Lalique Group SA (LLQ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lalique Group H1 2021 Results Conference Call. I'm Jewel, the Chorus Call operator. [Operator Instructions] And the 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 half year 2021 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. And of course, it's our pleasure to have you all in this 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 on the Lalique Group website. For this call, we will go slide by slide. I will start with a brief summary of our performance, then Alexis will provide a more detailed overview of our 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, of course, we'll be happy to take your questions. So let's go directly to Page #4 of the slide deck. So for the first half of the year, we are pleased to say that Lalique Group returned to profitable growth after the COVID-19 pandemic have led to a substantial sales drop in the past year. Obviously, our business across markets was still impacted by the pandemic, forcing us to close most European retail stores as well as our hospitality establishments in France due to lockdowns. But the market environment improved, and especially in the second quarter, we saw a significant recovery of sales. In the Lalique segment in particular, sales rebounded to pre-pandemic levels from 2 years ago, thanks to a strong growth in revenues at Lalique Parfums, among others. Most of our other perfume brands also achieved a strong performance. Overall, this helped us to more than offset the decline in the sale of Ultrasun sunscreen products that was the consequence of prolonged holiday travel restrictions in particular. The 2020 maiden release of our Glenturret new whiskey range was very well received and generated a lot of interest among aficionados of Scottish single malt whiskey. The rise in whiskey export sales more than compensated for the absence of revenues at the distillate visitor center, which had to remain closed until the end of April due to lockdowns in Scotland. So overall, we achieved solid results amid the ongoing pandemic and our broad-based business model proved resilient. And we continue to pursue our diversification strategy. And you have seen that in July, we have announced the expansion of the group's hospitality business with the acquisition of the Lalique Hotel Restaurant at Château Lafaurie-Peyraguey in the Bordeaux region as well as the opening of the Glenturret Lalique Restaurant in Scotland. With these steps, the hospitality business now includes 4 establishments, which are excellent ambassadors for the Lalique brand. Let's turn now to the next page, which summarizes our financial performance in the first half of 2021. Operating revenues came in at EUR 64.7 million, which represents an increase of 32% compared to the first half of 2020. With this rebound, group sales were recovering towards the pre-pandemic level in the first half of 2019 when sales amounted to EUR 70 million, 7-0. In terms of expenses, we continued a strict cost management across all segments and total costs were 27% lower than in the first half of 2020 or 12% lower if we exclude the one-off impairment charge on the Lalique branch, which we recorded in the prior year period. And let me again mention the Lalique segment, where we saw the most notable decrease of expenses. This mainly reflects a loss reduction in our overseas subsidiaries and a downsizing of our retail network as we closed 6 shops in the past year against the back of the COVID-19 pandemic. Some of these shop closures are permanent, in particular, where we no longer consider the location to be of strategic importance. While some other closures are only temporary, for example, where we [ refrained ] to renew a lease during the pandemic. In addition to the higher revenues, those cost reductions contributed to an improved profitability of the Lalique segment, which achieved an EBIT of EUR 2.5 million and an EBIT margin of 7% in the first semester. For the group overall, the sales rebound at lower costs led to an improved group EBIT of EUR 4.4 million in the first half of 2021 after a negative EBIT in the previous year period and an EBIT of EUR 0.5 million, EUR 0.5 million in the first half of 2019 pre-pandemic. And group net results amounted to EUR 3.1 million in the first half of 2021. To conclude this slide, let me underscore that the Lalique Group continues to have a solid treasury and capital position. Net debt has decreased and our balance sheet remains strong with an equity ratio of 48.4% at end June 2021, up from 46.2% as of the end of 2020. And with this, I will now hand over to Alexis Rubinstein, who will give you a more detailed overview of our financial results in the first semester.

