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Edited Transcript of FNAC.PA earnings conference call or presentation 27-Feb-20 7:30am GMT

Full Year 2019 Fnac Darty SA Earnings Call

IVRY SUR SEINE Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Fnac Darty SA earnings conference call or presentation Thursday, February 27, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Enrique Martinez

Fnac Darty SA - CEO & Director

* Jean-Brieuc Le Tinier

Fnac Darty SA - Group CFO

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Conference Call Participants

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* Christian Devismes

CIC Market Solutions, Research Division - Analyst

* Geoffroy Michalet

ODDO BHF Corporate & Markets, Research Division - Research Analyst

* Marie-Line Fort

Societe Generale Cross Asset Research - Equity Analyst

* Nicolas Langlet

Exane BNP Paribas, Research Division - Research Analyst

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Presentation

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Enrique Martinez, Fnac Darty SA - CEO & Director [1]

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[Interpreted] So good morning. Thank you for being here this morning, and thank you for listening to us on the webcast. We are going to have our full year results. Even if the results have been published and were published in January, we decided to anticipate this year because of the strikes in France in December. It had a significant impact. And in order to have full transparency, we decided to anticipate. I hope that it will not be a yearly tradition to communicate our results in January instead of February because it exerts pressures on our teams.

So if you remember the last few weeks, where we can say that 2019 was a complex year. Given the social disputes, the yellow vests, it was disturbed with all the disputes, strikes, and it had an impact on our stores. And we had a social dispute, strikes, the yellow vest. So never -- it's quite unmatched, and it has an impact on ourselves.

So we are not going to talk about it at length, but 2019 was quite intense as to the development of our programs on Confiance+. We unveiled this program in. 2017. And 2019 was quite intense in terms of transformation, investments, a lot of the projects. Some projects came out already and have already an impact on our accounts and on our income. And others are in the pipelines. We have projects such as the integration with the project of single inventory. And we'd like to have a single inventory system in France and in some countries, and in a few months to incorporate the transport plan around a single distribution model for our 2 banners. And it will have an economic impact and a carbon impact as well. We are very much committed to reducing the carbon emission of our operations. We invested in our digital tools. We invested quite a lot in order to improve the digital experience and to enhance the capacity of our tools. Thanks to our partnership with Accenture, we created a digital tool with over 200 employees working in an agile mode. This is a real revolution. As to the use or the way of using our resources, we want to speed up our digital means and speed up our performance.

The growth also comes from the digital business mainly, and we would like to continue being a major player this way. So the market was disturbed, the consumption fragile in spite of strong expectations. In terms of purchasing power, only strong brands like ours can resist because we have millions of customers going to -- coming to us in a very regular way. So they are highly loyal. That's very important to strengthen this loyalty even further. And the integration of Darty will help us as well, of course, and work as well on innovation, innovation in products and services.

And what is necessary as well is to keep on working on our business model and our cost of control, our possibility to deliver a performance plan each year in order to have the necessary resources to invest and remain competitive on a market where margins are always under pressure. So even an undeniable leader on the market like us, we need to have the means to continue having a sustainable business model, thanks to cost-cutting systems. So our costs were flat. It was possible to offset the negative impacts, which is quite remarkable.

3 years after the merger, and Confiance+ shows that our company is fully integrated, we have a robust model, able to resist even in a highly difficult context or environment as we experienced in 2019.

So you know the figures. The business went well throughout our scope. A well-balanced business between the categories of products, of the household appliances with market growing well in terms of value as well -- volume and value. So the value of this market is good. The average sales price is low in Europe and a business which went well on the Internet, 20% on the Internet, that's the weight. So 1 point more than maybe the previous year.

You know those figures well. What about the highlights of 2019? The integration of our M&A like operations, it's exemplary, fast integration and execution, project delivery, synergies. If I take, for instance, Nature & Découvertes, this we integrated during the second half here. A lot of projects are already in progress, shop-in-shop projects in France and in Spain and others coming soon in the next few months. So not only in the shop-in-shop mode, but also integration of the catalog of Nature & Découvertes in our stores in creating ecosystems, especially in our free spaces. And we're going to have it operational this year already. It will have a stronger impact on Fnac and on Nature & Découvertes. There is a potential to develop the brand.

The repair business with the integration of WeFix, over 40 openings in the year in our stores, but also in independent stores. You know our ambition is to create a quality network able to offer customers a good experience in terms of repair for -- under good conditions and quality conditions. And WeFix, of course, is the solution. We are very happy with this project, and we see that this project completely fits

Into this ecosystem to lengthen the life cycle of products, among which they mobile phones. So it's very nice integration of WeFix and high expectations for 2020.

