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Belysse Group NV

Interim / Quarterly Report Aug 28, 2020

3918_ir_2020-08-28_52267615-428f-4d7c-a9d9-6a8763745035.pdf

Interim / Quarterly Report

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Balta Group NV

Period ended June 30, 2020

Balta Group NV Registered office: Wakkensteenweg 2, 8710 Sint-Baafs-Vijve Belgium Registration number: 0671.974.626 B

1. DECLARATION REGARDING THE INFORMATION PROVIDED IN THIS REPORT3
2. KEY FIGURES 4
3. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS5
3.1. GROUP FINANCIAL HIGHLIGHTS 5
3.2. BUSINESS UPDATE5
3.3. CYRILLE RAGOUCY, CEO AND CHAIRMAN OF THE BOARD OF BALTA SAID,5
4. OPERATING REVIEW PER SEGMENT 6
4.1. REVENUE AND ADJUSTED EBITDA PER SEGMENT 6
4.1.1. Q2 20206
4.1.2. H1 2020 6
4.2. GROUP 8
4.3. RUGS8
4.4. COMMERCIAL8
4.5. RESIDENTIAL 8
5. OTHER FINANCIAL ITEMS REVIEW9
5.1. INTEGRATION AND RESTRUCTURING EXPENSES9
5.2. NET FINANCING EXPENSES 9
5.3. TAXATION 9
5.4. EARNINGS PER SHARE 9
5.5. CASHFLOW AND NET DEBT9
6. RISK FACTORS 10
7. CONSOLIDATED INTERIM FINANCIAL STATEMENTS11
7.1. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 11
7.2. CONSOLIDATED STATEMENT OF FINANCIAL POSITION12
7.3. CONSOLIDATED STATEMENT OF CASH FLOWS 13
7.4. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY14
7.5. SELECTED EXPLANATORY NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 15
7.5.1. SIGNIFICANT ACCOUNTING POLICIES15
7.5.2. SEGMENT REPORTING16
7.5.3. INTEGRATION AND RESTRUCTURING EXPENSES17
7.5.4. GOODWILL 17
7.5.5. NET DEBT RECONCILIATION17
7.5.6. RELATED PARTY TRANSACTIONS 18
7.5.7. COMMITMENTS18
7.5.8. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE18
7.5.9. GOING CONCERN18
8. GLOSSARY: ALTERNATIVE PERFORMANCE MEASURES 19

1. Declaration regarding the information provided in this report

We, the undersigned declare that, to the best of our knowledge, the condensed financial statements for the six-months period ended June 30, 2020, which have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole, and that the half-year report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, together with a description of the principal risks and uncertainties for the remaining six months of the financial year.

Jan-Christian Werner Chief Financial Officer
Cyrille Ragoucy Chairman of the Board and Chief Executive Officer

2. Key Figures

(€ thousands) H1 2020 2019
Results
Revenue 266.382 351.413
Adjusted EBITDA 18.257 37.269
Adjusted EBITDA Margin 6,9% 10,6%
Integration and restructuring expenses (2.618) (3.093)
EBITDA 15.639 34.175
Depreciation / amortisation (19.877) (19.370)
Operating profit / (loss) for the period (4.238) 14.805
Net finance expenses (13.721) (12.508)
Income tax benefit / (expense) 1.121 476
Profit/(loss) for the period (16.838) 2.773
Cash flow
Cash at beginning of period 19.241 26.853
Net cash generated / (used) by operating activities 20.140 20.320
Net cash used by investing activities (11.806) (11.955)

Financial position

In relation to Balta's financing agreements, the documentation provides for the effect of changes in accounting standards to be neutralized. As such, the application of IFRS 16 has no consequence for the Group's financing.

Net cash generated / (used) by financing activities 59.929 (15.477) Cash at end of period 87.504 19.741

$(E$ thousands) H1 2020 H1 2019
Net debt 1 277.233 268.666
Leverage э,у $\sim$ $\rightarrow$
$\cup$ , 1

Note 1: IFRS 16 effect is excluded from the leverage comparison (see glossary).

