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Björn Borg

Interim / Quarterly Report Aug 18, 2017

3142_ir_2017-08-18_86b76d25-918e-4354-a31d-b1b8025fd745.pdf

Interim / Quarterly Report

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SALES INCREASE

APRIL 1-JUNE 30, 2017

  • The Group's net sales increased by 10.4 percent to SEK 134.8 million (122.2). Excluding currency effects sales increased by 7.2 percent.
  • The gross profit margin was 52.1 percent (53.5).
  • The operating loss amounted to SEK 0.3 million, against a year-earlier profit of SEK 0.3 million.
  • The loss after tax was SEK 3.3 million, against a year-earlier loss of SEK 2.2 million.
  • Earnings per share before and after dilution amounted to SEK-0.11 (-0.09).

JANUARY 1 - JUNE 30, 2017

  • The Group's net sales increased by 14.4 percent to SEK 320.5 million (280.2). Excluding currency effects sales increased by 12.4 percent.
  • The gross profit margin was 50.3 percent (51.5).
  • $\bullet$ Operating profit amounted to SEK 6.5 million (14.2).
  • Profit after tax amounted to SEK 1.7 million (4.3).
  • Earnings per share before and after dilution amounted to $\bullet$ SEK 0.07 (0.20).

QUOTE FROM THE CEO

"In summing up the second quarter there are several victories to celebrate with a big payoff from our focus on social media, where we are increasing awareness of our sportswear brand in Sweden and the Netherlands. We are strengthening our position in customer surveys on which underwear men prefer and we have successfully continued to establish performance underwear, i.e., functional underwear for both men and women. I can lastly add that our efforts in 2016 to improve deliveries and raise efficiencies have proven very successful. We are increasing delivery reliability at the same time that we reduced costs in the second quarter of 2017," said CEO Henrik Bunge.

SEK million April-June
2017
April-June
2016
January-June
2017
January-June
2016
July 2016-
June 2017
Full-year
2016
Net sales 134.8 122.2 320.5 280.2 671.9 631.6
Gross profit margin, % 52.1 53.5 50.3 51.5 49.7 50.3
Operating profit/loss $-0.3$ 0.3 6.5 14.2 56.5 64.2
Operating margin, % $-0.2$ 0.2 2.0 5.1 8.4 10.2
Profit/loss after tax $-3.3$ $-2.2$ 1.7 4.3 44.2 46.9
Earnings per share before dilution, SEK $-0.11$ $-0.09$ 0.07 0.20 1.75 1.88
Earnings per share after dilution, SEK $-0.11$ $-0.08$ 0.07 0.20 1.75 1.88
Brand sales* 271 281 708 700 1.559 1,551

* Estimated total sales of Björn Borg products at the consumer level, excluding VAT, based on reported sales at the wholesale level.

CEO'S COMMENT

For the first time in the company's history sports apparel was the product group whose brand sales increased the fastest, with growth of 44 percent in the second quarter of 2017 compared with the same quarter a year earlier. The Borg tee, our functional training T-shirt for men, remains one of our top sellers.

In total, Björn Borg's sales rose in the second quarter of 2017 by 10.4 percent compared with the same quarter in 2016. This is largely due to the acquisition of our former distributor in Benelux. Besides Benelux, our organic growth of 3.5 percent was driven by Finland, our own footwear distribution and England. On the other hand, we had a weak quarter in Sweden, with lower sales in both the wholesale business and our own stores. The latter was due to a smaller number of stores (-2), but also lower sales in comparable stores (-6 percent). We had an acceptable quarter in our stores in the Netherlands and a very good quarter in our Finnish stores.

The gross profit margin for the second quarter decreased to 52.1 percent, against 53.5 percent in the previous year. Adjusted for currency effects, the gross profit margin would have been in line with the previous year.

Our operating expenses rose by SEK 9 million due to the acquisition of our former distributor. Apart from Belgium and the Netherlands, we have continued to reduce our operating expenses, which were down SEK 9 million against the yearearlier quarter. Together, the higher revenue, lower gross profit margin and increased operating expenses produced

an operating loss of SEK 0.3 million, compared with a profit of SEK 0.3 million in the second quarter of 2016. The previously announced timing effect on operating profit due to the Benelux acquisition will mainly impact earnings in the first half of 2017.

My personal focus during the quarter was on integrating our new companies in the Netherlands and Belgium in an effective way and implementing the changes that are needed to turn the business around in these two markets, which are among our most important. During the quarter we replaced the management and as of June 1 Antoine Huizinga is responsible for both countries. Antoine has a long background as leader at Bjorn Borg and Puma. There is a lot of work still left to do, but in the second quarter we were already able to stop the negative sales trend we saw in the first quarter.

In summing up the second quarter there are several victories to celebrate with a big payoff from our focus on social media, where we are increasing awareness of our sportswear brand in Sweden and the Netherlands. We are strengthening our position in customer surveys on which underwear men prefer and we have successfully continued to establish performance underwear, i.e., functional underwear for both men and women. I can lastly add that our efforts in 2016 to improve deliveries and raise efficiencies have proven very successful. We are increasing delivery reliability at the same time that we reduced costs in the second quarter of 2017.

Head coach Henrik Bunge

OPERATIONS

BRAND SALES

Brand sales fell in the second quarter, mainly in underwear and bags, while sports apparel grew significantly. The decrease in bags is partly related to a shipment delay in the third quarter. Footwear sales also dropped slightly. In total, brand sales decreased by 4 percent to SEK 271 million (281) in the second quarter. Adjusted for currency effects, brand sales decreased by 6 percent for the quarter. For the first half of 2017 brand sales increased to SEK 708 million (700), up 1 percent. Excluding currency effects, brand sales fell by 1 percent.

PRODUCT AREAS FIRST HALF OF 2017

Brand sales in the underwear product area fell by 2 percent in the first half of 2017. Underwear accounted for 59 percent (61) of brand sales.

Sports apparel had a strong second quarter and grew for the first six months by 11 percent compared with the same period in 2016. Brand sales of footwear rose by 12 percent, while bags and eyewear decreased by 19 and 59 percent, respectively, in the half of 2017. In total, sales of licensed products increased by 4 percent in the first half-year.

