Villeroy & Boch AG

Earnings Release • Apr 20, 2018

1 January to 31 March 2018

THE GROUP AT A GLANCE	1/1/2018 - 31/3/2018 in € million	1/1/2017 - 31/3/2017 in € million	Change in € million	Change in %
Revenue incl. income from licence (1)	209.7	–	–	–
Revenue (nominal) (2)	208.0	201.2	6.8	3.4
Revenue – Germany	62.2	62.0	0.2	0.3
Revenue – Abroad	145.8	139.2	6.6	4.7
On a constant currency basis	212.6	201.2	11.4	5.7
EBIT	11.1	10.5	0.6	5.7
EBT	10.0	9.2	0.8	8.7
Group result	7.0	6.4	0.6	9.4
Return on net operating assets (rolling)	17.6 %	(3) 17.7 %	-0.1 PP	-0.6
Investments	4.8	3.0	1.8	60.0
Employees (FTEs as at end of period)	7,581 FTE	7,472 FTE	109 FTE	1.5

• • •

GENERAL CONDITIONS OF THE GROUP

ECONOMIC REPORT

Course of business and position of the divisions

Bathroom and Wellness

The Bathroom and Wellness Division contributed $\epsilon$ 147.2 million to consolidated revenue in the first quarter of 2018, of which $\epsilon$ 0.1 million was attributable to licence business. Excluding licence income, revenue from the sale of goods increased by 6.3 % to $\in$ 147.1 million. On a constant currency basis, revenue growth was even higher at 8.3 %.

Revenue in Germany increased by a moderate 1.4 %, as the high level of fitting capacity utilization slowed growth within the industry as a whole. In our other key European markets, we enjoyed robust growth in the regions of Northern Europe $(+6.2\%)$ and Benelux $(+3.7\%)$ in particular. The varied development in the other countries - largely as a result of unfavorable exchange rate effects - meant that total revenue in Europe was essentially unchanged year-onyear at € 120.2 million (-0.4 %).

Revenue outside Europe increased by an impressive 52.1 % to $\epsilon$ 26.9 million. The growth region of Asia-Pacific enjoyed particularly strong development, with revenue rising by 61.7% (adjusted for the acquisition of Argent Australia Pty. Ltd. in June 2017). China was the standout performer with revenue growth of $61.5 \%$ .

Thanks to its strong revenue performance and efficiency improvements in our production network, the Bathroom and Wellness Division increased its operating result (EBIT) by $\in 1.8$ million or 16.1 % year-on-year to $\epsilon$ 13.0 million.

The rolling return on net operating assets rose to 24.0 % (31 December 2017: 23.5 %). The net operating assets employed in the division increased by $\epsilon$ 4.0 million to $\epsilon$ 206.1 million compared with 31 December 2017.

Tableware

The Tableware Division generated revenue of $\epsilon$ 61.7 million in the first quarter of 2018, of which $\epsilon$ 0.8 million was attributable to license income. Although revenue from the sale of goods decreased by 3.0% year-on-year to $\epsilon$ 60.9 million, this was largely due to negative exchange rate effects. We repeated the priorvear revenue level on a constant currency basis $(\text{\ensuremath{\mathfrak{C}}} 62.8 \text{ million}).$

Following key strategic adjustments in the previous year, including pursuing a more restrictive discount policy, we succeeded in largely stabilising revenue in our home market of Europe at $\epsilon$ 48.0 million in the first quarter of 2018 (-0.6 %). While important markets such as Benelux $(+18.1\%)$ , Italy $(+6.8\%)$ and France $(+3.7\%)$ saw further growth, the nominal revenue generated in the other markets was adversely affected by the negative exchange rate development of the Swiss franc and the pound sterling in particular.

Outside Europe, we generated above-average revenue growth of 46.4 % in the Middle East/Africa region thanks to extremely successful project business. Revenue in the USA declined almost exclusively as a result of exchange rate effects (-14.0 %) and would otherwise have been largely unchanged vear-on-vear (-0.6 %).

