9fin

Douglas - Deep Dive Analysis

18th December 2020

Douglas - Deep Dive Analysis

As part of 9fin's developing distressed and restructuring coverage, we are producing a number of more detailed analysis pieces for selected credits on a trial basis

The first of these analysis pieces is for Douglas, the German beauty products retailer.

It was recently disclosed the company had hired Lazard and Freshfields to address c.€2.5bn of debt coming due in 2022 and 2023. Its senior unsecured bonds are trading in the mid-60s, indicating that the capital structure is likely to be impaired.

9fin’s Deep Dive Analysis report explores Douglas’ credit profile and assesses value drivers, upcoming catalysts, and potential restructuring options and expected recoveries.

This report is broken into the following sections:

1. Situation Summary 2. Capital Structure 3. Corporate Structure 4. Guarantee & Security Analysis 5. Credit Summary 6. Historical Cash Flows & Liquidity Drivers 7. Value Drivers - Sector & Company Level 8. Key Risk Factors & Unknowns 9. Valuation 10. Stakeholder Analysis 11. Restructuring Scenario Analysis 12. Estimated Recoveries & New Money Projections

1. Situation Summary Douglas is the No.1 player in the European beauty market (with a focus on premium brands) that is economically resilient, with structural profitability and secular growth drivers – a business that deserves to exist.

Mixed performance

Since its acquisition by CVC in 2015, the business struggled to de-lever with underperforming and debt- financed acquisitions in Spain and Italy, increased competitive pressures in Germany (later solved) and management turnover, offset by growth in France & Eastern Europe and continued growth in their e- commerce platform.

COVID-19 crisis a mixed blessing

The appearance of COVID-19 in Q1 2020 has created two opposing dynamics within the business operations

• The offline / bricks & mortar store portfolio has suffered with falling traffic, declining like-for-like sales growth • The group has negotiated a deferral of rental expenses to part mitigate falling store sales • Douglas has hired a CRO to accelerate the rationalisation of its store portfolio to adapt to the current situation • Acceleration of growth within the e-commerce platform has a created “good company” within a “bad company” dynamic as revenues from e-commerce becomes a bigger proportion of the business and a key driver for future value

Bad timing

In addition to the operational dislocations, Douglas must refinance nearly €2.5 billion of debt coming due in 2022 / 2023. It hired financial advisors (Lazard & Goldman Sachs) and legal counsel (Freshfields) to engage with creditors in Q1 2021.

• Douglas has strong liquidity of €374 million and as of Q3 2020 (end June), management has shown discipline around deferring costs, trade payables and maximising liquidity • However, liquidity will be determined by operational performance during the crucial Christmas trading period, where it generates 50% + of its EBITDA, and with extended trade payables / deferred rents that need to be paid • Recently announced German lockdown measures could impact sales if not mitigated by movement online

“Good company with a bad capital structure”

Douglas has a market leading e-commerce business with an excellent growth profile embedded inside a legacy brick-mortar business with an over-levered capital structure. Post refinancing - Douglas is an excellent candidate for an IPO or trade sale.

Based on declines in H1 of FY 2021 with a recovery in H2 2021 - Douglas is expected to burn €200 million of cash over the next five quarters as it pays deferred costs related to the pandemic, invests in working capital as it re-opens stores and finances operating costs.

Upcoming catalysts

• Douglas is expected to release its Q4 2020 / Q1 2021 financial results in December / February • News flow around vaccine and ending of lockdowns in its key markets • Restructuring discussions with existing creditors, expected to complete in H1 2021

2. Capital Structure Summary

Capital Structure as of June 30th 2020 Secondary € million Outstanding Maturity Interest (%) Leverage (x) Yield (%) Market Value Cash Interest Trading (%) EUR 200 million Revolving Credit Facility 164.8 Feb-22 EURIBOR + 375 bps 0.5 - - 5.4 Old Term Loan B (B2 / CCC+) 1,370.0 Aug-22 EURIBOR + 350 bps 4.3 90% 10.1% 1,233.0 40.8 New Term Loan B (B2 / CCC+) 300.0 Aug-22 EURIBOR + 325 bps 0.9 90% 9.8% 270.0 8.2 EUR 300 million Senior Secured Notes (B2 / CCC+) 300.0 Jul-22 6.25% 0.9 87% 16.5% 261.0 18.8 Total Senior Secured debt 2,134.8 6.7 73.2

Senior Notes (Caa2 / CCC-) 335.0 Jul-23 8.75% 1.0 66% 30.0% 221.1 29.3 Accrued Interest 38.1 0.1 Other Financial Indebtedness 2.2 0.0 Total Gross Financial Debt 2,510.1 7.9 102.5 Cash 339.2 Total Net Financial Debt (Corp: B3 / CCC+) 2,170.9 6.8 Unfunded Pension Liabilities 39.2 Capitalised Operating Leases 1,140.6 Total Net Adjusted Debt 3,350.7 5.6

LTM Adjusted EBITDA (pre-IFRS 16) 319.7 LTM Reported EBITDAR 595.0 Liquidity 374.4

Other Features - Capital Structure Coupon Payments Maturity Schedule Senior Secured Notes/ Jan 15th / Senior Notes subordinated via intercreditor agreement Year Outstanding Senior Notes July 15th

