2020 H1 Results
Press Release – Paris, September 4th, 2020
H1 2020 results impacted by Covid-19
Strong cost-saving measures to mitigate effects of an unprecedented crisis
- Sales down -31.0% as reported to €372.8 million; -33.5% on an organic1 basis
- Mainland China sales continued to gradually improve throughout Q2 2020, returning to sales growth in June
- Solid execution of Covid-19 action plan to mitigate impact of crisis: more than 50% of OPEX2 variabilized, i.e. more than €60m of cost savings
- Adj. Ebitda down from €141.0m in H1 19 to €55.1m in H1 20; Adj. EBIT down from €66.5m in H1 19 to -€29.7m in H1 20
- Net income was down from €17.2m in H1 19 to -€88.5m in H1 20, including an impairment of €42.6m on “Other Brands”3 Goodwill, impacted by the current pandemic
- Net financial debt/Adj. EBITDA4 ratio at June 30, 2020: 5.5x
- Solid cash position at June 30, 2020: €219m
Commenting on the report, Daniel Lalonde, SMCP’s Chief Executive Officer, stated: “Our results were strongly impacted by the Covid-19 pandemic. Nevertheless, we have implemented strong measures to mitigate the impacts of the crisis, reducing operational costs and investments, securing cash position and adjusting collections. The Group is well equipped to face this challenging period as its fundamentals remain solid: we benefit from a geographically well-balanced portfolio of international brands, a strong position in e-commerce and an agile organization. In H2, we will further pursue our Covid-19 action plan while continuing to deliver on our key priorities: enhance brands desirability, create one unified channel between e-commerce and physical stores to build a seamless and innovative experience for customers, and accelerate sustainable fashion. We will detail all of these actions during our Strategic update on October 27th.”
Unless otherwise stated, all results reported in this document are reported for H1 2019 and H1 2020 under IFRS 16.
|KEY FIGURES – IFRS 16||H1 2019||H1 2020||Change |
|Adjusted EBITDA (€m)||141.0||55.1||-60.9%|
|Adjusted EBIT (€m)||66.5||-29.7||n.a.|
|Net Income Group Share (€m)||17.2||-88.5||n.a.|
|Diluted EPS6 (€)||0.22||-1.20||n.a.|
|Pre-tax operating FCF ||19.0||-49.4||n.a.|
H1 2020 CONSOLIDATED RESULTS
Consolidated sales reached €372.8 million, down -33.5% on an organic basis. Reported sales were down -31.0%, including a positive currency impact of +0.3% and De Fursac’s contribution of +2.2%. This performance reflects the impact of lockdown measures in most countries (particularly in the first quarter of 2020 in Asia and the second quarter in Europe and North America) and a halt in tourism flows across regions. Over the semester, while traffic in stores remained weak, the Group recorded solid conversion rates. Furthermore, SMCP partially offset the impact of the crisis through a strong performance in e-commerce7 (+15.0% of sales growth).
Adjusted EBITDA decreased from €141.0 million in H1 2019 to €55.1 million in H1 2020, in an unprecedented health crisis context. This resulted from the drop in sales combined with a reduction of -4.8pts to gross margin (71.5%) due to increased promotional activity and, to a lesser extent, inventory depreciation. This was partially offset by strong cost-saving measures which generated more than €60m8 and enabled SMCP to rapidly variabilize more than 50% of its operating costs8, on the back of the renegotiation of commercial leases, the use of temporary employment measures, a strict optimization of working hours and SG&A optimization (overhead costs, discretionary spending…).
Consequently, Adjusted EBIT decreased from €66.5 million in H1 2019 to -€29.7 million in H1 2020.
Other non-recurring expenses increased from -€4.1 million in H1 2019 to -€46.0 million in H1 2020 which included -€42.6 million of asset impairment losses resulting from the current Covid-19 crisis. The amortization recorded this year related to the Goodwill value of “Other brands” division which includes Claudie Pierlot and the recent acquisition of De Fursac.
