Athens, Greece, 12 December 2019 – Frigoglass SAIC announces results for the quarter and nine months ended 30 September 2019.
Third Quarter 2019 Highlights
- Commercial strategy and cost reduction initiatives execution resulted in a robust performance
- Continued commercial refrigeration growth momentum, with sales up 23% y-o-y, led by customer cooler investments and take-up of Frigogserve’s offering in Europe
- Glass containers volume growth and pricing initiatives resulted in double-digit sales growth in Glass business
- 117bps of comparable EBITDA margin uplift, at 16.1%, reflecting cost absorption benefits and ongoing raw materials cost and productivity improvement initiatives
- Adjusted Free Cash Flow up 12.4% to €26.1 million, despite increased CAPEX related to next year’s furnace rebuild in Nigeria, leading to capacity expansion
- Net Debt to LTM EBITDA at 3.0x in September-end 2019, consistent with our long-term focus for deleveraging
- In Africa and the Middle East, sales were down 24.5% year-on-year in the quarter. The decline reflects soft demand in South Africa, due to orders phasing, more than offsetting higher orders from breweries and soft drink customers in West and East Africa.
Nikos Mamoulis, Chief Executive Officer of Frigoglass, commented: “For yet another quarter, results demonstrate our strong commitment for sustainable and long-term profitable growth. Our performance also reflects our focus on customers’ needs, operational excellence and a number of cost base rationalization initiatives.
We remain confident that 2019 will be the second post-2017 recapitalization year with significant top-line growth and profit margin expansion. We are taking actions to maintain growth momentum in the years to come through selective investments in the high growth Glass business and cost-out initiatives.”
Financial Overview
Frigoglass reported another quarter of strong performance with continued top-line growth and operating profitability improvement. Group sales increased by 20.3% to €96.6 million, driven by ongoing growth momentum in the Commercial Refrigeration business in Europe and Asia, as well as growing demand and pricing in Glass.
Gross profit (excluding depreciation and before IFRS 16) increased by 17.4% to €24.2 million in the quarter, with gross margin declining by approximately 60 basis points to 25.1%. The increased fixed cost absorption, resulting from the higher year-on-year volume in the commercial refrigeration and glass containers businesses, as well as the realization of savings from several ongoing procurement and manufacturing-related initiatives, were more than offset by the volume-driven cost under-absorption in the plastic crates business
in Nigeria.
Operating expenses (excluding depreciation and before IFRS 16) were stable year-on-year, at €9.8 million, despite double-digit sales growth in the quarter. Operating expenses as a percentage of sales improved by approximately 200 basis points to 10.2%, following increased year-on-year sales.
As a result, comparable EBITDA in the quarter increased by 29.7% to €15.5 million, with EBITDA margin improving by 117 basis points to 16.1%. Finance cost was €7.7 million, compared to €3.7 million in 3Q18, mainly following foreign exchange losses caused by the impact of the Naira’s appreciation on Euro denominated receivables, whereas, in 3Q18, finance cost was supported by foreign exchange gains. Frigoglass reported net losses of €1.6 million, compared to net losses of €3.4 million a year ago, reflecting improved operating performance in 3Q19 and last year’s net losses related to discontinued operations.
Year-to-date adjusted Free Cash Flow reached €26.1 million, up 12.4%. This improvement primarily reflects higher year-on-year EBITDA and tax benefits related to last year’s investments, more than offsetting unfavourable working capital developments and increased capital expenditure. Net Trade Working Capital was up 11.7% year-on-year to €119.6 million, corresponding to 25.3% of annualised sales. The year-on-year increase reflects higher trade receivables due to the sales growth in the quarter, which offset our inventory reduction initiatives. Planned capital expenditure associated with pre-buying materials for the upcoming furnace rebuild in Nigeria also impacted our Free Cash Flow generation.