And ticketing, we had 2 acquisitions, BilletReduc at the beginning of the year, perfectly integrated today. And we would like to extend the catalog of BilletReduc beyond the natural scope of Paris. There is some potential to benefit from a broad

Catalog with 40,000 events in the catalog. It's a very strong asset for BilletReduc. And then at the end of the year, the partnership with CTS, in order to conquer more or get more value in this ticketing market and protect the French market from the international players, we have already alluded to it. And we are happy to announce these agreements with very quick returns. There is a complete revamping system of IT and ticketing, thanks to this agreement with CTS. This way, we'll have a quality jump. It would not have been possible with our own resources because technology is very expensive and is not available for everyone. So that's another good example.

In 2019, we had excellent commercial operations with an impact on our market share of Black Friday. It was a compulsory rendezvous. I would say Black Friday now is absolutely essential, and it offsets the loss in sales at the end of the year. And it was possible, thanks to Black Friday, to have a good momentum in terms of volume and sales price. It was the week of the year where we progressed more and where the average price of all categories was the highest. And other events like the Future Apartment, the desire to -- for Fnac to show innovation and to attract -- to pull, to drive the market efforts and to show consumers the technology, the future technology of future apartments, it was highly successful. We're going to repeat this event and other events such as Salon Fnac Livres or French Days. And Fnac took part in the Paris Games Week. We expect quite a lot from the launch of the new game consoles, and our ambition is to remain a leader on this market and reference.

Paris Games Week is a very important event, and Fnac is one -- is the favorite brand for the last 25 years. So we attract young people, and we retain them. That's very good, and it's going to be very helpful in this gaming business.

Very good progress in terms of services as well with Darty Max. The diversification of products and services was quite good. The launch of categories like Urban Mobility, the scooties-- the electric scooters, we see we sold over 100,000 electric scooters, plus 25% of market share. It was unthinkable some years ago. It has become a reality, and we are just at the beginning of this market. And Fnac and Darty are legitimate banners to absorb a large portion of this market, not only as to the volume, but also the quality and the service. And 2020 will be a decisive year as well for these electric scooters.

And in cuisine, Darty Cuisine, that's the key for the diversification. It worked well. We had another 30 openings last year and further openings. And it's key to get the white products as well. It gives opportunities for Darty to keep the leadership -- to have a leadership in a market segment where Darty is not a leader yet.

And then we would like to have the transactional model and move from a transactional model, sorry, to a subscription model. So the integration of services like tranquility, packs and so on. So we wanted to give the possibility to sell hundreds of thousands of subscription -- each subscriptions each year. This way, it gives more visibility on the revenue creation in the long run.

Speaking about Darty Max, as you know well, this was the year's launch. We will try revolutionizing service standards for Darty with the contract of Confiance+ being introduced, which supported the prestigious quality standards for Darty for 50 years. So now you have contract of Confiance+ plus loyalty with a customer experience, which should be decisive, to gain more clients and customers while recognizing the existing range of Darty, its services, its support, its repair services, going to homes with breakdown call-outs, more than 2.6 million breakdown call-outs. So we'll be optimizing this model, which is already very resilient, which will be very accretive -- value-accretive for Fnac and for Darty, and which will help us gain business.

The first launches were highly satisfactory with a few dozens of thousands of customers with a ramp-up in business volumes with very satisfied customers. And we believe that we'll be able to build up an ecosystem of the services for these customers.

We also made other headway in the year, in line with providing closer service to customers who want to use their products over a longer period of time with rationale of supporting these customers to use these products and devices in a responsible manner. You know that people are more aware of these issues and concerns. This is a good model us, which combines both high-quality levels and sustainability level with Darty being very well positioned to support its customers. So we believe it will be a good way to become a leading player in the field of servicing.

So as I said, 2019 was a year of high investment, a record year on a number of levels in terms of digital technology, digital innovation with the digital factory, mobile applications being revamped, their mobile websites being revamped as well and optimized with services like click and connect (sic) [click&collect] with more than 1.5 million orders of books being collected in just 1 hour in the first half of 2019, which was a key success factor with this cross-banner click&collect service, which helped us generate this resilient and robust business model with the packages being reused and products made available to customers via boxes -- locker boxes and counters.

