ANNUAL REPORT MACINTOSH RETAIL GROUP RETAIL IS OUR BUSINESS. S t y l e & Q u a l i t y

Transcription

1 ANNUAL REPORT 2014 MACINTOSH RETAIL GROUP RETAIL IS OUR BUSINESS S t y l e & Q u a l i t y

2 Should different interpretations arise between the Dutch and English version of this Annual Report, the Dutch version prevails. This annual report may include rounding differences with figures previously published, or between figures in the Report of the Managing Board and those in the financial statements. In this annual report the company name Macintosh Retail Group NV is abbreviated to Macintosh.

3 RETAIL IS OUR BUSINESS TABLE OF CONTENTS Message from the CEO Strategy Report of the Managing Board Summary of 2014 Market developments Number of shops Increase in sales and market share at Fashion and Kwantum Results Employees and organisation Outlook for 2015 Sustainable business practices Risk and risk management Governance and responsibility statement Report of the Supervisory Board 2014 Supervisory Board data Shareholder information Managing Board, group executives and directors Managing Board data List of addresses Macintosh Retail Group N.V. Amerikalaan 100, 6199 AE P.O. box 110, 6190 AC Maastricht-Airport The Netherlands Tel Fax info@macintosh.nl MACINTOSH RETAIL GROUP 1

4 MESSAGE FROM THE CEO MESSAGE FROM THE CEO 2014 was a year with cautious consumers but also a year in which Macintosh s strategy was redesigned, a refinancing operation was carried out with the support of major shareholders, and two changes were made to the Managing Board. At the same time, we also worked hard to strengthen our relationship with customers to ensure our retail formats provide them with a distinctive experience based on convenience, service, trusted brands, excellent collections and customer knowledge. Progress was made in these areas, although we still need to improve our performance in relation to shopping experience, product offering and cross-channel customer approach. Increase in sales and market share at Fashion In April, the Rebalancing for Profitable Growth strategy was adopted and discussed with shareholders. This strategy and the new financing package formed the basis for the future for Macintosh as a cross-channel retailer in Fashion. The ambition was primarily to increase the appeal of the retail formats, introduce cross-channel innovations, ensure more appealing product offerings and improved stock availability, and stepping up marketing efforts. This was aimed at winning customers on a structural basis by breaking the vicious circle that used to exist, in which drastic cost cuts were made in response to falling earnings, which weakened the retail formats at a time of rapidly increasing global and online competition....we WORKED HARD TO STRENGTHEN OUR RELATION- SHIP WITH CUSTOMERS... A wide range of operational, commercial and organisation measures were taken with a view to increasing market share. At Fashion NL, sales increased by 7.7% and the share of the shoe market rose by 1.6 percentage points. Sales at Fashion Belux were down 1.4%, which was in line with the market, while there was a clear upward trend at Fashion UK. The 42.6% increase in online sales from Fashion, which was significantly higher than the market average, confirms that the cross-channel approach was the right choice. Fashion NL, which grew by 30.6% and is strongly represented in the important, growing group of cross-channel customers, took the lead in this customer approach. Increase in sales at Fashion not reflected sufficiently in earnings Customers responded positively to our revamped retail formats, resulting in sharp increases in sales and an improvement in earnings up to the end of August. However, during the last four months of the year, which are traditionally important, the weather was extremely mild, and as a consequence the sales in autumn and winter fashion lagged a long way behind expectations. Big promotional discounts were necessary in order to entice consumers to purchase shoes, which put pressure on sales and margins. The positive trend in earnings up to the end of August was more than cancelled out in September, October and November. Although the trend in 2 ANNUAL REPORT 2014 Kurt Staelens, CEO

5 MESSAGE FROM THE CEO earnings in December was positive, Underlying EBIT from Fashion was down 5.9 million compared to At Fashion NL, the 19.8 million increase in sales was not reflected in the underlying earnings which fell by 3.1 million compared to Discounts on the winter range led to lower margins at Fashion BeLux, and it also had to contend with higher expenses due to capital expenditure on cross-channel activities, resulting in a 5.0 million fall in underlying earnings compared to Earnings at Fashion UK showed a clear upward trend, following a number of years of moderate earnings, with underlying earnings increasing by 1.6 million, despite the repositioning of Jones to a serviceoriented format with fewer generic discounts, which had a short-lived negative effect. NEW CONCEPT HIGHLIGHTS MANFIELD S QUALITY Good performance by Kwantum Kwantum gained a larger market share of the core wall, window and floor coverings market. Turnover increased by 10.1 million (up 5.6%) despite a stable home furnishing market (Statistics Netherlands: market down 0.1%). Consumers appreciated the improved product offering, additional services (measuring, hanging, laying) and the greatly expanded range of decoration articles. The increase in turnover and gross margin as a percentage of turnover more than compensated for the slight rise in expenses, and the Underlying EBIT achieved by Kwantum in 2014 came to 3.5 million (2013: million). KWANTUM GAINED A LARGER MARKET SHARE OF THE CORE WALL, WINDOW AND FLOOR COVERINGS MARKET Net result and dividend Macintosh s Underlying EBIT was million (2013: million). The total EBIT was million and was 85.5 mln lower than in 2013, mainly as a consequence of the amortisation of goodwill and intangible assets of Scapino ( 54.6 million) and the goodwill of Brantano BeLux (11.3 million). The net result was million (2013: million). In the refinancing deal, Macintosh reached agreement with its lenders that dividends will be distributed only if the leverage ratio is structurally lower than 2. This condition was not met in 2014, for which reason the Managing Board has decided, with the approval of the Supervisory Board, that there will be no distribution for Financing and covenants In 2014 Macintosh was successfully refinanced with the support of a number of major shareholders, resulting in an increase in equity by a net amount of 19.2 million, by means of a fully subscribed share issue and the granting of a structured loan for 20 million. Moreover, a borrowing facility for a total of 140 million, consisting of a revolving tranche of 125 million and a tranche of 15 million to finance peaks in working capital, was agreed with a consortium of banks. Further information is contained in the financial statements. The financing documentation was completed in mid The covenants were not assessed at year-end Given the results in 2014 and the strategic decision taken after the reporting date to sell Fashion UK and Nea International, the structure and the level of the covenants made in the 140 million bank financing package will be adjusted in Strategy further sharpened The Rebalancing for Profitable Growth strategy which was adopted early in 2014 focuses mainly on strengthening the Fashion store formats in order to give customers the retail experience they deserve. MACINTOSH RETAIL GROUP 3