Financial charges strongly decreased from -€28.0 million in H1 2019 to -€14,0 million in H1 2020. Excluding the cost of debt under “lease contracts” (IFRS 16) of -€7.5 million in H1 2020 (versus -€6.3 million H1 2019), SMCP has significantly reduced the cost of its debt from -€21.7 million in H1 2019 (which included -€12.6 million of refinancing penalties) to -€6.5 million in H1 2020. The Group continued to optimize its cost of debt from 4.1% in H1 2019 to 1.8% in H1 2020.
Income tax amounted to a gain of €6.3 million in H1 2020 versus -€10.5 million in H1 2019. Net income - Group share stood at -€88.5 million in H1 2020 (vs. €17.2 million in H1 2019).
H1 2020 OPERATING FCF AND NET FINANCIAL DEBT
Pre-tax operating FCF stood at -€49.4 million in H1 2020 compared to €19.0 million in H1 2019. This performance reflects the decrease of the adj. Ebit in a context marked by the Covid-19 pandemic. In parallel, SMCP reduced its capex from €33.9 million in H1 2019 to €29.1 million in H1 2020 to protect its cash position and displayed a change in working capital of -€9.3 million, in line with its expectations. After-tax operating FCF stood at -€49.8 million in H1 2020.
Net financial debt increased from €387.4 million on December 31, 2019 to €445.1 million on June 30, 2020. Consequently, Net financial debt/adjusted EBITDA9 ratio was up to 5.5x on June 30, 2020.
In June 2020, SMCP announced the signature of a state-guaranteed loan of 140 million euros and the suspension of its financial covenants for fiscal year 2020 (Holiday covenant) and easing of its financial covenants for fiscal year 2021.
FINANCIAL INDICATORS NOT DEFINED IN IFRS
The Group uses certain key financial and non-financial measures to analyse the performance of its business. The principal performance indicators used include the number of its points of sale, like-for-like sales growth, Adjusted EBITDA and Adjusted EBITDA margin.
Number of points of sale
The number of the Group’s points of sale comprises total retail points of sale open at the relevant date, which includes (i) directly-operated stores, including free-standing stores, concessions in department stores, affiliate-operated stores, factory outlets and online stores, and (ii) partnered retail points of sale.
Like-for-like sales growth
Like-for-like sales growth corresponds to retail sales from directly operated points of sale on a like-for-like basis in a given period compared with the same period in the previous year, expressed as a percentage change between the two periods. Like-for-like points of sale for a given period include all of the Group’s points of sale that were open at the beginning of the previous period and exclude points of sale closed during the period, including points of sale closed for renovation for more than one month, as well as points of sale that changed their activity (for example, Sandro points of sale changing from Sandro Femme to Sandro Homme or to a mixed Sandro Femme and Sandro Homme store).
Like-for-like sales growth percentage is presented at constant exchange rates (sales for year N and year N-1 in foreign currencies are converted at the average N-1 rate, as presented in the annexes to the Group's consolidated financial statements as at December 31 for the year N in question).
Adjusted EBITDA and adjusted EBITDA margin
Adjusted EBITDA is defined by the Group as operating income before depreciation, amortization, provisions and charges related to share-based long-term incentive plans (LTIP). Consequently, Adjusted EBITDA corresponds to EBITDA before charges related to LTIP.
Adjusted EBITDA is not a standardized accounting measure that meets a single generally accepted definition. It must not be considered as a substitute for operating income, net income, cash flow from operating activities, or as a measure of liquidity.
Adjusted EBITDA margin corresponds to adjusted EBITDA divided by net sales.
Adjusted EBIT and adjusted EBIT margin
Adjusted EBIT is defined by the Group as earning before interests and taxes and charges related to share-based long-term incentive plans (LTIP). Consequently, Adjusted EBIT corresponds to EBIT before charges related to LTIP.
