Lalique Group SA (LLQ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Lalique Group Annual Results 2022 Conference Call. I am George, the Chorus Call operator. I would like to remind you that our participants will be listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [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.

Good morning, ladies and gentlemen. I would like to welcome you to our conference call in connection with the 2022 full year 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 the call. 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 year results slide presentation. As you have seen, the presentation is available on the Lalique Group website, and we will go slide by slide. I will start with a brief summary of the past year then Alexis will provide a more detailed overview of the financial results, and I will then turn to our business priorities for the current year as well as our financial outlook. After the presentation, as I said, we'll be happy to take your questions. Let's go directly to Page #4 of the slide deck, which summarizes key takeaways for Lalique Group's financial performance in 2022. We saw pleasing sales growth across business lines and international markets. The group's operating revenue grew to EUR 170 million, which is 20% more than in the previous year and with this, we are also 20% above the pre-pandemic level of 2019. Our perfume business once again delivered strong performance across most brands following the growth path, we already saw last year. I would also like to point out that our largest segment, the Lalique Segment, of course, grew at double-digit rates, reflecting further growth in all 6 brand pillars. Let me also mention here that our sunscreen product line, Ultrasun, returned back to growth in 2022. On the cost side, the overall cost increase reflects the higher business volumes, intensified marketing activities, as well as investments in enhanced capacities at our 3 production sites, that is crystal glass, perfumes, and whisky. So as a result, our profitability at EBIT level increased to EUR 13.2 million in 2022 compared to EUR 9.6 million in the previous year, and our EBIT margin amounted to 7.7%. The group closed the financial year '22 with a net profit of EUR 9.6 million, up from EUR 6.8 million in '21. Given the results achieved in 2022, our Board of Directors will propose the distribution of a dividend of CHF 0.50 per share at the upcoming AGM. This is an increase of CHF 0.10 versus the dividend for the financial year 2021. With this, let's turn to the next page with some recent business highlights, which underscore the breadth of our business and the benefits of our diversification strategy. I will start with the gastronomy and hospitality business, which we expanded in 2021 with the acquisition of the Lalique Hotel and Restaurant at Château Lafaurie-Peyraguey in the border region and with the opening of the Glenturret Lalique Restaurant in Scotland. Both establishments developed well last year and fit nicely into the world of Lalique. We were also very pleased that the Glenturret Lalique Restaurant was awarded 1 Michelin Star in February 2022, less than a year following its opening. While the Château Lafaurie-Peyraguey Lalique Hôtel & Restaurant was awarded a second Michelin star in March 2022. Second, and with regard to the perfumes business, we announced in April 22 that Lalique Group had entered into a new and exclusive licensing agreement with the global fashion brand Superdry. Under this agreement, Lalique Group has been appointed as the exclusive license partner for the creation, production, and global marketing of Superdry fragrances. Another focus in 2022 was on strengthening our production capacities for further growth. This included a new electric melting furnace and increased resources and equipment in the cold glass production at the Lalique manufacturer as well as a new mash turn at the whiskey distillery. Turning to Switzerland now. We are looking forward to the opening of the hotel restaurant, Villa Florhof, in Zurich. The traditional establishment is currently being renovated in the Lalique style and will be operated by Lalique Group from Fall 2024 on, further strengthening our hospitality business. And last but not least, we are also looking forward to the relaunch of the silk label Fabric Frontline as announced in September 2022, with the presentation of a first collection plan for next year, that is to say, 2024. And with this, let me now hand over to Alexis, who will give you a more detailed overview of our '22 financial results.

