EUROCASH. Empowering modern retail entrepreneurs

Transcription

1 EUROCASH Empowering modern retail entrepreneurs

2 Mom & pops stores supported by demographics are still half the market Small towns, small living quarters, daily shopping nearby drive small stores market share Percentage of population living in cities/rural area Rural Cities 0-20K Cities 20-50K Cities K Cities 100K Share of distribution channels in food sales in Poland LTM July 2018, % 32,8% 9,8% 15,4% 42,0% Small Format Supermarkets Hypermarkets Discounters Average number of store visits per month 60% of Poles live in villages & small towns Small living quarters have limited space to store food As a result, Poles shop almost every day Poland Bulgaria Spain Norway UK Denmark Italy Switzerland Hungary Sweden Discounters Hypermarkets Supermarkets Convenience Traditional stores 2

3 Eurocash purchasing and distribution scale help small stores compete Eurocash Group sales evolution (PLN bn) Ranking of FMCG distributors (sales, PLN bn) Pro Forma C&C Delikatesy Centrum Tobacco&Impulse Food Service Alcohol Distribution EC Distribution Retail & Other Biedronka Eurocash (Pro-Forma) Lidl Tesco Kaufland Auchan Carrefour Intermarche Żabka Metro (Makro C&C) Dino Selgros , Source: Company data Building scale and purchasing power to help small stores resist competition 3

4 With proper support, small stores are able to resist competition Acceleration of sales dynamics of small stores in ,3% Food market growth by channels (YTD July 2018, YoY) 7,3% Value change +1,5bn -0,03bn +0,12bn +1,6bn 5,7% Food market growth by small format channels (YTD July 2018, YoY) +0,2bn +1,1bn -0,1bn +0,4bn 8,8% 2,5% 11,0% 3,8% 12,9% -0,7% -0,4% 2,8% 1,2% 0,7% Discounters Hypermarkets Supermarkets Small Format YTD 2017 YTD 2018 Small Supermarkets ,0% -5,6% -1,9% Convenience Small Grocers -40 Specialized & Others YTD 2017 YTD 2018 Small format increasing sales by 5.7% vs. food market growth of 4.9% in YTD July Small format stores and discounters gaining market share at expense of super/ hypermarkets Source: Nielsen 4

5 Small stores sales increase is despite their lower price inflation Estimated inflation by store channel (July YTD 2018) Food inflation by categories 5,0% 4,0% 3,0% 2,0% 1,0% 4,5% 3,1% 3,4% 1.8% difference 2,7% 2,4% 3,3% 2,1% 14% 12% 10% 8% 6% 4% 2% 11,9% Large format categories 7,8% 6,7% 3,6% 3,4% 2,7% 2,2% 2,7% Small format categories 1,2% 1,0% 0,9% 1,5% 0,0% Discounters Hypermarkets Supermarkets Small Format Small Supermarkets Convenience Small Grocers -40 0% -2% -4% -2,8% Source: Own estimation based on Nielsen 2018 (I-VII) Source: GUS Eurocash inflation much below market: wholesale prices in Delikatesy Centrum: +0.1%, retail prices +1.2% in 1H 2018 YoY 5

6 Eurocash Group Combination of wholesale and retail brings us scale, essential to support Poland s independent retail entrepreneurs Purchase Scale Logistics 75% WHOLESALE Cash Driver 1% PROJECTS 25% RETAIL Growth Driver Brand Know-How Technology Eurocash mission to support Poland s independent retail entrepreneurs 6

7 Wholesale & Retail businesses provide comprehensive value added support Together wholesale and retail comprise all enabling products, channels, and functions for independent retail entrepreneurs WHOLESALE Dedicated distribution platforms Purchase Scale RETAIL Know-how transfer to wholesale clients 25% 4,3 Sales (PLN bn) 25% 4,4 Cash&Carry Active Distribution Logistics Marketing 1st nationwide supermarket chain High quality perishables at affordable price 13% 2,3 Alcohol Distribution E-commerce B2B & B&C Over 90% branded products 32% Education Proximity 5,7 5% 0,8 Tobacco & Impulse HoReCa Franchise Concepts CRM customized promotions PLN 7.4 bn retail sales 1.5k stores 7