3. Management discussion and analysis of the results

3.1. Group Financial Highlights

  • H1 2020 consolidated Revenue was €266.4m (-24.2% YoY), Adjusted EBITDA was €18.3m (-51.0% YoY) and Adjusted EBITDA margin was 6.9% (down from 10.6% in H1 2019) driven by the COVID-19 impediments starting in March 2020.
  • Organic revenue declined by -24.7% with an FX impact of +0.5%.
  • Revenue growth by division: Rugs -29.6%, Commercial -13.7%, Residential -27.7%.
  • Net Debt decreased by €6.3m vs. Q1 2020, driven by mitigating actions reducing both costs and net working capital.
  • Net Leverage increased to 5.9x from 4.3x at the end of Q1 2020 excluding the impact of IFRS16, driven by the significantly reduced Adjusted LTM EBITDA. In April 2020, we successfully reached an agreement with our majority lending banks under the €61m Super Senior Revolving Credit Facility to adjust the covenant calculation for the impact of COVID-19 through to the second quarter of 2021.
  • Implementation of NEXT initiatives, which were temporarily halted during the second quarter, as management focused on COVID-19 response, resumed in early July.

3.2. Business Update

  • Revenues and Adjusted EBITDA in all divisions were significantly impacted by the lockdown measures taken by national governments to tackle the COVID-19 pandemic.
  • Management took decisive action to protect the Group's employees and financial position by temporarily closing several factories, furloughing staff, carefully controlling costs and maintaining an active dialogue with customers and suppliers.
  • All plants and offices reopened mid-May, after taking the actions necessary to protect employees, including the implementation of social distancing and supplying personal protective equipment. Since then we have seen encouraging signs of recovering demand for our products.
  • Despite the negative impacts from COVID-19 on Revenue in Q2 2020, net cash flow during the quarter was €7.1m positive, resulting in a cash balance at the end of Q2 2020 of €87.5m, including our Revolving Credit Facilities (RCF) which we have fully drawn as a precautionary measure at the start of the crisis.
  • The implementation of NEXT, the three-year program designed to deliver a significant improvement in earnings, resumed in early July.

3.3. Cyrille Ragoucy, CEO and Chairman of the Board of Balta said,

"The second quarter of 2020 was challenging for Balta due to global COVID-19 lockdowns that had a significant negative impact. Results were most severely impacted in April, with an easing trend starting in mid-May and continuing in June. Balta has demonstrated its operational resilience, successfully saving costs and preserving cash, taking actions to protect employees, and maintaining relationships with our suppliers and customers. In line with the persisting uncertainties in the market, we remain focused on improving operating performance through NEXT and prudent cost management. We expect the benefits from NEXT to return as operations return to more normal levels, albeit with delay."

4. Operating review per segment

4.1. Revenue and Adjusted EBITDA per segment

4.1.1. Q2 2020

Q2 Q2 o/w organic o/w
$(\epsilon$ million, unless otherwise mentioned) 2020 2019 % Change growth FX
Rugs 35.2 54.3 (35.2)%
Commercial 43.6 60.7 $(28.1)\%$
Residential 25.8 45.8 $(43.7)\%$
Non-Woven 2.1 7.2 $(71.1)\%$
Consolidated Revenue 106.7 167.9 $(36.5)\%$ $(36.9)\%$ 0.4%
Rugs (3.2) 2.9 (210.1)%
Commercial 5.8 11.5 $(49.8)\%$
Residential (1.0) 4.6 $(122.0)\%$
Non-Woven (0.3) 0.8 $(143.3)\%$
Consolidated Adjusted EBITDA 1.2 19.8 $(94.1)\%$ $(94.7)\%$ 0.6%
Rugs $-9.2\%$ 5.4%
Commercial 13.2% 18.9%
Residential $-3.9\%$ 10.1%
Non-Woven $-16.3%$ 10.9%
Consolidated Adjusted EBITDA Margin 1.1% 11.8%

