Lalique Group SA (LLQ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lalique Group Annual Results 2020 Conference Call. I'm Andre, the chorus call operator. [Operator Instructions] And this conference is being recorded. [Operator Instructions]. 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 full year 2020 financial results of Lalique Group, which we 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 our call, and thank you for taking the time for this conference. So in the next couple of minutes, we would like to walk you through our full 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 past year, which was obviously marked by the COVID-19 context. Then Alexis will provide a more detailed overview of our 2020 financial results, and I will then turn on to our business priorities for the current year as well as our financial outlook. And of course, 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, the lockdown measures to combat the corona pandemic had a very adverse effect on our global business. The temporary closure of shops had a particularly negative impact on our retail business, while our wholesale activities were less affected over the course of the year. Amid the pandemic, our utmost priority is to protect the health of our employees, clients and partners. At the same time, and thanks to strict sanitary concepts, we managed to ensure the production in our manufacturing sites as well as deliveries to our clients during the various lockdown phases as well. However, as we had to face a very challenging sales environment, We implemented a number of cost savings measures immediately after the outbreak of the pandemic. And we also introduced furlough in Switzerland, in France and other overseas locations. These measures helped to partly offset the lower sales levels. As part of our efforts to address the situation, we also put a stronger focus on online distribution and digital marketing activities, and we are pleased to see that online sales remarkably increased in perfumes and crystal wear, our 2 main areas of business. Let me also say a few words here about our restaurants. Our French establishments had to stay closed for 4 months in total during the year 2020 and have not yet reopened in 2021. However, they each set up a takeaway service and deliver up to 200 meals every weekend, which is very appreciated by customers and also allows the teams to maintain a minimum activity. The cafe restaurant at our Scottish distillery, which is part of the visitor center, has been closed since March 2020 and is due to reopen later in April this year. Despite the fact that we had to scale back or postpone a number of activities and projects, We were moving ahead in some areas with selected new product launches in our fragrance business in the Lalique crystal sector as well as in our Scottish whiskey business. And of course, most recently, last month, we have started the launch of the first fragrance under our exclusive Brioni license. Let's turn now to the next page, Slide #5, which summarizes our financial performance in 2020. Total group sales declined by 23% to EUR 110 million for the year, which reflects improved sales trend in the second half of the year after we had to record a 30% sales drop in the first half when the pandemic broke out. On the cost side, as I just said, we took substantial cost savings measures at all levels to mitigate the situation. And as a result, personnel costs decreased by 19% and other operating expenses were 24% lower. Looking at profitability, let me point out that besides the COVID-19 situation, we recorded 2 extraordinary effects that impacted our financial results. First, and as already communicated with our half year results, we took an impairment charge of EUR 4.3 million on the Lalique brand value. And second, we booked a litigation provision of EUR 2.4 million in connection with long-running legal proceedings in France. So as a result, our EBIT stood at minus EUR 12.6 million in 2020, including the impairment charge and the litigation provision. Excluding these 2 one-off effects, The group's EBIT was minus EUR 5.9 million. This turns me to the next point on this slide. And let me underscore this also in the continued difficult economic environment. Indeed, Lalique Group continues to have a solid liquidity and capital position. Cash flow from operations 2020 increased to EUR 8.7 million, while our balance sheet remained strong with an equity ratio of 46.2% at the end of 2020. And to conclude this slide, let me share with you that against the back of the ongoing COVID-19 context, we saw solid sales trends in the first quarter of the current year. So for the full year 2021, and I will come back later on this in more detail, we expect double-digit sales growth for the group. It remains that. Nonetheless, we expect that our full year 2021 revenues will be slightly below the pre-pandemic level of 2019. And with this, let me now hand over to Alexis, who will give you a more detailed overview of our financial results.

