HEMA B.V. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED AUGUST 2, 2015 (QUARTER )

Transcription

1 HEMA B.V. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE QUARTER ENDED AUGUST 2, 2015 (QUARTER ) Amsterdam, the Netherlands, October 1,

2 Cautionary note These Condensed Interim Financial Statements have been prepared by HEMA B.V. ( HEMA or the Company ). While the information contained herein is believed to be accurate, it has not been the subject of an audit or similar investigation. No representation or warranty, express or implied is or will be given by the Company or its respective affiliates, directors, partners, employees or advisers or any other person as to the accuracy, completeness or fairness of these Condensed Interim Financial Statements and, so far as permitted by law and except in the case of fraud by the party concerned, no responsibility or liability whatsoever is accepted for the accuracy or sufficiency thereof or for any errors, omissions or misstatements negligent or otherwise relating thereto. These Condensed Interim Financial Statements may include certain statements, estimates, targets and projections provided by the Company with respect to the anticipated future performance of the Company. Such statements, estimates, targets and projections reflect significant assumptions and subjective judgments by the Company s management concerning anticipated results. These assumptions and judgments may or may not prove to be correct and there can be no assurance that any estimates, targets or projections are attainable or will be realised. Accordingly, neither the Company nor any of its directors, partners, employees or advisers nor any other person, shall give any representation or warranty as to the achievements or reasonableness of future projections, estimates or targets nor will they be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in or omission from these Condensed Interim Financial Statements and any such liability is expressly disclaimed. 2

3 Contents Page Introduction 4 Management s discussion and analysis of financial condition and results of operations 6 Results of operations 6 Financial condition 11 Unaudited condensed interim financial statements 14 Condensed interim income statement 14 Condensed interim statement of comprehensive income 15 Condensed interim statement of financial position 16 Condensed interim statement of changes in equity 17 Condensed statement of cash flow 18 Notes to the condensed interim financial statements 20 Definitions 31 3

4 INTRODUCTION About HEMA HEMA B.V. ( HEMA or the Company ) is a general merchandise retailer active in the Netherlands, Belgium, Luxembourg, France and Germany, with a recent expansion into Spain and the United Kingdom. HEMA designs, markets, sells and distributes products through its directly owned stores, as well as a network of branded franchise stores and e-commerce platforms (including mobile and tablet applications). The Company s products feature original and contemporary designs which are substantially all HEMA branded. HEMA offers an extensive range of products from everyday basic household necessities and a limited food assortment to affordable non-discretionary items, including cosmetics, stationery, basic ladies and menswear, babywear, towels and impulse-driven purchases. HEMA is a limited liability company with its registered seat and head office in Amsterdam, the Netherlands. HEMA s shares are ultimately held 100% by Dutch Lion Coöperatief U.A. ( Dutch Lion Coop ), an investment company which is owned by several investment funds advised by Lion Capital. Refinancing On June 17, 2014 (the Issue Date ), HEMA Bondco I B.V. and HEMA Bondco II B.V. (together, the Issuers ) issued million Senior Secured Floating Rate Notes due 2019, million 6.25% Senior Secured Fixed Rate Notes due 2019 (together, the Senior Secured Notes ) and million 8.50% Senior Notes due 2019 (the Senior Notes ). The Senior Secured Notes were issued by HEMA Bondco I B.V. and the Senior Notes were issued by HEMA Bondco II B.V., both of which are 100% owned by Dutch Lion B.V. (the Parent ). The proceeds of the notes were used to repay existing debt in full. On the Issue Date, the Company entered into a Revolving Credit Facility Agreement, pursuant to which the Revolving Credit Facility was made available for drawing in the amount of 80.0 million. On the Issue Date, the Parent issued 85.0 million Senior PIK Notes due 2020 (the Senior PIK Notes ). The proceeds of this issuance were used to repay the Parent s existing PIK facility in full. Reporting This quarterly report is required under the indentures governing the Senior Secured Notes, the Senior Notes and the Senior PIK Notes, under the Revolving Credit Facility Agreement and Super Senior PMO Facility. The financial information included herein is with respect to HEMA and its subsidiaries and does not include financial information of the Parent. The Parent is a holding company with no independent business operations. The Parent has no material assets other than the shares it holds in HEMA and the Issuers and intercompany loans to HEMA. The Parent has no material liabilities other than the Senior PIK Notes and a subordinated shareholder loan. 4

5 Reporting dates HEMA s financial periods are on the basis of a 52- or 53-week financial period, with each fiscal year ending on the Sunday nearest to January 31. Fiscal year 2014 ( FY14 ) consisted of 52 weeks and started on February 3, 2014 and ended on February 1, Fiscal year 2015 ( FY15 ) consists of 52 weeks and starts on February 2, 2015 and ends on January 31, The quarters of fiscal year 2015 end on the following dates: Quarter 1: May 3, 2015; Quarter 2: August 2, 2015; Quarter 3: November 1, 2015; and Quarter 4: January 31, All quarters consist of 13 weeks, which is equal to the corresponding quarters of fiscal year Auditor involvement The content of these condensed interim financial statements is unaudited. 5

