Company announcement no. 24/2016
To: NASDAQ Stockholm
Copenhagen, 28 November 2016
Announcement - Lauritz.com A/S interim report January - September 2016
Our financial performance in the third quarter did not fully reach our expectations. The decrease in revenue and EBITDA was however mainly a result of normal fluctuations and strategic decisions, while our core business continued to show a positive development.
Auction turnover in Q3 The auction turnover in Q3 2016 increased by 3.7 % (DKK 6.7m) and amounted to DKK 188.2m (181.5).
The conversion from physical to online auctions to attract new customer groups globally is in essence the strategy of Lauritz.com. In the light of this, it is satisfying to conclude that our online auction turnover on used items within art, design, antiques and collectibles showed an increase of 7.1 % (DKK 11.1m) compared to the same period last year.
Brand new items on the Lauritz.com platform experienced a fall of 39,3 % (DKK 8.4m). The decrease is the result of a change in valuation principle that was introduced at the end of 2014, as the sellers (producers, wholesalers and retailers) of e.g. branded goods have been concerned whether they can achieve sufficiently high hammer prices. We expect the decrease to phase out during the coming quarters.
Financial performance Revenue in Q3 2016 amounted to DKK 41.1m compared to DKK 49.3m the same quarter last year. The decrease in revenue for the quarter is mainly explained by a lower fee level from new partnership agreements related to transactions of existing Lauritz.com auction houses and to a higher share of partner-run auction houses compared to Q3 2015. In total the revenue for the first nine months of the fiscal year, 1 January - 30 September 2016, has decreased 8 % compared to the first nine months of 2015.
It is a part of our strategy to convert most of the Lauritz.com-owned auction houses into partner-run auction houses. This results in an attractive mix of one-off revenue fee from new partnership agreements related to transactions of existing Lauritz.com auction houses, lower commissions and fees compared to Lauritz.com-owned auction houses but a higher EBITDA in relation to auction turnover since there are no costs for Lauritz.com related to partner-run auction houses.
During Q3 2016 one Lauritz.com-owned auction house was converted to a partner-run auctionhouse with a new partnership agreement which was signed on 23 September 2016. As of 30 September 2016, two additional auction houses (net) are run by partners, whereas they were fully owned by Lauritz.com as at the end of Q3 2015. This event translates into a net decrease of
DKK 11.8m in revenue from new partnership agreements and the lower share of owned auction houses compared to Q3 2015.
The acquisition of Karlstad-Hammarö Auktionsverk AB on 28 June 2016 has on the other hand had a positive impact of DKK 2.1m in revenue on Group level.
The decrease in EBITDA from DKK 4.3m in 2015 to DKK 4.0m in 2016 is mainly explained by the DKK 9m lower fees from new partnership agreements but was partly compensated by the higher margins resulting from the higher share of partner-run auction houses and reduction in costs.
New auction houses and partnership agreements In 2015, Lauritz.com acquired the traditional auction house Auktionshaus HERR in Cologne with the aim of converting the traditional physical auction house to online auctions at Lauritz.com. This plan has now been executed. Early in 2016 we employed a new branch manager, who quickly showed ambition with respect to becoming a partner. In Q3, we decided to proceed with this opportunity and signed a partnership agreement with the branch manager as a new partner. It is a part of Lauritz.com's expansion plan to spot talent and develop local branch managers employed by Lauritz.com HQ who display the necessary strengths to move from employed manager to partner. The integration of AB Stockholms Auktionsverk, which was acquired in September 2014, is in line with our expectations, showing positive trends both in online auction turnover and cost optimization. Karlstad Hammarö Auktionsverk AB, which was acquired in June 2016, performed satisfactorily in Q3 both with regards to auction turnover and earnings.
Lauritz.com owns an approx. 7.000 m2 property in Rovsingsgade in Copenhagen. Since we are outgrowing our premises in Herlev, Copenhagen, the plan has been to refurbish the building on Rovsingsgade to establish a second Lauritz.com auction house in Copenhagen and a new headquarters. In May 2016 Lauritz.com entered into a conditional sale-and-leaseback agreement with Ejendomsselskabet Norden, which wanted to buy the building with Lauritz.com as tenant. However, Ejendomsselskabet Norden decided not to continue with the sale-and-leaseback agreement with reference to the terms and conditions. As a result we have not yet sold the property. There is now renewed interest in the property and we are working on finding a new buyer.
