HIGHLIGHTS THIRD QUARTER 2017

Transcription

1 Q3-17 EUROPRIS ASA

2 2 CONTENTS / HIGHLIGHTS HIGHLIGHTS THIRD QUARTER 2017 Group revenues increased 5.0 per cent to NOK 1,278 million (1,218 million)» 3.2 per cent like-for-like growth, better than the market of 1.9 per cent, but below our long term ambition Adjusted net profit of NOK 65 million (69 million), down by 6.1 per cent Strong cashflow following positive results from initiatives to reduce inventory Several category and concept developments brought to market in the quarter with promising initial response Gross margin in line with last year despite increasing campaign sales, driven by positive impact resulting from franchise takeovers Opex affected by increased number of directly operated stores compared with last year (Figures for the corresponding period last year in brackets. The figures are unaudited. For non-ifrs figures (e.g. adjusted figures), see page 15 for definitions. Group revenue, NOK million Adjusted net profit, NOK million 1,604 1,110 1,016 1,406 1,248 1,218 1, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q CONTENTS HIGHLIGHTS THIRD QUARTER FINANCIAL REVIEW 6 KEY FIGURES 3 FINANCIAL STATEMENTS 8 PERIOD REVIEW 4 ALTERNATIVE PERFORMANCE MEASURES 15

3 KEY FIGURES 3 KEY FIGURES Figures are stated in NOK million Q Q YTD 2017 YTD 2016 FY 2016 CHAIN KEY FIGURES Total retail sales 1, , , , ,524.8 Growth (%) 5.2% 5.4% 7.6% 7.3% 7.7% Like-for-like sales growth (%) 3.2% 1.5% 4.6% 3.8% 4.1% Total number of stores at end of period Directly operated stores Franchise stores Q Q YTD 2017 YTD 2016 FY 2016 GROUP KEY INCOME STATEMENT FIGURES Sales directly operated stores 1, , ,987.5 Sales from wholesale to franchise stores Franchise fees and other income Group revenue 1, , , ,085.2 % growth 5.0% 7.3% 9.0% 8.7% 9.8% COGS excluding unrealised foreign exchange effects , , ,901.2 Gross profit , , ,184.0 % margin 42,1% 41,9% 42,0% 42,4% 42,9% Opex , , ,517.1 Nonrecurring items Opex excluding nonrecurring items , , ,517.1 % of group revenue 32.9% 31.3% 32.6% 31.5% 29.8% Adjusted EBITDA Adjusted EBIT Adjusted profit before tax Adjusted net profit Adjusted earnings per share (167 million shares) GROUP KEY CASH FLOW AND BALANCE SHEET FIGURES Net change in working capital (102.8) (144.8) (221.8) (42.5) Capital expenditure Financial debt 1, ,648.1 Cash Net debt 1, , ,071.1

4 4 PERIOD REVIEW PERIOD REVIEW Group revenues increased 5.0 per cent to NOK 1,278 million (1,217 million) in the third quarter. Like-for-like growth came in at 3.2 per cent, better than the market benchmark of 1.9 per cent on a comparable basis. 1 Gross margin in the third quarter was in line with the corresponding quarter last year, and ended at 42.1 per cent. There was a slight increase in the share of campaign sales in the quarter, mitigated by the expected positive effects resulting from franchise takeovers in the last twelve months. The group has seen an increase of 22 directly operated stores resulting from franchise takeovers (15) and the opening of new stores (7) since the third quarter last year. This has led to a larger fixed cost base for the group, mainly driven by store personnel costs and rent. This has affected operating expenses in the quarter compared with last year. SALES PERFORMANCE Market performance so far this year has been relatively soft. The first half year showed growth of 0.3 per cent on a like-for-like basis, while the third quarter showed a somewhat improving trend. However, by the end of September performance is still moderate with a like-for-like growth of 1.1 per cent in the first nine months of Europris beat the market benchmark of 1.9 per cent like-for-like growth in the third quarter. 1 Europris like-for-like sales in the period grew by 3.2 per cent vs. last year. The third quarter is less affected by large seasonal events that help drive sales, such as in the second and fourth quarters. In quarters with fewer seasonal events, the relative difference in performance compared with the market is less distinct. Europris has implemented several initiatives to counteract this effect, such as integrated campaigns in order to drive additional traffic and the celebration of the group s 25th year anniversary this year. There were several elements affecting group revenues during the quarter, in addition to the positive like-for-like growth. Sales from wholesale to franchise stores were temporarily impacted by the significant reduction in inventory achieved during the period. Management estimates that this accounts for approximately one percentage point reduction in group revenue growth for the period. Also, the opening of new stores are back loaded this year compared to last year. Out of a total of eleven new stores in each of 2016 and 2017, the group plans to open five new stores in the fourth quarter this year, compared to one store in the fourth quarter last year. OPERATIONAL REVIEW Growing store estate Europris opened one new store in the third quarter, at Reknes in the city of Molde. New store openings Month Store County February Gran Oppland March Rælingen Akershus March Brekstad Sør-Trøndelag April Kokstad Hordaland April Tasta Rogaland September Reknes Møre and Romsdal At the end of September, the total number of stores in the chain was 245, comprising 200 directly operated and 45 franchise stores. 1 According to Kvarud Analyse, Shopping Centre Index; report analyses the performance of the 237 largest shopping centres in Norway.

