Earnings Call: H1 2021

Jul 29, 2021

Ladies and gentlemen, hello, and welcome to the conference for the semester of results of Bacta. We'll give the floor to Enrique Martinis. You have the floor. Thank you very much. Hello, everyone. I would like to thank you for being connected today with us for this conference call dedicated to the results of the 1st semester of Bank D'Arcy. We'll present both results with Jean Lucretino, who is with me today. Before we start talking about the details of financial elements, I would like to talk about a few elements which were in the headlines for the past few days. We confirmed yesterday that an inquiry was ongoing after the irregularities, which was observed in a very limited numbers of dirty shops after a series of internal controls reviews, we made sure that the public prosecutor of Paris was aware of it since January 2021. And of course, we launched the complaint. This judicial inquiry is not targeting the SNAK DARTI group, but is targeting individuals which were at the origin of those actions. A few collaborators decided to benefit from a few loopholes existing in our internal control systems in order to act this way. So group is condemning a strong labor's practices even if it's not significant at the scale of the group. It remains illegal and completely unacceptable, especially if we take into account the practices and the ethic of the group and its collaborators. We are actively collaborating to the current inquiry, and we made sure that an external audit firm, price of the housekeepers can help us in order to make sure that such actions can't happen again. I would like to talk about something else. The group wished to participate with a few e commerce French e commerce stakeholders to the e commerce charter, which is supported by the Ministry of the Ecological Transition Battery, Pompili and the Secretary of State for the Digital Economy, Zurich. All we have signed yesterday this common charter, which aim is to reduce environmental impact of the e commerce activities. Of this project, the group would like to make sure to reach ambitious actions regarding its e commerce processes and also to accompany the customers in order for them to have more knowledge when it comes to buy online. We would like to work for a more sustainable economy and we're very proud to be one of the stakeholders of these projects. So now we will start to dive into the details and talk about the different elements of the financial elements for the semester 201821. As usual, you will be able to find those documents on the website of the group. So now let's have a look at the 3rd slide. I would, 1st of all, remind you that this semester was really impacted by the fact that we needed to carry on the health restrictions in all the different territories where Fnecdoche is present. It is penalizing the operating conditions of our different shops and businesses and restricting the our usual activities in the because we needed to close down a few shops of our group, a few aisles sometimes, they're called depending on the territories. For example, in France, more than 90 second DAI shops were closed. And all the Natividicabat shops were closed for a month and a half. And as you know, the ticketing services were really impacting, especially during the 1st semester because of the cancellation and the massive postponing of shows and cultural events. Today, the restrictions are also they are not as stringent, but we need to abide by the personal protective measures, especially when it comes to the possibility to have access to a few shops. So now Slide 4. We are really happy of our activity level for this past semester. The different markets remain very dynamic. The online activity remained very important. In parallel, and on top of that, we had a good performance in different shops during this period. And we managed to once again attract new online customers during this period of time. So just in a nutshell, we had sound results, which were registered for the 1st semester 2021, and now we managed for the 1st semester to have an income of EUR 3,465,000,000, which is an increase represents an increase of by 21% in comparable data due to our sound operational execution and thanks to the work of Auto Regents and the fact that the different product categories remained attractive. More than 28% of the group were done, thanks to the our digital platform, and our direct activity of our platforms remained at present. Our gross margin was reduced, was maintained. And gross margin rate was for this part of 20 29.7 percent, and we managed to have a very important product mix. We managed to compensate the lowering of the sales for the ticketing service for the 1st semester 2021 because of the governmental measures and also because of the withdrawal of the activities to shops and because of the dilutive technical effect of the franchise. During the 2nd semester, the group managed to change around the trend for this gross margin rate with a new dynamic for the 2nd quarter, which was better than during the Q1. Then the operational result was €34,000,000 for the first semester 2021 with an increase of €92,000,000 compared with the 1st semester of 2020. For the same perimeter in spite of the ticketing service and the activity of the L'Espirean Peninsula, which was impacted by the crisis. So to conclude, we are very happy about the results, which are allowing us to be able to take on that to be in advance regarding the income and to expect operational results. So now Slide 5, we managed to really focus on different product categories, which was really a boost for our income during the entire semester, especially because the