DOUGLAS

All,

EBITDA fell short of our expectations - mostly on cost. However, the company’s apparent ability to protect its business at sales and gross margin level encourages us to revise our outlook. Failing any ghosts appearing on the call we are going long the 8.75s for 5% of NAV.

Douglas results, first analysis:

- Sales are encouraging again. Just a few million below model, but at a slightly better margin, resulting in a GM beat of only E5m. So far therefore all is as expected. This is the second quarter where we feel that Douglas are able to defend their market share - more than that perhaps, to be seen. 

- EBITDA: Germany was somewhat disappointing - as we had flagged that Christmas was not a great season in Germany. We had better numbers in our model. We think this may also be due to a lower than expected margin in the now increased Online business. It looks as if the company had been buying sales for margin. However, if that is all the impact and Douglas can protect their sales at this margin, then we’re actually quite happy.

- The other regions could make up for Germany’s lower EBITDA to beat last year’s - even if overall the company could not beat our expectations. 

- Cash and equivalents are E30m better than expected due to “changes in other assets and liabilities”. We’ll have to ask.

- Leverage therefore is at 5.4x per our metrics, as opposed to 5.3x anticipated. (Note that we are not adding back consulting costs to EBITDA as these are ongoing). By the company’s own metrics Leverage is at 5.1x, up YoY from 5.0. More importantly the rate of deterioration is quite insignificant and the company appears to be stabilising here. We are amending our outlook for the future and will send a new model in due course.

Wolfgang