5 5 PERIOD REVIEW Concept and category development The group continued its focus on category development in the quarter. Several new product launches were completed in the Small Textiles category. New brands such as Sloggi and Pierre Robert were introduced. The brands will complement existing brand Janus, as well as the group s own brands, bringing additional credibility and customer choice going forward. Europris also introduced its new private label Paint within the Handyman category in September. The brand includes a series of ready-mixed paint of white and greyscale colours for use indoors. The introduction of Paint is a natural extension of the category following the launch of Harris paint brushes and painting equipment in Within concept development, building on the group s increasing strength in pet food and accessories, a veterinarian, Leidulf Farstad, was introduced in September. Mr. Farstad will be available to answer questions from customers, in addition to becoming a spokesperson for the category. This will further support the group s brands and products in the space. Inventory management Measures to reduce excess inventory instore were implemented across the store portfolio (including franchise stores) following the second quarter. Significant progress was made in the third quarter, substantially reducing excess inventory. Annually, more than 85 per cent of the inventory held in the stores are sourced from the group s wholesale operation. As the stores worked on reducing their existing levels of inventory in the quarter, the wholesale operation experienced a natural reduction in demand for additional products. As such, group revenues were temporarily affected by lower sales from the wholesale operation to the franchise stores in the period.

6 6 FINANCIAL REVIEW FINANCIAL REVIEW PROFIT AND LOSS - THIRD QUARTER Group revenue in the third quarter of 2017 amounted to NOK 1,278 million (1,218 million), up by 5 per cent. The key drivers for revenue growth was like-for-like growth of 3.2 per cent for the chain, new store openings and franchise takeovers. Significant inventory reduction was achieved in the third quarter. This led to temporary lower sales from wholesale to franchise stores. Gross profit for the group was NOK 538 million (511 million). The gross margin was 42.1 per cent in the third quarter of 2017, compared with 41.9 per cent in the same period last year. Franchise takeovers had a positive impact on gross margin, offset by a slight increase in campaign sales, which put pressure on the gross margin. The annual stocktaking in the stores is conducted in the third quarter, similar to previous years. Stronger dynamic inventory control resulted in a less positive impact on gross margin from the annual stocktaking this year compared with the third quarter in Operating expenditure (opex) excluding nonrecurring items in the third quarter came to NOK 421 million (382 million). This represented an increase of 10.2 per cent from the same period last year. Opex was impacted by the increase in number of directly operated stores, which increased from 178 to 200 (up by 12.4 per cent). Relative to group revenue, operating expenses was 32.9 per cent (31.3 per cent). Some extra costs incurred related to certain planned operational initiatives, such as changed distribution from sea to road and increased focus on digital channels. Adjusted EBITDA was NOK 117 million (129 million) in the third quarter, down by 9.2 per cent compared with last year. The Adjusted EBITDA margin was 9.2 per cent (10.6 per cent). The margin was impacted by an increase in operating expenses. 56 EBITDA adjusted, NOK million Q Q Adjusted profit before tax was NOK 85 million (92 million). The group recorded an unrealised loss of NOK 1 million on currency hedging contracts and on accounts payable in foreign currencies in the quarter. Last year, the group recorded an unrealised loss of NOK 10 million in the corresponding period. Adjusted net profit for the third quarter of 2017 was NOK 65 million (69 million), down by 6.1 per cent. PROFIT AND LOSS YEAR TO DATE ( ) Group revenue for the first nine months of 2017 amounted to NOK 3,794 million (3,481 million), up by 9 per cent. The key drivers for revenue growth was the like-for-like performance of 4.6 per cent, opening of new stores and franchise takeovers. Q Gross profit for the group was NOK 1,594 million (1,474 million). The gross margin was 42.0 per cent in the first nine months of 2017, compared with 42.4 per cent in the same period last year. The margin decrease is explained by more campaign sales, which had a negative effect on gross profit. Opex excluding nonrecurring items in the first nine months came to NOK 1,238 million (1,098 million). This represented an increase of 12.7 per cent from the same period last year. 291 Q4