4.1.2.H1 2020

H1 H1 o/w organic o/w
$(\epsilon$ million, unless otherwise mentioned) 2020 2019 % Change growth FX
Rugs 84.3 119.8 (29.6)%
Commercial 100.5 116.4 $(13.7)\%$
Residential 72.8 100.6 $(27.7)\%$
Non-Woven 8.8 14.6 (39.7)%
Consolidated Revenue 266.4 351.4 $(24.2)\%$ $(24.7)\%$ 0.5%
Rugs 1.0 9.2 $(88.5)\%$
Commercial 13.9 19.2 $(27.5)\%$
Residential 3.1 7.9 (60.9)%
Non-Woven 0.2 1.0 $(80.7)\%$
Consolidated Adjusted EBITDA 18.3 37.3 $(51.0)\%$ $(51.8)\%$ 0.8%
Rugs $1.2\%$ 7.6%
Commercial 13.9% 16.5%
Residential 4.2% 7.8%
Non-Woven 2.3% 7.1%
Consolidated Adjusted EBITDA Margin 6.9% 10.6%

COVID-19

COVID-19 represents an unprecedented disruption and a material challenge to our business and industry. In response to the outbreak of the pandemic, governments in the markets in which we operate have implemented full or partial lockdowns and closured non-essential business, including some of our customers. These measures resulted in a significant deterioration in macroeconomic conditions.

Balta is coordinating its response across the Group through an internal COVID-19 taskforce to protect the health and safety of our workforce and customers and to mitigate the effect of COVID-19 on operations. In the second quarter of 2020, we have successfully implemented measures to reduce operating costs and manage cash flows, including:

  • Temporarily shutting down 6 of our 8 plants on a voluntary basis to reduce operating costs
  • Senior staff took voluntary reductions in pay for several months, from 50% for the CEO and paid directors, to 40% for the Management Committee and 30% for other leadership team members. The reduced compensation will not be repaid.
  • The vast majority of staff were put into temporary government unemployment support programs in Belgium, the UK, France and Germany.
  • Fixed and variable cost saving measures, curtailing non-essential expenditure.
  • Tight management of purchasing, inventory and other working capital.
  • Deferral of non-essential capital expenditure.

Revenues dropped significantly in the second quarter, with April most severely impacted and an improving trend starting mid-May and continuing in June. In Rugs and Residential, revenues significantly declined as of mid-March, showing a substantial rebound in June. In Commercial, volume drops were relatively less severe in April and remained at these levels through the second quarter.

During the lockdowns we flexed our plant production levels to meet the reduced demand, whilst continuing to efficiently service customer orders. Balta gradually increased production from mid-May, as markets began to reopen. We still expect to produce at approximately 85% of capacity in the fourth quarter of 2020, for which we anticipate additional working capital requirements.

As of 30 June 2020, we held cash and cash equivalents of €87.5m, up from €80.4m at the end of Q1, including fully drawn revolving credit facilities of €72.1m.

Net leverage was 5.9x at the end of June 2020, well inside the covenant. In April 2020, we successfully reached a precautionary agreement with our majority lending banks under the €61m Super Senior Revolving Credit Facility to adjust the covenant calculation for the impact of COVID-19 through to the second quarter of 2021.

4.2. Group

Revenue shortfalls due to COVID-19 lockdowns in Q2 2020 impacted results across all divisions as they could only be partially offset by the fixed expense savings introduced. The focus on cost savings and cash preservation resulted in a positive net cash flow of €7.1m in Q2 2020.

4.3. Rugs

Our Rugs division realized Revenue of €84.3m, down 29.6% versus the first half of 2019. In the US, we realized Revenue slightly below last year, with retailer and direct shipment volumes recovering strongly since mid-May. Our US e-commerce business is growing, but remains burdened by its fixed costs as we have not yet achieved critical mass in this channel. In Europe, we were impacted by the COVID-19 closures of our customers from mid-March, with recovery of volumes beginning in June.

Adjusted EBITDA in H1 was €1.0m, down from €9.2m in the same period last year. The Adjusted EBITDA margin decreased from 7.6% to 1.2% due to the COVID-19 volume impact despite the fixed cost savings.

4.4. Commercial

Our Commercial division realized Revenue of €100.5m, down 13.7% versus the first half of 2019, with our US business down 10.5% and Europe down 20.0%.

