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15.12.2008 |
Arcandor Group increases its operating income with nearly stable turnover |
Essen/Germany, December 15, 2008. The Arcandor Group achieved good operating performance in financial year 2007/2008 in an overall business environment that was difficult. The company increased adjusted operating EBITDA by €133 million (19.4 percent) to €820 million. The Thomas Cook and Primondo business segments were up significantly, whilst Karstadt reacted to a very negative trend in operating income with a consistent efficiency program. Adjusted for currency effects, Group turnover rose by 3.1 percent. It remained nearly unchanged in Euros compared with the previous year and reached €19.9 billion. At balance sheet date the Group reported bank debt and other financial debt (excluding finance lease) of €802 million net.
"Operating income shows that the strategic realignment of the past four years was successful. Arcandor finds itself overall on a good track and has held its own in a tense market environment affected by a unique financial crisis, extreme changes in energy prices and a massively cloudy economic outlook", was how Dr. Thomas Middelhoff, Chairman of the Board assessed the performance on Monday.
"The strategic decision to open up new growth prospects for the Group, with a massive expansion of tourism into a core business, has paid off. Thomas Cook is our main profit generator and represents approximately 60 percent of turnover and about 90 percent of our operating profit. In recent years we have implemented a consistent program of reducing risk in our retail segments by getting out of market segments that are not core businesses. With Primondo, in the past few years we have invested large sums into restructuring and thereby developed a modern home shopping business. Income from this area should continue to grow and will make a dynamic contribution to the Group's total earnings in the future", said Middelhoff. "Except, we are not satisfied with the trend in department stores. Therefore we have taken countermeasures with efficiency and cost cutting programs resulting in an earnings effect (EBITDA) of about €150 million for the current business year”.
This positive operating development in the 2007/2008 financial year is not shown in the consolidated income statement, particularly as a result of restructuring. The consolidated income totalling minus €746 million is not primarily affected by sustained operating developments, but by a series of one-off expenses and non-recurring effects. Thus, it includes high restructuring expenses and extraordinary negative charges in the area of taxes as well as earnings from real estate disposal. Also, it needs to be considered that the month of October has not been taken into account for Thomas Cook Group plc as a result of the financial year being shortened to eleven months. However, in October, Thomas Cook generates a significantly positive seasonal result.
Thomas Cook increases results and turnover
Thomas Cook was able to increase its adjusted EBITDA by €200 million to €735 million (+37 percent on previous year’s figure). The tourism subsidiary, which presents its accounts in pounds sterling, increased turnover by 11.8 percent in local currency. Due to a strong shift in currency parities for Thomas Cook, the Arcandor Group reports a turnover of €11.4 billion in its Group accounts, and therefore a currency adjusted decrease in turnover of 3.2 percent.
Thomas Cook reported a strong 2007/2008 financial year. The margins have markedly increased and are above those of its peers. Contributing to this were the higher- than- expected synergies achieved in the takeover of MyTravel (to date, ₤142 million). The synergy targets were increased once again for the upcoming year. Furthermore, targeted capacity controls resulted in consistent reduction in unprofitable sales and sustainably increased the return on sales ratio. The marked increase in results is all the more satisfying for it was achieved despite an increase in fuel costs of approximately €170 million.
Primondo continues its upward trend
The home shopping division developed well. Primondo improved adjusted EBITDA by €85 million to €90 million, thus posting a significantly positive operating income for the first time in many years.
This was largely due to the significant growth in online business, the improved cost structure in the Quelle Group, good international sales and the results upturn at the home-shopping channel HSE24. As is normal practice for international peers, Primondo now no longer reports interest and fees from the sale of instalment credit receivables in EBITDA, but separately in the income statement. In the current financial year, these changes to financial reporting as well as revaluation resulted in a positive EBITDA effect of approximately €63 million (€45 million adjusted in the previous year). Primondo increased adjusted sales by 6.7 percent to €4.3 billion (€4.0 billion in the previous year). International business was particularly pleasing with sales up by 21 percent as well as the speciality mail order business. In Germany, the continued high growth in e-commerce is increasingly substituting declining sales in the classical catalogue business. Within just a few years we have been able to turn around the catalogue-based German mail order business model of 2004 characterised with steadily falling sales into today’s business model of a growing, international home shopping provider with a focus on e-commerce“ states Middelhoff.