7 7 FINANCIAL REVIEW Relative to group revenue, operating expenses were 32.6 per cent (31.5 per cent). Opex were impacted by an increase in the number of directly operated stores. In additoin, opex were affected by planned operational initiatives related to change in distribution model (from sea to land) and focus on digital channels. Adjusted EBITDA was NOK 356 million (376 million) in the first nine months, down by NOK 20 million compared with last year. The Adjusted EBITDA margin was 9.4 per cent (10.8 per cent). Adjusted EBITDA includes NOK 13.3 million in one-off costs related to franchise takeovers and celebration of 25th year anniversary. The one-off costs are not reported as nonrecurring. Adjusted net profit for the first nine months of 2017 was NOK 193 million (204 million). CASH FLOW Net change in working capital in the third quarter was positive NOK 105 million (negative 103 million). The change is due to significantly lower inventory levels (following management initiatives), both in the stores and at the central warehouse. In addition, as the number of remaining franchise stores has been reduced, there was a positive impact from the reduction in trade receivables in the period. Capital expenditure was NOK 74 million in the period that ended 30 September 2017 (65 million). The increase from last year is explained by investments of NOK 20 million related to the land area adjacent to the new warehouse in Moss, offset by fewer store relocations and fewer new store openings. The group s liquidity reserves are satisfactory and were unused at the end of the quarter. Net debt at 30 September 2017 was NOK 1,443 million (1,493 million). OUTLOOK Management expects continued growth in long term revenue and profits. Maintaining focus on the group s profit margin remains a key priority for Europris, initiated through constructive supplier negotiations and other cost saving initiatives. The relatively disappointing performance in the third quarter has continued into the fourth quarter. The most important period is ahead of us. November and December combined account for approximately 75 per cent of total retail sales in the fourth quarter. 2 There are no franchise takeovers planned in the fourth quarter this year. The group plans to open an additional five stores before the end of the year. These openings will bring the total number of new stores to eleven for the full year. At the end of the quarter, the pipeline of new stores for 2018 was sound. Nine new stores have been confirmed by the board so far, of which three are subject to zoning regulations. Europris will disclose additional information regarding the positive effects of the new central warehouse at the group s fourth quarter results presentation, in February next year. FINANCIAL POSITION AND LIQUIDITY Financial debt was NOK 1,647 million at the end of the third quarter (1,650 million). Cash for the group at 30 September 2017 were NOK 204 million (157 million). 2 Based on average total retail sales in the last two years.

8 8 INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS Figures are stated in NOK 1,000 Notes Q Q YTD 2017 YTD 2016 FY 2016 Unaudited Unaudited Unaudited Unaudited Audited Total operating income (group revenue) 1,277,917 1,217,589 3,793,892 3,481,382 5,085,205 Cost of goods sold (COGS) 741, ,311 2,210,247 2,023,536 2,903,030 Employee benefits expense 210, , , , ,498 Depreciation 5 20,702 18,905 61,521 55,769 75,089 Other operating expenses 210, , , , ,590 Operating profit 95,194 99, , , ,998 Net financial income (expense) (10,097) (7,836) (30,334) (31,213) (41,052) Profit before tax 85,096 91, , , ,946 Income tax expense 20,423 22,975 60,856 68, ,285 Profit for the period 64,673 68, , , ,661 Attributable to the equity holders of the parent 64,673 68, , , ,661 Interim condensed consolidated statement of comprehensive income Profit for the period 64,673 68, , , ,661 Total comprehensive income 64,673 68, , , ,661 Attributable to the equity holders of the parent 64,673 68, , , ,661 The accompanying notes are an integral part of the interim condensed consolidated financial statements.