6 MESSAGE FROM THE CEO In the fall of 2014, the strategy was fleshed out in transformation programmes that focus on format development, cross-channel innovation and operational excellence (costs and margin). These programmes are designed to bring about improvements in Fashion s operational and financial performance. This will be based on upgrading formats such as Brantano BeLux and Scapino and the roll-out of the successful new retail concepts of Manfield and Young Fashion (Invito, Pro and Steve Madden). Investments are also necessary in order to optimise systems and processes, with a view to promoting cross-channel sales and the preferential relationship with the customer. Other important aspects relate to vertical integration, including in-house product development for private labels, and improving the end-to-end product process. The strategy was further sharpened early in 2015 and it was decided to focus on Fashion Benelux. The sale of Fashion UK and Nea International (production and wholesale of braces) will be started in 2015, as will the sale of Kwantum, which intention was already announced in In the Benelux, Macintosh leads the market in Fashion and has national store coverage, so that the crosschannel strategy can be implemented as efficiently as possible with the available financial resources. The proceeds from the sale of Kwantum, Fashion UK and Nea International will be used to free up resources for the execution of the transformation programmes and capital expenditures at Fashion Benelux and to repay debts. However, the sale will also result in a lower group turnover and affect EBIT and EBITDA. The sales growth target set in early 2014 (CAGR of 3.5% to 4.5%) for the period from 2013 to 2017, combined with an underlying EBIT margin in 2017 of at least 6% in Fashion, will be updated in 2016 after the sharpened strategy has been implemented. Strengthening competitive position At Fashion, economies of scale and synergies are essential in order to improve margins and be able to stand up to suppliers and the wholesalers positioned between retailers and suppliers. Given the decline in the shoe market in the Netherlands and Belgium in 2014, Macintosh is actively looking for ways to structurally improve its competitive position in those countries. It is actively investigating opportunities for collaboration and consolidation with other parties, with a view to optimising the supply chain and achieving product synergies, and opportunities in the area of format consolidation. This can be accomplished in various ways, for example by means of collaboration between formats, by means of combining formats, or by means of vertical integration within the value chain. Confidence Although a number of economic indicators are on an upward trend, the shoe retail market not yet seems to really improve in The best way that Macintosh can respond to this is by being relevant to consumers every time they are in the market for a new pair of shoes. Distinctive products, excellent service, a distinctive shopping experience and a smart interaction between offline and online retailing are key to this. We need to offer more in these areas than other retailers if we want to beat the competition and get customers to spend their money at our tills. Word of thanks Om behalf of the Managing Board, I would like to thank all of our employees for their dedication and commitment to serving the customer. I would like to express my appreciation to our customers for shopping at our stores, and can assure them that we will continue to do our utmost to provide them with an even better shopping experience and higher level of service. Finally, I would like to thank our shareholders for their confidence in us and for making the refinancing operation possible. Maastricht-Airport, the Netherlands, March 18, 2015 Kurt Staelens, CEO 4 ANNUAL REPORT 2014

7 RETAIL IS OUR BUSINESS MACINTOSH RETAIL GROUP 5

8 REPORT OF THE MANAGING BOARD STRATEGY Retailing: go where the customers are Macintosh s objective is to sell shoes to as many satisfied customers as possible, in the most profitable way possible. As the customers of the future will shop around and make purchases both online and offline, at the start of 2011 Macintosh opted for a cross-channel strategy. This strategy is aimed at ensuring a combination of optimum online solutions, recognisable and inspiring stores, and excellent fulfilment and services, in order to increase Macintosh s share of the wallet of consumers. Starting points Physical stores will continue to play a dominant role in the consumer purchasing process. The combination of physical stores and online retailing (cross-channel) is clearly preferable to purely online retailing. Strong retail brands are key. The purchasing behaviour of customers varies, and customers want to be approached on the basis of their individual preferences and requirements. Conditions The store is the place where immediate purchases are made and online purchases are collected. Distinctive retail experience and perceived value. Service and a wow shopping experience. Nationwide store coverage. Seamless interaction between offline and online retail in all sales channels. Real-time stock availability (online and in stores). Short lead-times for click and collect service due to use of physical infrastructure. Standardisation of back office systems and processes. Clear brand proposition and value proposition ( brand pillars ). Distinctive products. Mix of international brands and private labels. Consistent marketing in all sales channels. Streamlined end-to-end product processes. Multi-channel CRM and loyalty programmes. Knowledge of customer purchasing behaviour and preferences. Preselection in ranges. Customised fulfilment. 6 ANNUAL REPORT 2014

