And beyond…

2017 Sales and Results

2017 : an excellent year

Groupe SEB reported sales of €6,485 million in 2017, for an increase of nearly 30% year-on-year. This included organic growth of 9.2%, a currency effect of -2% (stemming primarily from the depreciation of the yuan, pound sterling, Turkish lira, Egyptian lira and US dollar), a scope effect of €1,195 million (integration of WMF at January 1 and EMSA for six more months than in 2016) and the reclassification of Supor’s marketing expenses as a sales decrease, for -€74 million. Vigorous organic sales growth throughout the year was driven by all product lines and by the vast majority of geographical regions. This growth should be viewed in the light of high comparatives: +8.0% in 2015 and +6.1% in 2016. In parallel, WMF business activity grew 5.5% over the period, bolstered in particular by strong momentum in Professional Coffee.

In Western Europe, in a European market remaining overall sound, Groupe SEB achieved organic sales growth of 5.8%. At year-end, and despite their different environments and high comparatives, almost all countries posted like-for-like growth. This robust momentum translated into market share gains.

In France, with full-year sales of €791 million (+1.4%). Despite a strong year-end, cookware revenue remained sluggish due to the non-repeat of loyalty programs. In small electrical appliances, however, business was excellent, driven by a broad range of products and led to a significant improvement in our leadership on the French small electrical appliance market in 2017.

in Germany, the Group’s 2017 performance was outstanding. Business was underpinned by the ongoing roll-out of flagship products – all boosted by major growth drivers – and was further bolstered by loyalty programs with retailers. The Group also had a good year in Belgium, Spain, the Netherlands and Portugal. In the United Kingdom, Group revenue was up like-for-like.

2017 was the first year of consolidation for WMF, with, in particular, the progressive takeover of the operational management of WMF’s Consumer business by Groupe SEB market companies, apart from Germany, Austria and Switzerland.

In the other EMEA countries, the Group’s organic growth stood at 12.6% for the year. The vast majority of countries contributed to this very good performance which, as was the case in Western Europe, led to market share gains. In Central Europe the Group continued to make headway, through a combination of development of its core business, underpinned by mainstay categories and supported by strong marketing campaigns, and special sales campaigns with retailers. Our sales in Ukraine have grown tremendously on a quarterly basis, and rose by more than 50% at constant exchange rates for the full year.

In North America, the Group’s 2017 sales were up 3.8% like-for-like. In the United States, despite the favorable impact of the launch of the new Krups kitchen electric range, the Group had a challenging year: difficulties or weaknesses at several retail brands in light of fast-rising e-commerce; sales of core-range cookware (T-Fal) disrupted by a fierce competitive backdrop; decline in the market of irons. In Canada, as expected, fourth-quarter sales benefited from a more favorable momentum thanks to better cookware sales and solid growth in linen care. Mexico is the key contributor to growth in the Nafta region in 2017 with a business dynamic remained quite robust, driven in particular by cookware, blenders and irons, as well as by a new loyalty program with one of our key clients.

In South America, the Group achieved over the period a somewhat firmer business activity, despite a significant depreciation of the Brazilian real and the Colombian peso against the euro.

The Brazilian economy is showing signs of recovery, which materialize in household consumption, but the overall environment and the political agenda are key uncertainties. This positive trend was driven mainly by fans and irons – due to new product launches – while sales were down in food preparation and cookware. In Colombia, the decrease in sales in pesos continued to stem primarily from the drop-in fan revenue due to poor weather. In contrast, cookware business remained on track and growth was maintained in blenders.

In China, with sales growing organically at around 20 %, the Group has again recorded a remarkable performance in China, in a market largely driven by e-commerce and which is creating value. Supor continued to implement an innovation strategy and contribute to the trade-up of the market in its flagship products in cookware and kitchenware, kitchen electrics as well as in the non-kitchen small electrical appliance segment. Internet sales continued to expand and e-commerce accounted for more than 35% of 2017 revenue. All these outstanding performances of Supor must be put in perspective of a rich sales history including several years of double-digit organic growth.

In the other Asian countries, the activity remained stable driven Japan and South Korea, the Group’s two largest markets in the region, confirmed their role as strong drivers, momentum slowed somewhat in Australia and business was down – sometimes significantly – in other countries that account for a very small percentage of sales.

In Japan, the Group maintained a solid growth rate, grounded in its three mainstays: cookware and kitchen tools; linen care and kettles. In South Korea, as in 2016, the Group had another good year in 2017, mainly owing to the ongoing business development in cookware, blenders and hair dryers. In Australia, sales remained on track. In the other South-East Asian countries, however, 2017 performances were very mixed: revenue improved on a like-for-like basis in Thailand and Malaysia, but fell sharply in Vietnam and was penalized by high 2016 comparatives in Singapore.

WMF

WMF’s 2017 sales stood at €1,151 million, up 5.5% year-on-year. In the professional business, WMF’s annual sales were €563 million, up 13%, with coffee contributing +17% and the hotel equipment business down 9% due to the lack of major projects compared with 2016.

For professional coffee machines in particular, as has been specified throughout the year, the 2017 performance should be analyzed from two perspectives: on one hand, a core business that continued to grow at a sustained pace in both Germany (with strong year-end momentum) and internationally; on the other hand, the major impact of two large contracts signed in 2016 with Canadian and Japanese clients.

