Balance Sheet Press Conference 2010

2008/09 Fiscal Year:
- Sales and earnings targets reached despite economic crisis
- Dividend of 1.10 EUR consistent with last year's level
2009/10 Fiscal Year:
- Respectable start into the new fiscal year

Hagen, January 13, 2010 – The 2008/09 fiscal year was dominated by the global economic and financial crisis which also left its mark on the DOUGLAS Group. Consolidated sales nonetheless rose by 2.3 percent to some 3.2 billion EUR, slightly surpassing our projected increase of 2 percent. However, our like-for-like sales unfortunately declined slightly, falling just 1.0 percent behind the previous year's figure. In positive contrast, our key home market of Germany outperformed the foreign operations during the year under review. And, all in all, we again made inroads against the competition in the majority of countries, gaining additional market share," said Dr. Henning Kreke, President and CEO of DOUGLAS HOLDING AG, at the Balance Sheet Press Conference in Düsseldorf, indicating that he was not dissatisfied with the performance of the past fiscal year.  

All the same, the crisis also hit the DOUGLAS Group hard in several of the foreign markets – particularly in Spain and Portugal, but also in the Baltic States and in Hungary. As a consequence, it was decided to analyze the entire DOUGLAS Group store network and to close some 50 Douglas Perfumeries abroad that had previously been generating negative cash flows, with no indication of earnings improving on a sustained basis in the medium-term. In total, the costs of streamlining the store network across all divisions will reach some 24 million EUR.

Earnings before taxes (EBT) – prior to adjustment for the cost of streamlining the store network – of 128 million EUR were considerably behind the prior year's figure of 152 million EUR. In other words, the upper range of the earnings target of between 120 and 130 million EUR before special one-off effects was reached, which had been set by the Executive Board of DOUGLAS HOLDING back in May 2009.

The EBT margin came in at 4.0 percent following 4.8 percent the year before. On the basis of this quite decent figure for the specialty retail sector, the DOUGLAS Group remains to count among the top players in the German retail sector. Earnings before interest, taxes, depreciation and amortization (EBITDA) declined from 277 million EUR to 268 million EUR. The EBITDA margin – the ratio of EBITDA to sales – stood at 8.4 percent versus 8.9 percent year-on-year. Despite the difficult macroeconomic conditions, the DOUGLAS Group once again succeeded in generating a positive DOUGLAS Value Added (DVA) of nearly 21 million EUR and an ROCE after taxes of 7.9 percent in the fiscal year 2008/09.

The brakes were strongly applied on capital expenditure in the reporting year. Whereas 155 million EUR were invested in the previous year, the investments volume for the 2008/09 fiscal year just only amounted to 112 million EUR. In all, 104 new stores opened in Germany and abroad in addition to numerous upgrading programs for existing stores. The lion's share again went towards the Douglas Perfumeries, with 78 new openings – of which 68 were outside of Germany – thereby further extending their leading market position in Europe. The Books division also grew further with the opening of 12 new bookstores in German-speaking Europe. In the Jewelry division, Christ extended its market leadership in Germany with the opening of 6 new stores along with numerous modernization measures being undertaken at other stores. The AppelrathCüpper fashion stores in Frankfurt, Cologne and Hamburg were given a new, modern look following extensive remodeling and modernization measures. And in the Confectionery division, Hussel opened 8 new confectionery stores. As of September 30, 2009, the store network of the DOUGLAS Group consisted of 2,005 German and foreign stores following 1,966 on the same balance sheet date one year earlier.

"Compared to some of the previous years – when we were able to report double-digit growth – our performance in the 2008/09 financial year might seem modest at first glance. However, we still feel a sense of pride that we have managed to achieve our goals despite the unfavorable economic climate and defend our position against so many competitors," said Dr. Henning Kreke at the Balance Sheet Press Conference and added: "Yet again, our workforce of some 24,000 men and women in Germany and abroad played a pivotal part in this accomplishment.  With their warmth, customer-orientation and professionalism, they even managed to spark customers' enthusiasm for the DOUGLAS Group's specialty stores during these difficult times. I would therefore like to express my heartfelt thanks – on behalf of myself and my colleagues on the Board – to each and every one of our employees for their contribution and dedication to our cause!"

In this respect, it was particularly pleasing that the DOUGLAS Group again managed to employ so many young people at the start of the 2009 training year. In total, 450 young men and women commenced their professional careers in our specialty stores or in one of our Service head offices. Thus, the DOUGLAS Group's trainee ratio of 12.5 percent is yet again well above the German retail sector's average of approximately 8 percent.