Another encouraging development is the fact that our intensified sales and marketing activities in the area of e-commerce paid off, with online revenue growing by 8.3% across all markets.

The Tableware Division started the 2018 financial year with operating EBIT of $\epsilon$ -1.9 million in the first quarter (previous year: $\epsilon$ -0.7 million). In addition to the reduction in revenue, divisional earnings were impacted by increased logistics costs in connection with service optimization and the expansion of the online mail order business and shifts in the revenue structure.

The rolling return on net operating assets in the Tableware Division fell by 2.4 percentage points as against 31 December 2017, amounting to 9.5 % at the reporting date. This was due to the lower level of earnings accompanied by the $\epsilon$ 1.6 million increase in rolling net operating assets to $\epsilon$ 79.9 million.

REPORT ON RISKS AND OPPORTUNITIES

OUTLOOK FOR THE CURRENT FINANCIAL YEAR

continuing to forecast an increase in consolidated revenue of between 3 % and 5 % for the 2018 financial year as a whole. In terms of our earnings performance, we are forecasting an improvement in our operating result (EBIT) of between 5% and 10%. Our return on net operating assets is expected to amount to be-

tween 17 % and 18 % in the current year. We are therefore confirming the forecasts made in the 2017 Group management report unconditionally.

Mettlach, 16 April 2018

Frank Göring

Andreas Pfeiffer

Violantic

Nicolas Luc Villeroy

Dr. Markus Warncke

CONSOLIDATED BALANCE SHEET

	as of 31 March 2018

in € million
Assets	Notes	31/3/2018	31/12/2017
Non‐current assets
Intangible assets		38.3	37.5
Property, plant and equipment	1	162.1	165.3
Investment property		8.0	8.2
Investment accounted for using the equity method		1.6	1.5
Other financial assets	2	16.4	14.8
		226.4	227.3
Other non‐current assets	5	3.4	3.7
Deferred tax assets		38.2	37.3
		268.0	268.3
Current assets Inventories	3	158.4	154.6
Trade receivables	4	129.2	127.2
Other current assets	5	26.5	25.3
Income tax receivables		3.7	2.5
Cash and cash equivalents	6	69.0	108.7
		386.8	418.3
Non‐current asset held for sale		0.5	0.5
Total assets		655.3	687.1
Equity and Liabilities	Notes	31/3/2018	31/12/2017
Equity attributable to Villeroy & Boch AG shareholders
Issued capital		71.9	71.9
Capital surplus		193.6	193.6
Treasury shares		‐15.0	‐15.0
Retained earnings Revaluation surplus	7	5.3 ‐75.8	12.7 ‐74.0
		180.0	189.2
Equity attributable to minority interests		5.1	5.4
Total equity		185.1	194.6
Non‐current liabilities
Provisions for pensions		183.1	185.1
Non‐current provisions for personnel	8	18.6	19.0
Other non‐current provisions		11.6	11.3
Non‐current financial liabilities	10	50.1	50.2
Other non‐current liabilities	9	4.3	4.7
Deferred tax liabilities		4.1	3.4
		271.8	273.7
Current liabilities
Current provisions for personnel	8	8.1	15.4
Other current provisions		19.5	20.0
Current financial liabilities	10	5.4	0.9
Other current liabilities	9	82.2	92.5
Trade payables		77.4	83.5
Income tax liabilities		5.8	6.5
		198.4	218.8
Total liabilities		470.2	492.5
Total equity and liabilities		655.3	687.1