6 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (unaudited, in million euro) (In million euro) Q2 H1 FY15 FY14 Change FY15 FY14 Change Income statement data Net sales Sales to retail customers Sales to franchisees Other sales Total net sales Cost of sales (154.7) (132.4) (22.3) (303.5) (270.8) (32.7) Gross profit (2.6) (4.8) Operating expenses Labor costs (51.9) (48.2) (3.7) (104.2) (98.0) (6.2) Housing and rents (32.4) (30.7) (1.7) (65.0) (61.7) (3.3) Other general expenses (19.6) (18.2) (1.4) (41.2) (34.8) (6.4) Other income and expense (0.1) (1.9) Depreciation and amortisation (14.0) (14.1) 0.1 (27.7) (28.4) 0.7 Impairments Restructuring costs (1.7) (11.1) 9.4 Total operating expenses (117.4) (110.9) (6.5) (239.1) (231.4) (7.7) Operating result (4.8) 4.3 (9.1) (10.9) 1.6 (12.5) Finance costs Interest income (0.1) (0.1) Interest expense - cash (12.8) (11.2) (1.6) (25.2) (22.8) (2.4) Interest expense - non cash - (7.8) (16.4) 16.4 Amortised finance costs (1.0) (14.0) 13.0 (1.8) (15.0) 13.2 Other finance costs 0.4 (1.6) Total finance costs (13.4) (34.5) 21.1 (26.3) (53.6) 27.3 Result before income taxes (18.2) (30.2) 12.0 (37.2) (52.0) 14.8 Income taxes (0.8) 0.1 (0.9) (1.3) (0.3) (1.0) Net result (19.0) (30.1) 11.1 (38.5) (52.3)

7 (In million euros) Q2 H1 Other financial data FY15 FY14 Change FY15 FY14 Change EBITDA (9.2) (13.2) Adjusted EBITDA (5.4) (15.9) Like-for-like sales 6.0% (4.6%) 10.6% 3.7% (3.4%) 7.1% Financial Data by product category and region Net sales by product category Household goods & personal care Apparel (0.4) Food & catering Services & other (0.1) Total net sales Net sales by region The Netherlands Belgium and Luxembourg (0.1) (1.1) France Germany Other Total net sales Number of stores Q2 Q1 Q4 Q3 Q2 FY15 FY15 FY14 FY14 FY14 Directly operated The Netherlands Belgium and Luxemburg Germany France Spain United Kingdom Franchisees The Netherlands Total number of stores

8 General remarks On June 1, 2015, Ad Walter stepped down as CFO. Mr. Walter was succeeded by Tim Isaacs on an interim basis. On July 1, 2015, Alex Jonker stepped down as Director of Supply Chain. On October 1, 2015 Adriana Hoppenbrouwer will start as Director of Marketing. On October 1, 2015 Rob Heesen will step down as Director of Buying & Merchandising. The responsibilities of this position have been divided over two positions, Apparel on the one hand and Food, Household & Personal Care on the other hand. Trevor Perren has been appointed as Director of Buying & Merchandising Apparel as per October 1, Recruitment of the Director of Buying & Merchandising Food, Household & Personal Care is still pending. On July 2, 2015 James Cocker was appointed as a member of the Supervisory Board, thereby succeeding Mary Minnick, who stepped down as member of the Supervisory Board on the same date. Net Sales Net sales increased by 19.7 million, or 8.0%, from million in the second quarter of fiscal year 2014 ( Q2 FY14 ) to million in the second quarter of fiscal year 2015 ( Q2 FY15 ). This was due to a combination of positive like-for-like sales growth and a net increase in the store base of 6 stores versus Q2 FY14, including 10 new directly operated stores (of which five were in the Netherlands, five were in France and one was in Spain, less one closure in Belgium) less 4 closed franchised stores in the Netherlands. Net Sales by Channel In Q2 FY15, sales to retail customers increased by 15.2 million, or 8.3%, from million in Q2 FY14 to million in Q2 FY15, as a result of positive like-for-like sales growth and new store openings. Net sales to franchisees increased by 4.3 million, or 7.1%, from 60.5 million in Q2 FY14 to 64.8 million in Q2 FY15. Net Sales by Product Category Net sales from household goods & personal care increased by 11.2 million, or 13.2%, from 85.1 million in Q2 FY14 to 96.3 million in Q2 FY15. This was primarily as a result of the Dutch store remodelling process and the addition of new favourites gifting assortment, together with further international expansion where the product mix is weighted towards household goods & personal care products. Net sales from apparel increased by 3.4 million, or 3.9%, from 86.2 million in Q2 FY14 to 89.6 million in Q2 FY15. Food continued to perform well with net sales growing by 5.2 million, or 8.0%. Net Sales by Region Net sales in the Netherlands increased by 15.3 million, or 7.9%, from million in Q2 FY14 to million in Q2 FY15. Overall international sales, including other sales, increased by 4.4 million, or 8.2%. Net sales in Belgium and Luxembourg decreased by 0.1 million, or 0.4%, from 34.1 million in Q2 FY14 to 34.0 million in Q2 FY15. Net sales in France increased by 3.1 million, or 23.9%, from 12.7 million in Q2 FY14 to 15.8 million in Q2 FY15, due to the opening of 5 new stores in France, as well as a 10.2% increase in like-for-like sales versus Q2 FY14. Like-for-Like Sales HEMA reported like-for-like sales growth in Q2 FY15 of +6.0% (versus -4.6% in Q2 FY14) driven predominantly by an improvement in sales performance in the Netherlands. Like-for-like sales for Dutch directly operated stores were +5.9%, versus -4.1% in Q2 FY14. Like-for-like sales for franchisee deliveries were +7.1%, versus -6.9% in Q2 FY14. Growth in like-for-like sales was aided by the introduction of clearance sales, the improvement of consumer spending and further strategic price reductions which have supported an increase in visitor traffic and number of transactions in-store. 8

