As Head of the French industry confederation, Geoffroy has been very much involved in helping to craft France’s business support response to the pandemic. He was also instrumental in bringing together his opposite numbers in other European countries to encourage solidarity, so we felt he could do a very good job of setting the scene for our conference, and he delivered in spades. The picture he paints of France is that of a nation keen to get back to work. Barring some sporadic union action the vast majority of productive activity has re-started, with surveys showing 85% of the workforce confident that precautions taken by employers are sufficient to safeguard their health. Geoffroy also feels, from his conversations with the powers that be, that the political mood in France, Germany, and at the EU level is such that very little will get in the way of governmental largesse, be it budgetary considerations or state aid rules. He also cited the political mood in relation to the EU Recovery fund, saying that Franco-German fears for EU/Euro cohesion will stiffen the resolve to overcome the Frugal Four and their supporters. With regard to French local politics, he expressed a concern about a likely Government reshuffle after upcoming municipal elections, and how the business-friendly environment of the past few years might change but, then again, he feels that much has been achieved, and that the reformist drive would have faded anyway as the Presidential term progresses towards the election year in 2022. Pensions reform was already proving very difficult, and Macron is more likely to concentrate on reviving the French economy, and possibly some “societal” reforms, which Geoffroy didn’t explain, but didn’t sound like something the markets would get excited about. In relation to the potential for deglobalisation, he does feel that the pandemic could accelerate diversification of supply lines, which started with Fukushima, and perhaps develop a consumer urge to buy local, but not to such an extent that it will materially alter national economies in the near term. All-in-all, despite the descriptions of how safety restrictions and demand constraints are still major hindrances for the return to profitability, an encouraging half hour
Hans Did a tremendous job of condensing the Ahlstrom-Munksjö story into a 15 minute presentation, which is no mean feat, given it has 7,000 customers for its natural fibre-based products in highly diverse industries, ranging from automotive, to food, to healthcare, to e-commerce (to mention but a few). When asked what the most exciting mega-trends and growth areas are for his business, Hans talked about the replacement of plastic with renewable/recyclable material, purification of air/water, and preparation for future pandemics. No surprise then that Ecovadis, the sustainability assessment agency, put A-M in the top 1% of its universe. The pandemic has had a negative impact on sales at the industrial end of the product range but, on the other hand it has thrown up an opportunity in PPE, where face mask capacity has been five-folded, not to mention adhesive labels for e-commerce and containers for food delivery. In addition, the response has been quick, and A-M has added €20m to its ahead-of-schedule €50m cost-saving plan, as well as identifying €9m of temporary cost-savings for Q2. All this with no interruption to production or client service, achieved by ensuring staff confidence by adopting safety protocols early, based on the experience gained in Chinese manufacturing plants. Innovation is a key driver of A-M’s, as is working closely with customers (eg ensuring that new materials are compatible with their existing manufacturing plants, and that is one of the key drivers for the holy grail of enhancing gross margin, which the Company seems to achieve quarter in, quarter out. As well as achieving notable results on the operational front, A-M is also an active manager of its business portfolio and, ahead of lockdown, a private equity cash injection was being sought for its home décor area, in order to give it the wherewithal to become a world-beating business. All-in-all a very confident presentation of a very interesting, forward-looking business which, despite being very much in tune with the zeitgeist of our times, sits at a pretty industrial EV/EBITDA ticket.
The first crisis Lisi encountered in its 250-year history was the French Revolution, so one shouldn’t be surprised that it is managing the current one with a certain aplomb, despite generating more than half its sales manufacturing components (mainly fasteners) for the civil aerospace industry. By paying enormous attention to cash generation (Emmanuel monitors the cash position in real time), Lisi actually improved its financial position in Q1, and has continued to do so in subsequent months, despite staying very much open for business and able to respond to customer orders across its production lines. While Emmanuel admitted that the order slump does imply cash burn for the next 3 months, he has set himself the target to close the year with positive cash-flow, and he seems confident of achieving it. He believes this will put him in a strong position to be a consolidator in the aerospace business, something they achieved post 9/11, the last time travel disruption threw the airlines into turmoil. Folk may take exception with his theory that air travel will bounce back faster than is generally expected but, at 40% below February levels, and around 10x 2019 free cash-flow, so does the share price. Other areas of Lisi’s business seem to have higher visibility. Emmanuel told us that the automotive order book implies operations at 65% capacity already for the month of June, and the prosthetics component supply business, albeit temporarily disrupted by the pandemic, is an area of stable growth that holds few worries for the medium term. In truth, automotive has not been a particularly happy place for the last few years but, judging from recent announcements of financial support in France, it would appear that the sector is transitioning out of its whipping-boy status. Competition in a somewhat commoditised area was also a topic of questioning, and the reply was pretty self-assured; Lisi tends to compete with divisions of much larger groups, principally in the US, over which it has agility, proximity to customers and focus, which have allowed it to gain market share in the last few years.