Societe BIC SA

PAR:BB

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the Second Quarter and First Half 2018 Results of BIC conference. I now hand over to Madam Sophie Palliez. Madam, please go ahead.

[Sophie Palliez-Capian]

Thank you. Good afternoon or good morning for those listening from the U.S. Welcome to this Q2 H1 conference call. We'll present very shortly -- very short presentation on our results. And then Gonzalve Bich, Chief Executive Officer; and Jim DiPietro, Chief Financial Officer, will be able to answer to your questions. Let me now give the floor to Gonzalve Bich for a short presentation on these results.

[Gonzalve Bich, CEO & Director]

Thank you, Sophie. Good morning and good afternoon, everyone. I'll begin today with a summary of our first half 2018 results. I'll then hand it over to Jim to take you through our financials. And finally, I'll conclude by going through our second-half trends and full-year outlook. Let me start by giving you a brief overview of the trading environment BIC has been operating since in -- the beginning of 2018. From a macro perspective, it's fair to say our business has been exposed to a volatile global context. Our teams had to navigate through Mexico's recent presidential elections, the 10-day transportation strike in Brazil, in addition, to import bans in select Middle East and African countries. In the U.S., the economy continues to be strong, with Q2 GDP up 4% and consumer spending growth at plus 2.2%. Yet Brazil, one of our major markets, sees its GDP forecast revised downwards on a regular basis, leading our markets to trend below initial projections. For example, year-to-date May, the Brazilian Wet Shave market declined 3.2% in value versus 3.2% growth initially forecasted. Our businesses have been exposed to significant currency volatility and have been impacted by raw material price increases in all our categories, as we expected. Last but not least, global trade is now subject to uncertainties with the risk of increased import duties. As a multi-local manufacturer, we're less exposed than some others of our direct competitors. While we may face local temporary challenges, such as in Brazil, in May, overall, our integrated production model gives us a competitive advantage. From a geographical standpoint, as we'll detail later, these macro trends affected mostly North America and developing markets' net sales, which declined 0.5% and 6.3%, respectively. Europe grew slightly, up 0.8%. If we now look from an industry perspective, our 3 categories operate in a fast-moving retail environment. The surge in e-commerce leads our customers to constantly review their business models and the way they engage end consumers. This is not only pointing to disruption in the U.S. Wet Shave market, in recent years e-commerce pure players have grown into market leaders, squeezing out mass retailers. Furthermore, consumer preferences have evolved at an unprecedented rate, and we continue to see consumer habits shifting towards product personalization. Doing business in this context requires our teams to be more agile and innovative than ever before. We're aggressively expanding in e-commerce, strengthening our relationships with online specialists and developing winning direct-to-consumer strategy. We also continue to work closely with our core retail partners who remain key in our growth. In this overall context, our first half of this year was challenging for BIC. European and North American Stationery markets were down low-single digits on a year-to-date basis. The U.S. shaver market decreased 3.9% in value year-to-date. Western Europe was soft as well, down 1.1 in value. As mentioned before, our performance in Brazil was challenged by the strike in May. Despite these headwinds, we managed to seize growth opportunities in most of our markets. We delivered strong performance in Stationery in the U.S., gaining 0.7 points market share on a year-to-date basis, and growing e-commerce sales by more than 40% in the first half. We continue to gain traction in Eastern Europe with high double-digit growth in sales and distribution gains, notably in Russia for Shavers. Globally, our teams continue to be focused on paving the way for future delivery of growth. Our first half results demonstrate our commitment to invest in our business and operations. In line with our goals, we pursued planned investments in CapEx and targeted brand support. We're an industrial company, a leader in each of our categories and a worldwide and acknowledge brand. We can rely on a historical strength, a state-of-the-art mass production model delivering the highest possible quality at the lowest unit cost. Yet, this is no longer enough. Given the industrial nature of our businesses, we must make decisions with the long-term at the top of our minds. If we want to remain leaders in our 3 categories, we must move quicker. We believe we can accomplish this by investing in groundbreaking innovation to propel growth in Stationery and Shavers while addressing more proactively regulation enforcement issues in Lighters in Europe. We must be more focused on increasing investments return, strengthening our industrial excellence worldwide and driving cost effectiveness more proactively. Going forward, we will rely on our strong balance sheet and solid cash flow generation. For the balance of the year, we remain dedicated to achieving our outlook for the full year 2018. A few comments now on our first half financial performance.Net sales were down 1.9% on a comparative basis at EUR 959.3 million. Normalized IFO margin was 19.6%, down 70 basis points versus prior year, while normalized EPS group share decreased 5% to EUR 3.05. Our net cash position at the end of June was EUR 55.1 million. Later, Jim will discuss our consolidated figures in further detail. Let me, however, explain the rationale behind the EUR 68.7 million of goodwill impairment for Cello. This goodwill impairment is