In the period up to 20 February 2013, there were no significant operational and structural changes or transactions within the TOM TAILOR GROUP that materially altered the net assets, financial position and results of operations as against 31 December 2012.
STRATEGIC OUTLOOK
The TOM TAILOR GROUP has a clearly defined vision: the Company aims to become one of the major fashion and lifestyle companies in Europe. With its acquisition of BONITA the Company made a significant step toward this goal. The TOM TAILOR GROUP will systematically expand and roll out its business model in Germany and its core international markets of Austria, Switzerland, the Benelux countries and France, and now also covers the less competitive over-40 target group with BONITA.
OUTLOOK – ECONOMIC ENVIRONMENT AND SECTOR DEVELOPMENTS
The International Monetary Fund (IMF) has revised its growth forecast downward slightly since the autumn while giving signs of hope for the global economy should the effects of the crisis be more favourable than expected. The experts are anticipating global economic growth of 3.5 % in 2013 and 4.1 % in 2014. However, at 0.1 percentage points each, their revisions are only minimal. In 2013, global economic growth will be driven in particular by China (+ 8.2 %) and India (+ 5.9 %). The recovery in the eurozone is expected to be delayed, and the IMF expects that the economy here will contract again by 0.2 % in 2013. This is mainly attributable to the expected developments in Italy and Spain. The IMF is anticipating 0.6 % growth in gross domestic product (GDP) in Germany in 2013, a decline as against 2012. It is also expecting the economic trend to be slightly positive in the following core markets for the TOM TAILOR GROUP: France, Austria and Belgium. In 2014, the eurozone is expected to grow by 1 %.
In Central and Eastern Europe (+ 2.4 %), an increasingly important region for the TOM TAILOR GROUP, and in Russia (+ 3.7 %), the IMF is forecasting growth for 2013 as well. Steady growth rates are expected to continue in Poland, Serbia and Slovakia.
Although German economic sentiment is unsettled, it is considerably more upbeat than in the rest of the eurozone. The GfK consumer confidence index was stable in full-year 2012, closing at 5.8 points (end of 2011: 5.6 points).
The consumer climate should remain stable despite the uncertainty on the global markets and the expected economic slowdown in Germany. The consumer price index in Germany also declined in 2012 compared with the previous year to 2.0 % (previous year: 2.3 %). Inflation in the eurozone also eased somewhat to 2.2 % (2011: 2.7 %). For 2013, the ECB is forecasting a lower inflation rate for Europe of 1.6 %.
The key commodities markets for the textile and clothing industry are expecting to see a significant decline in cotton production volumes. This is primarily attributable to the sharp decline in cotton prices compared with previous years and the increasing attractiveness of other crops. Nevertheless, no shortage of physical cotton stocks is actually expected despite continued high demand, so that prices are only expected to increase moderately. Forecasts for 2013 cotton prices are in the range from 82 to 90 US cents per pound (source: Worldbank.org, cotton; cotton forward curve, NYB-ICE Futures US Softs).
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Nevertheless, the textile industry must adapt to permanently rising production costs in Asia, since labour costs there are continuing to increase in line with overall prosperity.
Since August 2012, goods purchased from Asia have been sourced directly via a central purchasing company in Asia, Hong Kong-based TOM TAILOR Sourcing Ltd. Having its own company on the ground allows the TOM TAILOR GROUP to be closer to suppliers and secures the required production capacity in the long term as well as ensuring that cotton is procured and processed in a timely manner. Starting at the beginning of 2014, TOM TAILOR Sourcing Ltd. is expected to also assume sourcing for BONITA in Asia, with the aim of achieving cost advantages for BONITA and enhancing the economies of scale for the Group. Overall, the TOM TAILOR GROUP is less strongly impacted by the muted economic forecasts than are companies in other sectors. Due to the expected synergies after the integration of BONITA is complete and the stable development in the Group’s core markets, the TOM TAILOR GROUP sees an excellent basis for continuing its profitable growth and sustainably increasing enterprise value.
EXPECTED BUSINESS DEVELOPMENTS
Future Company Performance
Following the acquisition of BONITA in August 2012, the TOM TAILOR GROUP is currently represented on the fashion market by two strong umbrella brands: TOM TAILOR and BONITA. The collections for the TOM TAILOR Casual, TOM TAILOR Denim and TOM TAILOR POLO TEAM brands, and for the BONITA and BONITA men brands, each have their own brand profile and are aimed at different target age groups between the ages of 0 and 60. The two umbrella brands have a strictly separate market presence. After the initial costs of harmonising/integrating processes at the two companies, the TOM TAILOR GROUP expects to see significant cost advantages from economies of scale, in particular from direct groupwide procurement via the TOM TAILOR purchasing company in Asia. The Group’s key strategic and operating projects in 2013 are to largely complete the integration of BONITA with the TOM TAILOR GROUP and to continue expanding the retail segment.