9 REPORT OF THE MANAGING BOARD The conclusions of the study into the strategy at Fashion were made public at the General Meeting of Shareholders held in April The main finding was that while the cross-channel approach is the correct one, only those formats that have a clear ability to stand out can be successful under such an approach. A number of operational and commercial measures were recommended in order to highlight the strength of the shoe formats in the Netherlands, Belgium and the UK, and these measures were incorporated in the group-wide Rebalancing for Profitable Growth programme, together with the action items previously defined in This increased the pace of the implementation of the strategy adopted in 2011, which took as its starting point the transformation from a traditional retail business into a cross-channel retailer. The strategy was further fine-tuned at year-end 2014 to include transformation programmes focusing on format development, cross-channel innovation and operational excellence (costs and margin). 1 Retail formats 2 Cross-channel 3 Processes Format rebranding Above-the-line pillars Real-time full stock view (online and in-store) Own product development and supplier concentration + 10 shop concept 3h free click & collect Implementation of UK endto-end processes in Benelux with better purchasing conditions, pricing and margin management International brands layer 6h click & deliver Rent negotiations High performance store programme 3D perfect fit Multi-channel CRM and less markdown Synergies in Benelux distribution centres Standardisation of back office, cross-channel/crm MACINTOSH RETAIL GROUP 7

10 REPORT OF THE MANAGING BOARD SUMMARY OF 2014 Fashion: Higher sales despite difficult shoe markets. Dutch shoe market fell by 2.1% and Belgian market by 0.3%, while UK market rose by 1.7%. Fashion NL increased its share of the shoe market to 13.7% thanks to a 19.8 million increase in sales (+ 7.7%). Total sales at Fashion increased 38.4 million (+ 6.0%). Offline sales rose by 3.4%, and online sales by 42.6%. Underlying 1 EBIT from Fashion fell 5.9 million compared with 2013, owing to poor sales in the months of September, October and November. Impairment of goodwill and intangible assets of 54.6 million at Scapino, and impairment of goodwill of 11.3 million at Brantano BeLux. Living: Home decoration market started to recover in Q3 2014, but was virtually stable for 2014 as a whole (- 0.1%). Kwantum gained a larger share of the core wall, floor and window coverings markets, and saw turnover increase by 10.1 million (+ 5.6%). Underlying 1 EBIT from Kwantum rose 3.6 million. Macintosh: Underlying 2 EBIT of Macintosh fell 1.7 million compared with 2013 ( million). EBIT 2014 was negatively influenced by 75.6 million, due to specific items, the most important of which related to the impairment of goodwill and intangible assets at Fashion ( million). Net loss of million (2013: net loss of 12.1 million). Net debt increased by 24.2 million to 69.8 million due to a fall in EBIT and an increase in working capital (mainly stock). 1. Underlying operating EBIT is EBIT exclusive of other operating income and non-recurring gains/losses. 2. In 2013, total underlying operating EBIT was equal to EBIT exclusive of exceptional items (- 1.0 million) less income of 4.3 million related to retail leasing transactions and net income of 8.4 million attributable to other income and non-recurring gains/losses, including the release of provisions related primarily to employee benefits at Living ( 3.0 million) and the sale of real estate ( 2.4 million). The remaining 3.0 million mostly relates to the release (partial or otherwise) of reserves. SALES BY SECTOR FASHI0N In millions LIVING In millions TOTAL SALES In millions 2014: : ANNUAL REPORT 2014

11 RETAIL IS OUR BUSINESS REPORT OF THE MANAGING BOARD S t y l e & Q u a l i t y KEY FIGURES (In millions) Net sales Fashion Net sales Living Underlying EBITDA Underlying EBIT Fashion Underlying EBIT Living Total underlying EBIT EBIT Net result Equity (28.5%) (39.4%) Fashion Living Fashion Living Number of stores at year-end Number of FTEs 3 at year-end 4,663 1,005 4, Of which 786 core and 94 non-core (2013: 759 core and 145 non-core). 2. Of which 97 core and 10 non-core (2013: 96 core and 13 non-core). 3. Exclusive of holding, Macintosh Hong Kong and Macintosh Intragroup Services. MACINTOSH RETAIL GROUP 9