Thank you, Roger. And also from my side, I would like to welcome you all to this conference call. So to look at our 2020 financials more in detail, let's go to Page 7, where we can see on our P&L that top line decrease from EUR 143.5 million to EUR 110.7 million, minus EUR 23 million due to the COVID pandemic context. And to anticipate questions from analysts, I can confirm here that we can see exactly the same variance in local currency. If all markets have been affected, retail suffered in particular due to the foreclosure of our boutiques during lockdowns. In order to set up proper sanitary conditions for workers in our 2 factories, we had to close our facilities for approximately 2 weeks during the first lockdown. And consequently, the gross margin level decreased from 57% to 53.4%. In this context, it was really important for us to manage to compensate this loss in sales and margin by a significant decrease in costs by 19% for personnel cost and by 24% for operating cost compared to 2019, thanks to marketing expense reduction, lease negotiation, but also strict cost management control despite the EUR 2.4 million extraordinary expense related to the court case already mentioned by Roger earlier. As already said, an impairment charge of EUR 4.3 million on the value brand has been booked as of end of June 2020, reflecting the scantity of short-term forecast for the brand in the current context of the pandemic. Excluding these 2 extraordinary factors, extraordinary expenses, EBIT would have been at minus EUR 5.9 million compared to minus EUR 12.6 million as of year-end 2020. So maybe to take a closer look at the impact of this -- 2 of these extraordinary factors, let's go to the Slide 8. So here, you can see that if we exclude respectively, the one-off effect for 2020, but also 2019, which are respectively for 2020. The noncash impairment charge on the Lalique brand for EUR 4.3 million, but also the provision for the legal case for EUR 2.4 million. And for 2019, the Glenturret acquisition cost for EUR 1.2 million and also the positive effect from the Swiss tax reform for EUR 2.1 million below EBIT. And consequently, 2020 EBIT adjusted would have been at minus EUR 5.9 million compared to EUR 2.6 million in 2019. And 2020 net loss would have been reduced to minus EUR 9.4 million compared to minus EUR 0.6 million in 2019. So let's now turn to Page 9 with an overview of the results breakdown by our business segments. In this context, let me also note that we have slightly adjusted our segment structure for our financial reporting, the Glenturret brand, which was previously reported under other brands is now managed in a dedicated segment. And the Parfums Gres brand, which was previously shown as a segment of its own, is now included in the segment of the brands. Obviously, the main reason for this adjustment in our segment structure is that the Glenturret business model is very different compared to Lalique and Lalique Beauty businesses. So you are seeing on this slide the new segment overview, consisting of the segment Lalique, Ultrasun, Jaguar Fragrances, Glenturret as well as all Other Brands segment, which is composed by the brands Samouraï, Bentley, Grès, Lalique Beauty Services, our perfume filling factory and Lalique Group's distribution in charge of the distribution of all LLQ perfumes in France. As usual, we will go through each segment in the slide that will follow. So let me just highlight here that Lalique brand represents, again, 59% of the total sales of the group. And that Jaguar is the second branch with EUR 15.8 million sales, followed closely by Ultrasun at EUR 14.8 million. So let's move now to the next slide, Slide 10, to take a closer look at the Lalique segment and the performance drivers for 2020. Sales declined in all markets, in particular, in the Europe and U.S. retail due to the force closure during Q1, Q2 and Q4. Lalique, in general, record well during the second semester with a total sales of EUR 41.3 million versus EUR 45.6 million during the first semester 2019, and this was especially thanks to the good performance in China and Mainland as well as the double digital sales for perfume and retail Lalique side. As said by Roger, hospitality business was closed for almost 5 months, including the usual season in closing period in January. And excluding -- consequently, excluding one-off effects, EBIT would have been at minus EUR 6.6 million, so slightly better than last year, thanks to material decrease in costs for EUR 9.0 million. With this, we go to the Slide 11 with the Ultrasun segment, which was not only affected by lockdown measures, but also travel restrictions which led to significantly lower sales of sunscreen products across Ultrasun main markets during the year. As a consequence, operating revenue decreased by 32% and was partially compensated by the decrease in personnel and operating costs. EBIT margin decreased to 6.9% at EUR 0.9 million. We turn now to the Slide 12 and the Jaguar segment, the Group's largest perfume brand, exactly as Ultrasun, operating revenue decrease -- has been decreased by 32%. And despite the decrease in core market sales, we managed to maintain a satisfactory 13% EBIT margin, which corresponds to an EBIT of EUR 2 million. Now let's go to the Slide 13 with the segment dedicated to the whiskey distributor Glenturret. So the operating revenue declined is due to, obviously, the shutdown of the visitor center for 9 months due to lockdown in Scotland and in the U.K. And we know that now we will only open now in end of April, 2021, but also to the delayed launch of the new whiskey ranch initially planned in Q1, 2020 has delayed to autumn 2020. So despite the cost reduction and furlough, EBIT stood at minus EUR 2.5 million. Let's turn now to the Other Brands segment on Slide 14. So this segment includes the perfume brands Bentley, Samouraï and Grès, as well as our perfume filling and logistics operation mainly due to service in France. We can see clearly that here, Bentley Fragrances performed well in the pandemic context on the minus 5%, thanks to a good digital phase and good performance in key markets. Parfum Samouraï revenue declined by 21%. This is mainly due to the fact that Japan was in state of emergency for almost all 2020. Parfum Grès reported a minus 23% revenue with the challenging situation in key markets such as South America and U.S., in particular. And Lalique Beauty Service compensated the lack of perfume activity with the production of hand sanitizer for third-party clients. Consequently, EBIT declined to EUR 1.5 million with a margin of 7.9%. To conclude this part, let's go to Slide 15 and our balance sheet. While, obviously, our P&L has been strongly affected by the pandemic, our balance sheet remains very solid in 2020. In particular, our net cash and net debt has been improved, thanks to strict control of working capital requirement, especially focused on stock level and accounts receivable recovery. As a consequence, net cash improved from EUR 15.2 million to EUR 22.4 million. Net debt decreased from EUR 49.9 million as of end of '19 to EUR 44.9 million at the end of 2020. Liquid ratio -- liquidity ratio improved to 2.0% from 1.8%. And finally, equity ratio remained strong at 46.2%. With this, I hand back to Roger for the third part and last part of the presentation.