technical and IT equipment really seduced, attracted our customers and were very successful because of the teleworking context. We also and the television was also a key product with the broadcasting of the European football game. The cultural dimension was also like this launch in the Ontario territory. And this generalization in the Ontario territory, we have held EUR 10,000,000 for of EUR 10,000,000 young people of 18 years of age to be able to use a price of €300 in order to buy books, audio products, videos or to buy tickets for shows in all the snack shops. Our partnership with the platform Z Wave allows us to distribute different shops and into group e commerce platforms, Swaper, once the first rechargeable battery in following a good trend. There's a deployment of our Cuisine Cooking Doughty offer, which was which Care was carrying on during the semester of the opening of 11 points of sales, 4 per se and 7 under the format of the franchise. And we knew that there was an acceleration of signature services with the launch in June of 3 new offers for the repair services by the subscription, DARTIMAK, which was the forefront of its new strategic plan every day. So now let's focus on the 6th slide. This semester was deeply impacted by the presentation of our strategic plan every day, which has an ambition to be able to help us to embody the new standards of the omni of our successful omni channel retail system of CHAMORO, there is a digitalized form and it's a human focused form. In order to do that, we have the growth of our U. S. Activities, which will be crucial. And at the heart of our omnichannel strategy, we have gained of 2,000,000 gained 2 millions of new clients on the web for the 1st semester 2021 associated to the Click and Collect and which was very successful. So we really try to have mixed active mix and share of the mixed customer active mixed customers both on 2 channels, 1 channel in the different American merchant shops, which was an increase of 4 points on the year by the end of June 2021. And we know that more than 70,000 sales were done this semester, thanks to video conferences or via chats with sailors, which shows that we knew how to use our new omnichannel trade levers. Also, we carry on with our strategic plan with the opening of 18 new shops and 15 franchise, allowing us to have a new fleet of 923 shops, among them, 3 59, franchised by the end of June. Then last but not least, we have the trial period. We no, we led it led to the deployment of 4 shops, shop in shops, snacks in the Manor shops by the end of 2020. And now we are going forward in Switzerland, and we announced the opening of 27 to shops by the end of the first semester 2022. Mikko, thanks to this partnership, Factarity is now aiming to have an additional income of at least EUR 100,000,000 in the full year. And we have a 2018 impact on the free cash flow the group expected retrofit expected, which is €500,000,000 as of April 2021 to 2018, in spite of the investment linked to the deployment of the partnership, Slide 7. So now we're really trying to develop series of actions aiming to accompany our customers in order to consume more responsibly and to make sure that our products are more sustainable and for better shelf life. And we have an opening with 6 of 16 new points of sales, which will lead to a new number of points of sales of 130 by the end of 2020 1. So we will try to it will we'll have more at home repair services, representing 500 and 60,000 repairs in workshops or at home, which is an increase of 29% off compared with the 1st semester 2020. There is also new certain classes reach for new trainings, which will be able to welcome new apprenticeships or technician on the integrity of the territory. And for the 1st time in a 3rd time in a row in the Teladikos, that got a B Corp certification showing its continued commitment of where it's customers in order to accompany them in a sustainable way of life. And on top of that, the group is carrying on with these actions in other areas linked to the environmental and social responsibility. Because of that, Baghdadi reconfirmed its commitment for the climate, especially with the initiative, ambition for climate showing concrete it's a concrete commitment of the big companies and to fight against climate change, preventing even projects aiming to reduce the carbon footprint. When it comes to the services, we are trying to accelerate the deployment and the development of DARTEMAX. Our subscription repair services for all the household appliances confirm the fact that we would like to go from a transactional model to subscription based model. We currently launched 3 new offers in France, extending hence the covering of the of new categories of products with the small household of high end set of TV and Cinema, Sound and Photo and Multimedia. The complementary offer is helping us to really meet the expectations of the customers when it comes to the repair services with Datimax by 2025. We are really satisfied by the impact of our Detimax action on the evolution of the customer behavior. We observed that the basket of subscribers asymptomatic is starting max is 25% higher than the average basket, which shows that there is an increase, a very crucial increase in value, which is linked to our service based program. So to conclude, I would say that we can keep on delivering on the operational point of view, except if we had supplying issues that we anticipated by the beginning of the year. And now we can start to we have a good availability of the products for the 2nd part of the year. And now there are the first key actions coming from every day that are ongoing, and I give the floor