12 REPORT OF THE MANAGING BOARD MARKET DEVELOPMENTS Market developments During the first half of 2014 there was a recovery in consumer confidence and willingness to buy in the Netherlands. This was followed by a decline in both of these indicators as from the start of the second half of the year. Consumer confidence fell in Belgium but rose in the UK, where it stabilised in the last months of the year. CONSUMER CONFIDENCE Index Consumer confidence NL Willingness to buy NL Consumer confidence B Consumer confidence UK feb-13 aug-13 feb-14 aug-14 feb-15 Source: Statistics Netherlands (CBS) and Eurostat (for Belgium and UK) The persistently poor economic climate, the lack of consumer confidence and the low willingness to buy were reflected in a stabilization in non-food retail spending (up 0.1%), which was due to an increase in volumes (up 1.0%) and a fall in prices (down 0.9%). This comes after a 4.7% fall in nonfood spending in SALES FROM FASHION CORE VS. MARKET Sales from Fashion core 1 vs. market Shoes, exclusive of clothing, The Netherlands 2 Belgium 2 UK 2 accessories, etc. Market Macintosh Market Macintosh Market Macintosh Value Total - 2.1% 14.3% -0.3% 0.3% 1.7% 6.1% Volume Total - 2.3% 10.7% - 1.9% - 1.5% - 0.5% 0.2% Price Total 0.2% 3.3% 1.6% 1.8% 2.1% 5.8% Value Offline - 5.8% 12.1% - 4.2% - 0.5% - 0.4% 5.0% Value Online 21.9% 39.5% 42.5% 28.5% 8.7% 29.6% 1 This relates to core activities and shoes only; figures do not match turnover figures disclosed elsewhere in this press release, which are based on total turnover. 2 Macintosh figures at aggregate level are comparable with market sources on a one-on-one basis, but the division between online/offline is not. Market figures NL and B: GfK; UK: Kantar. The shoe market in the Netherlands was under pressure, falling by 2.1% due to lower sales volumes. Fashion NL outperformed the market, rising 14.3% thanks to a 10.7% increase in volumes compared to the market and to higher prices (up 3.3%). It also performed much better than the market in terms of online sales, which rose by 39.5%. In Belgium, the market fell a slight 0.3% compared with 2013, owing to declining volumes. In terms of sales, Fashion BeLux slightly outperformed the market, with fewer shoes being sold (down 1.5%) but at higher prices (up 1.8%). Online sales were up 28.5%, which is lower than the market as a whole. Fashion UK also outperformed the market in terms of sales (primarily due to higher prices), including in the area of online sales. The home furnishing market contracted by 0.1% according to Statistics Netherlands (CBS), owing to lower average prices. 10 ANNUAL REPORT 2014

13 REPORT OF THE MANAGING BOARD BRANTANO BELUX: 20,000 PRODUCTS IN EVERY SHOP Brantano offers price-conscious consumers a varied selection of shoes, casual wear, bags, suitcases and accessories. The products on offer range from basic lines to international brands. Each Brantano shop boasts a 3D foot scan to determine foot and shoe size, which are recorded on the customer s Brantano card. It is also possible to create a projection of children s growth over the coming months. All items sold in-store at Brantano are also available via the online shop. 139 stores in Belgium and Luxembourg 1,070 employees Follow on: brantano.be MACINTOSH RETAIL GROUP 11

14 REPORT OF THE MANAGING BOARD NUMBER OF STORES Total number of stores down 26 to 987 Fashion opened 48 stores in 2014, the majority of which were 25 concessions in the UK. A total of 75 stores were closed or sold, including 12 non-core stores at Fashion NL and 27 non-core Scapino stores in Belgium (24 sold, three closed). Most other closures were at Fashion UK (ten Brantano stores and four Jones stores). The total number of stores at Fashion fell from 904 at the end of 2013 to 880 at year-end Kwantum closed three stores and opened one. The retail floor space at Fashion fell by 26,800 m² to 377,700 m² at Fashion, and by 4,200 m 2 to 230,800 m 2 at Living. Countries Fashion Belux Fashion NL Fashion UK Living Brantano 1 Scapino High street 2 Scapino Brantano 3 Jones Kwantum NL Kwantum B Bootmaker 3 YE YE M 2 YE , , ,600 82,700 11, ,800 9,000 YE ,300 20,100 27, ,300 84,200 11, ,600 9, Including 5 stores in Luxembourg, 3 Firelle stores in Belgium and 1 Jones store in Belgium. 2. Consisting of Dolcis (89, including 6 outlet stores), Invito (40), Manfield (69), PRO 0031 (32) and Steve Madden (3). 3. Including 33 concessions at Brantano and 13 concessions at Jones Bootmaker. Solution for 52 non-core stores Non-strategic, structurally loss-making stores are closed as soon as possible, and by the next lease expiration date at the latest, unless an alternative solution is found for the store in question. In each case, the cash effects of allowing the lease to run its full term are weight up against the costs of buying off contractual rental commitments. The assets of these stores were impaired and a provision was formed to cover the present value of future losses. This implies that the provision is used to offset the losses of such stores in the income statement. The full effect of the negative contribution to profit of the stores in question is, however, seen in cash flows from operating activities. In 2014, a permanent solution was found for 52 non-core stores. A temporary solution, based on rent reductions or the transformation of stores into another format or outlet centres, was found for 10 non-core stores in The stores for which a temporary solution was found will be kept on the list of non-core stores with the aim of terminating the leases at the earliest possible moment. Permanent solution found Temporary solution found; still non-core Non-core stores at year-end 2014 Closed / sold 1 Rent reduction/ other solution 2 Rent reduction/ other solution Outlet store Fashion Living Total Including 27 stores at Scapino Belgium. 2. These stores qualify are core stores again. Improving rental conditions for core stores The store portfolio is not only optimised by finding solutions for non-core stores, but also by increasing the contribution by core stores. Similar to 2013, arrangements were made about rent reductions and early break options were agreed in 2014 for stores where Macintosh has negotiating clout. On balance, reductions amounted to 0.9 million in 2014, which amount was added to the rent reduction of 2013 ( 0.8 million). The reductions in 2014 were mainly achieved at Fashion NL and Living, while rents at Fashion UK and Fashion BeLux were virtually stable. Lessors are also increasingly willing, especially in the UK, to share in the capital expenditure that is needed to continue an existing store or open a new one. 12 ANNUAL REPORT 2014

