Consolidated Interim Financial Statements for the Six Months to 30 June 2008 in accordance with section 37w, WpHG [German securities trading act] Page 1
Table of Contents Unaudited condensed interim consolidated financial statements in accordance with IFRS Consolidated balance sheet 3 Consolidated income statement 4 Consolidated statement of changes in shareholders' equity 5 Consolidated cash flow statement 6 Notes to the condensed interim consolidated financial statements A. General information 7 B. Bases and accounting policies for the consolidated interim financial statements 1. Basis of preparation of the financial statements 7 2. Essential accounting and valuation principles 8 3. Consolidated entities 8 C. Seasonal effects on the business activities 8 D. Revenue and results by segments 8 E. Other explanations 1. Contingent liabilities and assets 9 2. Other financial commitments 9 3. Workforce 10 4. Information on relationships with affiliated enterprises and persons 10 Interim group management report 11 Affirmation of the legal representatives 14 Page 2
Consolidated balance sheet as of 30 June 2008 (IFRS) Assets 30 June 2008 31 December 2007 EUR EUR Long-term assets Intangible assets and tangible assets 31.382.282,16 31.251.524,31 Financial assets, financing instruments and deferred taxes 2.925.644,70 2.269.002,16 Loans to affiliated companies 6.000.000,00 10.715.416,67 40.307.926,86 44.235.943,14 Short-term assets Inventories 53.426.883,66 45.288.972,55 Accounts receivable and other short-term assets 34.488.712,14 26.563.287,87 Liquid funds 3.631.034,29 12.650.763,61 91.546.630,09 84.503.024,03 Total 131.854.556,95 128.738.967,17 Liabilities 30 June 2008 31 December 2007 EUR EUR Capital stock Equity due to shareholders of the parent company 37.587.665,50 40.783.375,14 Minority interests 976.377,43 1.325.775,52 38.564.042,93 42.109.150,66 Long-term debt Bank loans 13.208.119,54 12.975.707,67 Long-term shareholder loans 17.500.000,00 17.045.000,00 Other long-term liabilities 312.831,98 379.607,47 31.020.951,52 30.400.315,14 Short-term debt Accounts payable 27.178.665,71 28.388.035,90 Other short-term liabilities 19.268.801,68 19.869.046,98 Short-term amounts due to banks 15.586.941,41 7.236.492,94 Short-term accrued liabilities 235.153,70 735.925,55 62.269.562,50 56.229.501,37 Total 131.854.556,95 128.738.967,17 Page 3
Consolidated income statement (IFRS) for the period 1 January to 30 June 2008 1 Jan. - 30 June 2008 1 Jan. - 30 June 2007 EUR EUR Sales revenues 138.648.900,48 136.149.285,08 Increases in finished goods and work in process 2.235.103,63 6.296.145,39 Other operating income 5.603.869,80 7.249.471,01 Cost of materials -75.729.791,88-79.629.982,56 Personnel expenses -38.490.711,94-38.282.339,26 Depreciation -2.309.119,75-2.678.787,89 Other operating expenses -33.795.263,54-34.387.884,43 Earnings before interest and taxes -3.837.013,20-5.284.092,66 Financial result -1.740.664,66-1.285.527,36 Taxes on income 625.797,46-541.488,39 Consolidated net income for the year (prev. year: net loss) -4.951.880,40-7.111.108,41 Of which attributable to the shareholders of the parent company -4.687.064,75-7.007.528,43 Of which attributable to minority interests -264.815,65-103.579,98 Number of the weighted no-par shares [in thousands] 10.900,00 10.900,00 Potentially diluted number of no-par shares [in thousands] - - Weighted average of all no-par shares [in thousands] 10.900,00 10.900,00 Undiluted earnings per no-par share [EUR per share] -0,43-0,64 Diluted earnings per no-par share [EUR per share] -0,43-0,64 Page 4
Statement of changes in shareholders' equity as of 30 June 2008 (IFRS) In EUR On 1 January 2008 Subscribed capital Parent company Capital reserve Retained earnings Other equity Shareholders' equity Minority shareholders Shareholders' equity Group shareholders' equity 46,466,951.10 27,493,597.46-37,266,072.97 4,088,899.55 40,783,375.14 1,325,775.52 42,109,150.66 Dividends paid -98,805.22-98,805.22 Other changes 1,491,355.11 1,491,355.11 14,222.78 1,505,577.89 Comprehensive income -4,687,064.75-4,687,064.75-264,815.65-4,951,880.40 On 30 June 2008 46,466,951.10 27,493,597.46-41,953,137.72 5,580,254.66 37,587,665.50 976,377.43 38,564,042.93 In EUR Parent company Minority shareholders Subscribed capital Capital reserve Retained earnings Other equity Shareholders' equity Shareholders' equity Group shareholders' equity On 1 January 2008 46,466,951.10 27,493,597.46-33,374,595.88 3,160,765.03 43,746,717.71 1,165,831,82 42,912,549.53 Dividends paid -56,713.22-56,713.22 Other changes -30,712.19-30,712.19 61,776.77 31,064.58 Comprehensive income -7,007,528.43-7,007,528.43-103,579.98-7,111,108.41 On 30 June 2008 46,466,951.10 27,493,597.46-40,382,124.31 3,130,052.84 36,708,477.09 1,067,315.39 37,775,792.48 Page 5
