Lalique Group SA (LLQ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lalique Group H1 2022 Results Conference Call. I am Alice, the chorus call operator. 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, CEO of Lalique Group. 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 2022 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, Mr. Alexis Rubinstein. Thank you for taking the time for this conference. And 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 under Lalique Group website. and 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 financial results. And I will then conclude with our business priorities for the second half of the year as well as our financial outlook. And as said, after the presentation, we will be happy to take your questions. So let's go directly to Page #4 of the slide deck, which summarizes key takeaways for our business performance in the first half of the year. First, we are very pleased that the group's business has recovered significantly compared to the first semester in 2021 when our activities were still partly impacted by COVID-19-related protective and lockdown measures. Now for the first half of the current year, we achieved group sales that were well above pre-pandemic levels. In terms of growth, we benefited from our diversified portfolio and achieved broad-based sales growth across various fields. We saw a particularly strong performance in the perfumes business, which was supported by equally solid results in other areas, in particular, the crystal business as well as in the area of gastronomy and hospitality. Let me add here that we are also back to growth with our Ultrasun sunscreen products. However, still -- sales are still below pre-pandemic levels, which is mainly due to lower demand from China. From a group perspective, our performance in the first half of the year also reflected steps to expand the business. This included the opening and reopening of various sales points in the second half of 2021 and in the first half of 2022. Looking at the first half of the year, it is also worth mentioning that the results include, for the first time, the Château Lafaurie-Peyraguey hotel and restaurants, which we acquired in July 2021, as well as the Glenturret Lalique restaurants that opened in summer of '21. So to conclude this slide, let me point out that as a result of higher revenues, Lalique Group also increased profitability and is on track to reach its midterm targets. Now let's turn to the next page, which gives you an overview on our key financial numbers for the first half of the year. Starting with top line growth. Operating revenue increased 29% compared to the first half of 2021 and was 19% above the pre-pandemic level back in 2019. Total costs went up 34%, which reflects the business expansion I mentioned before as well as intensified marketing and sales activities. And it is also due to the fact that our cost base was reduced on the back of the pandemic in the prior year period. In terms of profitability, EBIT rose to EUR 6.3 million and the EBIT margin increased to 7.6%. It is important to note, however, that both these numbers include -- exclude exceptional income of EUR 1.7 million in the form of insurance benefits related to year-long legal proceedings in France, which have now been finally concluded. Including this exceptional income, EBIT amounted to EUR 8 million with a margin of 9.7%. The group closed the first half of 2022 with a net profit of EUR 4.6 million, up from EUR 3.1 million in the first half of 2021. And lastly, Lalique Group continues to have a solid liquidity and capital position as our balance sheet remains strong with an equity ratio of 50.4% at end June '22, compared to 50.9% at the end of last year. And with this, let me 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 look at our half year financials in more detail, let's go to the Page 7. And here, you can see an overview of our key figures for the period, and I would just highlight a few. We can see here that revenues went up to EUR 83.2 million versus EUR 64.7 million in the first half year 2021, corresponding to a 29% increase, 25% exactly in local currency. Including the exceptional income of EUR 1.7 million received from the insurance of our former [ consults ]. Sales increased in all segments and all markets, except Russia, but we will see this more into details in the slide that will follow. The gross margin increased at 57.8%, 57% exactly, excluding the exceptional income versus 53.1% as of first half during the first semester 2021, especially thanks to the strong performance of our fully-owned retail business network at 4 plus -- 41% with higher gross profit margin. Personnel costs increased by EUR 5.5 million compared to the first semester of 2021. This is mainly due to the acquisition in July '21 of Lafaurie-Peyraguey -- Château Lafaurie-Peyraguey hotel and restaurant as well as the opening of the new restaurant Glenturret restaurant at the same time. We also had a furlough in the first half year 2021 for EUR 1.2 million. And lastly, we opened new boutiques in the second half of the year 2021 and first half of year 2022. And finally, we had also the new distribution setup in the Middle East for the perfume business. For the same reasons, operating expenses increased from EUR 9.3 million to EUR 13.1 million as well also to the -- due to the necessary reboot of marketing activities after the COVID crisis. But OpEx during the first half of year 2022, we are still EUR 2.4 million below the first semester 2019, thanks to the remain strict cost control applied in all group entities. Financial result has been impacted by noncash annualized expenses of EUR 1.2 million due to conversion effects of intercompany loans in foreign currencies. Consequently, EBIT rose to EUR 8 million, EUR 6.3 million, excluding the EUR 1.7 million exceptional income. With regard 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, we can see that excluding the one-off effect of EUR 1.7 million, EBIT would have rose by EUR 1.9 million to EUR 6.3 million, reflecting strong