due to a lower growth outlook. We continue to face headwinds in the export business with a double-digit decline in net sales, as competition remains tough and in some cases unfair. Domestic sales growth performance is expected to be slightly lower than initial plans, yet we plan to grow faster than the market. Since we acquired the full control of the company in December 2015, we've launched an ambitious plan, aimed at setting a new growth trajectory for our company that had been underinvested in by its former owners. We've taken many initiatives, such as building a new management team, strengthening innovation, increasing brand support, and we've launched a CapEx plan that included the construction of a modern new manufacturing facility. We expect Cello pens to be a solid growth driver for the group. It is the #1 Indian writing instruments manufacturer and #1 brand with nationwide distribution. Domestic sales are starting to regain momentum, and we have a robust pipeline of new products. All this leads us to remain fully confident in our future sales growth in India. Let me now take you into more detail in each of our categories. Our Stationery net sales were flat in H1. Looking first at Europe. The performance was driven by healthy growth in Southern Europe, notably in traditional distribution channels in Spain and Turkey. As it is of high interest, let me also emphasize our strength in e-commerce. However, this was offset by some customers' back-to-school order postponement versus last year in France. North American sales increased mid-single digit, with once again a strong performance in e-commerce where our sales grew more than 50% versus the same period last year. New products such as BIC Gel-ocity Quick Dry pen continued to outperform. We also benefited from a positive back-to-school phasing as some orders were shipped in June versus July last year. It's important to note that we outperformed a declining U.S. Stationery market year-to-date gaining 0.7 points market share in value with gel driving the growth. Moving now to Latin America. We saw low single-digit decreases. With sales growth challenges in Brazil due to customers’ ongoing inventory adjustments and the impact of the 10-day transportation strike in May. Mexico was impacted by negative back-to-school phasing, but underlying trends remained solid with good performance in coloring and growth in traditional channels. Finally, in India, Cello pens' domestic sales were flat on a comparable basis, as Cello continues its product trade-up strategy and portfolio streamlining.First half 2018 Normalized IFO margin for Stationary was impacted by favorable sales mix and cost efficiency, both offsetting increase in raw material cost.Let me move to Lighters, where H1 net sales decreased 2.6% on a comparative basis. Net sales were flat in Europe. In spite of unchanged market conditions and distribution channels for BIC, Western Europe performance was impacted by the decision to adjust part of our route to market in traditional networks to improve sales efficiency and drive future profitable growth. In France, we reinforced our partnership with the best-performing wholesalers in order to secure our long-term presence and visibility at key tobacconists. This adjustment led to lower performance in other wholesalers. In Italy, we increased the number of stores served directly, while focusing on retailers with the highest growth potential. In Spain, an acceleration plan in traditional trade has been launched to strengthen our sales force selling directly to the best points of sale. We continue to grow market share in Eastern Europe. North American second quarter Lighters net sales were impacted by the preorders from retailers back in the first quarter due to the successful implementation on the 1st of April price increase in the U.S. Overall, we outperformed a slightly declining market. In Latin America, net sales decreased high single digits due to an ongoing inventory adjustment by customers in Brazil and the negative impact of the 10-day transportation strike. However, Mexico grew net sales attributable to enlarged distribution in traditional trade. H1 2018 Normalized IFO margin for Lighters reflects an increase in raw materials and brand support as well as unfavorable fixed cost absorption. Turning now to Shavers. H1 net sales declined 3.1% on a comparative basis. Performance was solid and Europe with net sales increasing mid-single digits. We continue to grow in Eastern Europe, notably Russia, where we gained distribution and increased market share, driven by BIC Flex 3 Hybrid. We delivered flat net sales in Western Europe in a declining market, down 1.1% in value on a year-to-date 2018 basis for the one-piece segment. In North America, where the market continues to be testing, down 3.9% in value, we underperformed the U.S. one-piece market, losing 0.5 points share resulting in 26.4% market share in value on a year-to-date basis June.On the other hand, we saw continued success in our new products. BIC Flex 3 Hybrid, BIC Soleil Bella Click and BIC Soleil Balance, the #1 new product on the female one-piece market. In Latin America, the impact of the 10-day transportation strike in Brazil was more than offset by our distribution expansion and market share momentum. We outperformed a declining Brazilian market, down 2.7% in value at the end of May, with gains of 2.5 points to reach 21.2% share in value. This was especially driven by the success of our new products BIC Flex 3 and BIC Soleil Sensitive. Finally, the Middle East and Africa net sales decreased double digit, negatively impacted by a decrease in promotional activities and current unfavorable importation legislation in North Africa. H1 2018 Normalized IFO margin for Shavers was driven by low volumes, unfavorable product mix, increase in raw materials cost, partially offset by lower brand support compared to last year. I'll now hand it over to Jim for the consolidated results.

