| German | | |
 | | |  | | |  |
13.08.2008 |
Arcandor: Nine-month result more than doubled |
Düsseldorf/Essen, Germany, August 13, 2008. Arcandor AG (Essen) more than doubled its operating result in the course of the 2007/2008 financial year. Adjusted operating EBITDA, the key figure for assessing the earnings trend at Thomas Cook, Primondo und Karstadt, improved considerably in the first nine months of the financial year. It reached €204 million (previous year: €80 million). At Group level, adjusted EBITDA totaled €151 million (previous year: €45 million), an upturn of €105 million or a tripling against the previous year.
“As a result of changing the business structure at an early stage, reducing the dependency of the company on over-the-counter retail in Germany, the company has by and large coped well with the clouding over of the consumer climate”, stated Thomas Middelhoff, Chairman of the Arcandor AG Management Board when presenting the figures in Düsseldorf on Wednesday. “The two strongly growing business areas Thomas Cook and Primondo are developing very well, improving further in operating terms. Karstadt, the smallest business area in terms of sales, was clearly impacted by the economic situation in Germany.”
Nine-month figures
After nine months of the 2007/2008 financial year, the Arcandor Group achieved adjusted EBITDA of €204 million in the operating business areas, a year-on-year increase by €123 million of a good 250%. In the first nine months of the financial year, Thomas Cook generated an earnings contribution of €104 million, improving the result by €153 million. Thomas Cook is posting a very positive earnings and booking trend. As the company, which is headquartered in London, is quoted in British pounds, the result was impacted by the depreciation of the British currency.
Favored by its strong turnaround, Primondo improved adjusted EBITDA to €38 million, an increase by €55 million. In this period, it was only Karstadt which lagged behind the previous year; with an adjusted EBITDA of €62 million it was down €85 million year-on-year.
A key feature of the successful realignment within the group is the fact that earnings improve much faster than the sales trend. In the first nine months of the current financial year, adjusted Group sales totaled €13.5 billion. This equates to a nominal decline of 1.1%. Sales rose on a currency-adjusted basis.
Development in the third quarter
The development of the operating units in the third quarter of the 2007/2008 financial year was predominantly positive with Thomas Cook and Primondo. However these improvements in earnings were offset by a considerable downturn at Karstadt. Adjusted EBITDA of the operating units was €53 million (previous year: €73 million).
Adjusted for currency, adjusted Group sales were on previous year level. On euro basis, sales totaled €4.66 billion in the reporting period (previous year: €4.86 billion), 4.1% down year-on-year.
Thomas Cook again posted a strong quarter, improving adjusted EBITDA by approximately 4% to €104 million (previous year: €100 million). In local currency (pound), results surged by 12%. Despite negative currency effects and the sharp upturn in kerosene prices, whose hedging cost over €30 million in the third quarter alone, the tourism company improved results on a sustained basis. Thus in the first three quarters of the current financial year, Thomas Cook has already improved adjusted EBITDA by €153 million year-on-year. Discontinuing unprofitable sales and effective capacity management also resulted in higher margins, thus contributing to an improved return on sales. Another factor positively impacting the result was higher-than-expected synergies from the MyTravel acquisition.
In local currency (pound), sales of the Tourism group improved by more than 4%. In the period between April and June 2008, at €2.73 billion on a euro basis, they were 10.2% lower than the equivalent period in the previous year. Here the depreciation of the British currency show significant impact. Furthermore, Thomas Cook deliberately relinquished unprofitable sales by targeted capacity adjustments on its core markets. “Business at Thomas Cook is going well and there are no visible indications of a declining economy. The Winter 2008 and Summer 2009 booking seasons have been strong up to mow,” said Thomas Middelhoff.
Primondo consolidated its turnaround with a pleasing quarter, improving adjusted EBITDA by €19 million to plus €0.2 million. Thus in the third quarter the home shopping group again achieved a positive adjusted EBITDA. Key factors here were the good international business, specialty mail order, the results upturn at HSE24, the home shopping channel and the impact of the cost reduction programs in the back office areas.
In the third quarter, Primondo maintained the momentum of sales growth in an unabated fashion. Sales rose by 14.3% to €1.0 billion (previous year: €0.9 billion). International business was particularly pleasing, with sales surging by 31.7%. HSE 24 posted record sales and after the successful portfolio realignment Specialty Mail Order generated an upturn of 7.3%. Sales at Quelle in Germany declined slightly. Ongoing high increases in E-commerce are increasingly substituting declining sales in the classical catalogue business.
In the third quarter, Karstadt posted adjusted EBITDA of minus €51 million (previous year: minus €8 million). The Department Store area was impacted strongly by customer anxiety about inflation and cost problems. As a result, the new Karstadt management resolved on an efficiency program for Karstadt which has already been implemented. The costs have already been accounted for. The objective is to increase margins to an acceptable level on the back of vigorous cost management. “With the realignment, we are pursuing the right strategy. Our challenge is getting costs under control again”, said Middelhoff.
The realignment and thus the trading up strategy have already been implemented in a rigorous fashion, with a positive impact in the form of structural improvements. Karstadt offers its customers attractive product ranges in city centers, and has largely withdrawn from product groups where it faces competition from discounters. This has had a particularly positive effect on the Premium Group which is showing a good earnings trend.
At Karstadt adjusted sales were €0.9 billion (previous year: €0.9 billion). In view of restrained consumer sentiment and the temporal shift of the strong Easter business, the slight 1.9% sales downturn is to be regarded as a success. This is all the more the case when it is taken into account that Karstadt experienced temporary sales shortfalls as a result of large-scale store conversions (4% of the sales space) and by discontinuing sales space, for example in the book area, that has deliberately relinquished unprofitable sales on a sustained basis.
Outlook
Over the last four years, we have rigorously realigned the Group, strongly reduced the dependency on over-the-counter retail in Germany, extended tourism as the new key business area and developed home shopping as a growth business,” the CEO said. “We thus improved adjusted EBITDA of our operating business units year by year. Despite the changed overall conditions, we intend to do this in the current year as well.“
On the basis of this solid operating performance over the course of the fiscal year to date, the Arcandor management still believes that it will reach its full-year target of an adjusted operating EBITDA exceeding 800 mill. € for the 2007/2008 financial year. This would represent an increase of more than 25%.The target is based on the high probability of the earnings trend at Thomas Cook Group plc reaching by far the highest result for any quarter in the fourth quarter due to seasonal factors and on the solid earnings improvement achieved at Primondo. However, owing particularly to the earnings decline at Karstadt, efforts to achieve this target in the fourth quarter of the current financial year have intensified.
“From a strategic vantage point, we will continue to rely without restriction on the growth areas of tourism and home shopping. For this reason, we will push forward with organic and external growth in both areas. We are still in the process of determining a definitive strategic direction for our department-store business,” emphasized Middelhoff.
In the 2008/2009 financial year as well, adjusted EBITDA of operating units will continue to increase significantly. The management looks forward to earnings growth, adjusted for currency effects, more than 1.1 bill. €, and sees good chances of exceeding these earnings volume to a lesser or greater extent, contingent on the current economic trend continuing, the developments of kerosene prices and on the Karstadt efficiency program having a continued effect on earnings. The original forecast was for earnings to increase to 1.3 bill €. This reassessment and modification of the earnings target are the result of a changed overall economic situation and, more particularly, of the earnings weakness in the department-store business in Germany.
Presscontact:
Arcandor AG
Corporate Communications
Jörg Howe
Telephone: +49 (0)201 727 25 38
joerg.howe@arcandor.com