9 Cost of Sales Cost of sales increased by 22.3 million, or 16.8%, from million in Q2 FY14 to million in Q2 FY15. Cost of sales as a percentage of net sales increased from 53.5% in Q2 FY14 to 57.9% in Q2 FY15. Gross Profit Gross profit decreased by 2.6 million, or 2.3%, from million in Q2 FY14 to million in Q2 FY15. Gross profit as a percentage of net sales decreased from 46.5% in Q2 FY14 to 42.1% in Q2 FY15. The gross profit margin came under pressure as a result of an unfavourable sales mix, higher markdowns following the introduction of clearance sales to reduce excess inventory, negative foreign exchange results (US$ versus ) and sales price reductions in the Netherlands. Operating Expenses Total labour costs increased by 3.7 million, or 7.6%, from 48.2 million in Q2 FY14 to 51.9 million in Q2 FY15. Total labour costs as a percentage of net sales decreased from 19.5% in Q2 FY14 to 19.4% in Q2 FY15. Labour costs were higher due to a shift in costs from other general expenses to labour costs ( 0.8 million), additional in-store staff required for new stores, additional staff at the head office required to support the strategic initiatives and temporarily higher salaries in Belgium to support the store make-over project, partly set off by lower salaries in own stores in The Netherlands. Housing and rents increased by 1.7 million, or 5.6%, from 30.7 million in Q2 FY14 to 32.4 million in Q2 FY15. Housing and rents as a percentage of net sales were 7.3% in Q2 FY15, which is equal to the corresponding quarter of FY14. The increase in costs was primarily due to the opening of new stores in 2014 and 2015 (approximately 0.8 million impact), an increase in the consumer price index, to which most of our rental rates are contractually linked (approximately 0.3 million impact) and higher costs for warehousing due to the higher inventory levels (approximately 0.3 million impact). Other general expenses increased by 1.4 million, or 7.9%, from 18.2 million in Q2 FY14 to 19.6 million in Q2 FY15. Other general expenses as a percentage of net sales decreased from 12.4% in Q2 FY14 to 12.1% in Q2 FY15. The increase in costs were primarily due to higher legal and consulting expenses of 2.1 million, other expenses of 0.4 million, offset by a shift in costs to labour costs ( 0.8 million). Depreciation and amortisation decreased by 0.1 million, or 0.7%, from 14.1 million in Q2 FY14 to 14.0 million in Q2 FY15. Depreciation and amortisation as a percentage of net sales decreased from 5.7% in Q2 FY14 to 5.2% in Q2 FY15. EBITDA EBITDA decreased by 9.2 million, or 50.0%, from 18.4 million in Q2 FY14 to 9.2 million in Q2 FY15, primarily as a result of lower gross profit and higher operating expenses. Adjusted EBITDA Adjusted EBITDA decreased by 5.4 million, from 20.7 million in Q2 FY14 to 15.3 million in Q2 FY15 driven by factors highlighted above. Adjusted EBITDA year-on-year trend has improved significantly from Q1 FY15. In Q2 FY15, adjustments included 2.2 million non-recurring stock clearance expenses, million restructuring costs, 2.1 million legal and consulting expenses, 0.9 million in management, oversight fees and other expenses and 0.3 million in pre-opening costs (see note 4). 9

10 Operating Result (EBIT) Operating result decreased by 9.1 million, from a profit of 4.3 million in Q2 FY14 to a loss of 4.8 million in Q2 FY15, as a result of the combined effect of factors described above. Finance Costs Finance costs decreased by 21.1 million, or 61.2%, from 34.5 million in Q2 FY14 to 13.4 million in Q2 FY15, primarily as a result of 13.0 lower amortisation of finance costs (due to the refinancing in Q2 FY14) and a reduction in non-cash interest expense resulting from the conversion of the Dutch Lion BV shareholder loan to share premium. Result Before Income Taxes Result before income taxes improved by 12.0 million, from a loss of 30.2 million in Q2 FY14 to a loss of 18.2 million in Q2 FY15, for a significant part due to a lower operating result, more than offset by lower finance costs. Income Taxes Income taxes improved by 0.9 million, from a credit of 0.1 million in Q2 FY14 to a cost of 0.8 million in Q2 FY15. Net Result Net result improved by 11.1 million, from a loss of 30.1 million profit in Q2 FY14 to a loss of 19.0 million loss in Q2 FY15, as a result of the combined effect of the factors described above. 10