TLB are covenant-lite / Notes have incurrence covenants 2022 2134.8

Senior Secured Notes rank pari-passu with TLB in terms of payment / 2023.0 335.0 guarantees / second in terms of disposals Lenders have information advantage over senior secured bonds as they Total 2,469.8 receive monthly data / Lenders have additional security over French subsidiary If more than 40% of RCF drawn, senior secured leverage ratio needs to be below 7.5x

Portability, change of control below 5.25x leverage ratio

3. Corporate Structure

4. Guarantee & Security Summary

Debt Instruments Borrower / Issuer Security Ranking RCF, TLB, Senior Secured Notes due SSN have 1st priority pledge over capital stock of subs that Senior Secured Notes pari- Douglas GmbH 2022 also secure the TLB / RCF (except French sub) passu with TLB

Guaranteed on senior subordinated basis over same subs Subordinated subject to inter- Senior Notes due 2023 Kirk Beauty One GmbH as senior secured notes (excluding French sub) creditor agreement

Guarantor Subsidiaries (shared between Senior Secured Notes / Credit Facilities) Name Jurisdiction Beauty Holding Zero GmbH Germany Beauty Holding One GmbH Germany Beauty Holding Two GmbH Germany Douglas Holding AG Germany Parfumerie Douglas GmbH Germany Parfümerie Douglas Beteiligungs GmbH Germany Parfümerie Douglas Deutschland GmbH Germany Douglas Einkaufs- und Servicegesellschaft mbH & Co. KG Germany Parfümerie Douglas International Verwaltungs GmbH Germany Parfümerie Douglas International GmbH Germany Douglas Marken- und Lizenzen GmbH & Co. KG Germany Douglas Grundstücks- und Verwaltungsgesellschaft mbH & Co. KG Germany Douglas Investment B.V The Netherlands Parfumerie Douglas Nederland B.V The Netherlands Douglas Finance B.V. The Netherlands “Douglas Polska” sp. z o.o Poland Excludes the security for the French subsidiaries which is only for the Credit Facilities Source: Douglas Senior Secured Notes prospectus dated July 24th 2015

5. Credit Summary Dusseldorf, Germany based Douglas is Europe’s leading specialist retailer of beauty and personal-care products (fragrances, skin care, colour cosmetics), which operates primarily in the selective beauty distribution channel. It employs 20,000 beauty advisors.

Douglas operates in 26 European countries with a network of 2,248 own stores and 139 franchise stores, as well as online shops and a dedicated beauty marketplace (as of 30th June 2020).

Customers: Industry leading loyalty program in beauty with 44 million members / 614,000 app visitors (Sept. 2019). Women are their most important demographic (though men are becoming a bigger part of their customer mix) with an average age of 43 years.

Cost Structure: Cost of raw materials, consumables, supplies and merchandise (variable costs) represent 55% of revenues (as of 9m 2020). Fixed costs represent a major share of the cost base which include rental expenses, energy costs and personnel expenses (with a fixed and semi-variable component due to the hiring of temporary workers during the peak selling periods and variable compensation components). As of 30 June 2020, lease liabilities were €1.14 billion.

Suppliers: Has 55,000 SKUs from 750 brands (40+ exclusive brand partnerships) including 12,000 + SKUs on the marketplace. Sources products from all major national / international brands (400+ suppliers). Douglas’s best in class store portfolio is seen as a “Must-have” distribution platform for major brand suppliers.

Enters into three types of contracts with suppliers:

Long term selective distribution contracts (which run for up to 10 years); Annual international framework agreements with their top 16 suppliers and Annual local supply trading agreements. They have also negotiated Europe-wide framework trading agreements with several of their top suppliers. Douglas has a private labels business and sources their products from 50 different suppliers in Germany, France, Italy and Asia.

E-commerce (the “Crown Jewel” in the group): #1 European online beauty player with €766m (LTM Q3- 2020A) in sales (19% of total sales). It has a 29% online market share with a 10-year sales growth of 30% plus CAGR. In addition, it has an innovative mobile app with best-in class user ratings. Average basket size is €67. Douglas is following an omnichannel approach which integrates their e-commerce platform with their store portfolio (via “Click & Collect” and In-store online orders).

Seasonality & Working Capital Dynamics: Douglas’s most important sales period is the six-week period leading up to Christmas and over the New Year. According to the company other important sales periods are around Valentine’s Day, Easter and Mother’s Day. The uplift in sales around its most important trading periods is often followed by a period of price markdowns. Douglas incurs additional expenses in preparation for increased demand they typically expect leading up to, and around, the Christmas season and other peak selling periods and must carry a significant amount of inventory before such periods, also reflected in its liquidity (as deferred payments to suppliers are paid in cash in Q4 / Q1 of the financial year leading to cash outflows).

Competitive positioning: Top three position in its core markets in Germany, France, the Netherlands, Italy, Poland, and Austria with 20% market share. Key competitors are Sephora, Marionnaud, Muller, Amazon, Galeria Karstadt, El Cortes Ingles, Druni, Notino and Flaconi. “Grey market” competition comes from non-selective retail formats e.g., drugstores, food retailers and other online marketplaces.

Management: Tina Mueller has been CEO since 1 Nov 2017. She has 20 years of beauty experience with L’Oreal, Wella and Henkel. On 16 June 2020, Michael Keppel was hired as Chief Restructuring Officer to reposition the Douglas store network as per its new strategy of #FORWARDBEAUTY and due to pandemic effects caused by the coronavirus.

