Good afternoon. This is the call conference operator. Welcome, and thank you for joining the OVS nine months 2021 financial results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, please signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Stefano Beraldo, Chief Executive Officer of OVS. Please go ahead, sir.
Good afternoon to everyone attending this nine-month call for OVS. Thank you for being there. I think that it has been a great quarter, even stronger than we expected, with an incredible month of October, which I think has been partially driven by a general good market trend in general for consumer goods, which started since April, May. What worth noticing is that our company has largely overtaken the market competitors and the market trend. One thing that in the slide is not included, I think, is that in the quarter, we overcome all the other players, both digital and physical. No company, no brand involved in apparel grew more than OVS in the last quarter, including Amazon and Zalando.
This is what I think is important to notice, because this performance has been generated in absence of stronger margin pressure, in absence of commercial promotions compared to last year, because in a third quarter in a row, we are reducing our markdown compared to one year ago, and we have an amount of full price sales, which is 30% better than the market. We are about 47%, 46%, 48% of full price
Market is.
Market is 47% full price, we are 70% sales which are full price. In spite of this absence or very limited pressure generated by markdown, we have been able to increase our sales, still with a very small component of new floor space, because out of the more or less 100 basis points of growth in market share, 70% of this growth has been generated by same perimeter, so by the same store base, and only one-fourth has been generated by new surfaces. The second brand who grow more grew by 60%. Even in absence of increase of floor space, our growth has been the biggest in the market. Same story. There are the losers, which are the usual ones, the small format, some company which is in trouble, some international company, big brand, which is suffering in Italy as well, and very few winners.
Among them, OVS S.p.A. seems to be the one that is performing better. This is the consequence of a long list of actions which have been made, but the ones who refers the product are the most important. Piombo Woman has been launched very satisfactorily, coupling thus the success of Piombo Man. Still a great contribution from women brand invited as a concessions in the second part of the year. Also men, but mostly women. All this also with a strong reduction of intake, partially because of our decision to buy less in order to be prudent, given that the year was supposed to be very difficult and difficult to interpret. Lockdown yes, lockdown no.
We decided to reduce our total buying, and partially because we suffered because of absence of deliveries, particularly in kids and in men, because of shortage of goods or delay from some international market, sourcing country. In spite of this, the performance has been good, and the performance is being good also in this month of December. It means that, again, we have more gasoline in the engine for next year that we already paid, I mean merchandising, which will be good for next year as well. I think that the result has been very positive, and the cash flow has been even much higher than we expected. I think that a good quarter, a good moment for the company, also for the reputation of the company. New customers are visiting the company, mostly thanks to Piombo and the new brand that we are inviting.
I hand the word to Francesco Reggiani for a more detailed description of the presentation. Francesco, go ahead.
Thanks, Stefano. I will start the presentation of the results with page three, in which we have the P&L of the nine months of OVS compared to the last year's performance. As you can see, 2021 was much better than last year, with a growth of 33% in terms of sales, and in EBITDA more than doubling from EUR 40 million to EUR 104. More interesting could be the comparison also with 2019, because 2020 was, of course, affected by the lockdown. We are now at just minus 1.3% in terms of sales, with two consecutive quarters in which we recovered basically the whole loss that we suffered in the first quarter due to the lockdown at the beginning of the year.
These increased sales translated into a growth in the EBITDA, which is now back to above 10% of incidence on net sales, and progressively also on EBIT and profit before tax. The net financial position, thanks to the good performance in terms of profitability, and as we will see in terms of working capital management, reduced by EUR 100 million, so much more than the EUR 80 million injected as capital increase, thanks to the performance of the business. On page number four, we have some details about the performance splitted by channel and by brand. The performance is good in all the situations. Sales are growing 33%. EBITDA is growing, as said, by 161%.
In terms of business unit, that is OVS and Upim, we see a growth higher in Upim, also thanks to the higher development rate that the brand had compared to OVS, which is already well established in the country. While on the other side, in terms of EBITDA growth, performance of OVS is better thanks to the higher incidence of DOS, so to a better operating leverage that of course translated more directly the growth performance into EBITDA. On page number five, we prepared a couple of bridges in order to better explain what happened in terms of results. The top one is related to the economic performance to EBITDA. In 2019, so a year without particular effects and no lockdown, the EBITDA in the nine months was EUR 101 million. In the first quarter of 2021, we lost EUR 19 million due to the lockdowns.