11 FINANCIAL CONDITION (unaudited, in million euro) Cashflow Q2 H1 (In million euro) FY15 FY14 Var FY15 FY14 Var Cashflow statement data Operating cash before changes in working capital Movements in working capital - Trade and other receivables - Inventories - Trade and other payables (9.5) (22.6) (13.1) (51.9) 38.8 (24.5) (80.2) 55.7 (2.4) (10.0) (5.1) (7.9) 2.8 (2.0) (11.7) 9.7 (5.6) (34.0) 28.4 (27.2) (69.6) 42.4 Movements in provisions, income taxes and other Net cash used in investing activities Payments for interest and financial leases (4.6) 7.1 (7.2) (9.8) 2.6 (15.1) (18.7) 3.6 (20.6) (9.0) (11.6) (25.2) (20.9) (4.3) Finance fees paid (2.3) (14.3) 12.0 (2.3) (14.3) 12.0 Cash collateralised bank facility * Borrowings (SSRCF and PMO) Net cash from operating, investing and financing activities (20.0) - (20.0) (20.0) - (20.0) 41.0 (48.3) (48.3) (10.0) (113.8) (145.9) Cash, cash equivalents and bank overdrafts at the beginning of the period Exchange losses on cash and cash equivalents Cash, cash equivalents and bank overdrafts at the end of the period (0.9) - (1.0) *) HEMA entered into a 20.0 million cash collateralised bank guarantee facility in support of working capital on May 28, The maturity date of this facility is September Until the maturity date, the Company does not have free access to this cash and as a result is reported under non-current financial assets. Operating cash before changes in working capital Net cash generated from operating activities was 8.9 million in Q2 FY15, a decrease of 9.5 million versus Q2 FY14, which was mainly caused by the decrease in EBITDA. Movements in working capital Cash out from working capital was negative 13.1 million in Q2 FY15 versus a cash out of 51.9 million compared to Q2 FY14, a variance of 38.8 million. A significant part of this decrease was caused by a lower cash out in trade and other payables. Q cash out for trade and other payables were particularly high due to the decrease in amounts owed to creditors related to capital 11

12 expenditures, as a result of lower capital expenditures, and changes in payment terms of one supplier due to the expiry of temporary contract terms (non-performance related). Net cash used in investing activities Net cash used in investing activities was 7.2 million in Q2 FY15, a decrease of 2.6 million compared to Q2 FY14. Payments for interest and financial leases Interest payments were 20.6 million in Q2 FY15, an 11.6 million increase compared to Q2 FY14. This was caused by a change in the frequency of interest payments: from monthly in Q2 FY14 to quarterly and semi-annually in Q2 FY15 following the Jun-14 refinancing. In June 2015, 20.3 million in interest was paid in quarterly interest due under the Senior Secured Floating Rate Notes and semiannual interest due under the Senior Secured Fixed Rate Notes. Liquidity The Company s cash cycle follows that of a typical retailer with seasonal cash generation weighted towards Q4 in light of significant uplift from Sinterklaas and Christmas sales. Peak cash balance has been reached historically towards the end of the financial year following December trading, with trough cash balance typically occurring May through September. Most trade and cost creditor payments are paid on the 8th day of each calendar month. Debt service payments under the current capital structure peak during June and December. Cash interest on both Senior Secured Fixed Rate Notes and Senior Notes are paid semi-annually; Senior Secured Floating Rate Notes cash interest expenses are paid quarterly. On May 28, 2015, the Company entered into a 20.0 million cash collateralised bank facility (see note 8). On June 30, 2015, the Company entered into a 25.0 million Super Senior PMO Facility (see note 11). As at August 2, 2015, the Company had drawn 76.0 million on its Revolving Credit Facility, leaving 0.3 million available, net of bank guarantees. Including the undrawn part of the Revolving Credit Facility, the Company has 67.3 million of liquidity available as at August 2, This cash balance includes 14.5 million of cash in transit and in tills (historically this has been approximately 16.0 million on average). As a result of the seasonal cash swings and in light of the significant use of cash in FY14 to fund working capital, HEMA continues to actively monitor its liquidity needs and considers its financing options. 12

13 Capital (In million euro) Q2 Q1 Q4 Q3 Q2 FY15 FY15 FY14 FY14 FY14 Capital Senior secured floating rate notes (proceeds loan) Senior secured fixed rate notes (proceeds loan) Senior notes (proceeds loan) Super senior revolving credit facility Super senior PMO facility Financial lease liabilities Gross debt Less: cash, cash equivalents and bank overdrafts (67.0) (77.9) (33.1) (28.8) (30.0) Less: cash in collateralised bank facility (20.0) Net debt Shareholder loan (excluding unamortised finance costs) Equity Total capital 1, , , , ,204.7 Leverage ratio Net debt LTM EBITDA LTM Adjusted EBITDA Leverage ratio ( net debt / LTM EBITDA) Leverage ratio ( net debt / LTM Adjusted EBITDA) Net debt for Q2 FY15 increased by 31.6 million from million as of the end of Q1 FY15 to million as of the end of Q2 FY15. The cash in the collateralised bank facility is reported under non-current financial assets (see note 8). The leverage ratio, based on Adjusted EBITDA, increased from 7.57x at Q1 FY15 to 8.40x at Q2 FY15. Management board Amsterdam, the Netherlands, October 1,

14 UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS CONDENSED INTERIM INCOME STATEMENT (In million euro) Q2 H1 FY15 FY14 FY15 FY14 Net sales Cost of sales (154.7) (132.4) (303.5) (270.8) Gross profit Operating expenses (117.4) (110.9) (239.1) (231.4) Operating result (4.8) 4.3 (10.9) 1.6 Finance costs (13.4) (34.5) (26.3) (53.6) Result before taxes (18.2) (30.2) (37.2) (52.0) Income taxes (0.8) 0.1 (1.3) (0.3) Net result (19.0) (30.1) (38.5) (52.3) Attributable to Shareholder (19.0) (30.1) (38.5) (52.3) Net result (19.0) (30.1) (38.5) (52.3) The accompanying notes are an integral part of these condensed interim financial statements. 14