Ownership History & Acquisitions: Douglas was acquired by CVC in August 2015 for an EV of €2.87 billion (Implied valuation of EV / EBITDA of 9.2x) from Advent International. The founding Kreke family agreed to rollover their 15.7% equity stake into the existing transaction while CVC made a €938 million cash contribution for an 84.3% shareholding. In addition, Douglas made the following acquisitions:

Acquisitions Credit Strengths Target Jurisdiction Outcome Market leader in growing / resilient beauty market Parfumdreams / Niche Germany # 1 premium beauty #1 online platform supported by powerful technology platform offseting weakness in the offline business Beauty

Limoni / La Gardenia Italy # 1 premium beauty Data powerhouse with invaluable insight from 44m+ Douglas Beauty Card members

Perfumerias If / Bodybell Spain # 3 premium beauty Attractive and broad product assortment for beauty and personal products care products

Nocibe France # 2 premium beauty Unique store network in prime locations makes Douglas a “must-have” distribution platform for all Major Brand Suppliers

Experienced management team including recently appointed CRO (to rationalise store portfolio)

Supportive shareholders with €938 million of equity invested since the buyout in 2015

Year ending Sept 30th (€ million) 2016 2017 2018 2019 9m 2020 LTM 2020 LTM Q3 2020 Adj. EBITDA breakdown Germany 1,208.3 1,187.5 1,157.2 1,289.1 980.9 1,264.0 SW LFL sales (%) 4.6% -1.7% -2.5% 2.1% -3.5% -0.4% Europe 24% France 706.3 742.7 758.6 767.1 545.8 698.0 Eastern Europe LFL sales (%) 5.6% 4.4% 0.2% 0.8% -11.7% -8.6% 13% South Western Europe 528.9 579.2 1,047.7 1051.5 719.9 948.0 LFL sales (%) 5.1% 1.3% -1.9% 0.8% -12.5% -10.0% Eastern Europe 265.1 285.3 313.3 345.8 259.3 340.0 LFL sales (%) 7.8% 7.0% 6.1% 6.8% -2.3% 0.1% Online LFL sales (% ) 24.3% 18.0% 9.3% 17.4% 37.6% 39.7% Total Revenues 2,708.6 2,794.7 3,276.8 3,453.5 2,505.9 3,250.0 Online (% of Sales) 11.9% 13.7% 13.2% 16.9% 25.5% 23.6% France Germany Own Brands (% of Sales) 16.6% 17.0% 17.3% 18.0% Undisclosed 35% 28% No. of stores 1,683 1,915 2,447 2,431 2,387 2,387

Historic Cashflow Drivers 2017 2018 2019 9m 2020 Heavy reliance on Christmas trading Germany Adj. EBITDA margin (%) 12.6% 10.4% 7.4% 6.8% Year Q1 Revenues % of Revenues Q1 Adj. EBITDA % of Adj. EBITDA France Adj. EBITDA margin (%) 15.3% 15.7% 15.0% 17.8% SW Europe Adj. EBITDA margin (%) 9.2% 8.7% 8.8% 8.7% Eastern Europe Adj. EBITDA margin (%) 13.7% 14.8% 13.6% 13.9% 2017 991.0 35% 166.0 46.9% Consolidated Adj. EBITDA margin (%) 12.7% 11.5% 10.2% 10.5% 2018 1,138.0 35% 183.0 48.7% Change in Net Working Capital (% of Revenues) 0% -0.9% -1.6% -1.0% 2019 1220.0 35% 186.0 53.0% Capex (% of Revenues) - pre M&A 3.0% 3.8% 3.2% 2.2% Average 49.5%

6. Historical Cashflows & Liquidity Drivers

2018 2019 2020 Period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Period end Sept. 30th Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Segment Analysis (€ million) Revenues by Segment Germany 403 252 244 258 446 272 288 284 481 263 237 France 295 157 161 146 300 155 160 152 309 132 105 South Western Europe 333 246 247 222 356 230 238 228 369 192 158 Eastern Europe 107 66 68 73 118 71 76 81 134 69 57 Total 1,138 720 721 698 1,220 728 762 744 1,293 656 557

Like-for-like growth (%) Germany -5% -1% -4% 1% 4% -1% 6% 1% 7% -4% -19% France 3% 3% -1% -6% 2% -2% -2% 4% 3% -16% -35% South Western Europe -1% 1% -2% -5% 4% -1% 0% 0% 5% -16% -35% Eastern Europe 8% 8% 2% 5% 7% 7% 8% 6% 11% -5% -20% Online (excluding M&A) 10% 5% 5% 9% 17% 13% 18% 21% 22% 32% 67%

