Hornbach Holding AG & Co. KGaA: Hornbach intends to regain its former earnings strength

Hornbach intends to regain its former earnings strength

2018/19 Annual Report published:

- Strong customer demand drives consolidated sales up by 5.3 % to Euro 4.36 billion

- Additional costs reduce adjusted operated earnings (EBIT) by 19 % to Euro 135 million

- Consistent dividend planned

- Albrecht Hornbach: "Our business model works." / "Costs too high in year under report. Need to prioritize individual projects."

Frankfurt/Main, May 27, 2019. The Hornbach Group (Hornbach Holding AG & Co. KGaA Group) intends to translate its success with customers into sustainable earnings growth once again. With this goal and after a weak earnings performance in the 2018/19 financial year, the Group is confident looking forward. For the current financial year (March 1, 2019 to February 29, 2020), Germany's third-largest DIY store operator expects to generate sales growth in a medium single-digit percentage range and clearly disproportionate growth in adjusted operating earnings (adjusted EBIT).

"We were very successful with our customers in the 2018/19 financial year, in which we also celebrated 50 years of Hornbach DIY stores with garden centers. Rising sales and customer totals, the highest surface productivity of the top ten DIY players in Germany, and growth in our gross profit - all these factors show that our business model works. With the right alignment, stationary retail can look forward to an excellent future", stressed Albrecht Hornbach, Chief Executive Officer of Hornbach Management AG, the general partner of Hornbach Holding AG & Co. KGaA, when presenting the annual results in Frankfurt.

Sales forecast met - surface productivity (DIY) reaches record level

The Hornbach Group met its 2018/19 sales forecast, with net sales growth of 5.3 % to Euro 4,362 million. Hornbach Baumarkt AG, the largest operating subgroup which operated 158 DIY and garden centers (2017/18: 156) and online stores in nine countries across Europe as of the balance sheet date on February 28, 2019, also increased its sales by 5.3 %, in this case to Euro 4,096 million. On a like-for-like basis and net of currency items, group-wide sales at the DIY stores with garden centers (DIY) rose by 4.2 %. At Euro 2,210 per square meter, surface productivity in the DIY retail business in 2018/19 reached the highest level since the IPO of Hornbach Baumarkt AG in 1993. Online retail, which Hornbach dovetails with its stationary DIY business to form interconnected retail (ICR), contributed to the Group's dynamic sales performance with double-digit growth that was higher than in the previous year. The Hornbach Baustoff Union GmbH subgroup reported sales growth of 6.7 % to Euro 265 million.

Reduction in earnings due to disproportionate cost growth

Hornbach was not satisfied with its earnings performance in the 2018/19 year under report. "Regrettably, we did not manage to translate our success with customers into earnings growth", commented Albrecht Hornbach. EBIT adjusted for non-operating one-off items fell by 18.6 % to Euro 134.9 million in the past financial year, thus clearly missing the original target of matching the previous year's figure (Euro 165.6 million). Adjusted EBIT at the Hornbach Baumarkt AG subgroup declined by 25.6 % to Euro 81.9 million. This was due above all to the sharply disproportionate increase in personnel and material expenses in the fourth quarter of 2018/19. This particularly involved additional costs incurred to improve the stationary store presence, such as store conversion and maintenance measures, as well as the intensive preparations for the 2019 spring season.

The company's declared aim now is to improve its profitability on a permanent basis, particularly in its home market of Germany. "We have to make sure that our costs grow more slowly than our sales once again. In all our activities, we are concentrating on those aspects that are most relevant to our customers. The key focus in the 2019/20 financial year will therefore be on prioritizing individual projects", remarked Albrecht Hornbach. However, this would also involve cost discipline at stores and administration departments and a balanced weighting of investments. In 2018/19, the Hornbach Group invested Euro 196 million, and thus around a third more than one year earlier. Here, the company also drew on special opportunities (land acquisition and buyback of stores) that were not included in the original budget. In the current 2019/20 financial year, by contrast, investments should not exceed a volume of between Euro 110 million and Euro 130 million.

2019/20 earnings forecast: adjusted EBIT set to rise significantly

In the current 2019/20 financial year, the Hornbach Group intends to generate consolidated sales growth in a medium single-digit percentage range once again. The management expects EBIT adjusted for non-operating items at the Hornbach Holding AG & Co. KGaA Group in the forecast period from March 1, 2019 to February 29, 2020 to exceed the level reported for the 2018/19 financial year (Euro 134.9 million) by more than 15 %. The Hornbach Baumarkt AG subgroup is expected to generate earnings growth (adjusted EBIT) of more than 30 %. Alongside an improvement in operating earnings strength, this growth will also be driven by the impact of first-time application of the new IFRS 16 lease accounting standard. The conversion to IFRS 16 is expected to boost EBIT by Euro 12.7 million on the level of the Hornbach Group and by around Euro 21.5 million at the Hornbach Baumarkt AG subgroup. Conversely, higher interest expenses due to IFRS 16 are expected to reduce consolidated earnings before taxes by Euro 7.1 million at the Hornbach Group and by Euro 13.3 million at the Hornbach Baumarkt AG subgroup.

Key figures of the Hornbach Group (Hornbach Holding AG & Co. KGaA Group)

Differences due to figures being rounded up or down; percentage changes calculated on basis of Euro 000s.

¹⁾ Adjusted to exclude non-operating income and expenses

Note
The Annual Reports of the Hornbach Holding AG & Co. KGaA Group and the Hornbach Baumarkt AG subgroup for the 2018/19 financial year are available online at: www.hornbach-group.com