The value of our brands

The value of our brands
1st Half 2013 Results
July 30th 2013
Disclaimer
This document contains forward-looking statements regarding intentions, expectations or forecasts of Deoleo, S.A. (“Deoleo”) or its
management at the date of the realization of the same.
These forward-looking statements do not constitute guarantees of future performance, being constrained by risks, uncertainties and
other important factors that could cause actual developments and results to differ materially from those reflected in these forwardlooking statements.
Deoleo are not obliged to release publicly the results of any revisions that it might make to these statements to reflect events or
circumstances post presentation, including, among others, changes in the business of the Company, in its business development
strategy or any other occurrence of unanticipated events.
The contents of this disclaimer must be taken into account by any persons or entities who may have to take decisions or prepare or
disseminate opinions about securities issued by the Deoleo and in particular, by analysts and investors who manage this document.
Available public documents and information communicated or recorded by Deoleo in the supervisory bodies and, in particular, the
CNMV (Comisión Nacional del Mercado de Valores).
This document contains unaudited financial information, so it is not definitive information that could be modified in the future.
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Content
1. Highlights of the period
2. General environment
3. The raw material situation
4. Business performance
5. Financial situation and other relevant developments
6. Conclusion
Appendix
3
1. Highlights of the period
•
The period from March to May this year has been a very negative one since the transfer of rising raw
material to the sale price has been joined by a sharp contraction in demand in Spain and Italy.
•
The retailers have used the traffic generating character of the product to practice a very aggressive
pricing policy, at times even below cost, that have forced us to increase our promotional activity.
•
In the international markets, a normalization has already been achieved but margins and volumes have
been eroded in this period.
•
In this extremely difficult context due to the suddenness of the price increases and its size we have
resisted reasonably well, achieving an EBITDA/Sales margin of 7.22% far superior to the one obtained two
years earlier and above the historical average for the sector.
•
The net result before taxes stood at €12.7 mm, 37.6% over the same period last year. The net result after
taxes stood at €4.2 mm compared to the losses of €4.2 mm suffered in 2012.
•
We have achieved a Net Financial Debt position on June 30 at €553 mm, €71 mm less than in December
2012 and €86 mm lower than the same period last year, enabling us to meet our financial covenants.
•
On June 1 we began to integrate the Hojiblanca brand and assets into our group.
4
2. General environment
• The contraction in the consumption in our major markets, Spain and Italy continues.
• In Spain, according to Nielsen, the market decline in the period was 8.3% in volume while ANIERAC who
records all oil trade and not only the Retail channel suggests a decline close to 9.3% since the start of the
current harvest.
• In Italy the Retail channel has experienced a significant drop of sales of extra virgin olive oil which has
fallen by 10.1% in volume and pure olive oils which fell by 7.8%.
• International markets have responded by a slowdown or slight decrease in the consumption after the
price increases earlier in the year, however the June and July data indicate that demand will roll again
once normalized the supply prices.
• Private labels have been the main beneficiaries in terms of market share, although their volumes have
suffered as well after setting prices in many cases below the spot price of the raw material. Appendix I
explain in detail the correlation between private label prices and the raw material cost.
• The seed oil market has shown a clear recovery in Spain (+2% by volume) while in Italy it has lost 1.9%.
• The prospects for the new crop are good, returning oil production to historical averages which should
lead to more normalized prices both in olive and in sunflower oil.
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3. The raw material situation – Olive oil
• In the first half of 2013 the average price of lampant olive oil in Spain stood at €2.52/kg versus €1.57/kg
during the same period last year. Compared with the beginning of the year, the price has dropped 14.5%. This trend continued in July.
• The weather is perfect for the next harvest which should be very good. We estimate a production of 1.31.4 mm tns, which together the estimated remaining stock from the current harvest may lead to a fall
in prices.
