ECULLY, France – “ Groupe SEB achieved a first half of good quality, on high comparatives,” said in a statement Thierry de La Tour d’Artaise, Chairman and Chief Executive Officer of the Group.
“During these first six months, our organic growth remained robust, Operating Result from Activity held up strongly in a more challenging raw material and currency environment than anticipated and Net profit grew by nearly 10%. ”
“Consumer business activity was brisk, propelled by China and the EMEA region. The rapid development of the Professional business was confirmed thanks to the win of new contracts.
The coming months should see continued growth momentum in the Group. The outlook is favorable in many of our large markets and we have implemented vigorous action plans to take best advantage of that outlook, through increased marketing investments and the build-up of stocks.
Against this backdrop, the Group is revising upwards its objective of organic growth in sales for 2018, which should exceed 7%.
Furthermore, the Group is confirming, on the basis of present exchange rates -more challenging than anticipated-, its objective of an over 5% increase in Operating Result from Activity versus that of first-half 2017, excluding the one-off impacts of the WMF purchase price allocation.
Lastly, Groupe SEB is also confirming further debt reduction to bring the net debt / adjusted EBITDA ratio down to below 2 at end-2018.”
General comments on Group performance
The Group operated in first-half 2018 in a market environment that was more difficult than in 2017. Overall, the Small Domestic Appliance (SDA) market remained positive worldwide, although it did see one-off impacts owing to a shift of demand towards brown goods (televisions) due to the football World Cup.
At €3,025 million, first-half sales were up 2.9%, including in particular organic growth of 7.4% (7.3 % in the second quarter) and a currency effect of -4.7% (-3.8% in the second quarter compared with -5.6% in the first). As a reminder, LFL growth levels in the first half of 2016 and 2017 were particularly high, at +6% and +10.1%, respectively, and thus constitute demanding comparatives.
Organic growth was composed as follows:
- Consumer business, including WMF: +7.9%
- Professional business (coffee machines and hotel equipment): +2.4%, including few effects in the second quarter of new contracts signed at the start of the year. The ramp-up of these contracts will take more concrete form as from the third quarter.
Geographically speaking, LFL growth was driven primarily by China, with a further boost in momentum in the second quarter, together with Russia, Turkey and Central Europe, which all confirmed their strong traction, as well as Portugal. The situation was more difficult in the Americas, particularly in the United States, Canada and Brazil. Almost all product lines contributed to revenue growth, the most outstanding families being home care (vacuum cleaners), electrical cooking (rice cookers, electrical pressure cookers, Optigrill…), beverage preparation (full-automatic espresso machines…) and home comfort (fans).
Operating Result from Activity (ORfA) in the first half totaled €208 million, including a -€16 million currency effect. This compares with an ORfA of €213 million in first-half 2017, excluding one-off impacts of the WMF purchase price allocation (PPA), amounting to €17 million. On a LFL* basis, ORfA came out at €224 million for the period (compared with €230 million for first-half 2017, excluding the impacts of WMF PPA amounting to -€17 million), down 2.9%.
Net debt stood at €2,015 million at June 30, 2018, up €110 million on end-2017.
Wmf Professional
Professional business activity (coffee machines and hotel equipment) posted sales of €290 million, up 2.4% in the first half on a like-for-like basis, after an excellent improvement in the second quarter. Performance in the first quarter was negatively impacted by demanding comparatives in coffee in 2017 relating to two significant contracts in Canada and Japan, deliveries of which were phased over the first nine months of 2017.
Meanwhile, core-business excluding these specific operations continued to trend positively, both in Germany and internationally (including in Central Europe, Scandinavia and China).
The recent signature of new, large-scale contracts reflects the on-going development strategy implemented by WMF in professional coffee and bodes well for the coming months. The start-up of deliveries brought already a strong push to the second quarter performance, which should amplify as from the summer.
