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IVS Group Half Year Financial Report shows significant growth

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GRAND DUCHY OF LUXEMBOURG – The Board of Directors of IVS Group S.A. (Milan: IVS.MI), convened on August 29th, 2016, reviewed and approved the Half Year Financial Report as of June 30th, 2016, showing a significant growth of the group’s results.

Highlights

Consolidated Revenues: Eur 183.1 million, +5.6%, compared to June 30th, 2015. (+4.9% as of March 2016 vs March 2015)

Adjusted EBITDA 2: Eur 43.6 million, +5.8% compared to June 30th, 2015, with an EBITDA margin on sales of 23.8%.

Group Net Profit: Eur 9.3 million (after profits attributable to minorities of Eur 0.7 million), from Eur 8.5 million as of June 30th, 2015. Adjusted Net Profit of Eur 10.0 million (after minorities) from Eur 7.5 million as of June 30th, 2015 (restated), +32%.

Net Financial Position: Eur -228.2 million, from Eur -230.8 as of December 31st, 2015 (-233.1 as of March 31st, 2016), after payments in the first six months of Eur 31.4 million related to investments in fixed assets and acquisitions and payments for Eur 8.9 million related to the early redemption of the notes 7.125% due 2020, occurred on April 1st, 2016.

Completed in the first half 13 new acquisitions in Italy and France for an enterprise value of around Eur 8.4 million.

IVS Group S.A. is the Italian leader and the third player in Europe in the business of automatic and semi-automatic vending machines for the supply of hot and cold drinks and snacks (vending).

The business is mainly carried out in Italy (85% of sales), France, Spain and Switzerland, with around 155,300 vending machine, a network of 76 branches and around 2,400 employees. IVS Group serves more than 15,000 corporate clients and public entities, with more than 700 million vends per year.

Operating performance

In the first six months of 2016 consolidated revenues amounted to Eur 183.1 million (of which Eur 168.9 million related to the core vending business), with an increase of 5.6% compared to June 30th, 2015 (Eur 160.2 million in vending), with an increase of first commercial margin of 4.4%.

Revenues in the vending business increased by 5.6% in Italy, by 5.2% in France, by 4.4% in Spain and decrease by 9% in Switzerland (still very small in absolute size). The coins management business sales (Coin Service division) increased by 17.6%.

The sales increase in the vending business in the first half comes from the consolidation of the acquisitions, but also from the organic growth as an effect of average price, increased of around +0.8% compared to first half of 2015.

Sales, on a likefor-like basis (excluding acquisitions) grew by 1.1% and by 1.8% excluding the OCS-Office Coffee Service segment; like-forlike volumes, grew by 0.5% excluding OCS and decreased by 0.2% including OCS.

The OCS segment shows a 9.5% decrease in sales and 9.2% in volumes and is quite less important for IVS Group (less than Eur 9.5 million total sales in the first half of 2016), which is on the contrary growing in the on-line sales of coffee pods, through the 50% controlled (and consolidated at equity) Cialdamia in Italy and MB Web in France (controlled by Cialdamia), with more than 8.3 million of coffee pods sold in the first half of 2016.

Sales and volumes still show the uncertainty of the recovery trend in the Italian economy, but IVS proved in the meantime its capacity to win new contracts, with an acquisition rate of new client much higher than the churn rate (clients lost).

The total number of vends in the first half of 2016 was equal to 368 million, +4.5% compared to 2015. CoffecApp, the mobile app developed by the controlled company Venpay, showed in the first half of 2016 an increase of registered users of 460% and of 540% of sales compared to December 2015; the instalment of the App on an increasing number of vending machines is therefore envisaged.

During the first six months of 2016 were completed 13 acquisition of business in Italy and France, with an Enterprise Value of around Eur 8.4 million.

Adjusted EBITDA increased by 5.8% compared to the first six months of 2015, from Eur 41.2 million to Eur 43.6 million (23.8% margin on sales).

The increase of EBITDA does not come from the higher sales related to the acquisitions, whose integration into the group, after a first verification period, is usually completed in 10-12 months, but rather from the increase of the commercial margin and the on going savings on operating costs (purchases, labour, services).

