European Lingerie Group AB (ELG) publishes unaudited First Quarter Report for 2018 (January 1 – March 31, 2018), including condensed consolidated interim financial statements.
“Overall the results for the first quarter of 2018 are rather disappointing for the Group. On the upside it is not a trend as we see that this is a first quarter issue, affecting to some extent also the second quarter. The main reason for a slow start to the year is the overall trading climate in Europe which has been very poor. All of the fashion industry suffered from this in the first quarter, it is not just an issue for ELG,” commented CEO of ELG Mr. Peter Partma.
“Nevertheless, we see that we will get back the volume in the following quarters and gross margin for the year should stay relatively stable. The work we started to introduce some innovations and new products by the Group has already received positive feedback from the market and will contribute to the Group’s revenue, although only in 2019,” said Mr. Partma.
“This year we have been moving forward with the integration of our companies Felina and Lauma Fabrics. We continue with these processes to create greater efficiencies within the Group. Additionally, we have strengthened our sales and marketing teams,” noted the Group CEO.
In the beginning of 2018, ELG succeeded in raising a bond financing of EUR 40 million under a framework of up to EUR 60 million, which was well received by the market. The bonds, maturing in February 2021, bear a floating rate coupon of 3 month Euribor + 7.75% and are planned to be listed within a year of issue. The bond issue enabled ELG to obtain a more flexible capital structure, well suited for the Group’s existing pan-European operations as well as future growth plans.
Financial performance of the Group for Q1 2018 was analysed on the basis of the consolidated interim financial statements of European Lingerie Group AB for Q1 2018 and pro forma financial information for Q1 2017. The Group’s sales amounted to EUR 17.21 million in Q1 2018, representing a 9.0% decrease as compared to pro forma sales of Q1 2017.
As part of the costs are fixed, decline in revenue caused drop of profitability margins. Normalised EBITDA in Q1 2018 amounted to EUR 2 million and decreased by 33.6% compared to pro forma normalised EBITDA in Q1 2017. Normalised EBITDA margin in Q1 2018 and Q1 2017 was 11.8% and 16.2% respectively.
Normalised net profit in Q1 2018 amounted to EUR 52 thousand compared to pro forma normalised net profit of EUR 2.15 million in Q1 2017. Normalised net profit margin in Q1 2018 and Q1 2017 was 0.3% and 11.4% respectively.
Similarly to EBITDA, lower net profitability was due to sales decrease. In addition, there was an increase in finance costs in Q1 2018 as compared to Q1 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 Q1 2017.
Core operating markets for European Lingerie Group are Germany, Spain, France, Poland, Benelux countries, Baltic countries and CIS countries (Russia, Belarus and Ukraine). Group’s sales in its core markets in Q1 2018 were 82.9% of its total sales.
The largest growth in sales in Q1 2018 was in Poland and Spain, where the sales increased by 12.0% and 5.4% respectively. In Poland sales increase was achieved in the segment of textile materials where Lauma Fabrics is very strong historically. The growth there was driven by the increase in production of lingerie ready garments by Polish sewing factories.
In Spain the Group was able to achieve the growth in the segment of lingerie products. This was a result of increasing number of stores where Felina Group products are offered and increasing number of sales staff in the stores which drove the growth.
Sales in France and Germany stayed almost flat in Q1 2018, the main reason being steady economic conditions in these Western European countries.
Sales in Russia, Belarus and Baltic countries dropped by 40.5%, 13.1% and 12.1% respectively in Q1 2018. The main reasons were unfavorable RUR/EUR exchange rate in the beginning of the year which slowed down purchases from customers, postponement of some orders by two largest Felina and Conturelle distributors in Russia and a weak overall trading climate in Europe due to poor weather and early Easter, which led to low sales in retail.