.4 million (Q3 2014) to EUR 352.4 million. The first time inclusion of Cobert (before inter-company eliminations) accounted for EUR 10.7 million or 3.1 percentage points of this growth. Foreign exchange effects had only a marginally negative impact on overall sales. The like-for-like decrease of 0.2 percentage points resulted foremost from lower tile volumes in Asia. In Europe, tile volumes increased on a like-for-like basis by approx. 1% in the third quarter (approx. 11% including Cobert), despite difficult markets in France and Italy. Components revenues grew from July to September by 2.5%. Average selling prices as well as revenues in the Chimneys & Energy Systems business were on the level of Q3 2014.
From January to September 2015, revenues reached EUR 938.4 million, EUR 30.7 million or 3.4% more than in the first nine months of 2014 (EUR 907.7 million). Like-for-like revenues in the first nine months were slightly negative (-0.9%).
High operating leverage in Europe masked by declines in Asia
Operating EBITDA in the third quarter of 2015 reached EUR 68.8 million, thus exceeding Q3 2014 (EUR 67.4 million). The Operating EBITDA contribution of Cobert (EUR 2.3 million) was the main driver of this growth. On a like-for-like basis, Operating EBITDA declined by 1.5%. 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 and a weak third quarter in Malaysia, masked the European development on Group level. The positive development in the components business as well as in Chimneys & Energy Systems was not sufficient to fully compensate for overall lower volumes.
In the first nine months, Operating EBITDA declined by 1.3% to EUR 146.4 million (9M 2014: 148.4 million). On a like-for-like basis, the decline amounted to 5.0%.
Increasing net result for the period
The Q3 net financial result decreased by EUR 1.8 million to EUR -13.3 million (Q3 2014: EUR -11.5 million) with the difference driven by unfavourable exchange rate fluctuations. For the first nine months 2015, the net financial result improved by EUR 4.2 million from EUR -38.0 million to EUR -33.8 million, driven mainly by lower interest costs in the first half-year 2015, following the refinancing in April 2014.
In the third quarter, the net result increased by 2.4% from EUR 23.0 million to EUR 23.5 million and in the first nine months by 17.7% to EUR 33.2 million (9M 2014: EUR 28.2 million). The net result divided by the number of shares outstanding (39,166,667) improved from EUR 0.59 in Q3 2014 to EUR 0.60 in Q3 2015. For the nine months period it grew by EUR 0.13 to EUR 0.85 per share (9M 2014: EUR 0.72 per share).
Strong cash flow profile maintained
Net cash from operating activities rose by EUR 10.2 million or 16.2% to EUR 73.4 million in the third quarter 2015 (Q3 2014: EUR 63.2 million). This improvement was mainly driven by lower interest and finance fees paid (EUR -7.5 million in Q3 2015 versus EUR -16.2 million in Q3 2014) as well as fewer cash-out from provisions (EUR -6.7 million in Q3 2015 versus EUR -9.0 million in Q3 2014).
Year-to-date, the net cash from operating activities increased by EUR 32.5 million from EUR -4.6 million in 2014 to EUR 27.9 million in 2015.
Equity position strengthened, lower interest expenses expected
As a result of the positive earnings contribution in the first nine months 2015 as well as a positive accounting effect related to the treatment of pension liabilities, total equity rose from EUR 92.9 million at the end of 2014 to EUR 121.4 million at 30 September 2015.
Net debt at the end of September 2015 stood at EUR 384.5 million. Through the strong cash flow generation of the Company it was slightly below the level of September 2014 (EUR 387.9 million) despite exceptional cash outs in the last twelve months of EUR 79.2 million. Such exceptional cash outs related to the value-accretive acquisition of Cobert (EUR 27.0 million), the payment of a first dividend (EUR 11.8 million), one-time cash effects resulting from the refinancing and the IPO in 2014 (EUR 8.1 million) and cash-effective legacy provisions (EUR 26.8 million, mainly related to the restructuring in 2012/2013).
The leverage ratio, defined as net debt to Operating EBITDA (LTM), stood at 2.0 times at the end of the September 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, undrawn as at 30 September 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 the Term Loan B and by 75 basis points in the Revolving Credit Facility, accounting for annualised savings on interest expenses of approximately EUR 1 million.
