Heckler & Koch : 2020 Q2 Report

SECURITY REF. ISIN: DE000A11Q133

SECURITY REF. ISIN: XS1649057640

H&K AG

QUARTERLY REPORT

Results for the

six month period to June 30, 2020

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 70 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.

26.08.2020

1

Results as at and for the six month period ended June 30, 2020

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

Sales in the first half of 2020 were €139 million, a 10% increase over the first half of 2019; this increase, together with continuing positive effects from the restructuring and process optimisation programmes we initiated in 2018 and 2019, enabled the generation of €25 million EBITDA, virtually double that generated in the first half of 2019. In February 2020, to ease compliance with certain loan conditions, we received an interest-bearing loan of €15 million from one of our main shareholders. Consequently liquidity improved against the year-end despite the high level of net working capital at the quarter-end, due primarily to the volume and timing of sales in the quarter resulting in a higher level of trade receivables.

In 2020, the Group has continued generating positive earnings after tax and, due to the encouraging order book and the ongoing optimisation programmes, we are positive that we have laid the groundwork so that our organisation could continue this trend.

The current COVID-19 crisis has not had a material direct effect on our overall results so far, however during Q2 we experienced some negative indirect effects, for example authorities or customers having less personnel or adjusted opening hours as an effect of the worldwide lockdown measures. We currently expect similar effects during Q3. The following guidance for the third quarter is based on the current situation, as it is known to us today, and so the actual Q3 2020 results may vary.

Q3/2020 Guidance: We currently expect to achieve similar net sales and EBITDA to Q2/2020. Net working capital is currently expected to be at a similar level to Q2/2020; the resulting operating cash flow is currently expected to be slightly better than for Q2/2020.

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 March 31, 2020 and 2019 and the related unaudited, interim, consolidated statements of income, comprehensive income, equity and cash flows for the three month periods ended March 31, 2020 and 2019 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 six month periods to June 30, 2020 and 2019.

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Consolidated Statement of Financial Position

(€ millions)	30.06.2020	31.12.2019
Property, plant & equipment	51.1	50.2
Intangible assets - goodwill	5.1	5.1
Intangible assets - other	39.6	38.2
Other investments	1.6	1.8
Deferred tax assets	15.0	16.2
Total non-current assets	112.5	111.6
Inventories	90.6	90.2
Prepayments for inventories	0.2	0.0
Prepayments for other current assets	0.4	0.4
Other deposits & derivatives	2.9	3.0
Current tax assets	0.1	0.2
Trade receivables	43.9	21.7
Other receivables	2.3	2.0
Cash & cash equivalents	27.8	23.4
Total current assets	168.2	140.8
Total assets	280.7	252.4
Equity
Share capital	27.6	27.6
Additional paid in capital	53.0	53.0
Other reserves	(19.9)	(19.5)
Consolidated retained earnings	(174.4)	(182.0)
Total equity	(113.6)	(120.9)
Liabilities
Loans & borrowings	248.8	233.5
Lease liabilities	1.3	1.6
Employee defined benefit obligations	63.4	64.5
Provisions	3.0	3.0
Deferred tax liabilities	21.5	21.2
Total non-current liabilities	338.0	323.8
Trade payables	22.3	21.6
Other payables	15.1	10.9
Contract liabilities	1.7	4.3
Derivatives	0.1	-
Tax liabilities	4.5	1.0
Other provisions & accruals	12.5	11.7
Total current liabilities	56.2	49.5
Total liabilities	394.3	373.3
Total equity & liabilities	280.7	252.4

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Consolidated Income Statement

For the period January 1 to June 30

(€ millions)	2020	2019
Revenue	139.4	126.7
Cost of sales	(97.9)	(95.9)
Gross profit	41.5	30.8
Research & development expenses	(2.9)	(2.6)
Sales, marketing & distribution expenses	(11.4)	(12.0)
Administration expenses	(8.2)	(8.2)
Other operating income	0.8	1.1
Other operating expenses	(0.4)	(1.3)
Impairment loss on trade receivables, net of reversals	(0.0)	(0.0)
Results from operating activities	19.4	7.8
Interest income	0.0	0.0
Gains on translation of foreign currencies	0.8	0.4
Total financial income	0.8	0.4
Interest expense	(6.7)	(6.3)
Accretion of non-current liabilities	(1.1)	(1.1)
Losses on val'n of other derivative financial instruments	(0.1)	(0.2)
Losses on translation of foreign currencies	(0.6)	(0.4)
Other financial expense	(0.0)	(0.1)
Total financial expense	(8.5)	(8.1)
Net financial result	(7.7)	(7.7)
Profit / (loss) before income tax	11.7	0.1
Income tax expense	(4.0)	0.3
Profit / (loss) for the period	7.6	0.4
Attributable to the shareholders of H&K AG	7.6	0.4
Earnings per share (€)	0.28	0.01

Note that the 2019 income tax figure has changed slightly compared with our Q2 2019 report due to a deferred tax adjustment relating to the effects from implementing IFRS 16 as at January 1, 2019.

