Sarria: Selecta - Could this be the big change?

All,

Given recent developments and the hiring of K&E and PJT (bonds: PWP), the call did not feature a Q&A session.

High operating leverage, given most of what would be Opex in a regular restaurant chain is CpEx for Selecta. 

Q1 20 EBITDA down by over half, due to a mix of higher fixed.costs as well as a Covid-19 related drop in revenue.

April Revenue was down between 40% and 80% across markets.

Clearly Selecta will have to restructure. But we would not be making a fundamental investment until we learn that management and ownership of the company are exchanged. KKR, like Allianz before, have never understood the business. Automatic vending is all about route density. Servicing costs outweigh costs of consumables and thus a densely set-up local hegemon can outcompete pan-european Selecta any day - even if not achieving the same bulk purchasing efficiencies. 

Thus for Selecta to succeed, management has to change from a sales-driven outlook to an operations-driven approach, that would have to be managed by engineers, rather than sales people. Selecta have to densen their network in certain already dense areas and withdraw from some of the head-line projects where the company is going after world domination via “control" of entire countries. The price bed profitability of these machines is misleading if not matched by the cost of servicing these machines. 

The company’s cash flows Switzerland and Sweden demonstrate how a vending business can be made profitable. Unfortunately the remainder of Selecta demonstrates the opposite. And until there is a credible plan with credible management in place to fix this imbalance, we are unlikely supporters of any light touch restructuring. 

Wolfgang