MARKETS FIRST HALF OF 2017

Among large markets, Finland posted strong growth, while other markets declined year-on-year. The decrease in other large markets was mainly driven by a downturn in underwear. England and Germany are two smaller markets that are performing well.

BRAND SALES* OF BJÖRN BORG PRODUCTS JANUARY-JUNE 2017. TOTAL SEK 708 MILLION (700)

  • Estimated total sales of Björn Borg products at the consumer level, excluding VAT, based on reported sales at the wholesale level.
  • $\ast\ast$ Underwear: Men's and women's underwear, swimwear, socks and adjacent products. Other product areas: Sports apparel, fragrances, footwear, bags and eyewear.

BJÖRN BORG STORES

No new Björn Borg stores were opened or closed in the quarter. As of June 30, 2017 there were a total of 39 (40) Björn Borg stores, of which 33 (21) are Group-owned. The increase in Group-owned stores is due to the Benelux acquisition, after which 13 stores are classified as Group-owned as of 2017.

THE GROUP'S DEVELOPMENT

Sales grew well in the second quarter as they did in the first, largely due to the Benelux acquisition, while operating profit decreased year-on-year.

QUARTERLY NET SALES AND OPERATING PROFIT, 2014-2017

SALES

Second quarter, April-June 2017

The Group's net sales amounted to SEK 134.8 million (122.2) in the second quarter, an increase of 10.4 percent. Exchange rates positively affected sales in the quarter, mainly due to a stronger euro. Adjusted for currency effects, sales rose by 7.2 percent.

The positive sales trend year-on-year is largely a result of the acquisition of the former distributor in Benelux, which is consolidated in the Group as of January 2, 2017. Adjusted for the acquisition, underlying net sales grew by 3.5 percent from the previous year. Growth is mainly coming from Finnish and English wholesale and retail sales of clothing and underwear. The Group's own footwear distribution in the Nordic markets also grew in the quarter. Growth in Finland was largely driven by broader distribution of underwear and sports apparel, an increased number of Group-owned stores and good organic growth for comparable stores. Growth in footwear distribution was largely driven by new customers in Finland and Denmark, but also in the Swedish market from existing customers.

The Swedish wholesale and retail operations had a weak quarter and declined compared with 2016. The decrease for the wholesale company was driven by slower sell-through by customers, because of which orders for the spring and summer 2017 collection have decreased year-on-year. For the Swedish retail company the main reason for the year-on-year sales decline was traffic in Group-owned stores, but also because there were two fewer stores than a year earlier. For comparable stores sales decreased by 6 percent in the quarter and 11 percent in total.

E-commerce sales ended up at the same level as the second quarter of 2016. Website traffic was lower than the previous year. It was primarily paid traffic that declined, which is part of a conscious strategy to increase profitability in e-commerce. The average order and conversion rate increased year-on-year.

Sales by the Benelux company decreased slightly in local currency compared with the second quarter of 2016. Comparable Group-owned stores were in line with the previous year's second quarter, while the wholesale business fell slightly.

The product company's external sales were down year-on-year driven by the Danish market and poorer performance in smaller external markets. External royalties declined since Benelux is now included in the Group, while other licensed sales were in line with the previous year.

First half-year, January-June 2017

The Group's net sales amounted to SEK 320.5 million (280.2) in the first half of 2017, an increase of 14.4 percent. Adjusted for currency effects, sales rose by 12.4 percent.

The positive sales trend year-on-year is largely a result of the acquisition of the former distributor in Benelux, which is consolidated in the Group as of January 2, 2017. Adjusted for the acquisition, underlying net sales grew by 5 percent from the previous year. Growth in the first half of 2017 was mainly driven by Finnish and English wholesale and retail sales of clothing and underwear. The Group's own footwear distribution in the Nordic markets also saw good growth in the first six months.

The Swedish wholesale and retail operations reported lower sales than the first half of 2016. The decrease for the wholesale company was driven by slower sell-through by customers, because of which orders for the spring and summer 2017 collection have decreased year-on-year. The Swedish retail company had two fewer stores, though sales also fell by 13 percent for comparable stores and by 16 percent in total for the first six months.

The e-commerce business area has had a greater focus on profitability than the previous year, which has successfully produced lower costs for paid traffic and higher operating

Operating revenue.
SEK thousands
January-June
Operating profit,
SEK thousands
January-June
Operating margin, %
January-June
Business segment Revenue source 2017 2016 2017 2016 2017 2016
Brand Rovalties 26,303 42,661 15,889 11,373 60 27
Product development Products 174,423 215,665 1.999 14,984
Wholesale Wholesale revenue 254,475 138,749 $-4.513$ $-743$ $-2$ $-1$
Retail Retailers 98,820 59,367 $-6.925$ $-11,419$ $-7$ $-19$
Less internal sales $-228.769$ $-174.676$
Total 325,252 281.765 6,451 14.195 2 5

margins in the first six months of 2017. The profitability focus has eliminated unprofitable traffic, due to which sales decreased by 20 percent in the first half-year.

Sales by the Benelux company decreased substantially year-on-year. The biggest decline was in the wholesale business, while retail sales fell slightly. Comparable stores decreased by 3 percent.

The product company's external sales were down yearon-year, driven by the Danish market and poorer performance in smaller external markets. External royalties declined since Benelux is now included in the Group, while other licensed sales increased slightly compared with the previous year.

PROFIT

Second quarter, April-June 2017

The gross profit margin for the second quarter decreased to 52.1 (53.5). A stronger USD negatively affected margins. Adjusted for currency effects, the gross profit margin would have been 53.5 percent. Aside from USD, the margins were positively affected because earn-out payments are no longer being paid. At the same time the gross profit margin was negatively affected by the timing effect arising due to the Benelux acquisition.

Operating expenses increased by SEK 9 million compared with the previous year, largely due to the Benelux acquisition. Excluding Benelux, operating expenses fell by SEK 9 million or 14 percent. The decrease was largely due to lower logistical and marketing expenses and staff costs.

The higher revenue, lower gross profit margin and increased operating expenses produced an operating loss of SEK 0.3 million, compared with a year-earlier profit of SEK 0.3 million. The operating margin was -0.2 percent (0.2).