The goal is that we have more than 50% of products being on a click&collect basis, with customers having received this offer very well. We also have opened a few more stores on a franchise basis. We tested new formats, smaller-store formats, especially in the Greater Paris region. And we have registered good results, and we will be extending this format model.

We have also a wider range of stores, independent stores, stand-alone stores, franchisee stores, and especially in the cuisine business, in the kitchen business. And as you know, we announced in the later part of the year that we are looking for a partner in our Dutch operations. This is a country where Darty was confronted with difficulty in the past. With the integration process, we had the goal to break even. And the partnership with Wehkamp was successful and generated revenues, but the terms and conditions of sales and marketing in the Netherlands are so complex that we'd like to break even and restore growth via a local partnership, which will deliver the appropriate means and resources for growth and development. I believe this is a relevant model combining digital, online, selling and small-store formats to post more growth and success.

Now in just a few words, knowing that Jean-Brieuc Le Tinier will give you more detailed information about the financial performance. So like-for-like top line was slightly disappointing in the end of the year, contributions by the diversification efforts, knowing that we've registered a low point in the gaming market, which should rally this year. The book market was resilient this year, especially with the comics segment growing strongly. And we -- this -- so the comics book section is our top seller, attracting the children and teenager with the manga section and the gaming section as well, attracting lots of young people.

In terms of revenues, we expected more, but basically, revenues were stable. With respect to margin, we had high pressure with a new service and servicing model. You saw that for a number of -- for a few months. We still have a few months ahead of us. So sale of services was buoyant. And new services like the ramp-up of Darty Max will offset the trend with good potential for generating more and new resources.

We also recorded higher pressure on margin in some regions and countries, especially in Spain and Belgium, where the industry took a hit, including our competitors. And our shareholders mentioned this, very high-pressure in these 2 countries, which impacted our gross margin rate as well. And the integration of Nature & Découvertes had a positive factor in the resilience of our gross margin. So we showed good cost control with very fine performance plans being delivered. So we ended the year with a 4% EBITDA margin, slightly down from the restated EBITDA of 2018. Quite high level with respect to the industry average, but we expected better, and I hope that fiscal 2020 will even be better.

And as Jean-Brieuc will tell you, we've had good ability, very robust ability to generate free cash flow, which, as we announced yesterday, means that we'll be initiating this year a policy of return to shareholders. You heard this. This was a goal we had over the short term. That is either 2019 or 2020. The end of year fiscal 2019 situation didn't make it possible for us to do that, but it is now time to go back to normal with respect to return to shareholders. And the goal, and this is what we decided in the Board of Directors meeting, is to have a sustainable policy to provide better return to shareholders with dividend payouts in between 40% to -- 30% to 40%, sorry. And this year, it was decided to have a EUR 1.5 per share payout, which will be approved by the shareholders' meeting in the month of May. Now this confirms the fact that we've become a normal company, providing return to shareholders, having transformed itself, knowing that the retail industry is always in motion, always in -- under change and has to invest for innovation. We have the ability to maintain our pace of growth and transformation while generating sufficient cash to keep our shareholders happy. So right from this year, we are making headway.

And as Jean-Brieuc will tell you, in 2020, we've wanted to give you some prospects for the year. We told you that we would, in normal conditions, grow our top line and our bottom line. We were cautious in our announcements because the context is tough, and this was announced before the outbreak of the coronavirus. Knowing that the coronavirus, and I'd rather speak to you about this immediately, the coronavirus issue, we'll keep a close eye on in -- at the beginning, it was only a concern with our supply chain, and we have been scrutinizing the impacts on our supply chain for the last few weeks. And the last few days, the epidemic has been present in France. And going back to our supply chain, the situation is quite complex. As you know, there are lots of variables according to product categories.

Let me share with you some information, so that you can make your own judgment. Number one, for a company like ours, we have very large inventory coverage levels, that is for most of our products. We have some 70 to 80 days of inventory coverage, meaning that we are able to absorb some stock-outs and inventory reduction in some product categories.

Number two, as soon as we saw there was a strain on the supply chain, we worked on our primary suppliers to come up with a technical purchasing plan on the order of EUR 80 million, which would secure our supplies for the next few weeks. So if there is a crisis with manufacturing and supply, the supply chain inventory levels should be maintained at a satisfactory level.

And as you understand, the situation is quite mixed with respect to our suppliers and where they are based. For all suppliers located in the southern part of China, the situation has gone back to almost normal. I wasn't there in the field, I couldn't be with you today, otherwise, but we had good feedback. And the visibility on the supply chain and delivery is quite good.

