No. 3/2019
Copenhagen, 26 February 2019
Restructuring of corporate bond
Bondholders have approved the changes to the bond terms on 25 February 2019. The changes will come into effect in 2019.
The adoption of the redefined terms for the bonds will secure the financial situation for the group of Lauritz.com in the coming years, allowing management to focus on growing and optimizing the business in a market with a considerate further potential.
Main changes to bond terms:
- Write-down of debt by DKK 85m from DKK 230m to DKK 145m
- Reduction of interest rate from 7.5 percent on the full bond debt to 4% on SEK 130m and 7.5% on SEK 70m. Yearly interest payment the first year hereby reduced by DKK 9.7m from DKK 17.4m to DKK 7.7m
- Extention of the bond by 5.5 years until December 2024, with scheduled yearly redemptions
- No financial covenants, and waiver of the existing financial covenants
- Additional security provided to bondholders by main shareholder
Impairments and changes in accounting estimates
In connection with the preparation of every quarterly statement, we assess if there is a need to write down the value of assets in the balance sheet in order to give a true and fair view of the value of these.
In connection with the Q4 reporting the following adjustments to accounting estimates and Impairments has been made:
- Reassessed the expected value of the Fine Art transaction, resulting in a change in the gain from the sale of the Fine Art business from DKK 40.4m to DKK 8.4m
- Impairment of Goodwill and receivables from sale partnership agreements of DKK 31.5m.
- A reservation of DKK 19.5m is made on receivables form sale of partnership agreements to be prepared for future losses.
The value adjustments included in the Q4 report are a consequence of recent performance and more prudent expectations.
Equity
As a result of the Impairments and changes in accounting estimates made in connection with the Q4 reporting equity is negative at 31 December 2018.
The Restructuring of the bond will result in the Equity being restored during the first half of 2019, as the DKK 85m write down of the bond debt will impact both the result and the equity positively in 2019, bringing the Equity back to a level around DKK 55m.
2018 Highlights
- The result for 2018 impacted significantly by the sale of the Fine Art business in Q1, and impairment of assets in Q4.
- Excluding sales gains and impairments EBITDA in 2018 is DKK 4.6m (6.2m).
- Cost level in like for like business reduced by 7-8 percent comparing with last year, showing the way to a new leaner organization with ability to deliver strong earnings
- Core business Auction Turnover down by 5.7 percent. Auction Turnover amounted to DKK 738.2m (858.9), corresponding to a decrease of 14.1 percent. In addition to the reduction in core business, 6.3 percent is due to lower Auction Turnover in Fine Art business in Sweden which was sold in Q1 and 2.1 percent is due to the depreciation of the Swedish krone.
- Average knockdown price for the online business increased by 2.7 percent to DKK 2,473 (2,408), and number of knockdowns was 270,472 (302,635) for the online business.
- Revenue amounted to DKK 117.6m (195.7). The reduction is primarily due to lower fees from sale of partnership agreement DKK 0m (28.4m) as well as the divested businesses DKK -31.6m. The remaining reduction is due to lower Auction Turnover impacting Revenue by DKK -13.6m (primarily In Q1 to Q3) and impact of depreciation of the Swedish krone DKK -3.6m.
- Cost level in like for like business is reduced by 7-8 percent compared to last year. The remaining part of the change in cost is due to lower cost following the sale of auction houses, change in accounting for leases and depreciation of the Swedish krone.
- Gain from sale of Stockholms Auktionsverk's Fine Art business DKK 8.4m is included in other income.
- · Auction Turnover Margin1 amounted to -1.2 (3.7) percent. 2018 is impacted by impairments.
- Profit amounted to DKK -70.2m (-21.3) and earnings per share amounted to DKK -1.721 (-0.522).
- The property at Rovsingsgade 68 was sold. The transaction had no impact on the result of 2018.
Commercial development 2018
After many years of growth, Lauritz.com experienced a significant drop in Auction Turnover in 2017 due to a more aggressive competition from an increasing number of both traditional and new players within sales of vintage items. In 2018, the core Auction Turnover has shown signs of stabilization with a decrease of 5.5 percent in local currency compared to last year.
