Takko - beat our expectation

All,

Takko results this morning were by no means strong, but they beat our expectations. 

- Revenues were E20m stronger than model, resulting in additional E10m of gross margin (when adjusted for a 13m inventory write-down - these notoriously inflate the company’s earnings ).

- The cost structure was largely on target. 

- The company raised another E9m from working capital. We had anticipated that inflow only for Q119, but management will have been keen to preserve cash, given low levels.

- As a result, Takko had E20m more liquidity than we had projected. 

- As an aside, the financial statements presented a number of distortions, none of which were cash effective:

- The P&L showed an E82m share-based expense in connection with two management participation programs that were started in 2018. 

- Capital reserves were E140m higher due to the E82m recognition of the two management participation plans, as well as a revaluation of the shareholder loan by E-57m, due to a lower agreed interest rate. As (tax?) balancing item the company has taken an impairment of goodwill of E-56m on the value of its German operation.

It will have been this additional liquidity that prevented the company from having to approach lenders for additional cash in the ramp-up to Easter. 

The company now describes its liquidity situation as “suitable”. We would still describe it as tight, but better than we thought.

The outlook presented for Q119 suggests sales in line with lower-end German Monolabels and thus largely stable at a group level, if slightly down in Germany. On a generally higher cost structure (mostly due to expansion) this should result in lower YoY EBITDA. But we will update our work first before drawing final conclusions.

We are curious if on the call the company will give us any information on its liquidity profile within Q1 - i.e. some kind of handle on what trough headroom was.

The bottom line however remains that the company beat our expectations in Q4.

Wolfgang