Cash flow statement as of 30 June 2008 (IFRS) 1 Jan. -30 June 2008 EUR 1,000 1 Jan. -30 June 2007 EUR 1,000 Cash flows from operating activities Consolidated income before taxes -5,578-6,570 Adjustment by non-cash items and non-operating 3,643 3,738 transactions Changes in working capital -16,899-5,060 Other transactions -1,993-2,234-20,827-10,126 Cash flows from investing activities Amounts paid out for investments -1,295-3,591 Amounts received from disposals 0 430-1,295-3,161 Cash flows from financing activities Amounts received from loans granted by banks 8,583 8,370 Amounts received from loans to affiliated companies 3,500 2,639 Other transactions 398 775 12,481 11,784 Liquid funds at the end of the period Change in liquidity -9,641-1,503 Changes due to exchange rates, company group and 621 110 valuation Liquid funds at the start of the period 12,651 4,672 3,631 3,279 Page 6
Notes to the condensed interim consolidated financial statements for the six months to 30 June 2008 A. General information Herlitz Aktiengesellschaft ( Herlitz AG ) is the parent company of the group and has its registered office in Berlin. The corporate headquarters are located at Am Borsigturm 100, 13507 Berlin. Herlitz AG has been entered at number 7129 in the commercial register B of Amtsgericht Charlottenburg (Berlin, Germany, local court) in 1972 in accordance with the German Stock Companies Act. The Herlitz group is one of the leading manufacturers of and dealers in stationery and office supplies in Europe. Herlitz AG is a limited liability corporation established in the Federal Republic of Germany and has its registered office in Berlin and its shares are traded publicly. Mr. Martin Hoffmann has retired from his position as sales director of Herlitz AG and Herlitz PBS AG with effect from 31 May 2008. With effect from 1 September 2008, at the latest, Mr. Markus Oestmann has been appointed sales director of both companies. He will be responsible for the Sales and Marketing divisions on the board of directors. The condensed interim consolidated financial statements for the period 1 January to 30 June 2008 have been released for publication on 29 August 2008 by a resolution of the executive board. 65.99% of the registered capital and the voting rights of Herlitz AG entered in the commercial register are held by Stationery Products S.à.r.l., Luxembourg ( Stationery Products ). Stationery Products is directly owned by Advent International Corp. that has its registered office in Boston, USA, and is an internationally acting private equity corporation. B. Bases and accounting policies for the consolidated interim financial statements 1. Basis of preparation of the financial statements The interim financial statements as of 30 June 2008 have been prepared in accordance with the International Financial Reporting Standards (IFRS) and their interpretations by the International Financial Reporting Interpretations Committee (IFRIC) as they are to be applied in the EU. The condensed interim consolidated financial statements for the period 1 January Page 7
to 30 June 2008 have been represented in accordance with IAS 34 Interim Financial Reporting. The condensed interim consolidated financial statements do not contain all the information and explanations stipulated for the consolidated annual financial statements and should be read in the context of the consolidated financial statements as of 31 December 2007. 2. Essential accounting and valuation principles The currency in which the condensed interim consolidated financial statements are prepared is the euro. The income statement has been prepared in the type of aggregate cost method. The accounting and valuation principles applied to prepare the condensed interim consolidated financial statements correspond to those applied to the preparation of the consolidated annual financial statements for the financial year 2007. 3. Consolidated entities On 27 February 2008, the company Herlitz Kuvert GmbH having its registered office in Falkensee has been entered into the commercial register. All the Herlitz group's activities relating to the manufacture of envelopes and padded envelopes have been combined in this company. The company is wholly owned by Herlitz PBS AG. Since then, Herlitz Kuvert GmbH has been included in the group of consolidated entities of the Herlitz group. Apart from Herlitz AG (parent company), 13 domestic and 12 foreign companies are now included in the consolidation compared to the financial year 2007. C. Seasonal effects on the business activities Due to the seasonal nature of the business, the essential profit contributions are always achieved in the second half of the year when school begins and during the Christmas trade. D. Revenues and results of the segments The segments in the primary reporting represent the separation of the operational business into product business and services (logistics services / merchandising). The products segment covers the pure manufacture, marketing and sales activities, while the services segment contains the deliveries and other logistics services as well as merchandising. External sales, segmental results and depreciation as well as operating assets and liabilities are shown in the segment reporting after consolidation. Page 8