Thank you, Roger. And also from my side, I would like to welcome you all to this conference call. So to take a closer look at our half year financials. Let's go to the page 7. Here, you can see an overview of our key figures for the half year, and I will just highlight a few. So as already said, group revenues went up to EUR 64.7 million versus EUR 49.1 million during the half year 2020. We observed a strong growth during the first semester in all segments, except maybe Ultrasun, and in particular in the perfume business, resulting in a global increase in revenues of 32% versus half year 2020. Perfume business were even globally slightly above pre-pandemic level, thanks in particular to the new distribution organization in the Middle East. Gross profit margin was stable at 53.3%. And so despite that all segments, except Ultrasun, increased significantly their gross profit margin ratio, the perfume business grew faster, plus 77%, with lower margin than crystal, which grew only by 18%, the gross profit margin remained stable due to this negative mix effect. Personnel costs were stable compared to half year 2020, including furlough support, especially in France for boutiques during lockdown in hospitality, which were closed -- hospitality businesses, which were closed until June this year for -- so in total for EUR 1.1 million. In general, we stopped using furlough at group level since the 1st of July 2021. Operating at operating expenses were further decreased by EUR 0.6 million during half year 2021 and by EUR 6.2 million compared to half year 2019, especially at the Lalique segment, thanks to shop closing, as already mentioned by Roger, which we closed 6 shops compared to 2019, nonprofitable shops. Cost reduction, especially in both Japanese and U.S. subsidiaries, marketing expense reduction during the pandemic and a strict cost control management in all group entities. Excluding the impairment recorded last year for EUR 4.3 million on the Lalique brand, amortization decreased by EUR 1.2 million, thanks to shop closing. As you may know that operating lease are now booked in amortization according to IFRS 16 standard since 2019. Consequently, EBIT ended up at EUR 4.4 million as of end of June 2021, corresponding to a 6.8% EBIT margin. With regards to the improved profitability in the first half of the year, let's look at it in more detail on the next slide, Slide 8. So here, you see that the goal of this slide is to eliminate all nonrecurrent effect -- events for both periods for half year 2020 and half year 2021, such as the COVID-19 government support, our impairment charge book in 2020 in order to provide a better understanding of the EUR 9.5 million increase in profitability compared to 2020. And here, we see clearly that this is mainly due to the margin generated by sales increase for EUR 8.4 million and as well as decrease in [ OpEx ], as already mentioned before. Maybe important to mention, while this OpEx reduction, especially due to shop closing, will continue over time, marketing expenses will be slightly increased during the second semester 2021 and 2022, but in line, obviously, with the revenue increase. Let's now turn to Page 9 with an overview of the results breakdown by our business segments. Maybe after, as usual, we will go through each segment in the slides that will follow. So let me just highlight here the following points. You're seeing on this slide the new [ segmentalization ] consisting of the segment Lalique, which still represent again 55% of the total sales. Ultrasun, the second brand, with 15% of the total sales. Followed closely by Jaguar, which represents 13.5% of the total sales. And then we have the Glenturret for the whiskey business. And finally, other brand segment, which is composed by the brand -- perfume brand Samouraï, Bentley, Grès, as well as Lalique Beauty Service, our perfume filling factory and Lalique Beauty Distribution. Let's move now to the next slide, Slide 10, to take a closer look at the Lalique segment and the performance drivers for the first half of the year. Total sales as of end of June were above pre-pandemic level with EUR 36.2 million versus EUR 35 million for half year 2019, especially thanks to Lalique Parfums sales and the new distribution set-up in the Middle East. While gross profit margin increased in all pillars, except for [ crystal business which was ] down, the Lalique brand gross profit margin remained stable versus 2020 due to the increased Parfums sales share with lower margin compared to the crystal business, exactly in the same way at the group level. At cost level, the benefits of structural cost reduction program already started in 2019, especially in Japan and U.S. have fully impacted the 2021 results with a total cost decrease of EUR 6.5 million compared to half year 2019 for -- thanks to action already mentioned, cost reduction in Japan and U.S. through cost control, marketing expenses reduction during the pandemic and shop closure. Excluding -- finally, excluding the one-off impairment booked last year, EBIT improved by EUR 8.9 million to end up at a plus EUR 2.5 million as of end of June 2021. With this, we go to the Page 11 with the Ultrasun segment, which continued to be significantly affected by the COVID-19 situation and was not only affected by lockdown measures but also by travel restrictions, which led to significantly lower sales of sunscreen products caused [indiscernible] markets in the year. So as a consequence operating revenue decreased by 21%, partially compensated by a decrease in personnel expense and operating costs, resulting in an EBIT margin decrease to 4.7% at [ EUR 0.9 million ]. Turning now to Slide 12 and to the Jaguar segment. Jaguar sales increased by 37%. As for all perfume brands, all the markets performed well, but the main driver of this performance was the Middle East market again. In addition, we had also a very satisfying -- satisfactory increased level of gross profit margin, which led to an EBIT margin at 18% as of end of June 2021. So now let's go to Slide 13 with the segment dedicated to the whiskey distillery, The Glenturret. So despite the pandemic and Brexit logistics issues, whiskey exports through distributors performed very well, thanks to the successful launch of our new product range. But nevertheless, the shutdown of the visitor center during the first semester due to lockdown [ restrictions ] in the U.K. affected strongly revenues during half year 2021. As a reminder, to give an idea, in 2019, touristic activities representing more than EUR 1 million of revenues. In addition, whiskey sales and gross profit margin was [ not ] significantly higher, with direct sales to hospitality businesses would not have been affected by lockdown. Finally, cost increased mainly due to the necessary preparation and staffing of the restaurant during Q1 and Q2 for opening only in July. And consequently, EBIT was negative at minus EUR 1.7 million [ waiting ] for return to profitability in [ 2022 ]. Let's go now to page -- Slide 14 with the segment, other brands, composed by Bentley, Samouraï, Grès, and for the short time also Brioni, as well as our perfume filling factory in Lalique Beauty Services. We see here clearly a very strong performance for Bentley, with an increase in revenue by 162%, largely above pre-pandemic level, and 18.8% EBIT margin. Perform Samouraï saw its revenue raise by 66% despite the pandemic restrictions still applied in Japan. And finally, we had a satisfactory plus 70% for our Persian filling factory, Lalique Beauty Service, which confirm especially with -- thanks to third-party customer, which confirm the competitivity of our factory. To conclude this part, let's go to Slide 15 on our balance sheet. If we look back to our 2020 full year results, we observed that while our P&L were strongly affected by the pandemic, our balance sheet remains very solid in 2020. In particular, net cash and net debt [indiscernible], you can see the half year 2021, first half year 2021, the trend is confirmed. So net debt decreased to EUR 43.7 million. The net debt to EBITDA ratio is now below 2 at 1.9. And the equity ratio increased from [Audio Gap] I hand back to Roger.

