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30.01.2008 |
Arcandor AG: Transformation to tourism and retail group completed |
Essen, Germany January 30, 2008. Arcandor AG (Essen) generated positive Group earn-ings in its 2007 short financial year (January 1 to September 30) and completed its transformation to a tourism and retail group. The operating businesses of Thomas Cook, Pri-mondo and Karstadt generated a considerable rise in sales and earnings. For the period of nine months, adjusted Group sales increased – driven primarily by the Thomas Cook tour-ism business – by 72% to EUR 14.3 billion (EUR 8.3 billion in the previous year). On a twelve-month basis, the Group thus posted a sales level of EUR 21 billion. After nine months, unadjusted EBITDA amounted to EUR 1.2 billion. Adjusted EBITDA was im-proved in all three business areas.
It totaled EUR 602 million (minus EUR 64 million in the previous year). This represents an improvement of EUR 666 million. Although the important Christmas business of the retail segments is not included, positive Group earnings after minorities of EUR 16 million were achieved.
“With the presentation of the 2007 annual report, it is clear that there have been huge changes in the structure of the Arcandor Group. It is no longer comparable with the group that carried the name KarstadtQuelle. A former pure-play retail group has evolved into a tourism and retail group with a focus on tourism”, stated CEO Thomas Middelhoff. “Today Thomas Cook is our largest division, with a 60% share of sales and an even larger propor-tion of earnings. Thus Arcandor’s development will be decisively driven by the tourism business. The performance of Thomas Cook Group plc gives us a great deal of pleasure. But we are also making good progress with the realignment process in our Primondo and Karstadt retail segments.
What particularly pleases me is that after several difficult years, Primondo is again growing and we have created the conditions for this operating division to achieve an earnings leap in the current financial year,” continued Middelhoff.
Working capital also developed in an encouraging fashion. As a result of the new Group structure and due to operating improvements, the Group reported negative working capital in an annual report for the first time. To the end of the period the figure was minus EUR 0.6 billion.
Cash flow from operating activities also posted a considerable improvement, another factor showing the progress made in operations. Cash flow increased by EUR 196 million to EUR 15 million, thus reaching a positive figure, despite the lack of Christmas business in the retail segments.
Net financial liabilities of the Group totaled EUR 629 million to the reporting date. This debt is only short term. It includes bridge financing for the acquisition of the 50% Luf-thansa stake in Thomas Cook AG of EUR 800 million and the peak of the working capital financing of the retail segments before the Christmas business. This bridge financing will be paid back with the proceeds from the sale of the 49% stake in the Highstreet property company.
Middelhoff’s sole source of disatisfaction is the share price. “The development of the Ar-candor Group and its performance on the stock exchange are currently moving in com-pletely different directions. As planned, we will achieve our objectives in the 2008/2009 financial year, thus generating a significant value increase,” commented Middelhoff.
All three core divisions of Arcandor AG are posting a positive operating trend:
Thomas Cook Group sales rose to EUR 8.4 billion (EUR 2.5 billion in the previous year). In the reporting year, adjusted EBITDA amounted to EUR 709 million (EUR 46 million in the previous year). This represents an increase of EUR 663 million. If the Thomas Cook Group plc had already been part of the Arcandor Group in the same structure (like-for-like) in 2006, Thomas Cook earnings would have increased by 13.8%. Alongside the positive business trend, very rapid and successful progress has been made in integrating Tho-mas Cook and MyTravel. For this reason, the volume of expected synergies has been in-creased by a good 40% to at least EUR 200 million. 10 months after the acquisition, the integration of MyTravel into the Thomas Cook organization has been concluded.
In the 2007 short financial year, the Primondo Group developed in a pleasing fashion and is back on the growth track. Sales rose by 4% to EUR 2.89 billion (EUR 2.78 billion in the previous year). Primondo thus generated sales growth again for the first time since 2002. Even without taking account of the newly acquired shopping channel, HSE24, like-for-like sales rose by 1.3%.
In line with the accounting regulations of IFRS 5, neckermann.de is not included in Group sales, but also achieved sales growth amounting to 3.8%.
Quelle Germany developed better than its key competitors. The main factor driving this was a significant improvement of key performance indicators. For the first time since 2003, Quelle thus generated a rise in new customers. Quelle’s ability to deliver was strongly im-proved in the key product ranges. The e-commerce share in the Quelle business is steadily increasing. Quelle is already generating 40% of its demand online, with an upward trend. The international business at Primondo, with its focus on Central and Eastern Europe is continuing to expand strongly. Once again there was a double-digit upturn, of 40%.
At the newly focused, high margin Specialty Mail Order, sales rose by 6%. Growth at HSE24 is also on track, posting a like-for-like sales increase of 10%. As a consequence of the restructuring process initiated in June 2006, the Primondo Group improved results in the 2007 short financial year, starting from the second quarter. This created the conditions for a positive trend in the 2007/2008 financial year.
Due to seasonal reasons, adjusted EBITDA was minus EUR 73 million (minus EUR 74 million in the previous year).
