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14.02.2008 |
Arcandor's largest division Thomas Cook enjoys strong start to new financial year |
First quarter of the 2007/08 financial year: like-for-like earnings of operating segments (pro forma) up 10% to 204 mill. €
Thomas Cook and Primondo post excellent start to second quarter of 2007/08, Karstadt considerably improved – Group EBITDA will improve year-on-year in each quarter of the 2007/08 financial year
2008/09 targets expressly confirmed
Düsseldorf/Essen (Germany), February 14, 2008. The Arcandor Group had a satisfactory start to the 2007/08 financial year. The pro forma earnings of the operating segments (adjusted EBITDA) improved by 18 mill. € or 9.6% to 204 mill. € (186 mill. € in the previous year). All operating units improved their gross margins. Adjusted consolidated sales (pro forma) amounted to 4.72 bill. € in the period from October 1 to December 31, a decline of 2.2% as against the previous year. However, comparisons with the previous year are of limited use on account of the non-recurring effects in 2006 (value-added tax, department store anniversary). In addition, less profitable sales were selectively reduced with the positive consequence that earnings were significantly improved.
"This shows that our strategy of 'margins before market share' is showing signs of success," said CEO Thomas Middelhoff of the positive earnings trend. "Overall, operations in the first quarter were in line with planning. Our largest division, Thomas Cook, developed well. The turnaround at Primondo is continuing successfully. As a result, by far the largest section of the Group is well on track and its earnings are assured. However, we were not satisfied by our department stores this quarter, which is why Peter Wolf decided to reorganize the management of Karstadt with immediate effect,” continued Middelhoff.
In the current financial year, Thomas Cook Group plc will be adjusting to the financial year of the Arcandor Group (October 1 to September 30). The current financial year of Thomas Cook will therefore last only eleven months and, for one time only, the current reporting quarter will be only two months (November and December 2007). To improve the transparency of Arcandor's figures, the commentary will include a comparison of the full quarter of the Thomas Cook Group (October to December) with a full quarter for the previous year. Accordingly, the Thomas Cook Group has already been shown as having the current corporate structure (pro forma) in the previous year.
Thomas Cook Group (which accounts for around 60% of annual sales) performed well in all its core markets in the first quarter of 2007/08, exceeding expectations for the 2007/08 winter season. The booking trend for the 2008 summer season is also extremely positive on all markets. As part of its flexible business model, the tourism group selectively reduced capacity in key markets, thereby realizing higher selling prices and margins. Accordingly, earnings also improved significantly by 60.7 mill. €. Adjusted EBITDA climbed to 32.3 mill. € (minus 28.4 mill. € in the previous year). The Thomas Cook Group plc achieved adjusted sales of 2.14 bill. €. (2.17 bill. € in the previous year). This represents a decline of 1.6% as against the previous year.
In line with planning and as in the previous quarter, the Primondo Group (which accounts for around 20% of consolidated annual sales) generated increases in sales and earnings, continuing its turnaround. Adjusted sales totaled 1.23 bill. €, an increase of 2.7% as against the previous year’s figure of 1.20 bill. €. The earnings of the Primondo Group rose strongly. Adjusted EBITDA increased by around 9% to 35.7 mill. € (previous year: 32.8 mill. €).
The specialty mail order companies are enjoying sustainable growth with a rise in sales of 5.3%. International business was also in line with expectations, generating growth of over 20%. The homeshopping area also performed extremely well. Thanks to its strong Christmas business, like-for-like sales by the homeshopping channel HSE24 climbed by 18%.
In the fall/winter season relevant for the first quarter, Quelle Germany increased its orders by 1.1%, the number of new customers surged by 11% and the active ratio by 8% as against the previous year.
Growth also continued unabated in e-commerce. Quelle Germany recorded more sales in online business than with its traditional main catalog for the first time in December 2007. However, this highly positive development was not reflected in the year-on-year sales comparison in the reporting quarter. In the previous year, sales increased on a one-off basis due to early purchases of long-lived goods (hardware and electronics) in view of the imminent VAT hike. Accordingly and as anticipated, Quelle's universal mail order sales in Germany were down year-on-year, in line with the general industry trend. The turnaround of Quelle Germany is continuing on schedule and all restructuring measures have now been implemented.
Karstadt (which accounts for around 20% of consolidated annual sales) generated adjusted sales of 1.32 bill. € in the first quarter of 2007/2008, This represents a decline of 8.1% as against the previous year. The sales comparison with the previous year is highly distorted due to the VAT hike and Karstadt's anniversary and is only of limited use. Without these non-recurring effects, Karstadt's sales would have been only approximately 1% below the previous year's level. This sales downturn is largely the result of large-scale renovation work and the integration of 2,000 brand shops into the branches. Karstadt is currently undergoing the most fundamental repositioning in the company's history. This was systematically and rapidly continued in the reporting quarter, accepting the loss of sales. The stores that have already underwent this transition to the new business model first again enjoyed above-average performance. This applies particularly to the Premium Group. The drop in gross profit as a result of the loss of sales was not fully offset by the improved gross profit margin and the more efficient cost structure. Adjusted EBITDA amounted to 136.0 mill. €, down 45.8 mill. € on the previous year.
