European Lingerie Group AB (ELG or the “Group”) publishes unaudited 6 Months and Second Quarter 2018 Report (1 January – 30 June, 2018), including pro forma and condensed interim consolidated financial statements.

“The results for the second quarter of 2018 are not satisfactory for European Lingerie Group but at the same time expected. On the sales side we see the overall change in the retail concept in Southern and Central Europe where some of the small specialised retail shops disappear and department and online stores take over the market. This is also confirmed by the trend with our largest customers in these countries, and our sales are growing with them. Despite that, in the short-term this growth does not compensate the drop of the shrinking sales channel of small boutique stores and time is needed for the market to adapt,“ commented CEO of ELG Mr. Peter Partma.

“2018 is regarded by the Group as a year in transition. To recover the decrease in turnover and to grow we are doing quite a lot of strategic investments and market initiatives this year. One of such steps in our strategy is to develop the online channel,” noted Mr. Partma.

In June 2018 the Group acquired the largest online retailer of lingerie and swimwear in France – Dessus-Dessous S.A.S. The acquisition marks the Group’s expansion to the online retail segment of the lingerie market and reinforces the ELG’s strategic commitment to building a truly vertically integrated business.

“The taken actions will not affect the sales until 2019 due to the natural cycle of the industry, but will start bringing returns in the coming years and we still believe that 16-17% EBITDA margin over a business cycle is a good target,” added Mr. Partma.

Financial performance of the Group was analysed on the basis of the pro forma financial information of European Lingerie Group AB for 6 months 2018, 6 months 2017, Q2 2018 and Q2 2017. The Group’s sales amounted to EUR 38.3 million in 6 months 2018 (Q2 2018: EUR 19.0 million), representing a 6.9% decrease as compared to pro forma sales of 6 months 2017 (5.4% decrease to pro forma sales of Q2 2017).

In Q2 2018 the Group still faced a decline in revenue, but the deficit in sales reduced in Q2 2018 compared to Q1 2018 (from 8.5% on pro forma basis in Q1 2018 to 5.4% in Q2 2018). The shortfall in sales reduced as a result of improving sales trend in Russia. In most European markets, though, the trading climate is still poor and most European suppliers suffer from this to the same extent.

As part of the costs are fixed, decline in revenue caused drop of profitability margins. Normalised EBITDA in 6 months 2018 amounted to EUR 4.0 million (Q2 2018: EUR 1.8 million) and decreased by 42.1% compared to pro forma normalised EBITDA in 6 months 2017 (49.0% decrease to pro forma normalised EBITDA for Q2 2017). Normalised EBITDA margin in 6 months 2018 and 6 months 2017 were 10.5% and 16.9% respectively (Q2 2018 and Q2 2017: 9.5% and 17.7% respectively). EBITDA margin deteriorated mainly due to sales decrease and high impact of marginal sales contribution to EBITDA.

Normalised net profit in 6 months 2018 amounted to EUR 26 thousand (Q2 2018: net loss of EUR 120 thousand), compared to pro forma normalised net profit of EUR 3.5 million in 6 months 2017 (Q2 2017: EUR 1.1 million). Normalised net profit margin in 6 months 2018 and 6 months 2017 were 0.1% and 8.4% respectively (-0.6% and 5.6% in Q2 2018 and Q2 2017 respectively).

Similarly to EBITDA, lower profitability was due to sales decrease. In addition, there was an increase in finance costs in 6 months 2018 compared to 6 months 2017 related to incremental costs on borrowings raised for the acquisition of Felina Group and for additional capital needed for future growth and investments that were not present in 6 months 2017.

Core operating markets for European Lingerie Group are Germany, Spain, France, Poland, Benelux countries, Baltic countries and CIS countries (Russia, Belarus and Ukraine). The Group’s sales in its core markets in 6 months 2018 were 84.0% of its total sales against 83.8% in 6 months 2017 (85.1% in Q2 2018 against 84.9% in Q2 2017).

The largest growth in sales in 6 months 2018 was in Poland and Benelux countries, where the sales increased by 3.7% and 3.1% respectively. The reversed trends in these countries between Q1 2018 and Q2 2018 were only a shift between months of customer purchases.

Sales in Germany stayed stable in 6 months 2018 and showed an increase by 2.0% in Q2 2018 as a result of the country’s stable economy and the Group’s strong position in this market.

Sales in Russia, Belarus, Ukraine and the Baltic States dropped by 26.4%, 21.6%, 17.2% and 3.2% respectively in 6 months 2018 (Q2 2018: drop by 14.2% in Russia, 31.2% in Belarus, 28.4% in Ukraine and increase by 4.6% in the Baltic States). In Q2 2018 the trend of sales in Russia and the Baltic States for which Russia is one of the main markets improved with stabilization of RUR/EUR exchange rate and the deficit in sales reduced.

Spain and France had a decrease in sales in both 6 months and Q2 2018 due to the overall change in retail concept in the Southern and Central European countries explained above.

European Lingerie Group AB 6 Months and Second Quarter 2018 Report is available for viewing and download here and the presentation of the report here.