Adjusted EBITDA in H1 was €13.9m, down from €19.2m in the same period last year, with Adjusted EBITDA margin down from 16.5% to 13.9%. The margin impact from the revenue shortfall was partially offset by mix improvement and fixed expense savings made in the US and Europe, together with margin improvements from NEXT initiatives in our US business.

4.5. Residential

Our Residential division realized Revenue of €72.8m, down 27.7% versus the first half of 2019. The first half Revenue decline was driven by COVID-19 impacts across all markets. We saw strong volume growth from June. Higher margin products represented 40% of Residential Revenue in H1 2020.

Adjusted EBITDA in H1 was €3.1m, down from €7.9m in the same period last year. The Adjusted EBITDA margin of 4.2% was down from 7.8% due to the COVID-19 volume impact despite the fixed cost savings, the positive effect from NEXT initiatives and better product mix.

5. Other financial items review

5.1. Integration and Restructuring Expenses

Non-recurring expenses for integration and restructuring over the first six months of 2020 amounted to €2.6m, as compared to €3.1m in the same period last year. The expense in the current period is mainly related to our NEXT program as well as non-recurring advisory services.

5.2. Net financing expenses

Net finance expenses for the first six months of 2020 are €13.7m, as compared to €12.5m in the same period last year. This increase is mainly driven by interest on the RCF which was fully drawn in March 2020 and on the sale and leaseback transaction performed in January 2020.

5.3. Taxation

There is an income tax benefit of €1.1m for the six months ended 30 June, 2020, compared to an income tax benefit of €0.5m in the same period last year. This results from a deferred tax benefit of €2.7m offset by an income tax expense of €1.5m for the period. The income tax benefit is primarily driven by recognition of deferred tax assets. The normalized effective tax rate of the Group is around 25%.

5.4. Earnings per share

The net earnings per share for the first six months of 2020 were a loss of €0.47, compared to a profit of €0.08 for the same period last year.

5.5. Cashflow and net debt

Net debt at the end of June 2020 was equal to €320.3m, versus €313.7m at the end of December 2019. The increase in net debt was driven by seasonal patterns as well as the COVID-19 related business slowdown that could only be partially offset by cost saving measures and strict net working capital management (reported Net Debt H1 2020 of €320.3m includes €43.0m IFRS16 impact).

6. Risk Factors

As a result of COVID-19, the risk section of the annual report of 2019 has been examined and reconfirmed to be accurate and up to date. We have responded on the worldwide pandemic as disclosed in the annual report (e.g. full drawing of the RCF, renegotiated covenant compliance amendment) as well as assessing and anticipating potential effects on our liquidity and creditworthiness. At the end of June 2020, the company has not breached their financing covenants even without applying the possible EBITDA adjustments under the agreed covenant compliance amendment with the banks. The company has made great efforts to save cost and preserve cash, in order to mitigate the negative impacts of the pandemic, while taking actions to protect the employees. Balta will continue to adjust its mode of operations to the changes in the external environment.

Based on the above, we are currently forecasting our existing cash on hand and cash flow to be sufficient to support our business through the production ramp-up.

As a result of changing market conditions, Balta has taken the necessary actions to limit the credit risk as much as possible. Among other actions, Balta has predominantly focused on serving clients with external credit limits or clients who prepay orders. Balta has revisited the assumptions used in the expected credit loss (ECL) model, based on updated macro-economic assumptions in light of COVID-19, which are probable and prudent. This has resulted in slightly increased bad debt accruals rates (approximately €1.3m), which negatively impact the results of H1 2020, although we do not see the negative impacts at this point.