In the Small Domestic Equipment business, sales amounted to respectively €588 million, almost unchanged versus 2016, due to a combination of several factors: still sluggish cookware sales in Germany, the non-repeat of a major loyalty program of end-2016 in Asia and one-off disruptions caused by the sales reorganizations outside of Germany, Austria and Switzerland. However, growth in sales of small electrical appliances was in the double digits fueled in particular by new product launches; WMF stores achieved a slight growth in sales in Germany; and lastly, international expansion is progressing rapidly.

 

2017: exceptional performances

Operating Result from Activity

Operating Result from Activity (ORfA) totaled €661 million, up 30.8% and comprising the following:

  • excluding WMF, Group ORfA amounted to €583 million, up 15% on 2016. Hence, Group operating margin excluding WMF came out at approximately 11%. In addition, the currency effect (-€10 million) was much lower than in previous years (-€122 million in 2016 in particular);
  • WMF ORfA excluding one-off PPAs was €95 million, up 12% on 2016;
  • the one-off impacts of the WMF purchase price allocation (revaluation of inventories and order books) represented -€17 million and were fully recognized in first-half 2017. Consequently, WMF’s net contribution to Group ORfA totaled €78 million.

As such, Group Operating Result from Activity in 2017 excluding one-off impacts of the WMF purchase price allocation amounted to €678 million, up 34.2%, for an operating margin of 10.5%. It should be noted that the integration of WMF’s Small Domestic Equipment business into the Group’s market companies will not allow for this detailed analysis in 2018.

 In addition, organic growth in ORfA can be broken down as follows:

  • a positive volume effect of €133 million;
  • a positive mix-price effect of €80 million, which, versus previous years, is largely driven by an improvement in the mix;
  • a €32 million increase in production costs, particularly reflecting more expensive raw materials starting in the summer period (aluminium, nickel, copper, plastics…). This rise in costs was only partially offset by better absorption of industrial costs, thanks to an increase in volumes;
  • a €70m increase in investment in growth drivers; approximately a quarter allocated to innovation and three quarters for advertising and marketing;
  • a €22 million increase in commercial and administrative expenses.

Operating Profit and Net Profit

At end-December 2017, the Group’s operating profit in its new scope totaled €580 million, compared with €426 million in 2016. The figure takes account of discretionary and non-discretionary profit-sharing expense of €38 million, practically stable on last year. It also includes other operating income and expense of -€44 million (-€42 million in 2016), composed primarily of the industrial and logistics reorganization implemented in Brazil (transfer of production from the Mooca and San Bernardo sites to the new Itatiaia site), charges stemming from the integration of WMF and the pooling of Groupe SEB and WMF entities in several countries, and expenses incurred by the creation of the Group’s global Innovation Hub in Lyon for the Small Electrical Appliance business.

Net financial expense came out at -€72 million, compared with -€58 million in 2016. At €35 million (€30 million in 2016), interest expense rose moderately despite the increase in debt, mainly due to the excellent financing conditions for the acquisition of WMF. Other financial expense primarily included a €9 million increase in the fair value of the optional part of the November 2016 convertible bond issue and unfavorable currency translation adjustments.

Net profit amounted to €375 million, up 45%. The total included a tax expense of €99 million representing an exceptionally low effective tax rate of 19.5% in 2017, thanks notably to a non-recurring effect of the tax reform in the United States and the restitution of the tax on dividends in France. It also comprised non-controlling interests of €34 million, up on last year owing to the continued improvement of Supor’s performance in China.

Balance sheet

At December 31, 2017, equity stood at €1,964 million, an increase of €128 million on end-2016 despite the inclusion of negative translation adjustments of €148 million (penalizing effect of the yuan, US dollar, Brazilian real and Colombian peso).

At end-2017, net debt totaled €1,905 million, compared with €2,019 million a year earlier. The €114 million decrease can be attributed to the robust generation of operating cash flow. This last amounted to €322 million for the year, used in part, excluding dividend payments and share purchases, to cover non-operational outflows (mainly restructurings under way, WMF integration costs and the acquisition of Swizzz Prozzz).

At end-2017, the working capital requirement stood at €1,222 million, equal to 18.8% of Group sales (19.6% at end-2016). WMF had a slight negative impact on this ratio, which amounted to 18.2% for the former business scope.

The Group thus ended the year with a debt to equity ratio of 97% (110% on a pro forma basis at end-2016) and a net debt / adjusted EBITDA ratio of 2.4, compared with 2.8 at December 31, 2016. This ratio is consistent with the debt reduction objectives announced in May 2016.

Outlook for 2018

Groupe SEB posted an excellent year in 2017, combining strong performances in line with its objectives and a promising start from WMF.

Like 2017, 2018 will be a rich and busy year marked by a two-fold objective:

  • Pursue the Group’s profitable growth (former scope) in a small household equipment market that should remain buoyant, by continuing to harness our solid fundamentals – innovation, the power of our brands, broad distribution, international presence, industrial expertise and top-quality execution – to make a difference.
  • Pursue in parallel the integration of WMF by rolling out the projects initiated, executing investment and acceleration plans in Professional Coffee, implementing the actions to improve profitability in the Consumer business, and ramping up operational synergies. Delivering on all these topics will once again call for a strong mobilization of the teams.

Moreover, the economic environment is likely to be more challenging in 2018 in terms of commodities and currencies. Despite high comparatives for the former scope and an exceptional 2017 in Professional Coffee for WMF, Groupe SEB’s objective in 2018 is to achieve further organic sales growth, improve its Operating Result from Activity and continue to reduce its debt level in order to bring its net debt / adjusted EBITDA ratio down below 2 at the end of 2018.