Despite lower year-on-year debt following the €3.2 million debt repayment over the last twelve months, net debt (excluding lease liabilities) increased to €217.0 million, from €210.7 million at the end of September 2018. The year-on-year increase in net debt is mainly an effect of higher interest paid, restructuring-related payments associated with the discontinuation of the Greek-based plant, payments for pre-buying materials for the upcoming furnace rebuild in Nigeria and the settlement of the defined benefit pension scheme in Nigeria.
Segmental Review
Europe
Growth momentum accelerated in Eastern Europe, with sales increasing by 51.5% year-on-year following incremental cooler placements from key breweries and soft-drink customers primarily in Poland, Russia and Ukraine. Particularly in Russia, we saw strong orders from a soft drinks customer who increased investments in the market. Furthermore, successful commercial initiatives resulted in increasing our market share with key breweries. Sales growth was also supported by increased demand for Frigoserve’s broad service offering,
mainly reflecting customer and territory expansion within the region. Sales in Western Europe grew 6.9%, assisted by increased demand in Belgium and the United Kingdom.
Africa and the Middle East
In Africa and the Middle East, sales were down 24.5% year-on-year in the quarter. The decline reflects soft demand in South Africa, due to orders phasing, more than offsetting higher orders from breweries and soft drink customers in West and East Africa.
Asia
In Asia, our business continued to perform well, with sales growing by 69.7%. This strong performance was fuelled by increased demand primarily from soft drinks customers in India and breweries in Southeast Asia.
Comparable EBITDA in the quarter grew over-proportionally by a strong 64.6% to €7.0 million, with EBITDA margin increasing by approximately 250 basis points to 10.0%. The margin enhancement reflects the volume-driven better cost absorption, lower input cost and Frigoserve’s operating performance, outweighing the investment in pricing for key customers. Operating Profit (EBIT) reached €4.5 million, compared to €1.6 million a year ago. We reported net losses of €3.3 million, compared to net losses of €4.6 million in 3Q18,
despite the impact of €0.5 million restructuring costs following the discontinuation of the production operations in the Greek-based plant.
Glass performance was good, with sales growth momentum continuing in the quarter. Sales were up 13.3%, primarily driven by solid volume growth and pricing in the glass containers business. Sales growth also benefited from a stronger Nigerian Naira. In our glass containers business, sales increased by double-digits, primarily fueled by strong demand from breweries and soft drink customers. Growth momentum also continued in the complementary metal crowns business, with sales increasing by a high single-digit rate, driven by higher year-on-year demand. Soft demand for plastic crates from a key brewery customer resulted in a double-digit sales decline in the quarter.
Comparable EBITDA grew 10.7% to €8.6 million, with EBITDA margin declining by 76 basis points to 32.0%. The fixed cost under-absorption caused by the lower demand for plastic crates more than offset the positive effect from the glass containers volume growth, price increases and currency translation. Operating Profit (EBIT) increased by 8.5% to €6.3 million, despite higher depreciation charges following the cold repair of one of our furnaces in Nigeria last year. Net profit was €1.7 million, compared to €3.0 million a year ago, impacted by foreign exchange losses following the appreciation of the Nigerian Naira.
Business Outlook
In the quarter, we maintained sales growth momentum, effectively managed costs and reduced inventory levels, leading to margins enhancement and cash flow improvement. Following this solid year-to-date performance and an exceptional order from an ICM customer in the last quarter of the year, we are confident that 2019 will be another year of significant top-line growth and comparable EBITDA margin improvement.
Moving ahead, we will continue to focus on the strong execution of our coolers commercial strategy, enhancing Frigoserve’s customer base, operational improvements, cost efficiency measures and investing for growth. Incremental glass containers capacity, following the furnace rebuild at the Beta Glass Guinea plant in Nigeria, will also support future growth.
Frigoglass is on track for a planned shutdown at the end of the first quarter of next year, expecting the furnace to be operational towards the end of the second quarter of 2020. We continue to expect full-year 2019 capital expenditure at approximately €30 million, including pre-buying of materials associated with the furnace rebuild next year and SAP implementation.
