El Rhazi - Greetings and welcome to the Amira Nature Foods? Fourth Quarter and Full Year Fiscal 2015 Annual Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this convention is being recorded.
I would now like to turn the convention over to your host Ms. Katie Turner of ICR. Thank you. Please begin.
Good morning and welcome to Amira Nature Foods fourth quarter and fiscal year 2015 earnings convention call. Speaking on the call today are Karan Chanana, Amira?s Chairman and Chief Executive Officer; and Bruce Wacha, Amira?s Chief Financial Officer. By now everyone should have access to the earnings release, which went out this morning. The earnings release and the earnings presentation are available on the Investor Relations portion of the Company?s Web site at www.amira.net. This call is being webcast and a replay will also be available on Amira?s Web site.
Before I begin, we like to remind everyone that prepared remarks contain forward-looking statements, and management may make extra forward-looking statements in answer to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company?s control that could cause its future results, performance or achievements to vary significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks detailed in the company?s public filings Amir along the Securities and Exchange Commission and those mentioned in today?s earnings release. Except as required by law the company undertake no obligation to update any forward-looking statements herein or as a result of new information, future events or otherwise.
Also, in the company?s earnings release and in today?s prepared remarks, the company will reference adjusted EBITDA, adjusted profit after tax and adjusted earnings per share. These are non-IFRS financial measures. A reconciliation of non-IFRS measures to the most directly comparable IFRS financial measures is included in the company?s press release.
And Amir along that, I?d like to turn the call over to Karan Chanana, Amira?s Chairman and Chief Executive Officer.
Thank you, Katie and thank you to our many investors and equity analysts who have joined us on this call on this morning to discuss our fourth quarter and fiscal year 2015 results. We?re very excited to near out our fiscal year and it?s been an eventful one. For starters, 2015 is a 100-year anniversary and as some of you must have seen us on television last month when we rang the closing bell at the New York Stock Exchange or even joined us in person at the exchange where we held a celebration in the honor of the next 100 years.
Going ahead, we are glad to announce that in this fiscal year, we have achieved more than we set out to do. For both the full year and the fourth quarter, we grew revenue, adjusted EBITDA and adjusted EPS at double-digit rates. We finished 2015 with $699 million of revenue, 99.5 million in adjusted EBITDA and $1.51 in adjusted EPS, all of which up more than 25% for the full year.
Our revenue's adjusted EBITDA exceeded our initial guidance of 20% growth as well as our revised guidance of 25% growth for the full year. So we beat our guidance. We continue to close in on our goal of $1 billion in revenue and 150 million of adjusted EBITDA within five years of our IPO and I believe we're just getting started. We?re seeing revenue growth from all around the world. We?re also seeing signs of continued strength in our smaller but rapidly expanding developed world business.
Coming to India business, which has benefited from a combination of macro conditions; the trade-up of the center class, expansion of the contemporary business channel, both of which are creating demand for our core rice offerings. The Indian economy is doing very well under the new administration. The GDP forecast calling for its 7.5% growth going forward. Separately, we?re seeing traction in our new product launches in India and benefits of our food rollout of the 15 company managed distribution centers, which have brought us closer to the end markets throughout the Indian subcontinent.
Our emerging markets business has benefited from increased volumes as we continue to grow along with our third-party existing branded customers and add new geographies and expand the Amira brand. And this has been a great year for our developed world business. We entered into relationships in the UK, Europe and the United States. In the UK, we are in now 4 out of 5 big retailers, so we are in Asda, Morrisons, Tesco and Waitrose. And as a matter of fact, we believe we are the largest brand in Morrisons by a mile.
In the Europe, we have more than a full year of operations of our German business which we acquired in January '14 and we are leveraging the footprint. We also have added to our presence and our products are now sold in Bilka, Fotex and Netto in Denmark.
Finally coming to the US, we made great strides this year in terms of adding distribution and I believe, like I said, we've just about got started. We already had a great team in place and we've added to that. We?ve announced new relationships with CROSSMARK, UNFI and National in the early calendar of 2015. We now have the correct building blocks in place to continue our growth in the business and we have followed up with new distribution winds with our products which are better than everywhere else and bringing them to shelves near you. So, we are at Mariano's, Publix, Jewel-Osco, Gelson?s and Amazon for example in the US.
