Ahlers : 12.10.2020Quarterly Statement Q3 2019/20

AHLERS AG

QUARTERLY STATEMENT Q3 2019/20

(December 1, 2019 to August 31, 2020)

PERFORMANCE IN THE FIRST NINE MONTHS OF THE FISCAL YEAR 2019/20

Q3 2019/20

• COVID-19-relatedrevenue trend of the first half of the year continues in the third quarter of 2020: Group sales revenues decline by 32 percent to EUR 108.9 million in the nine-month period
• Cost-cuttingmeasures introduced at short notice and the previous year's cost-cutting programme lead to savings in operating expenses of 21 percent (EUR 16.3 million)
• Consolidated earnings drop to EUR -10.9 million (previous year: EUR 0.4 million) due to lower sales revenues
• Stable net working capital, expanded financing concluded for a five-year term and solid equity ratio of 48.7 percent*
• Only moderate decline in sales revenues expected in the fourth quarter of 2020 due to delivery postponements. The revenue trend in the fiscal year 2019/20 is therefore likely to be between -25 percent to -30 percent
• The Supervisory Board and the Management Board decide extensive cost-cutting measures to adapt the organisation to lower revenue expectations for the following years
• • all figures before adoption of IFRS 16 - Leases

Dr. Stella A. Ahlers, CEO of Ahlers AG:

"After the first nine months of fiscal 2019/20, our business performance is within our post-COVID-19 plans. We have responded quickly to the extraordinary challenges of this year and introduced extensive measures to reduce our costs in the short and medium term. Unfortunately, 80 employees across all units and hierarchical levels will be affected in total, as well due to the relocation of logistics services and the Pionier Workwear-Model Department from the Herford site to Poland. As a result of the reduction, personnel costs are expected to decline continuously and significantly until the end of the fiscal year 2022. This should contribute to a substantial improvement in earnings and a rapid return to profitability in 2021, and even more so together with the increase in sales revenues expected from 2022."

1. EARNINGS, FINANCIAL AND NET WORTH POSITION *

Preliminary remarks on accounting pursuant to IFRS 16

As communicated in the 2018/19 Annual Report (p. 73 and 94 et seq.), major portions of the former lease expenses will be reduced while depreciation and financing costs will increase accordingly as a result of the first-time adoption of IFRS 16 (Leases). As a result, EBITDA increased by EUR 3.6 million in the first nine months of the current fiscal year. At the EBT level, the adoption of the standard has virtually no effect on profit/loss, as depreciation/amortisation and financing costs will increase by about EUR 3.7 million. The obligation to capitalise the discounted future lease payments extended the balance sheet by EUR 10.1 million in the nine months of 2019/20. On the assets side, fixed assets increased by this amount due to the rights of use in the leased property. On the liabilities side, non-current and current financial liabilities from future lease payments rose by EUR 6.3 million and EUR 3.9 million, respectively, while equity declined by EUR 0.1 million. To ensure comparability, reference is made below to the accounting treatment before IFRS 16 at the relevant points.

Q3 2019/20: revenue trend of the first half of the year continues - decline in sales revenues mainly attributable to delivery postponements related to COVID-19

Even after the gradual reopening of physical retail stores since May 2020, the measures taken to contain the pandemic and travel restrictions continued to impede fashion sales. This led to a drop in revenues of EUR 2.9 million in the third quarter from June to August 2020. In addition, the impact of the pandemic on international supply chains led to a postponement of autumn/ winter deliveries from the third to the fourth quarter of 2020 in the amount of EUR 13.2 million. These sales revenues should largely be recovered in the course of the fourth quarter of 2020. Overall, the revenue trend of the first half of the year thus continued at a slightly slower pace (H1 2019/20: -33 percent). In the third quarter of 2020, Group sales revenues declined by 30 percent to EUR 38.2 million (Q3 2019: EUR 54.3 million).