sales performance in all markets and increased gross profit margin, offsetting increase in cost due to business expansion and rebuilt marketing activities after the COVID crisis. Let's now turn to Page 9 with an overview of our results breakdown by our business segments, Here, you can see on this slide, our segment organization consisting on the segment Lalique, Ultrasun, Jaguar Fragrances, the Glenturret as well as the other brands segment, which is composed by the brand Samouraï, Bentley, Lalique Beauty Service, our perfume [indiscernible] factory and many distribution companies in France and in the Middle East. We can highlight here that Lalique still represents 54% of the total sales of the group as well as 46% of the group EBIT. So let's move to the next slide, Slide 10 to take a closer look at the Lalique segment and the drivers of the strong performance during the first half of the year. Lalique overall sales increased by 28% versus the first half year 2021 and are -- is 31% above pre-pandemic level. We had a significant sales increase in the crystal business, plus EUR 5.4 million, strongly driven by our own fully-owned Lalique retail network with a plus EUR 2.8 million during the first semester of 2022. Lalique Parfums increased its revenue by EUR 1.4 million, reflecting particularly strong sales growth in the Middle East, thanks to the new distribution we have now set up in -- we have now in the region. Hospitality business revenues rose by EUR 2.9 million. As a reminder, Glenturret Lalique and Château Lafaurie-Peyraguey were partially closed during the first semester 2021. And also, we opened the Château Lafaurie-Peyraguey, as already mentioned, Hotel Restaurant in July 2021. Gross profit margin increased at 61.1% versus 57.1% in the first half year 2021 due to the improved margin in crystal and perfume business. Personnel costs increased slightly above 2019, mainly due to the Château Lafaurie-Peyraguey acquisition, and operating cost increased by EUR 2.3 million versus the first semester of 2021, reflecting business expansion as well as necessary reboot of marketing activities, but we can highlight here that OpEx remained EUR 2.1 million below the first semester 2019. Consequently, EBIT reached EUR 3.8 million with an improved EBIT margin to 8.3%. With this, we go to the Page 11 with the Ultrasun segment. Ultrasun generated sales of EUR 11.3 million during the first half year 2022 with a recovery of 15%. However, Ultrasun sales in the first semester 2022 are still significantly below pre-pandemic level, mainly due to the sharp decline in China while U.K. and Swiss market performed well. Gross profit margin increased by 6.5% versus half year '20 -- first half year 2021, but remains still below first semester 2019. Total cost increased back to pre-pandemic level, mainly due to the [ intertie ] marketing activities. And the EBIT increased to EUR 1.1 million with an EBIT margin of 9.5%. Turning now to the Slide 12 and to the Jaguar segment. Operating revenues increased by 27% back to pre-pandemic levels, mainly due to the positive developments in the U.S., India, Benelux as well as in the Middle East. We had here a stable gross profit margin at 33.4%, and costs are back to the pre-pandemic level, as in all brands of the Beauty division. Based on the solid sales growth, EBIT improved to EUR 1.8 million with a margin of 16.2%. Now let's go to Slide 13 with the segment dedicated to the whiskey business, the Glenturret. The Glenturret segment continued to grow in the first half of 2022, increasing operating revenue by 42%, but still slightly below expectations due to the delay of the release of the 2022 products. Hence, we expect a more significant growth in the second semester 2022. The contributing factors of this increase were the distillery's visitor center and shop, which only reopened in April 2021, last year after being closed due to the pandemic. And the Glenturret Lalique restaurant, as already mentioned, was opened in July 2021. The investment in the first infrastructure and, in particular, in the automatic machine and production as well as the expansion of the business was reflected in an expected increase in total cost of 27%. EBIT amounted to minus EUR 1.6 million during the first half year 2022, slightly improved compared to the first semester 2021. Let's turn now to the other brands segment on Slide 14. Here, we can see that Bentley Fragrances continued to grow strongly, up to 67% with a broad-based international increase, the growth resulted in an increased EBIT margin of 22.5% versus 18.8% during the first semester 2021. Parfums Samouraï operating income was slightly below first semester of 2021 due to the continued pandemic-related market restriction in Japan, but the EBIT margin remains very high at 36.2%. Parfums Grès sales increased significantly by 41% with a mid-margin at 17.3%, while Brioni performed significantly increased sales during the first half of year 2022 as a result of further market wins and new launch of the first fragrance but has not yet reached the critical size to breakeven this year. Lalique Beauty Services operated at high capacity thanks to the higher group demand, but also thanks to a new third-party customer. Consequently, the EBIT of this segment increased to EUR 3.2 million with an improved EBIT margin at 18.9%. To conclude this financial part, let's go to the Slide 15 and our balance sheet. We see here that our operating cash flow, which was -- which were at EUR 9.9 million this year versus EUR 6.7 million during the first semester 2021 has been fully offset by the repayment of COVID credit for EUR 16 million. And consequently, we had a net cash decrease by EUR 3.4 million as of end of June 2022. Intangible assets and noncurrent liabilities rose respectively due to the capitalization of the new Superdry perfume license. And we see clearly here that our balance sheet remains very solid with a strong ratio. Net debt/EBITDA ratio improved at 1.5 and equity ratio is still strong at 50.4%. With this, I hand back to Roger for the third and last part of the presentation.