Net financial items amounted to SEK-1.8 million (-4.6). The realized and unrealized return on investments less interest on bonds and bank loans positively affected the Group's financial net by SEK 0.1 million (-1.1). The remaining year-on-year decrease was mainly attributable to the revaluation of financial assets and liabilities in foreign currency. The loss before tax was SEK 3.3 million, compared with a year-earlier loss of SEK 2.2 million.

First half-year, January-June 2017

The gross profit margin for the first half of 2017 decreased to 50.3 percent (51.5). Currency effects reduced the margin compared with the first half of 2017 Adjusted for currency effects, the gross profit margin would have been 51.5 percent. Aside from the USD exchange rate, gross profit margins were positively affected by about SEK 9 million because earn-out payments are no longer being paid. At the same time the margins were negatively affected by the timing effect arising due to the Benelux acquisition. The gross profit margin in the product development segment that was supposed to be realized in the first quarter is now tied up in inventory and negatively affected the margin by about SEK 20 million compared with the first half of 2016. Adjusted for currency effects, the effects of earn-out payments and the above-mentioned timing effect due to the Benelux acquisition, the gross profit margin was 55.1 percent for the first six months of 2017.

Operating expenses increased by SEK 27 million compared with the previous year, largely due to the Benelux acquisition. Excluding Benelux, operating expenses fell by SEK 9 million or 7 percent. The decrease was largely due to lower logistical and marketing expenses and staff costs.

The higher revenue, lower gross profit margin and increased operating expenses reduced operating profit to SEK 6.5 million (14.2). The operating margin was 2.0 percent (5.1).

Net financial items amounted to SEK-1.8 million (-4.6). The realized and unrealized return on investments less

interest on the bond loan and bank loans positively affected the Group's financial net by SEK 1.1 million (-2.7). The remaining year-on-year decrease was mainly attributable to the revaluation of financial assets and liabilities in foreign currency. Profit before tax was SEK 4.7 million (9.6).

Development by business segment

The Group operates through thirteen companies under the Björn Borg brand on every level from product development to wholesaling and consumer sales in its own Björn Borg stores.

Brand

The Brand segment primarily consists of royalty revenue and expenses associated with the brand.

The business segment's operating revenue amounted to SEK 26.3 million (42.6) in the first half of 2017. External operating revenue decreased to SEK 9.2 million (16.0), largely because Benelux is now reported as internal brand sales. Excluding Benelux, external brand sales increased by about SEK 1.6 million. This is a result of higher brand sales of footwear as well as minimum royalties from our new homeware licensee. Royalty percentages vary by product category, due to which there is not always a precise correlation between royalties and brand sales.

Operating profit increased to SEK 15.9 million (11.4) for the first half of 2017. The improvement was due to the fact that earn-out payments are no longer being paid.

Product development

The Björn Borg Group has global responsibility for development, design and production of underwear, sports apparel and adjacent products.

The segment's operating revenue amounted to SEK 174.4 million (215.7) in the first half of 2017, a decrease of 19 percent. The lower revenue was largely due to a change in delivery terms for internal sales, which has delayed invoicing compared with previous years. This only relates to intra-Group sales. External operating revenue fell to SEK 23.9 million (91.3) as Benelux is now consolidated in the Group and classified as internal. Excluding Benelux. external revenue was down about SEK 13 million, mainly due to lower sales to Denmark and smaller distributors.

Operating profit decreased to SEK 2.0 million (15.0) due to lower margins and higher operating expenses in the segment. Product development is the segment affected by the timing effect from the Benelux acquisition.

Wholesale

The Björn Borg Group is the exclusive wholesaler of underwear, sports apparel and adjacent products in Sweden, Finland, the Netherlands, Belgium and England as well as footwear in Sweden, Finland, Denmark and the Baltic countries.

The segment's operating revenue rose in the first half of 2017 to SEK 254.5 million (138.7). External operating revenue amounted to SEK 210.2 million (123.5). Of the increase of SEK 87 million, Benelux accounted for SEK 58 million. Other growth came from the Finnish underwear and sports apparel wholesale business as well as the footwear wholesale company. The increase was mainly due to broader underwear distribution in Finland as well as good growth among new and existing footwear customers in Sweden, Denmark and Finland. The Swedish wholesale business for underwear and sports apparel decreased year-on-year, while the British business is growing.

The operating loss amounted to SEK 4.5 million, compared with a year-earlier loss of SEK 0.7 million. The decrease was mainly due to lower gross profit margins and higher operating expenses.

Retail

The Björn Borg Group owns and operates a total of 33 stores and factory outlets in Sweden, Finland, the Netherlands, Belgium and England that sell underwear, sports apparel, adjacent products and other licensed products. Björn Borg also sells online through www.bjornborg.com.

Operating revenue in the Retail segment increased in the first half of 2017 to SEK 98.8 million (59.4). External net sales rose to SEK 81.9 million (50.9). The increase was because Benelux is now included in the segment and accounted for SEK 35.0 million of external sales. Excluding Benelux, the segment's sales decreased by SEK 4 million. The year-on-year trend was weakest in e-commerce and the Swedish retail business, while Finnish stores and the English store performed well. E-commerce sales dropped by 20 percent to SEK 17.9 million (22.1). This was mainly due to lower website traffic, which was partly the result of an initiative to reduce costs for paid, unprofitable traffic. The Group-owned stores in Sweden declined in the first six months of the year with sales for comparable stores down by 13 percent. In total, sales fell by 16 percent due to two fewer stores. Sales grew by 6 percent for comparable Finnish stores and in total by 38 percent due to more stores. The store in England continues to perform well and grew by 12 percent compared with the previous year.

The operating loss for the first half of 2017 was SEK 6.9 million, against a year-earlier loss of SEK 11.4 million. The improvement was mainly a result of lower expenses relative to sales compared with the first half of 2016.

Intra-Group sales

Intra-Group sales for the first half of 2017 amounted to SEK 228.8 million (174.7). The increase was due to the Benelux acquisition.

SEASONAL VARIATIONS

The Björn Borg Group is active in an industry with seasonal variations. Sales and earnings vary by quarter. See the figure on quarterly net sales and operating profit on page 4.

INVESTMENTS AND CASH FLOW

The Group's cash flow from operating activities amounted to SEK 12.0 million (-16.4) in the first half of 2017. The year-onyear improvement, adjusted for acquisition effects, mainly came from a better trend in operating capital, where inventory levels were the biggest reason.