Developments in the Group's divisions:

The Douglas Perfumeries further extended their market-leading position in Europe. The 1,220 Perfumeries generated sales of nearly 1.9 billion EUR during the 2008/09 fiscal year, translating into growth of 1.7 percent. In Germany, sales at the 452 Douglas Perfumeries climbed by 1.2 percent to 920 million EUR, thus further securing their leading market position. All in all, it proved to be correct for Douglas to remain faithful to its proven quality and service strategy.

While Douglas performed quite well in the all-important home market in Germany, the performances delivered by some foreign markets were unfortunately sluggish. Although sales at the 768 foreign Douglas Perfumeries moved ahead in total by 2.1 percent to over 933 million EUR. This increase however was largely the consequence of 68 new openings and the investment in the Croatian perfumery company, iRis. Douglas achieved additional sales growth in Poland, the Netherlands, Russia and Italy. In other countries – such as in Spain and Portugal, but also in the Baltic States and in Hungary – Douglas was however hit with a full punch. Douglas reacted as quickly as possible by holding discussions with landlords and optimizing the product-mix and staff work schedules. Nevertheless, the sales and earnings in these countries fell sharply. As a consequence, a thorough analysis of all locations was carried out and it was then decided to close stores that would not lead to sustainable profitability.

The Thalia Group further reinforced and extended its leading market position in German-speaking Europe. Sales in the Books division climbed by 6.6 percent to some 820 million EUR. The total number of bookstores in Germany, Austria and Switzerland increased to 294 after 291 the previous year. Turnover at the 238 bookstores in Germany saw a 6.6 percent jump to nearly 629 million EUR. The 56 retail bookselling subsidiaries in Austria and Switzerland posted sales gains of 6.6 percent to 191 million EUR. With 32 stores in Austria and another 24 in Switzerland, the Thalia Group occupies leading market positions in each country.

The Jewelry division also delivered a pleasing sales performance. At its 203 jewelry stores, Christ registered sales of over 292 million EUR, a rise of 2.3 percent over the previous year. This enabled Christ to further secure and extend its solid market position for mid to upper priced jewelry in Germany.

The sales of the Fashion division of 131 million EUR were 11.5 percent behind the previous year. Adjusted for the Berlin store closed in January 2009, the sales decline of the now 14 women's fashion stores stood at 7.3 percent. However, the various measures implemented as part the AppelrathCüpper's restructuring program makes it well-placed for the future and in generating a balanced result.

At the 274 confectionery shops, Hussel's sales in Germany and Austria of 101 million EUR were in line with previous year. Whereas sales in Germany slightly dropped to 96 million EUR following the store network streamlining, the confectionery shops in Austria climbed to almost 5 million EUR year-on-year.


Respectable start into the new fiscal year 2009/10

"Although the impact of the economic crisis is still palpable, we produced a respectable start into the new fiscal year and are not dissatisfied with the performance of the first quarter and the holiday season sales as a whole," commented Dr. Henning Kreke. During the first three months from October to December 2009, the DOUGLAS Group succeeded in posting a first-quarter sales gain of 0.7 percent to 1.13 billion EUR. In the all-important home market in Germany sales growth of 1.6 percent was achieved. Sales outside of Germany unfortunately were slightly down 0.9 percent.  And on a like-for-like basis, Group sales fell just 0.6 percent short of the previous year. Subsequently, the favorable sales increase in Germany of 0.4 percent could not completely offset the sales decline of 2.5 percent experienced abroad.

During the first quarter, sales were down 0.8 percent at the Douglas Perfumeries. This was predominantly the result of an overall downward trend of -2.6 percent outside of Germany. In positive contrast, Douglas posted an impressive sales gain of 1.1 percent in Germany, thus extending its leading market position. The Thalia bookstores boosted their sales by 7.2 percent.  The Christ Jewelry stores posted a sales gain of 0.4 percent. AppelrathCüpper remained 14.8 percent behind the prior year's sales because of the continued deteriorated operating environment. Adjusted for the AppelrathCüpper fashion store closed in Berlin at the end of January 2009, the adjusted sales decline of 3.0 percent is much more moderate. The Hussel confectionery shops regrettably missed the prior year's sales by 2.7 percent.

Detailed figures for the first quarter of the 2009/10 fiscal year will be published by DOUGLAS HOLDING on February 9, 2010.