7. Consolidated Interim Financial Statements

7.1. Consolidated Statement of Comprehensive Income

(€ thousands) H1 2020 H1 2019
I. CONSOLIDATED INCOME STATEMENT
Revenue 266.382 351.413
Raw material expenses (116.252) (167.333)
Changes in inventories (10.921) (1.393)
Employee benefit expenses (73.698) (85.706)
Other income 1.042 1.494
Other expenses (48.296) (61.206)
Depreciation/ amortization (19.877) (19.370)
Adjusted Operating Profit 1 (1.620) 17.899
Gains on asset disposals - -
Integration and restructuring expenses (2.618) (3.093)
Operating profit / (loss) 1 (4.238) 14.805
Finance income 80 190
Finance expenses (13.802) (12.698)
Net finance expenses (13.721) (12.508)
Profit / (loss) before income taxes (17.959) 2.297
Income tax benefit / (expense) 1.121 476
Profit / (loss) for the period from continuing operations (16.838) 2.773
Profit/ (loss) for the period from discontinued operations
Profit/(loss) for the period
(16.838) 2.773
Attributable to:
Equity holders (16.838) 2.773
Non-controlling interest - -
II. CONSOLIDATED OTHER COMPREHENSIVE INCOME
Items in other comprehensive income that may be subsequently
reclassified to P&L
Exchange differences on translating foreign operations (5.970) (5.822)
Changes in fair value of hedging instruments qualifying for cash flow hedge 568 313
Changes in deferred taxes - -
Items in other comprehensive income that will not be reclassified to P&L
Changes in deferred taxes (99) 389
Changes in employee defined benefit obligations 122 (2.051)
Other comprehensive income for the period, net of tax (5.378) (7.172)
Total comprehensive income for the period (22.217) (4.399)
Basic and diluted earnings per share from continuing operations (0,47) 0,08

(1) Adjusted Operating Profit / Operating profit/(loss) are non-GAAP measures. Adjusted EBITDA is calculated as Adjusted Operating Profit (Loss) adjusted for depreciation and amortization charges.

7.2. Consolidated Statement of Financial Position

(€ thousands) Note 30 June 2020 31 Dec 2019
Property, plant and equipment 327.263 337.594
(Of which IFRS 16 related right-of-use assets) 41.107 42.072
Land and buildings 181.728 186.173
Plant and machinery 133.688 138.807
Other fixtures and fittings, tools and equipment 11.848 12.614
Goodwill 196.619 195.991
Other intangible assets 10.117 10.357
Deferred income tax assets 9.387 11.191
Trade and other receivables 1.023 1.121
Total non-current assets 544.410 556.253
Inventory 136.127 152.948
Derivative financial instruments 650 3
Trade and other receivables 45.462 58.379
Current income tax assets 34 908
Cash and cash equivalents 87.504 19.241
Total current assets 269.777 231.479
Total assets 814.187 787.732
Share capital 252.950 252.950
Share premium 65.660 65.660
Other comprehensive income (42.491) (37.113)
Retained earnings 1.491 18.343
Other reserves (39.876) (39.876)
Total equity 237.733 259.964
Senior Secured Notes 232.250 232.001
Senior Term Loan Facility - -
Bank and Other Borrowings 82.902 48.963
Of which IFRS 16 related lease liabilities 35.054 37.318
Deferred income tax liabilities 36.451 41.004
Provisions for other liabilities and charges 2.800 2.729
Employee benefit obligations 3.798 4.106
Total non-current liabilities 358.201 328.802
Senior Secured Notes 3.341 3.425
Senior Term Loan Facility - 34.927
Bank and Other Borrowings 84.603 8.680
Of which IFRS 16 related lease liabilities 7.992 7.357
Provisions for other liabilities and charges 50 164
Derivative financial instruments - 413
Other payroll and social related payables 42.837 36.995
Trade and other payables 82.816 109.019
Income tax liabilities 4.604 5.343
Total current liabilities 218.252 198.966
Total liabilities 576.454 527.768
Total equity and liabilities 814.187 787.732

