Fnac Darty : Strong sales growth in the first half

Ivry, July 25, 2019

Strong sales growth in the first half

Acceleration of the Group's transformation and strengthening

of its multi-specialist profile

• Revenue at €3,284.6 million up +2.6% on a like-for-like basis1, driven by all geographies and rapid digital growth
• Good cost control thanks to the excellent execution of performance plans
• Current operating income of €42.2 million, with a solid gross margin rate of 30.4% despite the technical impact of perimeter effects and product mix
• Strengthening of the financial structure thanks to the success of the bond refinancing
• Current net income2 is at breakeven, excluding exceptional items linked in particular to financing transactions
• Transformation of the Group and strengthening of the multi-specialist profile with the acquisition of Nature & Découvertes, which is being finalized
• Strategic partnership project with CTS Eventim, the European leader in ticketing, allowing Fnac Darty to reassert its leadership in ticketing after the acquisition of BilletReduc.com

Enrique Martinez, Chief Executive Officer of Fnac Darty, declared: "Once again, this semester shows the Group's commercial agility, with good growth in sales, driven by all geographies as well as digital. In a rapidly changing market, the Group is also accelerating its transformation through structuring projects. The strategic partnership project announced with CTS Eventim, the European leader in ticketing, echoes the acquisition of BilletReduc.com in the first half-year,and demonstrates our commitment to be an active leader in this market. Thanks to the efforts rolled out in the last six months, the Group is perfectly positioned to meet the challenges of the second half, the most important of the year."

KEY FIGURES

(€ millions)	H1 2019		H1 2018		Change
Revenues	3,284.6	3,199.5	+2.7%
Change on a like-for-like basis1				+2.6%
Current operating income	42.2		45.6		-€3.4M
Current net income2, Group share	0.1	10.9		-€10.8M

1. Like-for-likedata excludes effect of changes in foreign exchange rates, variations in perimeter, store openings and closings
2. Net Income, Group share, excluding non-recurring items, exceptional costs related to the refinancing bond or bank debt, and non-current tax impacts

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HIGHLIGHTS OF THE FIRST HALF OF THE YEAR

Strong sales growth driven by all geographies

Fnac Darty reported revenue of €3,284.6 million, up +2.6% on a like-for-like basis compared with the first half of 2018. This performance is based on the continued development of the Group's omni-channel platform, in a context marked by a 1st quarter still impacted by the "Yellow Vests" movement, in France, which eased during the first half.

Gross margin for the half-year reached €997.0 million, slightly up compared to the first half of 2018. The gross margin rate remains at a high level of 30.4%, despite strong negative impacts due to perimeter effects especially with the franchise development and the partnership with Wehkamp. The small domestic appliances and television segments had a negative impact on the gross margin rate in the half year.

Continued tight control of costs has enabled the Group to post a significant drop of costs as a percentage of sales, down by 60 basis points, despite a highly negative perimeter effect of more than €10 million during the semester, following the integration of WeFix and Wehkamp.

Current operating income stood at €42.2 million, versus €45.6 million the previous year.

Current Net income, Group share totaled €0.1 million in the first half, excluding non-recurring items (€21.5 million) and costs associated with the bond refinancing in May (€27.0 million).

Free cash flow from operations, excluding IFRS 16, totaled -€379.4 million at the end of June 2019, mainly reflecting the seasonal nature of the business.

Analysis of the impact of the transition to IFRS 16

The method used for the application of IFRS 16 is the modified retrospective method. It consists in reintegrating rent commitments into debt, and recognizing in return an asset, called the right of use. As a result, for lease contracts within the scope of IFRS 16, rental expenses are no longer recognized in the income statement, replaced by depreciation and financial charges. The payment of rents is divided between the repayment of the capital of the debt and financial charges. The main impacts of the standard therefore relate to EBITDA, the Group's debt position and the accounting financial expenses associated with this debt.

EBITDA stood at €207.3 million, up by €112.8 million compared to the first half of 2018, of which €116.2 million was linked to the application of IFRS 16. Excluding IFRS 16, EBITDA totaled €91.1 million, compared to €94.5 million the previous year.

At the end of June, the net debt position was €1,387.8 million, compared to €452.1 million excluding IFRS 16.

Finally, the application of IFRS 16 adversely impacts financial costs, in the income statement, for €11.8 million.