[James DiPietro, CFO & Executive VP]

Thank you, Gonzalve. I'll begin by reviewing the net sales evolution for both the second quarter and the first half of 2018. On an as-reported basis, the second quarter net sales were down 9.2% versus last year. On a comparative basis, our net sales were down 2.3%. There was an unfavorable impact of currency fluctuations of 6.1%, mainly due to the changes in the U.S. dollar and the Brazilian real. For the first half, net sales totaled EUR 959.3 million, down 10.5% as reported, and down 1.9% on a comparative basis. Here again, the unfavorable impact of currency fluctuations, up 7.4% was mainly due to the U.S. dollar and Brazilian real. On Slide 8, you can see the key elements of the summarized P&L. First half 2018 gross profit margin was 52.9% compared to 52.3% in the first half of last year. First half 2018 Normalized IFO was EUR 188.2 million compared to EUR 218.2 million in the first half of 2017, with Normalized IFO margin of 19.6% versus 20.3% last year. I will now review the key elements of the change of Normalized IFO margin versus last year for both the second quarter and first half. Starting with the second quarter of 2018, cost of production was favorable 0.5 points versus last year. While cost of production was negatively impacted by raw materials cost, absorption and depreciation, it was offset by a favorable year-to-year changes in manufacturing cost and variances. Brand support was lower by 0.2 points in the second quarter, and that includes consumer and business development support and advertising. OpEx and other expenses were higher by 1.8% -- 1.8 points versus second quarter of 2017. In the first half 2018, cost of production was favorable 1 point versus last year. The first half 2018 cost of production was impacted in a similar way as the second quarter.We benefited from changes in manufacturing cost and variances versus last year, which offset our higher raw material, absorption and depreciation cost. Total brand support investments were slightly higher by 0.1 points, and also as planned, we increased operating expense and other expenses in the first half of 2018. This was an impact of 1.6 points versus last year. It is important to note for the balance of the year, we still expect the negative impacts of raw material cost, absorption and depreciation, with much less of a favorable offset. Slide 10 shows Normalized IFO to net income for the first half of 2018. Income before tax was EUR 125.3 million compared to EUR 193.6 million in the first half of 2017. Net finance revenue was EUR 5.8 million in the first half of 2018. The first half of this year was positively impacted in the second quarter by fair value adjustments to financial assets, denominated in U.S. dollar when compared to December of 2017. First half 2018 net income group share was EUR 70.8 million, 45% drop as reported, and was EUR 139.5 million, increasing 8.4% excluding the Cello goodwill impairment.The effective tax rate was 43.5% and 28.1% excluding the impact of Cello goodwill impairment.EPS group share was EUR 1.55 compared to EUR 2.76 in the first half of last year, down 43.8%. Normalized EPS group share decreased 5% to EUR 3.05 compared to EUR 3.21 in the first half of 2017. On Slide 11, we see the main elements in working capital, of which inventory increased to EUR 470.2 million. Trade and other receivables also increased to EUR 574 million. Trade and other payables were EUR 130.7 million. The majority of our inventory is in the Stationery category, finishing with EUR 215.9 million at the end of June. Now, we look at the net cash position between December 2017 and June 2018. Net cash from operating activities was EUR 83.1 million with EUR 197.7 million in operating cash flow. The negative EUR 114.6 million was a change in working capital, mainly driven by the accounts receivable and the increase in inventory compared to December of 2017, both mainly due to seasonality. Net cash was also impacted by investments in CapEx, as we invested EUR 51.6 million in the first half of 2018.The dividend payment was EUR 157.8 million, and we bought back EUR 23.9 million of shares in the first half of 2018. Our net cash position at the end of June 2018 was EUR 55.1 million. This ends the review of our second quarter and first half 2018 consolidated results. And now I'll give the floor back to Gonzalve.

[Gonzalve Bich, CEO & Director]

Thank you, Jim. As mentioned in my introduction and based on our current trading environment assumptions, our 2018 outlook remains unchanged. Looking at our forecast for the balance of the year, we expect net sales to recover across all categories. In Stationery, we anticipate back-to-school to drive second half performance in key regions such as Europe and the U.S. Thanks to solid selling figures in the first half. We'll continue to deliver growth in e-commerce in the U.S. Cello domestic sales are projected to grow double digits driven by the launch of Cello One, a new product in the sub-INR 10 segment in India. In Latin America, Mexico should deliver strong performance as well, while we believe Brazil will stabilize. Lighters H2 growth will be driven by developing markets, notably Latin America with distribution gains and volume increases in Mexico. We also expect strong growth in EMEA with a good performance in Saudi Arabia. In the U.S., we should see the full impact of the price increase. Turning to Shavers. We first see continued growth in Eastern Europe, primarily driven by distribution gains in Russia, which grew more than 40% net sales just in the first half of this year. We will also benefit from the positive impact of new product launches. In Europe, BIC Flex 5 will be launched in Italy and Iberia, and Hybrid 5 in the Nordic regions, Austria, France and Russia. In the U.S., we'll benefit from the pipe fill of 2019 new product launches, such as BIC Flex 2 Hybrid and Soleil Click 5. Finally, Latin America will be driven by a strong momentum in Mexico, thanks to targeted promotions and increasing volumes. In Brazil, we expect the market to rebound as we continue to grow market share. In addition, we expect to partially recover the losses from the strike in Brazil, subject to macroeconomic uncertainties. As in the first half, our gross profit and margins will be impacted by an increase in raw materials costs and higher depreciation. Yet, as we do not expect benefits from the positive cost of production, while we continue to invest in targeted brand support and operations.Around the world, our teams will concentrate on delivering on our goals and leveraging our brand in line with our values as we continue to engage effectively with our consumers. This ends our presentation. We're now ready to answer your questions.