to Jean Villeux. So let's talk about the retail performance of each region before we talk about the operational performance of the financial performance of the Switzerland zone is in in the most part. So we have a strong growth of 22.6%. So as it was Enrique said, there was a closure of different shops and commercial and malls for more than 10,000 square meters for weeks, which led to the closing of the closure of 90 McInarty shops. On top of that, the Naturobi covet shops selling products, which were deemed nonessential, led to totalized sales on the semester. But thanks to new distributed channels, we can make sure to make sure that the to move the sales from the closed shops to some shops which are going to stay which could remain open. And also, the performance rate contribute to key to the progression even if there is a high conversion base. And also the different equipment linked to TV, what you have to do with TV, the telephones and IT products were increasing as even if there was a shortage of components mentioned before by Enrique. And also, people also try to be more comfortable at hold. So that's why they started to buy products of better quality. The air commoditizer was the only category which was not as successful because there was not so many hit wipeouts the past year. And also the digital products was experienced a strong growth led by the book sector, which benefited from the maintenance of the possibility of shops to remain on time, more shops to remain on time compared with the last year and the launch of the passenger for young people of 18 years of age in Autos Neck of France. The federal services are It is linked to the franchise, which is showing an increase of more 60 of by 63% of the sales on the semester, which is held by winning proximity format and also by a new risk location system on the 1st semester and also a very good level of sales by the end of 2020. The ticketing services has also strengthened the impact of the semester after the government measures and therefore bidding people from gathering and so compared with the beginning of 2020. Before the 1st lockdown period, which was not impacted by those measures, these strong dynamics dynamism of this income with a good management of professional costs allowed us in France and Switzerland to have an operational result recurring operational result of €33,000,000 which means an increase of EUR 78,000,000 compared with last year. So now Slide 10, it talks about the Iberian Peninsula. There was a growth of the income of 18.2% compared with the last semester. I would like to remind you that those shops were opened later than the other regions. And after the first quarter, the growth of 3%. EREA has a strong growth of 30% over the 2nd quarter. Also, all the product categories were experiencing a growth, of especially phones and television, sound systems and the book. IT has very strong growth, which is more negative because of the basic very high effect. And then there is also macroeconomic environment, which is penalized by the health crisis in Spain and Portugal and also strong competition this semester, especially for technical products. So that's why we penalized the operational the recurring operational results of the area, which remained negative on the 1st semester with minus €4,000,000 but it is increasing an increase compared with past year with €8,500,000 So now let's talk about Belgium and Luxembourg in Slide 11. So the Belgium and Luxembourgish areas is impacted by a very strong growth of its income, an increase of 13%. It's a comparable data on the semester. It is helped by sound performance of the different shops and the dynamic of the online sales. There was also the help of the teleworking systems, which are implemented within companies, boosting the sales for the outside of medicines and books. So there was the pure conversion rate of plus €5,600,000 an increase of €5,000,000 compared to the 1st semester of 2020. So now let's talk about the P and L results in the Slide 15 Slide 12. So I want to talk about the gross margin rate Enrique talked about at the beginning of the conference call. And also let's talk about the cost we mastered. We controlled the operational cost during the semester, which allowed us to have an income of 300 points of as a base with 28.7%. This reduction was realized in spite of the increase of the percent the personnel charges. And as Erik has said, the operational result is higher than what was gone in the first semester 2018, which was 30 €2,000,000 of the same scope and taking to account this year, I think, over the full year and outside of this We're discussing the issues of the ticketing services and to solve in European countries. So this performance allows the group to reach the growth the recurring operational gross margin rate for the 1st semester 2021 on line with the one of the 1st semester of 20 19 for the comparable scope. So that's why when it comes to the nonrecurring attirational cost, it is €3,000,000 which is really below what's going on in the business of 2020. If we had a depreciation of the Graty brand of €30,000,000 and the cost directly linked to the home prices of EUR 6,000,000. The operational result is EUR 32,000,000. So we had a new financial structure, which is Oceania, an extension of the RCF budget line the RCF line, thanks to the extension of the of payment extension of the guarantee of the state loan backed loan reimbursed last March, was settlements compensated, the interest gain registered with the fluctuation of our debt in 2021. So the net result of the group of the consolidated system is in growth of EUR136,000,000 compared to the 1st semester 2020 with EUR 