publishes Q1 release / first quarter in the midst of changes

• Q1 revenues of EUR 32.8 million (Q1 2017: EUR 46.6 million); softer China demand and implementation of efficiency and profitability measures leads to 29.5% decrease
• Improved adj. EBIT of EUR -5.2 million despite one-off effects (Q1 2017: EUR -6.6 million); adj. EBIT margin -16.2% (Q1 2017: -14.1%)
• Numerous restructuring measures implemented, positive effects expected in the second half of the year

Munich, May 9, 2018: SE, one of the leading online retailers for baby and toddler products in Europe and for customers in China, achieved revenues of EUR 32.8 million in the first quarter of 2018. This corresponds to a decrease of -29.5% from the previous year (Q1 2017: EUR 46.6 million). Besides a temporarily softer demand in China, this development resulted from efficiency and profitability measures introduced in February in connection with the CEO change, which involved organizational changes and the closure of the Italian web shop. These measures are also reflected in a lower marketing cost ratio and an improvement in the operating contribution margin. Despite one-off effects, adjusted EBIT improved to EUR -5.2 million (Q1 2017: EUR -6.6 million); the adjusted EBIT margin declined to -16.2% (Q1 2017: -14.1%) due to the lower revenue basis.

Revenue development in Q1 impacted by lower demand in China following the Chinese New Year as well as ongoing efficiency and profitability measures

Revenues in China in the first quarter of 2018 amounted to EUR 17.5 million, down 26.1% year-on-year (Q1 2017: EUR 23.6 million). Business in China accounted for approximately 53% of Group revenues (Q1 2017: 51%). The year-on-year decline in revenues was primarily due to lower demand in the Chinese market following the Chinese New Year; however, the business in China remains structurally highly attractive. is focused on expanding its product range in the Chinese market, adding more distribution channels, establishing a permanent bonded warehouse and improving the customer experience. Since April, has also been offering its products on the platform, an e-commerce marketplace for Chinese customers to purchase products from European companies.
Revenues in the DACH region (Germany, Austria and Switzerland) amounted to EUR 7.3 million in the first quarter. This accounts for approximately 22% of Group revenues. Revenues declined by -45.4% from the first quarter of 2017 (Q1 2017: EUR 13.3 million). The consistent optimization of the profitability of the product range, lower marketing costs and the organizational streamlining are having an impact on revenues. This effect will continue throughout financial year 2018.
Approximately 25% of Group revenues, EUR 8.1 million, were attributable to the European region outside of DACH, mainly consisting of the Southern European countries of Spain, Portugal and France covered by the Bebitus shops. This corresponds to a decline in revenues of -15.9% from the same period of the previous year (Q1 2017: EUR 9.6 million). These revenues do not include the Feedo Group, whose divestiture process is underway. The closure of the Italian web shop pannolini in early February contributed to the decline in revenues. In connection with the measures introduced in Europe, is focusing on increasing the profitability of its Southern European business by optimizing its product range and streamlining its organization.

Improvement in adjusted EBIT despite one-off effects from restructuring measures (1)

Gross profit as a percentage of revenues improved in the first quarter from 23.8% in the prior-year period to 24.7% in 2018, despite inventory write-downs of EUR 0.9 million in the first quarter for which no adjustments were made. Overall, the fulfillment cost ratio in the first quarter of 2018 was at the level of the prior-year period. As a percentage of revenues, it increased slightly by 0.2 percentage points to 15.9% over the first quarter of 2017 (15.7%). By contrast, the marketing cost ratio improved by one percentage point to 4.6% of revenues (Q1 2017: 5.6%). This had a positive effect on the operating contribution margin (gross profit minus expenses for marketing and fulfillment), which is an important indicator for SE. It rose from EUR 1.2 million in the first quarter of 2017 to EUR 1.3 million in the first quarter of this year, and from 2.5% of revenues in the first quarter of 2017 to 4.1%. At EUR 6.5 million, other SG&A costs were significantly lower than in the previous year (Q1 2017: EUR 7.7 million), although the lower revenue basis set them above the prior-year period at 20.3% of revenues in the first quarter of 2018 (Q1 2017: 16.6%). EBIT adjusted for non-recurring restructuring costs of EUR 1.7 million amounted to EUR -5.2 million in the first quarter of 2018, significantly better than in the same quarter of the previous year (Q1 2017: EUR -6.6 million); the adjusted EBIT margin of -16.2% is somewhat lower (Q1 2017: -14.1%) due to the lower revenue basis. In light of the measures already implemented and the resulting reduction in personnel, the current cost base and therefore EBIT can be expected to continue improving in the second half of the year.
The net liquidity position (2) at the end of the first quarter of 2018 amounted to EUR 14.4 million. This is a decrease of EUR 11.3 million from the fourth quarter of 2017. Besides the operating result, this drop is primarily attributable to an increase in net working capital from EUR 10.6 million as of December 31, 2017, to EUR 19.1 million (EUR +8.4 million). This is due to the temporary increase in inventories, in particular of infant milk formula from EUR 16.9 million (3) to EUR 19.7 million (EUR +2.8 million) and the increase in receivables and accruals from advertising cost subsidies from suppliers from EUR 3.9 million to EUR 7.2 million (EUR +3.3 million). Approximately EUR 5 million of this amount was only paid in April, i.e. after the balance sheet date of March 31, 2018.
“Like the entire financial year 2018 will be, the first quarter was dominated by the restructuring we are currently implementing together with Matthias Peuckert as new CEO. The decline in revenues is a result of our focus on improving profitability. We have taken many steps to restructure the business since announcing the measures in February. We do not expect the measures to take full effect, however, until the second half of the current financial year,” says Dr. Nikolaus Weinberger, CFO of SE.

(1) Figures adjusted for restructuring costs of EUR 1.7 million and expenses for share-based payment commitments of EUR 0.1 million.
(2) Net liquidity comprises cash, restricted cash and time deposits minus money market loans.
(3) Values without Feedo Group.

Select key figures for the first quarter of 2018 (without Feedo, the subsidiary to be divested)

Q1 2018 Q1 2017
Revenues 32.8 46.6
China 7.3 13.3
DACH 17.5 23.6
Other European Countries 8.1 9.6
Operating Contribution (EUR million) 1.3 1.2
in % of revenues 4.1% 2.5%
Adjusted EBIT (EUR million) -5.2 -6.6
in % of revenues -16.2% -14.1%