Focus going forward Lauritz.com's vision is to revolutionize the auction world by democratizing the perception of auctions and inspire modern consumers to sell and buy on online auctions. We are eager to take advantage of our first mover position and continuing to drive the paradigm shift of the international industry, by migrating traditional physical auctions to online auctions, and by presenting a great diversity of objects within art, design and antiquities to a great diversity of customers. The strategy is straight-forward: more auction houses, more customers and more lots on auction at Lauritz.com, in more countries - in order to be accessible for our local sellers and global buyers.
Looking at Q4 2016, we expect to finalize the year with a strong quarter. On 15 November, we obtained very positive knockdowns in connection to the sales of the complete Lundberg collection, which will influence both auction turnover and earnings positively. In Q4 2016, we furthermore have the regular seasonal fine art auctions at Stockholms Auktionsverk within Contemporary and Classical art.
On 24 November, we entered into a five year partnership agreement with a new partner, who has taken over the operation and activity of Lauritz.com in Herning in Denmark. This transaction will have a positive effect on EBITDA in 2016 of approx. DKK 5m.
Finishing off the year 2016, we are right now preparing for the opening of Lauritz.com in Frankfurt, expected to take place in February 2017.
Finally, we continue negotiating with potential buyers of the property located in Rovsingsgade in Copenhagen. The property will after refurbishment be used as an auction house, in addition to the current one in Copenhagen, as well as headquarter for the company.
As we expect a strong Q4 2016, the previously communicated revenue and EBITDA guidelines remain unchanged.
Mette Rode Sundstrøm CEO
About Lauritz.com
Lauritz.com was launched in 1999 as a pioneer in online auctions with the concept of combining the best elements from the traditional auction world with modern technology. Lauritz.com became the first traditional auction house worldwide to convert from classical to online auctions. Ever since, we have been on a mission to democratize the international auction world by introducing 'Quality auctions online' within art, design, antiquities and home luxury.
Over time, we have built Lauritz.com up as a strong consumer brand in the markets in which we are present with our auction houses. At present, Lauritz.com has 27 auction houses located in Denmark, Sweden, Norway, Germany and Belgium. Here sellers are able to consign items daily to our experts, while bidders can examine items physically. All items are described, valued and photographed objectively before being put on auction. All bidding is carried out online with the exception of a small number of physical auctions annually. Lauritz.com operates through its own auction houses (currently 8) and auction houses operated by partners under partnership agreements (a variation of franchise).
While being accessible to potential sellers in 27 local auction houses, we are also accessible online for global bidders. Lauritz.com registers around 5.7 million online visitors and around 2 million unique visitors each month. The visitors are truly global, coming from more than 200 countries on a quarterly basis. Today we have in the region of 2.5 million customer registrations in the Lauritz.com Group.
Strategy for growth Since the start in 1999, Lauritz.com has grown from auction turnover of DKK 20m in 2000 to DKK 1,084m in 2015, and is now the biggest auction group in the Nordics. During the same period, the revenue has shown a strong and consistent development with an average growth since 2000 of 30.5 % per year.
To further expand the traditional auction business and create growth, Lauritz.com focuses on three main measures; digitalization, internationalization and industrialization. Today, we want to take advantage of Lauritz.com's international first mover position to further enhance our leading status in the Nordic market and provide the appropriate platform for Lauritz.com's future international development.
Geographical expansion through establishment of local Lauritz.com auction houses is our main growth driver, enabling us to attract local sellers to consign items for our global bidders. When Lauritz.com establishes new auction houses, this can be done in one of three ways. Firstly, we can enter into an agreement with a new partner, e.g. with a traditional auction house converting to online auctions on Lauritz.com or with a greenfield start-up. Secondly, we can buy a traditional auction house, which is then completely or partially converted to online auctions. Thirdly, Lauritz.com can offer traditional auction houses an associate model whereby the auction house can sell items at auctions online at Lauritz.com within its existing brand.
As part of our democratic approach, Lauritz.com focuses on a broad assortment of auction items within art, design, antiques and home luxury with a value between DKK 800 and 50,000. We believe there to be considerable potential internationally in this large middle-market segment. We therefore position Lauritz.com between the classified peer-to-peer platforms with very high volume at very low prices and the fine art market with very low volume and very high prices.
Revenue model
Lauritz.com's revenue model is based on buyers and sellers paying for the various services provided by Lauritz.com.
