Greetings and welcome to the Amira Nature Foods first quarter 2015 earnings call. [Operator instructions] I will now like to turn the conference over to your host, Steve Calk of FTI Consulting. Thank you, sir. Please begin.
Good afternoon everyone, and welcome to Amira Nature Foods first quarter 2015 earnings conference call. Speaking on the call today are Karan A. Chanana, Amira’s Chairman and Chief Executive Officer, and Bruce Wacha, our Chief Financial Officer. We are also joined by Ashish Poddar, Executive Director of Finance; and Rajesh Arora, Senior Executive Director of Finance are also on today’s call.
By now everyone should have access to the earnings release, which went out today at approximately 4:30 PM Eastern time. The earnings press release and earnings presentation slides are available on the Investor Relations portion of the company’s website at www.amira.net. This call is being webcast, and a replay will also be available on Amira’s website.
Before we begin, we’d like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response 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 differ significantly 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 with the Securities and Exchange Commission and those mentioned in the earnings release. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether 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 includes 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 direct comparable IFRS financial measures is included in the company’s press release.
And with that, I would like to turn the call over to Karan A. Chanana, Chairman and CEO.
Karan A. Chanana
Thanks, Steve. Good morning everybody, and thank you for joining us on today’s call. I will provide a brief overview of our financial highlights, review some of our recent business highlights, and provide you an update on our initiatives. Then Bruce will review the financial results for the quarter in more detail. After that, we will open up the call for your questions.
We’re very excited about our performance in the first quarter of 2015. We continue to grow sales and we’ve improved our margins, and we increased profit by 25%. We have done this while continuing to make important strategic investments in our future growth, both in India and internationally.
Let’s start with India. Over the last year, we have continuously added company-owned distribution centers and we are on track to have a total of 15 up and running by the end of this financial year. This commitment to infrastructure not only helps us in terms of cost efficiency, and time to market, but in our ability to add additional outlets to retail customers.
Recently, we announced the launch of Amira branded products in Ratnadeep Supermarkets, a 22-store retail chain that sells to highly populated cities in India. This is the latest in a long line of retail wins for us, and there are more to come.
In our international markets, we have leveraged our investment over the last year to grow market presence and sales. This has been the case in Germany where, as many of you know, we recently acquired Basmati Rice GmbH. This acquisition not only helped us to establish a beachhead in Germany, but also gave us immediate access to opportunities in Continental Europe.
In the U.K., we have continued to build on our more than 3,000 distribution points, including launches in Tesco and Morrisons. We have recently launched our television commercial here in the U.K., which has been very well-received, and we hope to tell you more about that in the coming quarters.
In the U.S., we’re just beginning to scratch the surface of the market. We have strong distribution into Costco, which we’ve spoken about previously. And we are focused on growing our presence in this important market. We are on track to double our revenues this fiscal year as compared to fiscal 2014.
Our CFO, Bruce Wacha, will cover our financials in detail, but let me give you a sense of where we are on major metrics. Our Q1 revenue grew 25.9% versus last year to $138.8 million. This was obviously due to increased sales volume, but also a result of increased pricing as demand for Amira products has been exploding.
And this hasn’t just been in India. It’s been in all of our markets around the world. In turn, this has allowed us to consistently add new customers, grow our business with existing customers, and create demand for Amira in new markets.
And of course, we have the relationship and distribution in place, we’re able to complement our core products with expanded product offerings including snacks and our ready-to-eat products. We have told you, since I arrived here two years ago, that our long term target is to be a leading global packaged foods brand, and this is how we are doing it, and we are well on our way to doing the same.
We’re also pleased to report EBITDA of $19.1 million, which is an increase of 20.9% compared to the year ago quarter. But this isn’t just the growth that I’m excited about. We also improved efficiency by improving EBITDA margin by almost 50 basis points compared to the year ago quarter, from 13.2% last year’s same quarter to 13.7% today.
We’re not only growing, we’re also running the business a lot more efficiently. As a result, we remain confident that this fiscal year will be another record year for Amira. So we’re growing the top line and we’re growing the bottom line at the same time.