Revenue by segments EUR 1,000 Results by segments EUR 1,000 1 January - 30 June 2008 Product business 110,865-3,545 Services 27,784-292 Segments total 138,649-3,837 Other - - Financial result - -1,741 Taxes - 626 Herlitz group 138,649-4,952 1 January - 30 June 2007 Product business 108,860-4,969 Services 27,289-315 Segments total 136,149-5,284 Other - - Financial result - -1,286 Taxes - -541 Herlitz group 136,149-7,111 E. Other explanations 1. Contingent liabilities and assets The liability situation of Herlitz AG in relation to Stationery Products S.à.r.l. explained in the notes to the consolidated financial statements as of 31 December 2007 regarding the liabilities of MOLKARI Vermietungsgesellschaft mbh & Co. Objekt Falkensee has remained unchanged. 2. Other financial commitments Herlitz PBS AG has rented building spaces at the Logistikzentrum Falkensee property from MOLKARI Vermietungsgesellschaft mbh & Co. Objekt Falkensee KG. Herlitz PBS AG and ecom Logistik GmbH & Co. KG have rented spaces in the warehouse and administration building in Berlin-Tegel from MOLKARI Vermietungsgesellschaft mbh & Co. Objekt Tegel KG. Other financial commitments for periods of up to one year of currently EUR 690,000 per month result from the tenancies specified above. Page 9
3. Workforce The average number of employees (excluding trainees) has dropped by 31 to 2,318 compared to the total financial year 2007. The reduction of the number of employees mainly resulted from organisational adjustments in the administrative areas. 4. Information on relationships with affiliated enterprises and persons The total amounts resulting from transactions with affiliated enterprises and persons for the period 1 January to 30 June 2008 or as of the reference date 30 June 2008, respectively, are shown below. For explanations regarding the individual circumstances see the consolidated annual financial statements as of 31 December 2007. 1 Jan. to 30 June 2008 EUR 1,000 1 Jan. to 30 June 2007 EUR 1,000 Transactions with affiliated enterprises Transactions from accounts receivable Revenue from cost transfers to MOLKARI Falkensee 958 644 Expenditure for rent to MOLKARI Falkensee 3,514 2,673 Liabilities of the group towards MOLKARI Falkensee 0 42 Transactions from loans granted Amounts received from MOLKARI Falkensee from redemption Amounts received from MOLKARI Falkensee from interest Revenue from MOLKARI Falkensee from interest receivable 3,000 3,000 500 0 273 361 Page 10
Interim group management report as of 30 June 2008 1. General conditions In the first half of the financial year 2008, the rising energy costs and the drastically higher prices for steel have had a negative effect on the economic environment of the stationery and office supplies industry. The rise in prices has led to a high inflation rate in the euro area and as a consequence to a noticeably lower propensity to consume. Markups had to be accepted in almost all categories of raw material purchasing. Despite existing delivery contracts, some suppliers threatened us with delivery restrictions due to insufficient prices. On the trading side, the concentration process continued. This heavily affected trading in the first half of 2008, in particular due to the take-over of Corporate Express by the competitor Staples. 2. Business development Sales revenues within the Herlitz group in the period January to June 2008 were higher than the comparative values of the previous year. Improvements in the product range structure and increased sales prices have led to an increase in the gross yield margin and gross yield. Due to the increased costs of raw materials and the relatively high wage settlements, these increases were unavoidable to safeguard profitability. The other operating income was lower compared to the previous year reference period. As a result of the restructuring measures, a noticeable reduction of the overall costs could be achieved. The earnings before interest and taxes (EBIT) and the result from ordinary operations thus exceed the comparative previous year's figures. 3. Inventory, financial and profit situation Due to the usual advance production to provide for the seasonal effects of the beginning of the school term, the inventories are higher compared to the inventories on 31 December 2007. The interest payable to MOLKARI Vermietungsgesellschaft mbh & Co. Objekt Falkensee KG shown as a long-term item as of 31 December 2007 is classified as a short-term item as of 30 June 2008 (EUR 1,492,000; EUR 1,715,000 on 31 December 2007). A proportionate payment of interest has been made in June 2008. In the context of the financial instruments outside the balance sheet, there are tenancy obligations for the buildings in Berlin-Tegel and Falkensee totalling EUR 11,258,000 for the respective residual terms. Page 11