Sales- and marketing initiatives have been intensified during 2018, and the increased focus on operations of the business has shown improvements in Q4 (-5.1 percent) compared to Q3 (-7.7 percent).
The positive development in continuing into 2019. Based on the development seen during January and February 2019, we foresee that Q1 2019 has positive outlooks compared to last year.
Refinancing of Bonds
Lauritz.com has now reached an agreement with the bondholders to refinance the bonds due to be redeemed in June 2019.
The changes are significant, and result in a write down of the outstanding debt by SEK 118m (DKK 85m) to SEK 200m (DKK 145m), a reduction of the interest rate from 7,5 percent on the full amount to 4 percent on SEK 130m, and 7.5 percent on SEK 70m, extention of the final redemption date to 2024 and removal of the financial covenants.
To achieve these improvements additional security has been provided to the bondholders. The main shareholder has agreed to provide additional security through a pledge in the vineyard Chateau Vignelaure.
Furthermore Lauritz.com is obliged to pursue a divestment of certain auction houses, combined with establishing a partnership agreement for these.
Chairman Bengt Sundström, explains:
We are very happy that the new terms have now been approved by our bondholders. I strongly believe in the future of Lauritz.com. Lauritz.com are about to launch a number of important commercial initiatives to re-establish the convincing growth path that has been our track history from 1999 until 2017. Since 2017, we have been finding our new ways around a more competitive, but also growing, market of vintage items. In 2018, we have been stabilizing the development of our core business and we are positive about the outlooks for 2019.
As to the coming years, we expect a strong development in the markets for vintage and used items and will apply a progressive and very visible market approach as well as work on developing our pipeline of auction houses interested in partnering up with Lauritz.com into new branches. Furthermore, we are working intensely on a new state-of-the-art auction platform which will in several areas redefine and expand the perception of the international auction market.
Impairments and changes to accounting estimates
In connection with the preparation of every quarterly statement we assess if there is a need to write down the value of assets in the balance sheet in order to give a true and fair view of the value of these.
In connection with the Q4 reporting the following adjustments to accounting estimates and Impairments has been made:
- Reassessed the expected value of the Fine Art transaction, resulting in a change in the gain from the sale of the Fine Art business from DKK 40.4m to DKK 8.4m
- Impairment of Goodwill and receivables from sale partnership agreements of DKK 31.5m.
- A reservation of DKK 19.5m is made on receivables form sale of partnership agreements to be prepared for future losses.
The value adjustments included in the Q4 report are a consequence of recent performance and more prudent expectations. Especially the performance in the Fine Art Business of Stockholms Aktionsverk has been disappointing after the sales of 51% of this specific business in Q1, leading to a substantially smaller earn-out amount than expected. As to the goodwill and receivables from sales of partnership agreement, the performance in the partner houses have been lower than expected which have influenced the time frame in which the partners will redeem their loans from Lauritz.com.
These impairments impact the result of 2018. The write down of the bond debt will materialize in 2019, and will impact the result and equity positively by approximately DKK 80 - 85m during the first half of 2019, bringing Equity to a level around DKK 55m.
The result for 2018 is significantly impacted by the impairments mentioned above. EBITDA for the year is DKK -8.6m and EBT is DKK -72.0m.
Excluding the impairments and gain from sale of the Fine Art business (and partnership agreements) the EBITDA is DKK 4.6m (6.2).
The change in the result from the auction operations is a result of lower revenue, partly offset by cost reductions, divested operations and a change in the accounting for leases.
Cost level in like for like business reduced by 7-8 percent comparing with last year, showing the way to a new leaner organization with ability to deliver strong earnings.
The guidance for the result of 2018 was updated in connection with the announcement of the written procedure for the changes to the bonds on 6 February 2019. Compared to the guidance given in connection with the Q3 report, the result is impacted negatively by the imparments and changes in accounting estimated made in the Q4 report as mentioned in the update on 6 February.
Strategic initiatives
Our strategic review aimed at developing a long-term strategy that secures long-term growth and profitability is ongoing. We are closely reviewing e.g. how to develop our business model, value proposition and product experience on the digitized market for auctions.
