Eurocash Group presents financial results for H1 2018

Wednesday, 29 August, 2018
Wholesale segment on growth path, with improved efficiency. Retail marked by acquisitions, integration of acquired stores and investment in new projects.
  • Eurocash Group’s revenue in the first half of 2018 reached nearly PLN 10.8 billion, denoting almost 7% growth, compared to the same period of 2017. The Group’s organic growth (which excludes the Mila chain acquired in the second quarter) exceeded 5%.
  • The Group is recording very good results in the wholesale segment, with sales up by 5% y/y to PLN 8.6 billion and EBITDA in excess of PLN 160 million, up by 13% y/y.
  • Retail-segment sales in this year’s first six months increased by over 7% to nearly PLN 1.8 billion. This segment’s EBITDA (PLN 53.5 million in H1 2018) was impacted by the integration, remodelling and renovation of EKO stores. After the first half of this year, 149 EKO stores operated under the Delikatesy Centrum brand, while three were re-branded as Lewiatan.
  • Eurocash’s fresh product delivery project, which is of key importance to the strengthening of retail stores’ competitive position, generated over PLN 300 million in revenue in the first half of this year and was close to reaching the break-even point in the second quarter – way ahead of expectations.
  • Normalised EBITDA (adjusted for one-off costs) for the entire Eurocash Group reached nearly PLN 160 million in the first half of 2018, compared to PLN 158 million a year ago.
  • Normalised consolidated net profit in H1 2018 was PLN 21 million, compared to PLN 38 million in the preceding year. The lower result is mainly due to an increase in depreciation and finance costs.
  • In the first half of this year, Eurocash Group noted strong positive cash flows from operating activities of PLN 186 million. Despite a dividend payment and expenditure on acquisition of the Mila chain (PLN 450 million in total), Eurocash Group’s net debt at the end of June 2018 was at a safe level (1.9x 12-month EBITDA).
“In wholesale, which remains Eurocash Group’s key business segment, we are continuing to improve operational efficiency, which translates into both higher sales and EBITDA growth. In the second quarter, like-for-like sales at our Cash & Carry wholesalers increased by 2.7%, which is this format’s best result in over four years and validates the restructuring conducted last year,” said Jacek Owczarek, Eurocash Group’s CFO and management board member.

The wholesale segment’s very good results in the first half of this year were also helped by strong 10% sales growth in the active distribution format (Eurocash Dystrybucja), which covers deliveries to clients in the franchise and partner networks Lewiatan, Euro Sklep, Groszek and PSD (Gama).

“In the retail segment, finalising the acquisition of 187 Mila stores was an important event in the second quarter of this year. This acquisition contributed over PLN 120 million to the segment’s overall sales – which reached almost PLN 1.8 billion in the first half of the year. Taking into account the Mila chain’s revenue from the beginning of the year, pro forma sales in the retail segment reached nearly PLN 2.4 billion, up by 43% from the previous year,” said Jacek Owczarek. “Finalising the Mila chain purchase and the planned acquisition of a stake in Partner, which operates 26 Lewiatan stores, constitute the next stages in our consistently implemented strategy, intended to strenghten the market position of thousands of independent entrepreneurs operating retail shops in Poland. Thanks to our own locations, we are able to more effectively roll out innovative solutions, grow logistics and marketing efficiency and secure good purchasing terms from suppliers, which will improve our clients’ competitiveness against the discounters,” the board member added.

In the retail segment, Eurocash also continues to integrate the EKO chain, acquired at the beginning of 2017. After the first half of the current year, 149 EKO stores operated under the Delikatesy Centrum brand, while three traded as Lewiatan.

“The re-branding is accompanied by a remodelling and renovation of the stores, which means they have to be temporarily shut down, products have to be sold out and later promotional activities need to be initiated. In the short term, this weighs on the segment’s profitability. However, thanks to the renovation, local clients are able to shop in a much more convenient setting and, most importantly, they have access to a much more appealing offering. We are already seeing that the re-branded stores are recording better sales results than those that still have to go through renovation,” said Eurocash’s CFO.

The Projects segment is also having a negative impact on Eurocash Group’s present profitability. This encompasses investments in the development of innovative retail formats such as Duży Ben (liquor stores), abc na kołach (mobile grocery stores) and Kontigo (cosmetics stores), as well as the distribution of high-quality fresh products.

“Despite the fact that the Projects segment is weighing on our EBITDA, we are looking at this item not as a cost but as an investment. It is irrelevant that from an accounting viewpoint this is presented in the statement of profit and loss instead of the statement of cash flows from investing activities. These projects are enhancing the competitiveness of independent Polish entrepreneurs. Our clients are often unable to independently finance such investments therefore we believe that our role is to take on this responsibility. With time, these projects start to yield benefits not just for the owners of independent stores but also for us. In the second quarter, the fresh product delivery project was close to breaking even. Much sooner than we had initially expected,” emphasised Jacek Owczarek.

Following a test period, Eurocash Group decided to make the Duży Ben and Kontigo concepts available to independent entrepreneurs. These chains will be developed in the franchise and agency model.

Eurocash Group’s selected consolidated financial results:
1) excluding one-off costs, which in 2018 concerned costs related to the acquisition of the Mila stores (PLN 3 million), while in 2017 they were related to payment of collateral for potential VAT payments (PLN 114.4 million)

tagi: Eurocash Group, financial results for H1 2018,