Samse investor meeting-2021 Annual results
Management slide comments
2021 building permits: rather very good figures. The RE 2020 standard imposes new isolation requirements on builders. This has the effect of increasing house prices by 10 to 15%. This is why there were many building permits filed before the end of December 2021.
Professional client order book: customers tell us that there is a lot of work until June 2022. The order book has slowed down a bit at the beginning of January 2022 but our clients are having difficulties in recruiting employees.
DIY 2021: the market is slowing down a bit but 2021 remains a good year. 2020 had been exceptional.
Income statement: the commercial margin rate increased by 1.1 points from 33.49% to 34.59%. Expenses (staff, external) remained under control.
Current operating income evolution: the increase is explained by a very good level of activity and by the increase in the commercial margin rate. External expenses have increased compared to 2020 but remain under control with the reopening. Increase in communication, transport, travel expenses but also interim expenses (because we had trouble recruiting) while in 2020 everything had been frozen.
Staff costs increased by 39.3 MEUR (of which 12 MEUR are linked to the increase in staff and salaries, 12 MEUR with the increase in profit-sharing and participation, which is a good thing for employees).
The financial result decreases because fewer dividends come from the central purchasing joint venture.
A subsidiary that was loss-making is now profitable has allowed us to activate its deficits.
The non-current operating result is positive at 1.6 MEUR due to 2.3 MEUR of real estate capital gain minus 0.7 MEUR of closing costs (closing of a store in the north of Paris. This is rare for Samse but they conceded that it didn't work).
Balance sheet
Goodwill is almost stable. There are very few agencies which are losing money. There are less than 10 agencies which have negative results out of 350 against 40 to 50 usually.
The trade receivables and related accounts item has not increased that much. We had very, very few customer defaults. It is a record year. Clients pay very quickly.
Inventories: we have a lot of inventories, we made the choice to have a lot of them and that allowed us to have the turnover that we had and that allowed us to distinguish ourselves from our competitors.
Trade payables have increased a little but less quickly than turnover or accounts receivable.
Consolidated statement of cash flows
The working capital requirement increased due to inventory.
For acquisitions of tangible and intangible fixed assets, it is at the same level as last year. We wanted to make more acquisitions of trucks and forklifts. We wanted 20 trucks, we only got 5. Normally, we should have invested 10 MEUR more.
Very strong employee shareholding culture for a long time. We federated the employees.
CSR policy: we are working on it, our GAIA rating has been progressing steadily since 2019.
Recovery of building waste (The REP norm extended the producer’s responsibility). This is a big subject for 2022, the State requires the trade to recover waste from craftsmen. This complicates things a bit but also allows us to increase customer loyalty. It is an obligation for trading which requires a large organization with significant logistics. We chose a partner (eco-mobilier).
Dividend: an exceptional year, exceptional dividend.
Ukraine Impact : No impact but Russia is a big supplier of larch wood (very important wood in construction).The steel comes from Russia / Ukraine. This is important because it can delay the start of projects.
Aluminum: rarer, shortage.
Clay: comes from Ukraine and it is necessary for tiling.
Price problem: we feel that we are at the limit of the system. The customer can no longer accept such price increases. Thus, before to build a house it cost 200 KEUR, the price rose to 250 KEUR. We still have a shortage of houses.
Beginning of the year: It is very good but beware there is an inflation impact. For example, if turnover increases by 10%, this is due to a 15% increase in price and a 5% drop in volume.
The volume is down. It slows down a bit at 5%. Inflation masks this.
Q&A
Q: Price pass-through
A: We pass on price increases well in trade and DIY. The shortages of wood and steel concern the professional segment.
We have the impression that the price increase is well digested by both the individual and the professional clients.
There is undoubtedly a substitution: I am renovating because I cannot buy a new house.
Q: What about materials from Russia?
A: We no longer buy from Russia. Larch wood has been declared war wood, so it is strongly discouraged to buy this wood. We found other woods. It is Russian larch wood that is prohibited. It is a structural wood that is very solid and not very expensive.
Q: What do you think of isolation, wood and water induction. Do you have growth opportunities?
A: In 2021, we had several external growth projects but it didn't come to fruition because the price was too high because the sellers are selling on multiples of 2021 EBITDA, which was an exceptional year.
We had 3 small files but we did not go to the end.
Water supply: we believe in it a lot, we have recruited people of a very good level, it is a rapidly growing market, 30% of drinking water is lost in the pipes.
Wood: we believe in it a lot, helped by the demand for wooden houses. There is a lot of demand, the problem is a price problem.
Isolation: more and more we try to transform specialized agencies by specializing them in isolation or by developing a related agency. We believe in isolation.
Q: Does bio-sourced materials matter?
A: It remains a marginal demand, lots of talking about it but it remains marginal.
Q: Have you heard about the IPO of a Dutch competitor owned by Blackstone?
A: CRH could merge with another entity so that it is this block which will be the subject of an ipo.
Q: Have you had market share gains?
A: We do an analysis by market. We do better than the market in Rhones-Alpes, Paca, Occitanie and in the south east region. In Burgundy and France Comté, wehad the same increase as the market.