Strengthening of the Fnac Darty platform and acceleration of the transformation

In the context of the rollout of Confiance+ plan, the Group continued to open its platform and enhance its ecosystem, through both partnerships and acquisitions. These initiatives demonstrate the momentum of the Fnac Darty transformation and strengthen the Group's multi-specialist profile.

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During the half-year, the Group signed an exclusive distribution agreement with Xiaomi for the distribution of its latest smartphone and electric scooter. A first 50-sqm corner dedicated to Xiaomi products was also opened, in a Fnac store.

The partnership with Google continued to bear fruit in the first half, thanks to a stronger offer for connected devices.

The integration of WeFix, a French leader in express smartphone repair, is progressing according to plan, with the aim of doubling the number of repair points. The Group recorded 22 new openings in the half year, which brings the total number of points of sale to 79.

Through its subsidiary France Billet, the Group also completed in the first quarter the acquisition of BilletReduc.com, a specialist in culture and entertainment ticket sales. This acquisition enables the Group to present a wider and more diversified ticket sales offering, by integrating the last-minute market. To continue the development momentum of France Billet, Fnac Darty recently announced the signing of a strategic partnership project with CTS Eventim, the European leader in the ticketing sector. France Billet will be able to count on the technological innovations of CTS Eventim, accelerating the development of its digital platform and allowing it to offer more in terms of value to its customers and partners. CTS Eventim will accordingly include in its offer the distribution of show tickets in France, a leading market in Europe.

The intended strategic partnership would be reinforced with the acquisition by France Billet of a 100% equity stake in the capital of CTS Eventim France. CTS Eventim will acquire a 48% minority stake in France Billet, which will remain under Fnac Darty's control. At the end of a 4-year period, CTS Eventim may increase its shares to a majority stake.

Fnac Darty plans to retain a long-term interest in France Billet, a strategic asset for the Group. France Billet would thus be able to count on the support of Fnac Darty, the European leader in omnichannel retail, and on the expertise of the leading European player in ticketing, representing more than €1 billion in revenue and more than 250 million tickets sold in 2018. This alliance would allow Fnac Darty to strengthen its role as a distributor of show tickets both online and in-store.

This project will first be presented to the employee representative bodies with the aim of finalizing the operation by the end of 2019.

At the same time, Fnac Darty continues its exclusive discussions to acquire Nature & Découvertes, a leader in the omnichannel distribution of natural and well-being products, which should be finalized in the coming weeks. This acquisition will enable the Group to diversify its product offering and strengthen its positioning in responsible consumption, a theme that is becoming increasingly important to consumers. Many areas of cooperation between Fnac Darty and Nature & Découvertes will thus be deployed, in order to enhance the power of the Nature & Découvertes brand, particularly through dedicated corners within Fnac stores in France and abroad. The first "shop-in-shops" could open in France in 2019, and the expansion of the banner internationally could be rolled out rapidly, especially in the Iberian Peninsula.

Strengthening the Group's omnichannel platform

The Group is accelerating the transformation of its digital platforms with the deployment of its Digital Factory project, which aims to increase the agility of IT and business line teams, in order to accelerate production launch times that will facilitate continuous improvement in the customer experience.

E-commerce accounted for more than 19% of the Group's revenue in the first half, compared to 18% the previous year. The Group recorded double-digit growth in online sales during the half year, driven by the strong momentum of all geographies. The Group is also accelerating on mobile devices, which account for 62% of the

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traffic on its sites, strongly up this half year. Marketplaces also continued their development with double-digit growth. Omnichannel sales accounted for 49% of online sales, up 2 points compared to the first half of 2018.

The Group continued to strengthen its delivery offering during the first half and generalized its click&collect offer for books, CDs and DVDs, thus offering its customers the option of picking up their purchases within one hour. The entire Fnac network of integrated stores in France has rolled out this new service.

The digitalization of stores continued in the first half with nearly 290 digitalized stores at the end of June 2019. This helps to improve the customer experience thanks to sale support on tablets and the simplified acceptance of payment.

