Weng Fine Art : ArtXX, despite decline in sales, with high profitability in 2022 in more challenging market environment - sales expected to increase in 2nd half of 2023

• Significant decline in sales caused exclusively by supply chain issues
• After-tax return on sales still very high at 22 %
• Equity ratio increased again to 72 %
• Dividend for 2022 at least 0.25 EUR/share
• Numerous new products in the pipeline
• Token trading platform launched
• Increasing revenues expected in the 2nd half of 2023

The 2022 financial year of ArtXX AG (ArtXX), the Swiss e-commerce subsidiary of Weng Fine Art AG, was marked by Russia's invasion of Ukraine and its consequences - in addition to the human tragedies - on economies and markets worldwide. In particular, inflation rose sharply. This in turn forced central banks around the globe to raise interest rates.

The biggest challenge for the company last year was that disrupted supply chains led to enormous delays in the delivery of art editions. As a result, it was impossible to realize any new major projects in 2022, which is why the Company had to create its sales mainly from the inventory of previous years as well as from consignments.

In the spring of 2022, after it had become clear that the warlike events in Ukraine would continue for years, the management of ArtXX decided for a temporary defensive corporate strategy.

Against this background, ArtXX AG's sales fell by 32% to EUR 5,075,000 in fiscal year 2022. While sales of goods from old inventory increased by more than 12 % and commission sales by 17%, sales from new projects declined very strongly due to supply chain issues.

Continued strong buyer demand led to yet another increase in the profit margins of the company's own merchandise, from 110% to an astonishing 130% (in 2019, it was only 64% in this category). Even including low-margin consignment merchandise, the trading margin across all products increased to 94%.

Operating costs increased by 11% from EUR 896,000 to EUR 999,000. This was partly due to the Swiss Franc's exchange rate, which rose by around 7% against the Euro over the course of the year. Within the cost categories, personnel expenses in particular increased significantly (from EUR 290,000 to EUR 447,000), as there are now seven (+ one freelancer) instead of four employees working for the Company. The expansion of the workforce was necessary in order to place the business on a broader footing and, among other things, to be able to establish a second product line (art for investors). Because Weng Contemporary's previous website has also been rebuilt and expanded, IT costs have increased by 71% to EUR 96,000.

Due to the restrained purchasing, strong margins, high operating cash flow and the still low interest rates, the Company generated net interest income (EUR 24,000) for the first time in its history. In contrast, the income statement shows a net currency expense of EUR 149,000, which was more than offset by the increased margins as a result of the strong USD (see above). Here, the Company had undertaken hedging in the form of USD liabilities.

Despite the 32% decline in sales and increased costs, the Company managed to operate highly profitably in 2022 as well, generating an after-tax profit of EUR 1,104,000 (2021: EUR 2,269,000). As a result, the return on sales (after tax) in fiscal year 2022 is a very strong 21.8%. The highly positive cash flow from operating activities of EUR 1,139,000 is also encouraging.

The company maintained surplus liquidity throughout the year. As a result, other assets include loans granted and cash on hand totaling more than EUR 2 million.

On the liabilities side, despite the distribution to shareholders of CHF 1,085,000 (EUR 1,090,000), equity has now increased to EUR 7,805,000. This corresponds to an equity ratio of a very comfortable 72.1% (previous year: 67.6%).

At the Company's Annual General Meeting, which is expected to take place in June 2023, the management of ArtXX plans to propose a dividend of at least EUR 0.25 per B-share from the retained earnings of EUR 2,860,000. This would result in a dividend sum of EUR 775,000. The dividend will be able to be distributed in Euros for the first time this year, following the changes in Swiss stock corporation law that has been in effect since the beginning of 2023.

The management of ArtXX assumes that the art market will weaken in fiscal year 2023, as in many countries the high inflation rates and interest rates as well as the generally weaker economic data are only now having an impact. However, it suspects that markets may bottom out during H2 2023, followed by a turnaround in 2024.

Against this background, management has ended the temporary defensive approach of the company's strategy. ArtXX is now preparing for the growth expected in the coming years and is investing in new products, in its IT infrastructure, in new employees and also in the lease of new office and warehouse space.

A very positive factor for the company's business is that the supply chain problems have virtually disappeared in recent months. A large number of attractive projects have been initiated as a result of new business deals, so that new editions can be offered successively from May/June and increasingly in the second half of the year. As a result, ArtXX sales are expected to exceed those of the prior-year period again as early as the 2nd half of 2023.

The "Weng Art Invest" platform is currently being tested as part of a soft launch. It is to be presented and made available to the public in June. On this trading platform, physical art editions are traded in token form. The management of ArtXX expects to be able to use this platform in coming years to tap into new groups of buyers who would also like to acquire art as a capital investment.

The company's management has also decided to embark on new initiatives, to make the business model more hybrid and to also offer its art in physical form as part of exhibitions and other events.

The Annual General Meeting of ArtXX is expected to take place in Zug at the end of June.