Sales revenues declined by 32 percent or EUR 50.7 million to EUR 108.9 million in the first nine months of 2019/20 (previous year: EUR 159.6 million). The dynamic development of infections and the different extent of the restrictions due to the coronavirus had different effects on the markets relevant to Ahlers. At -27 percent, the revenue trend in Germany, whose economy has so far been the least severely affected compared to the other large euro zone countries France, Italy and Spain, exceeded the Group trend. The nine-month sales revenues in the rest of Western Europe declined in line with the general revenue trend (-32 percent). In Eastern Europe, many countries opted for comprehensive containment measures at an earlier stage and for a longer period of time, which resulted in an even stronger decline in sales revenues by -44 percent.

* all figures in this chapter before adoption of IFRS 16 - Leases

EARNINGS POSITION

Lower revenues send earnings declining in spite of significantly reduced operating expenses

The gross profit margin declined moderately by 1.5 percentage points to 48.3 percent in the first nine months of the fiscal year 2019/20, mainly due to the lower share of pre-order business. The EUR 26.9 million or 34 percent decline in gross profit to EUR 52.6 million was however mainly due to the significantly reduced revenues. Especially the cost-cutting measures introduced at short notice and also the programmes of the previous year led to a strong decline in operating ex- penses. Personnel costs fell by 19.3 percent from EUR 36.2 million to EUR 29.2 million due to the use of short-time working and the reduced headcount. The balance of operating expenses and income declined even more strongly by a noticeable EUR 9.3 million or 23.7 percent to EUR 30.0 million. In particular, store rent savings, significantly lower freight and order picking costs, lower marketing expenses and the reduction in temporary staff contributed to the cost reduction. This and write-downs at the previous year's level (EUR -3.5 million) sent operating expenses falling by EUR 16.3 million or 20.6 percent compared to the same period of the previous year. EBIT before one-time effects nevertheless declined to EUR -10.1 million in the reporting period (previous year: EUR 0.5 million). In the previous year, the sale of works of art and the reversal of provisions had led to positive one-time effects of EUR 0.5 million in the reporting period. In the current fiscal year, extraordinary income from the sale of a building and negative exchange rate effects due to the weaker zloty and rouble almost completely offset

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each other. On balance, one-time effects of EUR -0.2 million were thus stated in the reporting period. The financial result decreased from EUR -0.5 million to EUR -1.1 million due to additional loans and higher interest rates. Earnings before income taxes declined from EUR 0.5 million to EUR -11.4 million in the first nine months of 2019/20. As of the reporting date, a small amount of deferred tax assets was recognised for losses incurred by foreign subsidiaries, as the losses are expected to be offset before the end of the current fiscal year. As in the previous periods, no deferred taxes were recognised for domestic results. This means that larger domestic profits may be generated tax-free in the future. Consolidated earnings declined from EUR 0.4 million in the previous year to EUR -10.9 million.

EARNINGS POSITION Q1-Q3 2019/20

		incl. IFRS 16		before IFRS 16			before
		Q1-Q3		Q1-Q3		Q1-Q3	IFRS 16
EUR million	2019/20		2019/20	2018/19	Change in %
Sales	108.9		108.9	159.6	-31.8
Gross profit	52.6		52.6	79.5	-33.8
in % of sales	48.3		48.3	49.8
Personnel expenses *	-29.2		-29.2	-36.2	19.3
Balance of other expenses/income *	-26.4		-30.0	-39.3	23.7
EBITDA *	-3.0		-6.6	4.0	n.a.
Depreciation and amortisation *		-7.0		-3.5		-3.5	0.0
EBIT *	-10.0		-10.1	0.5	n.a.
One-time effects	-0.2		-0.2	0.5
Financial result	-1.3		-1.1	-0.5	<-100.0
Earnings before taxes	-11.5		-11.4	0.5	n.a.
Income taxes	0.5		0.5	-0.1	n.a.
Consolidated net income	-11.0		-10.9	0.4	n.a.