15 BRANTANO UK: SHOES FOR THE WHOLE FAMILY For UK consumers, Brantano is the place to find a wide and varied assortment - from basic ranges to leading brands such as Clarks, Skechers, Hush Puppies, Rieker, Start Rite, Adidas and Nike. Brantano shop assistants are fully trained to measure feet and fit shoes, affording the shoe shop its reputation as the best for growing feet. REPORT OF THE MANAGING BOARD Brantano has 179 shops spread across the UK, including shops-in-shops. Brantano offers its customers numerous shopping channels: in-store, online, mobile and click & collect. 179 stores in the United Kingdom 2,013 employees Follow on: brantano.co.uk MACINTOSH RETAIL GROUP 13

16 REPORT OF THE MANAGING BOARD INCREASE IN SALES AND MARKET SHARE AT FASHION AND KWANTUM Increase in sales from Fashion by 38.4 million (+ 6.0%); offline + 3.4% and online %. Fashion NL strengthens position in falling market and increases market share. Significant growth also at Fashion UK. Performance of Fashion BeLux in line with market. Sales from Kwantum (Living) increased 10.1 million (+ 5.6%) in a home furnishing market that has seen recovery since Q3. SALES PER QUARTER Sales up 48.5 million (+ 5.9%) Consumer sales (inclusive of VAT) amounted to 1,038.3 million in 2014 (2013: million). Of total sales, 53.1% was generated in the Netherlands, 18.9% in the BeLux and 26.8% in the UK. Net sales for 2014 were up 5.9% compared to the previous year, and stood at million. Of total sales, 64.8 million was generated by online sales. This represents an increase of 41.3%, which was mostly attributable to Fashion NL and Fashion UK. The 7.6% increase in sales at Fashion for the first three quarters of 2014 was tempered by a slowdown in growth in the fourth quarter (+ 2.0%). Kwantum performed better in the last two quarters than in the first half of the year. Fashion NL In 2014, Fashion NL gave top priority to increasing turnover and market share, while making advance allowance for a reduction in footfall seen in the high street. Its activi- (in millions) Q1 Q2 Q3 Q % % % % Fashion Living Total SALES BY SECTORS AND COUNTRIES (in millions) Total Offline Online % % % Fashion NL Fashion BeLux Fashion UK Fashion Other Fashion total Living Total Including positive currency effect of 11.1 million. INTRODUCTION IMPREGNATION SERVICE AT MANFIELD AND DOLCIS ties were therefore aimed primarily at making the shoe formats more appealing, and were tailored to each format. The key concepts in this respect were more appealing product ranges, greater stock availability, the introduction of store differentiators (such as the impregnation service at Manfield and Dolcis), and the training of store personnel. A great deal of energy was also put into the offline and online communication of the proposition of the shoe formats to shoppers, based on a marketing budget that was increased for this specific purpose. Sales at Fashion NL increased by 19.8 million (+ 7.7%), despite a considerable fall in clothing sales at Scapino. There was a clear increase in the market share of Fashion NL (+ 1.6 percentage points in shoes). Another important area of focus concerned the further expansion of the cross-channel position. Fashion NL has a significant share of Dutch cross-channel customers, and saw online sales increase by 30.6% to ANNUAL REPORT 2014

17 REPORT OF THE MANAGING BOARD COMFORT & STYLE Women, men and children alike will discover an extensive shoe collection in line with the latest fashions at Dolcis. The collection offers comfortable yet stylish fashion for all the family, proving that quality and comfort can go hand-in-hand with current trends. Both adults and children can expect personal, tailor-made advice. When purchasing online at Dolcis.nl, customers can opt for home delivery, collection from a Dolcis store or collection from an Intreza Shoepoint, where they will receive professional advice. 89 stores (outlet stores included) 764 employees dolcis.nl Follow on: MACINTOSH RETAIL GROUP 15

