Q2 2022 Broedrene Hartmann A/S Earnings Call Gentofte Aug 18, 2022 (Thomson StreetEvents) -- Edited Transcript of Broedrene Hartmann A/S earnings conference call or presentation Thursday, August 18, 2022 at 7:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Flemming Lorents Steen Brødrene Hartmann A/S - CFO & Member of Executive Board * Torben Rosenkrantz-Theil Brødrene Hartmann A/S - CEO & Member of the Executive Board ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, welcome to the Brødrene Hartmann Half Year Results 2022. (Operator Instructions) This call is being recorded. I will now hand it over to the speakers. Please begin. -------------------------------------------------------------------------------- Torben Rosenkrantz-Theil, Brødrene Hartmann A/S - CEO & Member of the Executive Board [2] -------------------------------------------------------------------------------- Thank you, and thank you for joining our Q2 earnings call today. Flemming and I will provide an overview of the market developments and performance this quarter before adding a few comments on our strategic priorities and the outlook for 2022. We also look forward to taking your questions. This slide -- please turn to Slide 2 for the highlights. We faced challenging external conditions again in Q2 as energy and paper prices continued to increase from historically high levels. In addition, the demand for egg packaging remained subdued while exports to Ukraine and Russia were discontinued. On that background, we are pleased to demonstrate our resilience and report that we were able to maintain market share and partly offset the negative impacts through disciplined pricing actions. This led to a 24% increase in revenue in the quarter. The decisive steps that we're taking to counter price inflation across our markets paid off as we achieved decent earnings and ensured a profit margin of 7.1% in the quarter. While this level of profitability is not what we are normally aiming for, it does demonstrate our ability to navigate through the harsh conditions mentioned before. In addition, we continued efforts to increase average selling prices and we maintained a sharp focus on cost containment. Our investments were lower this quarter compared to a high investment level in the same period last year. We have made significant investments in capacity expansion in recent years and are well positioned to accommodate the increasing demand for molded fiber egg packing in the coming periods. We initiated a sales process for our Russian factory at the beginning of Q2 as the war in Ukraine and the current political and economic climate in Russia prevent the realization of the plan behind our investments. This process is quite complex and highly dynamic, and we have been working on clarifying the legal and practical landscape that we must navigate to divest the business under the current sanctions. We have reclassified the Russian activities as discontinuing operations and restated figures for 2022 and 2021 in our financial reporting. The reclassification has also entailed an impairment loss of DKK 81 million. In the report for Q2 and during this conference call, we are commenting on our continuing operations. Let's flip to Slide 3 and an overview of segment performance. Please go ahead, Flemming. -------------------------------------------------------------------------------- Flemming Lorents Steen, Brødrene Hartmann A/S - CFO & Member of Executive Board [3] -------------------------------------------------------------------------------- Thank you, Torben. We generated higher revenue in both segments and alleviate the impact on earnings as we increased prices to offset the certain energy and paper costs and general inflation. Sales volumes were slightly down in markets that were impacted by higher egg prices and remained shaky on the back of Avian flu in North America and high grain prices in Europe. The American business delivered a 44% increase in revenue, driven by the price increases already mentioned. This was supplemented by strong sales volume growth in North America, where we are pleased to report a positive impact on new customers converting from plastic-based packaging to our products and increasing utilization on recently introduced capacity. South America contributed positively to the revenue growth as well with solid performance in Argentina and despite a continuation of the tough market conditions in Brazil. The segment profit margin increased to 7.6% in the face of significant negative impact from higher energy and recycling paper prices, and not to forget, increase in distribution costs as well as mounting inflation. If we turn to the Eurasia segment, we can report the revenue was up by 12% on the back of increasing selling prices implemented to counter the dramatic energy and paper prices hikes and inflation. This increase was realized despite a slight decline in sales volume due to market softness and the absence of export sales to Ukraine and Russia from our European locations. In addition, machinery sales were lower this quarter compared to the same period in 2021. Finally, our operations in India were impacted by a fire at the factory in early May, meaning that the plant will run at a reduced capacity until we reestablished equipment and installations in the second half of 2023. The high energy and paper prices combined with the lower contribution from machinery sales entailed a drop in the profit margin to 8% despite the successful efforts to lift selling prices. Now turn to Slide 4 and the consolidated figures. Revenue increased by 24% to almost DKK 800 million in the second quarter on the back of higher selling prices and the positive development in North America in particular. Overall sales volume was slightly down and we continued to see slow demand for egg packaging. We were able to maintain decent earnings and recorded operating profit of DKK 56 million, which was below last year's level due to the high cost we are facing in 2022 and the lower contribution from machinery sales as mentioned before. In the face of these difficult market conditions, we are reporting a profit margin of 7.1%. As Torben mentioned earlier in the call, we reclassified the Russian activity as discontinued operations and therefore exclude these from our recorded figures. As a consequence, we've also recognized an impairment loss of DKK 81 million. The negative effect on the value of the Russian business has, to a large extent, been countered by a significant increase in the move. The profit for the period decreased to DKK 21 million, and the free cash flow came to an inflow of