Karstadt with clear decline in operating income
With Karstadt, excessively high costs (especially in administration) and a failed discounting policy simultaneously combined with a modest decline in adjusted turnover, led to a clear downturn in adjusted EBITDA of €152 million to minus €4 million (previous year: €148 million). Turnover sank by 3.4 percent to €4.1 billion (previous year: €4.2 billion).
The downturn in turnover was primarily caused by the poor Christmas business in 2007 and the depressed mood of consumers in 2008. In this context, however, it should be noted that Karstadt, as the result of the large-scale store remodelling (3 percent of sales space) and because of sales space being passed out, has temporarily suffered downturns in turnover and has deliberately avoided taking on unprofitable sales business.
Stefan W. Herzberg, an experienced department store manager has been promoted to the top of the company in the past financial year. The efficiency and sales programs started by the new management are already showing first results.
Consistent look into the future - focus on cash flow, paying off debt and increasing results
With Sal. Oppenheim being new major shareholder, the completion of the capital increase and the three-year waiver by employees and management amounting to €115 million per year ("Pact for the Future"), a reliable foundation for the Group's future development has been provided. The goal is to reduce debt and to continue to promote the company's independence through achieving positive cash flow developments in all business areas.
Thomas Cook is proving itself to be robust in the current market environment. Today it is the largest business division of the company and enjoys a strong balance sheet, high cash flow, an efficient cost structure and an outstanding market position in Europe. Thomas Cook will continue its successful development and continue to expand its position.
Primondo already generates 70 percent of its turnover in growth areas. The company is strengthening its e-commerce growth in all brands, with quelle.de above all. The online shopping mall is already achieving approximately 20 percent annual growth with its marketing platform. The TV home shopping channel HSE24 will continue to grow. In Central and Eastern Europe and in Russia the company expects to also experience high growth rates in financial year 2008/2009.
Concerning Karstadt, the realignment of the business model towards trading up has been mostly achieved. The focus now rests on increasing sales and cutting costs. By close coordination with employees, works council and the trade unions the new management has introduced a massive cost reduction program through its own efficiency program and the Arcandor "Pact for the Future".
Satisfying start of Christmas business for Karstadt and Quelle
The first quarter of our financial year 2008/2009, particular the Christmas business for 2008, is influenced by a difficult global business environment. With this background in mind, we can state that business in our retail segments is proceeding in a relatively normal and satisfactory manner. With Karstadt adjusted turnover is so far on previous year’s level. In the Primondo division turnover as of 15 December 2008 is in the lower single-digit percent area below previous year’s levels. The decline in turnover comes from October and November. Fortunately, the sales development of our main brand Quelle in Germany is showing a clearly positive sales development since early December, the beginning of the strongest sales phase of the Christmas season. "Granted, the same is true for both Karstadt and Primondo: the financial year ends on December 31. Therefore, during the strong selling days before and after Christmas, we will work on high speed", according to Middelhoff.
Outlook
The Arcandor Group has prepared itself in advance for a difficult 2008/2009 financial year and has taken measures to offset any potential economic pressure on sales through flexibility, increased efficiency and cost reductions. Furthermore, in the last few months consumers in Germany have benefited from increased purchasing power due to lowered inflation rates and sinking energy prices. Primondo and Karstadt ought benefit from this. The Thomas Cook Group, the division with the by far greatest contribution to earnings within the Arcandor Group, is able to adapt itself rapidly and flexibly to changes in economic environment by virtue of its efficient business model both in terms of capacities and in terms of product mix. It benefits greatly from continued large drops in the oil price.
"We are well prepared and- as far as we know by now- anticipate that the strong growth in adjusted EBITDA for our operating businesses will continue in the current financial year of 2008/2009. We confirm our forecast and project for the current financial year an adjusted operating EBITDA of more than €1.1 billion. This corresponds to an increase of at least 34 percent. However, a prerequisite for achieving our forecast is that the extent of the financial crisis does not increase significantly and the recession does not exceed the forecast degree”, states Middelhoff.
Press Contact
Gerd Koslowski
Head of Corporate Communications
Phone: +49 (0)201 727 25 38