[Operator]

[Operator Instructions] Your first question comes from Charles-Louis Scotti from Kepler Cheuvreux.

[Charles-Louis Scotti]

Four questions, please. The First question is on the change in the cost of production on which you saved EUR 42 million EBITDA in H1. What does it cover exactly? And what should we expect in H2 in 2019? And the same question on the OpEx and other expenses, please? The second question. On your margin guidance, which suggests 430 basis points margin contraction in the lower end and 230 basis points in the upper end. Why do you expect such deterioration in Q2? It is due to a steady effect on your raw materials? The third question. Can you remind us the amount of the price increase in Lighters in the U.S. in April this year? And can you give us the breakdown between volumes and prices in H1, basically, what could have been the organic growth at constant prices? And then my last question is on CapEx. You have scaled back your CapEx a little bit in H1. Is there a particular reason for that? And which division is concerned by this cut?

[James DiPietro, CFO & Executive VP]

Okay. Let me -- this is Jim. I'll address the first question talking about the cost of production, brand support and OpEx first half versus second half. As we had said, in the first half, we did experience the unfavorable impact of raw material, unfavorable absorption and depreciation. That was offset by variances and lower cost in some cases, coming into the year, as you had noticed in the first quarter, we had the favorability, and some of that continued in the second quarter. For cost of production for the balance of the year, as we had mentioned during the presentation, we still expect a negative impact of raw material, unfavorable absorption and depreciation, with less of the favorable impact. So while in the first half, we had seen the cost of production being favorable 1 point, we don't expect that favorability on an offset to material cost depreciation and absorption to exist in the second half. So, therefore, the second half cost of production will be unfavorable compared to what we realized in the first half. Brand support, we would see probably the similar type trends of investments in the second half and -- to the first half, and similar with operating expenses. As we had come into the year, we had guided higher material cost, impact of unfavorable absorption and depreciation as well as higher OpEx. As we continue to invest in the structure within the organization, e-commerce is an example as well as the ability to gain further distribution as Gonzalve mentioned earlier in the presentation. So OpEx and brand support trends will continue as we'd seen in the first half. Second -- can you just repeat your second question. I just wanted to make sure I've gotten the full question?

[Charles-Louis Scotti]

Well, I'm just a little bit surprised by your plan. So...

[James DiPietro, CFO & Executive VP]

I think -- and I think it's very consistent to what we've said coming into the year. Again, coming into the year, we said we were going to be between 17% and 18% of margin. Again driven because of the unfavorable impact of raw material, unfavorable impact of absorption, unfavorable impact of depreciation, brand support and the continued investment on OpEx. And as I just mentioned and we just went through in the presentation, we've experienced all of that in the first half. First half we did benefit from some of the manufacturing cost variances coming into this year from last as well as some other one-time variances versus 1 year ago. That favorability won't exist in the second half. So that's why the second half margin will be lower than the first, but in total still very much consistent with what we've guided, the impacts would be coming into 2018.

[Gonzalve Bich, CEO & Director]

The answer to your question on the 1st of April this year, we put through around 4% price increase on the U.S. market in Lighters. It differs by channels so that's an average.

[James DiPietro, CFO & Executive VP]

And CapEx was the last question. As you said, we have invested EUR 51 million in the first half. We said coming into the year, and we confirm the full year is EUR 150 million, which puts us roughly EUR 100 million for the balance of the year compared to the second half of last year that was around EUR 110 million, EUR 111 million. So again, we're down from EUR 185 million last year to EUR 150 million this year, which was again the view coming into the year so we still are committed and still feel comfortable with full year outlook of EUR 150 million of CapEx investments.

[Operator]

The next question comes from Nicolas Langlet from Exane.