Adjusted EBIT margin corresponds to Adjusted EBIT divided by net sales.
Management Gross margin
Management gross margin corresponds to the sales after deducting rebates and cost of sales only. The accounting gross margin (as appearing in the accounts) corresponds to the sales after deducting the rebates, the cost of sales and the commissions paid to the department stores and affiliates.
Retail margin corresponds to the management gross margin after taking into account the points of sale’s direct expenses such as rent, personnel costs, commissions paid to the department stores and other operating costs.
The table below summarizes the reconciliation of the management gross margin and the retail margin with the accounting gross margin as included in the Group’s financial statements for the following periods:
|(€m) – excluding IFRS 16||H1 2019||H1 2020|
|Gross margin (as appearing in the account)||342.8||230.0|
|Readjustment of the commissions and other adjustments||69.5||36.6|
|Management Gross margin||412.3||266.6|
|Direct costs of point of sales||-222.6||-179.1|
After-tax operating Free cash-flow
After-tax Free cash-flow is defined as adjusted EBITDA after taking into account changes in working capital requirements, non-current items paid, income tax paid and net cash flows from investing activities excluding acquisition.
Net financial debt
Net financial debt represents the net financial debt portion bearing interest. It corresponds to current and non-current financial debt, net of cash and cash equivalents net of current bank overdrafts.
Unless otherwise indicated, amounts are expressed in millions of euros and rounded to the nearest million. In general, figures presented in this press release are rounded to the nearest full unit. As a result, the sum of rounded amounts may show non-material differences with the total as reported. Note that ratios and differences are calculated based on underlying amounts and not on the basis of rounded amounts.
DISCLAIMER: FORWARD-LOOKING STATEMENTS
Certain information contained in this document includes projections and forecasts. These projections and forecasts are based on SMCP management's current views and assumptions. Such forward-looking statements are not guarantees of future performance of the Group. Actual results or performances may differ materially from those in such projections and forecasts as a result of numerous factors, risks and uncertainties. These risks and uncertainties include those discussed or identified under Chapter 3 “Risk factors” of the Company’s Universal Registration Document filed with the French Financial Markets Authority (Autorité des Marchés Financiers - AMF) on 30 April 2020 and available on SMCP's website (www.smcp.com).
This document has not been independently verified. SMCP makes no representation or undertaking as to the accuracy or completeness of such information. None of the SMCP or any of its affiliate’s representatives shall bear any liability (in negligence or otherwise) for any loss arising from any use of this document or its contents or otherwise arising in connection with this document.
A conference call to investors and analysts will be held today by Daniel Lalonde, CEO and Philippe Gautier, CFO and Operations Director from 9.00 a.m. (Paris time).
Related slides will also be available on the website (www.smcp.com), in the Finance section.