Entity in materials in the Southwest, we are taking market share. We are no longer the lowest bidder with this entity for the last 2-3 years. We have commercial aggressiveness without falling into the price argument.
Q: What is the debt structure at Dumont Investment (i.e the holding company which is the majority shareholder of Samse)?
A: There is 136 MEUR of debt left at Dumont before the payment of this year's 16 euro dividend. Of the 55 MEUR dividend that Dumont will receive, the distribution will be as follows:
- 15 MEUR will go to repayment of the debt (13 MEUR in repayment of capital and 2 MEUR in repayment of interest),
- 4 MEUR will be paid to the shareholders of Dumont where there is a slight increase in the dividend.
- 13 MEUR goes to the shareholders of Samse
- Remaining 23 MEUR which gives more than a year of visibility on the repayment of the debt.
All the debt will not be repaid in 4 to 5 years as there is an infine characterise in the debt of Dumont.
Q: What will you do in 4-5 years when the debt is paid off?
A: several possible options:
- 2nd lbo
- Action on Samse shares on the stock exchange
- Change of capital at the level of the holding company
- External growth
Q: What about external growth?
A: We have small acquisition projects involving companies with 4 or 6 branches. This is how we have been doing it since the beginning. We make 3 to 4 small acquisitions. Our last big acquisition was notably Doras in 2004.
Q: Can you improve territory coverage with the DIY brand “entrepôt du bricolage” (DIY warehouses)?
A: For the big store format it is very complicated. And that's not the trend anymore. We are thinking about a new store format of 990 m2 because there are far fewer administrative constraints. We are also developing the LS+ concept, it is a self-service for individuals. This is in addition to existing sites. We are testing and it is working well.
The third growth driver is e-commerce. Click and collect represents 3 to 4% of turnover.
Q: How many employees are shareholders?
A: 75% of Samse's 6,000 employees are in Dumont through the FCP (employee mutual fund). The executives are direct shareholders of Dumont. Employees are shareholders through the FCP. We have set up a matching contribution of 100% up to 600 euros. Beyond that, it is a matching contribution of 40%. In the FCP no dividend because the dividend is capitalized.
Employee shareholding: we are very transparent with employees.
All the companies in the group do not yet have access to the FCP because as companies must first be profitable to be able to join the FCP.
Employee share ownership is a useful point for current employees and can be used to attract new employees.
The turnover is quite good but we have a recruitment problem. We have to make progress on this. There is a co-optation bonus of 500 euros, but it is not a dream job. But as soon as you join the company there are opportunities. Thus a 23-year-old person who had just been recruited after a few months presented her project to the management committee. The rule is who carries the project who presents it and not the person in charge.
Q: What about Plattard and SIMC (equity affiliates)? Are changes planned as far as the shareholder structure is concerned (Samse has minority interests in both companies)?
A: Jacques Plattard has taken a step back. His two children have taken over. We will not be the majority shareholder in the medium term.
For SIMC, the new leader is very good and is young.
We have no clause to increase our stake but if it is for sale we will buy it because we get along very well.
As a reminder, Plattard achieved 140 MEUR in turnover and SIMC 120 MEUR.
Q: in the gross margin, what part is linked to an inflation impact?
A: Since 2018 the gross margin has increased because we started to raise everyone's awareness on the subject. Yes, there is a cyclical impact, but we cannot really distinguish it.
The 2022 gross margin (beginning of the year) has increased and will be higher than that of 2019 unless there is an economic problem.
We did a lot of work on discounts. We have lowered our prices a lot so we have lowered the discounts. This approach has allowed us to increase our gross margin. Before the discounts were up to 15% now we are more around 5%.
Before the discounts were open to everyone. We have now framed it because we have changed our delivery approach.
Our strong point is that we are very responsive.
Decisions are made very quickly.
We have a good social climate with committed employees.
During the change of ownership on the CRH side (with the arrival of Blackstone), the employee trade unions were on our side.
Feedback
Samse is a very nice company with very attractive characteristics:
- A very humble, transparent, honest and competent management
- 75% of employees are shareholders, which ensures alignment of interests and a strong level of involvement,
- Samse owns half of its sites. They sell it opportunistically and can serve as a safety valve in the event of an exogenous event (Covid 19),
- Very dynamic equity affiliates (Plattard and SIMC)
- A desire to relatively quickly deleverage the Dumont holding company, which guides the allocation of capital
- Discipline in acquisitions: if the price is not good, Samse passes. Small acquisitions that are easy to integrate and complete the network.
- It has its own transport entity where the driver is the last mile salesman,
- a self controlling loop.
- A low valuation, with a good generation of FCF. Thus, at the current price, we have P/FCF of 11.7% and an EBITDA/VE of 21.3%. These two figures do not take into account the market valuation of directly owned real estate, it’s impact on FCF calculation (as part of D&A concerns real estate owned by the company which isn’t losing money and the contribution of equity affiliates).
An other posts concerning Samse and which can help you understand even more the company is here.
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Disclaimer: The above article constitutes the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. Disclosure – we hold a position in Samse at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).