Depending on if the auction house, handling the lot, is owned by Lauritz.com or is a partner house, the contribution to Lauritz.com differs. Own houses' contribution to Lauritz.com is 100 % of the fees and commissions paid by the buyer and seller. If the lot is handled through a partner auction house, the partner auction house receives the majority part of the seller's and buyer's commission, which means that the revenue is lower for Lauritz.com.
However, revenue from Lauritz.com-owned auction houses also includes all costs related to the operation of the auction house, whereas there are no costs incurred by Lauritz.com with a partner-run auction house. This in turn leads to a positive EBITDA-margin effect on Group level on revenue from partner-run auction houses.
In addition to the above mentioned revenue streams, Lauritz.com receives income from new partnership agreements that either come from a new partner entering into a partnership agreement on an existing auction house, or a new partner establishing a new auction house and entering into a new partnership agreement. Lauritz.com's partner houses continuously change ownership, generating additional net revenue to Lauritz.com.
Financial development
1 July - 30 September 2016 Auction turnover, revenue and EBITDA Auction turnover amounted to DKK 188.2m (181.5).
Revenue amounted to DKK 41.1m (49.3). The development in revenue is explained by a lower level of fees from new partnership agreements related to transactions of existing Lauritz.com auction houses compared to the same quarter last year, representing a decrease of DKK 9m, and a higher share of partner-run auction houses, leading to lower revenue.
Partner-run auction houses generate a lower Lauritz.com revenue due to a split in commissions and fees between the partner and Lauritz.com. Revenue for a Lauritz.com-owned auction house includes the entire commissions and fees. There are, however, no costs incurred by Lauritz.com with a partner-run auction house, which in turn has a positive impact on the EBITDA margin. As of 30 September 2016 two additional auction houses (net) are run by partners, whereas they were fully owned by Lauritz.com as at 31 December 2015.
DKK 2.1m of the revenue relates to Karlstad-Hammarö Auktionsverk AB that was acquired on 28 June 2016.
EBITDA amounted to DKK 4.0m (4.3). The EBITDA margin amounted to 9.7% (8.7%).
The decrease is mainly explained by the DKK 9.0m lower fees from new partnership agreements, compared to the same quarter last year. However, this was partly compensated by the higher margins resulting from the higher share of partner-run auction houses and reduction in costs.
Net financials Net financials was DKK -3.9m (0.1). The decrease is mainly explained by a redemption price of DKK 3.1m from the partial redemption of the bond debt.
Tax DKK 0.3m (1.0), corresponding to an effective tax rate of 22.0 % (23.5).
Profit for the period and earnings per share Profit for the period was DKK -3.6m (2.0). Earnings per share were DKK -6.75 (33.8). Financial position, cash and cash equivalents Equity at the end of the quarter was DKK 55.2m (7.0) and the group's total assets were DKK 409.8m (466.9). The equity/assets ratio increased to 13.5 % (1.5).
Cash and cash equivalents amounted to DKK 50.8m (25.2).
Investments Investments amounted to DKK 3.1m (3.5).
Shares The number of shares registered is 530,900.
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 On 24 November 2016, Lauritz.com entered into a five year partnership agreement with a new partner for the existing Lauritz.com branch in Herning. The new partnership agreement will have a positive effect on EBITDA in Q4 2016 of approx. DKK 5m.
Lauritz.com On occasion, Lauritz.com A/S is referred to as Lauritz.com. In this Report, such references are to Lauritz.com A/S's consolidated financial statements, unless clearly stated otherwise.
Finance The group is partly funded by a bond debt, which amounted to DKK 240.2m (342.6). The bond is a senior secured bond of SEK 325 m listed on Nasdaq in Stockholm with an 3M Stibor + 7.5 % interest 2014/2019.
The conditions of the bond includes two covenants on Lauritz.com A/S' financials.
One covenant is 'net interest bearing debt / EBITDA', which as at 30 September 2016 must not be greater than 5.50. The ratio was 4.04.
The second covenant is 'net finance charges / EBITDA', which as at 30 September must exceed 1.50. The ratio was 1.72.
The covenants for the bonds are described in detail in the terms and conditions for the bond available on www.lauritz.com .
Seasonality Lauritz.com's net revenue and profitability are affected by the nature of operations, and accordingly, its seasonality where Q2 and Q4 are historically strong quarters.
Parent company Lauritz.com A/S, being the parent company, is listed with a senior secured bond on Nasdaq in Stockholm and Lauritz.com A/S' primary operations are within online auctions.