7.3. Consolidated Statement of Cash Flows

(€ thousands) H1 2020 H1 2019
I. CASH FLOW FROM OPERATING ACTIVITIES
Net profit / (loss) for the period (16.838) 2.773
Adjustments for:
Income tax expense/(income) (1.121) (476)
Finance income (80) (190)
Financial expense 13.802 12.698
Depreciation, amortisation (incl. depreciation of IFRS 16 right-of-use
assets - as from 2019) 19.877 19.370
(Gain)/loss on disposal of non-current assets 67 (38)
Movement in provisions and deferred revenue (114) (852)
Fair value of derivatives (473) (14)
Cash generated before changes in working capital 15.120 33.271
Changes in working capital:
Inventories 15.994 (3.482)
Trade receivables 11.704 (5.207)
Trade payables (23.974) 2.313
Other working capital 4.252 (5.010)
Cash generated after changes in working capital 23.096 21.885
Net income tax (paid) (2.956) (1.565)
Net cash generated / (used) by operating activities 20.140 20.320
II. CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (10.927) (13.984)
Acquisition of intangibles (879) (253)
Proceeds from non-current assets - 2.282
Acquisition of subsidiary - -
Net cash used by investing activities (11.806) (11.955)
IIII. CASH FLOW FROM FINANCING ACTIVITIES
Interest and other finance charges paid, net (11.991) (11.337)
Proceeds from borrowings with third parties 114.117 -
Proceeds from capital contributions - -
Repayments of Senior Term Loan Facility (35.019) -
Repayments of borrowings with third parties (incl. IFRS 16 lease liabilities -
as from 2019) (7.178) (4.140)
Dividends paid - -
Net cash generated / (used) by financing activities 59.929 (15.477)
NET INCREASE/ (DECREASE ) IN CASH AND BANK OVERDRAFTS 68.263 (7.112)
Cash, cash equivalents and bank overdrafts at the beginning of the period
19.241 26.853
Cash, cash equivalents and bank overdrafts at the end of the period 87.504 19.741

7.4. Consolidated Statement of Changes in Equity

(€ thousands) Share
capital
Share
premium
Other
comprehensive
income
Retained
earnings
Other
reserves
Total Non
controlling
interest
Total
equity
Balance 31 December 2018 252.950 65.660 (33.388) 9.458 (39.876) 254.804 - 254.804
Adoption of accounting policies - - - (1.530) - (1.530) - (1.530)
Balance 1 January 2019 252.950 65.660 (33.388) 7.928 (39.876) 253.274 - 253.274
Profit / (loss) for the period - - - 10.401 - 10.401 - 10.401
Dividends paid - - - - - - - -
Equity-settled share-based payment plans - - - 15 - 15 - 15
Other comprehensive income
Exchange differences on translating foreign
operations
- - (2.133) - - (2.133) - (2.133)
Changes in fair value of hedging instruments
qualifying for cash flow hedge accounting
- - (245) - - (245) - (245)
Cumulative changes in deferred taxes - - 393 - - 393 - 393
Cumulative changes in employee defined
benefit obligations
- - (1.740) - - (1.740) - (1.740)
Total comprehensive income for the
period - - (3.725) 10.416 - 6.691 - 6.691
Balance at 31 December 2019 252.950 65.660 (37.113) 18.343 (39.876) 259.964 - -
259.964
Profit / (loss) for the period - - - (16.838) - (16.838) - (16.838)
Equity-settled share-based payment plans - - - (14) - (14) - (14)
Other comprehensive income
Exchange differences on translating foreign - - (5.970) - - (5.970) - (5.970)
operations
Changes in fair value of hedging instruments - - 568 - - 568 - 568
qualifying for cash flow hedge accounting
Cumulative changes in deferred taxes - - (99) - - (99) - (99)
Cumulative changes in employee defined - - 122 - - 122 - 122
benefit obligations
Total comprehensive income for the - - (5.378) (16.852) - (22.231) - (22.231)
period - -
Balance at 30 June 2020 252.950 65.660 (42.491) 1.491 (39.876) 237.733 - 237.733

7.5. Selected Explanatory Notes to the Condensed Consolidated Interim Financial Statements

7.5.1.Significant Accounting Policies

These consolidated condensed interim financial statements for the six months ended June 30, 2020 have been prepared in accordance with IAS 34 Interim financial reporting. They do not include all the notes that are normally included in an annual report. Accordingly, this report is to be read in conjunction with the annual report for the year ended December 31, 2019 and any public announcements made by the Balta Group during the interim reporting period.