The separation of Stockholms Auktionsverk's Fine Art business in Q1 into a new individual company (whereof Lauritz.com Group owns 49%) is aimed at creating an ultimate focus by all our online auction houses in Sweden towards driving the online business in the middle segment market.
Our dedicated employees and partners in combination with high user engagement among our customers, and a well functioning marketplace for online auctions, are true strengths for our business. Significant volumes of items are being sold at Lauritz.com every day and we have a strong position in the online auction industry.
The ambitious commercial initiatives being taken to return Lauritz.com to the growth path followed for many years, except for the last two, are now beginning to show results. This is encuraging, and we are strengthening our efforts further to motivate and drive sales as well as increasing the number of individual sellers. Below follows some examples of initiatives.
Lauritz.com's brand values are all about a democratic approach to auctions, making auctions accessible and convenient for modern consumers - in a contemporary and trendsetting way. After having launched our successful app and mobile website in recent years, we are now developing a new state-of-the-art, fashionable responsive (desktop) website.
Furthermore, in order to keep a high visibility in the market, we continuously and persistently communicate our standard free pickup-service and personal booking of experts for private home visits towards sellers in advertising campaigns in larger national printed media. The new campaign launched in Q4 2018 is being expanded and will continue in 2019. For digital media we are rolling out a significant increase in digital campaigns.
Parallelly, we have launched an initiative to encourage our professional sellers to consign larger lot stocks, like previous season's product inventories or surplus items that are suitable for selling at auctions. The benefits of selling at auction are many for our professional sellers -some of the major benefits are massive exposure and a higher stock turnover rate as well as storage room, logistics and resales all being handled by the auction house.
Also, to give both private and professional sellers more comfort in relation to the price they will achieve in an auction, we are working at a more flexible and individual setup for setting minimum prices and the starting bid for the auction.
The financial analysis has been completed in terms of refinancing the bonds, but we will continue efforts to secure additional equity to strengthen the financial position of the Group, and further strengthen our capital structure.
The results achieved in 2018 and in the first two month of 2019, in securing the financing situation, as well as the signs of a return to growth in Auction Turnover confirm our belief in a successful development in the coming years for Lauritz.com.
Bengt Sundström, Chairman of the board
Preben Lindgaard, CFO
Lauritz.com - a pioneer in the auction industry
Auctions to the people
Lauritz.com is an international online platform selling art, design, antiquities and home luxury to international buyers. It is our vision to democratize the international auction world by making auctions accessible to everyone. Lauritz.com was the first traditional auction house in the world to convert to online auctions. An early disruption of a very traditional market. As a first mover Lauritz.com has become a game changer driving the paradigm shift from physical to online auctions through digitalization, internationalization and industrialization of the auction industry.
Lauritz.com in figures
- 26 auction houses in 6 countries
- Over 3 million customer registrations
- Over 11.000 new customer registrations monthly
- Up to 5 million visits monthly
- Up to 1.8 million unique visitors monthly
- Visitors from approx. 200 countries
- Around 300.000 lots sold yearly
- Typically over 10.000 lots on auction
- Approx. 1.500 new auctions starting daily
- Lot value from DKK 800 to 15 million
This is how it works
Lauritz.com sources items locally to sell globally. Lauritz.com has 26 physical auction houses in 6 countries. Here local sellers can consign items for auction. Sellers can also interact with the local house by getting an online evaluation, by booking an expert for a home visit or by booking Lauritz.com's pick-up service to transport items from the seller to the auction house. All items are estimated, described and photographed objectively by Lauritz.com's experts. Each lot is put up for an individual timed auction for 5 days, sold to the highest bid and shipped to the buyer. All items are presented on physical viewing in the given local auction house during the auction period. Major collections or more expensive items are high-lighted on special theme actions. Lauritz.com offers an authenticity guaranty to avoid falsification and copies.
