Lalique Group SA (LLQ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lalique Group Half Year Results 2020 Conference Call. I'm Alessandro, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Roger von der Weid. Please go ahead, sir.

Thank you very much. Good morning, ladies and gentlemen. I would like to welcome you to our conference call in connection with the half year 2020 financial results of Lalique Group, which we have published earlier this morning. My name is Roger von der Weid, CEO of Lalique Group. And I'm here on the phone together with our CFO, Alexis Rubinstein. It's our pleasure to have you all in the call, and thank you for taking the time for this conference. In the next couple of minutes, we would like to walk you through our half year results slide presentation. As you have seen, the presentation is available at the Lalique Group website, and we will go slide by slide. I will start with a brief summary of our performance in the first half of the year, and we'll also touch on the measures we took to address the Covid-19 situation. Then Alexis will provide a more detailed overview of our first half financial results, and I will then turn to our business priorities for the second half of the year as well as our financial outlook. After the presentation, we will be happy to take your questions. So to start, let's go directly to Page #4 of the slide deck. Obviously, as for the whole luxury goods industry, our performance in the first half of the year was heavily impacted by the Covid-19 pandemic. Let me give you a quick overview how the situation developed for Lalique Group. In January and February, we had a good start to the year. However, the unfolding of the pandemic and the related lockdown measures then started to affect our business across all regions and segments. In particular, due to the temporary closures of points of sales and our hotel restaurants in most countries from mid-March to end May, our retail as well as our wholesale business significantly declined. Against the backdrop of the top line slump, we took a number of immediate cost savings measures, which, to some extent, offset the decline in sales in the period. Since mid-May, we have seen improving sales trends in all business segments. However, the global economic downturn is continuing to impact our business. For the full year 2020, and I will come back later on this again, we are expecting a less pronounced decline in sales than in the first half of the year, provided, of course, the Covid-19 pandemic does not intensify again. Let's now turn to the next page, which summarizes our financial performance in the first half of the year. Total group sales declined by 30%. As I said before, worldwide lockdowns affected our business across geographies and segments. At the same time, personnel costs decreased by 18%, and other operating expenses were 30% -- 36% lower than in the previous year period, which reflects the significant cost savings measures that we implemented. Profitability in the first half was not only impacted by the lower sales, but we also decided to take an impairment charge in the amount of EUR 4.3 million on the Lalique brand value. This impairment reflects the subdued outlook and the related delay we expect in implementing our strategy for the Lalique business, following the Covid-19 crisis. Including this impairment charge, profitability at EBIT level was minus EUR 10 million. Excluding the impairments, the EBIT stood at minus EUR 5.7 million. This brings me to the last point on this slide, and let me underscore this also in the current difficult economic environment. Lalique Group continues to have a solid liquidity and capital position. In particular, our balance sheet remains strong with an equity ratio of 50.7% as of the end of June, slightly higher than at the end of last year. Let's turn to Page 6 now, which shows the product portfolio that we have built over the past years, in line with our proven diversification strategy, aiming at appealing to a broad target clientele in the luxury goods market. The graphic shows our 2 main divisions. On the left-hand side, there is the Lalique segment with its 6 business pillars, totaling sales revenues of EUR 24.2 million, around 50% of the half year sales. On the right-hand side, there is the Beauty division with the Ultrasun segment that has shown pleasing growth in the past years as well as the Perfume business with the brand portfolio, with Brioni to be added as of spring 2021, following the launch of its first perfume line. On the bottom, there is the Fine Spirits business with the single malt whiskey brands, The Glenturret, the revenues of which are still low and will start to increase following the launch of the new whiskey assortment and the reopening of the restaurant and visitor's center after their renovation. We are convinced that diversification continues to be a key strength of our group and will pursue this strategy going forward. Let's move on to the next slide, which summarizes what measures we took to address the Covid-19 situation as the pandemic unfolded in the first half of the year. Of course, the top priority consisting in protecting all of us, our employees, partners and customers. Further, we wasted no time to implement significant cost savings measures in order to partly offset the decline in sale following the worldwide lockdowns. And we also applied a strict cost and cash management to preserve our liquidity in this period of restricted business environment. And with this, let me now hand over to Alexis Rubinstein, who will give you a more detailed overview of our first half 2020 financial results.