The amounts in this document are presented in thousands of euro, unless otherwise stated. Rounding adjustments have been made in calculating some of the financial information included in these consolidated condensed interim financial statements.

The accounting policies are consistent with those of the previous financial year and corresponding interim period, except for the adoption of new and amended standards as set out below.

New and amended standards adopted by the Group

The following new standards, amendments and interpretations to standards have been issued, but have not been endorsed by the European Union or are considered to have a limited and not significant impact on the financial statements of 2020. The Group intends to adopt these standards and interpretations if applicable and considered to be significant, when they become effective.

  • o Amendments to Refences to the Conceptual Framework in IFRS Standards (effective 1 January 2020).
  • o Amendments to the guidance of IFRS 3 Business Combinations, that revises the definition of a business (effective 1 January 2020).
  • o Amendments to the definition of material in IAS 1 and IAS 8 (effective 1 January 2020).
  • o Amendments to IFRS 9, IAS 39 and IFRS 7 (effective 1 January 2020).
  • o IFRS 17 insurance contracts (effective 1 January 2022).

7.5.2.Segment Reporting

Segment information is presented in respect of the Company's business segments. The performances of the segments is reviewed by the chief operating decision maker, which is the Management Committee.

Previous
reported
(€ thousands) H1 2020 figures (1)
Revenue by segment 266.382 351.413
Rugs 84.322 119.786
Commercial 100.474 116.413
Residential 72.787 100.622
Non-Woven 8.799 14.592
Revenue by geography 266.382 351.413
Europe 141.493 214.534
North America 110.967 116.046
Rest of World 13.921 20.834
Adjusted EBITDA by segment 18.257 37.269
Rugs 1.049 9.160
Commercial 13.927 19.205
Residential 3.082 7.871
Non-Woven 200 1.033
Net capital expenditure by segment 11.806 11.955
Rugs 3.347 4.919
Commercial 3.078 3.186
Residential 5.188 3.589
Non-Woven 193 261
Inventories by segment 136.127 152.948
Rugs 56.931 70.301
Commercial 38.610 37.144
Residential 36.549 41.473
Non-Woven 4.036 4.030
Trade receivables by segment 38.346 50.192
Rugs 10.120 15.011
Commercial 18.034 22.826
Residential 9.514 11.594
Non-Woven 679 760

Note 1: For Revenue, Adjusted EBITDA and Capital Expenditure, the previous reporting period refers to June 30, 2019. The previous reported period for Net Inventory and Trade Receivables refers to December 31, 2019.

7.5.3.Integration and Restructuring Expenses

The following table sets forth integration and restructuring expenses for the period ended June 30, 2020 and 2019. This comprises various items which are considered by management as non-recurring or unusual by nature.

(€ thousands) H1 2020 H1 2019
Integration and restructuring expenses 2.618 3.093
Corporate restructuring 1.206 41
Business restructuring 1.650 3.393
Other (239) (341)

Integration and restructuring expenses over the first six months of 2020 amounted to €2.6m, as compared to €3.1m in the same period last year. The integration and restructuring expense of 2020 is mainly driven by one-off costs related our NEXT program and non-recurring advisory services.

7.5.4.Goodwill

The goodwill increased by €0.6m from €196.0m as of December 31, 2019 to €196.6m as of June 30, 2020. The increase in goodwill reflects the changes in foreign exchange rate from the US dollar to euro from the date of acquisition of Bentley. The related foreign exchange fluctuations are presented in other comprehensive income.

Due to the unprecedented COVID-19 pandemic the company has reviewed it's long term plan. Based on this, the company performed an impairment analysis which did not trigger the need for a goodwill adjustment.