8 Eurocash generates cash to keep investing for future competitiveness Cash generative business model funds M&A and innovation for long-term even in recent tough business context Operational Cash Flow* vs. EBITDA* Cash Conversion (in days) ,0% 4,0% 3,0% 2,0% 1,0% 0,0% -1,0% -2,0% 93% 100% 137% 135% 60% 206% 74% 163% ,0% 2,6% 0,8% 2,7% 0,9% EBITDA Operating cash flow OCF/EBITDA 3,0% -0,2% 2,4% 2,4% 2,3% 2,0% 2,1% ,6% 250% 200% 150% 100% 50% 0% 0,0-5,0-10,0-15,0-20,0-25,0-12,4-5,8-11,1-17,2-13,2-19,4-17,6-22, Eurocash EBITDA margin % vs. gross salary and inflation in PL New Projects EBIT (PLN m) 4,3% 3,7% 0,9% 3,7% 0,0% 4,5% 4,4% -0,9% -0,6% Eurocash EBITDA margin % Gross Salary CPI (Inflation) 3,9% 2,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% -1,0% -2,0% Eurocash: Ability to generate cash necessary to invest into future growth New initiatives impact short term profitability but for our clients are investment into future competitiveness Clear potential to increase profits We kept investing despite unfavorable macro trends and growing costs of innovative projects * 2017 adjusted by one-off items, VAT issue 8

9 After many years of growth we are now able to focus on profitability 150 M PLN by identified potential for cost reduction WHOLESALE RETAIL Head Office cost optimization EC C&C restructuring Logistics: ECD Merger with ECA then ECS impulse Retail Head Office cost optimization ~60m PLN ~10m PLN ~40m PLN up to ~40m PLN ( ) (2020) 1H 2018 EBITDA* evolution (PLN m) 142,8 142,1-0.5% +12.8% 160,2 1,81% -0.7m 1,74% +18.1m 1,87% 1H H H 2018 EBITDA EBITDA margin % Improvement of Wholesale EBITDA 9

10 Eurocash is now fast developing own retail, going for further scale Own retail chain based on the franchise chain and on development of own small supermarket stores 7.4 bn PLN stores +900 stores +5 bn PLN > By 2023 > Retail Sales 3,1 538 Own Acquisitions Green Field 4, Franchise Franchise Chain Retail Sales (PLN bn) Number Of Stores Standardized business with unified processes NEIGHBOURHOOD STORE > Proximity HIGH QUALITY OF PERISHABLES > Delivered Everyday PERSONALIZED PROMOTIONS > CRM System E-GROCERY FOR BIG CITIES > Home delivery & pick in store 10

11 Eurocash Retail is growing much faster than supermarket competition High valued retail chains are increasing scale few times slower than Eurocash Retail ,0 20,0 15,0 10,0 5,0 0,0 Sales area in square meters (thsd, 2016 and 2017) For 2016 and % 394 Eurocash Retail (DC+Eko+Mila) % 242 Stokrotka* Avg. annual sales per sqm (thsd, 2017) 20,1 Delikatesy Centrum (ex. Eko & Mila) 18,1 Eurocash Retail (DC+Eko+Mila) % Dino** ,2 16,9 Stokrotka* Dino** ,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 Number of Stores (2016 and 2017)or 2016 and % Eurocash Retail (DC+Eko+Mila)*** Sales revenues (PLN bn, 2016 and 2017) For 2016 and ,6 60% 7, % 437 Stokrotka* 2,3 8% 2, ,4 23% Dino** 34% 0,0 Eurocash Retail (DC+Eko+Mila)*** Stokrotka* Dino** 775 4,5 Eurocash Retail Sales Area Dynamics 66% Sales Dynamics 60% Number of Stores Dynamics 41% Delikatesy Centrum sales density higher than competition by app. 20% *PMR 2018 ** Company reports, sales per sqm estimation based on reports *** 2016: before M&A (EKO & Mila) 11