DKK 28 million as we eased down on investments. The return on invested capital declined to 3.4% as earnings were lower and invested capital higher at the end of Q2. Please turn to Slide 5 as I ask Torben to provide an update on our strategy. -------------------------------------------------------------------------------- Torben Rosenkrantz-Theil, Brødrene Hartmann A/S - CEO & Member of the Executive Board [4] -------------------------------------------------------------------------------- Thank you, Flemming. We'll do so. Despite the turmoil in our markets in recent years and the exploding energy and paper prices that we're currently facing, we do not see structural changes in our strategic landscape. The macro trends driving our markets remain intact and our strengths are unchanged. We continue to see an underlying increase in demand across our markets in the years ahead. Firstly, the demographic drivers are unchanged and will have a positive impact on demand for food products and our packaging. Urbanization is driving retail trade and will continue to do so. This means that the shift from sales in urban markets to retail packaging sales in supermarkets will continue. Secondly, single-use plastic packaging is facing strong headwinds and conversion to molded fiber packaging is already impacting our sales in several markets. Molded fiber is a superior and well-proven alternative to plastic and, supermarkets are embracing the change. We expect this to continue and accelerate, supported by regulatory changes as well. Thirdly, consumer lifetime choices are playing an increasing role and we expect to see higher egg consumption and a more varied supply mix. The egg category will become more complex, and our customers are already demanding packaging that stands out and promotes specialty eggs in the supermarkets. To benefit from these overall trends, we are drawing on our 4 key strengths: our expertise, our solid footprint, our product portfolio and our outstanding technology competencies. Please turn to Slide 6 and a few comments on our focus areas in the quarter. Our 3 focus areas of capacity, efficiency and marketing have not changed. We're still focused on growing volumes and maintaining a high utilization rate, and we work to enhance efficiency through automation, process improvements and continued technological development at our factories. Finally, we still explore new markets if good opportunities arise. In terms of capacity, we are benefiting from the investments made in recent years and have therefore reduced our investment level in the quarter and 2002 (sic) [2022] as such. In the current market environment, we are focused on ensuring a higher level of utilization of recently added capacity. As mentioned before, we have initiated a sales process for our Russian operations. Secondly, we continue to invest in automation and implementation of new technology to ensure smooth operations and reduce costs at our factories. In addition, we are working to ensure that our factories in Europe will be able to maintain operations with alternative energy sources if the supply of natural gas is closed or reduced following the geopolitical disagreements in the wake of Russia's invasion of Ukraine. A significant part of our production in Europe can already use alternative energy, and we expect the majority of our capacity to be ready for conversion in late 2022 in an emergency situation. Finally, we also continue to build our knowledge of consumer behavior through research to be able to offer customers relevant data and insights about current consumer trends and concerns. Even in these challenging times, it remains a key focus area to support and assist our customers in converting from plastic packaging to eco-friendly molded fiber products. Let's turn to Slide 7 and the outlook for 2022. We are maintaining our guidance for 2022 today based on the solid development in the first half year and because we intend to continue the work to adjust selling prices to counter higher costs. As witnessed by the charts on electricity and natural gas prices in Europe, the market situation is highly volatile, to say the least, the average recycled paper prices across our markets resource as well. This is the backdrop for our projections, and the guidance for 2022 is clearly subject to great uncertainty. We, therefore, maintain the expanded guidance range for revenue and profit margin. Adding to the uncertainty is the increasing inflationary pressure and the fact that our pricing actions come through with some time lag. Finally, it's prudent to keep in mind that our guidance assumes that natural gas supply will be sustained for all our factories throughout the entire year. Finally, we still expect to have ordinary investments of around DKK 225 million in 2022. In addition to this, we will reestablish our operations in India following the fire in the second quarter. This will entail additional investments, which are not included in the guidance as they are expected to be compensated by insurance coverage. In the current volatility, please note that our general financial ambitions have not changed. In the slightly longer term, we will still aim to grow volumes and revenue year-on-year to be able to reach an ambitious profit margin of at least 14% under relatively stable market conditions. We now look forward to taking your questions, please. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- (Operator Instructions) As there are no questions at this moment in time. I will now hand it back to the speakers for any closing remarks. -------------------------------------------------------------------------------- Torben Rosenkrantz-Theil, Brødrene Hartmann A/S - CEO & Member of the Executive Board [6] -------------------------------------------------------------------------------- Well, I think the primary closing remark will be to wish everyone a good day. Thanks for attending our call.
Shares of StoneCo (NASDAQ: STNE), a cloud-based technology platform, plummeted Friday morning after the company reported its second-quarter results, which disappointed investors, and announced yet another shift to its management team. The company reported non-GAAP (adjusted) earnings of 0.25 Brazilian reals (equivalent to $0.05), which was an increase from a loss of 0.48 reals in the year-ago quarter, but was below Wall Street's consensus estimate of about 0.57 reals, or $0.11 per share. StoneCo's revenue in the quarter was 2.3 billion reals (about $442 million), 5% higher than the company's guidance, and up 275% from the year-ago quarter.
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