CONSOLIDATED INCOME STATEMENT

for the period 1 January to 31 March 2018

in € million

		1/1/2018	1/1/2017
	Notes	‐ 31/3/2018	‐ 31/3/2017
Revenue	11	209.7	201.2
Costs of sales		‐120.3	‐113.0
Gross profit		89.4	88.2
Selling, marketing and development costs	12	‐66.6	‐67.9
General administrative expenses		‐11.1	‐11.1
Other operating income and expenses	13	‐0.6	1.3
Result of associates accounted for using the equity method		0.0	0.0
Operating result (EBIT)		11.1	10.5
Financial result	14	‐1.1	‐1.3
Earnings before taxes		10.0	9.2
Income taxes	15	‐3.0	‐2.8
Group result		7.0	6.4
Thereof attributable to:
Villeroy & Boch AG shareholders		6.9	6.4
Minority interests		0.1	0.0
		7.0	6.4
EARNINGS PER SHARE		in €	in €
Earnings per ordinary share		0.24	0.22
Earnings per preference share		0.29	0.27

During the reporting period there were no share dilution effects.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the period 1 January to 31 March 2018

in € million

	1/1/2018 ‐ 31/3/2018	1/1/2017 ‐ 31/3/2017
Group result	7.0	6.4
Other comprehensive income
Items to be reclassified to profit or loss:
Gains or losses on cash flow hedge	‐1.1	‐0.4
Gains or losses on translations of exchange differences	‐0.6	‐0.9
Deferred income tax effect on items to be reclassified to profit or loss	‐0.1	‐0.4
Items not to be reclassified to profit or loss:
Actuarial gains or losses on defined benefit plans	0.1	1.6
Gains or losses on value changes of securities	‐0.3	0.0
Deferred income tax effect on items not to be reclassified to profit or loss	‐0.1	‐0.4
Total other comprehensive income	‐2.1	‐0.5
Total comprehensive income net of tax	4.9	5.9
Thereof attributable to:
Villeroy & Boch AG shareholders	5.1	5.9
Minority interests	‐0.2	0.0
Total comprehensive income net of tax	4.9	5.9

CONSOLIDATED STATEMENT OF EQUITY

for the period 1 January to 31 March 2018 in € million

	Equity attributable to Villeroy & Boch AG shareholders
	Issued capital	Capital surplus	Treasury shares	Retained earnings	Revaluation surplus	Total	Equity attri‐ butable to mi‐ nority interests	Total equity
Notes					7
As of 1/1/2017	71.9	193.6	‐15.0	‐3.9	‐74.1	172.5	0.1	172.6
Group result				6.4		6.4	0.0	6.4
Other comprehensive income					‐0.5	‐0.5		‐0.5
Total comprehensive income net of tax				6.4	‐0.5	5.9	0.0	5.9
Dividend payments				‐13.3		‐13.3		‐13.3
As of 31/3/2017	71.9	193.6	‐15.0	‐10.8	‐74.6	165.1	0.1	165.2
As of 1/1/2018	71.9	193.6	‐15.0	12.7	‐74.0	189.2	5.4	194.6
Group result				6.9		6.9	0.1	7.0
Other comprehensive income					‐1.8	‐1.8	‐0.3	‐2.1
Total comprehensive income net of tax				6.9	‐1.8	5.1	‐0.2	4.9
Dividend payments				‐14.3		‐14.3	‐0.1	‐14.4
As of 31/3/2018	71.9	193.6	‐15.0	5.3	‐75.8	180.0	5.1	185.1

CONSOLIDATED CASH FLOW STATEMENT

for the period 1 January to 31 March 2018 in € million

	1/1/2018 ‐ 31/3/2018	1/1/2017 ‐ 31/3/2017
Group result	7.0	6.4
Depreciation of non‐current assets	6.3	6.5
Change in non‐current provisions	‐2.8	‐2.2
Profit from disposal of fixed assets	0.1	0.2
Change in inventories, receivables and other assets	‐7.9	‐4.6
Change in liabilities, current provisions and other liabilities	‐26.1	‐24.4
Other non‐cash income/expenses	0.2	0.3
Cash Flow from operating activities	‐23.2	‐17.8
Purchase of intangible assets, property, plant and equipment	‐4.8	‐3.0
Investment in non‐current financial assets	‐2.1	‐0.1
Cash receipts from disposals of fixed assets	0.4	14.8
Cash Flow from investing activities	‐6.5	11.7
Change in financial liabilities	4.5	3.4
Cash payments for the acquisition of non‐controlling interests	‐0.1	‐
Dividend payments	‐14.4	‐13.3
Cash Flow from financing activities	‐10.0	‐9.9
Sum of cash flows	‐39.7	‐16.0
Balance of cash and cash equivalents as at 1 Jan	108.7	111.2
Net increase in cash and cash equivalents	‐39.7	‐16.0
Balance of cash and cash equivalents as at 31 Mar	69.0	95.2