This is exciting to any CEO, as you can imagine, but what really motivates our team is the global demand for the Amira brand, and it’s simply amazing. With the [unintelligible] of our strategy and the ability of Amira and the team here to implement that strategy.
As the world has been rapidly moving toward healthier alternatives, organic, GMO-free, all-natural, gluten free, we are at the center of that market, with the premiere of the best tasting product.
So, in closing, I would like to thank you for your support of this amazing company and our mission. For those who have been with us since the IPO two short years ago, let me remind you how far we have come. Revenue is up from $342 million at the time of the IPO to $576 million on an [LTM] basis.
Adjusted EBITDA has doubled. Adjusted EPS has more than tripled, and we have added talent and presence in all the right markets and continued to do that. So this just tells you we are at the beginning.
Now, I’d like to introduce our CFO, Bruce Wacha. Bruce?
Thank you, Karan. I’d like to begin by echoing Karan’s enthusiasm for the business, the quarter we have just reported and our continued prospects going forward. I will be referencing the investor presentation, which folks should have been able to obtain, along with the press release.
We are pleased with our progress in the first quarter. We grew top line adjusted EBITDA and profits by approximately 25% or more year over year, while also increasing margins and improving our balance sheet. We added to our inventory during the quarter, providing support for future sales growth and simultaneously reduced our trade receivables, trade payables, and debt. We also improved our debt ratios, whether looking at a year ago or the most recent quarter comparisons.
Our revenue increased by $28.5 million, or nearly 26%, to $138.8 million for the quarter. This was driven by increased volumes, price, and mix, both in India and internationally. Our sales in India increased by $9.6 million, or 20.9%, to $55.8 million, although this included negative FX drag with India growing just over 30% in rupees.
Meanwhile, our non-India, or international, sales grew by $18.9 million or 29.5% to $83 million. Looking at it another way, our Amira branded and third-party sales had a very strong quarter, with revenue growing by $31 million or 29.3% to $136.8 million for the quarter. Our institutional business, on the other hand, had a negligible impact for the quarter, with just $2 million in sales, from $4.5 million a year ago.
Our adjusted EBITDA was up more than 30% for the quarter, to approximately $19.1 million, compared to $14.6 million a year ago. Adjusted EBITDA margins were up, as Karan noted, by approximately 50 basis points year over year.
Our adjusted profit after tax increased by $1.8 million, or 25%, to $9.3 million for the quarter. And adjusted EPS increased by 24% to $0.26 per share, from $0.21 per share in the year-earlier quarter.
As you can see from the second page of our presentation Amira branded and third-party branded sales represented 99% of total sales for the quarter. This is up from 96% in the year ago quarter. This is largely due to our growth in core rice and a smaller contribution on the institutional or agricultural product set. As you can see, on the right side of the page, we have maintained the traditional 60-40 split between our international sales and our sales made within India.
Now, moving to the balance sheet side of the business, we increased inventory by about $10.7 million during the quarter, as we continue to build for a successful 2015. And we also managed our working capital cycle appropriately, reducing trade receivables by nearly $10 million, paying down approximately $17.5 million of trade payables in the quarter.
Looking more closely at our capital structure, on the next page, we spent about $5 million of cash during the quarter and we reduced our debt by about $2 million. More importantly, we reduced leverage, with our 12 month trailing adjusted EBITDA climbing to $80 million from $75.5 million at the end of fiscal 2014 and both our total debt to adjusted EBITDA and net debt to adjusted EBITDA dropping to 2.3x and 1.9x respectively, compared to 2.4x and 2x at the end of the fiscal year.
Now, as a quick reminder to our progress at the time of the IPO, we have about $575 million in trailing sales and $80 million in trailing EBITDA today, compared to $342 million and $42 million at the time of the IPO.
We have also increased margins by more than 150 basis points. And while our share price has certainly made strides since the IPO, we are trading at just 9x TEV to trailing EBITDA, a full term lower than where we were at the time of the IPO. Meanwhile, we have now recorded eight quarters of double-digit growth as a public company.