[Nicolas Langlet, Research Analyst]

I've got 4 quick questions, please. The first one on the cost of production. Can you tell us what was specifically the impact of the favorable production variance in H1? Second question on Brazil. Can you tell us what was the like for like [indiscernible] in Q2? And are you able to quantify the impact of the strike upon your like for like for this quarter? And then you mentioned in press release for some quarters, the inventory adjustment that we [indiscernible]? Do you think now the inventory levels are normalized and this process is close to an end? And the third question is on Lighters. So quite a lot of nonrecurring elements in Q2. If you strip out the pre-buys in the U.S., the change in the hotel market in Europe and the strike in Brazil, what would have been the underlying trend for Lighters? And on this change of [indiscernible] market in Europe, was it only a one-time impact? Or should we expect further impact into the coming quarters? And the last question is more a medium-term view. So we saw deterioration in the like for like in past years from the 6% to low single digit today. Do you think this low-single digit is now the new norm for the company? Or do you see evidences that you could return to mid-single digits in the coming years? And when do you expect that, if that's the case?

[James DiPietro, CFO & Executive VP]

Nicolas, this is Jim. Let me address the first question of cost of production in the first half and favorability that we experienced. If you remember in the first quarter, we also experienced quite favorability. Obviously, some of that was deferred variances, again, some of the variances coming in from the end of last year. That was favorable on the production cost. And, obviously, that ends up impacting the P&L when that inventory gets sold so there was a favorable impact of variances coming in, lower cost, if you will, on the production coming in on product that was made last year, but sold this year. So that was one. Two, we had some favorability this year, some lower spending in certain cases in second quarter versus a year ago. Also in some of the manufacturing locations in Latin America, there was also some favorability on currency versus a year ago. Those roughly are the 3 bigger drivers of what we experienced in the first quarter, second quarter, totaling favorability for the first half. And as I mentioned, and I'll repeat just so it's clear, for the second half we don't expect that favorability. So what we do expect is still the continued impact of higher material cost on absorption on the manufacturing side as well as higher depreciation cost.

[Nicolas Langlet, Research Analyst]

Okay, but if we try to look at the magnitude of the headwind and this favorable production variance, why is the favorable production variance at 300 basis points and the headwinds of minus 200 for the H1? Do you think it's a fair assumption?

[James DiPietro, CFO & Executive VP]

I think that is a very fair assumption. For the first half and then for the second half, you can almost assume that the cost of production side would be negative 100 or slightly more than 100 basis points.

[Gonzalve Bich, CEO & Director]

Nicolas, this is Gonzalve. The negative impact of the 10-day transportation strike in Brazil was estimated on an impact basis to be between EUR 6 million and EUR 7 million affecting all 3 categories. It's been offset in part by distribution expansion and market share gains in Shaver. On a full year basis, we expect to partially recover losses from the strike, subject to macroeconomic uncertainties in Brazil. As to your question about inventory levels, we talked about this at the end of last year, we talked about it earlier in this year. It's work that we do on an ongoing basis with all of our customers in Brazil. And Brazil is a fairly sophisticated and complicated market, not only through its size but also through its trade structure. So we've been working through -- with partners all year as expected and announced. The one thing that wasn't announced was the 10-day strike. And as you can imagine, the retailers also had to reevaluate some of their inventory assumptions and will continue to do so working with us on a full year basis. The Brazilian situation remains challenging, and I think that's both from a macro and a micro perspective. But what's important is: one, the products continue to gain share; have solid consumer appeal; and we're launching innovative new products, like I told you, in Shaver, where we're gaining share. So those are the 3 things that I think are really important when we think about Brazil. European route to market. We made a change in line with our existing strategy all over the world, which is to work with the best partners for win-win situations. We're adjusting. I don't think that you can look at it from a one-time effect, but on an ongoing basis, I'm hoping that it -- as I mentioned in my introduction, it should help us improve our visibility, improve our availability in the market, so that we can continue to grow share on the key French market. Thinking past 2018, you know that we'll comment next year once we finish this year, and the teams are focused on achieving our full year outlook. But when I think about 2019, I think about a number of things. The first one is the consumer. And one of the things that we've always had at the heart of BIC but that I'm reemphasizing is to put the consumer at the heart of everything that we do, whether that's the sales plans, the marketing plans, our community outreach efforts, whatever it is, the consumers is the one who makes the choice to buy our products every day. Second, of course, is the brand. Brand support continues to be a key part of our strategy. We need to have effective support to our consumers, but also our clients and if the consumption patterns around the world change, sometimes that diverges, sometimes it re-converges with e-commerce. And so digital media expertise for one is something that we're heavily focused on. Of course, distribution, e-commerce, finding innovative ways to reach consumers around the world in whichever way they wish to -- and choose to do so. We want to make sure that they're buying BIC products, so it's BIC seen, BIC sold, in store, on screen or other. And finally, innovation. Both from a product perspective with products like the ones that we've talked to you about in Stationery and Shaver, but other types of innovation be they commercial or operational to find efficiencies or to do new things and allow us to continue to grow the business.