In the northern part of China, the situation is a bit more difficult, which means that for our products, which are manufactured by our own resources, by our own partners, with our own brands, they are about 3% -- accounting for 3% of our revenues. Most of the products already on the ships and to be delivered to Europe very soon. So with very few issues and very little impact to be expected. But again, we have very low visibility, and we are very much dependent on our supplier partners.

Now forgetting the coronavirus; impact, hoping that it will be just a temporary impact, fiscal 2020 will have many events. They will be the Soccer World Cup, which will generate lots of revenues. There is the launch of the new gaming consoles, which will be a huge source of sales and traffic and footfall, and which should generate a lower negative impact in the year-end sales.

And generally speaking, we'll be investing into our stores to make our stores more attractive, to regain and restore this Christmas magic and restore the Fnac as a key destination for gifts and shopping in the year-end period, knowing that we are working hard with the Darty Max launch and improving and optimizing service standards. As you've understood, service and servicing is a key factor of profitability, and Fnac Darty is able and will be able to optimize it and improve these levels. And 2020 will be a key year where we'll be focusing on execution. Useless to say that the negative impacts we have experienced gave us more flexibility and more ability to respond. And this responsiveness has -- make it possible for us to or made it possible for us to deliver some results, making us more flexible, especially with inventory management. And I congratulate the teams.

Now I suggest that I turn over to Jean-Brieuc Le Tinier, who will give you more detail about the financial performance results.

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Jean-Brieuc Le Tinier, Fnac Darty SA - Group CFO [2]

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Thank you, Enrique, and good morning to you all. I suggest we move

on to the presentation of the operating income of the group for the financial year 2019 before entering into the detail of the results per region.

The figures presented to you are restated with the business in the Netherlands. It is now booked as discontinued activity in compliance with the IFRS 5 accounts; also incorporate 5 months of the operating business of Nature & Découvertes consolidated since the first of August '19, 12 months of WeFix and 12 months of BilletReduc France. Our full year results 2019 also take into account the implementation of -- or the enforcement of IFRS 16 for the first time. As Enrique said, there is no material gap versus the results prepresented on the 16th of January 2020.

Our sales amounted to EUR 7.349 billion, plus 3% in published data, plus 0.7% in -- on a like-for-like data. 19% of sales online and 49% click&collect. Most of the sales, additional sales, EUR 159 million in the continued activities, the majority coming from Nature & Découvertes. The strikes in December in France led to a loss in revenues of about EUR 70 million of Christmas sales. Contrary to -- in line with what we announced on the 16th of January, the gross margin rate of continuing activities amounted to 30.4% of sales minus 20 basis points versus 2018.

This slight drop comes from 3 major factors: first, a loss in sales volumes over Christmas because of strikes and negative impact on mix linked to the editorial products, with an impact of about 15 basis points on the yearly gross margin rate; then the technical dilutive effect of the development; and the franchise impact of minus 15 basis points. Then the mix products -- products and service mix effect, slightly positive. For the first 9 months of 2019, the margin rate of small appliances have been on the decrease, but it's been mitigated on the -- during the third quarter. These negative mix effects were offset by a positive impact, thanks to the integration of Nature & Découvertes, plus 50 basis points for the financial year.

Regarding costs, as Enrique said, thanks to a good control and the execution of the performance plan, the group keeps the operating costs almost stable as a percentage of the overall sales after the integration of Nature & Découvertes. So the current operating income of continuing activities amounts to EUR 293 million and incorporates the contribution of the acquired companies for more than EUR 20 million for 2019. The current operating margin remains robust, 4%.

France and Switzerland, sales EUR 6 billion plus 3.4% versus 2018. Thanks to the integration of Nature & Découvertes and the continuation of expansion, given the strikes and the yellow vests. In spite of this, the growth remains robust with an increase by 0.7% on a like-for-like basis.

A lot of variations in terms of performances due to external events. The beginning of the year was impacted by the yellow vest and then slightly -- improvement at the end of the second quarter. The trade war between the U.S. and China and the restriction imposed on Huawei impacted the telephone segment. The insurance -- telephone insurance had an impact on this telephony and multimedia service segment, and then the strikes at the end of the year with a negative impact on the fourth quarter. However, good resistance of sales. Very good Black Friday. And it was possible, therefore, to offset the impact and the loss of sales. However, this impact was less positive on the margin because of the mix of categories between Black Friday and the traditional Christmas sales.