7.5.5.Net Debt Reconciliation

The following table reconciles the net cash flow to movements in net debt:

Liabilities from financing activities Cash and
Cash
equivalents
(€ thousands) Senior
Secured
Notes due
after 1 year
Senior
Secured
Notes due
within 1
year
Senior
Term Loan
Facility
due after 1
year
Senior
Term Loan
Facility
due within
1 year
Lease
liabilities
due after 1
year
Lease
liabilities
due within 1
year
Super
Senior RCF
Bentley
RCF
Total gross
financial debt
Cash and
Cash
equivalents
Total net
financial
debt
Net debt as at 31
December 2019
(234.900) (5.360) - (35.019) (48.963) (8.680) - - (332.923) 19.241 (313.681)
Cashflows - - - - - - - - - 68.263 68.263
Proceeds of borrowings
with third parties
Business combinations
-
-
-
-
-
-
-
-
(38.008)
-
(3.992)
-
(56.042)
-
(16.074)
-
(114.117)
-
-
-
(114.117)
-
Foreign exchange
adjustments
Repayments of
- - - - - - - - - - -
borrowings with third
parties
Other non- cash
- - - 35.019 - 7.178 - - 42.197 - 42.197
movements - - - - 4.069 (6.992) - - (2.923) - (2.923)
Net debt as at 30 June
2020
(234.900) (5.360) - - (82.902) (12.487) (56.042) (16.074) (407.765) 87.504 (320.261)

The net debt at the end of H1 2020 amounts to € 320.3m, slightly higher compared to Q4 2019. The table above does not include the movements in capitalized financing fees, or the interest paid.

On 21 January 2020, the Group announced the early redemption of the €35.0m Senior Term Loan Facility.

7.5.6.Related Party Transactions

The related party transactions with shareholders and parties related to the shareholders have not substantially changed in nature and impact compared to the year ended December 31, 2019 and hence no updated information is included in this interim report.

The remuneration of key management is determined on an annual basis, for which reason no further details are included in this interim report.

7.5.7.Commitments

There is no significant evolution to report in terms of commitments. Please refer to Note 38 'Commitments' in the IFRS Financial Statements of the 2019 annual report.

7.5.8.Events After the Statement of Financial Position Date

No subsequent events occurred which could have a significant impact on the interim condensed financial statements of the Group per June 30, 2020.

7.5.9.Going concern

We have responded on the worldwide pandemic as disclosed in the annual report (e.g. full drawing of the RCF, renegotiated covenant compliance amendment) as well as assessing and anticipating potential effects on our liquidity and creditworthiness.

Net leverage was 5.9x at the end of June 2020, well inside the covenant. In April 2020, we successfully reached a precautionary agreement with our majority lending banks under the €61m Super Senior Revolving Credit Facility to adjust the covenant calculation for the impact of COVID-19 through to the second quarter of 2021. The company has made great efforts to save cost and preserve cash, in order to mitigate the negative impacts of the pandemic, while taking actions to protect the employees. Balta will continue to adjust its mode of operations to the changes in the external environment.

Based on the above mentioned risk factors, we are currently forecasting our existing cash on hand and cash flow to be sufficient to support our business through the production ramp-up.

8. Glossary: Alternative Performance Measures

The following alternative performance measures (non-IFRS) have been used as management believes that they are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. The alternative performance measures may not be comparable to similarly titled measures of other companies, have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results, our performance or our liquidity under IFRS.

Organic Growth is defined as growth excluding (i) FX impact, which comprises the translation of key foreign entities, (ii) M&A impact and (iii) the impact of IFRS16. Note that as from 1 January 2019 onwards, the calculation of the FX impact changed, whereby transactional FX impacts are no longer taken into account under FX impact.

Adjusted EBITDA is defined as operating profit / (loss) adjusted for (i) the impact of the purchase price allocation mainly on change in inventories, (ii) gains on asset disposals, (iii) integration and restructuring expenses, (iv) depreciation / amortization and (v) impairment and write-off.

Gross Debt is defined as (i) Senior Secured Notes adjusted for the financing fees included in the carrying amount, (ii) Senior Term Loan Facility adjusted for capitalized financing fees and (iii) Bank and other borrowings adjusted for capitalized financing fees.

Net Debt is defined as (i) Senior Secured Notes adjusted for the financing fees included in the carrying amount, (ii) Senior Term Loan Facility adjusted for capitalized financing fees, (iii) Bank and other borrowings adjusted for capitalized financing fees and (iv) cash and cash equivalents.

Leverage is defined as the ratio of Net Debt to Adjusted EBITDA (excluding IFRS16 as per financing documentation).

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