9 INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Figures are stated in NOK 1,000 Notes 30 Sept Sept Dec 2016 Unaudited Unaudited Audited ASSETS Total intangible assets 5 2,013,813 2,002,159 2,016,904 Total fixed assets 5 276, , ,377 Total financial assets 6 25,300 3,142 2,233 Total non-current assets 2,315,911 2,253,609 2,265,515 Inventories 1,458,453 1,346,121 1,324,103 Trade receivables 166, , ,346 Other receivables 6 66,246 64,558 66,539 Cash 204, , ,964 Total current assets 1,895,357 1,810,275 2,170,952 9 INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Total assets 4,211,269 4,063,884 4,436,467 EQUITY AND LIABILITIES Total paid-in capital 502, , ,406 Total retained equity 1,064, , ,966 Total shareholders' equity 1,567,145 1,499,105 1,708,372 Provisions 105, ,781 45,575 Borrowings 6 1,644,618 1,646,298 1,646,874 Other non-current liabilities 6 2,448 3,979 1,272 Total non-current liabilities 1,752,432 1,775,058 1,693,721 Accounts payable 505, , ,651 Tax payable 44,659 15, ,446 Public duties payable 174,560 57, ,167 Other current liabilities 6 166, , ,111 Total current liabilities 891, ,722 1,034,373 Total liabilities 2,644,124 2,564,780 2,728,095 Total equity and liabilities 4,211,269 4,063,884 4,436,467 Fredrikstad, 31 October 2017 THE BOARD OF DIRECTORS OF EUROPRIS ASA The accompanying notes are an integral part of the interim condensed consolidated financial statements.

10 10 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Figures are stated in NOK 1,000 Attributed to equity holders of the parent Share capital Share premium Retained earnings Total equity At 1 January , , ,966 1,708,372 Profit for the period , ,711 Dividend (333,938) (333,938) Other comprehensive income At 30 September , ,499 1,064,677 1,567,145 (unaudited) Attributed to equity holders of the parent Share capital Share premium Retained earnings Total equity At 1 January , , ,305 1,528,467 Profit for the period , ,394 Dividend (233,756) (233,756) Other comprehensive income At 30 September , , ,699 1,499,105 (unaudited) The accompanying notes are an integral part of the interim condensed consolidated financial statements.

11 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Figures are stated in NOK 1,000 Notes Q Q YTD 2017 YTD 2016 FY 2016 Unaudited Unaudited Unaudited Unaudited Audited Cash flows from operating activities Profit before income tax 85,096 91, , , ,946 Adjusted for: Depreciation of fixed and intangible assets 5 20,702 18,905 61,521 55,769 75,089 Changes in net working capital 104,901 (102,838) (144,763) (221,829) (42,517) Income tax paid 66 - (101,154) (92,586) (108,772) Net cash generated from operating activities 210,765 7,968 69,171 13, , INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Cash flows from investing activities Purchases of fixed and intangible assets 5 (17,889) (16,802) (74,318) (65,203) (89,935) Acquisition of franchise stores (3,448) - (28,403) (1,382) (11,229) Net cash used in investing activities (21,337) (16,802) (102,720) (66,584) (101,164) Cash flows from financing activities Repayment of debt to financial institutions (809) (816) (5,173) (3,575) (7.978) Dividend - - (333,938) (233,756) (233,756) Net cash from financing activities (809) (816) (339,111) (237,332) (241,734) Net increase in cash 188,619 (9,650) (372,660) (290,038) 129,848 Cash at beginning of period 15, , , , ,116 Cash at end of period 204, , , , ,964 The accompanying notes are an integral part of the interim condensed consolidated financial statements.

12 12 NOTES NOTES NOTE 1 CORPORATE INFORMATION The interim condensed consolidated financial statements of Europris ASA and its subsidiaries (collectively, the group) for the third quarter and the nine months ended 30 September 2017 were authorised for issue by the board on 31 October Europris ASA is domiciled in Norway. The group is a discount variety retailer with stores across Norway. These condensed interim financial statements have not been audited. NOTE 2 BASIS OF PREPARATION AND CHANGES TO THE GROUP S ACCOUNTING POLICIES BASIS OF PREPARATION The interim condensed consolidated financial statements for the third quarter and the nine months ended 30 September 2017 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the group s annual financial statements at 31 December NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the group s annual consolidated financial statements for the year ended 31 December New standards and interpretations effective at 1 January 2017 do not impact the annual consolidated financial statements of the group or the interim condensed consolidated financial statements of the group. NOTE 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of interim condensed financial statements requires management to make accounting judgements and estimates that impact how accounting policies are applied and the reported amounts for assets, liabilities, income and expenses. Actual results may differ from these estimates. The critical accounting estimates and judgements are consistent with those in the consolidated financial statements for NOTE 4 SEGMENT INFORMATION The group management is the group s chief operating decision-maker. Reporting to the group management, which is responsible for evaluating profitability and achivements, is on a consolidated basis that forms the basis for the group management s assessment of profitability at a strategic level. The group as a whole is therefore defined and identified as one segment.