Assortment
Lauritz.com sold over 300.000 lots on auction in 2017. The wide assortment comprises everything from luxury flee market finds to costly international art works - from DKK 800 and up. The categories cover e.g. modern and antique art and sculptures, furniture, lamps, carpets, ceramics, silver, glass, jewellery, clocks, wine, hunting equipment, collectables. Lauritz.com is exceptionally strong in modern design classics - and probably the leading auction house internationally for 20th century design icons. High volumes are sold daily of the most famous furniture by Scandinavian architects as Arne Jacobsen, Wegner, Finn Juhl, Poul Kjærholm etc. The modern furniture categories add up to approx. 40 percent of Lauritz.com's auction turnover.
Customers
Lauritz.com's customer profile stretches from trendsetters to pensioners, students to top executives. Lauritz.com strives to create a universe that appeals to everyone, whatever their taste, budget or age. The division between men and women between customers is approx. 50/50, typically with a middle to higher income, and in age mainly between 30 to 60 years. Lauritz.com has over 3 million customer registrations and up to 5 million visits monthly. Customers come from approx. 200 countries.
Market position
Lauritz.com focuses on the middle market segment for lots with a value between DKK 800 and 50.000. This segment positions Lauritz.com between classified platforms with high volume at low prices and the fine art market with low volume and high prices. Lauritz.com can be described as an innovative combination of Ebay and Sotheby's.
Business model
Lauritz.com has a simple business model, based on a healthy premium structure. All auction items are sold in commission (which means that Lauritz.com has no inventory). When an item is sold, the buyer pays 22.5 percent in buyer's premium plus a knockdown fee of DKK 150. The seller pays 15 percent in seller's premium plus a knockdown fee of DKK 150. The buyer pays the knockdown and premiums within 3 days. Lauritz.com pays the seller within 35 days.
Geographical expansion
The main challenge in the auction business is to create a sufficient in-flow of items from local private and professional sellers to present to global buyers. Lauritz.com has a strong track record establishing physical auction houses for this vital local sourcing of items. Lauritz.com can open local auction houses in 3 ways; by opening own operations greenfield, by finding local partners to start in a franchise-like model or by acquiring regional auction houses to convert their traditional physical auctions to online auctions. Germany is considered the next growth market with a potential of up to 20 Lauritz.com houses (at present 3). Furthermore, UK is an attractive market to open on long term for local consignments in the up to 10 major cities.
Scalable platforms
Lauritz.com's platforms - and head-quarter set-up - is highly scalable as to; increasing the number of items on auction, increasing online traffic, establishing new auction houses and opening new countries. Lauritz.com already exist in 6 languages, and more can be added.
Business opportunities
Many opportunities are still to be explored and possibly launched. E.g. management sees a considerate potential in; introducing a 'Buy now' feature, increasing the number of new-produced items on auction (from design producers/retailers), shortening payment time to sellers, a new payment service, optimizing even quicker/cheaper shipment to buying customers, introducing adds on the platforms and offering new products like consumer loans.
Owners
Lauritz.com Group A/S is since 22 June 2016 listed on Nasdaq First Premier Stockholm with the ticker LAUR. The largest shareholder of Lauritz.com Group A/S is founder Bengt Sundström.
1 October - 31 December 2018
Auction Turnover
Auction Turnover amounted to DKK 228.2m (277.4), corresponding to a decrease of 17.7 percent. The reduction is primarily due to lower Auction Turnover in the Fine Art business DKK -29.3m equal to a reduction of -45.0 percent compared to Q4 2017. For the online business Auction Turnover is down DKK 14.4m equal to -5.1 percent compared to Q4 2017, due to a lower number of knockdowns of 74,814 (76,824) and a 5.6 percent decrease in average knockdown price in the online business in Q4 2018 compared to Q4 2017.
Revenue
Revenue amounted to DKK 35.9m (59.9). The decrease is primarily due to the expected reduction following the sale of 2 auction houses DKK -16.4m, lower income from sale of partnership agreements DKK -6.7m and impact of depreciation of the Swedish krone of DKK -1.1m. The like for like business in down DKK 1.1m compared to last year equal to -2.6 percent.
