Lpp Sa Group Consolidated Annual Report for 2020/21
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LPP SA GROUP CONSOLIDATED ANNUAL REPORT FOR 2020/21 This report covers the financial year of the LPP SA Group, lasting from 1 February 2020 to 31 January 2021 (further referred as “2020/2021 financial year”). SPIS TREŚCI 01. President’s letter to shareholders 4 02. Management Board’s report on the operations of the LPP SA GROUP, including the Statement On Corporate Governance for 2020/21 7 03. Consolidated financial statements lpp group 92 Introduction 93 Selected financial date 94 Consolidated comprehensive income statement 96 Consolidated statement of financial position 97 Consolidated cash flow statement 98 Consolidated statement of changes in equity 100 Accounting principles (policies) and additional explanatory notes 103 04. Statements of the Management Board of LPP SA 178 05. Statement and assessment of the Supervisory Board of LPP SA 182 4 5 Consolidated annual report of the LPP Group for 2020/21 1 PRESIDENT’S LETTER TO SHAREHOLDERS 5 Consolidated annual report of the LPP Group for 2020/21 DEAR SHAREHOLDERS, We passed through a difficult year causing hard- in the cloud, our servers could handle the incre- ship for all economies. The global crisis has beco- ased traffic with no need to make any cost-consu- me the hallmark of the pandemic, thus requiring ming decisions to buy additional IT infrastructure. the majority of entrepreneurs, specifically in the retail sector, to minimise the effects of the global Simultaneously, due to occurring circumstances, slow-down and fight the blocking of traditional we were forced to implement expedite changes sale instead of striving for record-breaking results. to improve our distribution network. Last year, in LPP suffered the similar problem. Slovakia, we launched a warehouse dedicated to e-commerce and, in just several weeks, we ad- We entered 2020 with a strong financial cushion justed our fully automated distribution centre in securing, to a large extent, our interests during Pruszcz Gdański, dedicated to the replenishment that difficult time. As a result, we closed 2020/21 of the on-site network, to support five e-commerce with revenue of PLN 7.8 bln. That year was we- warehouses in the distribution of on-line orders. aker y/y/ by approx. 15%, however, considering the circumstances faced by the retail sector, the said However, a major interest in online sales and a result was above what we had initially assumed. clear-cut shift in capacities of both sales channels A triple lock-down was reflected in the volume of did not bring about the end of on-site trade as pre- traditional sales, falling last year by 31% y/y. The dicted by some. As shown by temporary lifting of above result was partially compensated with very lock-downs, customers, specifically in the fashion good results of online sales the dynamics of which sector, decided to reach out to products directly reached as much as 106%, generating a revenue despite the fear of repeated visits in shopping cen- exceeding PLN 2 bln. Nonetheless, for the first time tres. Customers no longer treated brand stores as in our history, we closed 2020 with a net loss of showrooms and a source of fashion inspirations but PLN 190 mln. rather as a place they went to thinking of trying on and buying specific products. That was an impulse In the last year’s report, I assured you that, having to make a decision to further develop our on-site faced a new reality dominated by the coronavi- chain. Last year, the number of our brand stores rus pandemic, we would create new scenarios for increased by 6% while our retail space increased by LPP’s operations, which would help us to overco- 17% y/y. Our development was focused on younger me that difficult time. Therefore, we decided to brands as we had decided to expand their on-site focus on several pillars: e-commerce strengthening, chains specifically on the markets of East Europe strict cost discipline, implementation of logistics where the traditional channel is still very important. improvements and effective stock management. I To that end, we allocated the total of PLN 622 mln, consider that plan executed in full. with joint capital expenditures reaching PLN 826 mln. In consequence of prolonged lock-downs thro- ughout the year, the majority of our customers Last year, as part of cost rationalisation and due to changed their habits by transferring to the on-line the need to ensure the Company’s stability, we had world. Thus, we were forced to make quick steps to make also difficult decisions. One of them was to enhance the e-commerce channel, increase a four-month suspension of one of our logistics the capacity of our brands’ websites and ensure projects i.e. construction of a distribution centre in their full scalability. To that end, we decided to Brześć Kujawski. We restored that project as part maximise the capacity of cloud solutions for our of our investment plans in October 2020 in a modi- brands’ websites. The above served as the basis fied version. However, we did not change the time for the further development of the e-commerce schedule for construction works and, as before, channel which, for most of the year, remained our we plan to launch the said centre in Q1 2022, with only source of revenue. It should be emphasized, target employment of approx. 