In the second and third quarter, on one side, we recovered EUR 41 million in terms of gross margin. Then we had some normalization of costs by EUR 18 million, ending so to a positive plus EUR 3 million versus the 2019. The boost of the last two quarters were almost good enough to close the gap in terms of sales, but more than enough to increase also in terms of profitability. On the, let me say, financial point of view, the net debt was EUR 400 million about in October 2019. We had, over the last eight quarters, three quarters heavily affected by the lockdowns, during which we lost EUR 236 million. Without any action, we would have ended up at EUR 650 million net financial position.
Thanks to the capability of reacting in terms of attracting consumer, but even more characteristic of OVS, the ability to use the stock, the leftover of the lockdowns to boost the sales, to fuel the sales after the reopening, we managed to generate EUR 300 million in the quarters without major lockdowns, to which we can add the EUR 80 million of the capital increase. We are ending at EUR 250 million, that is EUR 150 million below the two years ago picture. On page number six, we can explain a little bit more on the working capital, which is the operating element that we managed in order to generate additional cash to the one generated already by the profitability.
In particular, on trade receivables, we can see an improvement of EUR 5 million versus 12 months ago, despite the growing business, and this was thanks to the reduction of the DSO that, as said, were extended last year in order to support our partners, and they are now coming to a normalized situation. On inventory, we are going ahead in terms of reduction of the stock. We have EUR 24 million lower stock compared to 2020. While on trade payables, that in 2020 were a little bit expanded thanks to special conditions. We are now, thanks to the very positive cash situation, reducing, anticipating some payments in order to capitalize a better relationship with the supplier. That should help, especially in view of the next year turbulence on inflation.
On page number seven, we have a picture on investment that are, of course, growing versus last year, that was completely reduced to the minimum to survive the COVID year. We are now back to EUR 57 million over the nine months, in line with the original plan. Page number eight, we have a summary of the cash flow. As you can see, we have a positive impact versus 2020, the EUR 64 million, thanks to the higher EBITDA. We have, especially in the change in working capital, EUR 70 million improvement. Last year, of course, there was an absorption in terms of leftover of stock not sold during the lockdowns that we managed to sell this year. We have, of course, a rebound in CapEx, but the operating cash flow is EUR 130 million higher than in the nine months before.
Adding also the other elements, in particular, proceeds from working capital, the gap is close to EUR 200 million difference in the nine months 2020 versus 2021. On page number nine, we have the summary of the mathematics of the growing EBITDA and lower debt. That brings from a 3.7 ratio on October 2020 to 1.9, halving the leverage ratio in 12 months, despite having had in between the two lockdowns of November, December and March, April. Again, OVS is showing the resilience in terms of being able then to accelerate as soon as the market conditions or the legal condition allow to keep the stores open and regain the lost sales. I would now give back the word to Stefano for an outlook of the last quarter of 2021.
Thank you, Francesco. We are now halfway in the last quarter. Sales in November has been good. Sales in December are okay as well, are positive as well. Even in December, we decided to skip one last family and friends promotion. We are reducing also in the last quarter, the markdown pressure. Nevertheless, the sales level remain tonic. We expect also to have a good month of January, in theory, because we believe that the Italian consumer will continue to have a look to OVS, not only as an everyday low price brand, but also a place where to find a good product. Also interesting during the sales period, and I mostly refer to Piombo. We are sure that there will be a good performance of Piombo also in the very last part of the year.
From a cost perspective, in spite of some pressure on the logistic cost because of the transportation hikes, we don't see element which generate concern on the profitability. At the profit and loss level for the year end, I don't expect a negative news, and this is why we increased our guidance from EUR 120 million-EUR 135 million, to EUR 10 million-EUR 15 million higher, EUR 135 million-EUR 145 million. I feel comfortable in saying that we will be in the higher side of this interval. Maybe even better in term of cash generation. We reviewed positively our guidance of the cash exposure. Even in this case, I feel I am optimist at this point of the year. What for next year? Concern about inflation. Concern about the new variant of Omicron. I see every kind of concern which is affecting probably the vision of our sector in this moment, even today.