Peter Wolf, Chairman of the Board of Directors, further increased the implementation momentum of the reorientation of the department store segment. For this reason he reorganized the functions within the management of Karstadt Warenhaus GmbH, reinforcing the management team. Stefan Herzberg is to be a new executive manager from March 1st. The former manager of Kaufhof AG will be assuming responsibility for Sales and the reorganization of the department stores. In addition, the Premium Group is being extended to now include five sites. The store in the top location of Dresdner's city center is to be developed into a new Premium location.
The progress of our reorganization is also evident in the increasingly rapid decline in restructuring costs. After expenses of around 700 mill. € in 2004, around 330 mill. € in 2005, around 440 mill. € in 2006 and around 380 mill. € in 2007 (including 190 mill. € for the integration of MyTravel), this extraordinary component will drop to less than 100 mill. € in the 2007/08 reporting year and in the 2008/09 financial year, when the reorganization is complete, the cost will be negligible. “We implemented and financed this Herculean task on our own,” emphasized Middelhoff.
The Group has achieved its strategic goal of transforming itself into a retail and tourism company. Thus, the foundation was laid for two key disposals in a difficult market environment in the reporting quarter and a strategic alliance to internationalize our Premium Group department stores was launched.
In December 2007, a letter of intent was signed for the sale of the 49% interest in the real estate company Highstreet. The total value of the transaction is around 800 mill. €. Arcandor will receive a total of around 4.5 bill. € from the two tranches of the real estate transaction.
A 51% interest in neckermann.de was sold to the major international investor Sun Capital. A purchase agreement to this effect was signed on December 21, 2007. The transaction will be closed in mid-March following antitrust approval. Sun Capital will be taking over the operating management of the business. As a result the focus on the market leader, Quelle, in the Primondo division in now complete as planned. Retaining 49% of shares in the company ensures that after the turnaround and planned disposal or IPO, Arcandor will be able to generate appropriate proceeds, depending on the business development and market conditions. We are currently expecting net proceeds of between 170 mill. € and significantly more than 300 mill. €.
In the department store segment, a letter of intent was signed on joining in the consolidation of European premium department stores. A European premium group is to be formed as part of a strategic alliance with the consortium consisting of RREEF (Deutsche Bank), Pirelli RE, and the Borletti Group.
Arcandor will systematically and rapidly press on with the reorientation of the Group in financial year 2007/08. It will focus on further improvements in the operating performance of its core business areas. Parallel to this, Arcandor's management will actively pursue market consolidation in its core business areas and has a wide range of options for further increasing the value of the Arcandor Group with targeted M&A activities. Accordingly, achieving capital market viability is a priority goal for the Primondo and Karstadt retail segments.
The start to the second quarter of financial year 2007/08 was very positive at Thomas Cook and Primondo. Karstadt also improved as against the previous year. Arcandor expects its largest division, Thomas Cook, to enjoy a strong, long-term performance and feels it is well on track to achieving EBITDA in excess of 800 mill. € in financial year 2009/10. A strong rise in earnings, a big step towards achieving this goal, is expected in the current financial year. Primondo will continue its growth in the coming quarters. All Primondo segments are expected to see rises in sales and earnings. A significant earnings surge is expected in adjusted EBITDA. Primondo should conclude each quarter with positive EBITDA. Over the next few months, we are expecting that the recovery seen at Karstadt in January 2008 will continue. The repositioning of the Karstadt department stores should be largely concluded in the current financial year.
In Essen, Karstadt will be opening its 20,000 sq. m ‘ideal store’ in the new Limbecker Platz shopping center as early as March 13, 2008 as a prototype for its new strategy and presentation.
"When analyzing our first quarter of 2007/2008, it should be remembered that earnings in tourism and retail develop in opposite directions over the course of the financial year. At our largest division, Thomas Cook, the first quarter traditionally only accounts for a small portion of annual earnings. It also generally reports a loss in the second quarter due to seasonal factors. Earnings then rise considerably from the third quarter and make a real jump in the fourth quarter. This is exactly the other way round in the retail segments. The first quarter sees the highest earnings because of Christmas business. Given the strong weighting of Thomas Cook, the Arcandor Group's earnings (adjusted EBITDA) will thus also surge by several hundred million euro in the fourth quarter of the financial year 2007/08”, explained Middelhoff. "What matters is that we will increase our EBITDA year-on-year in each quarter."
With the reorientation progressing well, management feels the company is well on its way and expressly confirms the Group’s forecasts for financial year 2008/09. All the operating units confirmed their targets in this respect. Arcandor is planning consolidated sales of more than 23 bill. € and adjusted EBITDA of more than 1.3 bill. €. A figure of more than 850 mill. € is expected for EBIT.
Contact:
Arcandor AG
Corporate Communications
Jörg Howe
Tel: +49 (0)201 727 25 38
joerg.howe@arcandor.com