CONSOLIDATED SEGMENT REPORT

			for the period 1 January to 31 March 2018
			in € million
	Bathroom & Wellness		Tableware		Transition / Other		Villeroy & Boch‐Group
	1/1/2018 ‐ 31/3/2018	1/1/2017 ‐ 31/3/2017	1/1/2018 ‐ 31/3/2018	1/1/2017 ‐ 31/3/2017	1/1/2018 ‐ 31/3/2018	1/1/2017 ‐ 31/3/2017	1/1/2018 ‐ 31/3/2018	1/1/2017 ‐ 31/3/2017
Revenue
Segment revenue from sales of goods to external customers	147.1	138.4	60.9	62.8	0.0	0.0	208.0	201.2
Segment revenue from transactions with other segments	‐	‐	0.0	0.0	‐	‐	0.0	0.0
Segment revenue from licence	0.1		0.8		0.8		1.7
Revenue	147.2	138.4	61.7	62.8	0.8	0.0	209.7	201.2
Result
Segment result	13.0	11.2	‐1.9	‐0.7	‐	‐	11.1	10.5
Financial result	‐	‐	‐	‐	‐1.1	‐1.3	‐1.1	‐1.3
Investments and depreciations
Investments	3.8	2.3	1.0	0.7	‐	‐	4.8	3.0
Scheduled depreciation	4.8	4.5	1.5	2.0	‐	‐	6.3	6.5
Assets and Liabilities	31/3/2018	31/12/2017	31/3/2018	31/12/2017	31/3/2018	31/12/2017	31/3/2018	31/12/2017
Segment assets	371.0	358.8	115.2	124.4	169.1	203.9	655.3	687.1
Segment liabilities	141.3	157.6	38.2	42.7	290.7	292.2	470.2	492.5

The rolling net operating assets and rolling operating result (EBIT) of the two divisions were as follows as at the end of the reporting period:

Rolling net operating assets	31/3/2018	31/12/2017	31/3/2018	31/12/2017	31/3/2018	31/12/2017	31/3/2018	31/12/2017
Rolling operating assets	346.4	339.3	121.2	120.8	‐	‐	467.6	460.1
Rolling operating liabilities	140.3	137.2	41.3	42.5	‐	‐	181.6	179.7
Rolling net operation assets	206.1	202.1	79.9	78.3	‐	‐	286.0	280.4
Rolling operating result (EBIT) *
Rolling operating result (EBIT) *	49.4	47.5	7.5	9.3	‐6.6	‐7.0	50.3	49.8

* Central function earnings components that cannot be influenced by the division are not taken into account in calculating the operating result of both divisions.

GENERAL INFORMATION

NOTES ON SELECTED ITEMS OF THE CONSOLIDATED BALANCE SHEET

1. Property, plant and equipment

Property, plant and equipment amounting to $\epsilon$ 3.4 million (previous year: $\epsilon$ 2.7 million) was acquired in the period under review. Investments in the Bathroom and Wellness Division focused on Germany. In particular, new facilities were acquired for the sanitary ware plant in Mettlach, including a new shuttle kiln and a new WC pressure casting line. Outside Germany, we also invested in a new tunnel kiln in Mexico and a new high-pressure press in France. The Tableware Division acquired new pressing tools and modernised the conveyor technology for the glazing line in Merzig. We also invested in our retail stores, including in Spain, the United Kingdom and Canada. The largest project in the central functions remains the redevelopment of the Old Abbey to create a modern administrative headquarters. Depreciation amounted to $\epsilon$ 5.7 million (previous year: $\epsilon$ 6.3 million). As at the end of the reporting period, the Villeroy & Boch Group had obligations to acquire property, plant and equipment in the amount of $\in$ 11.2 million (31 December 2017: $\in$ 2.1 million).