* before one-time effects

SEGMENT RESULTS

Baldessarini with sales revenues above the overall trend - Otto Kern with revenue increase

Baldessarini had very positive orders on hand for both seasons of 2020. In addition, Baldessarini's purchasing processes were less affected by the impact of the coronavirus on international supply chains than those of the other brands. At -22 percent, the brand's revenue trend thus noticeably exceeded the Group trend. Pierre Cardin, on the other hand, was more clearly affected by delayed deliveries. As a result, the brand's sales revenues declined slightly more sharply than the Group's sales revenues. Otto Kern has been focusing on business with a small number of major customers for two years and thereby grew by a mid double-digit percentage in the nine-month period 2019/20. Total revenues of the three premium brands Baldessarini, Pierre Cardin and Otto Kern dropped by 32 percent from EUR 112.3 million to EUR 76.7 million. The Premium segment's share in total revenues remained stable at 70 percent in the reporting period.

Operating expenses, including variable selling expenses, declined significantly by 21 percent. These savings helped to cushion but did not fully offset the revenue effect on gross profit. Earnings before one-time effects of the three premium brands declined to EUR -8.0 million in the reporting period due to the lower revenues (previous year: EUR 0.1 million).

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Pionier Workwear benefits from face masks sales - Pioneer with revenue decline in line with the Group trend In the Jeans & Workwear segment, Pionier Workwear benefited from additional sales of face masks, which cushioned the drop in revenues noticeably. Due to the discontinuation of the Jupiter business in the previous year, sales revenues of EUR 3.1 million have so far been lost in 2019/20. Pioneer Authentic Jeans could not escape the general market trend and recorded a revenue decline of 33 percent. Overall, revenues in the Jeans & Workwear segment dropped by EUR 15.1 million from EUR 47.3 million to EUR 32.2 million in the nine-month period (-32 percent). At 30 percent, the segment's share in total revenues remained unchanged from the previous year.

The gross profit margin of the Pioneer Authentic Jeans and Pionier Workwear brands included in the Jeans & Work- wear segment rose slightly by 0.8 percent. The segment's gross profit nevertheless fell noticeably because of the lower revenues. The strong reduction in the cost structure (-19 percent) failed to offset the revenue effect on gross profit. The result before one-time effects therefore dropped to EUR -2.1 million (previous year: EUR 0.4 million).

Sales by segments
EUR million		Q1-Q3 2019/20		Q1-Q3 2018/19	Change in %
Premium Brands *		76.7	112.3	-31.7
Jeans & Workwear		32.2	47.3	-31.9
Total		108.9	159.6	-31.8

* incl. "miscellaneous" EUR 0.3 million (previous year: EUR 0.2 million)

EBIT before one-time effects by segments
EUR million		Q1-Q3 2019/20		Q1-Q3 2018/19	Change in %
Premium Brands		-8.0	0.1	n.a.
Jeans & Workwear		-2.1	0.4	n.a.
Total before IFRS 16		-10.1	0.5	n.a.
Transition IFRS 16		0.1
EBIT incl. IFRS 16		-10.0

FINANCIAL AND NET WORTH POSITION

Stable net working capital, expanded financing concluded for a 5-year term and solid equity ratio

At EUR 155.8 million, total assets on August 31, 2020 were more or less on a par with the prior year reporting date (EUR 156.8 million). The changes in non-current and current assets largely balanced each other out between the reporting dates. Non-current assets dropped by EUR 6.3 million to EUR 48.1 million (previous year: EUR 54.4 million). This was mainly due to the sale of land and buildings not required for operations as well as scheduled write-downs on office equipment and the new ERP (Enterprise Resource Planning) system. In contrast, non-current assets grew by EUR 5.3 million to EUR 107.7 million (previous year: EUR 102.4 million). In particular, the noticeably higher inventories of finished goods caused inventories to rise by EUR 7.5 million to EUR 77.8 million. Trade receivables declined by EUR 4.2 million to EUR 15.4 million because of the lower revenues. At EUR 78.8 million, net working capital, which comprises inventories and trade receivables less increased trade payables (EUR +3.5 million), was on a par with the previous year (EUR 78.9 million). On the reporting date, the company had cash and cash equivalents of EUR 6.6 million (previous year EUR 4.6 million).

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