Price development olive oil (€/kg)
3,200
3,000
2,800
2,600
2,400
2,200
2,000
1,800
1,600
Aceite
olivaolive
lampante
Lampant
oil
Source: Poolred
Aceite
Virgin oliva
olive virgen
oil
jul-13
abr-13
ene-13
oct-12
1,400
Aceite
extra
Extra oliva
virginvirgen
olive oil
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3. The raw material situation – Seed oil
• The forecast of a good sunflower harvest in the Black Sea area continue. Also the bullish trend in the
soybean market could affect other seed oil markets.
• In the domestic market, the prices of refined sunflower oil have fallen by 1.7% in the first half of the
year and in comparison with 2012 the average price was 0.9% lower. The Spanish harvest will probably be
similar to the 2011 one, which should lead to lower prices.
Price development sunflower oil (€/kg)
1,600
1,400
1,200
1,000
0,800
0,600
0,400
0,200
Aceite
desunflower
girasol refinado
Refined
oil
Sourcee: Oleo
Aceite
dehigh
girasol
oleico oil
refinado
Refined
oleicalto
sunflower
jun-13
abr-13
ene-13
oct-12
jul-12
0,000
Aceite
Crude de
soysoja
beancrudo
oil
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4. Business performance
• In the first half of the year the economic situation in Spain and Italy has been very negative with a
downward trend in consumption and inflationary scenarios in the raw materials that have led to a sharp
contraction in the size of the markets and sales with negative margins.
• In Italy our volume loss has been lower because it is more brand oriented than the Spanish market yet the
consumer confidence has been lower in Italy with more pronounced declines in consumption than in Spain.
• Thanks to the management of our brands, in June and July we can see a change in trend, where we have
improved both volumes and margins, a trend that allows us to believe we're moving towards a recovery
scenario.
• In North America the price increase has affected the volumes but the market has responded well and our
market shares and margins have held up well in this conjuncture and shows signs of recovery.
• In the international markets we have also seen a delay in consumer acceptance of the new prices, however
from April and on, the scenario has changed and in June we are in line with budget.
• The expansion into international markets is on schedule and in addition to the China office opened in
March, we have already opened offices in India (Mumbai) and Malaysia (Kuala Lumpur). With these
openings, we hope to boost consumption, improve our market position and better capture local consumer
trends.
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4. Business performance
• Due to the rising prices, sales in Euros have absorbed the downturn in volumes in all regions except Spain,
the main cause for the slight drop in overall sales is the lack of BtB business activity that includes mainly
bulk and the almost complete abandonment of private label activity.
Sales by unit (%)
6m 2013
34,2
EBITDA by unit (%)
6m 2012
6m 2013
6m 2012
48,6
31,6
26,4 26,4
38,6
21,1 19,3
16,4
15,0
7,7
14,7
24,0
19,1
27,8
24,4
1,9
Spain
South Europe
Intl Markets North America
BtB
1,5 3,1
-1,8 Spain
South Europe
Intl Markets North America
BtB
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4. Business performance
• The adjustment measures implemented have resulted in a workforce reduction by 65% compared to
December 31, 2010.
Workforce development (Headcount by end of period)
2149
- 53%
- 20%
-7,0%
1006
31.12.2010
31.12.2011
801
745
31.12.2012
30.06.2013
• On June 1, we incorporated the workforce at the Hojiblanca plant in Antequera with a total of 44
employees and subsequently to the end of the period, we announced a Collective Dismissal Procedure
(ERE) that will affect up to 55 people in our Italian plants.
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5. Financial situation and other relevant developments
• Below we present the main items of the income statement for the first six months of the last three
years on a comparable basis.
CONSOLIDATED INCOME STATEMENT - DEOLEO
(Thusands of Euros)
6m 2013
Dif. 13 vs
12
Net Sales
381.335
-4,5%
399.271
-14,0%
464.067
-9,4%
Advertising
10.442
3,3%
10.108
40,6%
7.189
20,5%
EBITDA
27.548
-27,7%
38.110
38,3%
27.553
0,0%
7,22%
-24,3%
9,54%
60,8%
5,94%
10,3%
Net Result before Taxes
12.710
37,6%
9.234
n.a.
