Ahlers Preference : 10.07.2019Half-year Report 2018/19

AHLERS AG

Herford

Half-year Report 2018/19

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AHLERS AG

HALF-YEAR REPORT 2018/19

(December 1, 2018 to May 31, 2019)

BUSINESS PERFORMANCE IN THE FIRST SIX MONTHS OF FISCAL 2018/19

H1 2018/19 - Highlights

-- Revenues, earnings and cash flow performance in H1 2018/19 according to plan. Group revenues approaching trend projected in the full-year forecast

-- Revenue trend influenced by slow sales of suits and jackets as well as by discontinued activities -- Pioneer's jeans business sets positive accents

-- Earnings before income tax down by EUR 1.2 million on previous year primarily because of prior-year extraordinary income -- Operating cash flow improves and equity ratio climbs to 57 percent

--Full-year forecast confirmed: Revenues expected to decline at medium single-digit percentage rate and consolidated earnings expected to improve noticeably

1. BUSINESS AND GENERAL CONDITIONS

The economic slowdown of the previous year continued in the first six months of this year. Most economic institutes therefore downgraded their growth forecasts for the eurozone between January and June 2019 (all forecasts courtesy Commerzbank Research June 2019). While a GDP (gross domestic product) growth rate of 1.4 percent had been assumed for the year 2019 in January, the expectation for the eurozone countries had dropped to 0.9 percent in June. The economy has slowed down primarily in Germany and Italy. Moderate GDP growth of 0.4 percent and 0.2 percent is projected for Germany and Italy, res- pectively, in 2019. The economy continues to be supported by the European Central Bank's persistent expansionary monetary policy. Interest rates are kept at a low level and send investments and private consumption rising. In Russia, the recovery of the oil price is having a positive effect on the economy, which is dependent on commodity exports. As the USA has not imposed any further sanctions, Russia's GDP is growing moderately and the expectation for the full year has been raised from 1.1 percent to 1.5 percent.

Besides economic expectations, the labour market situation also has considerable influence on consumer sentiment. Germany's jobless rate is expected to decline further in 2019. In conjunction with moderate inflation, the positive labour market situation leads to rising real incomes. Notwithstanding a moderate decline compared to the previous months, consumer sentiment thus stays at a high level and private consumption remains a key driver of the German economy (GfK Consumer Climate June 2019). The labour market situation in other European countries also continues to improve and consumer sentiment should be positive.

In spite of the good consumer sentiment, sales revenues in Germany's physical fashion stores remain on the decline and dropped by 2.2 percent between December 2018 and May 2019 (previous year: -1.3 percent, Textilwirtschaft 23_2019). The growing online sales of fashion products are not sufficient to make up for the shortfall in physical sales. It is safe to assume that clothing retail sales in the European markets that are relevant for Ahlers are also likely to decline slightly and remain below the economic growth rates in the respective countries.

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2. EARNINGS, FINANCIAL AND NET WORTH POSITION

Revenue trend according to plan in H1 2018/19

Sales revenues in the first six months of the fiscal year 2018/19 were in line with expectations and were influenced by two major effects. Sales of suits and jackets remained slow and led to a decline by EUR 2.9 million. This includes a EUR 1.1 million drop in revenues that was attributable to Jupiter's discontinued outdoor business. In addition, the other activities that were discontinued in conjunction with the earnings and efficiency increasing measures sent revenues falling by EUR 1.1 million. The other operations were unable to fully defy the declining market trend and decreased by EUR 1.5 million. Business remained challenging, especially in Germany, where revenues declined by EUR 3.6 million or 5.9 percent to EUR 57.3 million in the first half of 2018/19. In Western Europe, Ahlers recorded positive developments in Switzerland and Austria, where revenues increased by 5.0 percent and 4.8 percent, respectively. By contrast, sales in France, Spain and the Netherlands declined. Total revenues in Western Europe dropped by 6.5 percent or EUR 1.9 million. In Eastern Europe, the fashion company was primarily successful in the important Polish and Russian markets, where revenues were up by 9.4 percent and 13.8 percent, respectively. Total revenues in the Eastern Europe/Other region were on a par with the previous year.

Group revenues approaching trend projected in the full-year forecast

Due to earlier deliveries, the revenue trend in the first three months of the fiscal year 2018/19 was at the upper end of the expectations (-2.8 percent). As had been expected, Q2 revenues therefore declined by the value of the revenues already generated in Q1 2018/19 as a result of the earlier deliveries (-7.7 percent or EUR -3.9 million). Stock sales thus remained stable in Q2 2019. Total Group revenues in the first six months of FY 2018/19 therefore declined by 5.0 percent or EUR 5.5 million from EUR 110.8 million to EUR 105.3 million, thus approaching the trend projected in the full-year forecast.