CONSOLIDATED FINANCIAL STATEMENTS
|INCOME STATEMENT (€m) – IFRS 16||H1 2019||H1 2020|
|Allocation of LTIP||-6.7||-5.0|
|Other non-recurring income and expenses||-4.1||-46.0|
|Profit before tax||27.7||-94.8|
|Net income Group share||17.2||-88.5|
|CASH FLOW STATEMENT (€m) – IFRS 16||H1 2019||H1 2020|
|Changes in working capital||-28.9||-9.3|
|Income tax expense||-21.9||-0.3|
|Net cash flow from operating activities||85.3||40.6|
|Net cash flow from investing activities||-33.9||-29.1|
|Net interests paid||-13.0||-4.9|
|Other financial income and expenses||-3.4||-1.6|
|Reimbursement of rent lease||-54.2||-61.3|
|Issuance and repayment of borrowings||13.7||226.2|
|Exchange rate and change accounting principles||0.2||-0.4|
|Net cash flow from financing activities||-56.6||157.9|
|Change in net cash||-5.3||169.5|
|OPERATING FCF (€m) – IFRS 16||H1-2019||H1-2020|
|Change in working capital||-28.9||-9.3|
|Reimbursement rent lease||-54.2||-61.3|
|After-tax operating Free cash-flow||-2.8||-49.8|
|Pre-tax operating Free cash-flow||19.0||-49.4|
|BALANCE SHEET - ASSETS (€m) – IFRS 16||As of Dec. 31, 2019||As of June 30, 2020|
|Intangible & right-of-use assets||1 284.2||1 260.3|
|Property, plant and equipment||93.9||90.2|
|Non-current financial assets||22.1||21.5|
|Deferred tax assets||43.9||39.4|
|Non-current assets||2 127.2||2 042.9|
|Inventories and work in progress||247.9||262.3|
|Cash and cash equivalents||52.3||273.5|
|Total assets||2 549.3||2 690.0|
|BALANCE SHEET - EQUITY & LIABILITIES (€m) – IFRS 16||As of Dec. 31, 2019||As of June 30, 2020|
|Total Equity||1 189.8||1 107.2|
|Non-current lease liabilities||402.5||389.5|
|Non-current financial debt||436.5||623.9|
|Other financial liabilities||0.2||0.2|
|Provisions and other non-current liabilities||3.8||9.2|
|Net employee defined benefit liabilities||3.9||4.4|
|Deferred tax liabilities||183.0||185.3|
|Non-current liabilities||1 029.9||1 212.5|
|Trade and other payables||144.0||92.9|
|Current lease liabilities||101.8||103.0|
|Bank overdrafts and short-term financial borrowings and debt||3.0||94.4|
|Other current liabilities||80.1||79.5|
|Total Liabilities||2 549.3||2 690.0|
|NET FINANCIAL DEBT (€m)||As of Dec. 31, 2019||As of June 30, 2020|
|Non-current financial debt & other financial liabilities||-436.8||-624.2|
|Bank overdrafts and short-term financial liability||-3.0||-94.4|
|Cash and cash equivalents||52.3||273.5|
|Net financial debt||-387.4||-445.1|
|LTM adjusted EBITDA (excl. IFRS 16)||174.2||81.2|
|Net financial debt / adjusted EBITDA||2.2x||5.5x|
SMCP is a global leader in the accessible luxury market with four unique Parisian brands: Sandro, Maje, Claudie Pierlot and De Fursac. Present in 41 countries, SMCP is a fast-growing company which reached the milestone of €1bn in sales in 2018. The Group comprises a network of over 1,500 stores globally plus a strong digital presence in all its key markets. Evelyne Chetrite and Judith Milgrom founded Sandro and Maje in Paris, in 1984 and 1998 respectively, and continue to provide creative direction for the brands. Claudie Pierlot and De Fursac were respectively acquired by SMCP in 2009 and 2019. SMCP is listed on the Euronext Paris regulated market (compartment A, ISIN Code FR0013214145, ticker: SMCP).
Célia d’Everlange Hugues Boëton
Tristan Roquet Montegon
1 All references in this document to the organic sales performance refer to the performance of the Group at constant currency and scope, i.e. excluding the acquisition of De Fursac
2 Excluding De Fursac and IFRS 16
3 Claudie Pierlot and De Fursac brands
4 Last twelve months adjusted EBITDA (excl. IFRS 16)
5 Net Income Group Share divided by the average number of ordinary shares in H1 20 minus existing treasury shares held by the Group.
6 Net Income Group Share divided by the average number of common shares in H1 20, minus the treasury shares held by the company, plus the common shares that may be issued in the future. They include the conversion of the Class G preferred shares (4 129 169 ordinary shares) and the performance bonus shares – LTIP (780 979 shares) which are prorated according to the performance criteria reached as of June 30, 2020.
7 Excluding De Fursac
8 Excluding De Fursac and IFRS 16
9 Last twelve months adjusted EBITDA (excl. IFRS 16)