60,000,000 after the accounting on the 1st semester 2021 with the tax adjustment in the investment of the Dutch subsidiary BCC in November 2021. So now let's about the available free cash flow the free cash flow by the end of June in Slide 13. So it's a very interesting free cash flow outside of the IFRS 16 of EUR 560,000,000, EUR 77,000,000, which is a decrease compared with past year. This decrease comes from the negative evolution of the working capital. So as of December 2021, we reconstitute our stock with the to consist of the sales in growth and anticipated factors we needed to buy new goods because there were shortages of components necessary to the manufacturing of the few products sold by the group. So when it comes to the capital expenditures, your group maintained a good management of its operational investment of the semester, which has a decrease of €4,000,000 compared with last year and reaching €46,000,000 compared with the €1,000,000 compared with the EBITDA plan. So the group is ambitious, trying to maintain it in yearly investment spending with a normative level of around €120,000,000 outside of the investment dedicated to amortization of our logistic equipment, which could be impacting could have an impact during the fiscal year and outside of the investment linked to the partnership with Miner. So the group remain confident for the fact that we will be able to reach EUR 500,000,000 of operational free cash flow generated in the period of CHIME 20 20 1, 20 23. So now let's say a few words about the financial structure, and you will be able to see all of that on Slide 14. The financial situation of the group is healthy with more than €1,400,000,000 of equity. By the end of the semester, the financial debt, net debt financial debt of the group was traditionally higher at the end of the year because of the seasonality of our activities. So by the 30th June, 2019 1, our financial net of financial debt of the group outside of the IFRS 16 was €454,000,000 on top of that. Just as a reminder, the group announced by the last March the success of its new financing strategy, which was the reimbursing of all the state backed loan up to which was up to €500,000,000 and to extend the credit line the equity of credit line to €500,000,000 with maximum maturity in 20.28. And also, we're going to try to reimburse the senior team loan facility of €200,000,000 which we have reached to an end in April 2021 and also place convertible bounce up to €200,000,000 by 2027. Since this new financial structure that SNAC is optimizing the average cost of its debt with no major deadline for the reimbursement before 2024. Therefore, the group is now, by the end of June, around €500,000,000 of free cash flow, allowing us to have an RCF of EUR 500,000,000, which makes us very trustful regarding the uncertainties to be able in order to face with my trusting opposition, the potential negative evolution of the health crisis. Then by the end of June, the lever debt net EBITDA outside of the IFRS 16 calculated on the 18 months was 1.1x. So it means that we will communicate on the annual related results after the shareholders come back with the feedback results of the shareholders for 2021. And I'll give a follow back to NvK in order to back the group perspective. Thank you very much. As you understood, it's very complicated. The first half needs to be encouraging. We want to review our expectation for higher expectation. The first half is quite encouraging that our activity is still impacted by the health the sanitary conditions. The new French government announcement seems to mean that there will be an impact on how to access big shopping centers, and this could have, in turn, impact on the expectation of our stores. So we are very careful about these measures. The economic turnover in the Iberic Peninsula is slower than expected. In consequence, MacDiocese stays confident but still careful on how we will perform on the second half, and we will stay focused on our commercial execution to fulfill the big commercial meetings we will have, the big events we'll have, to also manage our cost and to generate cash flow with our objective from the everyday plan. And that is why with the first half, that is encouraging. But within the unsure sanitary environment, the group will review its respective 2021 with higher ones. We await turnover to increase by 5% in comparison to 2020. And we expect an operational result a current operational result between €60,000,000 to €70,000,000 That is all I wanted to tell you today. And I am available with Jean Louis to answer your questions. We have the first question from Clement Jeanneau, Brian Garnier. I have 3 cash rent questions. The first one is about the upgrade of the guidance on sales. Is it due to the very good performance on the second half? Or is it because the future performance will also be higher on the second half? And what is the schedule? Is it between May, July? What are your expectation? Is there a strong reducing of our activity with the opening of Baus restaurants and others? And the final question about the cash flow. There is a risk here. Cash flow could be lower than in 2020. In your opinion, will the BSM change, will it be positive or negative? Or will we need to renew our inventories again? Thank you for your questions. I will answer the first one, and then I'll let Jean Pierre answer the others. The first half, as we see, was really encouraging. And for the second half, just to remind you of the fact, last year, the second half was really huge. We had an increase of 8% and a real increase of our results. And our forecast here shows that we could have a similar result or a slightly