These contracts are much more significant than those in 2016 and 2017. They were signed with two customers in the United States – including RaceTrac, a company operating service stations and convenience stores – and one in China, Luckin Coffee, the second largest local coffee-shop chain.
In hotel equipment, where business activity is closely linked to specific contracts, sales increased slightly in the first half.
Operating Result from Activity
Operating Result from Activity (ORfA) in first-half 2018 came to €208 million. At constant consolidation scope and exchange rates, ORfA totaled €224 million in first-half 2018, compared with €230 million in first-half 2017, excluding the one-off impacts of the WMF purchase price allocation, declining by 2.9%. In addition, the currency effect over the period was -€16 million, equivalent to that in the first six months of 2017.
The organic decrease in ORfA should be seen in the light of exceptionally demanding 2017 comparatives, both in terms of the Group’s former scope (organic growth of 34% in first-half 2017) and as regards WMF, whose performances had been boosted by the above-mentioned two large deals in Professional Coffee. The change may be broken down as follows:
- A €39 million positive impact of volumes related to sales organic growth;
- A positive mix-price effect of €14 million, driven primarily by the mix, the embedded price effect of 2017 being limited and the most recent price increases initiated in first-half 2018 having made only a modest contribution as yet;
- A substantial increase in purchasing costs (€27 million), as expected, given the rise in commodity prices, but offset by gains in productivity of €18 million;
- A €26 million increase in investments in growth drivers (innovation, advertising and operational marketing) with, as in 2017, major activations in certain large markets (including China, Russia, Turkey, Colombia, the United States and France);
- A €20 million increase in commercial and administrative costs.
It should be stressed that the additional commercial and growth-driver investments concern the Group as a whole and naturally include WMF, both in the Consumer and Professional Coffee businesses, the respective international development and growth acceleration of which require commitments in terms of human and financial resources.
As a reminder, given the seasonal nature of the Group’s business, first-half ORfA is not representative of the financial year as a whole and thus cannot be extrapolated.
Operating Profit and Net Profit
Operating profit at end-June stood at €186 million, compared with €178 million at June 30, 2017. It includes an anticipated cost of discretionary and non-discretionary profit sharing of €10 million, stable on first-half 2017 (€11 million).
Other operating income and expense, at -€12 million compared with -€24 million at end-June 2017, mainly includes the last costs related to the reorganization of our operations in Brazil (notably the completion of the industrial transition), the depreciation of the residual value of the Saint Jean de Bonnay site (transfer of plastic production to the Pont-Evêque site), various commercial reorganization costs, and expenses linked to the integration of WMF.
Net financial expense came out at -€36 million, compared with -€44 million at June 30, 2017. Besides an improvement in interest expense, the change mainly reflects the decrease in the fair value of the optional part of the November 2016 convertible bond issue (ORNAE).
After taxes at a rate of 24% (23.5% in first-half 2017) and the elimination of non-controlling interests in the results (Supor), for a total of €23 million, net profit amounted to €91 million, up 9.5% on first-half 2017 (€83 million).
Financial Structure at June 30, 2018
At June 30, 2018, equity attributable to owners of the parent totaled €1,983 million, up €19 million on December 31, 2017.
Tangible fixed assets totaled €3,540 million, stable relative to end-2017.
Net financial debt at June 30, 2018 stood at €2,015 million, compared with €1,905 million at end-December 2017. Operating cash flow generation totaled €62 million in the first six months of the year, compared with €91 million in first-half 2017. The decline can be attributed to the decrease in cash flow – consistent with that in operating result – and an increase in the working capital requirement (18.4% of sales compared with 17.6% at June 30, 2017), owing primarily to higher stock levels in anticipation of robust growth in second-half 2018. Apart from a considerable increase in dividends paid (€118 million vs. €101 million in 2017), operational items such as CAPEX, financial expense and taxes are consistent with those of last year and the seasonality of the business activity.
At June 30, 2018, the gearing ratio stood at 1.0 and the estimated net debt / adjusted EBITDA ratio (over 12 rolling months) at 2.6.