Thank you, Roger. And also, from my side, I would like to welcome you all to this conference call. If you look at our full year financials more into details, let's go to the Page 7 where you can see an overview of our P&L. Revenues went up to EUR 170 million versus EUR 142 million in '21, corresponding to a 20% increase, 14% in local currencies. Sales increased in all segments and all markets, except Russia, and we will see this more into details in the slide that will follow. The gross margin increased to 58% versus 56.5% in 2021, especially thanks to the good performance of the perfume business as well as the Lalique retail network with higher gross profit margin. Personnel costs increased by EUR 7.4 million, mainly due to the change in scope such as the acquisition in July 2021 of Lafaurie-Peyreaguey Hotel & Restaurants as well as the opening of the Glenturret restaurant in the same time. New boutiques as well opened end of 2021 and beginning of 2022, especially in Asia and we had created last year the new distribution entity in the Middle East for the Perfume distribution. We had also followed applied during the pandemic in the first half year 2021, especially in France, Switzerland, and the U.K. Operating expenses increased by EUR 6 million in 2022 for the same reasons in addition to the necessary reboot of marketing activities after the pandemic. But despite this business expansion, OpEx, operating expenses remain EUR 2 million below pre-pandemic level in 2019. The financial result has been impacted by noncash unrealized foreign exchange differences as well as a slight increase in interest rate during Q4 2022. Consequently, EBIT rose to EUR 13.2 million, and net profit ends up at EUR 9.6 million, including the exceptional income of EUR 1.7 million received from the insurance of our former consult, closing definitely and all the legal litigation. So, let's move to Slide 8 to take a closer look to the increase in profitability for Lalique Group 2022. Here, we can see that excluding the one-off effect of EUR 1.7 million, the EBIT would have rose by EUR 1.9 million to EUR 11.5 million, which reflect the impact of strong sales performance in all segments in all markets, I already mentioned, for EUR 15.8 million and the increase in gross profit margin for EUR 2.7 million. These 2 increases offset the increase in cost due to business expansion and increased marketing activities after the COVID crisis. So, let's now turn to Page 9 with an overview of the results breakdown by our business segments. We can see here that we do not have any change, major change in our segment organization consisting of the segment; Lalique, Ultrasun, Jaguar Fragrances, The Glenturret, as well as the other brands composed by Samouraï, Bentley, Grès, Brioni, Lalique distilleries, our perfume filling factory, and both Lalique Beauty distribution companies in France and in the Middle East and recently, Superdry. We can run ahead here that Lalique represents 54% of the sales as well as 33% of the EBIT. The main EBIT contributors of the group were in Lalique and Jaguar with both EUR 4.3 million, while the other brand segments contributed with EUR 5.4 million EBIT. So, let's move to the next slide, Slide 10, to take a closer look at the Lalique segment. Here, we see that overall sales increased by 12% versus 2021 and 18% above pre-pandemic levels. Lalique Perfumes increased its revenue by 13% with strong performance in all markets, especially in the Middle East with our new distribution company entity. We had a significant sales increase in the Crystal business by 11%, strongly driven by the Lalique retail network with a plus 18%. Hospitality business increased as well as its revenue by 44%, but taking into consideration that Villa René Lalique and Château Hochberg were partially closed during the first half year 2021 due to the pandemic and that we only acquired Château Lafaurie-Peyraguey Hotel & Restaurant in July 2021. Global brand gross profit margin increased at 61.3% versus 59.2% in 2021. Thanks, again, to the good performance on retail sales, especially while total costs including amortization increased by EUR 9.7 million, but still below 2019 level despite acquisition of Lafaurie-Peyraguey, investment in production and in business expansion in new boutiques. Finally, EBIT reached EUR 4.3 million with an EBIT margin of 4.5%. With this, we go to the Slide 11 with the Ultrasun segment. Ultrasun generated sales of EUR 14.8 million in 2022 with a recovery of 13% versus '21, returning to a positive trend in sales and profitability. However, the profit sales in 2022 were still below pre-pandemic level, mainly due to the decline in the China market, while U.K. and Swiss sales performed very well. Gross profit margin increased by 10% versus 2021, even if we remain below 2019 level. And finally, EBIT increased to positive EUR 0.5 million versus a negative EUR 1.1 million last year. So, let's turn now to the Slide 12 and the Jaguar segment. Operating revenues increased by 28%, mainly thanks to the positive development in the U.S., India, Benelux, and Middle East. We had here a slight increase in gross profit margin from 32.7% last year to 35% in 2022. So based on this solid sales growth, EBIT improved to EUR 4.3 million with an EBIT margin of 16.2%. Now let's go to Slide 13 with the segment dedicated to the whisky history, the Glenturret. The Glenturret segment continued to grow in 2022, increasing its operating revenue by 53.7%, even if slightly below expectation due to the delayed release of the 2022 products. Personnel costs increased by EUR 0.9 million, reflecting mainly the fact that the distillery center, the shop, and the restaurants were mostly closed during the first half year 2021 due to the pandemic restrictions as well as the opening of the restaurant only in July 2021. EBIT in '22 is negative or minus EUR 0.9 million versus minus EUR 1.6 million as of end of June 2022, which reflects a positive trend in terms of sales and profitability during the second semester with a positive EBIT of EUR 0.7 million. Let's now turn to the Other Brands segment on Slide 14. Bentley Fragrances continued to grow strongly, up to 59% with a broad-based international increase in demand. The growth resulted in an increase in EBIT margin of 23.4% versus 18.8% in 2021. Parfum Grès sales increased by 4%, with an EBIT margin of 14.4%. While Parfum Samouraï were back to pre-pandemic level after that COVID restrictions were stopped in the second semester in Japan. Brioni perfume sales significantly increased in 2022 by 97% as a result of further market wins and the launch of a third fragrance, but has not yet reached a critical size to be at breakeven level. Lalique Beauty Services operated at high capacity, increasing operating revenues by 18.8% due to higher demand of group companies as well as third-party customers. We introduced this year 9.7 million perfume bottle versus 7.5 million per bottle in 2021. EBIT of the segment increased to EUR 5.4 million with an improved EBIT margin of 14.1%. To conclude this part, let's go to Slide 15 and our balance sheet. Here, we cannot say that our balance sheet remains solid as reflected by the ratio, net debt / EBITDA at 1.7%, and equity ratio at 50%. If we exclude the repayment of the EUR 15.4 million of COVID credit in Q1, net cash flow would have been positive despite a strong level of investment for 15.2 million, in production capacities, especially at entered with a new automatic mash turn and the crystal factory with the replacement of the furnace and renovation of the cold glass workshop, and also in equipment for the increase in production capacity at the perfume filling factory. Finally, intangible assets and non-current asset liabilities rose respectively due to the capitalization of the new Superdry license amounting EUR 12.5 million. With this, let me hand back to Roger for the third and last part of the presentation.