Key Drivers Gross Profit 491 351 280 318 528 349 342 355 553 312 258 Gross Margin (%) 43% 49% 39% 45% 43% 48% 45% 48% 43% 48% 46% Germany Adj, EBITDA margin (%) 11% 9% 8% 14% 8% 4% 9% 8% 9% 1% 9% France Adj. EBITDA margin (%) 22% 12% 10% 14% 22% 10% 12% 9% 22% 11% 14% South Western Europe Adj. EBITDA margin (%) 15% 2% 6% 8% 16% 3% 7% 6% 16% 0% 4% Eastern Europe Adj. EBITDA margin (%) 23% 10% 11% 10% 23% 7% 12% 8% 21% 5% 8% Capex 13 15 21 78 21 23 22 43 19 19 17 Inventories 843 854 760 756 817 811 751 744 803 822 762 Trade Accounts Receivables 75 60 48 47 77 47 50 46 76 35 40 Trade Accounts Payable -795 -519 -506 -566 -805 -526 -483 -487 -737 -514 -437 Others 9 -69 -31 -6 55 -39 -29 -16 62 -58 -53 Net Working Capital 132 326 271 231 144 293 289 287 204 285 312 Net Working Capital (% of LTM Revenues) 5% 11% 9% 7% 4% 9% 9% 8% 6% 8% 10% Change in Net Working Capital -34 -120 -53 -30 -12 33 -18 -56 -60 8 -23 Change in Working Capital (% of LTM Revenues) -3% -17% -2% -1% 0% -1% -1% -2% -2% 0% -1% Income Statement (€ million) Revenues 1,138 720 721 698 1,220 728 762 744 1,293 656 557 % growth (YoY) 15% 25% 20% 12% 7% 1% 6% 7% 6% -10% -27% Gross Profit 491 351 280 318 528 349 342 355 553 312 258 Reported EBITDA 160 39 -43 45 175 31 41 36 192 -1 -7 One-time adjustments 23 14 100 37 11 8 29 20 4 24 53 Adjusted EBITDA 183 54 57 82 186 39 70 56 196 23 45 % growth (YoY) 10% 11% -20% 21% 2% -28% 22% -32% 5% -42% -35% Adj. EBITDA margin (%) 16% 7% 8% 12% 15% 5% 9% 8% 15% 3% 8% Adj. EBITDA less Capex 170 39 36 4 165 16 48 13 177 4 28 Adj. EBITDA less Capex margin (%) 15% 5% 5% 1% 14% 2% 6% 2% 14% 1% 5%

Adjusted EBITDA vs. Reported EBITDA Adjustments used in their financial reporting include: € million 2018 2019 LTM 2020 Consulting fees, restructuring costs, PPA, credit card fees, deferred staff and rent costs for closed Reported 202 283 219 stores due to COVID-19 & inventory write-downs. Adjusted 376 351 320 COVID-19 related add-backs is biggest source of adjustments Adjustments 175 68 101

Cashflow Statement (€ million) Reported EBITDA 160 39 -43 45 175 31 41 36 192 -1 -7 Change in Provisions -12 -6 11 -15 -16 3 2 41 -6 -10 3 Changes in other Assets / Liabilities 65 -74 22 -21 56 -46 4 -19 68 -59 84 Net Cash Interest -16 -39 -15 -40 -16 -39 -15 -41 -16 -40 -1 Cash Taxes -9 -4 -6 -13 -12 -1 -21 -18 -7 -4 -3 Capex -13 -15 -21 -78 -21 -23 -22 -43 -19 -19 -17 Free Cash Flow before Working Capital 176 -99 -53 -122 167 -76 -13 -43 211 -133 58 Change in Net Working Capital -34 -120 -53 -30 -12 33 -18 -56 -60 8 -23 Free Cash Flow available for Debt Repayments 142 -219 -106 -152 155 -43 -31 -99 151 -125 35 Liquidity Trends (€ million) Closing cash balance 535 251 228 103 357 130 122 81 362 309 339 RCF availability 200 200 200 200 200 200 200 200 200 36 35 Total Liquidity 735 451 428 303 557 330 322 281 562 345 374 Credit Metrics (x) LTM Net Leverage (x) 4.8 5.5 5.7 5.9 5.1 6.0 5.8 6.3 5.4 6.3 6.7 LTM Cash Interest Coverage (x) 3.4 3.5 3.3 3.5 3.5 3.3 3.4 3.1 3.2 3.1 3.3

Liquidity / cash builds up in Q1 / Dec. quarter peak selling season before falling in Q2 / March quarter as suppliers / expenses are paid in Q2 (Trade payables balance falls from Q1 to Q2 before gradually rising in Q4).

In Q3 2020 earnings call - management. expects €100 million + of deferrals (rent, personnel expenses, payables) to unwind in Q4 / Q1 quarters leading to cash outflow.

€84 million increase in other assets & liabilities is due to deferred rent liabilities / moratoria on taxes & social security. €60 million of rental payments were deferred / with €50 million of payables deferred YTD.

Other COVID-19 counter measures include a hiring freeze and short-term labour; waived & reduced rent payments, lower indirect and discretionary spend.

Working on rationalisation of existing store network (to be announced Q1 results in Feb) led by new CRO.

Working Capital trends in Q3 2020

• Lower trade account receivables due to timing of weekend at the prior year end • Inventories slightly higher compared with PY due to closure of majority of stores • Payables lower due to smaller order volumes / compensated by longer and deferred payment terms • Lower bonus receivables / unredeemed gift vouchers.