The financial situation compared to the end of the past financial year is again characterised by the seasonal effect of the pre-financing of the business at the beginning of the school term, as is the case every year. Both bank loans and funds from factoring have been used for financing. Overall profitability has improved compared to the period January to June of the previous year. Sales revenues have increased by almost 2%. Price increases on the procurement side could partially be passed on to the customers. Product range optimisations and an increase in the share of sales with the "Herlitz" brand have had a lasting positive influence on the gross yield situation. Overall costs were lower compared to the reference period. In particular with regard to the maintenance costs, the saving measures showed an effect in conjunction with an optimised maintenance management. Although the EBIT within the Herlitz group was negative for seasonal reasons in the first half year, it has improved on the previous year reference period. The financial result was burdened by increased interest rates. The tax revenue mainly results from active deferred taxes that have arisen from temporary differences. The deficit could also be improved. In the stationery and office supplies industry, clearly positive profit contributions are as a rule achieved only in the second half of the year when school begins and during the Christmas trade. 4. Risks and opportunities The international business of the Herlitz group, in particular in Eastern Europe, has in the past provided growth. It must be noted that the competitive pressure is increasing due to new market participants. In individual areas this leads to very aggressive pricing on the part of some suppliers. However, the Herlitz group is focusing on profitability. In many cases, we profit from our very well introduced brand name and our local presence. In addition, individual markets such as the Balkans or Russia still offer chances for growth. The necessary passing on of price increases for energy and raw materials that are to be expected will be of key importance. Due to the small levels of value added in the production of stationery and office supplies, these increases cannot be coped with by means of increases in productivity alone. Extraordinary shifts in results may arise from the announced structural reorganisation measures in the context of focusing on the core business. This might also go for the current financial year if individual measures are still implemented. Page 12
Apart from that, the explanations regarding the chances and risks of the expected development of the Herlitz group given in the group management report as of 31 December 2007 still apply to the remaining months of 2008 with regard to the essential issues. 5. Forecast report The steps mentioned in the forecast report to the group management report for the financial year 2007 regarding a strategic reorientation of the Herlitz group are intensively worked on. The lasting improvement of the earning power based on the focusing in the context of the Herlitz brand strategy and the internationalisation combined with a strict cost management will continue to be of top priority also in the remaining months of the year 2008 and beyond. With regard to the other key statements made in the group management report, there is no new knowledge for the current financial year that would considerably change the forecast. 6. Events of special importance after the balance sheet date There have been no events of special importance after the balance sheet date 30 June 2008. Page 13
Responsibility statement by the executive board as of 30 June 2008 To the best of our knowledge, and in accordance with the applicable interim reporting principles, the interim consolidated financial statements give a true and fair view of the assets, liabilities and financial position of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group in the remaining period of the financial year. Berlin, this 29th day of August 2008 Jan von Schuckmann Thomas Hübner Herlitz Aktiengesellschaft Page 14