[Nicolas Langlet, Research Analyst]

Okay. And do you think all those initiatives, all those precursors will permit you to return to normative growth rate in medium term, and not only looking at 2019, I mean, in the next 3 to 4 years?

[Gonzalve Bich, CEO & Director]

Like I said, those are the things that we're focused on, and we'll tell you about 2019 in our outlook for 2019 when we close 2018, as has always been our past practice.

[Operator]

The next question comes from Hermine de Bentzmann from Raymond James.

[Hermine de Bentzmann, Research Analyst]

Lots of questions have been asked already, but looking at H2, you've described it quite precisely where you expect areas of improvement. And I was wondering if you already see those improvements in all divisions since July, particularly in the U.S.A. I have a question specifically there. As you mentioned anticipated shipments for the back-to-school, and I was wondering if you already expect preorders in Q3? My second question is on Cello. Can you be a bit more precise on the streamlining you're currently doing, the timing of it? And you seemed pretty optimistic about Cello in H2, and I was wondering what was the driver behind that? I had a question as well on Shavers. Your strategies. How do you expect to gain market -- gain in this market? I understand you have several innovations that -- in a market that you are getting more competitive on the one-piece segment. I was wondering if you have a -- any particular plan to regain market share? And could it be possible as soon as H2?

[Gonzalve Bich, CEO & Director]

So we don't comment July specifically. But the reorder in the U.S. I would say -- first, I think maybe just from a general perspective reordering in the U.S. is different than from the French [indiscernible] that we have here. It's not as strong because we shipped in different formats. But the order patterns that we have and have commented on lead us to our full year outlook and give us confidence that we're going to reach our plans. Cello, I'm sorry, did you have a follow-on question?

[Hermine de Bentzmann, Research Analyst]

No, no, but on other divisions as well, do you already see an improvement as of Q3? Because you ...

[Gonzalve Bich, CEO & Director]

My answer would be fairly similar, which is I can't comment July anymore in the other 2 categories than I can in the first. In India, we have been on an optimization path for a while. I've talked to you about it since I've been doing these calls. It was first rationalizing the products, the portfolio of the products, the way in which we operate and we streamline the factories. All that -- all this leads to an ability to operate more effectively, but also to work more effectively with our partners. So if you remember, I talked at the end of last year about the Cello seen, Cello sold initiative, where we're campaigning across India to rebrand stationery stores red, the fellow color. And we've seen really good momentum at the end of last year, the first half of this year. And I think the teams have got what it takes to pull ahead in H2, and meet the goals that we've set for ourselves. In Shaver, how do you gain share? Well, by working effectively with partners and from an H2 perspective, in addition to the new product launches that I talked about in my introduction, it also has to do with just promotion and visibility and display support with key retailers in the U.S. And that's what the teams are focused on in H2.

[Hermine de Bentzmann, Research Analyst]

Okay. Can I ask you a follow-up on the -- on Stationery, again, on the delayed shipment you had in Q2 versus Q3? Are you able to approximately quantify what could be the impact?

[Gonzalve Bich, CEO & Director]

No, because there's a lot of puts and takes. And I wouldn't want to give you a misleading number.

[Hermine de Bentzmann, Research Analyst]

Okay. And lastly on the tax rate guidance for the year?

[James DiPietro, CFO & Executive VP]

The tax rate for the full year. If you look at it with the impact of Cello impairment, it would be around 35%. If you exclude that Cello impairment, we're at the estimated 28% that we had talked about coming into the year. So 28% without the impact of Cello impairment, with the impairment it's closer to 35%.

[Operator]

The next question comes from Christophe Chaput from ODDO.

[Christophe Chaput, Analyst]

Two questions for me. First, I would like to come back on Stationery. So you had a positive back-to-school phasing in North America. Could you just help us quantify this positive impact on top line? I mean, excluding this positive effect, would you have gained market share? Or will it have been flat? And the second one is, could you give us the impact of BIC SHAVE CLUB on your P&L in H1 2018 if there is one?

[Gonzalve Bich, CEO & Director]

So we'll get to that first part in a second, but from the BIC SHAVE CLUB, we only communicate specific numbers at the full year. We did that in February and we'll do it again at the end of the year. But the program continues, and we launched new shave products in June increasing the basket of what's available from BIC SHAVE CLUB, and another way to connect with consumers. I think one of the things that's really important with BIC SHAVE CLUB, because it's only in France and the U.K. and I'll remind you we are present in 160 countries in the world. What's important in BIC SHAVE CLUB is the capability build. It's our ability to do a number of things that 18 months ago we just didn't know how to do. And that's replicatable and so that makes us a faster and more agile organization over time to seize opportunities. And when we think about Design My BIC and how we're rolling that out in the U.S. where you can order fully personalized lighters that we'll ship to you at your home. Those are capabilities again that we have to build. And as we become an omnichannel organization through and through, that's where BIC SHAVE CLUB is really interesting. So I'm really excited to be able to give you more results when we get to the full year.