I see that the share price after this good result decreased largely and surprisingly, in my opinion. We have a solid understanding about the future. We believe that the OVS brand has been never well positioned in the market like today because of a number of reason, better stores. Once we refurbish the store, we are experiencing strong increase in sales performance on the refurbished store from 6%-7%, up to 30% in some case. The image of the brand is great. Some satellite, some second brand, like Croff, for instance, are performing very well. I believe that all in all, from a consumer perspective, the brand is seen as the most sustainable, the most transparent, and the one which is able to satisfy the needs of Italian customer, probably better than anyone else in the market in this moment.
From a gross margin perspective, we will have higher cost as all our competitors, this cost will be transferred in prices. I believe that we will better place than other companies in transferring a higher cost into prices because of the increased perception of the quality of our brand compared to our competitors. I don't see a risk of losing our profitability because of this. We are conscious and prudent. We will be prudent in our buying also for next year. We are introducing new brand, new concession in order to increase the level of flexibility, also to react with a third-party brand to what possibly might surprise us, which means a still very solid attitude of the demand, and what will not be satisfied with increased intake will be satisfied with increased number of concessions. Most of the concessions are doing very well.
I think that there are all the conditions for still challenging, obviously, because in this business we are used to challenging condition, but a good 2022. I leave the space to your question. Thank you.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Domenico Ghilotti with Equita. Please go ahead, sir.
Good afternoon. My first question is related to the topic of the cost inflation. I'm trying to You were mentioning some mitigating impacts in your presentation precisely. Can you elaborate a bit more, first of all, on the level of cost inflation that you are facing for the first part of 2022 and on the mitigants that you are implementing? Second question is on the Stefanel brands. You can just give us an update on the performance after the launch of the first collection. The third is on the, say, capital structure, in the sense that you have already mentioned the repayment of the bullet. If you can give us an update also on what can be the saving overall that we can expect for 2022 from the new capital structure.
Okay. On the cost pressure, I think that it is clear that every factor will be affected, from raw materials to transportation, to electricity, and to USD increase. There will be a number of elements that are contributing to generate a cost inflation. The mitigants are many, from an increased attention to leverage new suppliers which will generate a better cost condition compared to others. Every year we have a certain level of churn rate of supplier in order to scout and to find the ones which are more balanced in term of quality and cost efficiency. We are discovering several, which we already tested last year, which will represent a good mitigant to this cost increase. We are very active in auctions and tender and contractual agreement based on a medium term in order to mitigate the logistic, the transportation cost increase.
We are not suffering. We are not looking at the 10 times or 7 times cost increase like some smaller company is forced to suffer. We are making that thanks to our long-term relations with suppliers, logistic supplier, and also to our size and also to our capability to have a proper planning system. The fact that we are not forced to buy in the very last minute, like some extremely fast fashion exposed company might be forced to do, enable us to compensate and to mitigate this aspect, adopting more medium-term agreement, which the shipping lines are super happy to have because this gives them the certainty that the volumes will be secured.
Last but not least, we are not buying that much from China, which is the most expensive from the shipping point of view in this moment, and Bangladesh is much cheaper than China in this moment. Basically, all these aspects are contributing to mitigate the cost. We are also leveraging new markets like Pakistan, for instance, which is very efficient in this moment. It's a difficult country, but we have an organization there. We have a presence. We know the market, I think, better than other competitors, surely better than any other Italian competitors. I think that from this point of view, we are much better placed than any Italian competitors in suffering and adopting solution in order to mitigate the effect of cost increase.
If this is true, I expect that the average price increase that the Italian market will experience will be higher than the one that we will be forced to adopt. This means that from a competitive point of view, we should become even more competitive compared to other Italian brands. I think that the only brand which are material in the country, which can compete with us are Inditex and H&M, obviously, which are facing the same problem that we are facing. At the end of the story, the three of us represent less than 20% of the market. The remaining 80% of the market will be forced to transfer on prices much more than we will do. The last question was related to the effect of the interest rate reduction.
Thanks to the improved financial situation, we expect between EUR six and seven million of net savings in term of interest cost. The second question was Stefanel. On Stefanel, we are happy for the moment. We are in the very beginning of the story of Stefanel. Basically, we are, in this moment, achieving the same result that Stefanel achieved in year 2018, in spite of having entered in a disciplined approach to margin, while Stefanel, in that period, was discounting on average 50% their goods, and we are only discounting by 20% on average our goods. With a much more rigid and safe and sustainable marketing strategy, we are achieving the same sales that were clearly boosted by excess of discount. That generated, for Stefanel, once still alive, a critical margin result, while we are happy about our margin.
Still early to make a final judgment, but the initial outcome is quite positive.