I know many of you have questions about the Basmati crop trends. First of all, we believe the long term trajectory of increased demand for our products portfolio will continue. We just happen to be in a great category. The business is also expected to increase pricing over a long term for both raw material paddy and for finished product. With that said, it?s never a straight line and we do expect there to be years like the new one where we saw our input cost relief to us and that's actually a good thing. The result is that when appropriate some of the savings are parceled to the consumer and this typically creates an surroundings for increased volumes across the provide chain and still has the margins for us.
As far as the next crop year is concerned, it?s a little too early to predict. However, I must say that the monsoon has arrived well in India and we will know how it goes along in the near future. And we are shortly to update you on that. So we remain self-assured in our business and see forward to another positive year to come. Now I'd like to turn it over to Bruce, so that El Rhazi can walk you through some of the numbers in more detail.
Thanks Karan and thank you to everyone for joining us this morning. It?s a pleasure to be here today to discuss our results. First, I will walk you through the full year results, next the fourth quarter highlights and then the overall health of the business before finally turning it over to the Q&A portion of the call. I will be referencing the investor presentation which you should be able to find posted on our Web site.
So, we're getting with Page 6 our full year results. As Karan noted earlier, revenue is $699.4 million, up 152 million or 27.8% from last year and above our revised guidance of 25% for full year growth. In terms of revenue, we saw continuation of volume as a primary driver of growth, but we also benefited from a continued trade-up effect which positively impacted mix. India sales were up 28% for the quarter, international sales up 27.7%. Amira branded and third-party branded were up 38.6%, while sales of our more opportunistic institutional business were 36.9 million compared to 69.4 a year ago. Adjusted EBITDA came in at just under 100 million, 99.5 for the quarter and margins were 14.2%, up 40 basis points from 13.8% a year ago. Adjusted EPS was $1.51 for the years, up more than 30% from $1.14 a year ago.
Now moving to Page 7. As you can see, we reported another quarter, our levels actually since IPO of double-digit revenue, adjusted EBITDA and adjusted EPS growth. Revenue was up 22% to 226.8 million, adjusted EBITDA up 25% to 33 million and adjusted EPS up 11% to $0.52 per share, all record numbers for the quarter. On the top of Page 8 on the left, you can see that the Amira brand and our third-party brand contribute to about 95% of overall sales, while our more opportunistic institutional business accounted for about 5% of sales. Over the right, India was about 41% of sales, rest of the world 59%.
Quickly on Pages 9 and 10, as Karan mentioned earlier, we have added to our diverse customer mix during the course of the years, while also reaching our goal of establishing 15 company managed distribution centers in India compared to just one at the time of IPO.
Moving to working capital on Page 11. As you can see, inventory is up slightly in dollar terms, for about 37% of full year 2015 sales. Karan just described the cash crop season as one of input cost relief and this is an example of how it materializes across our financials.
Page 12; key capital structural items, we finished the years with 2.1 times debt to adjusted EBITDA and net debt to adjusted EBITDA of just 1.6 times, consistent with the low leverage ratios that we have maintained since going public.
On Page 13, as a reminder, our leverage levels have come down nicely over the past few years, while our interest coverage ratios are also strong at approximately 3 times. And on the backside right, you can see that our leverage is much lower than that of many of our mid-cap and large-cap traded quick gears in the United States.
Page 14 is a reminder of how far we have come in these past 2.5 years since going public, increasing sales from 342 million to almost 700 million today, adjusted EBITDA from 41 million to almost 100 million today. There are very few companies across the broader consumer landscape with a track record anything like ours.
Now finally, I?d like to pause on the outlook page before moving to Q&A. As you can see from the far correct side, we remain on track to hit our long-term target of $1 billion in sales and $150 million in adjusted EBITDA within five years of the IPO and we expect to receive there -- we expect to see double-digit revenue growth and adjusted EBITDA in the coming year.
[Operator Instructions] Our first question comes from the line of Amit Sharma with BMO Capital Markets. Please proceed with your question.
Bruce, couple of modeling questions and then a couple of questions for Karan as well. The tax rate for the quarter, Bruce, we came up with above 14%, is that lower than usual?
I would suggest looking at -- we?ve been guiding towards a 20% tax rate. If you remember couple of quarters back this was a little bit lower, balanced out for a year, sort of in line with where we expect.
And then receivables were up beautiful nicely in the quarter. Is there anything uncommon about that or it?s just the inventory stuff?
No, nothing really unusual, I would look at the long-term trends and see where we are from a percent of sales and slightly up but not, nothing unusual.
And then Karan you mentioned you?re expanding beautiful nicely in third-party business or the Middle-East business. You also talk about new geographies and Amira brand is expanding there as well. Can you provide a little bit more color around that please?