18 REPORT OF THE MANAGING BOARD INTRODUCTION YOUNG FASHION million. It therefore significantly outperformed the STORE CONCEPT, (INVITO, PRO Dutch online market as a whole (+ 21.9%). Today, online sales account for 13.0% of total turnover from AND STEVE MADDEN UNDER ONE ROOF) Fashion NL. At Fashion Other (mostly Nea International), sales rose by 0.7 million. All shoe formats in the Netherlands saw an increase in sales. The new store concept of Manfield and Young Fashion (Invito, PRO0031 and Steve Madden under one roof) was introduced successfully, as a result of which the sales of the revamped stores increased by over 30% and almost 20%, respectively, compared to the same stores in Sales also increased at Dolcis (+ 4.2%), where 46 stores have now introduced the Dolcis 3.0 concept. Scapino had to contend with a significant fall in clothing sales (- 8.2%) in addition to the difficult shoe market. Improvements were made to the range of shoes (more leather) without increasing selling prices, and these improvements, in combination with greater marketing efforts, contributed to the 4.9% rise in the number of pairs of shoes sold compared to At Nea International, which sells orthopaedic braces to medical wholesalers and the sports sector, sales continued to rise and were up 8.4% compared to the previous year. Fashion BeLux Sales from Fashion BeLux fell by 2.1 million (- 1.4%), partly as a result of the sale of the 24 Scapino stores at the start of November. The most important format, Brantano, saw a drop in footfall in a market that fell by 0.3% in That said, it did hold on to its position as the market leader in the offline shoe market. At Fashion BeLux, online turnover was up 27.1% The 3D foot measuring service of Brantano BeLux has been fully implemented, providing Brantano with a strong tool for building upon the preferential relationship with the customer. There are now over 110,000 active holders of 3D foot passports, who have a higher ticket per sale of some 25%. An added advantage of the foot passport is that the percentage of returns of online purchases has dropped from about 25% to approximately 15% for these customers. Sales at Firelle, which has three stores and sells shoes, clothing and accessories, were 15.2% lower than in Fashion UK Sales at Fashion UK increased by 20.0 million (+ 9.4%; exclusive of currency effects: + 4.0%), thanks to increased sales at both Brantano and Jones Bootmaker. Fashion UK performed better than the market in terms of online sales, which rose by 76.7%. Brantano UK had one of its best years on record, with sales increasing by 11.9% (exclusive of currency effects: + 6.7%). This increase was a result of expansion (20 concessions with flexible cost structures and 2 new own stores), higher sales conversion rates and higher average prices due to the improved portfolio of brands. Jones Bootmaker experienced a slowdown in growth (+ 6.8%; exclusive of currency effects: + 1.6%), which was partly attributable to its decision to reduce the use of promotional discounts in order to focus more on the brand image. Kwantum (Living) The home furnishing market started to recover in Q3, and at Living sales for the year as a whole increased by 10.1 million (+ 5.6%) compared to 2013, despite the closure of three stores in This increase in sales was primarily down to greater footfall and higher sales conversion rates. The greatest increase in sales was seen in the floor and window covering, furniture and furnishing product groups, and was the result of new articles being added to the collection and a new store presentation. 16 ANNUAL REPORT 2014

19 REPORT OF THE MANAGING BOARD INTREZA Orders placed before 10pm will be available the next day. The intreza.nl service covers over 400 Shoepoints where shoes bought online can be tried on and collected at the customer s convenience. Intreza.nl is Macintosh s umbrella shoe platform with a range of women s, men s and children s shoes available online. As well as collections by famous brands such as Dolcis, Scapino, Invito, Manfield, PRO and Steve Madden, intreza.nl also brings consumers many other well-known shoe brands. As such, intreza.nl represents a platform which makes it easy to find, compare, reserve and order shoes. A new intreza.nl feature also tells shoppers which outlet and which store stocks their chosen shoes. The customer can then try on and pay for the shoes at that location. intreza.nl MACINTOSH RETAIL GROUP 17

20 REPORT OF THE MANAGING BOARD RESULTS Underlying EBIT million (2013: million). Underlying EBIT from Fashion down 6.0 million to million due to pressure on margins and higher costs. The increase in earnings from Fashion in the first eight months ( Underlying EBIT million) was more than cancelled out in September through December by the unseasonably warm autumn ( Underlying EBIT for full year 2014 was million). Underlying EBIT from Kwantum increased with 3.6 million to 3.5 million. Exceptional items of million, mainly due to the non-cash amortisation of goodwill and intangible assets at Fashion. The progression from reported EBIT to Underlying EBIT is shown in the table on page 22. Margins at Fashion under pressure but rise at Living The gross margin as a percentage of turnover was 0.9 percentage points lower in 2014 than in the previous year, due to the net effect of a 1.7 percentage point fall in the margin as a percentage of sales at Fashion and a 1.3 percentage point increase at Living. In all countries where Fashion operates, margins were under pressure owing to discounts on the winter range due to the extremely warm weather. Moreover, in the Dutch market there were more promotional discounts and price reductions, partly as a result of clearance and closing-down sales. At Fashion BeLux, too, the gross margin as a percentage of turnover was lower than in 2013 due to promotional discounts, whereas Fashion UK was less affected by pressure on margins because of its sophisticated end-to-end product process and margin management. Kwantum improved its gross margin as a percentage of sales thanks to higher product margins and the restriction of promotional discounts, which resulted in a market increase in the absolute gross margin compared to Increase in expenses, mainly due to measures aimed at increasing market share at Fashion Total expenses increased by 25.6 million in 2014, 6.1 million of which was attributable to currency effects. Disregarding currency effects, expenses were up 19.5 million due to the following main factors: Additional offline and online marketing expenses related to activities aimed at structurally increasing market share ( 4.8 million). A higher employee benefits expense for stores ( 3.5 million), chiefly because of higher sales and expansion (in the UK). An increase in logistical expenses ( 1.9 million) and e-commerce-related costs ( 1.5 million) associated with higher sales. A higher employee benefits expense ( 1.4 million), chiefly because of new hires at Fashion NL. Lower operating income ( 7.6 million) due to rental transactions. Other factors, the principal one being lower depreciations, resulted in the above mentioned increase. 18 ANNUAL REPORT 2014

21 INVITO: THE LATEST FASHION AT THE RIGHT PRICE! Invito is the chosen outlet of fashion addicts. As well as trendy shoes, fashionistas also find fashionable bags and accessories. Invito translates international trends into fashionable items at acceptable Dutch prices. In addition to an inspiring women s collection, Invito also offers a collection for men with a sense of style, including various big-brand sneakers, boots, loafers and stylish shoes. Invito is 24/7 spot-on fashion! The full range can also be found in Invito s web shop, as well as at intreza.nl. invito.com Follow on: 40 stores in the Netherlands at top locations 371 employees MACINTOSH RETAIL GROUP 19