If I just follow up on the cost inflation side. What about the labor inflation? Do you see an issue there? Do you expect to manage also some requests from the unions and some revision in labor inflation?
They will come once the inflation in Italy will become official, no?
We expect that if in the past it has been 1.5%, it might achieve 2%, 2.2%, 2.5%. Still something manageable.
Mm-hmm. Okay, thanks.
As a reminder, if you wish to register for a question, please press Star and One on your telephone. Once again, if you wish to ask a question, please press Star and One. The next question is a follow-up from Domenico Ghilotti with Equita. Please go ahead.
I wanted to ask you about the CapEx plan. Looking at 2022, I'm trying to understand because I saw that refurbishment were growing and you said quite effective in terms of impact on sales. You are starting to invest in reopening. What can be, let's say, the plan for 2022, and apart from, let's say, the impact on space, what can be the other priorities in terms of investments or projects that you are planning for 2022?
I think that will be not far from the old historical level. You can assume EUR 70 million-EUR 80 million CapEx. Part of them are dedicated to refurbishments with a still a good and rapid return on the CapEx, because as I told, the stores that we refurbished generated on average, a very healthy 10% on average increase in sales on the store refurbished. Logistic and system will see the other most important portion of investments. Not a huge CapEx spent in new openings. Most of the new openings will continue to be on franchising. This means zero CapEx and a very good margin generated by that. Either OVS Kids, Blukids, Croff. This year, we opened plenty of them, and we are still in the mood of opening a material number next year.
Most of the CapEx will be absorbed by a logistic project in order to enter in a real single product and seamless shelf mentality. Basically, increasing the level of flexibility of our planning and distribution of single items, a single size to the store based on the sell through, which is generated week after week. Logistic and digital evolution will be the ones where we will invest the most, together with the refurbishments and some new openings obviously.
Okay, last question is an update on M&A and the pipeline of opportunities that you see.
We have several small and interesting things that we are looking at. When I mean small, I mean small in terms of equity value, eventually. Some opportunity we decided not to pursue because either we didn't see enough synergies or maybe the price requested was wrong, in our opinion. Some other, we are still monitoring and managing. The other is still open, but nothing still in short term, ready to come shortly.
Okay. Thanks.
Thank you.
The next question is from Ishita Singh with JP Morgan. Please go ahead.
Hello, just a couple of quick ones from me, please. Could you just tell me about any delays that you're seeing currently, and has the situation been improving since, say, the last couple of months? Looking into the next year, do you believe that there'll be a higher promotion in the market because of the delayed arrivals of the stock? Secondly, just on current trading, has December seen a step down from November on a two-year basis? If so, if you could just give an indication with respect to where it is trending. Thank you.
I'm sorry, but I captured the second question, I think, but I didn't, and my team didn't capture the first part of your question. Can you remodulate the first part of your question, please?
Yes, sure. I think some connection issue there. It was about the stock delay that you're seeing currently and any promotion expected into next year given the delayed arrivals.
No, in terms of stock, I would say that because the situation of the stock is much better than one year ago today, and also in terms of quality of stock, we are better placed, not only in terms of quantity, but also in terms of quality. Likewise, we approached the markdown this year, which means that we reduced the markdown. We will continue with the same approach. Unless the need of markdown will come from a lower market demand, unless the demand will be very low, we might enter in bigger markdown, but not because of the quality of the stock. We don't have an issue this year. You are interested in understanding the footprint of our vendors? Where they come from?
No, I was more talking about the current trends present, like in December, has there been a step down from November?
Sorry, the connection is not good. Do you want to know more about the
In December, the trading, how less is it with respect to November year on two years?
Current trading.
Current trading in December?
In November.
Current trading in November. Current trading has been okay. It's been flat, basically. Like for like has been flat.
Thank you so much.
Compared to year 2020, also compared to year 2019. Sorry, compared to year 2019, yeah, because we are still comparing our turnover with the 2019. It has been flat compared to 2019, with lower promotions. I hope I've been clear. If the question was, how was the turnover compared to year 2019, because in 2020 we had the lockdown, so turnover is higher than in 2020, in the month of November. The answer is, the turnover has been similar to year 2019, even if in absence or with lower promotions.
Got it, clear. Thank you so much.
Thank you.
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Okay. In this case, thank you for your attention, and looking forward to meeting you in the next coming session and communication. Thank you. Good afternoon. Good evening.
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