Fourlis Holdings S.A. (FOYRK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Fourlis Group Conference Call and Webcast to Present and Discuss the Full Year 2023 Financial Results. We have with us today Mr. Vasileios Fourlis, Chairman; Mr. Dimitrios Valachis, CEO; Mr. George Alevizos, CFO; and Ms. Elena Pappa, Investor Relations and Corporate Affairs Director. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fourlis. Mr. Fourlis, you may now proceed.

Thank you very much. Good afternoon, everyone, and thank you for joining us today. We are happy to welcome you to our annual results conference call. Before we go into the details of our financial results for fiscal year 2023, I would like to take a moment to reflect on some of our strategic and operational initiatives. 2023 has been a very important year regarding our operating improvements and strategic plans. First of all, within 2023, we completed the sale of the nonperforming companies of the Group, Intersport Turkey and The Athlete's Foot, enabling us to strengthen our operations and streamline them by focusing on high-performing segments. We also successfully completed the IPO of Trade Estates and its listing in the Athens Stock Exchange. While Trade Estates developed further its portfolio of income-generating assets through the acquisition of Smart Park the largest retail park in Greece. We consistently followed our strategy for remodeling and optimizing our IKEA stores network and also opened a new IKEA shop in Bulgaria in Veliko Tarnovo. Intersport opened 3 new stores in Greece and 1 in Romania, while its renovation plan in Greece was completed. We have invested in our new promising retail activity within the Health & Wellness sector through 6 new Holland & Barrett physical stores in Athens and an e-commerce platform, all showing very positive results. Recently, an important collaboration was established between our Group and international IKEA for the establishment of Inter IKEA's new international distribution center in Greece through a subsidiary of Fourlis Group. TRADE LOGISTICS will be responsible for the new distribution center in its operation. This partnership with Inter IKEA underlines our excellence behind logistics services, while it is a vote of confidence for the Group and is a significant investment that will provide further support to the Group's profitability. In the interest of transparency and clarity and in order to provide a comprehensive understanding of our retail business performance, we are providing financial year 2023 financial figures for our retail business, excluding Trade Estates impact. The operating leverage of our retail businesses and operational efficiencies are evident and pave the way for sustainable growth and value creation, positioning us favorably in the market landscape. Finally, I would like to discuss a little bit the macro trends of Q1 in Greece. Recently, National Bank of Greece published its Q1 and full year projection for GDP growth. And it seems that there is an upward trend for Greek GDP, leading to approximately between 1.7% and 2% growth. All the leading indicators for macro growth have been positive. I will just mention a few: the Forum of Industry Buyers, the licenses for building permits, and similarly, however, in the retail sector, there seems to be a slowdown during the first 2 months of the year. We have noticed that along with other retailers, and we believe the reason behind that is that the purchasing power of middle and lower economic segments has been pressed downwards due to the inflation in major necessities especially food and rents. However, the trends of our Group, both top line sales and bottom line in profit are positive versus the Q1 2023. So we have some mixed signs in terms of macro between the macro optimism and some retail, let me say, a situation that is, for the time being, not positive. However, we believe that we are gaining market share, thus our good performance for Q1. Now I would like to pass the floor to Dimitrios Valachis, our CEO, for some further information.