lower result. So we expect the end of 2021 to be as 2019. But we think that we were very strong on our first half. We will be strong as well on the second half, but slightly less strong. And we take into account a lot of characteristic of features to calculate that. So this is just a forecast. We cannot be too precise. We think that we are on a good path. And we will be able later to give you more details on the end of 2021. But we think that the turnover will be around 5% of increase. For July, we cannot comment because, as you know, it's still current. We cannot comment on the current situation. But we do not anticipate brutal changes in the current growth. So of course, we stay very careful. But today, we have a turnover that is higher than last year for the same period. And I think that the next week will be decisive for our group success. The BFR at the end of the year, it's a bit like last year. It will depend on how we do in December. And of course, it could mean anything. It could go in any direction. We can see that on that for the last half of last year, we had a great PFR because we had low inventories. And now we have higher inventories, so it might impact the PFR negatively. As for the so for the BFR, it will depend on the end of the year. As for the cash flow, there will be an increase of the EBITDA compared to last year. There will be, in 2021, the decrease of this year and the decrease of corporate tax. So we will benefit from that. Usually, we pay 40%, and here, it's going to decrease, and then it will be 30%, 35%. As for cash flow, it will also decrease. So that will help with our cash flow. And again, the working capital requirement will probably decrease, too. So yes, the few details I can give you about how the cash flow will look at the end of the year. I can't give you all the details. There is another question from Florent from Nikkad. Good evening. Congratulations for the results you presented tonight. I have a question around the guidance. To go back to the July performances, I know that you don't want to communicate them, but can we have a trend for April, May, June maybe? Are there any differences between those months? Because as you know, we have a minus 5% on the second half. So did you see any slowing slow any decrease like in Maisons du Monde? As for current operating margin, is it 5.2% for the second half? Is it it would be a level unseen since 2016. So what could explain that 5.2% margin, that very, very low margin? I know that the ticket has been impacted, but we also integrated Natural and Decover. And we also split with PCC, so this should have an impact as well. I would like more clarification on that. For April, May June, the comparison is really not easy to make because last year in June, we had a very, very successful month, so we cannot compare. However, what we've seen here is that we've expected less, and we had a very good trimester, a very good quarter. And of course, sales have helped, but it's not as much as for our competitors. So yes, we could be at the same level of 2019, and that would be very satisfying because it means that we've overcome the crisis, and we've succeeded to have sales online and in stores. And we could have the same performance we expect. And can we have an idea of the impact of the ticket sale on the EBIT to know what the margin will be. Well, we won't give you the numbers, but it's quite significant. 2 years ago, like for like, we had 2.78 €1,000,000 So that would be our level for 2019. Another question, please. How about online sales profitability? Can you tell us can you isolate that number and tell us how much it helps the margin? It's a very important question. As you can see, the profitability of the group is not an issue. It depends on many, many factors on services, on accessories, on goods. However, we showed already at the end of 2020 that with 25% online sales, we can gain 7 to 8 points more in comparison to 2019. So we've seen, we've shown that our online sales system is working. It's a system in itself, and that's also our orientation at Data to go more to a subscription system. We need to have a cost margin for the feasibility rate that is positive, and that's the case for the sales the online sales. Thank We have a question from Geoffrey Michellet from Autobuchale. You have the floor. Good evening. Thank you for answering my question and congratulations for this online performance that is still growing. That's very impressive. Even if stores might close and the ratio has been turned. I want to talk about the online performance at the end of the year. What could it mean in terms of additional logistical costs? The logistic CapEx are not concerned here. For this year, the system is already in place, thank God. It will really depend on the new sanitary restrictions. Will store close or not? It will depend on that. Because at home delivery through stores can be impacted. We have a mix of our it's about fifty-fifty. It's quite important. We hope that the stores will stay open to sale, of course, but also to maintain online sales. So we think that it will stay coherent with 2020. We shall wait and see. But one thing is sure, we've grown, we've matured in between 18 months, we had 7,000,000 more clients on our online platform. So we think that there will be more and more hybrid behavior by our customers. And this will probably be the consequence of the COVID crisis. We will have a new generation of clients, of customers who maybe don't go to stores. Next question from Marie Tufour from Societe Generale. I had two questions. The first is, have we gained market share on the first house, especially in comparison to Amazon? And second