The operating agility of the model and the efficiency of the performance plans enabled us to control cost efficiently and to have an operating margin on the -- in the area remaining a solid 4.3%, slightly decreasing minus 20 basis points. And the network continued to expand, 19 under the Fnac banner and 36 for Darty. The integration of Nature & Découvertes generates 96 stores, out of which are 8 franchisees.

Iberian Peninsula. Strong growth during the year, plus 2.7% published data, plus 1% on a like-for-like basis. Spain was impacted this year by a tense political and economic context and a high competition coming from the physical players and the e-commerce. In this context, good resistance of the country in terms of sales, thanks to the good momentum of technical products, sound, IT and telephony. 4 stores have been opened and growth -- double-digit growth of online sales.

Portugal, strong growth, thanks to the good performance of technical products and books. The diversification categories posted strong growth, thanks to games and Urban Mobility. Services posted a double-digit growth. And then expansion went on in Portugal with the opening of 4 stores in 2019.

The operating margin amounts to 3.5%, slightly down by 10 basis points because of the increased operating charges linked to the continuation of expansion.

2019 was marked by the arrival in the group of a new country with the opening of the first integrated store in Luxembourg. And it was marked as well by the launch of an active process to look for a partner for our business, BCC, in the Netherlands in order to focus on markets where the group has a critical mass. This area, representing Belgium and Luxembourg, posts a slight increase, plus 0.3% for the year with double-digit growth of online sales, good resistance of large household appliances. And transformation plan was launched in Fnac in 2019 to strengthen the agility in the stores. The operating income for Belgium and Luxembourg amounts to EUR 12 million, slightly down versus 2018; operating margin, 2%, minus 50 basis points versus 2018.

Let's move on to the income statement. The other noncurrent proceeds and charges, EUR 29 million in 2019, an improvement versus 2018. Incorporating costs linked to the restructuring plans and the exceptional bonus of purchasing power called the Macron bonus. This amount amounted to EUR 21 million as per the 30th of June. And we said that it would be slight -- it would be lower during the second half year. The operating income, EUR 265 million, stable versus 2018. Financial income, EUR 79 million for 2019 versus EUR 43 million in 2018. This increase comes mainly from the nonrecurring costs linked to the renegotiation of the bond loan in 2019 of EUR 27 million and an impact IFRS 16 of EUR 21 million. And apart from those nonrecurring -- or excluding those nonrecurring elements, the financial cost of the group is EUR 24 million, minus EUR 6 million versus 2018.

Tax, in 2019, EUR 72 million versus the EUR 65 million in '18. Our effective tax rate is 39% according to our anticipations. This variation is explained by 2 elements. We had deferred tax bonus or gain in 2018, and it was possible to adjust upwards the deferred tax amount. We were quite clear last year on this topic. And this year, we had a slightly negative tax impact linked to the deletion of the corporate tax credit, CICE.

The net income of continuing activities is EUR 114 million versus EUR 158 million last year. Excluding the one-off costs linked to the renegotiation of the bond and the deferred tax gain perceived in 2018, the net income of continuing activities of the group would be EUR 132 million in '19 versus EUR 148 million in 2018.

Now looking at the impacts of IFRS 16 on our results. As a reminder, the group used the so-called modified retrospective method. The key impacts of the standard basically cover the EBITDA, the net position of the group as well as the accounting financial expenses associated with this debt. EBITDA reached EUR 626 million, up EUR 219 million over 2018. IFRS 16 had an impact of some EUR 231 million on EBITDA. If you exclude IFRS 16, EBITDA reaches EUR 395 million versus EUR 407 million in the prior year.

The application of this standard has also had an impact, negative impact of EUR 21 million on the net financial expense accounted for in the income statement. So in end December 2019, net debt for the group was EUR 1,034,000,000. The impact of IFRS 16 connected with the additional debt with respect to the leases was EUR 1.016 billion. Excluding this accounting effect, adjusted net debt would be EUR 18 million.

Now with respect to cash flow, generation of annual cash flow remains very resilient, standing at EUR 173 million, up by EUR 15 million over 2018, and this despite the loss in revenues, which was an unpredictable factor connected with the social movement in December in France. The nonrecurring cash items were stable in 2019, mainly corresponding to cash-outs for the year, connected with the restructuring plans delivered the years before.

Working capital requirements improved significantly in 2019, reaching EUR 49 million versus minus EUR 7 million in 2018. This improvement mainly originates in optimized trade payables and good management of inventory, especially in year-end.