"Our objective in 2010 must be to dynamically pursue the goals we have set ourselves and further reinforce the leading positions secured by our divisions – Douglas, Thalia, Christ, AppelrathCüpper and Hussel – throughout the German and European retail markets when it comes to service, quality and store ambiance," said Dr. Henning Kreke. With an equity ratio of over 40 percent and the solid net assets, financial position and result of operations, the DOUGLAS Group is strongly placed to secure their position as a leading European lifestyle retail group. To this end, a capital expenditure volume of some 120 million EUR has been set aside for the 2009/10 fiscal year.

The top investment focus will be placed on the Douglas Perfumeries. The aim here is for further value-oriented growth – albeit at a somewhat slower rate. Approximately 40 new stores are due to open across Europe. The expansion focus will lie on Italy and Poland. This will be supplemented by added sales space and the modernization of existing perfumeries. In line with the strategic product-mix development, the further expansion of exclusive and private labels will be the priority. With attractive perfumeries, latest products and excellent service from its highly motivated and dedicated employees, Douglas aims to extend its quality and market leadership in Europe on a sustained basis.  

The Thalia bookstores will solidify their leading market positions in German-speaking Europe by opening five to ten new bookstores along with numerous upgrades, while consistently pursuing its multi-channel strategy. A good example of this was the October 2009 opening of the very first multi-channel bookstore at the new "LOOP5" shopping mall in the Hessian city of Weiterstadt. This bookstore has elements of a stationary and online book trade linked together in an unprecedented manner: conventional bookracks and reading areas on one hand and touchscreens, audio headphones and computers on the other hand.  

In the Jewelry division, Christ will grow more profitable on its own and further extend its leading market position in Germany. To this end, up to ten new stores are due to open and numerous existing locations will be remodeled and modernized. In addition, Christ will further expand its service expertise – among other items, by broadening its services such as in the area of repairs – as well as enlarging the successful range of exclusive and private brands.

AppelrathCüpper will further develop the product-mix of the mid to upper genre for women's fashion with attractive prices and be made younger and more fashionable. The main challenge is to institute younger, more up-to-date and fashionable accents without neglecting the needs of our longstanding customers. This is a challenging but necessary balancing act, because AppelrathCüpper aims to win customer loyalty from both the younger and more mature clients. AppelrathCüpper is directing all activities on the sustained improvement in profitability and intends to benefit from a recovery in the textile industry and restore its former strength.

The Confectionery division will continue to focus on developing existing markets in Germany and Austria. Hussel will continue to modernize its network, while adding up to four new Hussel confectionery shops. For purposes of securing quality and innovative leadership, Hussel will also continue to focus on product innovations and on private brands and licensing.

In general, the DOUGLAS Group will continue to uphold the Lifestyle philosophy in all corporate divisions. All activities revolve around the customer. In order to underscore customer orientation, the corporate motto for the 2009/10 fiscal year of the DOUGLAS Group is ‘Turning visitors into customers’. Customers should relish a visit to one of the DOUGLAS Group shops, and always feel that they have been treated to the very best advice, the very best service and always made to feel welcome, much as if they had spent an enjoyable evening at their favorite restaurant. This will be pursued with the assistance of our dedicated and talented workforce.

Forecast

"Predictions concerning consumer behavior in 2010 are currently just as difficult as making concrete forecasts about when the global financial crisis will finally come to an end. Therefore, a concrete sales and earnings prognosis of the DOUGLAS Group for the 2009/10 fiscal year is also extraordinarily difficult to predict. From today's standpoint, the Executive Board predicts a sales increase of up to 2 percent and earnings before taxes of between 120 and 130 million EUR." commented Dr. Henning Kreke. And as last year demonstrated, even in times of financial hardship, people still like to occasionally treat themselves or others by indulging in a touch of luxury. Moreover, it would be important for retailers in any case that the government acts swiftly to create a framework which is conducive to a gradually improving economy and bolstering consumer confidence. If appropriate funding is available, the promised tax breaks should be enacted as soon as possible. Beyond that, the continuing stabilization of the labor market remains another urgent priority.

Dividend

All things considered, the respectable performance in the last financial year and the cautiously optimistic hopes for the future allow the DOUGLAS Group to pay out a dividend – even in these economically strained times – that is consistent with last year's level. For this reason and in line with its long-established dividend policy, the Supervisory and Executive Boards of DOUGLAS HOLDING AG will be recommending that the Shareholders' Meeting on March 24, 2010, approve a dividend of 1.10 EUR per dividend-bearing share for the 2008/09 fiscal year.