Thank you very much, Roger. And also from my side, I would like to welcome you all to this conference call. To look at our first half financials in more detail, please turn -- let's go to the Page 9, on which you can see here the key figures of our consolidated P&L for half year 2020. We see here a decrease in our revenue from EUR 70 million down to EUR 49.1 million in all our activities. But I will go more into details in the slide that will follow on this. Retail and wholesale has been affected equally by this sales reduction. Nevertheless, we see that we managed to significantly compensate this loss in sales by personnel cost reduction of 18% and other operating expenses by 36%. Personnel cost reduction reflecting also the possibility to use furlough, especially in France, where we have around 400 staff, and on the operating expenses side, mainly focusing on marketing activities reduction as well as lease negotiations and a very strict control of our cost during the first semester. So the EBIT declined down to EUR 10 million, also reflecting as well as the loss in sales, but also a reduction in OpEx, but also in EUR 4.3 million impairment charge on the Lalique brand value, reflecting the uncertainty in the short-term forecast that we have for the brand right now. So the decrease -- the value -- the book value as of end of '19 was at EUR 43.3 million and has been booked at EUR 39 million as of end of June 2020. And without this impairment test -- this impairment charge, our EBIT would have been at EUR 5.7 million this year versus EUR 0.5 million positive during half year semester 2019. Let's go now to the Page 10, with an overview of the results breakdown by segment, which are Lalique, Ultrasun, Jaguar, Grès and other brands. So as usual, I will go segment by segment in the slide that we follow. So just let me point out that here, we see that Lalique, our largest segment, had a decrease in sales of 31%, while our second larger segment, Ultrasun, was slightly less affected than the others with a decline in sales of 20%. And regarding other brands, also we need to point out that Lalique Beauty Services, our perfume filling factory, increased in its shares of sales in this segment, thanks to the production and the distribution of hand sanitizers starting from the lockdown in France, mid-March, mid-April. And before we look at each segment, let's turn -- let's go to the Page 11, which gives you an indication of the sales trend since the beginning of the year. So on this chart, we can clearly see here that we had a good start from January 1 till mid-March with plus 9% in January and a slight decrease starting from mid-February, with the downturn in China, and drastically decreased from mid-March till mid-May with the global lockdown worldwide. From mid-May, we see good trends, and our sales is increasing since the end of main lockdown, especially in Europe. And we see here that end of August, we were above 80% of the target level of sales and also compared to 2019. Let's go now segment by segment, starting with -- on Slide 12 with the Lalique segment. So as said, we have a decrease in sales of 31%, mainly due to perfume business and gastronomy, particularly for the perfume business affected by the difficult market conditions in U.S. and in the U.K., which has been particularly affected by the delayed lockdown and also the delay for the implementation of economic supporting measures. Other pillars, like decorative objects, jewelery, art suffered less, minus 21%, during the first semester. Whereas, obviously, hospitality business, as they were forced -- we were forced to close during 3 months in France, has been particularly affected, minus 50%. And same as for at group level, the decrease in costs have significantly compensated the loss in sales and margins and furlough on one side for personnel expense and at also cost controlling on the other side, with a strong decrease in cost of EUR 6.1 million for the first semester. As already said in the context of uncertainty of short-term forecast, we had to impair the brand for one EUR 4.3 million as of end of June, resulting in an EBIT of EUR 10.7 million. Without this impairment charge, the EBIT would have been at EUR 6.4 million versus EUR 4.5 million last year. With this, let's go to the Page 13 and Ultrasun, which has been slightly less affected than the other segments, thanks to the good performance in the key markets, Switzerland and U.K., and also the good performance in pharmacy/drugstore business as well as online and digital sales. The EBIT margin remained very satisfactory at 16% at EUR 2 million taking into consideration also the decrease in cost of 7%. And now let's go to the Slide 14, and our largest perfume brand, Jaguar, for which we knew sales down by 40%, a comparable of other brands in the perfume industry. We suffered a lot in the U.S. and U.K. market for the reason mentioned before, particularly affected by the Covid-19 crisis. But the EBIT -- despite the decrease in sales, the EBIT remained positive at EUR 0.2 million. On the Grès segment and the same on Page 15, same for Jaguar, the sales were done to -- by 39%. The revenues have been mainly impacted by the downturn and difficult market condition in Latin America, the main -- the top market for this brand. And despite the EBIT declined by EUR 0.6 million, we still achieved breakeven as of end of June. Let's turn now to the Other Brands segment on Slide 16. This segment includes the perfume brands Bentley and Samouraï, the whiskey distillery, Glenturret as well as our perfume filling factory at Lalique Beauty Service. And so the half semester EBIT loss is fully explained by the loss at Glenturret. It's true that we had a very strict lockdown in Scotland, and the touristic center income, revenue were close to 0 during the first semester, while the launches of the hospitality center and the whiskey new products will be delayed until year-end. As mentioned before, we need to highlight here also the increase in sales at perfume filling factory, Lalique Beauty Service, thanks to the production and distribution of hand sanitizer since April. To conclude this part, now let's go to the Page 17, with an overview on our balance sheet. So as you can see here, our balance sheet, the main financial KPI, remains solid and satisfactory. Despite an increase in working capital and especially on top sellers perfume inventory due to the sales decline in perfume and also due to The Glenturret inventory buildup, our net cash position remains positive at EUR 4.9 million. The liquidity ratio, which reflects the capacity of covering short-term liabilities with current assets, is still at a good level of 1.7 versus 1.8 in 2019, while our net debt has decreased by EUR 5.1 million, mainly due to the financing of our investments in both factories for environmental requirements as well as in the Glenturret hospitality center. Finally, we see here also that our equity ratio remains above 50% at 50.7%. With this, I hand back to Roger for the first and last part of the presentation.