[James DiPietro, CFO & Executive VP]

On your first question regarding the back-to-school shipments in North America, it's important to note that the phasing of back-to-school as we've seen over the years and even this year can vary between the months of June, July, et cetera. So in the U.S., some of the shipments that we've seen in the second quarter, it's again still in so it's important to note that the sellout and the importance of the market share gains related to back-to-school will be known much later. So we don't have that visibility of the back-to-school gains yet, because that's still underway and that will be something we can talk more about at the end of the third quarter when we have the third quarter release.

[Christophe Chaput, Analyst]

Okay. I mean, this is a [indiscernible] in North America is taking some measure that sounds very specific to BIC? I mean, it doesn't really reflect the market trends, which are [indiscernible] 9%. So my guess is to, let's say, try to understand if we're at the end of month of September, if you are, let's say, slightly below -- slightly ahead of the market in U.S., or close to the market? You know what I mean?

[James DiPietro, CFO & Executive VP]

Yes, I think, to your point as Gonzalve mentioned during his discussion in the presentation. I think the U.S. Stationery -- BIC U.S. Stationery is better than the market. What we're seeing here is back-to-school selling, and if we are understanding your question correctly, the back-to-school selling which occurred in the second quarter, the market share impact of that won't be realized until the sellout and then we'll be able to see that as we come through the months of August and September and be able to communicate that to you in October.

[Christophe Chaput, Analyst]

Okay, understood. Just a follow-up on BIC SHAVE CLUB. I fully understand that you cannot communicate any figures, but regarding the feedback of the consumer, do you see a huge, let's say, variance between France and U.K consumers?

[Gonzalve Bich, CEO & Director]

I think -- we choose to make the feedback public. So you can go and read the feedback of consumers yourself and please do. But the feedback of consumers in both countries is positive. In the U.K., it's even more positive than in France.

[Operator]

The next questions come from Andrea Abouchacra from One Investments.

[Andrea Abouchacra]

Concerning the Lighter business, in particular, looking at the destocking effect in U.S. and Brazil that you're going to annualize, what evidence do we have of phase returning to growth? Then I have other 2 questions.

[Gonzalve Bich, CEO & Director]

Do you repeat the end after the destocking?

[Andrea Abouchacra]

Yes, I mean, you are going to annualize this impact of the destocking? What is the evidence do you have of phase returning to growth going forward?

[Gonzalve Bich, CEO & Director]

So if I understand your question correctly, I think, the first thing I would point to you is market share gain. And as I said, we're gaining share in a slightly -- very slightly declining market in the U.S. In Brazil, it's really you're working with trade partners to make sure that they have the appropriate level of inventory, given a lot of other things. So it's an ongoing effort. And we're giving you the best visibility that we have on our future outlook in those 2 key markets.

[Andrea Abouchacra]

Okay. Then on Shavers where new launches in North America have not stabilized and [ save on ] market share. What is your strategy in order to stabilize the business there? And regarding Western Europe, where the market is now declining, are there any signs that issues from U.S. are arriving in Europe? And what are your stats there to mitigate the impact of this decline?

[Gonzalve Bich, CEO & Director]

So in the U.S. in Shaver, as I said, there's those new product launches in H2. From a more macro perspective, it's all about making sure that we are continuing to make the highest-quality products in an affordable price for consumers, whatever they're -- the level of performance that they may see. So some people might want the best 5-blade female products, and today, we put out BIC Soleil Balance. And as I said that product is doing particularly well and continues to complement our female portfolio in the U.S. From a male perspective, it's all about distribution and promotion. And we continue to fight back to gain share over time. Europe, as I think I mentioned in an earlier call, has always been one the most challenging markets, and we don't see the level of disruption coming to Europe that already had very low prices historically. The same way that we have seen value disruption brought on by the competitive set in the U.S. market.

[Andrea Abouchacra]

Okay. And just last one on brand support, which improved margin by 30 bps in the -- 30 basis points in the quarter. Can you break down this magnitude -- the magnitude that brand support increasing Lighters versus decrease elsewhere?

[James DiPietro, CFO & Executive VP]

You're referring to the second quarter?

[Andrea Abouchacra]

Yes.

[James DiPietro, CFO & Executive VP]

In the second quarter, what we've have seen is a mix between some of the categories. We had timing which was planned, so for example, in Shaver, less the brand support in the second quarter, we see more of that in the second half of the year, third quarter and the balance of the year. And Lighters was a category where we had seen some more investments in the second quarter. So while the total was a little bit lower spending versus a year ago, there was a mix between categories, but we see, in total, an increase going into the second half of the year.

[Operator]

We have no further questions for the moment. [Operator Instructions] We have new questions from Nicolas Langlet from Exane.