Finally, as Karan pointed out previously, we believe in the growth prospects of the business and we are reiterating our full year 2015 guidance of 20% or more growth for both revenue and adjusted EBITDA. Furthermore, we continue to target long term revenues of $1 billion and adjusted EBITDA of $150 million.
And with that, I’d like to turn it over to for questions from the audience. Thank you.
[Operator instructions.] Our first question comes from the line of Akshay Jagdale with KeyBanc.
Akshay Jagdale - KeyBanc
Can you just talk, Karan, a little bit about the harvest, what you’re seeing out there in terms of supply, and maybe give us a sense of how that’s changed as the harvest is being concluded? Have your expectations changed? And what does it look like right now?
The harvest is barely just beginning. The bulk of the harvest starts in October. You have a few trickle in, and we are seeing similar prices to last year. The total arrival in the [Hariana] auction centers, [unintelligible], is just about 2,000 tons a day, and pricing is, in rupee terms, about 38,000, which is in line with what it was last year.
Demand is strong. We believe the sowing has been good, and we will give more color by end of September on the size of the harvest, which we believe should be up about 10% to 15% max. But the demand is very strong. That’s why the pricing remains what it is.
So that’s the color on the harvest and the crop at the moment. I’m sure you must have read that they did have some late rains, and basmati is a sort of sensitive crop. So it will be harvested, the bulk of it, starting October through December to mid-January.
Akshay Jagdale - KeyBanc
And just to backtrack a little, obviously you’ve continued your strong performance on the gross margin side. And that speaks to the pricing power of the product. So can you just remind us, for the harvest that already took place and for the inventory that’s flowing through your P&L right now, if I’m not wrong, your patty costs were up 18% or 20% or so? Is that correct? And so the fact that your gross margins are up pretty significantly tells that you’ve been able to pass that on.
Yes, you’re right. Like we spoke to earlier this year, our industry has great pricing power, because basmati rice is not a commodity. It’s a specialty staple. It’s all packaged foods. And even beyond that, it’s like champagne and wine, it comes from defined but very large region. And it has to be aged.
So we know our costs going ahead, and as prices go up, we pass on the pricing, plus a little more, because the actual absolute dollar increase to the consumer is insignificant in reality. So if you look it in the U.K. or in the U.S., you talked about $0.30 to $0.40 a serving.
So having said that, pricing power, we spoke even we did our earnings call in June for last fiscal year. You were asking me about what to see in the quarter we were just reporting, and at that time, I couldn’t talk about it, but it’s obvious for everybody to see that we would have expansion in gross margin.
That’s exactly what’s happened. So we had inventory, we are expanding into new geographies. We are growing in the current geographies that we’re already in. And the inventory is there to support it. As more inventory sits in the international markets to support the Amira branded growth, as we do [unintelligible] distribution, where we’re present, and we add countries, the inventory is necessary for the growth.
And we’ve been very clear about it from day one, and we’ve delivered on that. And it’s a well thought through strategy which we have successfully delivered year on year, and quarter on quarter.
Akshay Jagdale - KeyBanc
Now that the first quarter is in the books, this is a very good reflection of the COGS that will continue to flow through in your P&L for the rest of the year, until the fourth quarter, when you start the cycle and the new inventory, correct?
Yeah, third and fourth quarter, we start the new inventory.
Akshay Jagdale - KeyBanc
And can you talk a little bit about the inventory itself? You know, it’s obviously up, and you’re investing in future growth, but it did grow significantly more than the revenue. So can you help us get our arms around the inventory number?
Actually, I think you hit it right with the point that we’re investing in our future revenue. I mean, we have good visibility on where our revenues are, and we’re spending to make sure that we have the product in place to sell it.
Akshay Jagdale - KeyBanc
Can you just give us a little bit more color? Because it’s up year over year I think over 60%, and your revenues were up 25% to 30%. So it’s just you have more volume, obviously, but mainly it’s a higher price patty, and I believe you’re probably also getting ready for the new plant, right?