Thank you, Alexis. And to start this last part, let's go to Slide 17. I thought it was interesting to give you an indication of the monthly sales trends that we have seen over the course of the last year and also in the first quarter of the current year. So as you can see from the graphic, we had a very good start in the year 2020 with strong sales in January, February compared, of course, to 2019. And then as we all know, March and April with the outbreak of the pandemic saw a sharp drop in sales when lockdown measures were implemented around the globe. And sales then started to slowly recover from May 2020 onwards and steadily improves, especially during Q3 and Q4, 2020. And this despite the second wave of the pandemic that kicked in in November and December and which triggered new lockdown measures in Europe, in particular. The start of 2021 showed a solid sales trend, especially considering that January and February 2020 were not yet impacted by corona, and of course, March 2021 then strongly outperformed March 2020. Now let's go to Slide 18 with our business priorities for the current year, which unfortunately continues to be marked by the COVID-19 context. Our sanitary measures and in particular, home office work continue to remain in place, while the progressing vaccine campaigns will hopefully lead to a process of normalization of life and business within the next few months. Due to the ongoing uncertainty, we continue to manage our business cautiously with a very tight cost management across all segments similar to what we did in 2020. Our key projects and launches for 2021 include the following. Of course, the rollout of the first Brioni perfume line, which started in March and which is still ongoing. The reopening of the Glenturret visitor center at end April, so actually in a couple of days. And this includes guided literally towards the cafe and the gift shop. Then the opening of the new Lalique fine dining restaurant and bar at the Glenturret distillery under the lead of [indiscernible] [ Chef MacDonald ], which is planned for late June. And last but not least, the launch of improved Ultrasun formulas in Q3 or Q4, those formulas with the focus on Asian markets and consumer taste. From a financial perspective, our main goal, of course, is to improve profitability, especially in the Lalique segment through a mix of revenue growth and control of operating expenses. And last, we intend to continue the positive sales trends in our digital businesses. This brings me to the next page, Slide 19, with our financial outlook. So as said before, for the full year 2021 and also given the improved sales trends that we saw in the first quarter, we expect a double-digit sales growth compared to 2020. And this, although revenues for 2021 are likely to remain below or slightly below the pre-pandemic level we recorded back in 2019. That said, however, there is continued uncertainty surrounding the further development of the coronavirus in the next few months. So as we have also noted on the slide, our outlook is barring unforeseeable events or a renewed escalation of the pandemic. And finally, with regards to our midterm targets that we have communicated in April 29 together with our 2018 results. Obviously, they will be delayed due to the COVID-19 crisis as we have previously announced. Hence, from today's perspective, we anticipate a delay of around 2 to 3 years in the achievement of our profitability -- midterm profitability targets. So to sum it up, let's go to -- quickly to Page #20. And of course, Lalique Group was hit by the corona pandemic, no doubt, although less severely than anticipated when the prices broke out at the start of 2020. And as a result of this, our liquidity and capital position remain strong, fortunately. And while there is a silver lining thanks to vaccine campaigns, we will continue to be very strict in the management of all our business segments, even though sales trends might continue their positive trend. And I would like to finish by mentioning that there will be no changes to the Group strategy based on diversification, as we have seen that the broad base of our businesses have shown resilience during the COVID crisis. And with this, I thank you for your attention. Alexis and I are now happy to take your questions. And so I would like the operator -- I would like to ask the operator who has the first question, please.