22 REPORT OF THE MANAGING BOARD Underlying EBIT down 1.7 million This report refers to Underlying EBIT, which is equal to EBIT less incidental items, because it offers the best understanding of the underlying developments in earnings. Restated for these one-off effects, Underlying EBIT stood at 15.4 million negative in 2014, which represents a drop by 1.7 million on 2013 ( 13.7 million negative). UNDERLYING EBIT (in millions) Full year First half Second half Fashion Living Other Total Any group expenses not directly attributable to the segments. Normally speaking, all of Fashion s results are realised in the last few months of the year, thereby amply offsetting any losses traditionally suffered over the first half of the year. This was not the case in 2014, however. Underlying EBIT from Fashion grew by 3.6 million up to the end of August, thanks to a marked increase in sales (+ 9.4%). Sales were lower in September, October and November (- 0.1%). Costs associated with additional measures to support sales, especially at Fashion NL, in combination with the additional pressure on margins caused by having to sell winter inventories at less than the planned selling price, meant that the increase in earnings seen at Fashion up to the end of August was more than cancelled out in the months of September, October and November. As a result, Underlying EBIT for the whole of 2014 fell by 6.0 million compared with 2013 (- 6.1 million). If the weather in the autumn had been normal, Underlying EBIT would have been considerably higher. IN 2014 NEA INTERNATIONAL INTRODUCES A NEW LEATHER Underlying EBIT at Fashion NL and INSOLE Fashion BeLux was down compared to By contrast, Fashion UK and Nea International saw Underlying EBIT increase. At Kwantum, Underlying EBIT increased by 3.6 million to 3.5 million, compared to an Underlying EBIT of million in 2013, thanks to the 10.1 million increase in sales and higher margin in percentage terms, which more than offset the increase in cost levels. Follow on: 20 ANNUAL REPORT 2014

23 JONES BOOTMAKER: TRADITIONAL BRITISH QUALITY With 125 shops at top locations in cities and shopping centres throughout the UK, Jones Bootmaker has grown over 150 years to become a prominent shoe shop chain. In addition to its own distinctive collections, Jones also stocks renowned brands such as Timberland, Gabor and Barkers. Jones Bootmaker s excellent reputation - in 2010 it was voted best shoe retailer in the UK has led to cooperation with the well-known British department store chain, House of Fraser, and the opening of various franchises. 125 stores in the United Kingdom 1,460 employees jonesbootmaker.com MACINTOSH RETAIL GROUP 21

24 REPORT OF THE MANAGING BOARD Bridge from Underlying EBIT to reported EBIT Total EBIT for 2014 was million (2013: million), while Underlying EBIT landed at million (2013: million). The table below shows the progression from total EBIT to Underlying EBIT. EBIT (in millions) Reported Lease transactions 2014 Difference compared to underlying Other Other 2013 Nonrecurring Underlying Underlying Nonrecurring Lease transactions Reported Fashion Living Other Total Including amortisation of trade mark Scapino ( 6.4 million) 3. Amortisation of goodwill Scapino and Brantano BeLux 2. Any group expenses not directly attributable to the segments Normalisations were as follows: Rental transactions : a loss of 0.1 million on balance on the disposal of tenancy agreements at Fashion ( 1.2 million) and a loss of 1.1 million on the sale of properties (HQ/DC Halfords); : a plus of 7.1 million, 4.6 million of which related to fees for the disposal of tenancy agreements at Fashion NL and Fashion UK in particular, and 2.5 million was associated with the sale of freehold retail properties. Incidental items of 80.6 million in total in 2014, consisting mainly of: - Impairment of goodwill and brand name of Scapino ( 54.6 million) and goodwill of Brantano BeLux ( 11.3 million); - An impairment on assets ( 7.0 million) and an allocation of 6.8 million to the provision for loss-making stores, both mainly in the context of the programme of store closures. As a result of the reporting structures, the amounts in question were spread across the different segments. In 2013, incidental items stood at 4.5 million, which was primarily attributable to integration expenses at Fashion UK and Fashion NL. Other : 4.9 million mainly concerned various released reserves at Living ( 2.0 million) and a release of a provision for acquisition risks ( 1.5 million) and proceeds from sublets ( 0.7 million) : 5.6 million mainly concerned various released reserves at Living ( 3.0 million) and Fashion ( 1.1 million) and proceeds from sublets ( 0.5 million). Impairment at Scapino and Brantano BeLux Macintosh acquired Scapino and Brantano in 2006 and 2008, respectively, and paid goodwill for them at that time. At year-end 2013, the amount of goodwill included on the balance sheet was 48.2 million and 50.7 million respectively. In the context of the contraction of the Dutch and Belgian shoe markets in recent years, the future cash flows from both formats were reassessed, taking into account required future investments in areas such as stores, the cross-channel approach to customers and inventories. This led to new insights regarding the valuation of Scapino s goodwill and assets, as a result of which Macintosh was required to write off the goodwill ( 48.2 million) and the capitalised brand name Scapino ( 6.4 million) in full in A write-off of goodwill amounting to 11.3 million was included for Brantano. No cash outflow was involved in either of these exercises. Macintosh remains convinced of the future opportunities that exist for Scapino and Brantano, and these formats are important corner stones in our strategy. Scapino will once again be strongly positioned in the market as a store that offers top-brand quality at the lowest prices, and the Brantano format will be comprehensively upgraded to make it Belgium s best shoe store for the whole family. 22 ANNUAL REPORT 2014