Okay. Thank you, Alexis. Let's go to Slide 17, highlighting our business priorities for the current year. So Lalique Group will continue to pursue its diversification strategy as the breadth of our business has proven to be a strength in economically challenging and uncertain conditions. In the current year, we will move ahead with selected product launches and projects to further strengthen our portfolio, which, among others, includes various new launches under all of our perfume brands, except, of course, for Superdry, which will see the rollout of the first perfume line in spring 2024. It also includes new Ultrasun formulas, taking account of regional trends and customer preferences, a mix of annual collections and special art additions at Lalique, and last but not least, the further development of Glenturret whisky sales and simultaneous increase in awareness of the distillery Lalique restaurant. This brings me to the final page, Slide 18, with our financial outlook. First, with regard to the current year, Lalique Group expects growth in the low 10 percentage range in 2023, while profitability is expected to be slightly lower due to higher energy costs in particular. Looking further ahead, we are holding on to our midterm targets that we originally set in April 2019 and extended by 2 years given the setback of the COVID-19 pandemic. And of course, as always, our outlooks are subject to unforeseeable events. With this, I thank you for your attention, and we are now happy to take your questions. Operator, please, who has the first question?

We will now begin the Question-and-Answer Session. [Operator Instructions] The first question comes from the line of Patrik Schwendimann from ZKB. Please go ahead.

Patrik Schwendimann from Kantonalbank. Good morning, Roger and Alexis, I have several questions, if I may. How much have the energy costs already increased in '22? And what was the absolute amount in terms of energy costs for last year? Then second question, what absolute amount do you expect for the energy cost for the current year? And then I have 3 questions regarding your guidance. You expect the sales growth in the low 10% range for '23. So, is this 10% to maybe 12% growth in local currency or in euro and for which brands do we expect the highest growth for '23? And then number 4, you're expecting a slightly lower profitability for the current year. Does this mean a lower EBIT margin or also a lower absolute EBIT? And finally, the midterm guidance of an EBIT margin of 9% to 11% is postponed due to COVID. In the current year, the EBIT margin will be clearly below this bracket in which year do you think you are able to reach this guidance, this EBIT margin guidance and what will be the main driver to reach that target? Thank you.

Good morning, Mr. Schwendimann. On your first question regarding energy costs. We always work with forward contracts for energy and as a result of that, we were able to maintain our energy costs until end of '22. So last year, to be more concrete, we haven't experienced any increase. While in '23, of course, the story is a little bit different because there has been a huge surge. And actually, our energy costs for the full year '23 will double compared to the level in '22. Having said that, '23 is going to be a peak in terms of energy cost increase as we expect that '24 and '25, those levels will come down, and we have already entered into some forward contracts in that respect. In terms of your second question regards our guidance for '23. So, when we talk guidance, we always talk in local currency, of course. Your third question was regarding the slightly lower EBIT. So here, we are talking about the EBIT margin, which we expect to come in slightly lower than in '22, in particular, due to energy costs, but also inflation in general with higher personnel expenses as a result. And I think your last question was regarding in which year do we expect to reach our midterm EBIT targets. So, we set this target initially in 2019. Midterm was anything between 3, 4, or 5 years; add 2 years due to the covered setback. So, we expect that we should be able to at least get to the lower end of this range, 9% to 11% by 2025, and if not, definitely in 2026. Have I answered all your questions?