1 January - 30 September 2016 Auction turnover, revenue and EBITDA Auction turnover amounted to DKK 710.1m (771.7).
Revenue amounted to DKK 146.3m (154.4). The development in revenue is explained by a lower level of fees from new partnership agreements related to transactions of existing Lauritz.com auction houses compared to the same period last year, representing a decrease of DKK 6.1m, and a higher share of partner-run auction houses, leading to lower revenue.
Partner-run auction houses generate a lower Lauritz.com revenue due to a split in commissions and fees between the partner and Lauritz.com. Revenue for a Lauritz.com-owned auction houses includes the entire commissions and fees. There are, however, no costs incurred by Lauritz.com with a partner-run auction house, which in turn has a positive impact on the EBITDA margin. As of 30 September 2016 two additional auction houses (net) are run by partners, whereas they were fully owned by Lauritz.com as at 31 December 2015.
DKK 2.1m of the revenue relates to Karlstad-Hammarö Auktionsverk AB that was acquired on 28 June 2016.
EBITDA amounted to DKK 20.1m (19.1). The EBITDA margin amounted to 13.7 % (12.4).
The increase is mainly explained by the higher margins resulting from the higher share of partner-run auction houses and a reduction in costs. On the other hand EBITDA is also effected by the DKK 6.1m in lower fees from new partnership agreements, compared to the same period last year.
Net financials Net financials was DKK -8.1m (-25.0). The increase is mainly explained by an unrealized currency exchange rate gain of DKK 14.9m (-2.6) on the bonds issued in SEK while the reporting currency is in DKK.
Tax DKK 1.9m (3.1), corresponding to an effective tax rate of 22.0 % (23.5).
Profit for the period and earnings per share Profit for the period was DKK 3.4m (-11.3), and the profit margin was 2.4 % (-7.3). Earnings per share were DKK 6.49 (-188.6).
Cash flow Cash flow from operating activities was DKK -34.3m (-37.4). The improved cash flow from operating activities for the period is primarily due to a deferred payment related to the acquisition of Karlstad-Hammarö Auktionsverk AB on 28 June 2016.
Financial position, cash and cash equivalents Equity at the end of the period was DKK 55.2m (7.0) and the group's total assets were DKK 409.8m (466.9). The equity/assets ratio increased to 13.5 % (1.5).
Cash and cash equivalents amounted to DKK 50.8m (25.2). Investments Investments amounted to DKK 18.7m (17.2) primarily related to the acquisition of Karlstad-Hammarö Auktionsverk AB and investments in IT.
Shares The number of shares registered is 530,900.
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 On 24 November 2016, Lauritz.com entered into a five year partnership agreement with a new partner for the existing Lauritz.com branch in Herning. The new partnership agreement will have a positive effect on EBITDA in Q4 2016 of approx. DKK 5m.
Lauritz.com On occasion, Lauritz.com A/S is referred to as Lauritz.com. In this Report, such references are to Lauritz.com A/S's consolidated financial statements, unless clearly stated otherwise.
Finance The group is partly funded by a bond debt, which amounted to DKK 240.2m (342.6). The bond is a senior secured bond of SEK 325m listed on Nasdaq in Stockholm with an 3M Stibor + 7.5 % interest 2014/2019.
The conditions of the bond includes two covenants on Lauritz.com A/S financials.
One covenant is 'net interest bearing debt / EBITDA', which as at 30 September 2016 must not be greater than 5.50. The ratio was 4.04.
The second covenant is 'net finance charges / EBITDA', which as at 30 September 2016 must exceed 1.50. The ratio was 1.72.
The covenants for the bonds are described in detail in the terms and conditions for the bonds available on www.lauritz.com .
Seasonality Lauritz.com's net revenue and profitability are affected by the nature of operations, and accordingly, its seasonality where Q2 and Q4 are historically strong quarters.
Parent company Lauritz.com A/S, being the parent company, is listed with a senior secured bond on Nasdaq in Stockholm and Lauritz.com A/S' primary operations are within online auctions.
The presentation can be viewed live from 10.05 am via https://www.facebook.com/Lauritzcom/
Best regards Lauritz.com A/S Mette Rode Sundström CEO
For press enquiries, please contact: Christina Riis Hansen christinar@lauritz.com +45-26891905
For other enquiries, please contact: Claus Boysen CFO Claus@lauritz.com
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 10 am CET on 28 November 2016.
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