Premium segment dominated by declining revenues despite some positive developments

Baldessarini defied the negative market trend in Germany, where the brand grew by a moderate 0.4 percent in the first six months of the current fiscal year. Outside Germany, the premium brand was particularly successful in Poland (+2.7 percent) and Switzerland (+18 percent). Pierre Cardin's revenues were influenced by the weak sales of suits and jackets as well as by the discontinuation of Pierre Cardin-Woman. Growth in Poland (+9.7 percent), Switzerland (+4.9 percent) and Austria (+9.4 percent) was insufficient to offset the negative influences on revenues. Total revenues of the three premium brands Baldessarini, Pierre Cardin and Otto Kern dropped by 5.0 percent from EUR 75.9 million to EUR 72.1 million. The Premium segment's share in total revenues remained stable at 69 percent in the reporting period.

Jeans, Casual & Workwear segment: Growth for Pioneer Jeans picks up; declining revenues for Jupiter

In the Jeans, Casual & Workwear segment, Pioneer Authentic Jeans grew by a pleasant 2.3 percent in H1 2018/19 and expanded both in Germany (+2.2 percent) and abroad (+5.1 percent), where the brand recorded growth of 11.4 percent in Switzerland, 4.2 percent in Austria and 58 percent in Poland. The discontinuation of the Jupiter operations (brand revenues down 30.5 percent) had a major influence on the revenue trend in the Jeans, Casual & Workwear segment in the first six months of 2018/19. Total revenues of Pioneer Authentic Jeans, Pionier Jeans & Casuals, Pionier Workwear and Jupiter declined by EUR 1.7 million from EUR 34.9 million to EUR 33.2 million in the first half of 2018/19. As in the previous year, the Jeans, Casual & Workwear segment accounted for 31 percent of total revenues.

Growth in own Retail segment and e-commerce

The revenues generated by the company's own Retail segment increased by 8.8 percent in the reporting period, mainly because of the takeover of Russian stores by Ahlers RUS. Own Retail revenues thus accounted for 15.0 percent of total revenues (previous year: 13.1 percent). Like-for-like revenues rose by a moderate 0.9 percent. E-commerce revenues rose by an impressive 18.5 percent in the first six months of 2018/19. The company's own e-shops contributed 4.6 percent to this growth.

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Sales by segments

EUR million

Premium Brands *

Jeans, Casual & Workwear

Total

* incl. "miscellaneous" EUR 0.2 million (previous year: EUR 0.2 million)

H1 2018/19

72.1

33.2

105.3

H1 2017/18	Change in %
75.9	-5.0
34.9	-4.9
110.8	-5.0

EARNINGS POSITION

Drop in earnings before income tax materially influenced by extraordinary income in previous year

Due to higher returns and discounts, the gross profit margin declined by 1.7 percentage points from 50.4 percent to 48.7 percent in the first half of 2018/19. But the lower revenues were the main reason why gross profit fell by EUR 4.5 million from EUR 55.8 million to EUR 51.3 million. As a result of the earnings and efficiency increasing measures, operating expenses, which comprise personnel expenses, the balance of operating expenses and income as well as write-downs, declined by a noticeable EUR 3.1 million or 5.6 percent to EUR 52.7 million. Personnel expenses declined by EUR 1.1 million or 4.3 percent to EUR 24.5 million primarily because of the discontinuation of activities and changes in the administrative area. Operating expenses dropped even more strongly by EUR 1.8 million or 6.5 percent. This decline is mainly attributable to reduced marketing expenses for discontinued activities as well as to reduced spending on order picking, consulting and temporary labour. At EUR -0.3 million, the financial result was slightly lower than in the previous year. Due to extraordinary income in the same period of the previous year, earnings before income tax dropped by EUR 1.2 million to EUR -1.7 million in the first half of 2018/19, which appears to be quite a strong reduction at first sight. In the previous year, the sale of an unused plot of land in Sri Lanka and of a work of art led to a book profit of EUR 0.8 million. Adjusted for this one-time income, the result before income tax in the first half of the current fiscal year was EUR 0.4 million below, and thus close to, the prior year level, as had been expected. Consolidated net income dropped by EUR 1.3 million to EUR -1.7 million (previous year: EUR -0.4 million). As in the financial statements for 2017/18, no deferred taxes were recognised, as future results are planned conservatively. This means that larger profits may be achieved tax-free in the future.

Earnings Position
				H1 2017/18
EUR million		H1 2018/19		Change in %
Sales		105.3		110.8	-5.0
Gross profit		51.3		55.8	-8.1
in % of sales		48.7		50.4
Personnel expenses*		-24.5		-25.6	4.3
Balance of other expenses/income*		-25.8		-27.6	6.5
EBITDA*		1.0		2.6	-61.5
Depreciation and amortisation*		-2.4		-2.6	7.7
EBIT*		-1.4		0.0	n.a.
One-time effects		0.0		-0.1	n.a.
Financial result		-0.3		-0.4	25.0
Pre-tax profit		-1.7		-0.5	< -200.0
Income taxes		0.0		0.1	n.a.
Consolidated net income		-1.7		-0.4	< -200.0

* before one-time effects

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