March 15, 2013

Rewe's pious results

Alain Caparros, CEO Rewe (photo: Mario Vedder)
Alain Caparros: Praying for profitable acquisitions in food retailing & tourism
"Habemus good results!"

With this topical reference and a roguish smile on his increasingly bearded face, CEO Alain Caparros announced Rewe's results for 2012 yesterday.

Looking decidedly too worldly for a supreme pontiff, the alpha male of Germany's second-largest food retailer could well be absolved for assuming a beatific tone.

Rewe has beaten its own goals on a tough home market. Above all, the Cologne-based retailer cooperative-cum-multiple has done so both at home and abroad via solid organic growth and good-old operational strength. And after a fall in 2011, new CFO Christian Mielsch must be singing a Te Deum after a big jump in earnings.

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Group external revenues increased by 2.7 per cent last year to €49.7bn. Sales at Rewe's 15,538 German stores were up 2.4 per cent and grew 3.6 per cent on its twelve European markets.

As so often in the past, revenues were powered by the company's independent members (+10 per cent) and by the core supermarket division (+4.5 per cent on a like-for-like basis). Customers have clearly responded positively to the constant honing of retail concepts and more generous opening hours.

Excluding extraordinary items, ebita in 2012 vaulted from €369m to €510m.

Problem Children
 
Profits would have been considerably higher, though, had it not been for Rewe's two problem children: "Penny" (discount stores) and "ProMarkt" (entertainment electronics outlets).

Penny, Germany's fourth-largest hard discounter by revenues after Aldi, Lidl and Edeka-subsidiary Netto, probably posted a three-digit million euro loss last year. Rewe therefore intends to accelerate the revamp of around 700 of its 2,241 "Penny" outlets.

The initial results of a revitalised store concept, flanked by a trendy TV advertising campaign, are, however, encouraging. Revenues grew by 1.7 per cent to €6.8bn despite the closure of 140 outlets. On a like-for-like basis this would have translated to a plus of 3.5 per cent.

Caparros reckons that Rewe is half-way towards a turnaround at Penny, but warns that losses are likely to continue until 2015.

ProMarkt "option"

ProMarkt with a mere 55 outlets is considerably smaller, but even more of a stickler. Revenues at the troubled electronics entertainment subsidiary fell 15.5 per cent with the closure of 13 outlets. As more and more customers shop in this segment online, business over the vital Christmas season was very disappointing.

Previous rumours that Rewe was considering cutting the Gordian knot via a joint-venture with rival Expert do not seem to have materialised. After estimated losses in 2011 of around €40m, the solution now looks very much like a gradual downsizing via the sale of individual stores.

Little wonder then that the company would not go beyond a sibylline "we are looking at all options" during journalists' question time.

Despite this divisional wormwood, overall group indebtedness at Rewe has been reduced with equity capitalisation now at around €5bn. Cash flow almost doubled to €1.7bn. This will enable capex for this year to be kept at €1.5bn.

Cautiously optimistic
 
Investment will be principally directed towards the modernisation of up to 400 supermarkets at home and abroad as well as to the turnaround at Penny.

Last year's robust metrics are fuelled by "cautiously optimistic" guidance for 2013. Domestic sales at the Rewe supermarket and Penny discount divisions both grew by around 5 per cent in January and February.

Clearly, Captain Caparros now feels the wind in the sails of the Rewe galleon. How else could one interpret his "We are also keeping our eyes open so that we can react to market chances and acquisitions in both food retailing and tourism"?

God bless both ship and helmsman.

 
Related article in German: Lebensmittel Zeitung, no. 11, 15.03.2013, by Annette C. Müller

 

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