Thank you very much, Vasileios. I would like to start expressing that we are very optimistic about our future whereby now we're very well invested to capture the upside potential, and we proceed with our strategic plan that involves the following: a, improving performance in all our retail concepts through a customer-centric approach, focusing on quality, affordability and top retail experience; staying at the forefront of our markets, developing further our omni-channel approach and our e-commerce capabilities; and maintaining a well-structured and optimized store network in all our concepts. In IKEA this includes the opening of 3 new stores in the next 3 years, starting in quarter 4 this year with our new store in Western Greece in Patras, followed by the new store in Southern Greece in Kreta in [ Heraklion ] in the middle of 2025. And this journey ends at the middle of 2027 with the new store that we would open in the Elliniko project. Also, as we expand further where we see opportunities to keep on fine-tuning our store network. In particular, in Greece by the summer of this year, the new retail hub in Athens International Airport will be operational and now apart from our IKEA store that is renovated, there will be 3 additional tenants. In Intersport, we are in constant search for new opportunities for network expansion in all our countries, particularly Romania and Bulgaria, where there is significant growth opportunity for us. We will provide you with more details in due time as we are already implementing our plan. In Holland & Barrett, we have refined our store development strategy, and we will continue to expand our store network, both in Greece, and from 2025 onwards in Romania and Bulgaria, continuously renewing our performance, reviewing our performance. Of great products for us is our collaboration with the second biggest retail chain in Greece, Alfa Beta Vassilopoulos for the establishment of Holland & Barrett shop-in-shop concept within Alfa Beta stores. We have made our first steps with the [ Elliniko's ] shop-in-shop last December. We continue next month with another shop-in-shop in Athens and another one is Thessaloniki and we see great potential ahead behind this concept. Our plan also involves our digital transformation strategy. We are intensifying our approach to simplifying processes, centralizing data, using digitalization across the Group with the aim to improve customer experience, improve our e-commerce capabilities and our Group planning processes, creating additional operational efficiencies. Additionally, we plan to leverage our skills behind logistics services and expand with new third-party partnerships. Last but not least, following the completion of the Trade Estates IPO, the next landmark this year is Trade Estates' deconsolidation from this Group, a strategic move, which will unlock further value for Fourlis Group shareholders. In a snapshot, our Fourlis Group today has 3 retail pillars, the Home Furnishing pillar with IKEA stores in Greece, Cyprus and Bulgaria, the sporting goods pillar with Intersport stores in Greece, Cyprus, Bulgaria and Romania and the health and wellness pillar with Holland & Barrett, which started in Greece from '25 onwards to we will expand in Romania and Bulgaria. We have the real estate investments arm that is focusing on retail parks and retail logistics. And we have also the logistics arm with TRADE LOGISTICS that starts a new journey, becoming more extravert and servicing additional customers on top of the Group businesses. As a result, we believe that Fourlis Group represents today a great investor story. Of course, we have a great market opportunity ahead of us as Mr. Fourlis said, the macro economy background is positive. The decrease in inflation, the strong touristic industry, the strong residential sector and building business in all our countries. These market trends are benefiting our businesses. Second, we are by now well invested and are ready to capture the growth potential. We have a transformed business that is adjusted to the current market trends and the current consumer needs. We are optimizing our operation and focusing on creating further efficiencies. At the same time, our decision to deconsolidate later stage is a value unlocker. Our unique capabilities and positioning enable us to support our further future growth. Moving now to the key financial highlights. As Mr. Fourlis said before, we start providing from this presentation an understanding of our retail performance. I will start commenting on first of the Group consolidation basis. Our Group sales grew by 10%, excluding Intersport Turkey and TAF on the back of a strong growth from IKEA stores as well as solid growth from Intersport stores. The Group's profitability on a consolidated level was supported on one hand by the operational leverage and efficiency of our businesses and on the other hand, by significant revaluation gains of EUR 22.4 million that were largely attributed to the recent acquisition of Smart Park. EBITDA OPR was up by 21.8%, reaching EUR 48.2 million. Earnings before interest and tax was up by 64.5% standing at EUR 55.5 million and profit after tax was up by 42.4% to EUR 28.1 million. Moving now to the Group's retail business; the operating leverage of our business and the operational efficiencies are evident, making us confident that our retail business will create accelerated profitable growth and accelerated free cash flow generation. Revenue from the Group's retail business reached EUR 521.3 million, significantly increased by 10% year-on-year. Revenue growth from the Home Furnishing sector, the IKEA stores was up by 11.6% year-on-year, driven by IKEA stores' market leadership, improved stock availability and improving market dynamics. Revenue growth from the sports retail, Intersport stores, was up by 6.3% year-on-year despite challenging competition reflecting our commitment to stay at the forefront of the evolving sports and goods retail landscape. The gross profit of our retail business, the gross margin of our retail business stood at 44.3%, in line with 2023 levels. This gross profit margin was supported by strong home furniture retail gross margin and a positive trend in the Intersport gross margin towards stabilization. Our emphasis on prudent control over operating expenses, coupled with optimization strategies, de-escalation of inflation and a positive operating leverage effect led to significant growth of our EBITDA OPR by 25.8%, reaching EUR 35.9 million compared to EUR 28.6 million last year. The EBITDA OPR margin for the Group retail business stood at 6.9% from 6% last year. Accordingly, EBIT from the Group's retail business increased by 41.3%, reaching EUR 21.1 million in 2023 versus EUR 14.9 million in 2022. The profit -- this means that the EBIT margin grew from 3.1% to 4% of sales. The management is focused behind optimizing its finance structure, deleveraging of its balance sheet and creating free cash flows in order to support our future growth initiatives and also return value to our shareholders. Our fiscal year 2023 results underscore this commitment, a direction that will be further emphasized following the deconsolidation of Trade Estates. In 2023, we achieved significant operating cash flow generation driven by enhanced business profitability and improved working capital. This enables us to execute our expansionary plans while also enhancing shareholder value through increased dividend payments. Additionally, we have successfully reduced the net debt of our retail business to its lowest level in the last decade, reaching below EUR 84.8 million. Our 2023 CapEx related to retail business amounted to EUR 17.6 million, reflecting our ongoing investments in strategic growth in businesses. And with this, I would kindly ask Elena Pappa to take us to [indiscernible] detailed figures of our business units. Elena?