[Nicolas Langlet, Research Analyst]

Just one question. So in the presentation at the beginning, you mentioned a change in the way you want to lobby in Europe to enforce the regulation in Lighters. Can you tell us a bit more about that? And what can you do differently that is what you did in past years?

[Gonzalve Bich, CEO & Director]

I will be thrilled to, Nicholas, thank you. I think as we've talked about for -- not quarters, but years now, Europe has lagged its peer group in its ability not to pass regulation but to enforce it. And today, over and -- as it has been forever since we've been doing the research and actually Europe themselves have been doing the research, over 2/3 of the Lighter models that you can find all across the European parameter do not meet the different safety regulations enforced. And that means that under the responsibility of those regulatory authorities is the safety of consumers across Europe. We continue to actively sell BIC Lighters and grow distribution and grow market share, as I told you about. And I'm especially happy and proud of the work that's been done all across Europe, specifically in Eastern Europe as well. We have -- we've grown tired of those discussions with certain regulatory authorities. And maybe we haven't been quite as vociferous as we could have been with them in past years about the risks that they are taking. So what I have asked the teams to do is spend more time and be more forceful in their arguments and explanations on why consumer safety is so important. And this is something that I personally will spend some time on.

[Operator]

We have new questions from Charles-Louis Scotti.

[Charles-Louis Scotti]

Two more questions, please. Can you remind us your exposure to the brick-and-mortar retailers at the group level? And is it fair to say that your market share offline is much higher than online? And what about the profitability, again, between offline and online? And the second question on the U.S. Lighters market. What's your view on the U.S. market going forward? Do you see a deterioration of the market due to the pickup in e-cigarettes such as JUUL, which is quite successful? And how much you think you can still further increased prices in the U.S.? Do you think you have reached maximum price for you lighters?

[Gonzalve Bich, CEO & Director]

Okay. So brick-and-mortar share of our global business, yes, we don't disclose that, but we've been building with brick-and-mortar retailers for well north of 40 years. So it's an important part of our business. And it's an important part of our future growth strategy. I think it's really important to highlight that it's not -- we're not signaling a shift to e-commerce. We're saying that we continue to want to make sure that our excellence of distribution and visibility be as good online as it is offline. Giving you splits of on and offline would -- if we were going to disclose them, would take forever because it be a by market by category effort. But I think that the numbers that I talked about in my introduction in growth both in Europe and the U.S. should speak for themselves and it's something that we'll continue to invest on both from a people and capability perspective and also just from a marketing perspective. The U.S. lighter market is, like I said, very, very slightly declining and we gained share. You mentioned JUUL. JUUL has -- I don't comment on their performance, but I would point you to some recent litigation that they are facing and that's something that we're all watching. Price increases, our policy on price stays the same, which is we want to make sure that our products are offered at a fair price to consumers all over the world. That having been said, we take price when possible and with the cooperation of our trade partners as we did earlier this year in the U.S.

[Operator]

We have new questions from Hermine de Bentzmann.

[Hermine de Bentzmann, Research Analyst]

Just can you please tell us maybe -- can you help us to estimate the financial results by the end of this year? Q2 was particularly good and strong. Can we -- what can we see for H2?

[James DiPietro, CFO & Executive VP]

You said financial results for the second half?

[Hermine de Bentzmann, Research Analyst]

Yes.

[James DiPietro, CFO & Executive VP]

Yes. I think as we've talked about earlier, the cost of production, obviously, will have less of a favorable offset. So we expect the unfavorable impact of material absorption and depreciation to be with us for the balance of this year. We see the continued investments in brand support as well as operating expenses to be similar in the second half versus the first half. So right now, we're still within the guidance that we said between 17% and 18%. The second half, obviously, without having some of the favorability of cost of production benefits that we had experienced in the first half, would be less favorable in the second half. So, therefore, margins would be lower in the second half versus the first half. In total, we still are, obviously, comfortable with the guidance between 17% and 18%.

[Hermine de Bentzmann, Research Analyst]

But I was just asking a question on the financial cost? You had EUR 5.8 million in H1 and I was wondering what should we expect for H2?

[James DiPietro, CFO & Executive VP]

Yes, well, the finance costs as we mentioned in the second quarter, which is quite favorable, was obviously revaluation of U.S. denominated assets. So a lot of that's going to depend on currency rates that -- at the spot rate of both third quarter and end of year. So that quite honestly will be difficult to forecast today without knowing what the spot rates are.

[Operator]

I have no further questions for the moment.

[Sophie Palliez-Capian]

Okay. If no further questions, we may end the call. We would like to thank you for the time and interest. A short reminder. Our third quarter results will be released on the 24th of October, and in the meantime, as usual, we'll remain at your disposal for any additional questions. And maybe we can wish you a good summer. Thank you very much.

[Gonzalve Bich, CEO & Director]

Thank you.

[James DiPietro, CFO & Executive VP]

Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you, all, for your participation. You may now disconnect.