15 CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (In million euro) Q2 H1 FY15 FY14 FY15 FY14 Net result for the period (19.0) (30.1) (38.5) (52.3) Other comprehensive income / (loss): Items that may subsequently be reclassified to profit and loss: Cash-flow hedges, net of tax (2.9) 2.1 Other comprehensive income / (loss) for the year, net of tax (2.9) 2.1 Total comprehensive income for the period (16.9) (26.9) (41.4) (50.2) Attributable to: Shareholder (16.9) (26.9) (41.4) (50.2) Total comprehensive income for the period (16.9) (26.9) (41.4) (50.2) The accompanying notes are an integral part of these condensed interim financial statements. 15

16 CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION (In million euro, after appropriation of current year's result) Note August 2 February Assets Property, plant and equipment Intangible assets 7 1, ,044.2 Non-current financial assets Other non-current assets Total non-current assets 1, ,238.6 Inventories Trade and other receivables Other current financial assets Current tax assets Cash and cash equivalents Total current assets Total assets 1, ,562.4 Share capital Share premium Other reserves Retained earnings (298.1) (259.6) Total equity Liabilities Borrowings Shareholder loan Other financial liabilities Employee benefits Provisions Deferred tax liabilities Total non-current liabilities Trade and other payables Borrowings Bank overdrafts Other financial liabilities Current tax liabilities Provisions Total current liabilities Total equity and liabilities 1, ,562.4 The accompanying notes are an integral part of these condensed interim financial statements. 16

17 CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY Attributable to the shareholders (in million euro) Share capital Share premium Other reserves Retained earnings Total equity Balance as of February 1, (259.6) Comprehensive income Loss for the period (38.6) (38.6) Other comprehensive income Cash flow hedges, net of tax - - (2.8) - (2.8) Change in other reserves Total comprehensive income - - (2.8) (38.6) (41.4) Balance as of August 2, (298.2) Attributable to the shareholders (in million euro) Share capital Share premium Other reserves Retained earnings Total equity Balance as of February 3, (0.4) (70.4) Comprehensive income Loss for the period (52.3) (52.3) Other comprehensive income Cash flow hedges, net of tax Change in other reserves Total comprehensive income (52.3) (50.2) Balance as of August 3, (122.7) The accompanying notes are an integral part of these condensed interim financial statements. 17

18 CONDENSED STATEMENT OF CASH FLOW Q2 H1 (In million euro) FY15 FY14 FY15 FY14 Cash flow from operating activities Net result (19.0) (30.1) (38.5) (52.3) Income tax recognised in the income statement Restructuring provision recognised in the income statement Finance costs recognised in the income statement Depreciation, amortisation and impairment of non-current assets Operating cash before changes in working capital 0.8 (0.1) (0.3) (Increase) / decrease in trade and other receivables (2.4) (10.0) Increase in inventories (5.1) (7.9) (2.0) (11.7) - Decrease in trade and other payables (5.6) (34.0) (27.2) (69.6) Movements in working capital (13.1) (51.9) (24.5) (80.2) - Decrease in provisions (0.3) (0.9) (0.5) (6.1) - Change in other assets / liabilities Movements in provisions and other (5.6) Cash generated from operations (0.7) (33.4) (3.8) (44.7) Income taxes (paid) / received (0.2) Net cash generated by operating activities (0.9) (32.4) (3.5) (43.7) Cash flow from investing activities Payments for property, plant & equipment (5.9) (8.6) (12.6) (15.5) Payments for intangible assets (1.3) (1.2) (2.5) (3.2) Net cash used in investing activities (7.2) (9.8) (15.1) (18.7) 18

19 Q2 Fiscal Year (In million euro) FY15 FY14 FY15 FY14 Cash flow from financing activities Interest paid (20.3) (8.8) (24.6) (20.4) Interest received Payments for financial leases (0.3) (0.3) (0.6) (0.6) Repayments of borrowings - (783.3) - (783.3) Senior (secured) notes proceeds loans Super senior PMO facility Super senior revolving credit facility Cash collateralised bank facility * (20.0) - (20.0) - Finance fees paid (2.3) (14.3) (2.3) (14.3) Net cash used in financing activities (1.9) (71.6) 53.5 (83.5) Net (decrease)/increase in cash, cash equivalents and bankoverdrafts (10.0) (113.8) 34.9 (145.9) Cash, cash equivalents and bankoverdrafts at the beginning of the period Exchange losses on cash and cash equivalents (0.9) - (1.0) - Cash, cash equivalents and bank overdrafts at the end of the period *) HEMA entered into a 20.0 million cash collateralised bank guarantee facility in support of working capital on May 28, The maturity date of this facility is September Until the maturity date, the Company does not have free access to this cash and as a result is reported under non-current financial assets. The accompanying notes are an integral part of these condensed interim financial statements. 19

20 NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (All amounts in million euro, unless otherwise stated) 1 The Company and its operations HEMA is a limited liability company with its registered seat and head office in Amsterdam, the Netherlands. The principal activities of the Company are retail operations, in some cases through subsidiaries, in the Netherlands, Belgium, Luxemburg, Germany, France, Spain and the United Kingdom. The information in these condensed interim financial statements is unaudited. 2 Significant accounting policies Basis of preparation These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These interim financial statements should be read in conjunction with the annual financial statements for the year ended February 1, 2015, which have been prepared in accordance with IFRS as adopted by the EU. This interim financial report covers the period from February 2, 2015 until August 2, 2015, consisting of 26 weeks, which is equal to the number of weeks in the first half of fiscal year The second quarter of 2015 covers the period from May 4, 2015 until August 2, 2015, consisting of 13 weeks, which is equal to the number of weeks in the second quarter of fiscal year Significant accounting policies The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Company s annual financial statements. 3 Seasonality of operations The business activities are subject to seasonal influences. The most important trading period in terms of sales, operating results and cash flow is the Christmas season (including Sinterklaas, the Dutch and Belgian equivalent of Santa Claus, celebrated on December 5 in the Netherlands and on December 6 in Belgium). The Company incurs additional expenses in advance of and during the Christmas season in anticipation of higher sales during that period, including increased inventory and advertising as well as hiring additional employees. 20