Thank you, Mr. Valachis. So starting with the Retail Home Furnishings, Fourlis Group long-standing franchise of IKEA stores represents one of the best performing regions for the Inter IKEA Group. The Group's Home Furnishings Retail business today operates 21 IKEA stores in total of different sizes across our 3 countries of operation, Greece, Bulgaria, Cyprus, plus e-commerce presence in all 3 countries. IKEA management has placed focus on remodeling and optimizing its network and also added 1 new shop in Bulgaria at the end of 2023. Furthermore, 3 new IKEA stores in Greece are either under construction or under design process while we aim to start the operation in the next 1 to 3 years. Our success is grounded in a well-defined strategy. We are committed to a well-structured and optimized store network, a successful omni-channel presence, robust e-commerce initiatives, digitalization and unparalleled expertise in home furnishings and customer service. In terms of key figures, excluding Trade Estates' contribution, the Home Furnishing Retail business, IKEA stores. So IKEA stores' dominant position in our market region and our ability to drive profitable growth. During full year of 2023, the Home Furnishings Retail business achieved a significant 11.6% increase in revenues, reaching EUR 346 million from EUR 310.1 million. This growth is credited to IKEA stores' market leadership, improved stock availability, increased visitorship and strategic positioning that capitalizes on favorable market trends. Furthermore, positive economic indicators and recovering tourist industry and the massive residential real estate market have contributed to this growth. Looking closer, we have witnessed a robust 10% increase in Home Furnishings Retail business in Greece, which represents 57% of total Home Furnishings Retail business. And furthermore, international markets have shown a significant increase of 14.3% in revenue year-on-year. This revenue growth, combined with an improvement of 100 basis points in gross profit margin and effective operating leverage led to a substantial enhancement in Home Furnishings Retail business profitability throughout 2023. Prudent control over operating expenses and mitigation of inflationary pressures have further positively influenced operating expenses identifying the favorable impact of operating leverage on overall profitability. Therefore, EBITDA operational from Home Furnishings Retail business in 2023, surged by 52% to EUR 30.7 million compared to EUR 20.2 million in 2022 with EBITDA operational margin expanding to 8.9% from 6.5% in the previous year. The EBIT from the Home Furnishings Retail business soared by 76% to EUR 22.7 million from EUR 12.9 million in 2022, with the EBIT margin increasing to 6.6% from 4.2% in 2022. Moving now to the Retail Sporting Goods. Fourlis Group license with Intersport lasts for over 20 years. Intersport has a leading position in the sports performance sector and the high brand awareness across these regions. Additionally, Intersport maintained strategic partnerships with top players such as Nike and Adidas, giving us competitive advantage in our segment. For us, it is important to always deliver a modernized and customer-centric retail experience. Within this context, in 2023, we concluded Intersport renovation program in Greece and expanded further its network with 4 new stores, 3 in Greece and 1 in Romania. Our future plans involve a constant set for new opportunities for network expansion in all our countries, placing emphasis abroad, ensuring our retail footprint stays dynamic and responsive to evolving market demand. Apart from network expansion and transformation, our strategies for the future include operating leverage and enhanced e-commerce strategy, organizational restructuring and effective working capital management. These actions, coupled with the gradual installation of inflationary pressures are anticipated to contribute to an overall enhancement in Intersport's profitability moving forward. In terms of key figures, during 2023, Sports Retail, Intersport's revenue, excluding revenue from the company, The Athlete's Foot and Intersport Turkey that were sold, increased by 6.3% compared to the previous year despite high competition, reaching EUR 174 million. The growth was primarily driven by strong performance in Greece, which represents approximately 60% of the total Sports Retail revenues and Bulgaria. Both countries exceeded market growth and were amongst the top-performing countries in 2023 sales performance across the Intersport Group region. Key factors contributing to sales growth include store network renovations in Greece, product-type enhancements and efficient category management strategies. Despite the regular weather conditions affecting Q1 and Q3 of 2023, leading to higher promotional activity, there is a positive trend towards stabilizing gross profit margin. Our focus on operating leverage and moderation of inflationary pressures has helped to partially mitigate the impact on gross profit. Furthermore, during 2023, Retail Sporting Goods achieved a significant decline in the inventory level despite the addition of new stores. This rationalization of inventory has improved working capital and also enhanced the free cash flow of the business. Sports Retail [ is now operational ] in 2023 reached EUR 11.2 million with the EBITDA operational margin at 6.4% in 2023. Additionally, Sports Retail EBIT in 2023 stood at EUR 4.4 million with the EBIT margin reaching 2.5% in 2023. Moving into the Retail Health & Wellness. Holland & Barrett is, as you know, UK's retail Health & Wellness and one of the largest wellness retailers in Europe with a history of more than 150 years and dedicated presence of more than 1,600 stores across 19 countries worldwide. Our partnership with Holland & Barrett started in 2022. And within 2023, we opened the first 6 physical stores in Athens and launched its e-commerce platform. The results from our Holland & Barrett operations are very positive. The recent months have shown positive and promising results marked by increased traffic, higher conversion rates and elevated sales in both our offline and online ventures. We have refined our store development strategy, and we plan to continue expanding our store network in Greece, Romania and Bulgaria over the next years, continuously reviewing our performance. Our collaboration with Alfa Beta Vassilopoulos for the establishment of Holland & Barrett shop-in-shop concept within Alfa Beta stores have shown very promising results so far, and we intend to proceed with more shops on this concept. Revenues from the Group's Retail Health & Wellness within 2023 amounted to EUR 0.8 million, while the activity recorded operating losses of approximately EUR 2 million due to the development of its store network and its infrastructure. Finally, regarding Trade Estates, Trade Estates was established in July 2021, has undergone significant developments and milestones marking its presence with a robust performance in the real estate sector. Key milestones that were completed within the year include the completion of its IPO in November of 2023 and the acquisition of Smart Park, Greece's largest retail park. Finally, most recently, another important collaboration was established between Fourlis and Inter IKEA for the establishment of Inter IKEA's new distribution center in Greece, whereby Trade Estates will be the owner and developer of the new business. Trade Estates currently owns 13 income-generating assets and 2 assets under development. Trade Estates achieved a 28.3% increase in total income and the gross annual rental yield of 7.7% in 2023. The Board of Directors will propose a dividend payment amounting to EUR 9.6 million. As of the end of 2023, its gross asset value grew by 65% to EUR 477 million compared to last year, while its net asset value increased by 41%, reaching EUR 298.4 million at the end of 2023. According to its development plan, by 2027, Trade Estates will have a strong, high-yielding property portfolio of EUR 700 million. And last, but not least, let us say a few words on our sustainability front. Since 2008, we have been an official member of the UN Global Compact. We are committed to the responsible management of our operations through our sustainable strategy based on these pillars: environmentally friendly business practices, employee wellbeing and diversity inclusion, and societal support. In each of these pillars, we focus on practices to maximize our positive impact such as reduction of electricity consumption through various energy-saving programs such as photovoltaic solutions that are installed in our DC, waste reduction program, in the context of societal support offering material support in case of emergencies, refurbishing kindergartens, offering meals to people in need, and in terms of our employee wellbeing, diversity is our focus and gender equality and inclusion that is evidenced by the high participation of women employees that stands at 55% currently. The high level of women in managerial position, which is at 43% and the low gender pay gap in Greece with -- sorry, women in managerial position 44% and the low gender pay gap in Greece, which stands at 5%, which is much lower than the EU average that stands at 13%. And with that, we are at your disposal for any questions you may have.