12 Innovative solutions for our clients are coming into play Thanks to investments and innovative solutions not available for large format players, small stores have ability to win E-commerce B2B CRM Fresh Project Training > Online store and mobile app > Market & local competition insights > Financial & delivery information Sales: 2.9 bn PLN > CRM platform available for all clients > Customized promotion for each consumer visiting franchise store > B2C platform, based on DeliKarta mechanism > Successfully developed in Delikatesy Centrum > Roll-out to ECD franchisees > First nationwide fresh product distribution with everyday morning delivery > Training for owners and their employees > Facilitates succession > E-Learning, Workshops, Congresses & Postgraduate Business Studies 12

13 Going forward, extended roll-out of projects will create further value Extension of initiatives to full customer-base will ensure future competitiveness of both Wholesale and Retail FRESH PROJECT extension Break even point much faster than expected Our investment in the future Further potential for growth: Increase of Delikatesy Centrum penetration 01 Faktoria Win Piwne Terytoria 05 Duży Ben Extension to Lewiatan, Gama, Euro Sklep, Groszek chains Expansion with own retail chain 02 Kontigo 06 Private Labels Fresh Project sales evolution (PLN m) Pay Up abc na kołach Sushi To Go 4 Vapers 1Q Q 3Q 4Q 1Q Q 3Q 4Q 1Q Q Faktoria Win already brought back wine category to small stores Duży Ben may take advantage from neighborhood discounters traffic generation Fresh Project is a must to strengthen brand perception against competition 13

14 Executive summary Traditional trade is still half of the FMCG market, supported by Eurocash, and growing (especially small supermarkets) despite lower inflation of their category mix, Cash generation has allowed ongoing Eurocash investments in sales growth and innovation initiatives, albeit in recent years at the expense of EBITDA in tough market conditions, Today, optimized costs and nationwide logistics provide a solid base for Wholesale s modernization with: digital ordering platform, CRM, perishables and a new format roll-out, Going forward with investment in Retail, a nationwide supermarket chain is now in place which is to grow by 900 stores in 5 years to 13 bn PLN, 1H 2018 show results under control in sales, gross margin and costs. 14

15 APPENDIX 1H 2018 Results 15

16 1H 2018 Results Summary WHOLESALE - STRONG GROWTH with sales +5,3% and EBITDA +12,8% YoY in 1H 2018 RETAIL 187 MILA STORES ACQUIRED Integration work in progress. 149 EKO stores under Delikatesy Centrum brand PROJECT FRESH CLOSE TO BREAK EVEN with 301m PLN sales in 1H 2018 (+82m PLN) STRONG CASH FLOW GENERATION at 1.6x LTM EBITDA NET DEBT UNDER CONTROL at 1.9x EBITDA, despite M&A and dividend payment (-450m pln) STRONG IMPROVEMENT IN WHOLESALE, PREPARING GROUND FOR RETAIL 16

17 Wholesale Segment back on growth track with Cash&Carry turnaround 1H 2018 Sales evolution (PLN m) 1H 2018 EBITDA evolution (PLN m) % +270m +5.3% m -0.5% 142,8 142,1-0.7m +12.8% +18.1m 160,2 1,81% 1,74% 1,87% 1H H H H H H 2018 EBITDA EBITDA margin % Strong performance improvement in 1H 2018 with sales +5.3%, EBITDA +12.8% and EBIT +21.7% YoY. Gross margin stabilized at flat level with further potential to improve. Cost pressure covered by improved efficiency. CC LFL +2.7% in 2Q and +2.2% in 1H 2018 YoY. Best result in last 17 quarters. ECD with +10% sales increase in 1H YoY. ECS already stabilized, +5.1% sales increase in 1H YoY. 17

