News Dizz Finance plc financial analysis summary

The fashion retail division comprises the management and operation of the Group’s fashion retail stores and is the principal business activity of the Group. The last updated list of stores is provided below.

In FY2018, revenue generated from this segment amounted to €13.4m, a decrease of €1.5m (10%) from a year earlier (FY2017: €15m). The principal reason for the decline was due to the closure of Terranova outlets in Valletta and Paola; Calliope store at The Point, Sliema; Pinko store in Sliema and Trussardi outlet at The Point, Sliema.

In FY2019, the Group registered a further decrease in revenue from fashion retail of €0.8m (-6%, y-o-y) to €12.6m, mainly due to the closure of Max & Co. in Valletta. The Group reported a gross operating profit margin of 37% in fashion retail operations, being 5 percentage points lower when compared to the previous year and 10 percentage points from FY2017.

Competition is this sector is constantly on the rise, both from other retail stores as well as online sales, which is pushing retailers to offer apparel at more competitive prices (with the consequence of lower operating profit margins for the retailers).

Revenue in FY2020 is projected to decrease by 26%, from €12.6m in FY2019 to €9.4m, on account of the complete shutdown during April due to the pandemic and the curtailment of fashion retail operations during the following eight months to December 2020.

Notwithstanding the projected lower revenue, the Group expects to maintain same level of gross operating profit as FY2019, as a result of substantial discounts being negotiated with various franchisors of the Group and the closure of non-performing outlets. As such, gross operating profit margin is projected to improve from 37% in FY2019 to 51%.

Revenue generated from the food & beverage division over the three-year historical period (FY2017 to FY2019) was broadly stable and reached €1.4m in FY2019 from €1.3m in FY2017 (+11%). On the other hand, in view of improved operating efficiencies, gross operating profit substantially increased during the same period by 46%, from €0.7m in FY2017 to €1m in FY2019.

Following the acquisition in FY2020 of D Kitchen Lab Limited and DCAFFE Holding Ltd and further investment in new store openings, the Group is projecting revenue to increase by 76% to €2.5m (FY2019: €1.4m). Consequently, gross operating profit is expected to increase substantially from €1m in FY2019 to €1.5m in FY2020 (+49%).

During the financial years

FY2017 to FY2019, rental income was not a material component of total revenue and income generated from rentals in FY2019 amounted to €379,000 compared to €165,000 in FY2018. For the projected year (FY2020), the Group is expecting rental income to increase considerably to €1.1m. The additional income is anticipated to be generated from leases to third parties of retail space at Center Parc and to a lesser extent at D Mall.

Fashion retail stores

Company Brand Location Owned/Leased Status

1 Dizz Limited Terranova Tigne

Point, Sliema Leased Open 2 Dizz Limited Terranova Cen

terparc, Qormi Leased Open 3 Dizz Limited Terranova Bay Street Complex Leased Closed for refurbishment

4 Dizz Limited Terranova Fgura

Leased Open

5 Dizz Limited Terranova Iklin

Leased Open

6 Dizz Limited Terranova St

Venera Owned by Issuer Open 7 Dizz Limited Calliope Bay Street Complex Leased Closed for refurbishment

8 DK Fashion Co. Limited Liu Jo Bay Street Complex Leased Closed in May

9 DK Fashion Co. Limited Liu Jo Tigne Point, Sliema Leased Open

10 DK Fashion Co. Limited Liu Jo

Valletta Leased Open

11 DK Fashion Co. Limited Brooks Brothers Valletta Leased Closed in March 12 DKV & Co. Limited Harmont & Blaine Tigne Point, Sliema Leased Open

13 DKV & Co. Limited Paul & Shark Tigne Point, Sliema Leased Open

14 DKV & Co. Limited Paul &

Shark Valletta Leased Open 15 DKV & Co. Limited Designer Outlet St Venera Owned by Issuer Open

16 DK Fashion Co. Limited Boggi Tigne Point, Sliema Leased To open in September

17 D3 Fashion Limited Elisabetta Franchi Valletta Leased To close in September

18 D3 Fashion Limited Elisabetta

Franchi Sliema Leased Open 19 D3 Fashion Limited Designer Outlet Bay Street Complex Leased Open

20DK G Limited Guess Bay

Street Complex Leased Open 21 DK G Limited Guess Tigne

Point, Sliema Leased Open 22 DK G Limited Guess Kids Tigne Point, Sliema Leased Open

23 DK G Limited Guess Sliema

Leased Open

24 DK G Limited Guess Center

parc, Qormi Leased Open 25 DK G Limited Designer Outlet St Venera Owned by Issuer Open

26 D’s Ltd Goldenpoint Bay

Street Complex Leased Closed

in January

27 D’s Ltd Goldenpoint Centerparc, Qormi Leased To open in September

28DK Max Limited Max & Co Valletta Leased Relocated to Tigne Point, Sliema in FY2020 29 D Fashion Limited Designer

Brands Sliema Leased Open 30D Fashion Limited Designer Brands St Julian’s Leased Open

Food & beverage outlets

Company Brand Location Owned/Leased Status

1 DK Pascucci Limited Caffé Pascucci St Venera Leased Open

2 DK Pascucci Limited Caffé Pascucci Bay Street Complex Leased Open

3 DK Pascucci Limited Caffé Pascucci Paceville Leased Open

4 DK Pascucci Limited Caffé Pascucci Gzira Owned by Issuer Open

5 DK Pascucci Limited Caffé Pascucci Centerparc, Qormi Leased Open

6 DK Pascucci Limited Caffé Pascucci Sliema Leased Closed in March

7 DK Pascucci Limited Caffé Pascucci D Mall, The Point Leased To open in September 8 DK Pascucci Limited Caffé Pascucci Birkirkara Leased Open

