High-potential SMEs

Egm in the X-ray: Culti Milan sees growth margins in the first half of 2024

Ebitda +17.6% and Ebit +19.9%. Revenues also rose (+8% to EUR 12 million). Debt level also low

by Valeria Novellini

17 October 2024

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5' min read

Key points

Numbers
Very low debt level thanks to operating cash flow
The distribution partner

5' min read

Thirty-nine and a half million euros. This is the sum paid on account by the perfumery giant Euroitalia Srl to the Aeffe group for the acquisition of the Moschino brand with reference to all beauty products (cosmetics, perfumes, scented candles and air fresheners and textiles). And this sum corresponds substantially to the entire market capitalisation of Culti Milano, which is active in virtually the same sectors. The comparison brings out very clearly the dramatic undervaluation of the Euronext Growth Milan companies (incidentally, the entire amount for the Moschino brand in the beauty sector is 98 million and the balance will be paid to Aeffe on 29 November 2024, deducting, however, the royalties in the meantime already accrued or advanced by Euroitalia Srl for a total of approximately 28 million).

The numbers

Culti Milano is not Moschino? Perhaps, but in the meantime the 'little one' of beauty closed the first half of 2024 with growing results. Revenues rose by 8% to 12 million (+11.6% to 4.4 million in Italy and +6% to 7.6 million abroad, driven by European markets with +14.1% to 2.4 million, while Asia, particularly China, recorded a drop of 6.4% to 3.9 million due to a generalised reduction in consumption).

The most successful distribution channel in the half-year was Hotellerie (+24.2% to about 2 million); Wholesale also grew slightly (+2.5% to 7.2 million), serving mainly the foreign market through distributors. Although of little significance in percentage terms, the trend in revenues from owned shops was positive (+19.7% to € 325,000), also thanks to the opening of a second mono-brand shop in Kuwait in the Avenues shopping mall.

But above all, profit margins rose more than proportionally to turnover. Ebitda increased by 17.6% to EUR 1.7 million and ebit by 19.9% to EUR 1.7 million. And it went from a net loss of EUR 101,000 (determined by taxes of EUR 281,000) to a net profit of approximately EUR 929,000, with net financial expenses falling from EUR 239,000 to EUR 132,000. The tax rate for the first half of the year was 41.6%, with taxes of EUR 661,000.

Very low debt level thanks to operating cash flow

As at 30/6/2024, the net financial debt, thanks to the generation of operating cash, had decreased to EUR 2.5 million from EUR 3.2 million at the end of 2023, resulting in a Debt/Equity ratio of about 0.27 times, thus very low. In the meantime, at the end of April 2024, a dividend of EUR 272,575 was also paid out for 2023, representing a very conservative pay-out of 16.7% on the parent company's net profit of about EUR 1.6 million (at the consolidated level, profit had been just under EUR 1.05 million).

Culti Milan, almost a 'unicum' among the companies of Euronext Growth Milan, has for some time now also been drawing up two separate sub-consolidations for the Culti Group area and for Bakel Group, which operates exclusively in the high-end skincare segment with products distributed mostly in pharmacies. In the first half of 2024, as usual, it was the Culti Group area that showed the best results, with revenue up 8.5% to EUR 10.1 million, ebitda up 6.2% to EUR 2.1 million, ebit up 5.3%, and net profit, no longer burdened by the non-recurring expenses of 2023 (EUR 841.000) mostly related to the amortisation of goodwill and other charges connected to the acquisitions of Bakel Srl and Scent Company Srl, jumped from EUR 740,000 to EUR 1.1 million.

But the Bakel Group is also approaching break-even. In H1 2024 it saw turnover rise by 5.3% to EUR 1.9 million, ebitda went from a negative EUR 149,000 to a positive EUR 32,000, the operating loss was reduced by 53.4% to EUR 150,000 and the net loss by 74.8% to EUR 93,000 (Bakel had a positive tax effect that went from EUR 67,000 to EUR 53,000 and in addition in H1 2024 it benefited from non-recurring income of EUR 47,000).

The distribution partner

Culti Milano's results were also achieved thanks to its new distribution partner for the American market, Sferra (the group's sales in America more than doubled from EUR 326,000 to EUR 837,000) and, in terms of product offerings, through the strengthening of the Culti Milano Own division dedicated to olfactory branding (turnover increased by 19.7% to EUR 2.1 million), which was able to count on customers such as Oviesse and the Msc cruise group for its 'luxury cruise' line called Explora.

Further expansion of Bakel's distribution network planned

The launch of new ambient fragrances, mostly 'capsule collections' in limited editions, is not neglected; let us recall Onde di Tessuto, launched in April 2024 during Milan Design Week. Collaborations continue with Lamborghini, with the K-Way brand of the Basic Net group (for which the fragrance After Rain was launched) and a 'limited edition' dedicated to the seaside resort of Forte dei Marmi was also produced.

As for Bakel, the key to the improvement in margins (although still far behind the rest of the group) lies in the doubling of its presence in the pharmacy channel in Italy, as well as the commercial expansion in foreign countries where the brand is already well known (a collaboration with a new distributor in Taiwan has been initiated). But of course, significant marketing and promotion costs were also incurred, especially in 2023 (in the first half of 2024, Bakel's service costs decreased by 18.5% to Euro 919,000), and activations on social channels resulted in significant growth in the e-commerce channel.

Outlook? For the second half of 2024, the management of Culti Milano expects a continuation of the positive trend, especially in Italy and Europe (in the latter case with a focus on the department store channel), and a stabilisation of the Asian markets from which the joint venture (60%) Culti Milano Asia Ltd should benefit. The expansion of Bakel's presence in the pharmacy channel will also continue.

How, then, does one explain the obvious gap in market valuation of Culti Milano compared to the 'Moschino' beauty brand? The notoriety? The size? It is worth mentioning at this point another important transaction in the cosmetics market carried out at the beginning of 2024: the one whereby the French L'Occitane International (unfortunately subject to delisting from the Hong Kong stock exchange on 7 August 2024 due to a voluntary takeover bid by the reference shareholder Reinold Geiger) took over Dr. Vranjes, the well-known Florentine group of room fragrances, from Bluegem (a British private equity fund). The amount has not been officially disclosed but there has been talk of EUR 140 million. In 2023, Dr. Vranjes achieved over 42 million revenues with an ebitda margin of over 30 per cent. Culti Milano, in 2023, showed a turnover of EUR 22.6 million and an ebitda margin of just over 18%; in the first half of 2023, the ebitda margin was 16.2%, and it is therefore to be assumed that for the whole of 2024, the group's ebitda margin will be higher than the previous year, since the ebitda margin amounted to 17.5% as at 30/6/2024.

We are not at the levels of Dr. Vranjes Firenze (and it is not known what those of the beauty brand 'Moschino' are: unfortunately in the cosmetics sector, and not only in Italy, disclosure on the results of unlisted companies and activities is very poor). But perhaps the capitalisation of Culti Milano is not quite what one might expect on the basis of results and prospects, although of course it is penalised by a very small free float even by Euronext Growth Milan standards (10.88% of the share capital, which is lower even than the shares held on its own account, which are 11.95% of the total).