18 Wholesale sales dynamics Wholesale segment supported by increased competitiveness of its clients Wholesale sales evolution (1H 2018 YoY) 3,6% 2,6% C&C LFL 2,7% Wholesale Cash&Carry 2,1% 5,3% 1,3% 0,7% 0,0% -1,3% 0,3% 1,5% 0,3% -0,4% Tobacco & Impulse Distribution 5,1% 10,0% -4,9% -2,2% -2,7% -3,5% -4,0% -3,6% -4,6% -5,2% Alcohol Food Service -0,8% 12,2% 4Q'13 1Q 2Q 3Q 4Q'14 1Q 2Q 3Q 4Q'15 1Q 2Q 3Q 4Q'16 1Q 2Q 3Q 4Q'17 1Q 2Q C&C LFL in 2Q 18 at +2.69% and 2.16% in 1H best performance in last 17 quarters. Tobacco with stable 5% sales growth in 1H 18. Business already stabilized. ECD sales driven by franchisees (Lewiatan, PSD, Euro Sklep, Groszek) and gas stations. 18

19 Retail increased asset base, ongoing integration 149 EKO stores under Delikatesy Centrum brand. Mila integration planning started 1H 2018 Sales evolution (PLN m) % +506m % incl. Mila +7.4% +123m pro forma ,0 1H 2018 EBITDA evolution (PLN m) +37.6% 74,3-27.9% -21m +20m 4,72% 4,50% 53,6 3,02% EKO integration EKO + Mila consolidation 1H H H 2018 Sales increase driven by M&A. June 2018 Mila sales at m PLN. 1H H H 2018 EBITDA EBITDA margin % 5Y plan +900 openings sustained. Half of 2019 own stores expansion already addressed with small chains M&A. Retail strategy sustained needs to play as complimentary to franchisees, wholesale clients and the Group. Delikatesy Centrum LFL in 1H 2018 LFL + 4.5% in wholesale and +0.9% in retail. 2Q 2018: +0.9% in wholesale and -1.8% in retail (Easter effect). 19

20 Polish market potential for proximity stores development There is a space for new selling area in the market Belgium Austria Netherlands Switzerland Luxembourg Germany Denmark Norway Sweden France Estonia Spain Lithuania Croatia United Kingdom Latvia Italy Czech Rep. Hungary Slovakia Portugal Poland Bulgaria Romania Turkey Sales area (m2) per capita ,75 0,72 0,67 1,67 1,66 1,59 1,50 1,47 1,44 1,43 1,30 1,27 1,20 1,18 1,13 1,13 1,13 1,09 1,05 1,04 1,04 1,03 1,01 0,99 0,98 Criteria for selection of grocery stores for the 10 most popular chains (%) Close to my home Affordable prices A wide range of products Other: high quality products They always have what I come for Attractive promotions / discounts Shopping is fast Attractive products of the brand of a store Interesting / inspiring products A lot of Polish products The Polish origin of this store Do not overwhelm the surface / number of products Attractive loyalty program Offer new products 4% 3% 3% 3% 2% 7% 5% 5% 12% 12% 12% 27% 41% 69% 0% 10% 20% 30% 40% 50% 60% 70% 80% Poland - country with one of the lowest selling area per one person in Europe Proximity the most valued for Polish consumers 20

21 Projects investments (at EBITDA level) into future growth Fresh Project close to break even 1H 2018 Sales evolution (PLN m) +91m 338 1H 2018 EBITDA evolution (PLN m) 1H H H m ,4-11m -10,7% +0.2m -7,8% 1H H H ,1% -26,4-26,2 EBITDA EBITDA margin % Fresh Project with 302m PLN sales in 1H 2018 (+82m) close to break even in 2Q Most relevant for Delikatesy Centrum positioning and competitiveness. Duży Ben & Kontigo moved into proven for many years franchise system. 21

