BIC H1 2018 Result: CHALLENGING TRADING ENVIRONMENT ‐ 2018 OUTLOOK UNCHANGED

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H1 Net Sales:  959.3 million euros, down 1.9% on a comparative basis:

  • Challenging the market and business environment
  • Continued solid performance in Eastern Europe
  • Soft Second Quarter performance in U.S. Lighters, as expected

H1 Normalized Income From Operation margin:  19.6%, down 70 basis points: 

  • H1 favourable Cost of Production offsetting increase in Raw Materials and Depreciation
  • Continued targeted investments in Brand Support and Operations
  • 68.7 million euros of Goodwill Impairment on Cello (India) as a result of lower growth perspectives in both domestic and export sales.
  • Solid Operating Cashflow generation

Gonzalve Bich, Chief Executive Officer comment on H1’s report:

“Faced with market headwinds in the first half, we continued to invest in our business and drive operational effectiveness, thus enabling us to seize opportunities to deliver future growth.

In the balance of the year, we expect Net Sales growth across all categories. We will deliver solid growth in e-commerce in US Stationery, strengthen our distribution of Lighters, while new product launches will drive Shavers’ performance.

Our outlook for the full year is unchanged. We remain focused on delivering on our goals and leveraging the value of our brand as we continue to engage effectively with our consumers.”

Operational trends by category

Stationery

Stationery H1 2018 Net Sales decreased by 7.4% as reported and by 0.1% on a comparative basis. Second quarter 2018 Net Sales were down 6.8% as reported and down 1.4% on a comparative basis.

  • In Europe, while the market declined 2.2% in value[6], Net Sales were flat with continued solid performance in Southern Europe (Spain and Turkey) partially offset by negative back-to-school phasing in France (shipment to customers postponed from June to July, versus last year).
  • In North America, Net Sales increased mid-single digit with a strong performance in e-commerce, the on-going success of our BIC® Gelocity Quick Dry pen, as well as positive back-to-school phasing. Year-to-date June 2018, BIC outperformed the declining U.S. Stationery market (-0.9%), gaining 0.5 points market share in value[7].
  • In Latin America, Net Sales decreased low-single digit, negatively impacted by the 10-day transportation strike in May in Brazil, combined with on-going inventory adjustments by customers, as well as a negative back-to-school phasing in Mexico.
  • Cello Pens Domestic Sales were flat on a comparable basis as Cello continues its product trade-up strategy and portfolio streamlining.

H1 2018 Normalized IFO margin for Stationery was 11.7%, compared to 11.0% in H1 2017 with favorable Sales Mix and cost efficiency, offsetting increasing Raw Material costs.  Q2 2018 Normalized IFO margin was 15.0%, compared to 15.5% in Q2 2017.

Lighters

H1 2018 Net Sales of Lighters decreased by 11.4% as reported and by 2.6% on a comparative basis. Second quarter 2018 Net Sales were down 11.5% as reported and down 4.5% on a comparative basis.

  • Europe Net Sales were flat in H1. In Western Europe, in spite of unchanged market conditions and distribution channels for BIC, performance was impacted by the decision to adjust a part of our route-to-market in traditional networks. In Eastern Europe, we continued to grow market share.
  • North American Net Sales decreased slightly in H1. Following pre-buys from retailers in Q1 ahead of the April 1st price increase, Q2 performance was soft, as expected. The non-refillable pocket lighter market in the US declined by 0.3%[8].
  • In Latin America, Net Sales decreased high-single digit, due to on-going inventory adjustments by customers in Brazil. In addition to this, Brazil’s performance was impacted by the 10-day transportation strike in May. Mexico performed well with a positive trend in Q2, driven by enlarged distribution in traditional stores.

H1 2018 Normalized IFO margin for Lighters was 37.1%, compared to 39.3% in H1 2017, reflecting an increase in Raw Materials and Brand Support, as well as unfavorable fixed cost absorption. Q2 2018 Normalized IFO margin was 38.4%, compared to 41.3% in Q2 2017.

Shavers

H1 2018 Net Sales of Shaver’s decreased by 11.8% as reported, and by 3.1% on a constant currency basis. Second quarter 2018 Net Sales decreased by 8.0% as reported and by 0.3% on a constant currency basis.

  • The performance was solid in Europe with Net Sales increasing mid-single digit. This was mainly due to continued growth in Eastern Europe, notably in Russia with a market share increase driven by BIC® Flex 3 Hybrid and new distribution gains. Western Europe Net Sales were flat in spite of a declining market (down 1.1% in value, YTD May 2018[9]) for the one-piece segment.
  • In North America, Net Sales decreased mid-single digit, negatively impacted by the on-going market disruption including competitive pressure. BIC underperformed the U.S. one-piece market (down 3.9% in value), losing 0.5 points resulting with 26.4% market share in value (YTD June 2018[10]), in spite of the continued success of our new products BIC® Soleil® Balance, N°1 new product on the female one-piece market, BIC® Flex 3 Hybrid and BIC® Soleil® Bella Click.
  • In Latin America, Net Sales were flat. In Brazil, the impact of the 10-day transportation strike was more than offset by our distribution expansion and market share momentum, while market declined 2.7% in value (YTD May 2018[11]). BIC gained 2.5 points to reach 21.2% market share in value, driven by BIC® 3 and our latest launches such as BIC® Flex 3 and BIC® Soleil Sensitive.
  • In the Middle-East and Africa, Net Sales decreased double-digit with performance negatively impacted by a decrease in promotional activities and current unfavorable importation legislation in North Africa.

H1 2018 Normalized IFO margin for Shaver’s was 11.7% compared to 13.1% in H1 2017, driven by low volumes, unfavorable product mix, increase in Raw Material costs partially offset by lower Brand Support compared to last year.
Q2 2018 Normalized IFO margin was 14.9%, compared to 14.0% in Q2 2017.

Other Products

H1 2018 Net Sales of Other Products decreased by 28.5% as reported and by -10.4% on a comparative basis. Second quarter 2018 Net Sales decreased by 25.8% as reported and by 6.9% on a comparative basis.

BIC Sport posted a low double-digit decrease in its Net Sales on a comparative basis.

H1 2018 Normalized IFO for Other Products was a negative 1.0 million euros, compared to a negative 1.8 million euros in H1 2017. Q2 2018 Normalized IFO for Other Products was a positive 1.2 million euros, flat vs. last year.

2018 Outlook

We expect 2018 Group Net Sales to increase between +1 and +3% on a comparative basis, with all categories contributing to the growth. Major factors affecting sales performance could include continued competitive pressures in Shaver, further inventory reductions from retailers, and continued softness in the Brazilian economy.
Gross Profit will be impacted by an increase in raw material costs, higher depreciation, while we will continue to invest in targeted Brand Support and Operating Expenses.
2018 Normalized Income from Operations will also be impacted by sales performance. Based on these factors we expect Normalized Income from Operations margin to be between 17% and 18%.