© European Lingerie Group AB (ELG).

European Lingerie Group AB (ELG) has published its unaudited 12 Months and Fourth Quarter 2019 Report (1 January – 31 December 2019), including pro forma and condensed interim consolidated financial statements.

The group reported in the report for nine months and third quarter 2019 that the its Net Interest Bearing Debt to EBITDA ratio exceeded the maximum 4.25 allowed under the maintenance test of the Original Bond Terms and Conditions issued on 22 February 2018.

On 13 December 2019, the Parent company of the Group announced that it is formally initiating a written procedure under the Bond Terms and Conditions, whereby the holders of the Bonds could approve or reject a proposal from ELG to waive a financial covenant breach and to make certain amendments to the Terms and Conditions as further described in the notice of written procedure.

On 16 January 2020, the proposal was passed and a majority of the holders of the Bonds voted for it. The Amended Bond Terms and Conditions will come into effect on the date when European Lingerie Group AB has received capital injection by way of equity and/or subordinated debt in the amount of EUR 1,300 thousand.

In January 2020, the management and the shareholders of European Lingerie Group commenced discussions with potential parties in respect of additional capital investment into the group. As of the date of this report, the term-sheet negotiations are ongoing, and the due-diligence process is anticipated to commence in March. The preliminary terms discussed fully provide for required minimum amount of EUR 6,000 thousand mandatory partial redemption of the bonds. The management and shareholders also believe that the deadline as per the Amended Bond Terms and Conditions with respect to mandatory partial redemption of the bonds by the end of May 2020 is realistic.

On 21 February 2020, the Parent company of the group concluded a subordinated loan agreement with its majority shareholder Helike Holdings OU for the total amount required and the first tranche in the amount of EUR 200 thousand has been disbursed by the date of this report. EUR 1,300 thousand facility terms were to certain extent interdependent of preliminary terms of additional capital investment negotiations discussed above, therefore, the completion of investment is pending.

The disbursement of the remaining amount is anticipated by 9 March 2020 upon completion of registration of certain securities by majority shareholder in favour of its investees. The effective date of the Amended Bond Terms and Conditions will be announced as soon as funds fully received by the Group.

The Group is pleased to announce that it has fulfilled the conditions subsequent stated in Clause 13.11 (a) and (b) of the Amended Bond Terms and Conditions, i.e. (i) provided to Intertrust (Sweden) AB a market valuation dated 30 January 2020 of the Group’s factory and real estate property in Liepaja, Latvia, fulfilled by Latio LLC, and (ii) granted additional security over the trademarks Felina and Conturelle as defined in Clause 1.1 (a) and over E|L|B GmbH and Felina Hungaria Kft shares as defined in Clause 1.1 (b) and (c).

© European Lingerie Group AB (ELG).

“The Group has had difficult last 2 years after the acquisition of Felina group and Dessus-Dessous S.A.S. and fluctuations in the various core markets and distribution channels of the lingerie industry in general. We continue realising our strategy of the vertical integration, which takes time and bears costs during the transformation phase. In 2019, the Group’s new product lines, the backup brand Senselle by Felina and Felina swimwear, started bringing volumes and the contribution of the new collections to total sales will continue, “commented Mr. Indrek Rahumaa, CEO and Board member of ELG.

“On the production side, we continued investing in our manufacturing base in 2019 substantially in order to improve the quality of our products as well as to be able to offer better and new materials to our customers. The result of these investments will gradually be converting into the cost savings and profit margin improvement, “added Mr. Rahumaa.

The group’s sales amounted to EUR 77,323 thousand in 12 months 2019 (Q4 2019: EUR 18,456 thousand), representing a 0.1% increase as compared to pro forma sales of 12 months 2018 (2.1% increase to pro forma sales of Q4 2018). In 12 months 2019 and Q4 2019, the increase in sales was mainly a result of the increase in lingerie segment due to growing revenue of new Senselle brand.

Additional positive revenue effect in Q4 2019 was achieved by renegotiating the stock consignment agreement with the largest customer in Spain. The deal resulted in additional revenue in the amount of EUR 437 thousand recognised in December 2019. On the other side, some of the revenue increase has been outweighed by backlog in production of the lingerie ready garments in Hungary which reduced total absolute increase.

As anticipated, profitability in Q4 2019 decreased. The gross margin and, as a result, operating profit dropped. The decrease in gross margin was mainly faced by the lingerie segment of the group and was to a large extent caused by price discounts and volume discounts provided to the customers in Q4 2019 as well as clearance of ready garment stock balances through sale prior to year-end (ahead of year-end write-down of inventories).

© European Lingerie Group AB (ELG).

Additionally, there was some increase in production costing in the group’s production facility in Hungary due to lower efficiency of production. Also, in Q4 2019 the share of Senselle branded garments in total revenue increased and as these are lower margin products, for the same level of total revenue the average gross margin for the group decreased.

Profitability margins excluding net profit margin in 12 months 2019 were below previous year which is also explained by a change in accounting estimate for write downs of finished goods in Q3 2018, which boosted the performance in 2018 at the expense of other quarters, resulting in a weaker 2019 in comparison.

Normalised EBITDA in 12 months 2019 amounted to EUR 8,929 thousand (Q4 2019: EUR 1,310 thousand) and decreased by 14.9% compared to pro forma normalised EBITDA in 12 months 2018 (23.0% decrease to pro forma normalised EBITDA for Q4 2018). Normalised EBITDA margin in 12 months 2019 and 12 months 2018 was 11.5% and 13.6% respectively (Q4 2019 and Q4 2018: 7.1% and 9.4% respectively).

Normalised net profit in 12 months 2019 amounted to EUR 1,262 thousand (Q4 2019: EUR 175 thousand), compared to pro forma normalised net profit of EUR 152 thousand in 12 months 2018 (Q4 2018: loss EUR 1,418 thousand). Normalised net profit margin in 12 months 2019 and 12 months 2018 was 1.6% and 0.2% respectively (0.9% and -7.8% in Q4 2019 and Q4 2018 respectively).

European Lingerie Group AB 12 Months and Fourth Quarter Report of 2019 is available here.

European Lingerie Group AB (ELG) is a fully vertically integrated intimate apparel and lingerie group with main production located in the Baltics, Hungary and Germany and with sales worldwide in 46 countries and online. The group produces fabrics for lingerie products under the brand Lauma Fabrics and supplies leading lingerie manufacturers in Europe and rest of the world. The group designs, manufactures and sells branded premium lingerie under the brands Felina, Conturelle and Senselle. ELG also owns Dessus-Dessous, the largest online retailer of lingerie and swimwear in France. The Group is headquartered in Stockholm, Sweden.

www.elg-corporate.com