25 REPORT OF THE MANAGING BOARD YOU RE BETTER OFF WITH KWANTUM Kwantum is the largest homeware discount store in the Netherlands and Flanders, and the market leader in the product categories floor coverings, laminate, curtains, wallpaper and lighting. The exceptionally comprehensive, modern and low-priced collection comes with excellent services from making curtains and blinds to laying floor coverings. Furthermore, Kwantum is one of the largest providers of seasonal items, such as garden furniture. The home furnishings line is gaining ground both on the shop floor and in the web shop. Environmental responsibility and quality production that has little or no impact on the environment has been a key consideration in Kwantum s business operations for many years now stores in the Netherlands stores in Belgium 1, employees in the Netherlands employees in Belgium kwantum.nl kwantum.be MACINTOSH RETAIL GROUP 23

26 REPORT OF THE MANAGING BOARD Net result Interests were 2.3 million higher than in 2013 because of a higher interest rate as a result of the refinancing and because of higher financing requirements. In addition, net finance costs included the transaction loss on the sale of Scapino Belgium ( 2.4 million) as well as the write-off of 1.1 million on the 6.4 million loan to Halfords because of the insolvency of that company. Net finance costs landed at 10.4 million (2013: 4.2 million). The effective tax rate was 0.2% (2013: 14.0%). Total net result can be broken down as follows: NET RESULT (in millions) Full year First half Second half Net result on continuing operations , Net result on discontinued operations Net result , : Halfords. The Managing Board will propose to shareholders, in accordance with Article 33(4) of the Articles of Association, that the net loss for 2014 of million be charged to the distributable portion of equity. Group balance sheet and solvency The balance sheet total at year-end 2014 stood at million, which was 81.6 million lower than at year-end The fall was chiefly due to the amortisation of goodwill and intangible assets related to Scapino and Brantano. Equity fell by 77.1 million to million. The issue of new shares in July 2014, which increased the number of shares by 10%, had a net positive effect of 19.2 million. The solvency ratio stood at 28.5% (2013: 39.4%) Total assets (in millions) Equity (in millions) Solvency ratio EBITDA, cash flows from operating activities and capital expenditure Total EBITDA (earnings before interest, tax, depreciation and amortisation) stood at 0.2 million (2013: 15.9 million), while underlying EBITDA amounted to 4.9 million (2013: 7.4 million). EBITDA (in millions) Total Fashion Living Other Total Fashion Living Other Underlying EBIT Depreciation and amortisation Underlying EBITDA ANNUAL REPORT 2014

27 REPORT OF THE MANAGING BOARD MANFIELD, A PASSION FOR SHOES Manfield is known for its highly varied and fashionable women s and men s shoe collection of outstanding quality. Fashion-conscious men and women can find stylish and comfortable shoes for all occasions at Manfield. A stunning collection of bags and accessories completes the Manfield product range. The Manfield collection is also available online. Purchases can be delivered to the home or to an Intreza Shoepoint. S t y l e & Q u a l i t y 69 stores in the Netherlands at top locations 620 employees manfield.com Follow on: MACINTOSH RETAIL GROUP 25

28 REPORT OF THE MANAGING BOARD The table below shows a condensed breakdown of cash flows from operating activities: CASH FLOW STATEMENT (in millions) Difference EBIT Depreciation and amortisation EBITDA Movements in working capital Movements in provisions Capital expenditure Cash flow from operating activities Cash flows from operating activities fell by 30.2 million against 2013 due primarily to lower earnings and higher working capital. The item movements in provisions was lower because of the change in/allocation of 6.8 million to the provision for lossmaking stores in Although the cash-out effect of the loss-making stores was not substantially lower, this was still partially reflected in earnings in Capitalised capital expenditure stood at 16.5 million, which was a 4.1 million increase on last year. Capital expenditure can be broken down as follows: CAPITAL EXPENDITURE (in millions) New stores 3,0 2,7 Existing stores 7,4 4,9 Logistics and information systems 5,7 4,0 Other miscellaneous provisions 0,4 0,8 Total 16,5 12,4 For details on cash flows from investing activities ( 18.2 million negative, including 1.7 million in disposals on balance) and cash flows from financing activities ( million), see the financial statements. Net debt disclosed in the balance sheet saw a 24.2 million increase, rising to 69.8 million. Disregarding the capital of 19.5 million (gross) raised by the 10% share issue, the net debt position rose by 43.7 million in No testing against the covenants took place at year-end ANNUAL REPORT 2014

29 REPORT OF THE MANAGING BOARD PRO 0031: SPECIALIST TRAINER STORE PRO finds inspiration in trends picked up from the street all around the world and this makes it the place to go for trainers for the young-minded lover of street style! The mainly young customers will discover that the collection offers a wide range of exclusive trainers, boots, bags and accessories from well-known brands, which suit a lifestyle that is constantly reinventing itself. PRO 0031 always knows how to create the right mix of all-time classics and the more exclusive trainers! The leading trendy top brands are especially well-represented in the extensive range. All the advantages of ordering online are of course available in the online shop, but customers can also order through Intreza.nl. 32 stores in the Netherlands at top locations 273 employees pro-shoes.nl Follow on: MACINTOSH RETAIL GROUP 27