Yes, I think we all know that what?s happening in the Middle-East with the new deals going to happen. So I think that?s a bucket which is a sizable market we have not addressed properly. We look forward to doing that, adding new geographies around that region and growing from there.
And I think you widely opt your third-party business. Many investors think of that business something similar to the low margin core pack business and many of your peers have here. Can you please talk about -- just compare and contrast how your third party business differs from that in terms of sustainability, visibility and most importantly a margin structure?
Good question Amit and so here is what our third-party business really is. The third-party business dates back to three decades. This is as the bedrock of our foundation of our relationships internationally. Third-party business is not private label. It is to individual brands and distributors across the world, who want to put their name on the pack and because they carry a lot more than just rice. We?ve had these relationships, some of them dating back to the early 80s and still continuing. What this enables us to do clearly is understand the destination market of the third-party consuming brand, the nuances of the consumers, what?s consumed when, how and where. So roots to market. And let?s not forget we?re in a highly fragmented category. So we take these learning and then bring up the Amira brand in the alike markets without a conflict. Because fragmentation has led to fragmentation in market shares and focus as well for others. So our third-party business is the foundation which enables the Amira brand and Amira as a company to grow in a low risk, high growth environment and we continue to do that. So this cannot be -- it?s a unique business, it?s a good margin business, lends us to learn new markets without having the risk of burning up or anything which other companies and other industry would have to do and do new learnings. I?ve spoken about the same a lot of times. So this is actually an Amira advantage, where we do the third-party and the Amira brand both enabling both to grow.
You say good margins, are those margins comparable to your branded segment might be producing in India?
Good question. Now, provided we look at the investor presentation on our Web site, we have the Amira pyramid page there. So the Amira brand operates in a manner maybe the best money can buy, the premium, the value and the popularly price giving us the ability to move across the value chain and roots to market. The third-party branded works in a few buckets. So they are complementary to one and other. Now on the margin cycle, it?s comparable, but yes, the Amira brand gives us a higher margin naturally, because we control and we receive the last mile margin. So however, it?s a good business for us. It?s been our foundation. It enables Amira brand to go into new geographies and remains as the core and central of our growth and business.
And then just one quick one on the 2016 guidance; could you provide a little bit more detail around how much are you looking to be from the volume and price mix and as well as Amira versus third-party brands in terms of growth in top-line?
Our next question comes from the line of Akshay Jagdale with KeyBanc Capital Markets. Please proceed with your question.
Congratulations on a good quarter. So can you talk a little bit about the dynamics? You did talk about the input cost being down, can you just give us some general trends as to what the consumer is seeing as a result of that in the basmati rice market? So usually speaking, can you give us a sense of where prices are for basmati rice like in India and internationally, broadly? Like are they down 5% to 6%, and maybe just talk a little bit about what that?s doing to volumes because from my understanding the volumes in India for basmati rice as a category have picked up significantly as prices have come down retail which net-net might be a positive thing, but would love to receive your perspective on the dynamics of the price pass-through and what that?s doing to volume growth in India and also internationally, where internationally it seems like there?s less visibility, it?s hard to receive a gauge of how the overall international market is doing. So it?d be great to get your view on the price pass-through and what that?s doing to demand on the international side as well.
Akshay; fantastic question. And I think the answer is fairly simple and I?ll say them straight out. We've had input cost relief, yes; prices we?ve spoken about earlier are down 10% or so, but have been stable at that 10% to 15% down level. But you know what, very interesting is what is done to volume and product mix. Both in India and international what we?re seeing is a surge of volume. You saw a great testimony of that in end of December when we announced a repeat order from the same customer which was up in value which clearly represents volume as well. And that being a benchmark, we?re seeing similar matters happen across the world and interestingly I must tell you that in India for example there?s a trade-up happening, so our product mix has changed although the price is down. Similarly, internationally, the same thing has happened. The provide chain, when the prices a year and half ago had gone up, drastically compensated for their increased working capital requirements by keeping the volume flattish and have used this discount in input cost to increase volume because the long term trends for basmati rice is always going up. If you look at the last 5 year, 10 year, 15 year rotations, you will see price is going up in periodic level. So we have years like this which enable for volume growth which actually is at again the foundation of the growth of the basmati industry as prices soften in one odd year, more volume goes up, people trade-up, the mix changes and leads to continuous growth. So we?re very happy of the situation where prices went down 10% to 15% and have stayed there the product mix is changing, volumes are up significantly.