9 Xilema Limited Caffé Pascucci

Valletta Leased Open 10 Xilema Limited Yogorino Val

letta Leased Open

11 Xilema Limited Caffé Pascucci

Sliema Leased Open

12 Xilema Limited Salad Box

Sliema Leased Open 13 DCAFFE Ltd Pastrocchio

Mriehel Leased Open 14 DCAFFE Ltd Pastrocchio

Sliema Leased Opened in May 15 DCAFFE Ltd Salad Box Sliema

Leased Opened in June 16 DCAFFE Ltd Salad Box Sliema

Leased To open in September 17 DCAFFE Ltd Nespresso Tigne

Point, Sliema Leased Open 18 DCAFFE Ltd Nespresso

Mriehel Leased Open 19 DCAFFE Ltd Nespresso Mosta

Leased Open

20DCAFFE Ltd Nespresso Cen

terparc, Qormi Leased Open

The hub

The Group is currently in the process of developing a site having a footprint of circa 1,245m2 with frontage on Triq L-Industrija, Mriehel (referred to as the “Hub” or the “Hub project”), which is earmarked as a storage and logistics centre for the Group’s retail operations, a manufacturing facility and the Group’s head office.

The site has been granted to Dizz Manufacturing Limited by the Government Property Department on a temporary emphyteusis of 65 years as from 26 May 2016. The annual ground rent is

€18,000 and is revisable every five years.

The Hub project shall consist of seven floors of which two levels will be located below road level. The ground level will incorporate a large reception area leading to the upper floors; the entrance to the underground parking area and an area of circa 900m2 is to serve as a large warehouse for the storage of Terranova products.

The two basement levels, shall consist of underground parking serving the Hub which shall be linked to the stores and offices by means of two separate cores consisting of a stairwell and lifts: one of the cores shall be used for the transport of goods and the other shall to be utilised by the users of the offices.

The ground floor is intended to be set on double height to increase the storage capacity for the brands and loading and unloading bays will serve the storage located both on the ground floor and on other levels, the latter by means of goods lifts. Entrances to the underground carpark, by means of a ramp, and the entrance to the reception area servicing the offices situated on the upper levels shall also be located on the ground floor. This shall be complemented by a lounge area with a bar/cafeteria which is expected to cover 7% of the Hub.

The floor internally numbered as ‘Level 1’ shall consist of an intermediate level consisting of stores and a separate intermediate level overlooking the reception. Around two thirds of the area of the first floor shall consist of a double height with level 0.

Level 2 will include six storage areas of circa 150m2 per brand. The third floor will consist of: office space for the management and administration arm of the Group and a canteen; an area dedicated to printing of promotional materials; area dedicated to finishing of Terranova garments and a professional kitchen which will serve the canteen and also be used to produce food products which will be distributed to the Pascucci cafeterias.

The fourth floor (recessed level) will consist solely of office space.

The development of the Hub has been delayed and is now expected to be completed by June 2021. As at 31 December 2019, construction works in relation to the Hub amounted to €1.2m, which expenditure was financed from net proceeds of the 2016 bond issue. Remaining construction works are estimated to amount to circa €1.4m and shall be payable in terms of an agreement with the building contractor as to €0.8m in FY2020 and €0.6m in FY2021. Capital expenditure relating to finishings is projected to amount to circa €1m. The carrying value of the Hub as at 31 December 2019 amounted to €4.35m.

D Mall

D Shopping Malls Limited has leased from Sliema Wanderers Football Club an area measuring 2,861m2 situated in the Sliema Wanderers Sports Complex, Tigne Complex, Sliema. The property is being leased for a 15year period as from date of official opening, of which the first seven years are di fermo, while the remaining eight years are di rispetto at the option of the lessee. The lease period can be extended further for two consecutive 15-year periods and an additional three-year period, at the exclusive discretion of the lessee. The property has been leased to D Shopping Malls Limited in shell form.

Construction works and finishings are still ongoing and are expected to be completed by September. As at 31 December 2019, costs of development amounted to €1.8m, of which €1.6m was funded from net proceeds of the 2018 bond issue. Remaining development works to complete the project are expected to amount to circa €300,000.

It is the intention of D Shopping Malls Limited to partition Level 0 into nine retail outlets ranging from 80m2 to 120m2 per outlet, and three kiosks, and use Level - 1 as office space. As at the date of this report, six out of nine outlets/kiosks are leased to related parties (five units) and a third party (one unit).

Center Parc

On 1 September 2017, Dizz Limited and Center Parc Holdings Limited, entered into an agreement to lease circa 2,581m2 of commercial space situated at third level (ground floor) of Center Parc Retail Hub, Triq itTigrija, Qormi.

The property is leased for a period of 15 years of which the first four years are di fermo, while the remaining 11 years are di rispetto at the option of the lessee, subject to a six-month notification period. If the lessee fails to inform the lessor 12 months prior to the expiration of the di fermo period, the lease is automatically extended for the next 11 years. Dizz Limited has assigned the lease agreement to D Shopping Malls Limited.

The property was leased in shell form, with all other works and improvements carried out by the lessee and completed in October 2019. D Shopping Malls Limited has sub-leased 1,286m2 (equivalent to 50% of the total retail space within Center Parc) to Dizz Limited to operate a Terranova outlet situated opposite the main entrance of the shopping mall.

In addition, four outlets have been sub-leased to related parties, while three other outlets have been sub-leased to third parties (eight outlets in aggregate).