The territorial network has been further expanded with the opening of 32 stores this half-year, 25 of which are franchise stores. The Group opened seven integrated stores, including 5 Fnac and 2 Darty. Fnac opened 15 stores in the first half, including 12 in France, 1 in Portugal, 1 in Luxembourg and 1 in Belgium. Darty opened 17 stores in France. At the end of June 2019, Fnac Darty had a total of 804 stores, including 284 franchises. The expansion momentum will continue in the second half of the year, mainly through the opening of franchise stores. The Group should open close to 60 stores in 2019.

Continued diversification of the offer and support for customers towards an "educated choice"

Diversification categories, mainly Urban Mobility, Games/Toys and Home & Design, posted very strong growth over the first half, with double-digit performance.

The development of the kitchen offering continued with the opening of around ten points of sale during the half year, including 4 stores dedicated exclusively to this offering. At the end of June 2019, the Group had more than 140 kitchen points of sale.

Services continued to grow in the first half of the year, driven by WeFix and advertising businesses.

At the same time, the normalization of telephony/multimedia insurance commissions, and the gradual ramp-up of new offers, had a negative but limited impact on revenue and gross margin growth from the second quarter onwards. These effects are expected to continue during the rest of the year.

Finally, Fnac Darty continues its initiatives to help customers make "educated choices", by launching the second "after-sales service barometer," which will be renewed every year in order to better inform the public about the lifespan of household appliances and multimedia equipment. The Group also strengthened its commitment to promote products' sustainability, by creating the "Durable Choice by Darty" and extending the scope of the repairability index to smartphones.

Lastly, the Group asserted its environmental strategy, by setting a quantified objective of reducing its CO2 consumption in France by 50% by 2030, compared to the 2017 level.

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HALF-YEAR OPERATING PERFORMANCE AND RESULTS

Analysis of second-quarter revenue

Group sales for the second quarter of 2019 totaled €1,569.6 million, up 3.7% in reported basis, and 3.6% on a like-for-like basis compared with 2018.

In France-Switzerland, revenue was up 2.1% on a like-for-like basis. Sales were boosted by a more buoyant consumer environment this quarter.

The region recorded good growth in household appliances sales, driven by the momentum of sales of air- conditioners and fans, a result of the heat wave in June. However, the small domestic appliances segment was highly competitive.

Consumer electronics were impacted by lackluster television sales, which were affected by the unfavorable base effect due to the 2018 Soccer World Cup. The sound, IT and telephony categories, on the other hand, showed good momentum. Editorial products posted a clear improvement in their performance in the second quarter, after a first quarter impacted by the end of the "Yellow Vests" movement. At the same time, in the services sector, the normalization of telephony/multimedia insurance commissions, and the gradual ramp-up of new offers, had a negative but limited impact on revenue growth from the second quarter onwards. These effects are expected to continue during the rest of the year.

In the Iberian Peninsula, revenue was up +1.7% on a like-for-like basis. Spain showed strong resilience in a context of sluggish consumption and fierce competition. This robust performance can be explained by the quality of commercial execution, and the "premiumization" of the offer, as well as the strengthening of the digital platform's performance.

Portugal continued its steady growth driven by the good performance of e-commerce and the momentum of sales in telephony and books.

In Benelux, sales increased by +14.6% on a like-for-like basis. Belgium posted growth during the quarter, thanks to the performance of household appliances, and despite greater competition from brick & mortar players. Business in the Netherlands was sharply up during the quarter, driven in particular by the success of the partnership with Wehkamp and the continued performance of e-commerce.

Analysis of first-half revenues and results by segment

First-half revenue was €3,284.6 million, up 2.6% on a like-for-like basis compared with 2018.

The first signs of a recovery in consumption in France in the second quarter enabled the France-Switzerland region to reach revenue of €2,524.3 million, up 1.6% on a like-for-like basis. The region's performance is based on the good momentum of large domestic appliances, IT, telephony and books. The television segment was down due to the unfavorable base effect linked to the 2018 Soccer World Cup.

During the half year, the Group continued to keep its commercial investments and costs under control. Current operating income was down €40.3 million, compared to €46.5 million in the first half of 2018, due to a gross margin rate impacted by the perimeter effect and the product mix.

Sales in the Iberian Peninsula were up in the half year, at +0.5% on a reported basis thanks to a strong sales momentum in the second quarter, after a lackluster first quarter. The digital platforms continued to record solid growth. In Spain, commercial execution remained under good control while competition from brick & mortar players remained fierce. Portugal posted solid performance driven by expansion and services. Operational

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