windeln.de publishes H1 2018 results: progress in restructuring, weaker market environment in China
• H1 sales of EUR 56.4 million (Q2 2018: EUR 23.5 million) and H1 adjusted EBIT of EUR -11.1 million (Q2 2018: EUR -5.9 million); Lower sales due to weak demand in China
• Good progress in Group restructuring with margin improvement in European shops, reduction of selling and administrative expenses and sale of Feedo
• Net working capital and liquidity position improved compared to the previous quarter; available liquidity of EUR 17.1 million as of June 30, 2018
• Target, adjusted EBIT break even confirmed at the beginning of 2019
Munich, August 9, 2018: windeln.de SE ("windeln.de" or "Group"), one of the leading online retailers for baby, toddler and children's products in Europe and for customers in China, generated sales of EUR 56.4 million in the first half of H1 2018 (H1 2017: EUR 94.9 million). Sales in the second quarter (Q2) of 2018 amounted to EUR 23.5 million (Q2 2017: EUR 48.3 million). Adjusted EBIT amounted to EUR -11.1 million in the first half of 2018 (H1 2017: EUR -11.5 million) and EUR -5.9 million in the second quarter of 2018 (Q2 2017: EUR -5.0 million).
Sales development in H1/Q2 2018 impacted by weaker market environment in China and ongoing efficiency and profitability measures in European business
In order to achieve break even on the basis of adjusted EBIT at the beginning of 2019, windeln.de adopted several efficiency and profitability measures in February this year. This included streamlining the international business and focusing all European shops on margin improvement and reducing general costs. The Group has made considerable progress in these measures – at the expense of lower sales. Revenues in the DACH region (Germany, Austria, Switzerland) amounted to EUR 12.6 million in H1 2018 (H1 2017: EUR 24.3 million) and EUR 5.3 million in Q2 2018 (Q2 2017: EUR 11.0 million). DACH accounted for around 22% of Group sales in H1 2018. For the German-speaking business, marketing expenses were reduced (Q2 2018: -68% compared to the previous year's figure) and geared towards profitable sales. Around 26% of Group sales in H1 2018, EUR 14.7 million (H1 2017: EUR 19.7 million) and EUR 6.6 million in Q2 2018 (Q2 2017: EUR 10.1 million), are attributable to the southern European Bebitus shops, which serve the countries spain, Portugal and France. Similar to the DACH region, Bebitus focuses on improving profitability by increasing product margins and focusing on marketing expenses (Q2 2018: -55% year-on-year).
In Q2 2018, business in China remained challenging. Firstly, temporarily tightened border controls, which currently no longer exist, led to delivery delays for Chinese customers of 4 to 8 weeks, which led to cancellations and refunds of orders (approx. EUR 0.6 million negative EBIT impact). Second, product prices were competitive as the market was impacted by Q1 overstocks, which are expected to be balanced in Q3. Third, customers are holding back on orders, as larger suppliers are planning product relaunches (new recipe and new packaging) in the second half of the year and Chinese customers are generally less willing to stock old products. As a result, sales in China in H1 2018 were significantly lower than in the previous year at EUR 29.1 million (H1 2017: EUR 50.9 million) and EUR 11.6 million in Q2 2018 (Q2 2017: EUR 27.3 million). This corresponds to approximately 52% of Group sales in H1 2018. In general, however, it is expected that the product relaunches in H2 will lead to noticeable market recoveries.
Improve product margins and cost structure*
Compared to the previous year, product margins for all European shops increased due to the continued optimization of assortment and product prices. In the Group as a whole, the gross profit margin as a percentage of sales was 24.4% in H1 2018 and 24.0% in Q2 2018 below the previous year's figure (H1 2017: 25.4% and Q2 2017: 26.8%). The reasons were customer cancellations and refunds in China due to temporarily increased customs controls as well as aggressive price campaigns in the DACH region to reduce inventories.
As a result of the restructuring measures implemented, the Group reported significant improvements in other selling and administrative expenses (F&A expenses). Other F&A expenses are significantly lower than in the previous year and at their lowest level since 2015. They amounted to EUR 12.3 million in H1 2018 (H1 2017: EUR 16.4 million) and EUR 5.8 million in Q2 2018 (Q2 2017: EUR 8.6 million). The main driver is the low headcount: since the beginning of the year, windeln.de has reduced the Group's headcount from 387 active full-time equivalents (FTE) to 237 FTE (excluding Feedo) at the end of June 2018, which is already below the target value of 250 FTE for 2018. Fulfillment costs in H1 2018 were EUR 9.8 million and in Q2 2018 EUR 4.6 million below the previous year due to the lower volume (H1 2017: EUR 14.3 million and Q2 2017: EUR 7.0 million). Marketing costs amounted to EUR 2.6 million or 4.6% of sales in H1 2018 and were below the previous year (H1 2017: EUR 4.9 million or 5.2% of sales) due to the focus of marketing expenses on profitable sales.
Reported EBIT improved to EUR -12.4 million in H1 2018 after EUR -17.1 million in H1 2017 (Q2 2018: EUR -5.4 million compared to Q2 2017: EUR -9.2 million). Adjusted EBIT amounted to EUR -11.1 million in H1 2018 after EUR -11.5 million in H1 2017 (Q2 2018: EUR -5.9 million compared to Q2 2017: EUR 5.0 million). The reduction in the cost base in Q2 2018 was offset by lower revenues and contribution margins from the Chinese business. The Group continues to aim for break-even on the basis of adjusted EBIT at the beginning of 2019. The basis for this is the stabilization of the Chinese business, further progress in margin improvement at the European shops and the continuation of the reduction in selling and administrative expenses.
Liquidity situation improves in Q2 2018 due to management of net working capital; Low future negative cash flow due to the sale of Feedo
Due to more efficient inventory management, net working capital on June 30, 2018 was EUR 9.2 million, significantly below the figure at the end of the previous quarter (March 31, 2018: EUR 19.1 million). As a result, the Group's available liquidity** improved by EUR 2.7 million in the last quarter to EUR 17.1 million as of June 30, 2018 (March 31, 2018: EUR 14.4 million). On July 20, 2018, windeln.de announced the conclusion of a sales agreement for the Eastern European subsidiary Feedo, as Feedo had been generating negative operating results and cash flows for years and was not integrated into the Group. windeln.de benefits significantly from the deconsolidation of the loss-making and cash flow-negative business (adjusted EBIT of EUR -3.4 million in 2017). All online shops of the windeln.de Group now also run on the same technical infrastructure.
CEO Matthias Peuckert: "We have been restructuring since the beginning of the year. Despite the current difficult market environment in China, we were able to successfully implement our strategy and make good progress in improving margins and profitability. Reaching break even at the beginning of 2019 is an important goal for us."
* Adjusted figures.
** The available liquidity is means of payment, time deposits, means of payment with restriction of disposal less money market loans.
|H1 2018||H1 2017||Q2 2018||Q2 2017|
|Revenue (million euros)||56,4||94,4||23,5||48,3|
|in % of turnover||2,3%||5,1%||-0,2%||7,6%|
|Adjusted EBIT (EUR million)||-11,1||-11,5||-5,9||-5,0|
|in % of turnover||-19,8%||-12,1%||-24,9%||-10,3%|