21 4 Adjusted EBITDA Q2 H1 (In million euro) FY15 FY14 FY15 FY14 Bridge to Adjusted EBITDA Operating result (4.8) 4.3 (10.9) 1.6 Depreciation and amortisation Impairments EBITDA Management & oversight fees and other expenses Pre-opening costs Restructuring costs (0.3) Legal and consulting expenses Remodelling expenses Stock clearance expenses Adjusted EBITDA The remodelling expenses relate to the Belgian make-over project. For a definition of Adjusted EBITDA, please refer to the definitions paragraph. 5 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker ( CODM ), who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer and the Chief Financial Officer. The CODM periodically reviews the Company s performance, primarily focused on the sales through retail stores in regions. The Company identified the following five reporting segments: The Netherlands; Belgium and Luxembourg; France; Germany; and Other. The other operating segment includes: Bakeries; Financial services; E-commerce sales in the Netherlands (home deliveries and wholesale); Retail store sales in Spain and the UK; and Other. Segment performance is evaluated based on net sales and Adjusted EBITDA per segment, however head office and logistics costs are not allocated to operating segments, as this cannot be allocated on 21

22 a consistent and reasonable basis. For more information on Adjusted EBITDA, please refer to the definitions paragraph. Although the France and Germany segments do not meet the quantitative thresholds required by IFRS 8 for reportable segments, management has concluded that these segments should be reported, as they are closely monitored by the CODM. (In million euro) Q2 H1 FY15 FY14 Change FY15 FY14 Change Net sales by region The Netherlands Belgium and Luxembourg (0.1) (1.1) France Germany Other Total net sales Adjusted EBITDA by region The Netherlands (0.7) (2.8) Belgium and Luxembourg (1.1) (2.7) France Germany 0.2 (0.1) Other (1.6) (3.0) Total Adjusted store EBITDA (2.5) (7.4) Head office (26.4) (24.3) (2.1) (54.5) (47.4) (7.1) Logistics (8.7) (8.7) - (18.5) (17.7) (0.8) Other (0.3) 0.5 (0.8) (0.6) Total Adjusted EBITDA (5.4) (15.9) The Adjusted EBITDA of the other operating segment is based on the intersegment sales and external sales. 6 Finance costs (In million euros) Q2 H1 FY15 FY Interest income - (0.1) - (0.1) Interest expense: - cash interest expense non cash interest expense Amortised finance costs Other financial (income) and expense (0.4) 1.6 (0.7) (0.5) Total finance costs

23 7 Property, plant and equipment and intangible assets (In million euro) PP&E Intangible assets Total Closing net book amount as at February 1, , ,236.2 Additions Disposals at cost (0.9) - (0.9) Disposals accumulated depreciation Transfers from work in progress Depreciation and amortisation (20.9) (6.7) (27.6) Impairment losses charged to profit & loss Closing net book amount as at August 2, , ,223.9 (In million euro) PP&E Intangible assets Total Closing net book amount as at February 2, , ,378.4 Additions Disposals at cost Disposals accumulated depreciation Transfers from work in progress Depreciation and amortisation (21.2) (7.2) (28.4) Impairment losses charged to profit & loss Closing net book amount as at August 3, , ,368.7 Substantially all of the tangible and intangible assets represented by legal titles or of similar status have been pledged to secure borrowings of the Company (note 11). 8 Non-current financial assets (In million euro) August 2 February Cash collateralised bank facility Total other current assets HEMA entered into a 20.0 million cash collateralised bank guarantee facility in support of working capital on May 28, The maturity date of this facility is September Until the maturity date, 23

24 the Company does not have free access to this cash and as a result is reported under non-current financial assets. 9 Inventories (In million euro) August 2 February Trade inventory Raw materials Other inventories Valuation allowance (11.0) (12.4) Total Inventories Trade inventory is the purchase value of retail inventory held at stores and distribution centre, as well as goods in transit. In the first two quarters of FY15, 1.4 of the obsolete stock provision was released as a result of clearance sales in the Netherlands. 10 Cash and cash equivalents (In million euro) August 2 February Cash on hand Cash in banks and cash equivalents Cash and cash equivalents (pre bank overdrafts) Bank overdrafts - (24.7) Cash and cash equivalents (post bank overdrafts) As at August 2, 2015, the cash and cash equivalents include 76.0 million of cash drawn under the Revolving Credit Facility. Cash on hand mainly relates to restricted cash in tills, safety boxes in the stores and cash in transit between stores and banks. Cash and cash equivalents exclude 20.0 million held in a cash collateralised bank facility (see note 8) Substantially all bank accounts are pledged to secure the borrowings (refer to note 11). 24