Recent internal reorganisation, which included – inter alia – the direct responsibility of the parent company on the purchasing, ownership and renting activity of the vending machines to the other controlled companies, determined a reduction of margins in France
and Spain and a corresponding increase in Italy (Eur 0.5 and 0.4 million respectively).

Group Net Profit in the first six months of 2016 is equal to Eur 9.3 million (after profits attributable to minorities of Eur 0.7 million).

Net profit includes some non cash and extraordinary items. The Net Profit Adjusted for the extraordinary items is equal to Eur 10.0 million (after minorities), increased by 32% from previous Eur 7.5 million of the first half of 2015.

It must be remembered that interest costs in the first part of the year were affected by the overlapping of the interests matured on the new Eur 240 million notes issued on November 2015, due 2022, and the previous Eur 250 million bond, due 2020,
which was redeemed at the end of the first quarter 2016 (at 103.5% of par), as the redemption option could not be conveniently exercised before 1 April 2016.

The extra interest cost of such overlapping during the quarter was equal to around Eur 4.5 million. Consequently, in the second quarter, as expected, the company started to take advantage of the lower interest rate on the existing bond (4.5%) compared to the old one (7.125%) redeemed on April 1st, 2016.

Net Financial Position, equal to Eur -228.3 million, from Eur -230.8 million as of December 31st, 2015 (Eur -233.1 million as of March 31st, 2016), after payments for net investments in the first half of Eur 31.4 million (of which Eur 21.3 million for net investment in fixed assets – including payments related to investment done in previous quarters – and Eur 10.1 million for acquisitions).

The increase of capex in fixed assets is linked to the acquisition of new important clients, to the development of the new electronic payment systems and mobile phone Apps and to the instalment of new type of vending machines (type of coffee cycle and larger size and flavour mix) which are proving their effectiveness, in terms of commercial penetration and profitability.

The Net Financial Position is also affected by the costs related to the early redemption of the notes 7.125% due 2020, for an amount of around Eur 8.9 million.

The group has approximately Eur 11.8 million of residual VAT credit versus the Italian revenue service.

Other significant events occurred after June 30th, 2016 and prospects for the full year

The first half of 2016 has seen a gradual recovery and a stabilisation of volumes (net of the effects in the OCS segment) compared to the previous years of crisis; it is expected that this trend might continue for the remaining part of the year, although the summer 2016 did not have the same high temperature, favourable to beverage consumptions, as instead happened in 2015.

In this scenario IVS Group could take advantage of the on going development of the product mix.

Innovation, constantly developed by the group, will support the development of new products and services; the mobile phone Apps and the new generation of vending machines, developed by IVS jointly with the manufacturers, are already showing very encouraging and positive results.

The growth strategy will remain focused on new acquisitions, aimed at improving logistic efficiency and service quality in a highly fragmented sector, with thousands of small and mid sized players; a relevant increase of the acquisitions opportunities is expected as a result of new tax rules for the vending sector (certification of sales).

That will be in force since the beginning of 2017, for which on 30 June 2016 application decrees were issued by the Italian revenue service, so starting the count-down for the application of the new tax rules IVS Group will actively pursue also growth opportunities outside Italy, having reached in several areas a position and operating capacity on which could be based additional scale-up in size and performances.

The financial strategy of the group, after the successful issue of the new notes (available also to retail investors) and the early redemption of the previous high-yield bond, will allow significant interest costs savings, in part already present in the second quarter 2016, and which will fully appear in the next quarters.

Thanks to its high cash-flow generation, the group is considered by banks as a very reliable counterpart, with additional access to medium term facilities, and with significant and flexible sources of financing for new investments, at very interesting conditions.

On June 2016 the subsidiary IVS Italia was notified the decision and the fine of the Italian Antitrust Authority (IAA) with reference to the investigation started on July 2014 on the 14 major Italian players in the vending industry, in relation to which the group had already posted an adeguate provision in 2015 Annual Report.

The company is now preparing all the actions necessary to be presented, against the IAA decision, in the relevant Court levels.

2 “Adjusted EBITDA’’: is equal to operating income, increased by depreciation, amortisation, write-downs, non-recurring costs and
exceptional in nature.

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