question, I would like to better understand if in your forecast for the whole year, you and especially for the second half, if you've integrated an increase in prices, which probably will happen at the end of the year, We know that for the 4th quarter, prices might increase. So is it something that you've included? And can you tell us more about what it means for the Q4? Or will it be rather for the Q1 of 2022? Well, thank you for your question. Amazon is really difficult to it's really difficult to have the results of Amazon. They're not really transparent, so I can't really comment. We need more information. But if we look at what we have, I think our performance has been really good, better than everyone in the country because of online service, also because some of our stores may manage to stay open. So we're very satisfied with our place on the market. I can't compare our position to Amazon's, but I think that in comparison to the whole market, we are doing quite well. As for increase in prices, yes, we've heard the same thing. I think the increase will be quite insignificant though and the impact as well. For the past few months, we've benefited from an average increase in prices, not for the same products, but there's a mix. There are higher entry products, And it's happened for the past few months, and I think this will also have consequences for a group to build a longer term strategy to be more viable. So I think it's a good thing for us. It goes in the right direction. And the inflation we're forecasting, again, we think it's going to be very low. And of course, it will be up to the customer to pay. For us, retailers, we cannot absorb this increase. So the customers products to choose from, but some of them will be higher prices. And this might help us to absorb this inflation. We think, however, that this phenomenon is linked to very concrete and contextual elements such as raw material, lack of raw materials that we're not worried. Thank you. Next question, Pierre Margenalot, you have the floor. Thank you. A question about inventories with cargoes with are we at risk of lacking your start products or not? Thank you for your question. I think that our supply chain is under pressure since 20 20. It stops, it increases, and it's also under pressure because of the growth. If you look at 2020, there were lots of pressure because product categories were highly demanded. Today, we have an inventory level that is at its highest since the beginning of the crisis. So our inventory, pre COVID is the same as during as now. So we're better placed today than during at the beginning of the crisis. We're very careful for the next few months. We're going to keep an eye out. We are looking at our orders. We are ready to face our demand. And we hope that the phenomenon that we've seen during the crisis will slowly disappear. Of course, some supply chains will be under pressure, but we hope that our inventories will make up for that pressure. If there are short term pressure or significant pressure for some groups, some stores, we'll really be able to absorb that. We are really careful about our availability for products. Thank you. We have a question in English now. Yes. We have a question from Adam Crocker from Numak Cooking. Please go ahead. Hello. Hopefully, you can hear me. I had a question about the culture pass. And if you could just talk generally about the long impact that it might have and if there are any programs you have in place to maximize the potential there? Thank you. I'm sorry. There is a bit of an echo between the lines. If the technicians can help. Okay, I think it's better now. Sorry. It's a French program for the last 4 years. So FMEA has been one of the first players that's been cooperating with the French government to create this program in terms of technology offer and the way we have been proposed for the youngs. So the pilots runs for 2 years, and now they decide to go for a full rollout. So the first figures are quite impressive because the young the potential is around 10,000,000 new youngs every year. And for each of them, this EUR 300 available to expand in culture products, in stores. So this is a gateway to address this generation for the stores. And in particular for the culture of those big impact on the books, in particular, in the other categories like gaming and record some Sims 2. But books in particular is quite satisfying because this is the main I would say, this is one of the main objective for the government is to put the so the reading back on the young generation hand. So the way to optimize that is to be inside this platform, open the global inventory online for the journey or geolocalization on the whole stores. And Aflac, I think Aflac is the only chain national wise that is able to produce a peak level of inventory and catalog for the junk. That's the main reason why we are able to catch a significant part of these programs that give us a good impression that how much it can be on the next coming month. And it's a problem that is proposed not just for this year, it's to be projected for the following ones. So it's pretty good news for the culture products. But probably you know that SKAC is the main leader in all of them, books, records, movies, gaming. So for us, it's a good decision. We have no further questions. Well, thank you to all. Thank you for being here and for all those questions. I wish you all a good holidays and a good summertime, and we will see or we will hear each other in October for our quarter meeting as usual. Thank you and have a good evening everyone. Ladies and gentlemen, the conference is now ended. Thank you for taking part. You can now disconnect.