El Corte Inglés closed the year of the pandemic with unprecedented losses of 2,945 million euros, including provisions and impairments of 2,500 million. Its fiscal year (which runs from March to February) was greatly impacted by the confinement and closures of its establishments during the Great Seclusion, and also later by restrictions on commercial activity and mobility, as well as by perimeter closures. This is the first negative result in the history of the company, of which two thirds are due to the adjustment of the book value that was given to certain assets, especially some shopping centers. In addition, the group’s debt has grown by 560 million and stands at 3,811 million euros.
These voluminous red numbers are due, to a large extent, to provisions and impairments noted on some of its assets: the impact of these changes is 2,500 million, according to the chain of shopping centers. Without these extraordinary effects, the net losses would be 445 million euros – in 2019 it had 310 million benefits. “This result is mainly due to the cessation of a large part of its activity during the confinement and subsequent closures that occurred in the autonomous communities, as well as the total absence of tourism, both national and international,” the company states in a statement. Although in accounting terms the revaluation of real estate assets has greater weight than the progress of the business. “Offices or some shopping centers are not worth the same as years ago,” explain sources from El Corte Inglés.
Regarding the provisions of 2,500 million, the firm explains that this is the total amount destined to cover impairments of fixed assets, inventories and tax credits. “Most of these provisions derive from an update of assets as a result of the transformation towards a more digital business model,” he says. By items, 1,760 million correspond to the loss of the recorded value of real estate assets, 330 million to the impairment of inventories, 150 million to the voluntary retirement plan, 125 million to write-offs of tax assets and another 135 million to litigation or credit risks .
Thus, the cleaning up of the group’s real estate assets has been a severe setback in the 2020 financial year, which is added to the losses caused by the coronavirus crisis. To alleviate this setback, the firm has set a digitization strategy and has even begun to transform part of its spaces into outlets, warehouses, dark stores or renting them to third parties to give them a new use and that do not represent an accounting slab.
In terms of turnover, the group’s sales amounted to 10,432 million, 31.6% less than the previous year. By segment, the commercial business suffered greatly (-19%), and the travel division. In this case, the El Corte Inglés agency lost almost 90% of its billing. “In other areas of activity, it is necessary to highlight the strength of the business model and the management of El Corte Inglés Seguros, which has allowed it to maintain its sales volume in a year as complicated as 2020,” the company states in the note, in which the closing with a positive Ebitda (gross operating result) of the group of 141.73 million stands out, 88% below the previous year. “It is important that with the closings of shopping centers, restrictions and without tourism we have managed to end positive Ebitda. In addition, the foundations of the company’s future strategy have been laid, ”say group sources.
Within this future strategy is framed the effort to digitize the business and improve the logistics part, mainly. This, together with the blow of the pandemic, has led El Corte Inglés to carry out the first employment regulation file (ERE) in its history that has affected some 3,300 employees, a process in which voluntary adherence exceeded 4,000 workers.
Internet sales growth
The lack of tourism has been one of the great challenges for the company during a year marked by the pandemic. According to group sources, between 10% and 15% of sales of retail depend on national and international travelers. Although, as is evident, one of the main blows derives from the forced closures of its establishments during the severe confinement, as well as the restrictions that were maintained after commercial activity.
Also on a positive note is the growth in online sales, something logical, since for months it was the only way to buy for consumers. Specifically, electronic commerce grew by 132% and represents 17.3% of the sales of retail of the group – in 2019 it only represented 5.8% -. In addition, the company advances that during the first quarter of fiscal year 2021 it is already at sales levels in fashion similar to 2019. Something that does not happen at a general level and there are very damaged divisions such as travel.
On the liquidity side, El Corte Inglés closed the year with 3,549 million, the highest in its history (in 2019 it reached 2,108 million), according to the company. This amount includes the 1,546 million in undrawn credits (it agreed to a loan with ICO guarantee of 1,300 million), 1,075 million of its line of issuance of promissory notes of the Alternative Fixed Income Market (MARF) and 928 million in treasury.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.