Investments remain well in control in 2019. In line with our announcements, our CapEx increased by EUR 31 million to EUR 141 million (sic) [EUR 145 million], making it possible to support development and growth project in the context of the Confiance+ or Confident+ program, including openings of new stores and developing and optimizing the website of the group. Remember that half of our CapEx is dedicated to IT and logistics.

Finally, tax cash-out was EUR 70 million in 2019, stable with respect to 2018.

Now strong generation of free cash flow from operations in 2019 has us display a low net debt level of EUR 18 million versus positive cash position of EUR 7 million in late 2018. So the balance sheet of the group is very sound despite a very active acquisition policy in 2019. Our financial discipline, combined with our operational agility, made it possible to minimize the impact of recent acquisitions on our balance sheet.

For the last 24 months, the group conducted its restructuring efforts on its banking and bond debt, which led to shoring up the financial structure of the group while improving the financial terms and condition and extending the maturity of its debt. So the financial investment charges will be lower by some EUR 10 million as a full year impact.

The key success of these renegotiations, both on the banking and the bond refinancing front, demonstrated the confidence and trust showed by the financial markets to Fnac Darty's strategy.

The size -- the volume of our gross debt increased. This was connected to the implementation of credit contract of an amount of EUR 100 million with the European Investment Bank with maximum maturity of 9 years and attractive terms, which aims at financing our investments in digital transformation, the context of the Confidence+ strategic plan. The financial solidity of the group was emphasized by Standard & Poor's, which improved our rating to BB+ stable outlook. This was in May 2019 (sic) [March 2019] , which adds to the BBB- rating by Scope Ratings.

So if you look at the change in net debt, not including IFRS 16 for 2019, free operating cash flow from operations reached EUR 173 million versus EUR 158 million in 2018. In 2019, we paid out some EUR 107 million for acquisitions, net of disposals, most of these involving the acquisitions of Nature & Découvertes and BilletReduc.com as well as a stake -- minority stake taken in CTS Eventim -- for CTS Eventim, which has taken in the equity of France Billet.

So Fnac Darty remains very attentive to the opportunities of return to shareholders and continued its program to buy back shares in 2019. So the group bought back and canceled some 296,750 shares in 2019 for an amount of EUR 20 million. So ever since this buyback program was implemented in October of 2019, the group bought back and canceled some 495,000 shares, i.e., 2% of capital equity.

The other components of our net debt are mainly the cash financial cost for an amount of EUR 46 million, including EUR 23 million of cash impacts connected to the exceptional bond refinancing expense and the others components covers for the majority of the impact. The impact's connected with the accounting of the Dutch BCC operations as discontinued operations. So the group's financial structure is very robust with a net debt not including IFRS on the order of EUR 18 million.

So by way of conclusion, as Enrique mentioned to you, we remain very cautious with respect to the market trends in 2020, given the very uncertain economic and social context. But our robust sales and marketing execution makes us confident that we'll be able to outperform our markets. And we remain very focused on controlling our costs.

So this year, we expect a higher revenue on a like-for-like basis. In parallel, the change in scope connected with integrating Nature & Découvertes and expansion of our business base will deliver an additional EUR 150 million in top line. We are aiming as well to improve current operating income, building upon a better gross margin, which should be better oriented in 2020. Despite a slightly technical dilutive impact connected with the operating charges connected with sales, connected with the integration of Nature & Découvertes. So we are expecting a minus EUR 10 million technical impact in full year due to the integration of Nature & Découvertes due to the seasonal factor of the Nature & Découvertes business. So you'll have understood that out of the EUR 150 million of additional sales, most are connected with integrating Nature & Découvertes. So it won't be the most profitable EUR 100 million that we'll have experienced during our lifetime.

As Enrique announced, Fnac Darty will be launching a sustainable policy to provide better return to shareholders. I won't give you any more detail. You all have been informed of this.

I would like to thank you for your attention, and I think now we can open the question-and-answer session.

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Questions and Answers

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Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [1]

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Nicolas Langlet. A few questions. First, on BCC, where do you stand as to possible partners? And if you do not find a partner, what is the alternative in the country?

Second question, Nature & Découvertes, which initiatives are you going to take in 2020 to open corners and new stores and the expansion of categories of Nature & Découvertes and Fnac?

Third question, on your midterm margin, you are going to repeat this margin of 4.55%. What about the gross margin and the OpEx in the years to come? We have stable OpEx as a percentage of sales, either you have a top line. So my question is, how do you improve the gross margin midterm?