Karstadt rigorously advanced its new positioning in the 2007 short financial year. On the basis of extensive store modernizations, sales were shifted in the direction of higher-margin consumer areas. Lower margin sales were pruned on a targeted basis. The introduction of the new business model was pursued vigorously. This also includes the integration of some 2,000 branded shops in the stores. The construction work that this entailed had a negative impact on sales. Even so, the 91 core department stores (Premium Group and Karstadt) still achieved largely stable sales of EUR 2.35 billion (down 1.5% year-on-year). On the other hand, the result was improved by 5.3% and due to seasonal reasons totaled minus EUR 34 million (minus EUR 36 million in the previous year).
Strategy
The Group achieved its strategic objective of transforming itself into a tourism and retail group. Despite the dramatic repercussions of the US sub-prime crisis on credit markets, the disposal of neckermann.de was concluded. In addition, a preliminary contract for the dis-posal of the 49% stake in the Highstreet property company was signed.
Arcandor proactively advanced the realignment of the European tourism market. From the acquisition of the remaining 50% stake in Thomas Cook AG and the subsequent merger with MyTravel, Thomas Cook Group plc was formed as a successful listed company within a very short period. In December 2007, it was admitted to the FTSE 100 prime index on the London Stock Exchange. With Thomas Cook Group plc, the Group has a strongly growing division in a market aligned to the future.
In December 2007, a preliminary contract was signed for the disposal of the 49% stake in the Highstreet property company. The total value of the transaction is c. EUR 800 million. This means that Arcandor will generate approximately EUR 4.5 billion from the two tranches of the property transaction.
In the Primondo division, focus on the market leader Quelle and on strong growth, and high margin businesses was aggressively prioritised, thus strongly improving the risk profile of Universal Mail Order in Germany. A 51% stake in neckermann.de was sold to Sun Capital, the American investor. The relevant contract was signed on December 21, 2007. Sun Capi-tal assumes the operating management of the business. In addition, Primondo disposed of low margin businesses in Western Europe as well as special mail order companies which were not part of the selected growth segments. After this portfolio streamlining, the signs are again pointing to growth. This is demonstrated by the acquisition of HSE24, the home shopping TV channel. With growth of 10%, the company is developing in a very positive fashion, at the same time strengthening the unique multi-channel concept Primondo de-ploys.
In the Department Store segment, a letter of intent was signed on consolidating Europe’s premium department stores. A European premium group is set to be established in the con-text of a strategic alliance with a consortium, including RREEF (Deutsche Bank), the Mi-lan-based Pirelli RE and the Borletti Group.
Outlook
“We have achieved a great deal in the realignment within the Arcandor Group, but there is still a great deal to do. The focus is further improving the operating performance of our key business areas. At the same time, we will continue to consolidate the markets actively in our core business areas. We can do this from a position of strength,” commented Middel-hoff.
From the overall perspective of the Arcandor Group, the new 2007/2008 financial year started as planned. “In the first quarter of the 2007/2008 financial year, Thomas Cook, per-formed well in all core markets, thus laying a good foundation for the year. Due to the de-clining rate of unemployment, booking figures in Germany developed very positively. The other large travel markets are also developing in a very pleasing fashion”, stated Middel-hoff.
In the first quarter of the 2007/2008 financial year, Primondo improved sales by 2.9% and is well on track. Specialty Mail Order, International Mail Order and E-Commerce are grow-ing very strongly. In the first quarter of the financial year, Quelle Germany further in-creased orders by 1.1%, the number of new customers by 11% and the share of active cus-tomers by 8% against the figures of the previous year. This trend is not reflected in the year-on-year sales figures due to the fact that in the comparable quarter of the previous year, sales per order were impacted by the intensified sale of durables as a result of the sales tax increase implemented in 2007.
In a year-on-year comparison, the sales tax increase and the Karstadt anniversary somewhat distorted the picture in the Christmas quarter of 2007, particularly in the Department Store segment.
“In the Department Store division, we are in the midst of a radical repositioning. Quite naturally, the new concepts take some time to impact. After a start slightly under expecta-tions, we are anticipating a recovery over the next few months,” was how Middelhoff com-mented on the first quarter of the new financial year. Account needed to be taken of the fact that bringing forward purchases as a result of the increase in sales tax and effects from sales on the occasion of the 125th Karstadt anniversary strongly pushed sales in the comparative 2006 quarter.
Overall, the start into the second quarter was pleasing on a year-on-year basis.
“We are expecting a further improvement of the business development in Thomas Cook, our largest division, as well as a significant sales and earnings upturn at Primondo and a trend in line with planning at Karstadt.”
The management regards the successful progress of the realignment as being well on track and confirms its forecasts for the 2008/2009 business year. Arcandor plans Group sales of more than EUR 23 billion and an adjusted EBITDA of more than EUR 1.3 billion. On a twelve-month basis the Group already has sales of EUR 21 billion.
In order to achieve a better assessment of the business trend and a higher level of compara-bility Arcandor also provides the following information: In the 2008/2009 financial year, adjusted EBITDA will be almost at the same level as unadjusted EBITDA. Furthermore, in the 2008/2009 financial year, EBIT will exceed EUR 850 million.
Press contact:
Arcandor AG
Head of Group Communications
Jörg Howe
Telephon: +49 (0)201 727 25 38
joerg.howe@arcandor.com