The Group’s consolidated earnings in the first nine months of this year were dented by the inflation of costs suffered by the North American rice business (some general affecting the entire market, others extraordinary and specifically affecting us) and the huge outlay to develop the Group’s expansion plan. In this context our EBITDA, or gross operating profit, totalled €211.5 million, 18.9% less than the same period of 2017, with a net profit of €99.7 million, down 22.1% year on year.
On a positive note, the Group’s net turnover rose 5% to €1,922.2 million, boosted by the excellent performance of our brands and in spite of the fall in the dollar exchange rate, which produced a negative impact of €42 million.
Net debt totalled €719.4 million, €265 million more than in the first nine months of 2017, after the acquisition of the fresh pasta company Bertagni for €145 million, the investment of €14 million in France for the new Panzani headquarters, the heavy investment in organic growth in Thailand, Italy, India, UK, USA and France, and the increase in working capital in both divisions for sourcing raw material, owing to the lower prices recorded in the recent campaign.
Core businesses
Rice
In contrast to the record results obtained earlier, the division was hit, especially in North America, by a number of extraordinary factors such as:
1. The higher prices of auxiliary (packaging) and agricultural raw materials, especially jasmine rice from Thailand, although also basmati and American rice; Riviana was particularly hard hit by those price hikes, owing to the time lag in passing them on to the end product.
2. The extraordinary rise in US logistics costs due to the lack of hauliers and the higher fuel prices.
3. The situation of full employment in the US, as a result of which there is a shortage of labour throughout the country, pushing up pay costs. This is especially severe at our Freeport (Texas) plant, owing to the strong growth of the petrochemical industry in the area.
4. Commencement of the expansion of our facilities in Bangkok, which hampers normal sourcing.
5. The high risk of drought at the beginning of the year in Europe, forcing us to source raw materials in a context of rising prices.
6. The high industrial costs deriving from the start-up of new microwave lines in both the USA and Spain.
Nevertheless, the above-mentioned circumstances did not affect the volume of our sales, which continued to grow, particularly in the microwave, aromatic and organic lines.
The European business also maintained a positive trend, repeating the excellent results of the previous year and maintaining its EBITDA.
The division posted a turnover of €1,038.5 million and EBITDA of €118.1 million.
Pasta
The division has hedged its raw material supplies for both the USA and Europe for the rest of the year.
In France, where Panzani’s sales had grown in the first half of the year, they fell in July and August as consumption wilted in the heat. The situation returned to normal as from September.
Garofalo maintained its large outlay to establish the brand in France, where it has already cornered 35% of the market in premium pasta in Spain, with double-digit growth, and the USA.
In the North American business, the measures taken to build up the value attributes of its brands are starting to bear fruit and their market shares are growing, especially in the core pastas.
The division posted a turnover of €929.9 million and EBITDA of €101.3 million.
Full year outlook
Ebro anticipates a full-year turnover of €2,633.7 million for 2018, up 5.1% on 2017. EBITDA is forecast at €304.8 million, down 15.1% year on year. And net profit is expected to fall 32.8% to €148.2 million. It should be borne in mind that net profit rose considerably in 2017 in the wake of the US tax reform, which gave the Group an extraordinary income of €56.5 million.
A difficult year, with our sights set on the future
The consolidated results for the first nine months of the year and the estimated full-year results reveal the difficult circumstances that the Group has faced, especially in its North American rice subsidiary. But at the same time they confirm: (1) the good health of the Group’s businesses; (2) the strength of our principal brands, which maintain their leadership and continue to increase their market shares, demonstrating consumers’ appreciation of our products; (3) the progressive recovery of our North American pasta business, which has rebounded after several complicated years; and (4) the strength of our European rice business, which has repeated the success it achieved last year even though the scenario is more difficult now.
All this, together with an ambitious cost restructuring plan that we have begun to implement in the United States and the returns we expect to obtain on the investments made in CAPEX over the past three years, will be the pillars on which we will build our business in 2019.
