Hornbach Holding AG: Hornbach boosts earnings power and plans dividend increase

Hornbach boosts earnings power and plans dividend increase

Operating earnings growth of ten percent in 2013/2014 financial year / Sales rise by 4.3 percent to Euro 3.4 billion / DIY megastores and garden centers in Germany benefit from consolidation in sector and substantially expand market share / Four new DIY locations opened

Frankfurt/Main, May 28, 2014. The Hornbach Group generated disproportionate earnings growth compared with sales in its 2013/2014 financial year (March 1, 2013 to February 28, 2014). While net sales at the Hornbach Holding AG Group grew by 4.3 percent to Euro 3.369 billion (previous year: Euro 3.229 billion), operating earnings (EBIT) rose by 10.0 percent to Euro 160.4 million (previous year: Euro 145.9 million). "Driven by a strong recovery in the second half of the year, we substantially boosted our earnings power once again. Given our successful business performance in 2013/2014, we will be proposing a dividend increase of around 20 percent at both Hornbach Holding AG and Hornbach-Baumarkt-AG for approval by the respective Annual General Meetings in July 2014", announced Albrecht Hornbach, Chairman of the Board of Management of Hornbach Holding AG at the presentation of annual results in Frankfurt.

Under this proposal, the dividend for listed preference shares in Hornbach Holding AG would rise from Euro 0.67 to Euro 0.80, while the distribution per ordinary share would increase from Euro 0.64 to Euro 0.77. The dividend paid at the Hornbach-Baumarkt-AG subsidiary, which is also publicly listed, is proposed to rise from Euro 0.50 to Euro 0.60.

This increase in the Hornbach Group's earnings power was chiefly driven by dynamic like-for-like sales growth at DIY megastores with garden centers together with a stable gross margin and improved cost ratios. Due to the long winter, the 2013/2014 financial year (March 1, 2013 to February 28, 2014) began on an exceptionally weak note - like at the entire DIY sector - but then gained ever greater momentum as the quarters went by.

All three subgroups post earnings growth

Hornbach-Baumarkt-AG, the most important operating subgroup, increased its like-for-like sales, i.e. sales excluding newly opened or closed in the past twelve months, by 2.7 percent, following a reduction by 1.4 percent in the previous year. This growth was largely driven by stores in Germany, which increased their like-for-like sales by 4.9 percent and significantly enlarged their market share from 9.3 percent to 10.0 percent. Following an enormous race to catch up, the international stores also managed to regain the previous year's level of like-for-like sales. Net sales at the Hornbach-Baumarkt-AG subgroup increased overall by 4.4 percent to Euro 3,152 million (previous year: Euro 3,020 million). This figure includes sales at four new stores - a replacement store in Heidelberg and three stores newly opened in Slovakia, Sweden, and the Netherlands. EBIT at this subgroup showed a slightly disproportionate improvement compared with sales, rising 5.8 percent to Euro 105.1 million.

The Hornbach Baustoff Union GmbH (HBU) subgroup posted sales of Euro 215.7 million, 4.1 percent more than in the previous year. EBIT here showed clearly disproportionate growth of 18.3 percent to Euro 5.5 million. As a regional builders' merchant player, HBU operates 25 outlets in Rheinland-Pfalz, Baden, and Saarland, and two in adjacent Lorraine (France). The third subgroup, Hornbach Immobilien AG, increased its rental income by 6.6 percent to Euro 76.9 million. At Euro 51.1 million, operating earnings were 10.3 percent higher than one year earlier.

Hornbach maintains a level head within market consolidation

One key topic for the entire DIY sector in the past financial year, and thus also for Hornbach, was the bankruptcy of the Praktiker Group, which triggered what is seen as the largest round of consolidation in the German DIY sector to date. The closure across the board of around 300 Praktiker and Max Bahr DIY stores led to a redistribution of sales, a process from which Hornbach also benefited. The Hornbach Group has taken over six locations. As the current financial year progresses, the company will be converting these locations in Kamen, Lüneburg, Saarbrücken, Schwabach, Trier, and Ulm into typical Hornbach DIY megastores with garden centers. "We never aimed simply to buy market share. Our focus was rather on individual locations that could optimally complement our store network", commented Hornbach with regard to the company's expansion strategy. "We will continue to generate steady growth, but will maintain a sense of proportion. We examine new location options very carefully, focusing on excellent transport links, strong surroundings and development potential, and the sales and earnings contributions they are expected to generate in the long term."

Family trust buys back Kingfisher's minority stake

The shareholder structure of the group of companies changed significantly at the beginning of the new 2014/2015 financial year. As Kingfisher saw no possibility of assuming a more dominant position at Hornbach in the foreseeable future, in March 2014 the British company announced its exit from all of its financial investments in the Hornbach Group. "For the founding family there was no doubt that this was a situation where it was necessary to take responsibility", commented Hornbach. Hornbach Familien-treuhandgesellschaft mbH bought back all of Kingfisher's ordinary shares in Hornbach Holding AG (25 % plus two shares). Adds Albrecht Hornbach: "The family's commitment to upholding the autonomy of the Hornbach Group on a sustainable basis is unshakeable. It was therefore important to have control over the share package thereby bought back."

Furthermore, the free float share of Hornbach's two listed share classes has risen significantly since Kingfisher sold its holdings of 1.65 million ordinary shares in Hornbach-Baumarkt-AG and around 1.4 million preference shares in Hornbach Holding AG (ISIN DE0006083439) to an international circle of investors. The free float share of the preference share in Hornbach Holding AG, which is listed in the SDAX, increased from 82.6 % to 100 % of the eight million listed preference shares. On the one hand, this will boost free float market capitalization, a key criterion in determining index affiliation. On the other hand, the share's liquidity also stands to benefit in future from the broader shareholder base. Similar developments can also be expected for the Baumarkt share, whose free float has risen from 18.4 % to 23.6 % of the 31.8 million listed no-par shares.

Outlook: higher investments and disproportionate earnings growth

Given its accelerated expansion program, the Hornbach Group, which most recently had a total of 15,712 employees, plans to invest between Euro 130 million and Euro 160 million in the current 2014/2015 financial year (previous year: Euro 116 million). Up to nine new store openings are planned (including two replacement locations and one store extension). For 2014/2015, the Hornbach Group expects its consolidated sales to grow in a medium, single-digit percentage range, and most likely at a higher rate than in the past 2013/2014 financial year (plus 4.3 percent). Operating earnings (EBIT) are set to show disproportionate growth compared with sales.

Hornbach operating top-performing online DIY store

Based on net sales, Hornbach is Germany's third-largest DIY retailer and the fifth-largest player in Europe. With total sales areas of around 1.65 million square meters, the current total of 143 Hornbach DIY megastores with garden centers (of which 93 in Germany) have average sales areas of around 11,700 square meters. Hornbach is not only active in the stationary retail business. At hornbach.de, the company also operates what, based on internal figures, is Germany's top-performing online DIY store and garden center. With 70,000 articles listed, it is also the most extensive offering available online. This virtual store, now successfully launched in Austria as well, will be gradually rolled out to all nine countries where Hornbach has DIY store operations.

Key earnings figures of the Hornbach Group (Hornbach Holding AG Group)

(Differences due to rounding up or down to nearest Euro million; percentage changes calculated on basis of Euro 000s)

Note
The Annual Reports of the Hornbach Holding AG Group and the Hornbach-Baumarkt-AG subgroup for the 2013/2014 financial year are available online at: www.hornbach-group.de