2. Other financial assets

Financial assets increased by $\epsilon$ 1.6 million in the first quarter of 2018 as a result of the acquisition of additional securities as a freely marketable investment in the amount of $\epsilon$ 1.8 million.

3. Inventories

Inventories were composed as follows as at the end of the reporting period:

in $\epsilon$ million	31/3/2018	31/12/2017
Raw materials and supplies	21.8	21.1
Work in progress	17.6	17.5
Finished goods and goods for resale	119.0	116.0
Inventories (total)	158.4	154.6

In the period under review, impairment losses on inventories increased by $\epsilon$ -2.4 million to a total of $\epsilon$ -17.8 million.

4. Trade receivables

On initial recognition, trade receivables are carried at their transaction price less expected losses over the agreed payment period. An additional impairment loss is recognised if there is objective evidence that a customer may default on a receivable.

---------------------------------------
by customer domicile/in € million	31/3/2018	31/12/2017
Germany	30.3	26.8
Rest of euro zone	30.0	29.0
Rest of world	72.2	74.5
Gross carrying amount of trade receivables (a)	132.5	130.3

Trade receivables are broken down as follows:

Continued / in € million	31/3/2018	31/12/2017
Gross carrying amount of trade receivables (a)	132.5	130.3
Impairment due to expected losses	-0.4	-0.4
Impairment due to objective evidence	-2.9	-2.7
Impairment losses (b)	-3.3	-3.1
Total trade receivables [(a)+(b)]	129.2	127.2

in € million 31/3/2018			31/12/2017
	Current	Non-current	Current	Non-current
Other tax receivables	8.8	-	9.4	-
Deferred income	2.8	-	2.1	-
Advance payments and deposits (a)	3.1	1.9	1.1	1.9
Fair values of hedging instruments	1.9	1.5	2.7	1.8
Miscellaneous assets	9.9	-	10.0	-
Other assets (total)	26.5	3.4	25.3	3.7

in € million	31/3/2018	31/12/2017
Cash on hand incl. cheques	0.5	0.5
Current bank balances	15.5	48.6
Short-term bank deposits	53.0	59.6
Total cash and cash equivalents	69.0	108.7

7. Revaluation surplus

The revaluation surplus comprises the reserves contained in "Other comprehensive income":

in $\epsilon$ million	31/3/2018	31/12/2017*
Items to be reclassified to profit or loss:
Currency translation of financial statements of foreign group companies	$-4.1$	$-3.3$
Currency translation of long-term loans classified as net investments in
foreign group companies	$-7.0$	$-7.5$
Change in fair value of cash flow hedges	2.4	3.5
Deferred taxes for this category	$-5.3$	$-5.2$
Sub-total (a)	$-14.0$	$-12.5$
Items not to be reclassified to profit or loss:
Actuarial gains and losses on defined benefit obligations	$-86.7$	$-86.8$
Valuation results on securities *	$-0.2$	0.1
Deferred taxes for this category	25.1	25.2
Sub-total (b)	$-61.8$	$-61.5$
Total revaluation surplus $[(a)+(b)]$	$-75.8$	$-74.0$

Prior-period amounts restated: Non-current investments in investment funds (see note 2) are recognised using the fair value option in accordance with IFRS 9 (see note 16).

8. Current and non-current provisions for personnel

Non-current provisions for personnel only changed to a minor extent. The change in current provisions for personnel is mainly due to the payment of variable remuneration components for 2017.