Thank you, Alexis. Yes, let's go to Slide 17 with our business priorities for the second half of the year. Of course, we are continuing to drive sales as the positive trends seen in the first semester is lasting despite the uncertainties regarding the evolution of the economic environment. Operating expenses are increasing on the back of our sales growth. However, we are nonetheless maintaining a tight cost management in order to optimize profitability. Sales growth also requires us to increase our production capacities. During the summer break, we have installed and commissioned a new electric furnace to replace the old one that reached the end of its life cycle. In addition, we are reorganizing, expanding and to the extent possible, modernizing our cold glass production workshops to address increasing demand for our crystal products. As a result, we have seen an increase in productivity at the Lalique factory of 14% in the first half of the year. In terms of product launches and projects, let me mention the recent launch of our first NFT collection under the name The Impossible Vases as announced on September 8. I presume that most of you will have seen that press release. Further, in July, we have started the rollout of the 2022 Glenturret whiskey release, which so far has been very positively received in the marketplace. Also, we have very recently unveiled a new Lalique art project, consisting of the iconic HOPE sculpture created by the artist Robert Indiana. While the original sculpture is made of steel, we have edited it in a limited addition of 8 pieces in Lalique crystal. And last, you will probably have noticed this morning's press release with which we announced the acquisition of the traditional silk label Fabric Frontline, which is renowned for its high-quality silk accessories, especially scarves and foulard. The acquisition, which is expected to be completed in spring 2023 will offer opportunities for collaborations and co-branding projects with the Lalique brand, as we have already done in 2015 when Fabric Frontline was under its current ownership. And even though this is not for the second half of 2022, I'll take the opportunity to remind everyone of the Villa Florhof project, which we announced in July, and is, of course, a longer-term project due to material life in 2024. Villa Florhof will then reopen at the Lalique hotel restaurant in the heart of Zurich and will complement our gastronomy and hospitality business. This brings me to the final page, Slide 18 with our financial outlook. First and foremost, with regard to the current year, Lalique Group expects the current positive trends to continue until the end of 2022. However, given the stronger prior year comparison base, we anticipate that this growth rate will be lower than in the first half of 2022. Looking further ahead, we are holding on to our midterm target that we originally set in April 2019 and extended by 1 to 2 years given the setback of the COVID-19 pandemic. Taking this into account, we take the view that we are making pretty good progress and are on track to achieve those targets. As always, our outlooks are subject to unforeseeable events in today's environment, in particular. And with this, I thank you for your attention. And Alexis and I are now happy to take your questions. Operator, please who have the first question.

