DGAP-News: Adler Modemärkte AG: Back to Profitable Growth with 'New ADLER'

Press Release from Adler Modemärkte AG

Targets for 2023: Revenue of €560 Million - EBITDA at Least at Pre-crisis Level

Back to Profitable Growth with "New ADLER"

Expanding the Physical Business and Turbocharging Online Activities

Haibach (near Aschaffenburg), 7 October 2020: Adler Modemärkte AG today unveiled its "New ADLER" initiative, a comprehensive package of strategic measures designed to bring the Company back to sustainable and profitable growth by 2023. This project entails systematic improvements to the already successful physical business in more than 170 brick-and-mortar stores, while significantly expanding online activities. The aim is to lift consolidated revenue to €560 million by 2023, with roughly €500 million being generated in the stores and at least €60 million earned online. Before the crisis hit, revenue had amounted to approximately €485 million (in stores) and approximately €10 million (online) in 2019. Thanks to advances already made in digitalising the entire value chain, streamlining structures and processes, and further efficiency-enhancing measures, earnings before interest, taxes, depreciation and amortisation (EBITDA) is projected to be back to pre-crisis level of at least €70 million by 2023, although the online business is not quite expected to reach the profit threshold just yet. This projected revenue and earnings growth, and the fact that there is substantial potential as far as working capital is concerned, give cause for optimism that ADLER will once again generate sustainable positive free cash flow in the years to come. Because of this - and thanks to the Company's consistently conservative financing strategy and the funding commitments of €69 million secured in May - ADLER is very well equipped with financial resources to fund its upcoming investments.

"New ADLER will propel us into a new era," said Adler Modemärkte AG's CEO, Thomas Freude. "We are revitalising our Company, not only by introducing a unique data-driven customer focus and new business ideas in our physical stores, but also online through the implementation of a massive expansion programme. This will enable us to emerge from the crisis even stronger than before, to raise our revenue to €560 million and significantly boost both our profitability and our free cash flow."

Online revenue projected to multiply to €60 million

One key element to Adler Modemärkte AG's growth strategy is to expand its e-commerce business. This dynamic growth - from approximately €10 million in 2019 to the target of at least €60 million - will rest on a total of five strategic pillars. First, the expansion of the online shop www.adlermode.com, which was relaunched on 6 October based on a new infrastructure featuring a host of custom online products and services. Second, new sales models such as curated shopping and ADLER's fashion box, which appeal to new customer groups and expand the shopping basket. Third, EU-wide internationalisation of ADLER's online presence by mid-2021, thereby generating additional revenue potential. Fourth, ADLER intends to significantly expand its reach by joining additional online marketplaces and improving its performance. And finally, the expansion programme will see the introduction of additional online shopping offerings, such as for selected own brands and in cooperation deals with partners operating related business models. In 2020, ADLER already lifted its online revenue by significantly more than 20%, even without these measures.

Brick-and-mortar growth through big data and AI, the new ADLER Community and new stores in lucrative locations

ADLER intends to significantly expand its position as a trendsetter in the use of big data and artificial intelligence (AI) going forward. To achieve this, the available CRM data from approximately 9 million ADLER loyalty cardholders will systematically flow into individualised, targeted marketing solutions. These include personalised product recommendations and intelligent omni-channel campaigns and will lead to considerable efficiency gains. In that connection, ADLER also establishes the new ADLER Community, a customer experience platform that reaches shoppers at every stage along their customer journey, whether online or in the real world. This will enable ADLER to tailor its range of products and services to suit any customer, to communicate more efficiently, thereby increasing customer loyalty, to facilitate ongoing customer feedback and to generate added value, for instance through events. The success of the Community will rest on optimised omni-channel availability and increased efficiency, which is expected to translate into substantial revenue growth of more than €20 million by 2023.