7. Value Drivers - Sector & Company Level European Beauty is a €37 billion, structurally growing and resilient market

• Proven track record of resilience in economic downturns • Increasingly premium-focused market, with high-margin luxury / niche and prestige products now accounting for 36% of the market • Balanced split of key market categories - skin & body care (59%), fragrances (22%) makeup (19%) • Key players include speciality retailers, department stores and online players (e.g. Amazon)

Online growing particularly fast, more than doubled in market size within the premium segment between 2014 and 2018

Company Value Drivers - #Forward Beauty strategy / Growing e-commerce business

#1 European online beauty Illustrative Profitability Model (E-commerce) player (19% of total sales) Revenue Growth: - 30% + 29% online market share Gross Margin (%): - 40% (slightly below offline) 10-year sales CAGR of greater than 30% Logistics Margin (%): -10% Near term goal to reach €1 Performance Marketing Margin (%): - 5% - 15% billion + in revenues (30% + of group revenues) IT / HQ / Personnel Margin (%): - 5% - 15% Innovative mobile app with best- EBITDA Margin (%): - approx. 10% (in line with in-class user ratings offline) Lead SEO visibility and high As per guidance provided by management in Q3 organic traffic 2020 earnings call

8. Key Risk Factors & Unknowns

• Exposed to changes in general economic and political conditions, in particular in Germany and France • Exposure to promotional activity (especially after Christmas) that may lead to inventory write downs and negatively affect profitability • COVID-19 pandemic negatively impacts store portfolio & financials, overshadowing growth in its e- commerce platform • Douglas may fail to anticipate, identify or respond adequately to changing consumer tastes/new trends • Douglas’s sales, liquidity and inventory levels fluctuate significantly on a seasonal basis - Christmas trading represents 50% of EBITDA / account payables peak in December and an unwind in subsequent quarters leads to cash outflows • Faces competition in the markets in which it operates and as such competition may intensify further • Depends on suppliers to obtain sufficient amount and variety of quality selective and exclusive products • Douglas’s e-commerce platform is subject to several risks including the functioning of hardware and § software, customer acceptance, integration with our stores and logistic infrastructure • Execution risk associated with rationalising its existing store portfolio - which may lead to additional cash restructuring costs going forward • Profitability and credit metrics inflated by one-time adjustments, deferrals and restructuring costs • Accelerated refi risk with nearly €2.5bn maturing in 2022 /2023 which needs to be tackled in 2021 • E-commerce platform integrated with the bricks & mortar store network (as part of omni-channel strategy) and hence is difficult to separate and run (in restructuring / enforcement scenario) • Over-leveraged capital structure • Positioning of lead shareholder (CVC) in the context of restructuring talks and appetite for additional financial injection to support liquidity and the growth of the e-commerce business

9. Valuation

Methodology: Douglas can be valued in three ways which are: • Consolidated basis which uses consolidated financials from both the store portfolio and e-commerce platform. Pure- play listed peers to Douglas include Ulta Beauty and Sally Beauty Holdings. Other competitors like Sephora (owned by LVMH) and Marionnaud (owned by Hutchison Whampoa) are private / part of larger conglomerates hence are difficult to value • E-commerce basis which includes the financials of the e-commerce platform of Douglas only Listed peers to Douglas’s e-commerce platform is a combination of pure-play online fashion, beauty and pharmacy peers in the UK, Germany and Switzerland • Sum of Parts basis which includes the standalone valuation for the e-commerce business and stub valuation for the bricks and mortar business

Beauty Retailer Comparables (US$ million) LTM 2020 2021

Equity Revenue EBITDA EV / Revenues EV / EV /Revenues EV / Company Name Description Jurisdiction EV Revenues EBITDA Valuation Growth (%) Margin (%) (x) EBITDA (x) (x) EBITDA (x)

Ulta Beauty Inc Beauty Retailer United States 14,951 16,305 6,259 -13% 976 16% 2.6 18.0 2.2 13.3 Beauty Retailer / Sally Beauty Holdings Inc United States 1,319 3,149 3,514 -9% 574 16% 0.9 5.6 0.8 5.2 Distributor Average 1.8 11.8 1.5 9.3

Based on the above peers - Douglas should be valued between Ulta Beauty and Sally Beauty due to lower overall revenue growth and EBITDA margins but higher exposure to e-commerce with higher growth rates and profitability. Therefore, a EV / Revenue of 0.7x - 0.8x and EV / EBITDA of 7.0x – 8.0x is a fair valuation

EV / Revenue (x) EV / EBITDA (x)

0.70 0.72 0.74 0.76 0.78 0.80 7.00 7.20 7.40 7.60 7.80 8.00 -10% 2,048 2,106 2,165 2,223 2,282 2,340 -10% 2,014 2,072 2,129 2,187 2,244 2,302 -15% 1,934 1,989 2,044 2,100 2,155 2,210 -15% 1,902 1,957 2,011 2,065 2,120 2,174 -20% 1,820 1,872 1,924 1,976 2,028 2,080 -20% 1,790 1,841 1,893 1,944 1,995 2,046 -25% 1,706 1,755 1,804 1,853 1,901 1,950 -25% 1,678 1,726 1,774 1,822 1,870 1,918 -30% 1,593 1,638 1,684 1,729 1,775 1,820 -30% 1,567 1,611 1,656 1,701 1,746 1,790 Revenue decline (%) decline Revenue (%) EBITDAdecline

European E-commerce Comparables (€ million) LTM 2020 2021

Equity Revenue EBITDA EV / Revenues EV / EV / EV / Company Name Description Jurisdiction EV Revenues EBITDA Valuation Growth (%) Margin (%) (x) EBITDA (x) Revenues (x) EBITDA (x)