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Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the period January 1 to June 30

(€ millions)	2020	2019
Profit / (loss) for the period	7.6	0.4
Other comprehensive income
DBO actuarial gains / (losses)	-	-
Related deferred tax	-	-
Items that will never be reclassified to profit or loss	-	-
Forex translation differences for foreign operations	(0.4)	(0.0)
Items that are or may be reclassified to profit or loss	(0.4)	(0.0)
Other comprehensive income / (expense), net of tax	(0.4)	(0.0)
Total comprehensive income for the period	7.3	0.4

Attributable to the shareholders of H&K AG

7.3

0.4

Note that the 2019 income tax figure and consequently also the total comprehensive income for the period have changed slightly compared with our Q2 2019 report due to a deferred tax adjustment relating to the effects from implementing IFRS 16 as at January 1, 2019.

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Consolidated Statement of Changes in Equity For the period January 1, 2019 to June 30, 2020

	Share	Additional	Translation	Reserve for	Consolidated	Shareholders'
	Capital	Paid in	Reserve	Defined Benefit	Retained	Equity
(€ millions)		Capital		Obligations	Earnings
As of 01.01.2019	27.6	53.0	(0.5)	(15.5)	(183.4)	(118.7)
Effects of IFRS 16 implementation	-	-	-	-	(0.2)	(0.2)
Total recognised income &	-	-	(0.0)	-	(1.3)	(1.3)
expense
As of 31.03.2019	27.6	53.0	(0.5)	(15.5)	(184.9)	(120.2)
Total recognised income &	-	-	(0.0)	-	1.7	1.7
expense
As of 30.06.2019	27.6	53.0	(0.5)	(15.5)	(183.2)	(118.5)
Total recognised income &	-	-	(0.3)	-	0.9	0.6
expense
As of 30.09.2019	27.6	53.0	(0.9)	(15.5)	(182.3)	(117.9)
Total recognised income &	-	-	0.4	(3.6)	0.3	(2.9)
expense
As of 31.12.2019	27.6	53.0	(0.5)	(19.0)	(182.0)	(120.9)
Total recognised income &	-	-	(0.3)	-	4.3	3.9
expense
As of 31.03.2020	27.6	53.0	(0.8)	(19.0)	(177.7)	(116.9)
Total recognised income &	-	-	(0.1)	-	3.4	3.3
expense
As of 30.06.2020	27.6	53.0	(0.9)	(19.0)	(174.4)	(113.6)

Note that the 2019 income tax figure and consequently also the total recognised income and expense for the period have changed slightly compared with our Q2 2019 report due to a deferred tax adjustment relating to the effects from implementing IFRS 16 as at January 1, 2019.

26.08.2020

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Consolidated Statement of Cash Flows

For the period January 1 to June 30

(€ millions)	2020	2019
Cash flows from operating activities
Profit / (loss) for the period	7.6	0.4
Adjustments for:
Depreciation	3.6	3.1
Amortisation of intangible assets	1.5	1.4
(Reversal of) impairment losses on intangible assets	0.1	-
Net interest expense	7.8	7.5
Change in fair value of derivatives	0.1	0.2
(Gain) / loss on disposal of property, plant & equipment	0.0	0.0
Income tax expense	4.0	(0.3)
	24.8	12.3
Change in inventories	(0.5)	5.6
Change in trade & other receivables	(23.0)	(1.5)
Change in prepayments	(0.2)	0.6
Change in trade & other payables	2.4	(1.3)
Change in provisions & employees' defined benefits	(0.7)	(1.1)
	3.0	14.7
Income tax paid	1.1	(2.2)
Net cash from / (used in) operating activities	4.0	12.5
Cash flows from investing activities
Interest received	0.0	0.0
Proceeds from sale of property, plant & equipment	0.0	0.0
Acq'n of property, plant, equipment and intangibles	(4.9)	(4.4)
Movement in deposits with terms >3 months	0.3	7.3
Capitalised development expenditure	(2.7)	(2.5)
Net cash from / (used in) investing activities	(7.2)	0.4
Cash flows from financing activities
Proceeds from loans	15.0	-
Repayment of loans	(1.5)	-
Interest paid	(5.6)	(6.4)
Repayment of lease liabilities	(0.2)	(0.2)
Net cash from / (used in) financing activities	7.7	(6.6)
Net cashflows	4.6	6.4
Cash & cash equivalents at 1st January	23.4	22.3
Effect of exchange rate fluctuations on cash held	(0.2)	0.0
Cash & cash equivalents at December 31	27.8	28.6

Note: the format has been changed compared to the Q2 2019 report: movements in deposits with terms > 3 months are now included in investment activities whereas in the Q2 2019 report these were a reconciling item at the end of the cash flow statement; note also that the 2019 income tax expense figure has changed slightly compared with our Q2 2019 report due to a deferred tax adjustment relating to the effects from implementing IFRS 16 as at January 1, 2019.

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