Thanks. Just in terms of the EBIT margin, yes, lower, but the absolute EBIT could then be higher or…

Well, that will depend on the actual revenue growth so it's difficult to say this at this stage, but the margin itself will be slightly lower. That's a fair forecast to say, I would say.

Perfect. And for which brands do we expect the highest growth for '23?

Well, we definitely the highest growth rate will be at Glenturret since we -- I mean, this brand has been relaunched during the pandemic in the year 2020. But of course, then we were delayed with the release of our annual ranges also last year due to supply issues. So, we expect that Glenturret will grow very strongly but we expect basically all our segments to grow, perfume, as always and Ultrasun. But we anticipate that the growth rate will be below the one that we saw in 2022.

Alright, perfect. Thanks a lot.

The next question comes from the line of Jean-Philippe Bertschy for Vontobel. Please go head.

Good morning, gentlemen. I have a couple of questions. And the first one is on the free cash flow, which was weak last year, but probably for temporary reasons. And the question is related to that with your midterm targets of EBIT margin. And I guess it's a bit of a complicated question, but I guess if you invested more, you will have a level more depreciation, which is, of course, weighting on your EBIT margin. So, if you can share with us how you consider the free cash flow internally. And I think you're still not carrying your cost of capital, when you expect to do that? I think many elements in the questions, but probably understand the meaning of it. The second one will touch on Ultrasun. What is the perspective there and whether it is still strategic for you? And the last one, out of interest, the brand fragrances market overall is very strong, clearly above the pre-COVID levels and your growth as well with a couple of brands was very strong. What were the main drivers behind that? Please.

Okay. Thank you, Jean-Philippe. I will answer to the first question, Alexis, regarding the free cash flow. It's true that this year, we had a strong level of investment, especially in production facilities that impacted our free cash flow this year. We invested EUR 15.2 million in the 3 facilities. But also, the free cash flow was finally positive if we consider that we repaid short-term COVID credit by EUR 15.4 million during Q1. So, if we exclude this repayment, extraordinary payment during Q1, then free cash flow would have been positive. In terms of impact on our profitability in the future, of course, this investment level in 2022 will lead to additional amortization next year. But keeping in mind that this CapEx investments are focused on the facilities, increasing production capacity, and then increasing also future revenues and margins. So, in terms of free cash flow, we don't see -- we see here more positive trends for the midterm guidance. I hope it's answered.

Yes, understood. Yes. The question was whether already if you should maybe focus on free cash flow targets rather than EBIT margin. That has been the question because, of course, your depreciation level will be a bit higher in absolute terms. That was with the question.

Yes. I mean both -- we need to work with both targets. Obviously, the guidance on the EBIT margin is the one that we follow since now, 4 to 5 years. But obviously, with the investment that we're doing now in the production capacity, we'll have a look closer look to the free cash flow development in the next year. But we don't have any specific guidance for the moment in terms of free cash flow if it's…

Yes. Very clear, good.

Jean-Philippe, your second question was on Ultrasun. The perspective and whether we still consider or what level of strategy we see with this brand, which is a little bit stand-alone in our portfolio. In terms of perspective, there's a clear focus now on Asia and China, in particular. We have experienced some issues in the past years with our China distribution, which we are in the process of restructuring now, moving to a new distribution partner and preparing the transition. Now in terms of strategy, of course, the Ultrasun brand is a little bit well by itself in our portfolio. And -- but we still think that with the potential we see in Asia, the potential that we see in the U.S., which is a market that we were not able to enter into yet due to trademark issues, which are in the process of being solved. So, we still think that Ultrasun has a significant growth potential that we will be able to tap in. So, for the time being, of course, we continue to drive and develop the brand. Does that answer the question?

Yes, thanks.

And your last question was about -- can you repeat that, please?

Basically, the parfum brand fragrances, the overall market is growing very fast. You have seen with Givaudan again last week with the reason from growth and yourself as well. And in your view, what is driving this strong growth in the markets, especially for you, for Jaguar, -- what do you see, what are the trends in the different markets?

Well, I wouldn't look at it specifically market-wise. The growth that we have seen is absolutely global and it is huge, as you rightly point out. The perfume business has seen the biggest growth in our portfolio in '22 and as you say, we see the same with Givaudan or other fragrance houses. And of course, we see this with other especially bigger access than us like L'Oréal and Cartier and so on, and the outlook is still very, very positive for perfume and beauty in general. So having said that, we don't expect to see a similar growth than in '22. But of course, we still expect our perfume business to continue to grow in '23 and the following years.

Excellent. [Foreign Language] Merci beaucoup, gentlemen.