Ahlers : Half-year Report 2016/17

Herford

Half-year Report 2016/17

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AHLERS AG

HALF-YEAR REPORT 2016/17

(December 1, 2016 to May 31, 2017)

BUSINESS PERFORMANCE IN THE FIRST SIX MONTHS OF FISCAL 2016/17

• Revenues up 4.0 percent in Q2 2016/17

• Accelerated growth trend of 3.0 percent in continued activities (Q1: 1.5 percent) in a strongly declining market environment

• Discontinuation of Gin Tonic and business with the last remaining large private label customer leads to moderate 0.8 percent drop in revenues in H1

• Consolidated net income grows 13 percent due to higher gross profit margin and reduced expenses

• Equity ratio of 57 percent reflects solid financial position

• No change in full-year forecast: stable revenues and slightly higher earnings expected

1. BUSINESS AND GENERAL CONDITIONS

   At 0.6 percent, growth in the eurozone's GDP (gross domestic product) during the first three months of 2017 exceeded the projections of most economic institutes. The institutes have nevertheless left their full-year forecasts un- changed and continue to project a growth rate of 1.8 percent for the eurozone (previ- ous year: 1.7 percent; all forecasts from Com- merzbank Research June 2017). The euro- zone as a whole benefits from strong global demand and growing domestic consumption, although there are major differences between the growth rates of the individual member countries. With a projected GDP growth rate of 1.6 percent, Germany and France are close to the eurozone average. While Spain's eco- nomy is expected to grow by a high 3.0 per- cent, a moderate growth rate of only 1.2 per- cent is projected for Italy, which, unlike the three above-mentioned large euro economies, would thus still be clearly below the level re- corded prior to the 2007 financial crisis.

   The German economy continues to benefit from the favourable framework con- ditions such as growing exports to Asia, in- creased domestic spending and the good sen- timent among German consumers. The latter is the result of growing employment, real wage increases and economic expectations at a two-year high (GfK Consumer Climate, May 2017). Accordingly, private consumption will grow more or less in sync with GDP (1.6 per- cent). Whereas economic growth and private consumption generally tend to be at the upper end of the expectations, sales in the clothing retail sector are at the lower end. Having de- clined by 1.2 percent in the prior year period sales revenues of the physical clothing stores are currently down by 3.3 percent (December 2016 to May 2017, Textilwirtschaft 23_2017). The moderately growing online fashion busi- ness is not making up for the shrinkage in physical stores.

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   In the European markets that are re- levant for Ahlers, local fashion retail sectors are likely to lag behind the national economic growth rates. The clothing retail sectors in countries with higher GDP increases such as Spain, Poland or the Czech Republic should grow moderately, whereas they are likely to stagnate or decline moderately in countries with lower economic growth. Russia's econo- mic data suggest that the economy is slowly recovering (GDP 2016: -0.2 percent; forecast for 2017: 1.3 percent), which should also apply to fashion spending. This assumption is being supported by the positive trend in Ahlers revenues in Russia.

2. EARNINGS, FINANCIAL AND NET WORTH POSITION

Just like the first quarter, the second quar- ter of 2016/17 also saw sales revenues of Baldessarini, Pierre Cardin and Pioneer grow against the negative market trend. Ahlers' existing brands grew by a strong EUR 4.4 million or 8.9 percent to EUR 54.1 million. On the one hand, the first quarter's postponed de- liveries (EUR 2.9 million) were caught up on as expected; on the other hand, the accelerated re- venue growth of 3.0 percent (EUR 1.5 million) mainly by Pierre Cardin and Pioneer Authentic Jeans contributed to this trend (Q1 revenues growth: 1.5 percent). The discontinuation of business activities resulted in a shortfall of revenues of EUR 2.3 million in the second quarter. All told, the Group's revenues in- creased by 4.0 percent from EUR 52.1 million to EUR 54.2 million in the second quarter.

Adjusted for the discontinued business activities, Group revenues increased by EUR

2.5 million or 2.2 percent from EUR 114.5 million to EUR 117.0 million in the first six months of 2016/17. The discontinuation of

Gin Tonic and of the business with the last remaining large private label customer led to a shortfall in revenues of EUR 3.5 million. The growth achieved by the continued brands did not entirely offset this reduction, which means that Group revenues in the first six months of the current fiscal year declined by a moderate

0.8 percent from EUR 118.3 million to EUR

117.3 million. In Germany, Ahlers' continu- ed operations recorded a strong 2.6 percent increase in sales revenues, while the fashion market as a whole contracted by 3.3 per- cent. Sales revenues in Eastern Europe also showed a positive trend and rose by 2.7 per- cent, supported by growth in Russia, Ukraine, the Baltic states and Poland.

Sales revenues of the Premium segment rose by EUR 1.9 million or 2.4 percent from EUR

78.5 million to EUR 80.4 million in the first half of 2016/17. This was attributable to the 4.2 percent increase recorded by Pierre Cardin, e.g. in Germany, Spain, Switzerland, Poland and Ukraine. Most recently, Pierre Cardin's most successful product has been the Futureflex denim trousers, which com- bine authentic looks with a high level of com- fort and have met with a very good response from consumers. Baldessarini recorded an

1.3 percent increase in revenues in the difficult German market, with the brand's total sales coming in at the prior year level. The Premium segment's share in total reve- nues climbed from 66 percent to 69 percent in the reporting period.

Sales revenues of Pioneer Authentic Jeans, Pionier Jeans & Casuals, Pionier Workwear and Jupiter increased by EUR 0.6 million from EUR 36.0 million to EUR 36.6 million in the first six months of the current fiscal year. Between them, Pioneer Authentic Jeans and Pionier Jeans & Casuals grew by an impres- sive 5.1 percent. Total revenues of the Jeans, Casual & Workwear segment declined by EUR

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