25 11 Borrowings August 2, 2015 February 1, 2015 (In million euro) Non-current portion Current portion Non-current portion Current portion Borrowings Total Principal (In million euros) Due Within 1 year Between 1 and 5 years After 5 years August 2, 2015 Senior secured floating rate notes proceeds loan Senior secured fixed rate notes proceeds loan June June Senior notes proceeds loan December Super senior revolving credit facility December Super senior PMO facility December Total Deferred financing costs - (16.7) - (16.7) On June 30, 2015, HEMA entered into a new 25.0 million super senior secured purchase money financing facility (the PMO Facility ) to further bolster liquidity ahead of the annual peak in the working capital cycle. This piece of financing is a term loan facility with a maturity in line with HEMA s existing Revolving Credit Facility (Dec 18). The cost of the PMO facility is EURIBOR + 7%, a portion of which is required to be paid in cash and the remainder in non cash interest which accrues and capitalizes at the end of each interest period. The facility benefits from the same guarantee and collateral package as the existing Revolving Credit Facility and the Notes. It is secured on a super senior basis and has substantially the same incurrence covenants as in HEMA s existing financing documents and no financial covenants. The facility was provided by a single third party provider of capital with HEMA B.V. as the borrowing entity. The Revolving Credit Facility, the PMO Facility and the Senior Secured Notes are secured by firstranking security interests, including: Dutch law governed pledges over all the shares of the Senior Secured Notes Issuer, the Senior Notes Issuer, the Company and each of the other Senior Secured Notes Guarantors; Dutch law governed omnibus pledge agreements in respect of the assets of the Senior Secured Notes Issuer s, the Senior Notes Issuer, the Company and each of the other Senior Secured Notes Guarantors; Belgian law governed pledges over bank accounts, receivables and business and a business pledge mandate, each in relation to HEMA Belgie B.V.; Luxembourg law governed pledge over bank accounts of HEMA Belgie B.V.; and 25

26 Dutch law governed security over intercompany receivables (including preferred equity certificates) owed to Dutch Lion B.V. by HEMA B.V. The Senior Notes are secured by security interests on a second-ranking basis, including: Dutch law governed pledges over all the shares of the Senior Secured Notes Issuer, the Senior Notes Issuer and the Company; Dutch law governed omnibus pledge agreements in respect of the Senior Secured Notes Issuer s Rights under the Senior Secured Notes Proceeds Loan, the assets of the Senior Notes Issuer (including the Senior Notes Proceeds Loan); and Dutch law governed security over intercompany Receivables (including preferred equity certificates) owed to Dutch Lion B.V. by Hema B.V. Covenants The facilities contain customary covenants that place restrictions on disposals, mergers, acquisitions, investments and the incurrence of debt by the Company and its subsidiaries. In addition, the Revolving Credit Facility is subject to one financial covenant and is related to a minimum amount of EBITDA as defined in the Revolving Credit Facility Agreement of 70.0 million. The financial covenant only applies in case of drawing on the RCF of 16.0 million or more on the relevant testing date. The covenants were applicable as of June 17, In Q2 FY15 the Company has not been in breach of these covenants. 12 Shareholder loan The movements in the shareholder loan are as follows: (In million euro) August 2 February Net opening balance Deferred financing costs Gross opening balance Rolled up interest Conversion with share premium contribution - (221.4) Gross closing balance - - Deferred financing costs - - Net closing balance Other financial liabilities (non-current) (In million euro) August 2 February Financial lease liabilities Derivative financial instruments Long term lease incentives Total other financial liabilities

27 14 Provisions (In million euro) Restructuring As of February 1, 2015 Current portion 1.1 Non-current portion Charged / credited to the income statement Additions charged to income 2.0 Used during the year (0.3) Release to income (0.3) Interest accretion - Closing carrying amount 2.5 As of August 2, 2015 Current portion 2.5 Non-current portion - Closing carrying amount 2.5 On February 17, 2014, HEMA announced a restructuring of its head office to streamline the organization and allow better support for future commercial programs. This resulted in a redundancy of approximately 90 FTE across the head office, bakeries and distribution centre. The provision represents the present value of management s best estimate of the direct costs of the restructuring that are not associated with the ongoing activities of HEMA, including termination benefits. However, the actual termination benefits may differ from the expected amount as currently included in the provision. In Q1 2015, the Company added 2.0 million for restructuring costs. The total outstanding provision is expected to be settled within a year. 15 Trade and other payables (In million euro) August 2 February Trade payables Accrued expenses Payroll taxes, social security and VAT Amounts due to related parties Payroll accruals Other Total trade and other payables

28 16 Other financial liabilities (current) (In million euro) August 2 February Financial lease liabilities current portion Interest Finance fees Derivative financial instruments - - Total other financial liabilities Finance fees relate to fees payable in respect of the Senior Secured Notes, the Senior Notes, the Revolving Credit Facility and the PMO Facility. Interest relates to interest payable on the proceeds loans, Revolving Credit Facility and PMO Facility. 17 Financial Instruments Fair values of financial instruments The following table (see next page) presents the fair values of the Company s financial instruments, compared to the carrying amounts as included on the balance sheet. August 2, 2015 February 1, 2015 (In million euros) Carrying Amount Fair Value Carrying Amount Fair Value Trade and other receivable excluding prepayments Total Loans and receivables Cash and cash equivalents Derivative financial instruments Non-current financial assets Total financial assets August 2, 2015 February 1, 2015 (In million euros) Carrying Amount Fair Value Carrying Amount Fair Value Shareholder loan Borrowings (current) Borrowings (non-current) Trade and other payables Bank overdrafts Total liabilities at amortized cost 1, , Derivative financial instruments Total financial liabilities 1, ,

