Interim / Quarterly Report • Aug 28, 2020
Interim / Quarterly Report
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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 |
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 |
| (€ 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) |
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).
"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."
| 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% |
| 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 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:
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.
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.
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.
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.
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.
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.
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.
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%.
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.
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).
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.
| (€ 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.
| (€ 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 |
| (€ 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 |
| (€ 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 |
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.
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.
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.
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.
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.
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.
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.
No subsequent events occurred which could have a significant impact on the interim condensed financial statements of the Group per June 30, 2020.
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.
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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