1,000 people. as a result of the above steps, we were also able to optimise costs. Owing to technological solutions Furthermore, we changed our plans regarding and automated addition of subsequent resources debuts of our brands in North Macedonia. The 6 7 Consolidated annual report of the LPP Group for 2020/21 opening planed originally for Q3 2020 was delay- In mid-2020, we joined the Zero Discharge of ed deliberately by 12 months. Despite the above, Hazardous Chemicals, an initiative aimed at global last year, availability of our offer was still high. limitation of the adverse impact of the clothing At present, collections of our 5 brands are jointly sector on the environment and at eliminating ha- available on 38 markets, including 30 markets with zardous substances. A month later, we joined the online sales. Polish Plastics Pact, an inter-segment cooperation platform for companies and organisations striving Last year, rational stock management played also a at changing the current model of using plastic raw substantive role. We reduced the volume of our or- materials on the Polish market towards a closed ders by almost 40%, launching simultaneously our circuit economy. in-house Defrost programme which let us defrost the stock blocked in closed on-site stores. We inte- That difficult year has not deprived us of social grated the stock in both sales channels and, owing sensitivity in ongoing circumstances. Having regard to the RFID technology implemented last year in of increasing epidemic hazards and intensified Reserved, we were fully aware of the stock volume difficulties in medical centres and non-governmen- in individual stores which had become dispatch tal organisations, together with our foundation, we points for intensified online orders. decided to launch the #LPPpomaga aid scheme. We therefore supported over 300 medical and During subsequent weeks of 2020, we noticed also non-medical centres throughout Poland, which quite large changes in our customers’ shopping received personal safety products and funds for baskets. Along with life style changes caused by purchasing medical equipment indispensable for the pandemic, customers’ product preferences had saving patients’ lives. Furthermore, we provided also changed. We modified our collections accor- online learning equipment for children staying in dingly, increasing the volume of homewear which orphanages. today gains importance. In our memory, last year will always remain as the New reality had polarised customers’ expectations. time of tough and uncompromised decisions. In On one hand, products offered with the best price- LPP’s history, that was a breakthrough time which -quality ratio were very popular. On the other hand, proved that, despite being deprived of the main we noticed customers’ increased interest in more source of revenue, we were able to ensure the eco-friendly clothing. Last year, in this segment, we Company’s safety, liquidity and stability preserving made quite a progress. rational cost policy, optimum stock management and focusing on maintaining efficient logistics and Despite market hardships and our focus on en- flexible online sales. Please be ensured that we suring the Company’s stability, we had not ceased have adopted similar priorities for the year 2021, to execute goals set in our sustained development entering it full of energy and ambitious goals. policy “For People For Our Planet”. On the cont- rary, specific goals being part of that policy were executed to an extent larger than originally plan- ned. In 2020, almost 19% of our collections were Marek Piechocki products labelled Eco Aware. In Reserved, every President of the Management Board of LPP SA third item of clothing was made of eco-friendly materials or manufactured in a sustainable process. At the same time, we worked on further limitation of plastic in our sales and distribution networks. Last year, we managed to eliminate in full plastics in packaging designated for dispatching online orders in Mohito and Reserved. In the remaining brands, we used recycled foil only. Consequently, in 12 months, in our retail operations, we eliminated another 300 tonnes of single-use plastics. It means that the 2019 result was almost doubled, with a to- tal reduction of as much as 570 tonnes of plastics