windeln.de publishes H1/Q2 2019 results: progress on profitability in Europe and business development in China

 In 2019

Munich, August 8, 2019: windeln.de SE (“windeln.de” or “Group”), one of the leading online retailers for family products in Europe and to customers in China, today reported results for the first half (H1) and second quarter (Q2) of 2019. The Group generated revenues of EUR 40.9 million in H1 2019 (H1 2018: EUR 56.4 million) and EUR 20.1 million in Q2 2019 (Q2 2018: EUR 23.5 million). Adjusted (adj.) EBIT was EUR -7.3 million in H1 2019 (H1 2018: EUR -11.1 million) and EUR -3.3 million in Q2 2019 (Q2 2018: EUR -5.9 million).

Revenue development impacted by ongoing profitability focus

Revenues in the DACH region (Germany, Austria and Switzerland) amounted to EUR 9.0 million in H1 2019 (H1 2018: EUR 12.6 million) and EUR 4.3 million in Q2 (Q2 2018: EUR 5.3 million). DACH accounted for approximately 22% of Group revenues in H1 2019. Over the past one and a half years, windeln.de has consistently followed the implementation of the Group's focus on improving profitability in Europe. Due to the reduction of the existing product portfolio and the focus on higher margin products, the Group ranges on a lower but much more sustainable revenue basis. As a result, the margin based on product sales for DACH region has already increased by more than 5% in 2019 year-to-date compared to full year 2018.
With revenues of EUR 7.0 million in H1 2019 (H1 2018: EUR 14.7 million) and EUR 3.2 million in Q2 2019 (Q2 2018: EUR 6.6 million), approximately 17% of Group revenues are attributable to Rest of Europe (Bebitus shops) which includes the countries Spain, Portugal and France. Similar to the DACH region, the Bebitus shops are still mainly focused on improving profitability by increasing product margins and focusing marketing expenses. The margin based on product sales for the Bebitus shops has already increased by approximately 1% in 2019 year-to-date compared to full year 2018.
Revenues in China in H1 2019 were EUR 25.0 million and therefore lower than in the previous year period (H1 2018: EUR 29.1 million) given the strong revenue base in Q1 2018. However, revenues in Q2 2019 were higher compared to the previous year quarter with EUR 12.7 million (Q2 2018: EUR 11.6 million) and also compared to Q1 2019 (EUR 12.3 million). The China business accounted for approximately 61% of Group revenues in H1 2019. With the support of the two new Asian investors, who participated in the capital increase in March 2019, windeln.de pursues a growth strategy in China. The China growth measures include (i) opening of a second bonded warehouse, (ii) adding additional online distribution channels, (iii) further extending the product offering, (iv) exploring cooperations with local Chinese companies and (v) potentially expanding the business model to hybrid (also offline) sales. Especially the hybrid model is of strategic importance in helping to lower customer acquisition costs and targeting a broader audience in Tier 2 and Tier 3 cities in China, which will require a short-term investment. Such business model extension leverages the Group’s strong existing supplier relationships in Europe, uses the well-known brand name of windeln.de in China and provides benefits from low customer acquisition costs offline. In order to facilitate the growth measures in China, the Group has already extended its local team in Shanghai from one to six employees and added one management board member.

Further improvement on product margins, operating contribution and cost structure

The Group’s long-term strategy of focusing on high-margin products, primarily consumer durables such as clothing and toys, as well as the renegotiation of supplier terms had a positive impact on the gross margin for the European business. As a result, the Group margin (gross profit as of revenues) increased by 1.1% to 25.0% compared to the same period of the previous year.
Selling and distribution costs decreased from EUR 21.6 million in H1 2018 to EUR 14.2 million in H1 2019 (minus 34%) and from EUR 9.3 million in Q2 2018 to EUR 6.5 million in Q2 2019 (minus 30%). The substantial savings result from lower fulfillment (incl. storage costs), personnel and marketing costs. Adj. fulfillment costs in H1 2019 amounted to EUR 6.1 million (H1 2018: EUR 9.8 million) and EUR 2.7 million in Q2 2019 (Q2 2018: EUR 4.6 million). The storage costs could be reduced due to the sell down of old stocks, while logistics costs could be significantly decreased because more Tmall orders were shipped from the cost-effective bonded warehouse for Tmall in Guangzhou (China). Adj. other SG&A costs are also significantly below previous year amounting to EUR 9.5 million in H1 2019 (H1 2018: EUR 12.3 million) and EUR 4.6 million in Q2 2019 (Q2 2018: EUR 5.8 million).
The operating contribution in H1 2019 amounted to EUR 2.2 million (5.3% of revenues) and EUR 1.3 million in Q2 2019 (6.4% of revenues), which is an improvement to the previous year (H1 2018: EUR 1.3 million; Q2 2018: EUR -0.5 million). This is attributable to the improvement in gross margin and the better fulfillment cost ratio.
Reported EBIT improved to EUR -7.8 million in H1 2019 compared to EUR -12.4 million in H1 2018 (Q2 2019: EUR -3.7 million compared to Q2 2018: EUR -5.5 million). Adj. EBIT amounted to EUR -7.3 million in H1 2019 compared to EUR -11.1 million in H1 2018 (Q2 2019: EUR -3.3 million compared to Q2 2018: EUR -5.9 million). Adj. EBIT therefore improved by 34% compared to the same period of the previous year, while adj. EBIT as a percentage of revenues improved by 1.9%.
The Group continues to target reaching adjusted EBIT break-even early 2020 mainly based on increased revenues and profit contribution of the Chinese business and further progress of margin improvements at the European shops. For 2019, the Group expects some revenue growth compared to 2018 given a typically stronger second half of the year and the growth measures in China, clear improvement of operating contribution margin, further improvement of adjusted EBIT and a clear reduction of cash outflow despite a moderate buildup of net working capital to enable the growth of the China business.

Cash outflow reduced; financing options evaluated

In H1 2019, an improved operating cash outflow of EUR 8.6 million was recorded compared to EUR 13.8 million in the previous year. Operating cash outflow was EUR 3.3 million in Q2 2019 and therefore lower than in Q1 2019 with EUR 5.3 million (EUR 2.4 million cash inflow in Q2 2018). As a result, the Group’s total cash available was EUR 12.1 million as of June 30, 2019, which is EUR 3.4 million lower compared to March 31, 2019. In the context of the operating cash outflow and to fund the various growth measures in China the Group is evaluating financing options.
CEO Matthias Peuckert states: “In the first half of 2019, the Group was able to make progress in terms of profitability and further reducing cash outflows. Strategically, we see multiple growth opportunities in China and are executing on these with our increased team and capabilities in China. Rest of 2019 and beginning of 2020 is about investing into further growth, especially in China.”

Select key figures for the first half of 2019 (without Feedo)

H1 2019H1 2018Q2 2019Q2 2018
Revenues (EUR million)40.956.420.123.5
China25.029.112.711.6
DACH9.012.64.35.3
Rest of Europe7.014.73.26.6
Operating contribution (EUR million)2.21.31.3-0.1
in % of revenues5.3%2.3%6.4%-0.2%
Adjusted EBIT (EUR million)-7.3-11.1-3.3-5.9
in % of revenues-17.9%-19.8%-16.2%-24.9%
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