13 NOTES 13 NOTES NOTE 5 FIXED AND INTANGIBLE ASSETS Figures are stated in NOK 1,000 Fixtures and fittings Land Software Trademarks Goodwill Total Carrying amount 1 January ,377-39, ,573 1,589,402 2,263,281 Acquisition of subsidiaries 4, ,704 14,384 Additions 43,507 20,481 10, ,466 Disposals Depreciation (38,247) - (23,274) - - (61,521) Carrying amount 30 September ,317 20,481 27, ,573 1,599,106 2,290,610 Figures are stated in NOK 1,000 Fixtures and fittings Land Software Trademarks Goodwill Total Carrying amount 1 January ,178-40, ,573 1,582,487 2,235,982 Acquisition of subsidiaries 1, ,532 4,839 Additions 55,633-9, ,416 Disposals Depreciation (33,810) - (21,959) - - (55,769) Carrying amount 30 September ,308-28, ,573 1,586,019 2,250,468

14 14 NOTES NOTES NOTE 6 FINANCIAL INSTRUMENTS - FAIR VALUE Set out below is a comparison of the carrying amounts and fair values of financial assets and liabilities at 30 September 2017 and 31 December 2016: Figures are stated in NOK 1, September December 2016 Financial assets Loans and receivables Carrying amount Fair value Carrying amount Fair value Non-current receivables 23,956 23,956 1,808 1,808 Total 23,956 23,956 1,808 1,808 Financial liabilities Other financial liabilities Borrowings 1,644,618 1,644,618 1,646,874 1,646,874 Total 1,644,618 1,644,618 1,646,874 1,646,874 Financial instruments measured at fair value through profit and loss Derivatives - asset Interest rate swaps Foreign exchange forward contracts ,450 7,450 Total 1,574 1,574 7,501 7,501 Derivatives - liabilities Interest rate swaps 2,448 2,448 1,272 1,272 Foreign exchange forward contracts 4,647 4, Total 7,095 7,095 1,534 1,534 FAIR VALUE HIERARCHY All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, based on the lowest level input that is significant to the fair value measurement as a whole, as follows: Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised at fair value on a recurring basis, the group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. All the group s financial instruments measured at fair value are classified as level 2. Specific valuation methods being used to value financial instruments include: - fair value of interest rate swaps is measured as the net present value of estimated future cash flows based on observable yield curves - fair value of foreign exchange forward contracts is measured by the net present value of the difference between the contractual forward rate and the forward rate of the currency at the balance sheet date, multiplied by the contractual volume in foreign currency.

15 15 FORWARD LOOKING STATEMENTS The condensed interim report contains forward-looking statements, based on various assumptions. These forward-looking statements reflect current views about future events and are, by their nature, subject to significant risk and uncertainties because they relate to events and depend on circumstances that will occur in the future. Although Europris believes that these assumptions were reasonable when made, it cannot provide assurances that its future results, level of activity or performances will meet these expectations. ALTERNATIVE PERFORMANCE MEASURES ALTERNATIVE PERFORMANCE MEASURES APMs are used by Europris for annual and periodic financial reporting in order to provide a better understanding of Europris financial performance and are also used by management to measure operating performance. APMs are adjusted IFRS figures defined, calculated and used in a consistent and transparent manner. Gross profit represents group revenue less the cost of goods sold excluding unrealised foreign currency effects. Opex is the sum of employee benefits expense and other operating expenses. EBITDA (earnings before interest, tax, depreciation and amortisation) represents Gross profit less Opex. Adjusted EBITDA is EBITDA adjusted for nonrecurring expenses. Adjusted profit before tax is net profit before tax adjusted for nonrecurring items. Adjusted net profit is net profit adjusted for nonrecurring items. Adjusted earnings per share is Adjusted net profit divided by the current number of shares (166,968,888). Working capital is the sum of inventories, trade receivables and other receivables less the sum of accounts payable and other current liabilities. Capital expenditure is the sum of purchases of fixed assets and intangible assets. Net debt is the sum of term loans and financial leases less bank deposits and cash OTHER DEFINITIONS Directly operated store means a store owned and operated by the group. Franchise store means a store operated by a franchisee under a franchise agreement with the group. Chain means the sum of directly operated stores and franchise stores. Like-for-like are stores which have been open for every month of the current calendar year and for every month of the previous calendar year.

16 CONTACT Europris ASA Hjalmar Bjørges vei 105, P O Box 1421 NO-1602 Fredrikstad switchboard: ir@europris.no