Zalando Online fashion Germany 20,284 19,490 7,395 20% 453 6% 2.6 43.1 2.1 29.7

THG Holdings Online fashion / beautyUnited Kingdom 7,058 7,732 1,741 39% 162 9% 4.4 47.7 3.6 37.4

ASOS Online fashion United Kingdom 4,861 4,758 3,590 19% 300 8% 1.1 15.9 1.0 13.2

Boohoo Group Online fashion United Kingdom 3,998 3,629 1,418 44% 134 9% 2.2 23.8 2.0 20.6

Shop Apotheke Online pharmacy Germany 2,611 2,625 895 36% 8 1% 2.8 153.0 2.2 87.0

Zur Rose Online pharmacy Switzerland 2,675 2,952 1,283 14% -55.6 -4% 2.3 0.0 1.5 0

Average 2.6 47.2 2.1 31.3 Low 1.1 0.0 1.0 0.0 High 4.4 153.0 3.6 87.0

Based on the above peers - Douglas’s e-commerce business should be valued between Zalando and THG Holdings given its market leadership, 25% - 30% revenue growth & higher EBITDA margin of approx. 10%.

EV / Revenue (x) EV / EBITDA (x) 1.8 1.9 2.0 2.1 2.2 2.3 20.0 22.0 24.0 26.0 28.0 30.0 22% 1,682 1,776 1,869 1,962 2,056 2,149 25% 1,915 2,107 2,298 2,490 2,681 2,873 24% 1,710 1,805 1,900 1,995 2,090 2,185 27% 1,946 2,140 2,335 2,529 2,724 2,918 26% 1,737 1,834 1,930 2,027 2,123 2,220 29% 1,976 2,174 2,372 2,569 2,767 2,964 28% 1,765 1,863 1,961 2,059 2,157 2,255 31% 2,007 2,208 2,408 2,609 2,810 3,010 30% 1,792 1,892 1,992 2,091 2,191 2,290 33% 2,038 2,241 2,445 2,649 2,853 3,056 Revenue growth (%) growth Revenue

EBITDA growth (%) EBITDA growth 35% 2,068 2,275 2,482 2,689 2,895 3,102 Douglas Bricks & Mortar Stub Valuation EV / EBITDA (x) Douglas Valuation Summary 3.0 3.2 3.4 3.6 3.8 4.0 Valuation Methodology High (€m) Low (€m) -20% 341 364 386 409 432 454 Consolidated basis 2100 1800 -23% 328 350 372 394 415 437 -26% 315 336 357 378 399 420 E-commerce basis 2600 1900 -29% 302 323 343 363 383 403 -32% 290 309 328 348 367 386 Sum of parts basis 3000 2250 -35% 277 295 314 332 351 369 EBITDA decline (%) EBITDAdecline Based on reported LTM EBITDA of €142 million (net of E-commerce EBITDA)

• Current trading levels of Douglas loans and bonds are placing a zero value to the bricks & mortar segment of the business from disruptions from COVID-19. Seen as a recovery option once lockdowns end next year. Downside protection for the debt is provided by the valuation from the e-commerce segment

• E-commerce segment and optionality offered by it makes any proposal for debt-to-equity swap (as part of restructuring discussions) desirable for creditors and key to recoveries (especially if Douglas is sold or listed in the medium term)

10. Stakeholder Analysis

Stakeholder Negotiating Power Incentive for Stakeholder

Strong as better seniority / ranking however baskets allow Par repayment, additional economics (margin / fees), Senior Secured Lenders / Bondholders additional debt to be incurred to rank pari-passu equity if debt turned over to distressed funds

Weak as subordinated to Senior Secured creditors via inter- Par repayment, additional economics (margin / fees), Senior Unsecured Bondholders creditor agreement. Abillity to put in money if debt turned over equity if debt turned over to distressed funds to distressed funds is only bargaining chip

Ability to put in new money is strongest bargaining chip as part of an A&E with creditors. CVC has track record of supporting Preserve legacy equity exposure / bridge to an full/partial Shareholders its retail investments (€400 million equity injection in Cortefiel exit in 2017)

Crucial to turnaround story / mix shift to online - hence strong Management Team negotiating power but loyalty could be determined by who Preserve legacy equity exposure / job security provides financial support

Moderate as Douglas looking to rationalise store portfolio however breaking leases is expensive especially in France. Landlords Preserve leases / deferred rent is paid New German Restructuring Plan could allow non-consensual breaking of leases

Strong as Douglas needs access to new / premium brands. Douglas wants access to best premium brands / Suppliers Suppliers don’t want to deal with an insolvent counterparty & Suppliers want access to "best in class" distribution lose credit insurance

State linked entities (e.g KfW) are lender of last resort. Strong German Govt / State Linked entities Preserve jobs / minimize unemployment position to drive terms

Debt incurrence - under existing documentation

• Senior Secured Credit Facilities will allow incremental facilities, or incremental equivalent debt, capped at €300 million plus additional amounts subject to a pro forma senior secured net leverage ratio of 4.5x • In addition, Douglas can raise €235 million of additional debt through Permitted Debt under its Limitation of Indebtedness clause which are below: • Purchase Money / Capital Lease Obligations: Greater of €75 million and 25% of Consolidated EBITDA • General Indebtedness: Greater of €100 million and 35% of Consolidated EBITDA • Working capital / local credit facilities: Greater of €40 million and 12.5% of Consolidated EBITDA • Receivables Financing: €20 million