9. Other current and non-current liabilities

Other non-current and current liabilities are composed as follows:

in $\epsilon$ million	31/3/2018		31/12/2017
	current	non-current	current	non-current
Bonus liabilities (a)	28.6		43.7
Personnel liabilities (a)	23.3	0.1	20.1	0.2
Advance payments	12.0		11.5
Other tax liabilities	11.9		12.1
Change in fair value of hedging instruments	0.9	0.1	0.8	0.2
Miscellaneous liabilities	5.5	4.1	4.3	4.3
Other liabilities (total)	82.2	4.3	92.5	4.7

(a) Seasonal change

10. Non-current and current financial liabilities

Non-current financial liabilities did not change in the reporting period. The change in current financial liabilities was mainly attributable to the utilization of interim finance.

NOTES ON SELECTED ITEMS OF THE CONSOLIDATED INCOME STATEMENT

11. Revenue

The first-time application of IFRS 15 "Revenue from Contracts with Customers" with effect from 1 January 2018 did not result in any significant transition effects in terms of the timing or measurement of the revenue reported.

As part of the adaptation to reflect the new accounting standard, income from Villeroy & Boch's licence business is reported in revenue for the first time from the 2018 financial year, having previously been reported in other operating income until 31 December 2017. Accordingly, revenue for the period under review includes licence income of $\epsilon$ 1.7 million. The prior-period figures were not restated.

A breakdown of the revenue to be fully subsumed under revenue from contracts with customers within the meaning of IFRS 15 can be found in the segment report. Further information on the introduction of this new standard at the Villeroy & Boch Group can be found in the notes to the consolidated financial statements (note 62) in the 2017 Annual Report.

12. Selling, marketing and development costs

This item includes the following expenses for research and development in the period under review:

in $\epsilon$ million	31/3/2018	31/3/2017
Bathroom and Wellness	$-2.8$	$-2.7$
Tableware	$-0.9$	$-0.9$
Research and development costs (total)	$-3.7$	-3.6

13. Other operating income and expenses

The difference compared with the previous year is primarily due to the change in presentation concerning the licence income generated in the first quarter of 2018 in the amount of $\epsilon$ 1.7 million, which is reported in revenue for the first time starting from the current financial year (see note 11). In the comparative prior-year period, other operating income included licence income of $\epsilon$ 1.9 million.

14. Financial result

The financial result is broken down as follows:

in $\epsilon$ million	31/3/2018	31/3/2017
Financial expenses	$-0.6$	$-0.9$
Interest expenses for provisions (pensions)	$-0.8$	$-0.7$
Financial income	0.3	0.3
Net finance expense (total)	$-1.1$	$-1.3$

15. Income taxes

The main components of income tax expense are as follows:

in $\epsilon$ million	31/3/2018	31/3/2017
Current income taxes	$-2.3$	$-2.2$
Deferred taxes	$-0.7$	-0.6
Income taxes (total)	$-3.0$	$-2.8$

Balance sheet item	Note	Recognition until 31 December 2017		Recognition from 1 January 2018
		IAS 39 category	€ million	IFRS 9 category	€ million
		Loans and
Trade receivables	4	receivables	127.2	Cost	127.2
Cash and cash equivalents	6	Cash	108.7	Cost	108.7
Other financial assets
		Available for sale		Fair value
▌Securities	2	(OCI)	8.7	(excl. recycling)	8.7
		Loans and
▌Loans	2	receivables	4.0	Cost	4.0
		Available for sale		Fair value
▌Equity investments	2	(cost)	2.1	(excl. recycling)	2.1
		Hedge		Hedge
▌Hedging derivatives	5	accounting	4.5	accounting	4.5
		Loans and
▌Other financial instruments	5	receivables	12.7	Cost	12.7
Total financial assets			267.9		267.9

19 July 2018	Report on the first half of 2018
19 October 2018	Report on the first nine months of 2018
29 March 2019	General Meeting of Shareholders of Villeroy & Boch AG