Thank you, Alexis. Let's move on to Slide 17, which gives you an overview of the monthly sales trends we saw over the course of the first semester of the current year compared to the first half of 2020, on the one hand, and the first half of 2019 on the other hand. So on this graphic, you can see that the sales of the first quarter 2021 were still slow, in particular in January and February, and the trend notably improved from March onwards. And you can also see that the pre-pandemic levels of 2019 could not quite be matched over the entire semester, although May and June were close, which gave us good confidence for the second semester. Turning on to Slide 18 with our business priorities for the second half of the year. So currently, we are in the process of gradually abandoning home office and return to office work in order to re-boost morale and team spirit, and also to favor creativity and innovation. And in terms of works method as well, we will also gradually resume physical interaction with clients and partners, be it through business travels, shows and client events, press events, et cetera. However, only and to the extent that the sales trend continues to develop positively. Of course, these decisions will rather impact the years to come, 2022 and so on, rather than the rest of the term period. On the revenue side, our main objective is to maintain the trend of the second quarter, especially in the Ultrasun segment, where we expect a strong development of sales to make up for lost ground during the first semester. And of course, we will continue to keep a focus on cost control even though marketing activities and other projects will gradually increase as the business continues to normalize. And of course, projects primarily relates to the development and launch of new product lines and collections. [ Just turning ] to the final page, Slide 19, with our financial outlook. And although there is still some uncertainty about how the COVID-19 situation will develop, even though currently, it has stabilized, also given the vaccine campaign, we expect the recovery trends observed in the business since the second quarter in particular to continue in the second half of the year. And therefore, for the full year 2021, we maintain our previously announced forecast of sales growth in the double-digit percentage range compared to 2020 with revenue likely to remain slightly below the pre pandemic level seen in 2019. And that said, and as we have also noted on the slide, our outlook is barring unforeseeable events or renewed escalation of the pandemic in particular, the delta variant. And finally, with regard to our midterm targets that we have communicated in April 2019, together with our 2018 results. Obviously, they will be delayed due to the public situation, as we have previously announced. And from today's perspective, we continue to anticipate that the corona has led to a delay of around 2 years on the road towards our previously communicated targets, but we hold on to them. And again, let me repeat them, a mid-single-digit revenue growth in local currencies and a gradual increase in EBIT margin to 9% to 11%. And with this, I thank you for your attention. And Alexis and I are now happy to take your questions. Yes. So operator, please, who has the first question?