[Operator instructions] The first question comes from the line of [indiscernible] from [ Finance ] [indiscernible].

First question is, overall, how much did you save through COVID-related support measures, such as short [ time work ] and rent reductions? And the second question would be, at the half year results, you said online sales were responsible for a single-digit share of total sales. And what was it in the full year? And where do you want to end up in 2 to 3 years from now?

Thank you, Mr. [indiscernible]. As far as government support measures what comes to mind here, obviously, is furlough that we started introducing back in March. And of course, the other part is COVID credits that we applied for and that we received in amount, and I would say, under terms and conditions, that were provided for by those ad hoc regulations. So over the year, knowing that the furlough ratio has decreased over the months as our sales were improving again, especially after Q3 of 2020. The total indemnities that we received from the government for our furlough scheme amounted to approximately EUR 3 million. In terms of COVID credits, what I can say is that we received EUR 13 million of credits a mix, of course, of the standard credits and the credits plus, which were the terms and conditions vary. In Switzerland, those amounted to EUR 13 million. While in France, we obtained COVID credit in amount of EUR 10 million. Now of course, these amounts have to be reimbursed to the government. So we only saw this as a security net. We haven't spent or used those money. And of course, the reason is that our cash flow was positive in 2020 despite the difficult situation. And therefore, we didn't need to touch those funds. On your second question on online sales. So again, just to be precise here, in the perfume business, we achieved 8% all we achieved online sales equivalent to 8% of the overall perfume sales. However, this includes our own online channels. But it also includes sales that we made to beauty, online retailers like [indiscernible].com or like tmall.com. It also includes the e-commerce sites of certain retails that we work with like [indiscernible] and like Harrods in the U.K., for example. On the [ Crieff ] wear side, So the 8% -- online sales representing 8% of global retail sales of Lalique were achieved exclusively through our own e-commerce sites. Now of course, this growth in 2020 has been quite interesting for us, and we expect this trend to continue even after the end of the COVID crisis. But it's a little bit difficult for us to make a precise forecast, but I would definitely expect that the mentioned percentages or the percentages that we have seen in 2020 will go into double-digit figures in 2021. And from there, we'll continue to gradually improve in the midterm.

The next question comes from the line of Daniel Bürki from ZKB.

I would have a question regarding your guidance in '21, double digit, then you say you will be slightly below the sales volume of 2019. If I do the math, if you would get exactly 2019 with a sales growth of 30%. So is it -- like, does it make sense to assume you -- a number above 20% is a reasonable target for this year? That's my first. And then the second, What was [indiscernible] for your profitability in the actual year can be foreseen, for example, a positive EBIT?