Investing activities had a positive flow of SEK 20.4 million (37.1) due to divestments of the bond portfolio in the period. Total investments in tangible and intangible non-current assets amounted to SEK 4.8 million (1.5) for the period.

Financing activities had a negative flow of SEK-39.0 million (-58.9). The negative flow was from the dividend to shareholders of SEK -50.3 million (-50.3) in the period. In addition, cash flow for the financing business was positively affected because the loan raised from Danske Bank is higher than the repayment of the bond loan.

The Group's cash flow for the first six months was SEK -6.6 million (-20.2) and cash & cash equivalents amounted to SEK 40.0 million (22.5) at the end of the period.

FINANCIAL POSITION AND LIQUIDITY

The Björn Borg Group's cash & cash equivalents and investments amounted to SEK 41.6 million (51.0) at the end of the period, with interest-bearing liabilities of SEK 167.3 million (161.6).

The bond loan issued by the company in April 2012 expired in April 2017. The remaining debt of SEK 135.5 million was repaid in the quarter. The bond loan has been replaced by a three-year revolving credit of SEK 150 million from Danske Bank.

The bond portfolio that the company previously managed due to the surplus liquidity arising from the issuance of the bond loan is now essentially fully divested. As of June 30 the book value of the bonds was SEK 1.6 million (28.5), which represents the fair value on the same date.

In addition to the revolving credit of SEK 150 million, Björn Borg has an overdraft facility of SEK 90 million from Danske Bank.

COMMITMENTS AND CONTINGENT LIABILITIES

As a commitment for the overdraft facility and three-year revolving credit, the company has pledged to ensure that the ratio between the Group's net debt and rolling 12-month operating profit before depreciation and amortization does not exceed 3.00 on the last day of each quarter, with the exception of the first three quarters of 2017. In the first and second quarters of 2017 the ratio may not exceed 4.00 and for the third quarter it may not exceed 3.50. Moreover, the Group will maintain an equity/ assets ratio of at least 35 percent.

As of June 30, 2017 the ratio was 2.00 (1.68) and the equity/assets ratio was 45.5 percent (48.5).

No other changes were otherwise made with regard to pledged assets and contingent liabilities compared with December 31, 2016.

PERSONNEL

The average number of employees in the Group was 206 (133) for the twelve-month period ending June 30, 2017, of whom 68 percent (70) are women. The increase was due to the Benelux acquisition.

RELATED PARTY TRANSACTIONS

There were no transactions with related parties during the period.

SIGNIFICANT RISKS AND UNCERTAINTIES

In its operations the Björn Borg Group is exposed to risks and uncertainties. Information on the Group's risks and uncertainties can be found on pages 58-59 and in note 3 in the annual report 2016.

PARENT COMPANY

Björn Borg AB (publ) is primarily engaged in intra-Group activities. As of June 30, 2017 the company also owns 100 percent of the shares in Björn Borg Brands AB, Björn Borg Footwear AB, Björn Borg Sport BV, Björn Borg Inc., Björn Borg Services AB, Björn Borg UK and Baseline BV. In addition, the company owns 75 percent of the shares in Bjorn Borg (China) Ltd and 75 percent of the shares in Bjorn Borg Finland Oy.

The Parent Company's net sales amounted to SEK 52.2 million (32.8) for the first half of 2017.

Profit before tax amounted to SEK 3.8 million (-14.0) in the first six months. Cash & cash equivalents and investments amounted to SEK 1.6 million (29.5) as of June 30, 2017.

EVENTS AFTER THE BALANCE SHEET DATE

There are no significant events to report after the balance sheet date.

NUMBER OF SHARES

Björn Borg currently has 25,148,384 shares outstanding.

FINANCIAL OBJECTIVES

The Board of Directors of Björn Borg has established a business plan for the period 2015-2019 with the following long-term financial objectives:

  • By the financial year 2019 the Group will reach sales of SEK 1 billion with an operating margin of 15 percent
  • An annual dividend of at least 50 percent of net profit
  • The equity/assets ratio should not fall below 35 percent.

Comments to the financial objectives:

The sales target for 2019 corresponds to average annual organic growth of 16 percent. The sales increase, along with the increase in the operating margin, is expected to come from new product groups in sports fashion as well as expanded geographical distribution within all the product groups.

ANNUAL GENERAL MEETING

The Annual General Meeting held on May 11, 2017 approved a distribution of SEK 2.00 (2.00) per share to the shareholders for the financial year 2016. The AGM resolved to re-elect the Directors Fredrik Lövstedt, Martin Bjäringer, Lotta de Champs, Christel Kinning, Heiner Olbrich and Mats H Nilsson, meaning that the total number of Directors is six. Petra Stenqvist declined re-election. The Meeting resolved to elect Heiner Olbrich as the new Chairman of the Board of Directors.

ACCOUNTING PRINCIPLES

This condensed interim report for the Group has been prepared in accordance with IAS 34 Interim Financial Reporting and applicable provisions of the Annual Accounts Act. The interim report for the Parent Company has been prepared in accordance with chapter 9 of the Annual Accounts Act on interim reporting and RFR 2 Accounting in Legal Entities. The accounting principles applied in the interim report conform to the accounting principles applied in the preparation of the consolidated accounts and annual report for 2016, as described on page 54 in the annual report 2016.

New and amended accounting principles

New or amended IFRS and IFRIC interpretations effective as of January 1, 2016 have not had a material effect or impact on the interim report or the consolidated financial statements.

AUDIT REPORT

This interim report has not been reviewed by the company's auditors.

OUTLOOK 2017

As a policy, the company does not issue earnings forecasts.