Thank you, Alexis. To start this part, let's go directly to Slide 19 with our business priorities for the second half of the year, which continues, unfortunately, to be marked by the Covid-19 situation. Of course, the top priority remains protecting health of our employees, customers and partners as the Covid-19 virus is here to stay. We will manage our business in accordance with regional and local market conditions, thereby continuing to apply a strict cost and cash management. In this context, we will, in particular, resume 3 strategic initiatives, which we had to freeze and postpone during the pandemic. That is to say, in Q4 2020, the rebranding of The Glenturret, including the launch of the new whiskey assortment and the reopening of the restaurants and visitor's center following their renovation. This was originally planned for spring 2020. Second, in spring 2021, we will launch the first perfume line under the Brioni fragrance license. This was originally planned for fall 2020. And third, in Q4 2020, the start of operations of our new perfume distribution subsidiary for the Middle East region, which is currently in the process of being set up as a joint venture with our partner for the Kingdom of Saudi Arabia. This brings me to the next page, Slide 20, with our financial outlook. So for the full year 2020, given the improved sales trends since mid-May, we expect a less pronounced sales decline than in the first half of the year. And for 2021, we expect sales growth in the low double-digits percentage range compared to the 2020 levels. That said, we have seen in the first half of the year how fast things can change. So as we have also noted on the slide, our outlook is barring a negative development of the Covid-19 situation or other unforeseen events. Finally, with regard to our midterm targets that we have communicated in April 2019, together with our 2018 results, they will obviously be delayed due to the Covid-19 situation, as we have already announced. As it is still quite impossible to predict how the situation will continue over the winter and into next year, we are not in a position to provide an update on how much delay we expect, and we'll do so when we announce our results for the full year 2020. So to sum it up, let's finish with Page 21. The negative business performance, which was due to the corona pandemic, was partly offset by rapidly implemented cost savings measures, which also helped preserving our solid liquidity and capital position. We hit rock bottom in April and have seen improving trends since the second half of May, which leads us to anticipate further improvements until year-end. We will resume selected projects and initiatives in a business environment that is not expected to normalize again soon. And last but not least, we will stick to our strategy, which is based on a long-term view as well as diversification. With this, I would like to thank you for your attention. And Alexis and I are now happy to take your questions.

[Operator Instructions] The first question comes from Rene Weber from Vontobel.

I have 3 questions. So the first one, you're talking that you want to move more into online sales. Could you tell us a little bit more how much it is already now? And how it developed in the first half year? Second question goes into Glenturret. Could you tell us if the renovation has already been finished? How big the CapEx was? And I assume that the negative minority impact we have on the profit/loss account is mainly coming from Glenturret or probably partly also from Lalique Japan. And then the third question regarding your own boutiques. Now you have 29. How do you see it looking into the future? Do you expect further openings? Or does it go the other way around that you close some of the current outlets? That's it for my questions.

Okay. Thank you, Rene. Yes. Online sales, obviously, there has been a shift of our business activities in general on digital. Of course, product launches have been done through virtual launches, also to replace trade shows that have all been canceled. We have seen -- as far as our own online sales are concerned, we have seen a -- the sales have actually doubled in the first half compared to the previous year. However, we are still in the single-digit figure in -- when compared to our global sales. What is also worth mentioning is that we have intensified our collaborations with e-retailers on Ultrasun that includes Amazon U.K., for example. It includes Hut Group for worldwide and also Tmall in China. On the perfume side, this includes significant sales increases with Notino, which is a European e-retailer. And also, we are collaborating with local retailers' e-business. That includes, for the U.S., for example, Macy's, Nordstrom, Neiman Marcus. In U.K., Harrods. And on the perfume side, we are also working with Tmall in China. That would be for your first question. On Glenturret, the CapEx for the renovation is GBP 2 million. The U.K., having been in a longer lockdown than the rest of Continental Europe, the works have only resumed around mid-August. And therefore, we anticipate the renovation works to be finished in the course of November, which is the reason we are planning the rebranding and the relaunch as in early December of this year. Of course, if everything goes by the plan. In terms of shops, we have considered the closure of certain shops which are losing money, given that we don't anticipate a quick recovery, in particular, not in 2021. And therefore, we have closed shops in Tokyo. We have closed shops in the U.S. as well as in Europe. For the time being, we don't plan new openings, but of course, we will maintain a presence in key or strategic markets. And when the time comes, of course, we will consider new openings, which might be the case in China. Since China has resumed business after an early lockdown and is currently not at pre-COVID levels, but almost there. Does that answer all your questions?

Yes.

The next question comes from Daniel Bürki from ZKB.

I want to ask a question regarding the cost structure because you did quite an impressive job in reducing, especially the other operating expenses by EUR 5 million, so -- also in the personnel level. How much of this cost, let's say, will come back in the second half, let's say, because short labor is finished or the concessions you get at the rent? That's the first one. And then maybe on the perfume side that the Lalique perfume seems to be more under pressure than the other brands. How you do explain this first? And then second also on perfumes, how much of your overall perfume sales are linked to airport, means to traveling and especially, under pressure in the current environment?