ADLER will continue to push forward with its store optimisation programme, with the focus increasingly shifting towards expansion. While in the past two years, the focus was mainly on closing down and optimising 19 unprofitable stores so far, ADLER aims to open up to 15 new stores by 2023. Nevertheless, loss-making stores could still be closed during this period. The retreat of certain notable competitors in retail has worked to ADLER's benefit as it opens new stores and has increased flexibility afforded under its new store openings strategy. This also sees smaller stores opening for business, for instance the recently opened shop in Frankfurt am Main's Hessen Center mall. In addition to opportunities in so-called "white spots" in Germany, ADLER also sees lucrative opportunities in neighbouring countries where it already operates, particularly in Switzerland. Overall, the Company aims to generate additional sales of more than €10 million by 2023 through expanding its store network.

Increased profitability through digitalisation and streamlined processes

ADLER is seeking to improve its consolidated earnings not only through revenue growth but also based on the significant advances already achieved in digitalising its entire value chain. Its focus is on procurement, enabling products to be purchased more quickly, and more accurately pinpointing customer needs. In future, the entire lifecycle for ADLER products will be interconnected, from design through to purchase by customers. This will be facilitated by an automated digital link between ADLER customer data and the master collection plan. It will be possible to manage and expand collections in a significantly more efficient manner. For instance, ADLER plans to incorporate new external brands into its collection following detailed customer surveys. The Company also intends to establish new own brands. In this way, substantial cost savings and a sharp reduction in procurement risk are achieved overall.

The coronavirus crisis has laid bare the need to adopt highly efficient structures. In response, ADLER has established a more streamlined, more productive and more modern central organisation which reduces hierarchies and facilitates mobile working. This also includes an adjustment to personnel expenses at HQ by approximately €3 million, which in conjunction with other measures is intended to decrease the personnel expenses ratio by 200 basis points by the end of 2023.

Financial stability and focus on cash flow management of paramount priority

ADLER tends to stand apart from the rest thanks to its conservative accounting and financing policies and its ability to generate substantial free cash flow and high liquidity even in difficult times. For instance, in an already challenging year for the industry as a whole, ADLER reported free cash flow of €57.4 million and record-breaking liquidity of more than €70 million in 2019. This has enabled the Company to successfully access financial resources even in the midst of the toughest crisis it has faced since being founded, with every one of its more than 170 stores closed down for several weeks in the wake of the coronavirus pandemic. In May 2020, ADLER secured a €69 million funding commitment, which has helped to underpin the Company's financial stability beyond the end of the year. ADLER will continue to adhere to its successful and stable accounting policies.

To ensure that ADLER continues to generate sustainable free cash flow in the future to finance its planned growth, the "New ADLER" programme will also initiate measures to improve working capital. Those measures will include efficiency gains in all operating areas of the Company, from merchandising, in pricing and pinpointing customer needs. Here, too, ADLER will leverage its unique AI and CRM data expertise, for instance to efficiently manage flows of goods. By significantly reducing the number of suppliers and working more closely with partners along the value chain, ADLER aims to also achieve a significantly better risk distribution. The objective of this programme is to realise free cash flow growth as well as to increase the ratio of revenue to inventory by approximately 20 percentage points. Furthermore, the measures are also intended to help increase sales performance, process quality and productivity.

For more information about the Company, please visit ADLER's website at https://www.adlermode-unternehmen.com/en/.

Adler Modemärkte AG press enquiries and investor relations:

Peter Dietz

Media and Investor Relations

Tel.: +49 6021 633 1828

E-mail: [email protected]

About Adler Modemärkte AG:

Adler Modemärkte AG, headquartered in Haibach near Aschaffenburg, Germany, is one of Germany's largest and most important textile retailers. In 2019, the Group generated revenue of €495.4 million and EBITDA of €70.3 million. As at 31 December 2019, ADLER employed a workforce of around 3,600 and currently operates 172 stores, 143 of which are located in Germany, 24 in Austria, three in Luxembourg, two in Switzerland, plus an online shop. The Company focuses primarily on large-space concepts offering in excess of 1,400 m² of retail space. With its many own brands and select external brands, ADLER offers a highly diverse product range. Thanks to more than 70 years of tradition and strong customer loyalty, ADLER considers itself to be the market leader within its target group of affluent customers aged 55 and over.

For more information: www.adlermode-unternehmen.com; www.adlermode.com