That?s helpful. Can you dive a little bit deeper into the mix issue? I?m not sure provided that?s a net positive for you and Archer, what?s happening on the mix side, so what are people doing eating more, higher quality varieties or give us a sense of what?s happening on the mix side?
So the mix is definitely positive for us and that was my understanding and explanation so just to repeat the mix is on the positive side. Yes, people are trading up. So in India people who are having basmati rice in a periodicity have increased their periodicity within the category people have traded up to a better quality and the same is happening internationally. So like we?re running a promotion currently in the UK and we?re one of the largest supermarkets and we?ve seen phenomenal answer out there. And so much so, that it?s been carried at one of the national dailies as well with our brand mentioned there. So any input cost relief across the channel enables volume growth of rapid leads and a trade-up. So we have seen a positive trade-up in product mix and a positive in our volume growth.
So your company is unique in my opinion relative to competitors in the basmati rice space and that it's very sales-lead, and that in my opinion translates into share gain both in India and abroad. So it's hard to look at your growth rates and say the category is growing and that I feel like you are exceeding the growth rates of the category overall. So with that being said though, is it your impression based on what you are seeing and what you just said that overall volume trends are accelerating in the category both, domestically and internationally. So overall category growth from a volume metric perspective is accelerating as a result of this price dynamic, is that a fair statement?
See the complete basmati industry globally, not just India, and not just [indiscernible] of India is slated to grow volume this crop year which you will see out in the coming financial years, that's what we are seeing. Now we are completely sales-lead. You have got that right. And the testimony of that is our management teams across the world. And if you look at our competition, they are very focused in markets where they are good at. We have followed a spread strategy and that is at the core of our growth. And then we are doing what we know best, both third party and the Amira brand together. That's I think what makes us unique moreover to everything else.
That's helpful. Now just on margins, I know there is, there tends to be some confusion on how we should be thinking about your business from a margin perspective. Now, you have been very clear about guiding on sales and EBITDA. I believe you do that because that's the way you manage the business. However, when you report the numbers, obviously there's gross margins, SG&A and all that stuff, but given that we don?t have the visibility into the mix of your business, isn?t it best to just think of your business from a sales and EBITDA and EBITDA margin basis and not worry as much about cogs and gross margins if I may? Is that a fair way to think about your business or would we be lacking something as we said that, because there's been some change in the trends on the gross margin side that have some investors concerned right? But I have always thought of your business from EBITDA margin basis and those margins have consistently gone up through cycles including this one where input costs are down. So can you just broadly talk a little bit about that topic?
Yeah. So you just spot on, the only way to look at our business is revenue and EBITDA margins. We, not only run the business that way, we are a IFRS company. So cogs and gross margin is for U.S. GAAP companies. So I would like to remind investors we are IFRS. As a result looking at our business the way we run it is the way we report it, it's revenue and EBITDA margins, and that's impact the correct way to look at it and is the correct barometer of our topline and backside line. Now you talk of visibility of our mix; we're consistently in almost a single product category. Now any further detailing has in the past lead us to come and bite us and our outgoing competitors have always used that against us. So as a result we can't be harming ourselves by giving more details out and then stumping our own growth. I think we give you a healthy detail of how we are running the business and where we are. So coming back to answering the question straight up, revenue, EBITDA is the only way to look at it and you've spot on correct on that.
Okay. And just last two for Bruce. So the long-term guidance, the absolute dollar numbers you have maintained since the IPO, you haven?t changed that, but clearly your growth rate so far has far exceeded what your targets were when you did the IPO, right. So as a result what is implied is to meet those targets, sales would have to grow 13%, EBITDA 15%. Do I have those numbers right? Like on a three years basis, to get to $1 and $150 million, the mass is 13% topline CAGR, 15% EBITDA CAGR. So there is some margin expansion that's implied that. Am I looking at that correctly, do I have that right? And can you just talk about broadly obviously that would be a deceleration from what you have been reporting in new years, but I think you are setting the bar appropriately given the larger base. But I just want to make sure we are not missing anything in terms of your view of category changing or anything of that sort.
Sure, great question. So first off, you are correct, you are running the CAGR mannequin correctly. Those are -- that's about what it would take you to get to a $1 billion in sales and 150 of EBITDA and that is what we guided to at the time of IPO margins that implies a 15% EBITDA margin which we think is a healthy way to look at the business. We do not really think of it as a deceleration of the business. We look at the business as -- we're modeling it to grow and we are forecasting it to continue to grow. I think it's a little bit more of the large-large numbers and so we have been adding $100 million $150 million a years in sales, when we started out with $350 million odd in sales that was a very large CAGR. But we still think we are going to continue to grow very nicely.
