Corporate | 10 August 2006 07:52

Medion AG: Interim Report as of June 30, 2006

Corporate news transmitted by DGAP – a company of EquityStory AG. The issuer is solely responsible for the content of this announcement. —————————————————————————— MEDION AG Interim Report as of June 30, 2006 Business Development The first half of 2006 was characterized by the previously announced decline in sales and the persistently difficult business environment in the retail sector. In response to weak consumer spending and the deliberate discontinuation of projects involving high transaction figures both in Germany and abroad, sales fell to €364.1 million in the second quarter of 2006 (Q2 2005: €499.0 million.) In Germany, sales declined to €259.8 million (Q2 2005: €333.0 million.) In the rest of Europe, sales decreased to €85.5 million (Q2 2005: €141.2 million), above all due to cautious ordering from our customers in Great Britain, Holland, and France in response to low consumer demand in these declining Western European markets. In contrast, Spain posted growth as a result of gaining new customers. In the area of communications technology, sales increased to €42.4 million in the second quarter of 2006 (Q2 2005: €11.2 million), primarily due to increased unit sales of mobile phones and the success in establishing our business with mobile phone services. Sales for the first six months of 2006 fell to €830.0 million (H1 2005: €1,130.3 million.) Gross profit The gross margin declined slightly to 9.51% in the first half of 2006 due to price pressure. In comparison with the first half of 2005, the gross profit decreased by €32.0 million to €78.9 million due to the decline in sales. Personnel expenses Personnel expenses dropped by another 16% to €13.3 million in the second quarter of 2006 (Q2 2005: €15.8 million) as a result of more flexible processes due to outsourcing and the fluctuation-dependent reduction in the number of employees. Depreciation and amortization Depreciation and amortization was nearly unchanged from the prior-year quarter at €2.1 million and predominantly related to the Company’s property in Essen-Kray and computer software and hardware. Other operating expenses Due to the decline in sales and the first successes of our structural and cost measures, other operating expenses continued to decrease in the second quarter of 2006. Selling expenses primarily include freight and storage costs and customer service and marketing costs. However, earnings are still adversely affected by the rise in repairs as a result of the broader product range in the past. Other operating expenses declined by 26.5% to €45.9 million in the first half of 2006 (H1 2005: €62.5 million.) Earnings Earnings before interest and taxes (EBIT) fell to €0.6 million for the second quarter of 2006, and to €4.7 million for the first half of 2006. Impacted by a higher net interest loss and a tax rate of just under 40%, the net profit for the first half of 2006 amounted to €2.2 million (H1 2005: €10.0 million.) Balance sheet Cash and cash equivalents improved by €35.1 million from the first half of 2005 to €152.9 million while inventories and current liabilities declined as of June 30, 2006, above all as a result of the reduction in sales. The equity-to-assets ratio noticeably improved as a consequence of the continued significant reduction in funds tied up in working capital. As of June 30, 2006, it was 67.1% of total assets, up from 53.3% on December 31, 2005 and 60.3% a year earlier. This means that MEDION has a strong self-financing basis for the successful realignment of business in the future. Cash flow Gross cash flow declined to €9.4 million as a consequence of the decline in earnings. However, at €38.5 million, cash flow from operating activities significantly improved from the prior-year level of €20.1 million, reflecting the lower level of funds tied up in net current assets and seasonal effects. Research, development, and marketing MEDION does not have its own research and development department in the basic technologies. However, MEDION is working with other partners on numerous projects to use digitalization to integrate PC/multimedia technology into traditional entertainment electronics equipment. MEDION’s marketing strategy focuses on making large quantities of these types of technological innovations available to a wider range of customers early on at the best value for money, taking advantage of MEDION’s quality brand image to successfully place these products on the market through our partners. Risk management Based on the Company’s organizational structure, the divisions are required to anticipate, measure, and monitor risks inherent in specific business transactions and, with the assistance of the Company’s internal control system, to avoid unacceptable risks to the greatest extent possible. As of June 30, 2006, no changes had occurred with respect to the risk report presented in the 2005 Annual Report. Outlook In a systematic process, MEDION has analyzed the causes of the Company’s declining earnings power and has implemented far-reaching measures aimed at halting and reversing the trend toward rising process costs in product management, sales, and after-sales service amidst decreasing gross profits. The measures implemented focus on targeted reductions in the product portfolio to ensure a more profitable sales base as well as a simplification of product management and sales. The restructuring measures have been defined and are in the process of being implemented. Due to the time delay typical of costs in the service and after-sales area in particular, the savings anticipated from the restructuring measures will take some time to materialize. However, we are already experiencing positive effects from the expansion of our offerings to include additional services, such as photo services and mobile phone services, both of which have been successfully established. Against the backdrop of the recent significant decline in the Ifo Business Climate Index and the uncertainty revolving around the effects of the increase in VAT in particular in the coming Christmas season and the continued rise in energy prices, consumption expectations are subdued in the German retail business. Nonetheless, the Management Board anticipates that the MEDION Group will generate sales in the range of approx. €2 billion for 2006 as a whole and an EBIT margin between 1 and 1.5%. MEDION AG August 10, 2006 Investor Relations Tel.: 0049 – 201 – 8383-6500 Email: aktie@medion.com ISIN: DE0006605009 (c)DGAP 10.08.2006 ————————————————————————— Language: English Issuer: MEDION AG Am Zehnthof 77 45307 Essen Deutschland Phone: +49 (0)201 8383-6500 Fax: +49 (0)201 8383-6510 E-mail: aktie@medion.com WWW: www.medion.com ISIN: DE0006605009 WKN: 660 500 Indices: SDAX Listed: Geregelter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin-Bremen, Hannover, Düsseldorf, Hamburg, München, Stuttgart End of News DGAP News-Service —————————————————————————