Our first question comes from the line of Patrik Schwendimann with Zürcher Kantonalbank.

Patrik Schwendimann, Kantonalbank. Congrats for the strong results. I have several questions, if I may. First question regarding Ultrasun, overall sales for the group have been 19% higher versus H1 '19. But as you have already mentioned, Ultrasun was still much lower, 27% lower than in 2019. But I guess there's still more sales recovery potential for Ultrasun? Or what would you say is the new normal full year sales figure for Ultrasun in a normal year for the future? That's my first question. Second question regarding the Lalique brand. I assume EBIT was including this legal case of EUR 1.7 million, if I would exclude that one, then the EBIT margin was -- adjusted EBIT margin for the Lalique brand was at 4.7%. Are you satisfied with this margin for the Lalique brand and what more has to be done that also the Lalique brand would have a high single-digit EBIT margin? Then third question regarding the Glenturret. You've already mentioned that you would expect an acceleration in growth in the second half of the year. What's here your best guess for full year sales for the Glenturret? And do you still expect to reach breakeven for the full year for Glenturret? And last question regarding CapEx. CapEx was much higher in H1, with EUR 8.3 million. What is here your best guess for the current and the next year and also maybe for the midterm?

Yes. Thank you, Patrik. The first question on Ultrasun. I want to see that back in 2019, we reported a first half year turnover of EUR 15.5 million compared to EUR 11.3 million in this year. And what -- the main point here is that, that turnover back in 2019, included EUR 5 million in sales to our China distributor, which we are missing this year. So having said that, all of our other markets have actually gone back to pre-pandemic level. U.K. and Switzerland, which are 2 of our key markets have actually increased compared to 2019. So we are quite happy there. As far as China is concerned, we had a spectacular breakthrough in 2017, '18 and '19 with our formulas for sensitive skin and sun allergies. However, we have seen -- in the meantime, we have seen a shift in consumer demands to more fluid and easy to apply formulas for daily use. We also see that a lot of female customers that tend to layer sun care with makeup and skin care products. However, these product features are more difficult to be in line with our philosophy, consisting of absence or lack of questionable ingredients, such as preservative silicones et cetera, and also with high SPS claims. So in terms of product development, this is a challenge for us. And of course, on top of that, we are now reevaluating our brand positioning and the distribution strategy with the Chinese partner, which heavily contributed to growth in those past years. We expect that the Chinese business will increase again from next year onwards. It's difficult to say at this stage, when we will reach those pre-pandemic levels within a total of EUR 7 million sales for the Chinese market in 2019, but we expect that we'll make significant steps in that direction again. Does that answer your question to -- regarding Ultrasun?

Yes.

And I will -- the second question was on the EBIT margin of the Lalique segment, which excluding the exceptional income amounted to 4.7% and the further potential. In view of the current situation and rising energy costs, we're not sure that we will be able to significantly increase that margin in the short term. However, going forward, we expect that we will be able to raise it, whether it will be high single digit remains another question, but we definitely expect margin to rise on the midterm to a level of roughly 7%. And then after that, we'll take it from there. And of course, that increase in EBIT margin will mainly be driven by the perfume -- the perfume business, which has a very strong EBIT margin, as you know, and to some extent, also in the crystal business as we increase our production capacities at the factory. Then you asked about the full year forecast for Glenturret. This will be mainly driven by the 2022 whiskey range, which was unfortunately delayed. We could only start shipping in the month July. And originally, we had expected to be able to ship in May. But we think it's just a shift between first and second semester. And as I said, the range has been very well received. We are entering new markets in '22, mainly with the U.S. and China. And so we expect a significant increase in sales. And also, the second main contributor will be our range of [indiscernible], which are selling very well at very high prices. And so that will also contribute to the performance of Glenturret. For the full year, we expect a sales turnover in the range of EUR 6 million to EUR 7 million, sorry, GBP.

And in terms of breakeven?

Well, if we achieve this level of sales, we should come very close to a breakeven EBIT. And I think your last question was on CapEx?

Yes, exactly. After this EUR 8.3 million in H1, which was significantly higher than last year, what is your best guess here for the full year and next year? And maybe also midterm if CapEx will come down again.

Well, certainly, CapEx will come down already in the second semester. We have undertaken major, major steps at the factory with the new furnace with a new acid workshop in the cold glass section. Now we are optimizing all equipment with good various lines for polishing and also for the production of drinking glasses. So we expect that investment at the Lalique factory will definitely come down already in the second half of the year, but mainly in the years to come. What we are planning, however, is to invest in a new [indiscernible] workshop in -- at Lalique Beauty Service, our perfume filling factory. Those investments are planned for 2024, and that will, of course, then have an impact on CapEx again.

And what does this mean just as the best guess in terms of numbers for the current year and maybe '23, '24 just as the best guess?