• Negative sales trend at Praktiker Germany
• Max Bahr increases sales and operating earnings
• International business strongly affected by cyclical factors

Kirkel – 26 October 2011. In a mixed third quarter 2011 the sales decline at Praktiker Group slowed, but operating earnings (EBITA) before extraordinary effects declined more than during the first six months of the year. This was mainly owed to the fact that the required reduction of inventories – especially at Praktiker Germany – affected the gross profit margin. In addition, the persistent low level of consumer spending in the important international markets strongly affected the international business as a whole. Only Max Bahr improved its year-on-year sales and earnings and likely developed better than the German DIY sector as a whole again.

The interim report Q3 2011 is available here.

The Praktiker Group generated sales of 844.4 million euro in the third quarter 2011, which is 7.3 percent down from the same period last year. Compared to the first half 2011 (minus 9.2 percent), the negative sales trend has slowed down. This is owed to business operations in Germany which saw a continued sales growth at Max Bahr and a lower sales decline at Praktiker. Overall, domestic sales receded by 5.4 percent. Abroad, by contrast, sales declined at 11.6 percent more strongly in the third quarter than in the first half year as general economic conditions remained poor and currency effects were negative. From January to September, the Praktiker Group generated around 2.468 billion euro in sales which is 8.5 percent less than during the same period last year.

Since the beginning of the second half of the year efforts to reduce inventories have been given priority. The reason is that, at mid-year, inventories were significantly up from the prior-year level because second quarter sales had receded more than anticipated, especially at Praktiker Germany. This discrepancy between inventories and sales could largely be corrected during the third quarter. Group-wide, aggressive marketing campaigns with high price concessions made for an accelerated disposal of the excess stocks. This had a positive effect on the net working capital and especially also on liquidity, but affected the gross profit margin which declined by 2.3 percentage points to 32.3 percent during the third quarter. After having achieved an improvement in the gross profit margin of 1.1 percentage points by mid-year, the gross profit margin stagnated at the prior-year level over the first nine months of the year.

This decline in the gross profit margin also had an effect on the operating earnings of Praktiker Group in the third quarter which reached minus 10.1 million euro. For the first nine months of the year, a loss in operating earnings in the amount of 153.6 million euro was reported. Before extraordinary effects which in the third quarter resulted solely from the programme “Praktiker 2013”, the third quarter closed with EBITA of plus 3.5 million euro (previous year 40.0 million euro). For the first nine months, operating earnings before extraordinary effects came in at minus 21.5 million euro (previous year plus 54.4 million euro). In addition to expenses resulting from the programme “Praktiker 2013” extraordinary effects also included impairments on assets and additions to provisions for onerous contracts from the first half of the financial year.

Germany: opposing trends at Praktiker and Max Bahr

On the domestic market, Praktiker and Max Bahr continued to develop in opposite directions in the third quarter. With regard to sales, Max Bahr was able to seamlessly tie into the positive trend of the first six months – despite the weather conditions that were unfavourable for the gardening business in July – and achieve a 2.8 percent increase to 180.5 million euro. Like for like, this represents a plus of 2.1 percent. With such a growth rate the Hamburg-based subsidiary likely has outperformed the German DIY sector as a whole.

Max Bahr succeeded in not only increasing sales but also operating earnings during the third quarter. And it did so despite a decline in its gross profit margin by around two percentage points to 34.7 percent. Its EBITA before extraordinary effects came in at 6.1 million euro (prior year: 5.4 million euro) and net of extraordinary effects at 6.4 million euro (prior year: 5.4 million euro). During the first nine months, EBITA before extraordinary effects aggregated to 22.7 million euro (prior year: 23.1 million euro); net of extraordinary effects EBITA stood at 15.3 million euro (prior year: 23.1 million euro).

Praktiker Germany could not reverse the negative trend from the first half, but it succeeded in slowing it down. Following a sales decline of 14.5 percent during the period from January to June, sales in the third quarter came in at 390.4 million euro which is only 9.1 percent below the prior-year value. The repositioning of the Praktiker brand in Germany launched in the second quarter did not yet lead to the sales development that had been expected from the transformation of the market positioning, customer approach and advertising measures.

The operating earnings before extraordinary effects of Praktiker Germany were affected by the sales activities aimed at reducing inventories and declined in the third quarter to minus 16.6 million euro compared to a plus of 17.3 million euro in the corresponding prior-year period. After inclusion of all extraordinary effects, Praktiker Germany closed the third quarter with operating earnings of minus 28.3 million euro (prior year: plus 9.7 million euro). For the first nine months and before extraordinary effects, this gives EBITA of minus 48.7 million euro which declined to minus 125.4 million euro after including extensive extraordinary effects.

International: EBITA only moderately down from prior year despite continued decline in sales

In the third quarter 2011 the general economic environment in the international segment continued to be highly heterogeneous, but was overall worse than expected. It ranged from countries exhibiting a high economic growth like Turkey to countries with growing economic and fiscal problems such as Greece. In this country, just like in Romania and Bulgaria, private consumption and retail continued to decline further. In addition, almost all Eastern European currencies again experienced stronger devaluation pressures. As a consequence, the economic downturn in the international segment of Praktiker AG was slightly more pronounced in the third quarter than during the first six months. Sales in the nine country subsidiaries declined by 11.6 percent to 252.5 million euro (prior-year: 285.6 million euro). Like for like, sales declined 13.6 percent. If exchange rates had remained unchanged, international sales would only have come down by 9.0 percent during the third quarter. During the first nine months, sales declined by 9.5 percent and adjusted for currency effects by 8.0 percent.

Despite these persistently unfavourable general conditions Praktiker succeeded in keeping its international gross profit margin stable at 32.5 percent in the third quarter and also during the first nine months by revising its assortments, adjusting its prices and through negotiations with its suppliers. This way, the consequences of the sales decline could partially be absorbed. This applies in particular for Greece where it was possible to maintain operating earnings approximately at the prior-year level. Furthermore, the persistent negative trend in Romania could in part be compensated by earnings improvements in Poland, Hungary and Bulgaria.

This way, the international business operations of Praktiker were able to generate operating earnings of 13.0 million euro during the third quarter. Before extraordinary effects, the figure stood at 14.0 million euro, which is just 2.9 million euro below the year-earlier value. At the close of the nine months period, operational losses in the amount of 39.4 million euro were reported (prior year: plus 5.2 million euro). Before extraordinary effects, EBITA for this period stood at 5.1 million euro (prior-year: 14.7 million euro). If exchange rates had remained unchanged in all international markets, EBITA would have been 0.5 million euro higher during the third quarter and 0.8 million euro higher during the first nine months.

Outlook: 2011 sales and earnings down from prior year

For the remaining months of the year the Management expects sales and earnings to follow the trend of the first nine months and hence to significantly fall short of the prior-year values.

Interim Report Q 3 – 2011 / Nine months 2011

* mainly relating to ”Praktiker 2013“ programme and re-evaluation of future prospects

** basic

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