[Operator Instructions]

Maybe we can go to a web question.

[Operator Instructions] I will now pass the floor over to management. Please go ahead.

Thank you very much. Let's start with a question by [ Michael Bergoug ] from Xenon Investments. Can you please explain why -- how you see shareholder value being unlocked from Trades' Estates deconsolidation, if it happens through a placement rather than distribution of Trade Estate shares to shareholders? Okay. Let us first clarify that we have sensed during the last 2 years that the accounting consolidation, especially through IFRS methods that we are using all the real estate activity and the retail activity does not provide clarity regarding the future and the profitability of retail. So from -- purely from an accounting deconsolidation point of view, we believe that value will be unlocked because the retail part of our business will be much more transparent and evident, so this is one part of the answer. Now I also have to say that we have not taken our final decisions as to how we are going to reduce this 13%, 14%. It might be through a combination of carve-out and placement. Let's not forget that the placement will provide the Group with additional liquidity, reducing our debt or financing our investment activity. So you can be sure that before we decide the combination between a carve-out and a placement, we will think about it a lot, and we will definitely consult our investors also. Let's go to the next question. Yes. It's again about the deconsolidation. The target for the deconsolidation is by year-end. So we will consolidate Trade Estates on the -- through the equity participation method. And the -- all the accounts will be clearly on retail.