CONSOLIDATED INCOME STATEMENT CONDENSED

SEK thousands Note April-June
2017
April-June
2016
January-June
2017
January-June
2016
July 2016-
June 2017
Full-year
2016
Net sales 134,844 122,165 320,501 280,229 671,888 631,616
Other operating revenue 5,738 2,690 4,751 1,536 10,169 6,954
Operating revenue 140,582 124,855 325,252 281,765 682,057 638,570
Goods for resale $-64.604$ $-56,818$ $-159,443$ $-135.790$ $-337,790$ $-314.137$
Other external expenses $-35,201$ $-35,379$ $-81,149$ $-70,767$ $-158,568$ $-148,187$
Staff costs $-37,016$ $-29.411$ $-70.396$ $-55.029$ $-120.558$ $-105,191$
Depreciation/amortization of tangible/
intangible non-current assets $-2,222$ $-1,738$ $-4,487$ $-3,363$ $-7.921$ $-6,797$
Other operating expenses $-1,829$ $-1,203$ $-3,326$ $-2,620$ $-768$ $-62$
Operating profit/loss $-290$ 305 6,451 14,195 56,452 64.196
Net financial items $-1,789$ $-321$ $-1,765$ $-4,633$ 2,141 $-727$
Profit/loss before tax $-2,079$ $-16$ 4,686 9,563 58,593 63,469
Tax $-1,263$ $-2,186$ $-3,008$ $-5,230$ $-14,350$ $-16,572$
Profit/loss for the period $-3,342$ $-2,202$ 1,678 4,332 44.243 46,897
Profit for the period attributable to
Parent Company's shareholders $-2,794$ $-2,164$ 1.712 4,948 44.125 47,361
Non-controlling interests $-548$ $-38$ $-34$ $-616$ 118 $-464$
Earnings per share before dilution, SEK $-0.11$ $-0.09$ 0.07 0.20 1.75 1.88
Earnings per share after dilution, SEK $-0.11$ $-0.08$ 0.07 0.20 1.75 1.88
Number of shares 25,148,384 25,148,384 25,148,384 25,148,384 25,148,384 25,148,384

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONDENSED

April-June April-June January-June January-June July 2016- Full-year
SEK thousands
Note
2017 2016 2017 2016 June 2017 2016
Net profit for the period $-3,342$ $-2,202$ 1,678 4,332 44,243 46,897
OTHER COMPREHENSIVE INCOME
Components that may be reclassified
to profit or loss
Translation difference for the period 2558 $-899$ 3.524 1.932 3.297 1.704
Total other comprehensive income
for the period
2558 -899 3,524 1,932 3,297 1.704
Total comprehensive income
for the period
$-784$ $-3,101$ 5,202 6,265 47,540 48,601
Total comprehensive income
attributable to
Parent Company's shareholders $-192$ $-3,030$ 4,814 6,390 47,491 49,065
Non-controlling interests $-592$ $-70$ 388 $-125$ 49 $-464$

CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONDENSED

SEK thousands
Note
June 30
2017
June 30
2016
Dec 31
2016
Non-current assets
Goodwill 35,766 19,213 19,292
Trademarks 187,532 187,532 187,532
Other intangible assets 5,016 2, 162 1,668
Tangible non-current assets 12,026 8,511 9,277
$\overline{2}$
Long-term receivables
8,000 10,700
Deferred tax assets 32,052 31,162 13,452
Total non-current assets 272,392 256,580 241,921
Current assets
Inventory
Accounts receivable
123,872 84,820 67,477
72,304 91,480 137,769
Other current receivables 24,114 25,041 16,144
$\overline{c}$
Investments
1,605 28,499 26,167
Cash & cash equivalents 39,980 22,495 48,948
Total current assets 261,875 252,335 296,505
Total assets 534,267 508,915 538,426
Equity and liabilities
Equity 244,008 246,767 289,103
Deferred tax liabilities 46,194 43,025 35,418
Bond Loan
2
144,303 137,092
$\overline{2}$
Non-current liabilities credit institutions
150,000 $\overline{\phantom{0}}$
Other non-current liabilities 17,273 21,247 17,273
Accounts payable 31,559 14,227 13,797
Other current liabilities 45,233 39,346 45,743
Total equity and liabilities 534,267 508,915 538,426

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONDENSED

Equity attributable to Non-controlling Total
SEK thousands Note Parent Company's shareholders interests equity
Opening balance, January 1, 2016 297,408 $-6,733$ 290,675
Total comprehensive income for the period 6,390 $-125$ 6,265
Distribution for 2015 $-50,297$ $-50.297$
Acquisition of non-controlling interest $-5,969$ 5,969 $\Omega$
Issuance of warrants 68 68
Issuance of convertible 55 55
Closing balance, June 30, 2016 247,655 -889 246,767
Opening balance, January 1, 2016 297,408 $-6,733$ 290,675
Total comprehensive income for the period 49,065 $-464$ 48,601
Distribution for 2015 $-50,297$ $-50,297$
Acquisition of non-controlling interest $-6,925$ 6.925 $\Omega$
Issuance of warrants 3 68 68
Warrant premium convertible 3 55 55
Closing balance, December 31, 2016 289,375 $-272$ 289,103
Opening balance, January 1, 2017 289,375 $-272$ 289,103
Total comprehensive income for the period 4.814 388 5.202
Distribution for 2016 $-50.297$ $-50.297$
Closing balance, June 30, 2017 243,892 116 244,008

CONSOLIDATED STATEMENT OF CASH FLOWS

CONDENSED

SEK thousands April-June
2017
April-June
2016
January-June
2017
January-June
2016
Full-year
2016
Cash flow from operating activities
Before changes in working capital 1,032 $-261$ 6,352 10.907 69,378
Changes in working capital 2,801 $-17,632$ 5,685 $-27,343$ $-54,066$
Cash flow from operating activities 3,833 $-17,893$ 12,037 $-16,436$ 15,312
Investments in intangible non-current assets $-2,453$ $-9$ $-2,821$ $-70$
Investments in tangible non-current assets $-1,401$ $-861$ $-2,026$ $-1,451$ $-5,231$
Sale of non-current assets
Investments/sale of investments 24,801 43,953 25,220 49,481
Acquisition of subsidiary $-842$ $-842$ 54,962
Cash flow from investing activities 20,947 42,240 20,373 47.117 49,731
Distribution $-50,297$ $-50,242$ $-50,297$ $-50,242$ $-50,297$
Acquisition of minority shares $-842$
Amortization of loans $-1,764$ 1,034
Issuance of warrants/convertibles 1,020 1.020 125
Newly raised loan 150,000 150,000
Bond loan repurchases $-135,470$ $-1,612$ $-136,972$ $-9657$ $-18480$
Cash flow from financing activities $-35,767$ $-50,835$ $-39,033$ $-58,880$ $-68,460$
Cash flow for the period $-10,987$ $-26,487$ $-6,623$ $-28.198$ $-3,417$
Cash & cash equivalents at beginning of year 52,216 49.517 48.948 50,643 50,643
Translation difference in cash & cash equivalents $-1,249$ $-535$ $-2,345$ 50 1,722
Cash & cash equivalents at end of the period 39,980 22,495 39,980 22,495 48,948