-1.441
n.a.
Net Result after Taxes
4.215
n.a.
-4.193
-43,3%
-7.389
n.a.
% EBITDA / Net Sales
6m 2012
Dif.12 vs
11
6m 2011
CAGR
2011 - 13
• We have reduced our turnover by 4.5% mainly due to the volume decline in bulk and specialty products
within the BtB unit, sales outside of the core business.
• Despite the 24.3% drop in EBITDA/Sales margin, the unit margins have declined by 15% thanks to a
strong pricing policy so that with the expected recovery in volumes we will increase the EBITDA once
the decline in the raw material prices is consolidated.
• We have reduced other Operating Expenses by €9.2 mm, a decrease of 18.8% over the previous year and
demonstrating the size of the cost control efforts and resource optimization we have implemented.
• Our investment in Advertising is till growing, supporting our brands and our new products.
• The Net Result after Taxes is positive at €4.2 mm, an improvement of €8.4 mm compared to the same
period last year due mainly to a reduction in non-recurring expenses and a better financial result.
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5. Financial situation and other relevant developments
• Compared to December 31, 2012, the Net Financial Debt (NFD) has dropped €71 mm and compared to
the same date in 2012 the decline has been €86 mm.
• The management of working capital has had a positive impact of €46 mm in the NFD, the cash balance
available on June 30, 2013 is €138.4 mm after having amortized €44.8 mm of debt during the period.
• As of June 30, 2013 we meet the ratios set forth in our Refinancing contract.
Net Financial Debt - Deoleo (€ mm)
1515
- 45%
- 21%
837
662
31.12.2009
31.12.2010
31.12.2011
- 6%
624
31.12.2012
- 11%
553
30.06.2013
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5. Financial situation and other relevant developments
• From June 1 we have incorporated the Hojiblanca branded operations in the financial statements and
the industrial integration is in full progress.
• On July 8 trading of the new shares issued as compensation for the purchase of the brand Hojiblanca
began, a total of 109,054 thousand new shares, increasing the total number listed to 1,154,678
thousand shares.
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6. Conclusion
1.
The central months of the first half of 2013 developed in a very complicated environment from which
we're coming out stronger.
2.
The competitiveness efforts implemented and the ones that are underway make us much more
effective and able to defend our positions, laying the foundations for the next change of cycle when
the raw material prices fall.
3.
With cash flows lower than expected but with a more effective capital management we are reducing
debt with a speed that enable us to adapt to the demands of our financial covenants and weather the
volatility of the raw material markets very effectively.
4.
Focusing on brands and high-margin products we will continue streamlining our productive capacity,
we have just closed an outsourcing deal with Sovena for seed oil production and we will undertake a
new industrial adjustment in Italy.
5.
The Net result for the semester has closed at €4.2 mm compared to the losses we suffered in the same
period last year and in the context of a far more unfavorable market than the previous year,
demonstrating the strength of our new business model.
6.
In the latter part of the year we will activate our innovation program on which we are working and
which are the basis for the development of our company and, we believe, an industry with a vision for
the future.
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Appendix I – Correlation private label vs raw material
Correlation sales price and raw material (Private label and refined lampante oil)
% dif.
PL €/l.
Price (IRI)
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Appendix II – Olive oil price development
Price development – Olive oil 2002 – 2013 (€/kg)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
Aceite
olivaolive
lampante
Lampant
oil
Source: Poolred
Aceite
Virgin oliva
olivevirgen
oil
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
1,000
Aceite
extra
Extra oliva
virginvirgen
olive oil
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Appendix III – Seed oil price development
Price development – Seed oil 2002 – 2013 (€/kg)
2,000
1,800
1,600
1,400
1,200
1,000
0,800
0,600
0,400
0,200
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0,000
RefineddeSunflower
oil
Aceite
girasol refinado
Source: Oleo
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