Good morning, Mr. Bürki. So on your first question, you're absolutely right. We think it would be a little bit too optimistic to expect a 30% growth rate in 2021, especially looking at the business restrictions we have incurred so far since the beginning of the year. And again, even though vaccine campaigns are progressing, we don't really know what to expect in the next months. We hope that we will be able to open our various restaurants and visitor sensors and Glenturret in the course of the next week and months, but that's -- even that is not guaranteed. So we do think we need to be a little bit cautious I mean it's not excluded, we might actually reach a 30% growth, but this is not what we are realistically thinking. And then, of course, when we say double digit, that -- so the minimum would be 10%. And then obviously, the top of the range would around those 30% or a little bit less. So I would say that with 20%, we should be safe. I really think that unless there's a new escalation of the crisis, we should end up in that specific range. I hope that answers your first question. In terms of profitability, as said, we manage costs very tightly. We continue to do so even though sales trends are developing positively. We have started the year under zero-based budgeting concept. That also means that expenses beyond a certain threshold needs to be reapproved in each particulates before being incurred, even though they have been included in the annual budget. So I would say that if we're able to reach our growth targets, let's say, around 20% as you have mentioned, group EBIT should come in very close to breakeven.

[Operators instructions] The next question comes from the line of Rene Weber from Vontobel.

Roger and Alexis, so guys, two categories in terms of questions. So the first one goes into the Lalique division. I saw that the number of owned stores has been reduced from 32 to 27 . It looks like there were 2 closures in Europe, 3 in Asia. Could you tell us a little bit more about that? And what are the plans going forward with your own stores? How much of your sales in the Lalique Division is done with their own stores? And also regarding Lalique, when do you expect to breakeven on the EBIT level for the Lalique Division? And the second question goes into Glenturret, the minus EUR 2.5 million in EBIT, how much of that is due to the launch costs you have done? And could you give us an idea of what kind of sales target you expect in 2021? And when -- where do you expect to have sales with the new Whiskey range?

Rene, thank you for your questions. I will answer as follows. On the owned stores, just gathering my notes. Okay. Yes, we closed -- in total, we closed 7 shops during the year 2020 to be very precise. We closed 1 in Tokyo, 1 in Shanghai, 1 in Hong Kong, 2 in France, and 2 in the U.S. So those shops were actually point of sale that did not perform to our full satisfaction already prior to the COVID-19 outbreak, meaning already the performance in 2019 was not entirely satisfactory. So where we had the opportunity to terminate the lease contract, whether or not in the context of corona, took that opportunity and decided to close those shops because we anticipated that they would only have increased the losses 2020. However, of course, some of these shops are to be seen as temporary closures. And we will evaluate the opportunity to reopen some of them once the coronavirus will no longer affect our lives and our business. And we expect that we will start those -- this evaluation of brainstorming hopefully in the course of next year. Now in terms of retail sales, the numbers I can give you is in 2019, all our retail shops together, including e-commerce amounted to approximately EUR 30 million, 3-0. And in 2020, we had a drop in those retail sales of around 20%, 23%, meaning our retail sales amounted to roughly EUR 23 million. Okay. So much to be said on your first question now, the second question regarding the breakeven of the Lalique segment, I will let Alexis answer. Clearly, this is the most tricky segment, which is in the loss situation and that will have the biggest impact, of course on group EBIT, the day we're able to break it even.

Yes. So regarding the profitability of the Lalique segment. It's true that in the past or even if 2019 was already in significant loss, this year, thanks to the to the reduced cost and strict control of our cost on the line segment, we slightly improved if we exclude the one-off effect of the impairment charge and court litigation, the EBIT. So meaning that losses in Japan, especially in U.S. has been already used. And so we will continue to increase the profitability of the lending segments in the next years by reducing losses in the U.S. after the turn in Japan and developing also China's maiden sales as well as digital sales.