EBITDA and Auction Turnover margin
EBITDA amounted to DKK -51.9m (9.7). The decrease is primarily due to the reduction of the gain from the sale of the Fine Art business DKK -32.0m, impairment of receivables DKK -21.9m, lower revenue from sale of partnership agreements DKK -6.7m, lower EBITDA in Q4 from the Fine Art business following the sale DKK -4.6m, partly offset by impact of change in accounting for leases DKK 2.1m and lower cost in the like for like business.
The Auction Turnover Margin amounted to -22.7 (3.5) percent, the change is primarily due to the impairments made in Q4 2018.
Operating profit
Operating profit/loss for the period amounted to DKK -88.5m (-17.8), impacted negatively by lower EBITDA and impairment of Goodwill DKK 31.5m.
Net financials
Net financials was DKK -5.3m (0.2). Net financials mainly consists of interest on the issued bond DKK 4.4m, (4.4) as well as calculated interest on leasing contracts DKK 0.2m in Q4 2018 (new from 2018) and exchange gain/loss on the bond debt. The currency exchange rate gain/loss on the bond debt issued in SEK amounted to DKK -1.0m in Q4 2018 (4.7m).
Tax
Tax amounted to DKK 6.1m (-0.9), corresponding to an effective tax rate of 6.5 percent (-4.8).
Profit for the period and earnings per share
Profit for the period was DKK -87.6m (-18.4). Earnings per share amounted to DKK -2.148 (-0.451).
Cash flow
Net cash Flow for Q4 was DKK 30.8m (31.6). The Cash flow in Q4 2018 is mainly impacted by a higher amount payable to sellers at the end of the period.
Financial position, cash and cash equivalents
Equity will be restored when the DKK 85m reduction of the bond debt becomes effective in 2019. At the end of the quarter equity was DKK -34.8m (34.6) and the group's total assets were DKK 349.1m (444.6). The equity/assets ratio is -10.2 percent (12.8).
Cash and cash equivalents amounted to DKK 50.0m (60.1).
Investments
Investments amounted to DKK 2.9m (2.2m).
Human resources
The average number of full-time employees in Lauritz.com Group A/S and its subsidiaries (FTE) was 136 (174) in the period.
1 January - 31 December 2018
Auction Turnover
Core business Auction Turnover down by 5.7 percent compared to 2017. Auction Turnover amounted to DKK 738.2m (858.9), corresponding to a decrease of 14.1 percent. Excluding currency effects the decrease is 12.0 percent whereof 6.3 percent is due to lower Auction Turnover in the Fine Art business. The remaining 5.7 percent reduction is due to a lower number of knockdowns of 271,143 (302,635) partly offset by a 2.4 percent higher average knockdown price in the online business in 2018 compared to 2017.
Revenue
Revenue amounted to DKK 117.6m (195.7). The decrease is primarily due to the expected reduction following the sale of auction houses DKK -38.4m, lower income from sale of partnership agreements (DKK -28.4m), QXL DKK -1.4m and lower Auction Turnover in the online business impacting revenue by DKK -13.6m (mainly in Q1 to Q3), and impact of depreciation of the Swedish krone DKK -3.6m.
Other income
The reassessment of the expected value of the Fine Art transaction has resulted in a reduction of the gain from the sale of the Fine Art business from DKK 40.4m to DKK 8.4m.
EBITDA and Auction Turnover margin
EBITDA amounted to DKK -8.6m (32.1) for the year. The decrease is mainly explained by lower fees from sale of partnership agreements DKK -28.4m, impairment of receivables of DKK -21.9m and lower EBITDA in 2018 from the Fine Art business following the sale DKK -5.0m, partly offset by the gain from sale of the Fine Art business DKK 8.4m and implementation of IFRS 16 regarding Leasing DKK 9.9m.
The Auction Turnover Margin amounted to -1.2 (3.7) percent. The change is mainly explained by the impairments included in 2018.
Operating profit
Operating profit for the period amounted to DKK -63.7m (-7.1), impacted negatively by lower EBITDA and impairment of Goodwill DKK 31.5m.
Net financials
Net financials was DKK -8.3m (-12.9). Net financials mainly consists of interest on the issued bond DKK 17.4m, (18.6) as well as calculated interest on leasing contracts DKK 0.9m in 2018 (new from 2018) and exchange gain/loss on the bond debt. The currency exchange rate gains on the bond debt issued in SEK amounted to DKK 9.4m in 2018 (6.9).
