Heckler & Koch : 2018 Q3 Report

SECURITY REF. ISIN: DE000A11Q133 SECURITY REF. ISIN: XS1649057640

H&K AG

QUARTERLY REPORT

Results for the

Nine Month Period to September 30, 2018

ABOUT HK

We are a leading defence contractor in the small arms sector of the European NATO defence industry. We supply the armed forces of NATO and its allies, many law enforcement agencies and we are the sole supplier of the standard assault rifle to the majority of European NATO members including Germany, Britain and France. We design, produce and distribute small arms, including rifles, side arms, fully automatic weapons and grenade launchers, and a variety of other related products. We have been in operation for more than 65 years and have a strong history of design innovation. We have a strong management team and a highly skilled work force. Our brand name, Heckler & Koch, is well respected and our products are widely considered to be of the highest quality.

For more information, please visit our web site:

www.heckler-koch.com

Analysts, investors, media and others seeking financial and general information, please contact:

Investor Relations

E-mail:[e-mail]

Public Relations

E-mail:[e-mail]

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "intends," "may," "will" or "should" or, in each case, their negative, or other variations or comparable terminology, or by discussions of strategy, plans or intentions. These forward-looking statements include statements that are not statements of historical facts and relate to our current intentions, beliefs or expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risk and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report, in statements made by HK representatives in their presentations or in a "Question and Answer" period following such presentations. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

We undertake no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the above cautionary statements.

RESULTS AS AT AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2018

Chief Executive Officer Dr Jens Bodo Koch and Chief Financial Officer Dr Björn Krönert commented:

In the first nine months of 2018 Heckler & Koch's order intake was higher than our sales and our order book more than covers our current expectations for the year's sales. The change processes at our main site in Germany are still underway as planned; in particular the reorganisation of production processes has not yet been completed so improvements in efficiency and performance have not yet reached target levels. This, together with changes in the product mix, resulted in an EBITDA significantly below that achieved in the first nine months of 2017. The negative impact on operating cash flow and therefore on liquidity was lessened by an interest-free €30 million bridge loan received in April.

Q4/2018 Guidance: We currently expect to achieve higher net sales than for Q3/2018, with EBITDA remaining at a similar level or somewhat below that achieved in Q3/2018. Net working capital is currently expected to be at a similar level to Q3/2018 however operating cash flow is currently expected to be better than in Q3/2018.

NOTE REGARDING PRESENTATION OF FINANCIAL INFORMATION

Some financial information in this report has been rounded and, as a result, the totals in this report may vary slightly from the exact arithmetic aggregation of the figures that precede them.

Certain financial information in this release has been derived from our unaudited, interim, consolidated statements of financial position at September 30, 2018 and 2017 and the related statements of income, comprehensive income, equity and cash flows for the nine month periods ended September 30, 2018 and 2017 prepared in accordance with IFRS, subject only to normal year-end audit adjustments and the absence of notes.

Attached are our

• •Unaudited, Interim, Consolidated Statement of Financial Position

• •Unaudited, Interim, Consolidated Income Statement

• •Unaudited, Interim, Consolidated Statement of Comprehensive Income

• •Unaudited, Interim, Consolidated Statement of Changes in Equity, and

• •Unaudited, Interim, Consolidated Statement of Cash Flows

with figures determined according to IFRS as at and for the nine month periods to September 30, 2018 and 2017.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF

(€ millions)	30.09.18	31.12.17
Property, plant & equipment	43.6	43.4
Intangible assets - goodwill	5.1	5.1
Intangible assets - other	36.4	33.3
Other investments & derivatives	2.2	2.3
Deferred tax assets	14.6	14.0
Total non-current assets	102.0	98.1
Inventories	84.9	75.1
Prepayments for inventories	0.4	0.0
Prepayments for other current assets	0.6	0.7
Other loans, investments & derivatives	4.5	2.7
Current tax assets	0.2	0.4
Trade receivables	32.0	21.2
Other receivables	2.7	5.7
Cash & cash equivalents	13.5	18.8
Total current assets	138.9-	124.6-
Total assets	240.9	222.8
Equity
Share capital	27.6	27.6
Additional paid in capital	53.0	53.0
Reserves & consolidated retained earnings	(194.2)	(190.0)
Total equity	(113.5-)	(109.3-)
Liabilities
Loans & borrowings	183.4	182.2
Finance lease obligations	0.0	-
Employee defined benefit obligations	60.7	62.1
Provisions	2.6	2.6
Deferred tax liabilities	21.6	20.9
Total non-current liabilities	268.4	267.8
Loans & borrowings	30.0	-
Trade payables	20.9	21.2
Other payables	9.8	10.8
Advanced & stage payments received	7.6	6.9
Deferred income	0.0	0.0
Provisions for income taxes	3.3	6.0
Other provisions & accruals	14.3	19.5
Total current liabilities	85.9-	64.3-
Total liabilities	354.3-	332.1-
Total equity & liabilities	240.9	222.8
30.10.2018

CONSOLIDATED INCOME STATEMENT FOR THE PERIOD JANUARY 1 TO SEPTEMBER 30

(€ millions)	2017
Revenue	135.2
Cost of sales	(84.6)
Gross profit	50.6
Research & development expenses	(3.7)	(3.9)
Sales, marketing & distribution expenses	(18.9)	(17.3)
Administration expenses	(10.9)	(12.8)
Other operating income	2.0	2.9
Other operating expenses	(2.0)	3.0
Results from operating activities	9.1	22.5
Interest income	0.1	0.0
Gains on translation of foreign currencies	1.2	0.0
Total financial income	1.2	0.0
Interest expense	(10.7)	(16.3)
Accretion of non-current liabilities	(2.0)	(1.8)
Valuation of bond early repayment clauses	-	(1.4)
Losses on translation of foreign currencies	0.2	(4.4)
Other financial expense	(0.1)	(0.0)
Total financial expense	(12.6)	(23.9)
Net financial result	(11.3)	(23.8)
Profit / (loss) before income tax	(2.2)	(1.3)
Income tax expense	(1.8)	(5.6)
Profit / (loss) for the period	(4.0)	(7.0)
30.10.2018