Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong revenue growth of 6.9%, with 5.5% on an organic basis, reaching nearly EUR2.5 billion.
- EBITDA margin improved by 120 basis points to 34.5%, with EBITDA reaching EUR774 million.
- Free cash flow was robust at more than EUR55 million for the first half.
- Significant productivity gains due to better efficiency in plants and improved logistics.
- Upward revision of full-year outlook, with expectations of better-than-anticipated organic growth and EBITDA margin.
Negative Points
- Hospitality sector performance was mixed, with disappointing results in the UK and France due to bad weather and general elections.
- Impact of the Olympics in Paris led to a negative effect on activity, with several professional events rescheduled.
- Margins in Scandinavia and Eastern Europe decreased by 50 basis points due to pricing discipline challenges.
- Higher financial leverage ratio at 2.06 times, though on track to achieve full-year guidance of 1.8 times.
- Inflationary pressures, particularly in energy and salaries, continue to impact cost base despite hedging strategies.
Q & A Highlights
Q: What has really changed in the workwear segment, and how long do you think this favorable momentum will continue in Europe?
A: The changes in workwear are driven by new regulations, such as personal protective equipment standards that require specific maintenance and replacement cycles. This trend is expected to continue as regulations become more stringent, particularly in industries like pharmaceuticals and food processing. The outsourcing trend in workwear is still growing, even in mature markets like Germany, where we saw a 15% organic growth in workwear for industry.
Q: What is your assumption regarding the minimum wage increase in France, and how will it impact pricing and demand?
A: A 10% increase in the minimum wage would necessitate a 3% increase in our pricing to offset the cost. However, the impact on demand is expected to be minimal as our services represent a small fraction of our clients' overall costs. Additionally, internal laundry operations would face the same wage increases, making our outsourced services more competitive.
Q: Can you clarify the impact of better purchasing conditions for energy across the group?
A: We have hedged 95% of our energy needs for 2024, resulting in savings of EUR30-40 million compared to 2023. Similar savings are expected for 2025 and 2026, with energy prices converging to current spot rates by the end of 2026.
Q: What is your ambition for the EBITDA margin level of the Group, and what do you think you can achieve in terms of ongoing margin expansion?
A: We expect regular margin improvement driven by better energy purchasing conditions, productivity gains, and commercial initiatives. While it's difficult to set a long-term target, we have seen margins above 40% in some countries, indicating significant potential for further expansion.
Q: Why haven't you raised the free cash flow guidance despite raising growth and EBITDA guidance?
A: We remain cautious due to the potential need for additional linen CapEx driven by better-than-expected commercial performance. While we are comfortable with our initial guidance, we prefer to wait for more certainty before making further adjustments.
Q: Can you provide more color on the slowdown in margins in Scandinavia due to exposure to the public segment?
A: The slowdown is minor, with margins expected to be close to last year's 36.5%. The public sector contracts in Sweden and Denmark have specific clauses that make pricing adjustments less flexible, but overall, the region remains a high-margin, cash-generative area.
Q: Could you elaborate on the performance in Germany and the difference in margin between workwear and healthcare?
A: Germany saw a 15% organic growth in workwear, significantly improving margins. The margin difference between workwear and healthcare can be substantial, with workwear often having double the margin of flat linen services. Improved management and productivity have also contributed to better performance.
Q: What is your strategy for the Asian market following your acquisition in Malaysia?
A: The Asian market is highly fragmented, and our strategy involves small, incremental acquisitions to build a presence. We are focusing on markets like Malaysia and Singapore, particularly in the cleanroom business, where we see strong growth potential.
Q: Could you quantify the inflation impact in Q2 and expectations for Q3 and Q4?
A: Pricing contributed 3-4% to organic growth, with inflation expected to decrease gradually over the year. Despite this, our pricing performance has been better than expected, driven by improved churn and commercial success.
Q: What is the expected impact of the Olympics on your business?
A: The Olympics are expected to result in a EUR2-3 million revenue loss due to lower hospitality volumes in June and July. While this is disappointing, it is not a significant impact relative to the size of the group.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