Revenues expected to grow by 3% to 4% in 2015
For the rest of 2015, Management does not anticipate any major changes to the market developments observed in the third quarter. 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.
Management forecasts a moderate growth of 3% to 4% over 2014 revenues (2014: EUR 1,211.3 million) for 2015. Such growth will be mainly driven by the first-time inclusion of Cobert, contributing approx. EUR 34 million, and positive currency effects of a high single-digit to low double-digit million Euro amount. On a like-for-like basis, revenues are expected to fall slightly short of last year’s level with lower tile volumes not being fully compensated for by a positive development of average selling prices and components sales. The already positive development of European tile volumes in the first nine months 2015 is expected to further improve in the months of October to December. Sizeable volume reduction for the full year are expected in Asia & Africa, foremost in China but also in Malaysia. The Chimneys & Energy Systems business is excepted to show further improvements in trend over the last months of the year, resulting in an almost flat like-for-like development in 2015 as a whole.
Operating EBITDA expected around previous year’s level
Due to the high operating leverage of Braas Monier, changes in volumes have a significant effect on the operating result and the ability of cost measures to counterbalance this effect is limited in the short term, resulting in a negative Operating EBITDA effect. Management aims to compensate for variable and fixed cost inflation by improving average selling prices and constantly achieving efficiency gains. The first-time inclusion of Cobert is expected to contribute approx. EUR 5 million of Operating EBITDA. A positive, low single-digit million Euro effect is expected from favourable exchange rate movements. Operating EBITDA is expected to be around previous year’s level.
Strong cash flow generation
The Adjusted Free Cash Flow after nine months 2015 amounted to EUR 11.3 million. Due to seasonal patterns of the business, strong positive cash flows are generated in the second half of the year. Typically, the Adjusted Free Cash Flow of the third and the fourth quarter are on a comparable level. In Q3 2015, Adjusted Free Cash Flow amounted to EUR 65.4 million.
Braas Monier already today achieves a strong cash flow generation and sustainably high EBITDA margins with many key markets still offering significant upside potential. The Group is in very good shape to profit from this future volume growth and the roll-out of additional measures under its ‘Top Line Growth’ programme, including the execution of further value-accretive bolt-on acquisitions that are currently being evaluated. Braas Monier will continue to use its resources sensibly to create value for its shareholders. Management expects the financial leverage of the Company, defined as net debt to Operating EBITDA to remain below the target level of 2.0 times or below, including bolt-on acquisitions in the fourth quarter on a pro-forma basis, which is also an important criteria outlined in the Company’s dividend policy.
Future growth supported by value-accretive M&A
Value-accretive bolt-on acquisitions are an essential part of our ‘Top Line Growth’ programme. Following the acquisition of Cobert (Spain/Portugal) in January 2015, Braas Monier has closed the second one in October, buying Golden Clay Industries, leader in Malaysia for manufacturing and supplying clay roof tiles and fittings.
On 3 November 2015 Braas Monier acquired selected assets, most importantly the customer base, of Muto & Tegolaia S.r.L. (Muto), a manufacturer of concrete roof tiles, based with in Cutro in Southern Italy, withdrawing from the roof tiles market. Through the acquisition, Monier Italy takes an active step to consolidate the local market and gains additional potential for selling roofing components to a wider customer base. The total investment for the acquisition amounts to EUR 2.8 million, including the purchase price, the financing of additional working capital needs and transaction costs. Management expects an Operating EBITDA contribution in 2016 of approximately EUR 0.6 million (including synergies). The acquisition is financed from free cash flow.
‘While the three transactions differ materially in size, scope, strategic approach, geographic position and product group, they all have in common the clear commitment to increase shareholder value by further strengthening the Group’s footprint in future areas of profitable growth’, says Pepyn Dinandt, CEO of Braas Monier Building Group.
In the context of further potential bolt-on acquisitions, active discussions are currently being held in a number of countries.
The strong cash flows generated by the operating business should allow Braas Monier to achieve consistent and ambitious growth in the future, both organically and through acquisitions, with an unerring focus on return on invested capital while being ever mindful of the Group’s net debt ratio and its dividend policy.