Tax
Tax amounted to DKK 1.8m (-1.3), corresponding to an effective tax rate of 2.6 percent (-6.3).
Profit for the period and earnings per share
Profit for the period was DKK -70.2m (-21.3). Earnings per share amounted to DKK -1.721 (-0.523).
Cash flow
Net Cash flow was DKK -8.6m (-16.9). The Cash flow from operating activities is heavily impacted by the Fine Art business that was divested in 2018.
Financial position, cash and cash equivalents
Equity will be restored when the DKK 85m reduction of the bond debt becomes effective in 2019. At the end of the quarter equity was DKK -34.8m (34.6) and the group's total assets were DKK 349.1m (444.6). The equity/assets ratio is -10.2 percent (12.8).
Cash and cash equivalents amounted to DKK 50.0m (60.1).
Investments
Investments amounted to DKK 4.9m (9.9). Divestments including sale of Rovsingsgade and Fine Art affected the cash flow positively by DKK 43.5m.
Human resources
The average number of full-time employees in Lauritz.com A/S and its subsidiaries (FTE) was 140 (183) in the period.
Shares
The number of shares registered is 40.792.542.
In April a share buy-back programme in the amount up to DKK 0.85m was initiated (max. 1,250,000 shares). The purpose of the programme is to meet obligations arising from allocations of shares to employees or to the Executive Management.
Risks and uncertainty factors
Significant operating, external and financial risks and uncertainty factors are described in detail in the prospectus for Lauritz.com that was signed by the Board of Directors 14 June 2016 on page 48-49 and 54-65. Lauritz.com does not consider that any significant risks additional to those described in the prospectus have arisen.
Event after the end of the period
No events have occurred after the balance sheet date that could have a material influence on the company's financial position, except for the changes to the bond terms.
Future prospects
Auction Turnover is expected to be at the same level as 2018 DKK 738m.
The EBITDA for 2019 is expected to be DKK 15-25m.
The EBITDA forecast is not taking into account any divestments or other structural changes to the business.
EBT will be impacted positively by the restructuring of the bond debt by approximately DKK 80-85m.
All numbers in future prospects are based on exchange rates at the end of 2018.
Lauritz.com
On occasion, Lauritz.com Group A/S is referred to as Lauritz.com. In this Report, such references are to Lauritz.com Group A/S's consolidated financial statements, unless clearly stated otherwise.
Finance
The Group is partly funded by a bond debt, which amounted to DKK 229.7m (237.0). The bond is a senior secured bond of SEK 325m listed on Nasdaq in Stockholm with an 3M Stibor + 7.5 percent interest 2014/2019.
In February 2019 an agreement has been reached with the bondholders to restructure the bond as described in Note 11.
Following the changes the bond debt will be reduced by SEK 118m (DKK 85m) to SEK 200m (DKK 145m), and the interest rate will be reduced from 7,5 percent on the full amount to 4 percent on SEK 130m, and 7.5 percent on SEK 70m.
Seasonality
Lauritz.com's net revenue and profitability are affected by the nature of operations. Following the sale of the Fine Art business the seasonality is changing, with Q1-Q3 being more even and Q4 being a stronger quarter.
Parent company
Lauritz.com Group A/S, being the parent company, is listed on Nasdaq First North Premier in Stockholm and the company is a holding company owning 100 % of Lauritz.com A/S group whose operations primarily are online auctions.
Best regards
Lauritz.com Group A/S
Preben Lindgaard
CFO
For press enquiries, please contact:
Susanne Sandsberg Klubien,
+45 26891909
E-mail: press@lauritz.com
For other enquiries, please contact:
Preben Lindgaard
CFO
Preben@lauritz.com
Certified Adviser: Erik Penser Bank AB
Telephone number: +46 8-463 83 00
E-mail: certifiedadviser@penser.se
Market place: Nasdaq First North Stockholm
This information is information that Lauritz.com A/S is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication through the agency of the contact person set out above, at 09.00 am CET on 26 February 2019.