Key factors affecting restructuring process Implementation via German Restructuring Plan - base case scenario Fragmentation of creditor group Comes into effect on 1st Jan. 2021 - untested so far and without any precedent Financial support from CVC Key advantage: - Douglas would not have to undertake any structural changes to gain jurisdiction, as it Performance in Q1 / Christmas would if it used an English law scheme

Debtor can propose a restructuring and the plan must be approved by 75% of creditors by value in Management strategy each class, subject to a cross-class cramdown mechanism Rationalisation of store portfolio As a min. secured creditors, unsecured creditors, subordinated creditors, creditors with claims against or benefiting from security provided by subsidiaries, and shareholders each need to vote in separate Secondary trading level of debt classes - approved when 75% of voting rights have been approved

The scheme provides for a cross-class cram-down to overrule hold outs combined with modified "absolute priority rule" – assuming class members are unlikely to be put at a disadvantage by the restructuring plan / the majority of classes have accepted the plan.

Impact on Restructuring Tool New Money Injection Key Risk Senior Secured Loan / Bonds Unsecured Bond Holders Shareholders

No de-leveraging / High Runway to execute strategy / Provided by shareholder / Positive as receive economics Positive as receive economics Amend & Extend only consent threshold of 90% - grow e-commerce segment / Govt. state owned entity / Liquidity risk mitigated / Liquidity risk mitigated 100% / Layering risk build equity value

A&E of Senior Secured / Provided by shareholder / Negotiations with unsecured Positive as receive economics Receive equity in a growing Runway to execute strategy / Unsecured Bond Unsecured bond holders in creditors could turn hostile / / Liquidity risk mitigated / business & maximize grow e-commerce segment / Equitization return for equity disruptive for business business de-levers recoveries build equity value

Provided by existing Senior Receive equity in a growing Receive equity in a growing Disruptive to operations / Debt to Equity Swap Secured / Unsecured business & maximize business & maximize Loses their equity Suppliers & mgt. may exit Creditors recoveries recoveries

11. Estimated Recoveries & New Money Projections Based on the below projections, Douglas will burn through €200 million plus of cash over the next five quarters as it recovers from the pandemic and opens its store base (finance deferred costs, working capital and operating costs). While liquidity is adequate for now – an additional capital injection of €150 million will mitigate any liquidity and solvency concerns especially with suppliers - and boosts liquidity back to €320 million by Sept. 2021.

2018 2019 2020 2021 Projections Period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Period end Sept. 30th Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Segment Analysis (€ million) Revenues by Segment Germany 403 252 244 258 446 272 288 284 481 263 237 255 385 276 285 306 France 295 157 161 146 300 155 160 152 309 132 105 137 247 145 126 164 South Western Europe 333 246 247 222 356 230 238 228 369 192 158 205 296 202 190 246 Eastern Europe 107 66 68 73 118 71 76 81 134 69 57 73 120 72 60 76 Total 1,138 720 721 698 1,220 728 762 744 1,293 656 557 669 1,048 695 660 792

Like-for-like growth (%) Germany -5% -1% -4% 1% 4% -1% 6% 1% 7% -4% -19% -10% -20% 5% 20% 20% France 3% 3% -1% -6% 2% -2% -2% 4% 3% -16% -35% -10% -20% 10% 20% 20% South Western Europe -1% 1% -2% -5% 4% -1% 0% 0% 5% -16% -35% -10% -20% 5% 20% 20% Eastern Europe 8% 8% 2% 5% 7% 7% 8% 6% 11% -5% -20% -10% -10% 5% 5% 5% Online (excluding M&A) 10% 5% 5% 9% 17% 13% 18% 21% 22% 32% 67% 40% 40% 30% 30% 30%