Investment and Expansion
The TOM TAILOR GROUP will continue its profitable course of growth and expansion in 2013 and 2014. The focus of further expansion will mainly be on the retail segment and on opening additional stores for the umbrella brands TOM TAILOR and BONITA. In 2013 and 2014, the TOM TAILOR GROUP is planning to open around 60 additional TOM TAILOR stores and 40 new BONITA stores. In the case of BONITA, the main focus of expansion will be on the BONITA men brand.
In addition, the Company will transfer the concept behind its successful online shop to BONITA because the Group sees particularly high potential for e-commerce in the over-40 target group. The launch of the online shop is scheduled for the end of the second quarter of 2013; preparations such as introducing a customer card were started at the beginning of 2013.
The TOM TAILOR GROUP will also see further growth in the wholesale segment and will continue to expand the number of shop-in-shop selling spaces and franchise stores for TOM TAILOR. The Management Board is planning to open around 200 additional shop-in-shop selling spaces as well as around 20 franchise stores each year for the next two years.
The focus of further expansion will be on Germany and the core international markets of Austria and Switzerland. Experts are forecasting that consumer spending in these countries will remain stable.
The Company is planning to invest EUR 35 million overall in each of financial year 2013 and financial year 2014. The investments will relate almost entirely to the further expansion of new spaces controlled by the Company.
Revenue
At this time, the Management Board of TOM TAILOR Holding AG is anticipating Group revenue in 2013 of at least EUR 900 million, with revenue increasing further in 2014. The Company is expecting both umbrella brands to contribute to the revenue growth. Due to the acquisition of BONITA, which will be consolidated over full-year 2013 first, and the expansion of selling spaces in the retail segment, the share of total revenue from retail will continue to increase in 2013. EBITDA Margin
In 2013, the TOM TAILOR GROUP is aiming for an adjusted EBITDA margin of 12 %, and in 2014 it is anticipating a further increase. Revenue growth, the higher retail share thanks to BONITA and the improved gross margin will boost profitability. Operating expenses will increase mainly as a result of the continued expansion of own selling spaces. Profitability in 2013 will be impacted by outstanding integration costs.
Finance
The TOM TAILOR GROUP is expecting operating cash flow to rise in line with the increase in operating profit in 2013. The Company is anticipating free cash flow of between EUR 5 million and EUR 10 million in 2013, taking into account the scheduled repayment of bank loans in the amount of EUR 10 million and planned capital expenditure of around EUR 35 million.
The TOM TAILOR GROUP is therefore expecting to reduce net debt by between EUR 15 million and EUR 20 million in 2013, and a further reduction in 2014.
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SUMMARY OF EXPECTED DEVELOPMENTS BY THE MANAGEMENT BOARD
The Management Board of TOM TAILOR Holding AG considers the Group’s situation to be positive overall and is expecting the Group’s net assets, financial position and results of operations to develop positively in 2013 and 2014. Furthermore, the Management Board is confident that the Company will have largely completed the integration of BONITA by the end of 2013, thus significantly improving net income for the period.
The following aspects are key to further enhancing profitability:
− successfully completing the integration of BONITA and realising synergies and economies of scale in the new TOM TAILOR GROUP
− rolling out the business model with a continued focus on the retail segment − further expansion of direct sourcing in Asia for the two umbrella brands − increasing selling space productivity
− further international expansion in selected markets starting in 2014
The forecast for 2013 and 2014 takes into account all currently known events that could influence business developments at the TOM TAILOR GROUP. However, political and economic uncertainties beyond the Group’s control could mean that actual business performance differs from the forecasts.
Hamburg, 20 February 2013 The Management Board
Dieter Holzer Dr Axel Rebien Chief Executive Officer Chief Financial Officer Udo Greiser Dr Marc Schumacher Chief Product Development Chief Retail Officer and Procurement Officer
Consolida ted Finan C ial s t a tements
99 Income Statement
100 Statement of Comprehensive Income
101 Statement of Cash Flows
102 Balance Sheet
104 Statement of Changes in Equity
106 Notes to the Consolidated Financial Statements
106 a. General information
113 B. accounting Policies and Consolidation methods
121 C. income statement disclosures
125 d. Balance sheet disclosures
144 e. management of Financial Risk and Financial derivatives
154 F. Cash Flow disclosures
155 G. segment Reporting
Consolidated Income Statement for the Financial Year from 1 January to 31 December 2012
eUR thousand note 2012 2011
Revenue 1 629,697 411,650
other operating income 2 29,423 13,163
Cost of materials 3 – 296,546 – 210,076
Personnel expenses 4 – 121,501 – 61,085
depreciation, amortisation and impairments 5 – 38,791 – 25,531
other operating expenses 6 – 186,063 – 107,285
Profit from operating activities 16,219 20,836
Financial result 7 – 15,783 – 7,180
Result before income taxes 436 13,656
income taxes 8 2,670 – 3,584
Net income for the period 3,106 10,072
thereof:
shareholders of tom tailoR Holding aG 288 9,820
non-controlling interests 2,818 252
Earnings per share 9
Basic earnings per share (in eUR) 0.01 0.59