Maybe the next question comes from Equinox Partners from Mr. Mamedov. There are 4 parts in this question. So I will go one by one. Could you reiterate long-term revenue and EBIT margin target? Has anything changed?

Okay. As you probably all know, we have a 5-year plan on which we have been working on. Initially, the plan was structured before COVID, and the target was for the fifth year to be 2025. Now this has moved to 2026, probably beginning of 2027. However, the target for our top line long-term revenue is still EUR 750 million retail only and EBIT margin of 8%. So we are still on track. Second question?

Second question from Equinox Partners. What is the latest that deconsolidation happened? What does it depend on?

I think we have covered that.

Going to the third, how will you fund the growth? Do you expect to increase debt of the company?

Dimitri, would you like to talk about retail?

Definitely, we are not looking to increase debt. In fact we are looking forward to decrease our debt in the retail business. Our growth will be funded mainly by our retail operating free cash flow.

And the fourth part is how much money are you spending on Holland & Barrett in 2024?

In 2024, we continue -- is the second year of operating Holland & Barrett, we continue operating only in Greece. And we don't -- our investment in 2024 will not exceed the EUR 2 million for this year. And from next year, we foresee that this business will start being profitable.

Okay. Moving on to the next from [ Mr. Giannouli ]. What are the lease payments of the retail on business compared to the [ EUR 18.9 million ] shown for the Group in the cash flow statement?

Right. Now the lease payments of the retail Group, the total is EUR 25 million. Out of this EUR 25 million, EUR 19 million are shown in the cash flow statement, but there is also an additional EUR 6 million that due to IFRS are accounted as part of interest. Next question?

Next question comes from [ MBA Asset Management ]. Do you consider restarting share buybacks given the very low valuation of the company?

Presently, we have treasury stock of about 4% of the company, and we do not intend to continue at this point.

The next question is from [ Mr. George Kasca ]. Have you decided how you will lead to the non-consolidation of Trade Estates and when the process will be completed? I think we have covered it. Again, from [ Mr. Giannouli ], can you please update the guidance for 2026 concerning sales of EUR 750 million and EBIT margin of 7% to 8%?

We covered that.

The next question comes from [ Luca Osimi ] from [ One Investment ]. Why don't you want to distribute Trade Estates to Fourlis shareholders instead of replacement?

It's not that we don't want to distribute. We also want to take care of the capital structure of the Group because replacement will improve the capital structure of the Group. But as I said before, we will definitely consult our shareholders as closely as possible before we do, we take our final decisions.

And we have another one from [ Mary Libetti ]. Can you please specify CapEx for the Group in 2024? Our CapEx guidance for 2024 are at a level of EUR 25 million to EUR 30 million. This includes the CapEx related to the development of -- not development, excuse me, for Patras and Heraklion...

Yes. In 2024, we have -- in addition to our annual regular maintenance and renovation CapEx, which usually is around EUR 15 million, we also have extraordinary the retail fit-out for the 2 new IKEA stores in Patras and Heraklion. These are going to be very important for us. Each one about EUR 5 million, and they will take place in 2024.

Also, we are investing in the energy efficiency of our buildings. That is an investment of EUR 4 million funded by [indiscernible] and also the new retail have been the airport is also taking around -- in the range of EUR 3 million to construct it and to start operating this, as we said, in -- before the end of the summer of 2024.

There are no more questions. But can you please check, operator, with audio.

There are no further audio questions at this time. I will now pass over the floor to management.

Okay. So thank you very much. We are very optimistic about 2024. And I think that having gone and passed through the Greek crisis and COVID, we are now ready to return to our strategy, our habit since 2010 of providing guidance, which we plan to do either together with the Q1 results or during our AGM in June. So we will give to our investors as much clarity as possible regarding the year and when do -- and when we expect -- where we expect the year to land. I'd like to thank you very much for attending our conference call and look forward to discussing with you about the issues that we talked about as soon as possible. Thank you very much.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant evening.