Key Drivers Gross Profit 491 351 280 318 528 349 342 355 553 312 258 288 450 299 284 341 Gross Margin (%) 43% 49% 39% 45% 43% 48% 45% 48% 43% 48% 46% 43% 43% 43% 43% 43% Germany Adj, EBITDA margin (%) 11% 9% 8% 14% 8% 4% 9% 8% 9% 1% 9% 8% 8% 5% 7% 7% France Adj. EBITDA margin (%) 22% 12% 10% 14% 22% 10% 12% 9% 22% 11% 14% 10% 10% 7% 8% 9% South Western Europe Adj. EBITDA margin (%) 15% 2% 6% 8% 16% 3% 7% 6% 16% 0% 4% 5% 4% 2% 4% 6% Eastern Europe Adj. EBITDA margin (%) 23% 10% 11% 10% 23% 7% 12% 8% 21% 5% 8% 7% 15% 8% 9% 8% Capex 13 15 21 78 21 23 22 43 19 19 19 15 15 15 15 15 Inventories 843 854 760 756 817 811 751 744 803 822 762 770 790 770 800 800 Trade Accounts Receivables 75 60 48 47 77 47 50 46 76 35 40 38 70 40 45 45 Trade Accounts Payable -795 -519 -506 -566 -805 -526 -483 -487 -737 -514 -437 -500 -700 -500 -480 -500 Others 9 -69 -31 -6 55 -39 -29 -16 62 -58 -53 -20 60 -30 -20 -10 Net Working Capital 132 326 271 231 144 293 289 287 204 285 312 288 220 280 345 335 Net Working Capital (% of LTM Revenues) 5% 11% 9% 7% 4% 9% 9% 8% 6% 8% 10% 9% 8% 9% 11% 10% Change in Net Working Capital -34 -120 -53 -30 -12 33 -18 -56 -60 8 -23 -1 -16 5 -33 -47 Change in W/Capital (% of LTM Revenues) -3% -17% -2% -1% 0% -1% -1% -2% -2% 0% -1% 0% -1% 0% -1% -1% Income Statement (€ million) Revenues 1,138 720 721 698 1,220 728 762 744 1,293 656 557 669 1,048 695 660 792 % growth (YoY) 15% 25% 20% 12% 7% 1% 6% 7% 6% -10% -27% -10% -19% 6% 18% 18% Gross Profit 491 351 280 318 528 349 342 355 553 312 258 288 450 299 284 341 Reported EBITDA 160 39 -43 45 175 31 41 36 192 -1 -7 49 85 34 43 57 One-time adjustments 23 14 100 37 11 8 29 20 4 24 53 0 0 0 0 0 Adjusted EBITDA 183 54 57 82 186 39 70 56 196 23 45 49 85 34 43 57 % growth (YoY) 10% 11% -20% 21% 2% -28% 22% -32% 5% -42% -35% -12% -56% 49% -5% 15% Adj. EBITDA margin (%) 16% 7% 8% 12% 15% 5% 9% 8% 15% 3% 8% 7% 8% 5% 7% 7% Adj. EBITDA less Capex 170 39 36 4 165 16 48 13 177 4 26 34 70 19 28 42 Adj. EBITDA less Capex margin (%) 15% 5% 5% 1% 14% 2% 6% 2% 14% 1% 5% 5% 7% 3% 4% 5% Cashflow Statement (€ million) Reported EBITDA 160 39 -43 45 175 31 41 36 192 -1 -7 49 85 34 43 57 Change in Provisions -12 -6 11 -15 -16 3 2 41 -6 -10 3 10 -10 -5 10 10 Changes in other Assets / Liabilities 65 -74 22 -21 56 -46 4 -19 68 -59 84 -30 -50 -20 5 -10 Net Cash Interest -16 -39 -15 -40 -16 -39 -15 -41 -16 -40 -1 -54 -16 -40 -1 -54 Cash Taxes -9 -4 -6 -13 -12 -1 -21 -18 -7 -4 -3 -10 -6 -5 -13 -17 Capex -13 -15 -21 -78 -21 -23 -22 -43 -19 -19 -19 -15 -15 -15 -15 -15 FCF before Working Capital 176 -99 -53 -122 167 -76 -13 -43 211 -133 56 -49 -11 -51 29 -29 Change in Net Working Capital -34 -120 -53 -30 -12 33 -18 -56 -60 8 -23 -1 -16 5 -33 -47 FCF available for Debt Repayments 142 -219 -106 -152 155 -43 -31 -99 151 -125 33 -50 -27 -46 -4 -76 Liquidity Trends (€ million) Closing cash balance 535 251 228 103 357 130 122 81 362 309 339 289 262 216 211 136 RCF availability 200 200 200 200 200 200 200 200 200 36 35 35 35 35 35 35 Total Liquidity 735 451 428 303 557 330 322 281 562 345 374 324 297 251 246 171

Cash Burn (5 quarters) -204

Waterfall Analysis – Senior Secured Term Loans / Notes

Recovery Analysis - No Layering Scenario Recovery Analysis - Layering Scenario € million High Low € million High Low EV - Consolidated basis 2,100 1,800 EV - Consolidated basis 2,100 1,800 EV - E-commerce basis 2,600 1,900 EV - E-commerce basis 2,600 1,900 EV - Sum of parts basis 3,000 2,250 EV - Sum of parts basis 3,000 2,250 Enterprise Value - Avg. 2,567 1,983 Enterprise Value - Avg. 2,567 1,983 New Money Injection 150 150 Value to Senior Secured Creditors 2,417 1,833 RCF (Fully drawn) 200 200 RCF (Fully drawn) 200 200 Senior Secured TLB / Notes 1,970 1,970 Senior Secured TLB / Notes 1,970 1,970 Total Senior Secured Debt 2,170 2,170 Total Senior Secured Debt 2,170 2,170 Recovery Rate (%) 100% 91% Recovery Rate (%) 100% 84%

Recovery Analysis - 8.75% Senior Unsecured Notes due 2023

Methodology: Assumes the senior notes are fully equitized in a restructuring scenario and given equity in Douglas. Therefore, any recoveries will be driven primarily by growth in the e-commerce business & stub valuation of the bricks & mortar business.

Douglas Equity Valuation Recovery Value (%) - Senior Notes € million 2021 2022 2023 2021 2022 2023 E-commerce Revenues 1,000 1,250 1,563 5.0% 42% 51% 63% Revenue growth (%) 31% 25% 25% 5.5% 46% 56% 69% EBITDA 100 125 156 6.0% 50% 61% 75%

Implied EBITDA margin (%) 10% 10% 10% 6.5% 54% 66% 82%

E-commerce valuation (25x EV / EBITDA) 2,500 3,125 3,906 7.0% 59% 72% 88% Bricks & Mortar stub valuation 300 300 300 7.5% 63% 77% 94% Total valuation 2,800 3,425 4,206 8.0% 67% 82% 100% Douglas (%) Equity Stake

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