[Operator Instructions] The first question comes from the line of Patrik Schwendimann from ZKB.

I have several questions, if I may. One is EBIT margin was much better than expected with 6.8%. What is now your best guess for the full year EBIT margin? Do you think similar EBIT margin could be possible? Or would you say a much lower EBIT margin for the full year is more likely because of, e.g., higher marketing? That's my first question. Second, in the midterm, you want to achieve 9% to 11% EBIT margin. There was COVID-19, but now you are recovering strongly with a lower cost base. So what is your best guess in how many years down the road will you achieve an EBIT margin of at least 9%? And third question, as far as I know, you will increase the distribution of the whiskey brand, The Glenturret, further in H2. What is your best guess full year sales for the whiskey business? And my last question regarding Brioni, you had sales of EUR 0.5 million in H1. What is your best guess here in terms of sales for the full year?

Okay. So 4 questions. I will start with the first one, the EBIT margin forecast for the full year. Of course, that's -- we haven't given a guidance on the profitability. So we -- of course, we -- as we said, we are very tightly managing costs despite this positive results. There's no reason to change this. But as there are no hurdles, no major COVID-19 hurdles anymore, no more lockdowns, no more restrictions impacting business, we think that we can maintain this level of profitability during the second semester. In particular, as we speak today, mid-September, we are not aware of any factors that would jeopardize this level of profitability. And again, barring unforeseen events or a fourth wave of the pandemic, we don't see any factors that might jeopardize this profitability well until the end of the year. So I hope that answers your first question. In terms of when are we going to be able to reach 9%, which is the lower threshold of our midterm guidance, well, that's a good question. I mean right now, we are at -- we're close to 7%. But of course, in this first half year, we had -- we still had some government support, in particular, regarding our retail and hospitality businesses, which were forced to close for the first 4 or 5 months of the year. But we think that -- well, of course, 2022 will be a decisive year. Hopefully, then we will have certainty that we're out of the pandemic. And of course, this will allow us to resume a certain number of marketing initiatives and projects that we have frozen. But -- and if that works out, we think it's realistic to expect that we should reach this 9% threshold in '23 or latest '24, knowing that Glenturret will play a major factor in here. Which leads me to your third question, because when we purchased the distillery 2 years ago, we did a 10-year business plan. Of course, the horizon or the timeline in whiskey is much longer than in other businesses, given the time needed to mature whiskeys after they've been produced. And according to our business plan, we anticipate -- by then, we anticipated that we would need 2 to 3 years to reposition the brand as a high-end and niche brand in the single malt industry. And therefore, we expected that 2022 would be the first year where sales would increase, I would say, significantly. So we expect that we will breakeven at Glenturret in next year, 2022. And of course, from then on, hopefully, increased profitability, which will then, of course, represent a valuable contribution for the group results. So to be more precise, you asked for the full year forecast. Given that we are mid-September, I don't think that the full year forecast is very relevant. We're already focusing on '22. But of course, the visitor center being open even though there are not that many foreign tourists given the travel restrictions to Scotland that are still in place, but nonetheless, the restaurant is open. And of course, we continue to ship our whiskeys with the 2021 release being launched [ these days ], actually. So we expect, of course, good revenues until the end of the year. But again, our focus is already on '22. Which leads me to your third question on Brioni. So Brioni, as we said, was a successful launch, in particular, in terms of reception of the brand and of the perfume with EUR 0.5 million revenue so far knowing that given the situation, the rollout, the international rollout was kind of delayed, usually, we -- a launch lasts between 3 and 4 or 5 months in total until all products are on shelf internationally. In this case, it will take a little bit longer due to restrictions, especially in the logistics industry. But regardless of the revenues, we -- of course, we are in the launch phase. We have a lot of development costs and launch expenses. So we don't expect that Brioni will be profitable in this year, but definitely from next year onwards.

