OVS SpA: The Board of Directors, which met in Venice today, approved the results for financial year 2014 (14 May 2014 – 31 January 2015)
OVS S.p.A., was created on 14 May 2014, because of the transfer of the company received from Gruppo Coin Spa became operational in the final instant of 31 July 2014, the information on assets and liabilities, results and cash flows shown in the consolidated financial statements relate to the period of effective operation of the Group, i.e. from 1 August 2014 to 31 January 2015 and comparative figures are not shown.
In this press release, in order to provide for the financial year ended 31 January 2015, information relating to a 12-month period that could be used for comparison with financial year 2013, thereby allowing for a critical analysis of Group's performance in terms of assets and liabilities, results and cash flows in the periods under review, the following are shown:
- an income statement and a restated statement of cash flows for the period from 1 February 2014 to 31 January 2015, derived by aggregating the consolidated information from the carveout of the OVS-Upim Business Unit for the period from 1 February 2014 to 31 July 2015 (information represented in the Prospectus prepared in the Global Offering of ordinary shares OVS SpA for the listing of these shares on the MTA organized and managed by Borsa Italiana SpA - the "Prospectus") with the consolidated financial information of OVS Group for the period from 1 August 2014 to 31 January 2015;
- an income statement and a restated statement of cash flows for the period from 1 February 2013 to 31 January 2014, derived from the consolidated information from the carve-out of the OVS-Upim Business Unit as reported in the prospectus for the offer for sale or subscription;
Moreover, non-recurring items have been stripped out of the information provided (and shown later in the document), for a clearer reading of the company’s profit performance.
- Net sales of €1,227.4 million (up 8% on the previous year), with a like for like growth of 4.6% and a significant contribution from development;
- EBITDA of €157.1 million (12.8% of sales), up 19.5% (or €25.6 million) compared with 2013;
- Net profit of €16.7 million compared with a loss of €5.6 million in 2013.
- Net debt down from €726.1 million at 31 January 2014 to €624.4 million at 31 January 2015.
Macroeconomic context and main actions undertaken by the Group
2014 proved to be a year of crisis for Italy. Although the crisis still had an international dimension, the Euro area – and, more specifically, the Mediterranean countries – remained at the epicentre of the recessionary cycle. GDP contracted by 0.4%, while household consumption gave no signs of recovery, after a steep decline in the previous two years. Generally speaking, the context remained heavily influenced by uncertainty and market volatility, although increased political stability allowed for the launch of a process of structural reform to boost the country's economy in the second part of the year.
In addition, in the final months of the year, a series of factors and macroeconomic initiatives combined, including (i) the European Central Bank's announcement of the launch of expansive monetary policy through quantitative easing, which strengthened the dollar, and (ii) falling oil prices, which have laid the foundations for a potential upturn in consumption from 2015.
Looking at the Group's core market, we can see that the clothing market contracted by 2.9% (source: Sitaricerca, for the period January – December 2014); the decline was even greater (3.5%) for the specific portion of the market on which the Group's brands are focused, i.e., excluding the luxury goods and technical sportswear segments.
It should be noted that the autumn weather was once again particularly mild and dry this year, with the warmest average temperatures in October and November for the past 200 years, with the result that sales of the winter collection were much slower to take off.
Despite this persistently difficult environment, the Group achieved a very positive performance, with sales of €1,227.4 million, up 8% on the previous year, and further strengthened its leadership position in Italy, where it increased its market share from 5.84% to 6.39% (source: Sitaricerca, for the period January – December 2014). The Group's profits also grew strongly: EBITDA, net of non recurring items, increased from €131.5 million in 2013 to €157.1 million in 2014. This was the result of a number of measures taken by management to improve commercial performance and streamline corporate processes, including the following:
- Positioning – The Group is benefiting, in both its OVS and Upim formats, not only from a growing shift in market demand towards "value" products, but also from a structural trend of consolidation in organised distribution. This has meant a steady increase in its market share in recent years, to 61% in 2014 (from 54% five years ago), mainly to the detriment of independent operators, which have seen their share of the market dwindle to 26% (from 37% in 2009 (source: Sitaricerca, for the period January – December 2014)). The OVS and Upim brands are thus positioned as natural market consolidators, particularly in the value fashion retail segment (OVS) and in the family-orientated value retail segment (Upim).
- Brand identity – OVS has refreshed its brand, which has a strong and positive market profile and now offers both day-to-day items and quality fashion at the best possible prices, and interacts with its customers in both institutional forms and through new social media. The brand identity is reflected i) in the product portfolio, which is well-balanced in terms of types and categories, with a solid range of basic items alongside products with more stylistic content and ii) in clear leadership in price positioning, with no compromise in product quality. Upim also strengthened its specific price position in 2014, with a focus on becoming the "go-to" destination for families that are very sensitive to changes in pricing, but also pay attention to quality.
- Product – The decision to introduce a fashion coordinator to head a specific team for the women's range in 2012 generated very positive feedback for the 2014 collections, and OVS therefore decided to do the same for the men's segment. Opportunities were taken during the year to broaden the offering, for example by introducing new segments and increasing the range in segments where the Company is already present. In particular, pilot projects were launched for a new teen segment and in the fitness segment with positive results: these could be replicated across most of the network. Upim's offering is increasingly focused on a range based on competitively priced products, with a growing focus on segments such as children’s wear , in which the quality/price variable is particularly important, strengthening its role as a family value retailer. The upward trend in homeware also resumed under the Croff brand.
- Operations – The year benefited significantly from numerous operational improvement initiatives, launched progressively from 2013 onwards. These are expected to generate further significant incremental benefits in the next few years, as they steadily reach cruising speed.
Specifically, the most important initiatives related to (i) a systematic analysis of product benchmarking against the competition, (ii) the planning process for the product mix – granular and sophisticated – to adjust it appropriately to actual market demand, (iii) purchasing processes, in terms of increased flexibility, partly due to specific agreements with suppliers, and (iv) distribution processes and in-season management, to improve the accuracy with which products are distributed in individual stores, and rectifying quickly any errors of allocation during the season, implementing a pull-push type methodology and adjusting the process of product supply to simultaneous changes in demand.
- New store openings – Compared to 2013, in 2014 the Group accelerated its growth through a major schedule of store openings, not only of direct full-format stores but also small-format franchise stores for the children's collections, under the OVS Kids and Blukids brands.
- Conversions – In 2014, the conversion of the other brands acquired was also largely completed: 7 of them were converted into OVS-format stores, while 36 were converted into Upim stores; both brands have seen substantial improvements from these stores in terms of turnover and margins compared with the previous format.
- Cost control – The year’s results benefited from the rationalisation of operating costs launched in the second half of 2013, as well as new, specific initiatives implemented by managers, mainly connected to i) rents, with a continuous renegotiation campaign to realign payments at least partly with current market conditions, and ii) electricity costs, with the launch of an overhaul of the lighting fleet that has already generated cost gains of around 50%. These initiatives have already made substantial contributions to operating performance and the Group's profits, but their full effects will roll out in the next few years.