I’m looking at inventory levels, June quarter versus March quarter, and we’re at $265 million in inventory today versus $254 million last quarter. So we basically increased our inventory by about $10 million. If you look at last year, on the other hand, our inventories went from about $180 million at the end of the March quarter down to $160 million. So you’re right, there’s a big, substantial increase, but I think what it is, is we’re spacing a little bit more evenly throughout the year.
And to add to that, as the Amira branded expansion happens, and that gains a greater percentage of our revenue, we’re going to hold that much more inventory to support that growth. So to Bruce’s point, it’s getting better even now, and it’s Amira branded led. And that’s where we’re expanding out to, clearly on the gross margin expansion. And yes, higher inventory has to be there as the plant will come on stream next year.
Akshay Jagdale - KeyBanc
And one on your India business. You mentioned the warehouses that you are adding. Can you just help us with the timing of that? Because I think they’re quite bulky. I think in the fourth quarter you added a significant number, and I know you’re going to go to 15, which I think is almost double from where you were at the end of the year. So can you just give us a sense of the timing on when these warehouses are going to be added, and what kind of revenue is associated with each of these, roughly? What revenue impact does it have? I’m just trying to get a sense of how to think about the India growth on a quarterly basis.
We plan our growth on an annual basis, and we always guide to an annual basis. Now, talking about the infrastructure, our growth in India and the gross margin expansion in India is driven by our distribution center that gives us a greater ability to go to all the mom and pop stores and widen our distribution footprint. We were 8 at the end of March this year. Next March, which is the end of this financial year, will be 15.
Most of the expansion of the distribution centers will be back-ended in the third and fourth quarter. There’s a clear reason for that. We go out and we take long-term leases on warehouses, which we convert into our distribution centers. We put in everything and we start doing that post the second quarter, because the monsoon is over and the repair and maintenance on those warehouses is done. It’s something which we have followed very clearly, and we are going to follow again.
So yes, the target remains to be 15 distribution centers in India, which we find is easily achievable. And if you want more specific, it’s third and fourth quarter most of that growth will come onstream. We are currently working. You know, being a U.S. public company you’ve got a lot of compliance to do, and that does take time. So each of the warehouses we hire and convert to a distribution center, go through [unintelligible] compliance and rigorous checking in consistent line with our certification.
And talk about the revenue, we don’t break out our revenue per distribution center, but we do man the distribution centers with the sales people and a local marketing person. And these are our growth engines.
And the other thing I’d add is, look, it’s not an accident that we’re growing the revenues in India the way that we are. And it’s the investment that Karan was talking about that’s allowing us to grow the India business. And we saw the benefit of that in fiscal 2014. We’re seeing that in the first quarter of this year. And it’s what’s going to drive the growth that we’re targeting for the remainder of the year.
Akshay Jagdale - KeyBanc
And one last one on capex. Can you give us an update on the plant and when we should start to see the capex for the plant and sort of the cadence? When should we see it? What level of capex are we going to end up with at the end of the year, and when will be the plant be operational?
I think people saw the order that we placed with [Bueller] a couple of months ago. We expect that to be delivered, you know, ranging in September to December time period. And so clearly, the dollar that we indicated will be spent for that. In the meantime, we’re finalizing some land purchase in the area of the factory, and some of that spending will likely happen in the next month or two. And then finally, there will be additional ramp up in spending post the completion of delivery of equipment in the fourth quarter.
Akshay Jagdale - KeyBanc
What’s the capex we should expect for the year?
We’ve always for the factory, since the time of the IPO, that total costs would be in the $50 million to $60 million range. And so the bulk of that will be spent this year. There’s been a little bit of that that’s been spent previously, and there may be a little bit that bleeds over into the beginning of next year as well.
We have no further questions in queue. I’d like to turn the call back over to management for closing remarks.
First of all, I’d just really like to thank everybody for dialing in. I know we’re approaching Labor Day, and people have travel schedules, but thank you very much for the time and the interest.
I’d add to that, and thank you very much for your support. And we look forward to talking to you again. Thank you.
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