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Unidentified Company Representative, [2]

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Thank you. In the Netherlands, the process was launched a few months ago. We are doing well. A lot of interest are being shown, and we are making progress with possible future partners. It's too early to tell you what is going to happen if -- or what we're going to do if we do not find them, but I think we're going to succeed. BCC is an interesting asset, and it is attractive. So we are making good progress, and I hope we can communicate rapidly on it.

Nature & Découvertes, this is -- there will be between 5 and 10 openings this year in France and abroad, either in integrated stores or independent projects. And Portugal -- in Portugal. And we'll continue the expansion in France, some first of February being validated and are being prepared.

And the products, part of the Fnac environment, well, this is still under preparation, but as I said, we want to have ecosystems around books. And in this ecosystem, we have a lot of products quite similar in Nature & Découvertes. So we'll do a lot of tests and pilots. We have not communicated too much on it, but there are some products of the Nature & Découvertes toy catalog. Some of those products are going to be integrated into Fnac catalog. Teams are working, and you can buy the toys for Christmas next year. So a lot of potential on this.

And as to gross margin, Nicolas, I think everything has to contribute. If we had a normal end of the year, the top line would have been much higher, and the margins would have been better. That's at the end of the year that we optimize our mix effect. So under normal conditions, I think it's going to go back to normal situation from this year on, I hope. Somewhat more limited growth, but margin less disturbed than what it was in 2019. And we will continue working on cross-cutting -- on cutting our costs, and it will be at least the same level as what we've been doing in the last few years.

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Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [3]

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What about the OpEx? In August, you bought Nature & Découvertes.

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Unidentified Company Representative, [4]

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Nature & Découvertes is a company of over EUR 200 million sales. It's rather limited, and it was not possible to have a pro forma. So for 2 years, Nature & Découvertes has very different income statement structure with much higher margin and OpEx ratios. This year, we had OpEx -- flat OpEx in spite of the integration of Nature & Découvertes. If we restate Nature, the OpEx would have decreased strongly versus the sales.

In 2020, we'll have an equivalent format. OpEx might increase because of the integration of Nature & Découvertes, and the margin will benefit as well. So we will have an accretive effect on the current operating income, but the -- it is a bit difficult to read that in 2019, in 2020 as well. But in 2021, it would be completely stable. So it's a bit deceiving this year. It doesn't show the -- reflect. It doesn't show the efforts we have done to control our costs because the integration of Nature & Découvertes is concealing these efforts somehow.

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Geoffroy Michalet, ODDO BHF Corporate & Markets, Research Division - Research Analyst [5]

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Geoffroy Michalet. You mentioned an increased competition in France, in Belgium, not only brick-and-mortar, but online as well. I was wondering, whether for traditional players, they were strong enough to maintain this high level of competition. Do you think that it's going to be sustainable, this high level of competition with time? Yes or no? And what about the nontraditional players, the pure online players?

Second question, your share price is very low and underassessed. You announced the dividend, and given the share price, the current share price not reflecting the fundamentals, so what do you think of that?

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Unidentified Company Representative, [6]

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Competition answer, it's difficult to make predictions. Some players are even incurring losses. They want to resist and -- beyond what is reasonable. Last year, it was a bit nervous -- some traditional players were nervous because of these economic conditions. Because of the economic context, it has an overall impact on the market performance. So I think it comes from the traditional players and not really from the online players.

They -- can they resist over time? Well, we need to be profitable in this industry. So this remains to be seen. In the midterm, no. Are they going to keep on doing that in 2020? It's difficult for me to say.

And for the return given to the shareholders, in 2018, we approved a program we implemented. It was the way for us to anticipate on this return to the shareholders. And what we decided on the Board is that we wanted to have a sustainable return and give the possibility to shareholders. So that's a program we have approved. We'll remain -- we'll pay attention if there is a tactic opportunity to have share buyback in the future, okay? But for the time being, we want to -- the shareholders to have a return on their investment. So that was the wish expressed by the Board.

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Marie-Line Fort, Societe Generale Cross Asset Research - Equity Analyst [7]

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My name is Marie-Line Fort. I have 3 questions, in fact. First, on the partnership with Carrefour, can you tell us where you stand in the partnership process and of the time line with respect to 2020?

Second question is with respect to WeFix. How much did it contribute to the operating income for fiscal 2019? And what is the outlook for 2020?

Third question on Comet. The dispute you have with respect to Comet, will there be any provision charge posted in fiscal 2020?