KEY FIGURES

GROUP

SEK thousands April-June
2017
April-June
2016
January-June
2017
January-June
2016
July 2016-
June 2017
Full-year
2016
Gross profit margin, % 52.1 53.5 50.3 51.5 49.7 50.3
Operating margin, % $-0.2$ 0,2 2.0 5.1 8.4 10.2
Profit margin, % $-1.5$ 0.0 1.5 3.4 8.7 10.0
Return on capital employed, % 16.0 14.7 16.0 14.7 16.0 14.3
Return on average equity, % 16.2 14.1 16.2 14.1 16.2 16.3
Profit attributable to Parent Company's
shareholders $-2.794$ $-2.164$ 1.712 4,948 44.125 47.361
Equity/assets ratio, % 45.7 48.5 45.7 48.5 45.7 53.7
Equity per share, SEK 9.70 9.81 9.70 9.81 9.70 11.50
Investments in intangible non-current assets 2453 9 2,821 70 1658
Investments in tangible non-current assets 1401 861 2,026 1,451 5 1 7 9 5,231
Business combinations 842
Depreciation, amortization and impairment
losses for the period $-2,222$ $-1,738$ $-4,487$ $-3,363$ $-7,921$ $-6,797$
Average number of employees 206 129 206 131 170 133

SUMMARY BY SEGMENT

GROUP

SEK thousands April-June
2017
April-June
2016
January-June
2017
January-June
2016
July 2016-
June 2017
Full-year
2016
Operating revenue
Brand
External revenue 3,906 6,675 9,193 16,014 26,804 33,626
Internal revenue 6,931 13,357 17,110 26,647 40,286 49,822
10,837 20,032 26,303 42,661 67,090 83,448
Product development
External revenue 13,851 48,651 23,945 91,298 120,393 187,747
Internal revenue 69,498 78,137 150,478 124,366 202,268 176,156
83,349 126,788 174,423 215,665 322,661 363,903
Wholesale
External revenue 77,377 46,569 210,199 123,546 376,286 289,633
Internal revenue 17,814 5,970 44,276 15,203 60,272 31,199
95,191 52,539 254,475 138,749 436,558 320,832
Retail
External revenue 45,447 22,959 81,915 50,906 158,575 127,565
Internal revenue 7,343 4,047 16,905 8,461 25,855 17,412
52,790 27,006 98,820 59.367 184,430 144,977
Less internal sales $-101,585$ $-101,510$ $-228,769$ $-174,677$ $-328,682$ $-274,589$
Operating revenue 140,582 124,855 325,252 281,765 682,057 638,571
Operating profit
Brand 6,165 5,529 15,889 11,373 24,016 19,500
Product development 1,000 8,859 1.999 14,984 20,431 33,415
Wholesale $-7,189$ $-6,265$ $-4,513$ $-743$ 13,825 17,595
Retail $-266$ $-7,819$ $-6,925$ $-11,419$ $-1,820$ $-6,314$
Operating profit $-290$ 305 6,451 14.195 56.452 64.196

Reconciliation between operating profit and profit before tax

The difference in the second quarter between operating profit for segments for which information must be disclosed, SEK-290 thousand (305), and profit before tax, SEK-2,079 thousand (-16), is net financial items, SEK-1,789 thousand (-312). The difference in the first half of 2017 between operating profit for segments for which information must be disclosed, SEK 6,451 thousand (14,195), and profit before tax, SEK 4,686 thousand (9,563), is net financial items, SEK -1,765 thousand (4,633).

QUARTERLY DATA

GROUP

SEK thousands 02 2017 01 2017 Q4 2016 03 2016 02 2016 01 2016 04 2015 03 2015
Net sales 134,844 185,657 171,410 179,977 122,165 158,065 152,618 191,430
Gross profit margin, % 52.1 48.9 48.0 50.4 53.5 50.0 51.8 51.9
Operating profit/loss $-290$ 6,741 21,365 28,636 305 13,891 14,554 32,872
Operating margin, % $-0.2$ 3.6 12.5 15.9 0.2 8.8 9.5 17.2
Profit/loss after financial items $-2,079$ 6,765 25,413 28.493 $-16$ 9,579 11.855 29,510
Profit margin, % $-1.5$ 3.6 14.8 15.8 0.0 6.1 7.8 15.4
Earnings per share before dilution, SEK $-0.11$ 0.18 0.74 0.95 $-0.09$ 0.28 0.34 0.88
Earnings per share after dilution, SEK $-0.11$ 0.18 0.74 0.95 $-0.09$ 0.28 0.29 0.84
Number of Björn Borg stores
at end of period 39 39 40 39 40 40 41 38
of which Group-owned
Björn Borg stores 33 33 20 20 21 21 21 18
Brand sales 270,824 436,957 371,960 479,109 280.888 424,685 330,214 472.865

PARENT COMPANY INCOME STATEMENT CONDENSED

SEK thousands Note April-June
2017
April-June
2016
January-June
2017
January-June
2016
July 2016-
June 2017
Full-year
2016
Net sales 28,303 16,511 52,237 32,791 84.351 64,905
Other operating revenue 166 99 393 2.260 2.097 3,964
Operating revenue 28,469 16,610 52,630 35,051 86,448 68,869
Goods for resale $-21$ $-23$ $-21$ $-25$ $-70$ $-74$
Other external expenses $-11,853$ $-13.768$ $-22,975$ $-25.302$ $-53.441$ $-55,768$
Staff costs $-9,651$ $-10,409$ $-18,477$ $-18,445$ $-34,645$ $-34,615$
Depreciation/amortization of tangible/
intangible non-current assets $-314$ $-558$ $-631$ $-1,085$ $-1,780$ $-2,234$
Other operating expenses 10 $-52$ $-175$ $-425$ $-193$ $-443$
Operating profit/loss 6,640 $-8,200$ 10,351 $-10,231$ $-3,681$ $-24,265$
Result from shares in subsidiaries 6,470 6,470 47,800 54,270
Net financial items $-3,286$ $-5,054$ $-6,556$ $-10,265$ $-12,492$ $-16,199$
Profit/loss after financial items 3,354 $-6,784$ 3,795 $-14,026$ 31.627 13,806
Group contributions received 39.047 39,047
Appropriations 1,014 1,014
Profit/loss before tax 3,354 $-6,784$ 3,795 $-14,026$ 71,688 53,867
Tax $-877$ $-877$
Profit/loss for the period 3.354 $-6,784$ 3.795 $-14.026$ 70,811 52,990
Other comprehensive income
Total comprehensive income for the period 3,354 $-6,784$ 3,795 $-14.026$ 70,811 52,990

