Accell Group Reiterates Guidance Despite Europe’s Bike Glut

“Turnover of bicycles in recent months remained below expected levels due to the bad weather during the summer months and general economic conditions, said CEO Rene Takens. “The effects vary per country. In Germany demand continued to be strong – with growing popularity of electric bikes and innovative sports bikes – and the market grew. Market developments in the other countries remained weak. The sale of bicycle parts & accessories runs well, while turnover from the fitness activities remains difficult.”

 

The year’s results will be strongly influenced by a number of material non-recurring items. Those include the previously announced one-time additional costs of scaling back Accel's fitness business and an unexpected setback concerning the set NMa-fine in connection with a case that goes back to mid 2000. Those one-time costs, however, will be more than offset by a substantial book profit on the sale of the comapny's 22 percent stake in Derby Cycle, he said.

The company said sales of electric bikes and innovative sports bikes are developing well. However, sales of new bikes in some major markets lagged behind expectations largely due to the bad weather in Europe during the summer months.

 

For a number of Accell Group companies this resulted in higher inventory at season end than usual. The total of discounts needed to sell these stocks is therefore higher and has led to pressure on operating margins in recent months. This also resulted in a slower start of sales of the new bikes for the 2012 collection. In addition dealers remain cautious due to the general economic macroeconomic conditions and are less willing to build up and finance their own stocks. Simultaneously they count on good availability from suppliers.

The new bicycles collection for 2012 presented in September has been well received by the majority of dealers. Accell Group has introduced several new technologies for its leading E-bike brands which are being received well in the market. The small scale fitness activities have been downsized further with the previously announced closure of its office in North America. The sales are either transferred to third party distributors or taken upon by the head offices in the Netherlands.

 

In October Accell Group sold its 22% stake in Derby Cycle. The sale of the shares resulted in a book profit of approximately €17 million. Also in October the Netherlands Court of Appeal for Trade & Industry (CBb) definitively settled the long-running NMa-procedure against Accell Group and other bicycle manufacturers concerning breach of competition rules. The CBb almost halved the fine to €6.9 million, in particular because the alleged misconduct in 2000 did not have an impact on the market. Including interest (starting from the first moment of the NMa’s decision in 2004) this results to an amount of €9.5 million, of which already a provision was made of € 4.6 million in 2007.

Subject to normal effects associated with the development of the seasonal sales, no significant changes occurred in recent months regarding the financial position of Accell Group. The seasonal nature of the activities usually results in a substantially lower result in the second half of the year compared to the first half. Moreover, the number of extraordinary items in the second half of the year both in 2010 (including tax benefits in the Netherlands and Germany) and 2011 (including the costs of the NMa-fine and the restructuring costs in fitness on the one hand and the sale of the stake in Derby on the other hand) are rather large.

 

Excluding the impact of these non-recurring items the net operational result in the second half of 2011 is expected to be lower compared with the second half of 2010, especially due to unusual high discounts on the sale of older models. On an annual basis this net operational result excluding nonrecurring items will expected to be higher than in 2010.

The medium to long term outlook remains positive. There is good demand for bicycles for mobility, health and physical exercise. In particular, the sales of electric bikes and innovative sports bikes in the upper segment continue to grow. On the economic front the current situation, Europe in particular, is most uncertain and makes estimates difficult to make. Based on the outlined developments and the current market outlook Accell Group expects higher sales and an increase of net profit for the full year 2011 compared to 2010, barring economic developments and unforeseen circumstances.