29 Of HEMA s financial instruments, only derivatives are measured and recognised on the balance sheet at fair value using level 2. These derivatives are valued using quoted prices as input. These quoted prices are observable in the market, either directly (i.e. as prices) or indirectly (derived from prices). The fair value of the derivative instruments is based on the rates and quotations obtained from third parties, credit risk and the company s own risk of non-performance. The carrying amount of receivables, cash and cash equivalents, accounts payable, the Revolving Credit Facility and other current financial assets and liabilities approximate their fair values because of the short-term nature of these instruments and, for receivables, because of the fact that any recoverability loss is reflected in an impairment loss. As the terms of the proceeds loans mirror the terms of the respective Notes, the fair value of the proceeds loans are set equal to the fair value of the respective Notes. The Notes are available for trading on a public market: however, as there is no active liquid market, the fair value of the Notes is based on the average of bid and ask quotes (level 2). 18 Related party transactions HEMA has balances with its related parties as follows (see next page): (In million euros) August 2 February Dutch Lion Management B.V Dutch Lion Coöperatief U.A Dutch Lion B.V. (14.7) (14.8) Stichting Administratiekantoor Dutch Lion A Stichting Administratiekantoor Dutch Lion B Stichting Administratiekantoor Dutch Lion C Total related parties (10.6) (10.7) The amounts due from parent companies relate to a recharge of finance costs and invoices that have been paid by HEMA on behalf of these companies. The amount payable to Dutch Lion B.V. relates to corporate income taxes paid by HEMA on behalf of the fiscal unity and invoices paid by HEMA on behalf of Dutch Lion B.V. The balances will be settled at the time of exit and, accordingly, it is uncertain when the amounts will be settled. As a result, the amounts are presented under current assets and liabilities. The Notes were issued by HEMA Bondco I B.V. and HEMA Bondco II B.V. ( the Issuers ), which are both 100% directly owned by Dutch Lion B.V. The proceeds are lent by the Issuers to HEMA and bear interest in an amount no less than that which applies to the respective Notes. The agreements between HEMA and the Issuers provide that HEMA will ensure timely payments of Notes so that the Issuers can timely satisfy their obligations under the indentures governing the Notes. For the amounts outstanding relating the Notes, refer to the table on the next page. For more information about the proceeds loans, refer to note

30 (In million euros) August 2 February HEMA Bondco I B.V. - Senior secured floating rate notes proceeds loan Senior secured fixed rate notes proceeds loan HEMA Bondco II B.V. - Senior notes proceeds loan Accrued interest on proceeds loans Total (In million euros) August 2 February Accrued interest on proceeds loans at beginning of the period Interest accrued for proceeds loans (income statement) Interest paid for proceeds loans (cash flow statement) (23.4) (22.8) Accrued interest on proceeds loans at the end of the period Commitments and contingencies An overview of commitments and contingencies as of February 1, 2015 was included in notes 30 and 31 of HEMA s annual financial statements, which were published on May 20, Besides the contingent liability below, there have been no significant changes to this overview until August 2, We are currently in an arbitration proceeding initiated by two franchisees. There is no update on this arbitration proceeding since the date of the FY14 Annual Report (see note 31 of the FY14 Annual Report for more details). HEMA has currently not set aside any provision for the dispute. 20 Subsequent events On October 1, 2015 Adriana Hoppenbrouwer will start as Director of Marketing. Rob Heesen will step down as Director of Buying & Merchandising on October 1, The responsibilities of this position have been divided over two positions, Apparel on the one hand and Food, Household & Personal Care on the other hand. Trevor Perren has been appointed as Director of Buying & Merchandising Apparel as per October 1, Recruitment of the Director of Buying & Merchandising Food, Household & Personal Care is still pending. 30

31 DEFINITIONS Adjusted EBITDA Adjusted EBITDA is defined as the operating result of the Company determined on the basis of IFRS plus depreciation, amortisation and impairments; provided, however, that there will not be included in such Adjusted EBITDA: pre-opening costs, defined as salary costs incurred with respect to new stores prior to such stores respective opening dates plus rent in respect of new stores incurred prior to such stores respective opening dates; an annual oversight fee, which refers to the annual fee for the services provided by Lion Capital to the Company under a monitoring and oversight agreement; any items of a non-recurring, extraordinary or exceptional nature. EBITDA EBITDA is defined as operating income (loss) of the Company determined on the basis of IFRS plus depreciation, amortisation and impairments. Like-for-like sales HEMA defines like-for-like sales as year-on-year percentage growth of the gross sales of the stores that have been open for the entire year prior to the period under review, including gross sales in respect of products ordered online and picked up in stores, items ordered online for home delivery, and deliveries from the bakeries to third parties. Gross sales for directly-owned stores represent the total sales transactions registered in the point of sale systems and are based on actual prices charged to customers. Gross sales for franchise stores represent the value of products delivered to the franchise stores, where the value of a product is the actual retail price of the product in the point of sale system at the time it is delivered to the franchise store. Gross sales for the purpose of determining like-for-like sales also includes commission the Company receives on insurances which HEMA provides as an agent and the full sale price of other products sold on behalf of third parties such as vouchers, which is different from the treatment of sales of such products under IFRS. Gross sales for both directly owned stores and for franchise stores include VAT which is 6% in respect of food and 21% in respect of virtually all other products and services. 31