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 achieved through better efficiency in plants and improved logistics.
- Upward revision of full-year outlook due to strong performance and visibility for the second half.
Negative Points
- Hospitality sector faced challenges with disappointing occupancy rates in the UK and France due to bad weather and general elections.
- Impact of the Olympics on Paris resulted in several professional events being rescheduled, affecting activity.
- Inflationary pressures, particularly in energy and salaries, continue to impact the cost base.
- Margins in Scandinavia and Eastern Europe decreased, with specific challenges in Denmark due to pricing discipline.
- Higher financial costs due to new financing, impacting net income.
Q & A Highlights
Q: What has 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. This trend is expected to continue as regulations become more stringent, particularly in industries like pharmaceuticals and food processing. There is no immediate limit to growth potential in this segment.
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 pricing to offset costs. This is manageable and not expected to significantly impact demand, as the cost of Elis' services remains a small fraction of clients' overall expenses.
Q: Can you clarify the impact of better purchasing conditions for energy on your costs and when you expect rates to converge with current spot rates?
A: Energy costs are hedged, leading to savings of EUR30-40 million annually through 2026. The hedging strategy will allow rates to gradually align with current spot prices over the next few years.
Q: What is your ambition for the EBITDA margin level of the Group, and what can you achieve in terms of ongoing margin expansion?
A: The Group aims for regular margin improvement, driven by productivity gains and better energy purchasing conditions. While specific long-term targets are not provided, the goal is to continue expanding margins steadily.
Q: Why have you not raised the free cash flow guidance despite better-than-expected growth and EBITDA performance?
A: The cautious approach is due to higher-than-expected linen CapEx driven by strong commercial performance. While the company is comfortable with its initial guidance, it prefers to remain conservative in its forecasts.
Q: Can you provide more color on the margin slowdown in Scandinavia due to public sector exposure?
A: The margin impact in Scandinavia is minor and expected to stabilize close to last year's levels. The region has a high proportion of public sector clients, which makes pricing adjustments more challenging.
Q: How do you see the market in Asia following your acquisition in Malaysia, and are there opportunities in other countries?
A: The Asian market is fragmented, with small acquisition targets. The strategy involves gradual expansion through bolt-on acquisitions, similar to the approach taken in Colombia.
Q: Can you quantify the inflation impact in Q2 and expectations for Q3 and Q4?
A: The price effect for the full year is expected to be between 3% and 4%, with a gradual decrease in inflation throughout the year. The overall pricing performance is slightly better than initially expected.
Q: What is the expected impact of the Olympics on your business, particularly in hospitality?
A: The Olympics are expected to have a minor impact, with estimated lost revenues of EUR2-3 million in June and July. The company remains cautious about any potential recovery in the second half of the year.
Q: What is the expected cash flow impact of the Mexican acquisition next year?
A: The Mexican acquisition is expected to generate around EUR50 million in cash flow next year, depending on the EBITDA performance in 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
