European Lingerie Group AB publishes unaudited 6 Months and Second Quarter 2020 Report (January 1 – June 30, 2020), including condensed interim consolidated financial statements.
ELG is pleased to publish its 6 months and second quarter 2020 report. The performance during the second quarter was heavily impacted by COVID-19 and measures taken by local governments, whereby stores were temporarily closed and products of the group, therefore, lacked the traditional sales channel. As the result, the Group experienced drop in sales revenue, was forced to temporarily stop the production in its production plants, review the organisational structure across the Group companies as well as implement temporary and permanent cost cutting. The management implemented cost saving actions, managed to generate additional sales revenue from textile mask production and import of protective medical masks. Furthermore, application for state subsidies and state supported loans allowed the Group to achieve sustainable business model during COVID-19 to restart production in June 2020.
“After turbulent spring months whereby fast measures needed to be implemented we have resumed production since June. Sales and production are running at lower levels than previously. However, we are relatively optimistic regarding current standing of the Group as liquidity situation is stable and we are also reasonably prepared in case the second waive would result in repeated strong restrictive measures by the governments in terms of physical retail store closures. This period we see as an opportunity to reshape the business in terms of the applied business model to be leaner and more reactive towards faster changing market demands,” commented Baiba Birzniece, Head of Strategy, M&A and IR. “We appreciate the patience and strong partnerships we have developed with our suppliers, financiers, customers and most of all – our employees, who have and still are coping with changed work circumstances while caring for their families.”
“As disclosed previously, we have reached a Standstill agreement with the bondholders of European Lingerie Group. We believe that the reached agreement is the best way forward to resolve complex situation, caused mainly by COVID-19, with respect to the Bond obligations of the Group and anticipate constructive cooperation to continue with the Bondholder Committee going forward,” commented Indrek Rahumaa, CEO of the Group.
The Group’s sales amounted to EUR 32,651 thousand in 6 months 2020 (Q2 2020: EUR 5,690 thousand), representing a 18.6% decrease as compared to sales of 6 months 2019 (17.6% decrease to Q2 2019). In 6 months 2020, the decrease in sales was mainly a result of COVID-19 outbreak followed by partial deferral of orders by customers to later months as well as significant reduction of orders during the lock-down period. In addition to that, due to introduction of a smaller Felina swimwear collection in 2020, revenue of swimwear was also lower in 6 months 2020 than in the same period last year.
Profitability margins in 6 months 2020 were below previous year which is explained by COVID-19 outbreak and shortfall in revenue which made it difficult to cover part of the fixed costs. The drop in Q2 2020 profitability though was partly outweighed by the additional business from protective masks, state subsidies received for the down-time payments to employees and strict cost control during the lock-down period.
Normalised EBITDA in 6 months 2020 amounted to EUR 1,999 thousand (Q2 2020: EUR 1,517 thousand) and decreased by 56.8% compared to 6 months 2019 (22.0% decrease to Q2 2019). Normalised EBITDA margin in 6 months 2020 and 6 months 2019 was 6.1% and 11.5% respectively (Q2 2020 and Q2 2019: 9.7% and 10.2% respectively).
Normalised net profit in 6 months 2020 amounted to a loss of EUR 1,726 thousand (Q2 2020: loss of EUR 362 thousand), compared to normalised net profit of EUR 425 thousand in 6 months 2019 (Q2 2019: net loss of EUR 28 thousand). Decrease in net profit is as well explained by the reasons described above. Normalised net profit margin in 6 months 2020 and 6 months 2019 was -5.3% and 1.1% respectively (-2.3% and -0.1% in Q2 2020 and Q2 2019 respectively).
Core operating markets for European Lingerie Group are Germany, Spain, France, Poland, Benelux countries, Baltic countries, Russia, Belarus, Italy and Ukraine. Group’s sales in its core markets in 6 months 2020 were 87.2% of its total sales against 84.0% in 6 months 2019 (90.6% in Q2 2020 against 85.0% in Q2 2019).
As a result of COVID-19 outbreak, sales in all markets operated by the Group demonstrated a decrease, except Baltic countries and France.
Sales in the Baltic countries increased by 45.0% in 6 months 2020 compared to previous year (Q2 2020: increase by 84.1%) as a result of sales of medical masks and respirators, which were imported from China.
Sales in France increased by 51.3% in 6 months 2020 and by 126.4% in Q2 2020 compared to previous year. Such an outstanding growth was caused by two factors. Firstly, Felina’s Hungarian production facility concluded a contract for sewing protective masks for a French customer. Secondly, switch of demand from traditional shopping to online during the lock-down period resulted in higher sales achieved by the Group’s online retailer – Dessus-Dessous S.A.S.
Sales in Italy decreased by 9.5% in 6 months 2020 and increased by 117.4% in Q2 2020 compared to previous year. Q2 growth is explained by sales of medical masks imported by the Group from China. Like for like sales change (excluding medical masks impact) was a decrease of 54.6% in 6 months 2020 and a decrease of 8.6% in Q2 2020.
An average decrease in dropping key markets was 36.7% in 6 months 2020 and 53.5% in Q2 2020 with Russia, Belarus, and Poland being the worst dropping regions. The higher drop in Russia was a result of tighter restrictions on movement imposed by the government in the region together with complete closure of stores except for pharmacies and grocery shops for 2 months. Belarus and Poland suffered from the same effect as large portion of lingerie ready garments produced in these countries are exported to Russia for retail.
Sales in Spain decreased by 7.8% in 6 months 2020 and by 34.9% in Q2 2020 compared to previous year. 6 months drop was not as dramatic as Q2 as a result of renegotiation of consignment arrangement with the largest customer in Spain at the end of 2019, whereby part of the goods, which were previously delivered under the consignment arrangement would be delivered as standard purchases in the future and the goods still held by the customer under the previous arrangement would be bought out by it upon conclusion of the new agreement. The deal resulted in additional revenue in the amount of EUR 460 thousand recognised in January 2020.
In July 2020 the Group reached an agreement on a standstill with the Bondholder Committee regarding ELG’s defaults under the Terms and Conditions as well as a cooperation between the ELG and the Bondholder Committee to explore and execute a potential restructuring of the Group and the Bonds. The long stop date for the standstill is 30 November 2020 (the “Standstill Period”), however the Standstill Period may be extended or, if certain conditions of the standstill agreement are not met, lapse any time prior to such date.
This information is information that European Lingerie Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out below, at 19:00 CET on 31 August 2020.
For more information, please contact:
Head of Strategy, M&A and IR
European Lingerie Group AB