PARENT COMPANY BALANCE SHEET CONDENSED

SEK thousands
Note
June 30
2017
June 30
2016
Dec 31
2016
Non-current assets
Intangible assets 491 238 193
Tangible non-current assets 1,949 2,999 2,306
$\overline{2}$
Long-term receivables
10.700 8.000 10,700
Deferred tax 131 1,008 131
Shares in Group companies 353,181 354,724 353,181
Total non-current assets 366,452 366,969 366,511
Current assets
Receivables from Group companies 528.169 510,504 428,241
Current receivables 8,430 11,207 4,632
$\overline{2}$
Investments
1,605 28,499 26,167
Cash & cash equivalents 998 13,330
Total current assets 538 204 551,208 472,370
Total assets 904 656 918,177 838,881
Equity and liabilities
Equity 104,185 83,672 150,687
Untaxed reserves 1.014
$\overline{c}$
Bond Loan
144,303 137,092
$\overline{2}$
Non-current liabilities credit institutions
150,000
Other non-current liabilities 17 273 4,138 17,273
Due to Group companies 563,161 649,526 516,066
Overdraft facility 52,789
Accounts payable 1,746 1,345 2,777
Other current liabilities 15 502 34,179 14,986
Total equity and liabilities 904 656 918.177 838,881

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY CONDENSED

SEK thousands January-June
2017
January-June
2016
Full-year
2016
Opening balance 150,687 147,872 147,872
Distribution $-50.297$ $-50.297$ $-50.297$
Issuance of warrants 68 68
Warrant premium convertible 55 55
Total comprehensive income for the period 3.795 $-14.026$ 52.990
Closing balance 104.185 83.672 150,687

SUPPLEMENTARY DISCLOSURES

NOTE 1 OTHER EXTERNAL EXPENSES

Group Parent Company
Jan-June Jan-June Jan-June Jan-June
SEK thousands 2017 2016 2017 2016
Cost of premises 23,805 14.937 5.295 5.370
Selling expenses 16,672 20,510 1,237 1,523
Marketing expenses 19.672 16.631 8.858 8.874
Administrative
expenses 15,887 12.674 6,316 6,768
Other 5,113 6.015 1,269 2,767
Total 81.149 70.767 22.975 25.302

NOTE 2 FINANCIAL ASSETS AND LIABILITIES

  • Level 1 fair value is determined using observable (unadjusted) quoted prices on an active market for identical assets and liabilities.
  • Level 2 fair value is determined using valuation models based on other observable inputs for the asset or liability other than quoted prices included in level 1.
  • Level 3 fair value is determined using valuation models where significant inputs are based on non-observable data.

Securities held for trading relate to investments in corporate bonds quoted on Nasdaq Stockholm and have been measured at their quoted prices. Forward exchange contracts are measured according to level 2 based on observable information as of the closing date with respect to exchange rates and market interest rates for the remaining maturities.

Net divestments in the company's portfolio of corporate bonds amounted to SEK 25.2 million in the first half of 2017.

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

SEK thousands Level 1 Level 2 Level 3
Securities held for trading 1.605
Derivatives held for trading
Net

The carrying amount of financial instruments recognized at amortized cost corresponds to fair value as of June 30, 2017.

NOTE 3 BENELUX ACQUISITION

On December 8 Björn Borg signed an agreement to acquire all the shares in Baseline BV, the parent company of the distributor of underwear and sportswear in the Netherlands and Belgium. The Baseline Group consists of six legal entities with wholesale operations as well as retail operations through twelve Björn Borg concept and outlet stores.

The acquisition closed on January 2, 2017. Björn Borg is paying about SEK 7.2 million for all shares and shareholders' loans after disposing of net assets to the former owners relating to brands other than Björn Borg. The difference between the actual and preliminary acquisition price previously announced as approximately SEK 12 million (EUR 1.25 million) is the value of assets (primarily inventory and accounts receivables) unrelated to the Björn Borg brand, which on December 31, 2016 was higher than preliminarily estimated and was therefore deducted from the acquisition price. A portion of the acquisition price was paid on the closing day and the remainder falls due in the three subsequent financial years. The acquisition is financed with own funds. There are no earn-out payments.

Direct acquisition expenses amounted to about SEK 1.7 million and were charged to other external expenses in the fourth quarter.

The acquisition of the Benelux operations is an important step in accelerating the vertical integration of the Björn Borg operations and in line with the strategy to get closer to consumers and retailers. Proximity to consumers and retailers is expected to create more opportunities to generate growth for Björn Borg in Benelux in the long term. With respect to efficiencies, there are synergies mainly in procurement that are expected in the future.

Consolidating Baseline in the Björn Borg Group is estimated to increase annual net sales by SEK 100 million with marginal impact on EBIT, excluding short-term negative effects for 2017. In 2017 the Björn Borg Group's EBIT is expected to decline due to timing effects for revenues from the Benelux market as a consequence of accounting effects as wholesale and consumer sales are managed within the Björn Borg Group instead of by an external distributor. At the same time, from 2017 the earn-out payments to the former owner of the Björn Borg brand will discontinue, which is estimated to positively impact EBIT by SEK 21 million, largely compensating for the negative short-term effect from the acquisition of Baseline Group.