But sales for Brioni will be significantly higher in H2 because also we have -- for the seasonality, right?

I wouldn't say so because we had -- of course, we had a huge sell-in in the first half. We started rolling out the product in March, April. We will roll out the second perfume this fall, probably from next month onwards. So I expect sales will be more or less at the same level than in the first half year. But I wouldn't -- I don't anticipate that they will really significantly exceed those levels.

The next question comes from Jean-Philippe Bertschy from Vontobel.

The first one is to follow up on Brioni. I was surprised by the strong sales despite the ongoing issues. Maybe a long-term question. What is your ambition with that brand? The second question would be on Ultrasun. We heard the issues, but nevertheless, I think the sales drop is quite significant when you compare with some other skin care brands. It looks that you are like losing market share. What is the measures you are taking to address this issue? And the third one would be on your guidance, double-digit growth for the full year. Are you expecting as well a double-digit growth for H2 -- over H2 '20?

Yes, Mr. Bertschy. So the first question on Brioni, while the long-term ambition, I mean, our objective is to position Brioni as a perfume brand. I don't know whether you're aware of that, but Brioni had launched one perfume some years ago, but which they mainly sold in their own stores. So it wasn't really known to the wider public. So our ambition for this first term of the license is to position the brand where it belongs. It's a high-end niche brand and to -- of course, to penetrate all, I would say, traditional beauty sales channels. And of course, in that process to increase our sales quite significantly in the next few years. And then, of course, in a second step, it will be to consolidate the brand, so it becomes one of the known actors or brands in the industry. And of course, we're working very close with the Brioni management on this, who are actually very, very close to this licensing business. So I hope that this answers your first question. In terms of Ultrasun, yes, we are also surprised to see how this first half year has been challenging for Ultrasun, especially in comparison with other sunscreen brands. One factor might be our distribution, which is currently still predominantly in Western countries and Northern Hemisphere. Meaning that we are making the big chunk of our sales usually in the first quarter of the year to our distributors, who then sell those products onwards to the local retailers. So products end up on shelf in the retail around May, June in view of the summer season. But of course, the first quarter was very, very heavily impacted by COVID measures and lockdowns, et cetera, as a result of which we didn't receive much orders for -- during that period. And that probably explains why, in comparison to other brands which would probably have a wider, more global distribution, we are behind schedules and behind target. Now are we going to make up for this in the second half year? To some extent, yes. We -- in particular, in China, we expect to launch optimized formulas for this very specific market. And we will be able or we should be able to make up some ground. But definitely, we will not be able to go back to pre-pandemic levels. But on the midterm, of course, assuming the pandemic -- we will get out of this pandemic starting next year, we should be able to very quickly go back to those pre-pandemic levels. In terms of guidance for the full year. So you asked -- I mean, our guidance in terms of revenues is clear. I -- so the gap between half year 2021 and half year 2019 is roughly EUR 5 million. To be frank, we might be able to make up some ground there, but I don't think we will make up the full EUR 5 million. So in terms of revenues, definitely we stick to our guidance. In terms of profitability, especially at EBIT level, as I said before, we -- as we speak today, there are no factors that would jeopardize this level of EBIT margin, 6.8%. I don't see -- I'm not aware as we speak today of any factors that would jeopardize this profitability level until the end of the year. I hope that answers the question.