Okay. And just one last one. Can you give us an update on the balance sheet and the debt side, where you stand with your Indian consortium in terms of availability etcetera? It's never been an issue, obviously your leverage numbers are outstanding in a good way. Can you just talk about what the availability is, if anything is changed there and what the game plan as going forward?
Sure. So first one, we continue to have the beautiful conservative balance sheet. We are about two times debt to EBITDA, 1.6, 1.7 on a net debt basis with plenty of interest coverage. We are obviously always looking to optimize our cost to capital but we are quite happy with the balance sheet that we have today.
Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Good morning guys. This is Erika Eyala [ph] on for Rupesh. Thanks a lot for taking our questions. So I just wanted to begin with revenue. As we look at this quarter again, revenue meaningfully topped expectations. Can you maybe help us understand what contributed to the upside there, maybe versus your internal expectations?
Sure, great question. And we've been beautiful consistent in terms of how we looked at the growth model for the business. So generally speaking through the time since we have been public there's been both the healthy mix of price and volume or price of mix and volume. And then we have said generally speaking that's how we see matters going. There are going to be years like this year where there is input cost per lease which effectively means lower pricing on an absolute basis, although as Karan alluded to we had a healthy mix benefit. It is largely volume driven I think as we have discussed before in the most recent couple of quarters. Like I said there is mix as well as prices benefitting us and we think that the usual long-term trajectory of both the healthy balance of price mix and volume will continue in the future. So it's not surprising for us in terms of how it played out.
Now that's very helpful. And then just that we have touched a little bit on the Middle East, a little bit on India, maybe just moving on to the U.S. and UK, I intend with all the recent distribution gains kind of needing newer markets over the past several quarters, can you talk a little bit about the key matters that initiatives you have in place to drive velocity growth in these two particular markets going forward?
Sure, I will just get started on that and then maybe Karan can add to it. In the UK for example great progress late last year and then early in the years that just finished in terms of getting in the 4 out of the 5 large retailers. So that's a great model for what we are looking to do on a larger scale in the U.S. In US we already had a very nice business, largely, you know Costco restaurant depots, some smaller stores doing very nicely, but we significantly augmented that in terms of putting the building blocks together for future growth. And by that I intend that deals with CROSSMARK, with UNFI, and national, where we now have a greater ability to get the market. And we have seen all the distribution wins with Publix and some of the other stores as Karan mentioned earlier. We were very excited about that and so we think that creates one -- this current year that just finished, that we reported, distribution wins setting us up for revenue gains. Now Karan will talk a little more of the vision around that.
So in the UK I think this current year with the benefit of last year, I think we will growth year-on-year significantly. We are on four out of the five supermarkets and this will be the first full year in all of them. So, good growth to come from there, the products doing well, the brand is doing well, getting more recognition. I think the U.S. it's still early days, but we have clearly made some great strides. We got one of our organic skews now at Costco and more of the organic and the national commercial products getting into retailers. I just said that we are in Publix, Jewel-Osco, Mariano's and going to a lot more. And online in the US we are on Amazon which caters the large number of skew of our brands. So you should see a lot more coming from us, in the developed world, especially in the US where we are setting ourselves to make deeper strides, as the brand gets more popular whenever it is. So it's still early days, should be growing rapidly there. That's our aim. We've added to the team, both in our California and our New York offices and we continue to do that.
Okay, and then as we look at the seasonality of your revenues and EBITDA can we expect to see a similar cadence as prior year's or are there any other factors that we should consider in the current year that the change that seasonality?
We run the business on an annual basis. We are also in the age product business which ages for over a year. So we run the business, although we report quarterly, but we run the business on an annual basis. So the best way to look at the business is on an annual performance basis. I do understand the quarter lease will give you a good flavor, but it's the annual which is the benchmark to go on.
Okay, that's fair. And then, just from an expense perspective, can you maybe help us understand the types of investments that you are making this year? And then any color on your ability to leverage expenses this year would also be helpful.
I think we wait for that when we give you this first quarter results before I am tipped off legally for saying more than assured.
Okay, and then I guess just lastly, we just a little bit on the balance sheet and financing plans, with regards to the processing center, are there any updates there?
On the balance sheet we continued to aim to reduce our cost to capital and be would be actively working towards that and then of course on the processing center as well.
Thank you ladies and gentlemen. At this time I will turn the floor back to management for any last concluding remarks.
Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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