Net assets largely consist of inventory, receivables and tangible non-current assets comprising retail and office furniture and fixtures. The financial non-current assets largely consist of tax loss carry forwards. Acquired surplus values are attributable in their entirety to goodwill. Acquired goodwill is not tax deductible.

The table shows a preliminary acquisition analysis. This table has changed since the year-end report for 2016, as financial non-current assets have increased in Benelux by SEK 0.7 million. As a result, goodwill has declined by a corresponding amount, SEK 0.7 million.

ACQUIRED NET ASSETS

SEK thousands Fair value
Preliminary acquisition price 11,980
Adjustment net assets $-4.829$
Acquisition price 7,151
Acquired net assets
Intangible and tangible assets 6,731
Financial non-current assets 12,630
Inventory 60.932
Other short-term receivables 8,701
Long-term interest-bearing liabilities $-20.547$
Short-term non-interest-bearing liabilities $-76,775$
Total acquired assets and liabilities $-8,329$
Goodwill 15,480
Total net assets 7,151
Acquisition payments fall due as follows:
2017 1.764
2018 109
2019 1,688
2020 3,590
Total acquisition payments 7,151

DEFINITIONS

The company presents certain financial measures in this interim report that are not defined according to IFRS. The company considers these measures to be valuable complementary information for investors and the company's management. Since not all companies calculate financial measures in the same way, they are not always comparable with measures used by other companies. Consequently, these measures should not be seen as a substitute for measures defined according to IFRS. For more on the calculation of these key financial ratios, see https://corporate.bjornborg.com/en/section/investors/ interim-reports/

BRAND SALES

Estimated total sales of Björn Borg products at the consumer level, excluding VAT, based on reported wholesale sales. Purpose: Shows the sales trend measured as retail value excluding VAT.

CAPITAL EMPLOYED

Total assets less non-interest-bearing liabilities and provisions.

Purpose: Capital employed measures capital use and efficiency.

EARNINGS PER SHARE (DEFINED ACCORDING TO IFRS)

Profit after tax in relation to the weighted average number of shares during the period.

Purpose: This indicator is used to assess an investment from an owner's perspective.

EARNINGS PER SHARE AFTER DILUTION (DEFINED ACCORDING TO IFRS)

Earnings per share adjusted for any dilution effect. Purpose: This indicator is used to assess an investment from an owner's perspective.

EQUITY/ASSETS RATIO

Equity as a percentage of total assets. Purpose: This indicator shows financial risk, expressed as a share of total restricted equity financed by the owners.

GROSS PROFIT MARGIN

Net sales less cost of goods sold divided by net sales. Purpose: Gross margin is used to measure operating profitability.

GROSS PROFIT MARGIN BEFORE ACQUISITIONS

Net sales less cost of goods sold divided by net sales. Purpose: Gross profit margin before acquisitions is used to measure operating profitability adjusted for acquisition effects.

NET DEBT

Liabilities less investments and cash & cash equivalents. Purpose: Net debt reflects the company's total debt situation.

NET DEBT TO EBITDA RATIO

Liabilities less investments and cash & cash equivalents divided by operating profit before depreciation/amortization. Purpose: This indicator shows the company's ability to pay debts.

NET FINANCIAL ITEMS

Financial income less financial expenses. Purpose: Describes the company's financial activities.

OPERATING MARGIN

Operating profit as a percentage of net sales. Purpose: The operating margin is used to measure operating profitability.

OPERATING PROFIT

Profit before tax plus net financial items. Purpose: This indicator facilitates profitability comparisons regardless of the company's tax rate and independent of its financing structure.

PROFIT MARGIN

Profit before tax as a percentage of net sales. Purpose: Profit margin shows the company's profit in relation to its sales.

RETURN ON CAPITAL EMPLOYED

Profit before tax (per rolling 12-month period) plus financial expenses as a percentage of average capital employed. Purpose: This indicator is the key measure to quantify the return on the capital used in operations.

RETURN ON EQUITY

Profit for the period/year attributable to the Parent Company's shareholders (for rolling 12 months) according to the income statement as a percentage of average equity. Average equity is calculated by adding equity at January 1 to equity at December 31 and dividing by two.

Purpose: This indicator is used to show, from an ownership perspective, the return generated on the owners' invested capital.

The Board of Directors and the CEO certify that the interim report provides a true and fair overview of the operations, financial position and results of the Parent Company and the Group and describes the material risks and uncertainties faced by the Parent Company and the companies in the Group.

Stockholm, August 17, 2017

Heiner Olbrich Chairman

Lotta de Champs Board member

Martin Bjäringer Board member

Mats H Nilsson Board member

Fredrik Lövstedt Board member

Christel Kinning Board member

Henrik Bunge $\mathsf{CEO}% \left( \mathcal{N}\right) \equiv\mathsf{Geo}(\mathcal{N})$

CALENDAR 2017

The interim report for January-September 2017 on November 16, 2017.

The year-end report for 2017 on February 23, 2018.

FINANCIAL REPORTS

Financial reports can be downloaded from the company's website, www.bjornborg.com or ordered by telephone +46 8 506 33 700 or by e-mail [email protected].

SHAREHOLDER CONTACT

Henrik Bunge, CEO E-mail: [email protected] Tel: +46 8 506 33 700

Daniel Grohman, CFO E-mail: [email protected] Tel: +46 8 506 33 700

ABOUT THE BJÖRN BORG GROUP

The Group owns the Björn Borg trademark and its core business is sports apparel and underwear. It also offers footwear, bags and eyewear through licensees. Björn Borg products are sold in around thirty markets, of which Sweden and the Netherlands are the largest. The Björn Borg Group has operations at every level from branding to consumer sales in its own Björn Borg stores. Total sales of Björn Borg products in 2016 amounted to about SEK 1.6 billion, excluding VAT, at the consumer level. Group net sales amounted to SEK 631.6 million in 2016, with an average of 133 employees. The Björn Borg share has been listed on Nasdaq Stockholm since 2007.

IMAGES IN THE INTERIM REPORT

The images in the interim report are from Björn Borg's high summer 2017 collection.

Björn Borg AB Tulegatan 11 SE-113 53 Stockholm, Sweden www.bjornborg.com

Björn Borg is required to make public the information in this interim report according to the EU's Market Abuse Regulation. The information was released for publication on August 18, 2017 at 07:30 am (CET).

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