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Enrique Martinez, Fnac Darty SA - CEO & Director [8]

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So we are still investigating the approach with Carrefour. I hope I'll have good news to announce soon on this partnership process. We still schedule openings in 2020, in the later part of 2020. But this is a bit time consuming, I must say, so we are not yet capable of committing to a specific time line because our discussions are taking some time, but the plan remains a possibility mainly for late 2020.

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Jean-Brieuc Le Tinier, Fnac Darty SA - Group CFO [9]

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WeFix was bought in October of 2018. We massively invested into this brand. In 2019, we opened some 42 sales points inside the Fnac and Darty stores. Big investments, big opening costs, and WeFix posted losses in 2019. In 2020, we expect that they should break even as we have an ability to absorb losses of loss-making operating companies, which is low. So we won't accept this loss-making situation for too long. We announced that we'll double the points of sales when we bought WeFix. We did it within 12 months.

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Enrique Martinez, Fnac Darty SA - CEO & Director [10]

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Something more on WeFix. It's Enrique Martinez. This is the difficulty of announcing performance by segment. WeFix contributes revenues in Fnac and Darty stores. A large part of the revenues of WeFix is accounted for in the Fnac and Darty store bottom line. So where do you draw the line? We have intercompany transfers, and we have very high-quality WeFix accessory products. So again, where do you draw the line with respect to the contribution? This is where we gain benefit and advantage from this ecosystem. WeFix will be contributing to the bottom line of the company, but you'll have to look for this performance in the foreign type.

With respect to Comet, the Comet dispute, you saw what happened last year. We feel totally confident that our positions are sound. With our counsels in France and in the U.K., we'll come up with a line of defense and which I hope will be successful. And again, we feel confident that we do not make -- we do not need to make any provision charge. And this is supported by our statutory auditors. And we believe we have legitimate ground to believe that the dispute will not be referred to the courts, and that our case will be heard favorably that they -- if there is a ruling that the ruling will take our points of argument into account. And I believe that we have good confidence that our point will prevail. Next question.

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Christian Devismes, CIC Market Solutions, Research Division - Analyst [11]

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My name is Christian Devismes from CIC. 2 questions. One, on CapEx, up EUR 30 million in fiscal 2019. Are we to expect a new hike of CapEx 2020?

Another question. On digital investments, is there -- are there R&D costs capitalized into this CapEx? And maybe you can tell us more about the CapEx level in 2020.

And second, more technical, less interesting question on IFRS 16. On the cash flow statement, we don't see the EUR 21 million of financial expenses under IFRS 16. Is it just an accounting presentation? You have EUR 46 million. You have EUR 22 million of financial expenses. And EUR 23 million is the bond refinancing, but you don't -- I missed the EUR 21 million of IFRS standard reclassification. But the -- all of the cash flow statements restated the IFRS impact. But you have EUR 231 million of restatement in the top part in your statement, but -- okay, we can discuss this one-on-one.

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Jean-Brieuc Le Tinier, Fnac Darty SA - Group CFO [12]

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But Christian, you have change in net debt. And the waterfall goes from 7 to 18, not including the impact of IFRS 16 standard.

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Enrique Martinez, Fnac Darty SA - CEO & Director [13]

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So 2019 was a very strong CapEx year. 2020, I won't give you the figure, but the CapEx will be lower in 2020, in between the level of 2018 and 2019. There are still some large-scale CapEx programs to execute. Some have been approved, but there will be fewer owned stores to open and fewer transformation projects. So there will be a lower level of CapEx in 2020 compared with 2019.

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Jean-Brieuc Le Tinier, Fnac Darty SA - Group CFO [14]

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Concurring digital part accounts for about half of CapEx. And in our investments in our CapEx, there's no R&D cost capitalized. Our IT costs are capitalized as CapEx, as external service providers. And this is accounted for project-by-project based on very strict and key rules.

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Christian Devismes, CIC Market Solutions, Research Division - Analyst [15]

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So the amount of capitalized costs, can you tell us more detail?

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Jean-Brieuc Le Tinier, Fnac Darty SA - Group CFO [16]

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No, there's not a detailed information we issue. And this very much depends on the types of project.

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Christian Devismes, CIC Market Solutions, Research Division - Analyst [17]

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(inaudible)

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Enrique Martinez, Fnac Darty SA - CEO & Director [18]

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Next question? Right. Since there's no more questions, we are going to adjourn the meeting. Thank you very much for your attention and see you very soon.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]