22 1H 2018 financial summary Strong sales increase driven by wholesale segment PLN m 1H H 2018 % of Sales 1H 2017 % of Sales 1H 2018 Y/Y Change Net sales % Sales driven mainly by wholesale segment (+435m PLN) and consolidation of Mila (+120m PLN). Gross profit % 11.9% 9% EBITDA (excl. Projects, normalized*) % 1.7% 1% EBITDA normalized* % 1.5% 1% One-off costs* EBITDA reported* % 1.5% 261% EBIT normalized* % 0.6% -6% Profit before tax normalized* % 0.4% -11% Net profit % 0.2% -46% * 2018 results normalized by costs of Mila M&A, 2017 by add. VAT tax payment Gross Margin stabilized after 1H Increase by 0.22 p.p. YoY driven by retail segment and consolidation of Mila. Normalized EBITDA increase by 1%, driven by wholesale segment, and off-set by EKO stores remodeling. Depreciation driven by retail segment. Net Profit affected by increased effective tax rate due to changes in law. 22

23 2Q 2018 financial summary Strong sales increase driven by wholesale segment PLN m 2Q Q 2018 % of Sales 2Q 2017 % of Sales 2Q 2018 Y/Y Change Net sales % Gross profit % 12.2% 8% EBITDA (excluding Projects, normalized) % 2.3% 1% EBITDA normalized* % 2.1% 0% One-off costs* EBITDA reported* 5,9 117,0 0.1% 2.0% 1894% EBIT normalized* 74,8 70,6 1.4% 1.2% -6% Profit before tax normalized* 66,7 62,0 1.2% 1.1% -7% Sales driven mainly by wholesale segment (+166m PLN), and consolidation of Mila (+120m PLN). Gross Margin increase by 0.24 p.p. YoY - stable in wholesale segment, driven by Mila. EBITDA driven by wholesale segment, and off-set by EKO stores remodeling. Depreciation driven by retail segment. Net Profit affected by increased effective tax rate due to changes in law. Net profit 52,6 39,0 1.0% 0.7% -26% * 2018 results normalized by costs of Mila M&A, 2017 by add. VAT tax payment 23

24 EBITDA* performance by segments 1H 2018 EBITDA by segments +18.2m -20.7m +0.2m +4.1m +1.9m 142,1 160,2 157,8 159,6 74,3 53,6-26,4-26,2-32,1-27,9 Wholesale Retail Projects Others Eurocash Group 1H H m incl. one-off costs (Mila acquisition fees) C&C increasing LFL and profitability EKO integration short-term impact on profitability Fresh Project improving results, close to break even, Costs improvement STRONG FOCUS ON: WHOLESALE OPTIMIZATION EC Distribution 10% sales increase DC own stores above expectations positive EBITDA in 2H 18 expected RETAIL INTEGRATION Tobacco impacting 1H results but already stabilized with high potential for growth in next quarters DC Franchise improvement of profitability, focus on Fresh Project COSTS CONTROL * 2018 results normalized by costs of Mila M&A, 2017 by add. VAT tax payment 24

25 Cash Flow LTM Operating CF at 168% EBITDA Cash conversion cycle (restated after IFRS 15) PLN m 1H H 2018 Net operating cash flow Net profit (loss) before tax (64) 42 2Q Q (48) Depreciation Change in working capital ( 21) ( 21) ( 22) ( 27) ( 23) ( 25) Other 4 (15) Net investment cash flow (204) (378) 15 (18) (65) (338) ( 76) ( 75) ( 71) ( 81) ( 77) ( 76) Net financial cash flow Total cash flow 8 (54) (175) (251) 15 (349) -100 Q Q2 Q3 Q4 Q Q2 Receivables Stock Cash conversion Liabilities Strong cash generation sustained in 1H Strong improvement of receivables rotation in wholesale segment 25

26 Net debt vs. normalized** LTM EBITDA Strong Cash Flow sustained Net Debt* vs. 12M EBITDA in 2Q ,36 1,10 1, Q'17 2Q 3Q 4Q 1Q'18 2Q 1,02 1,29 LTM EBITDA (PLN m) NET DEBT (PLN m) NET DEBT / EBITDA 1,90 0,93x 335 excl. M&A 2,0 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 0,0 Net Debt increase by 214m PLN despite payment of dividend (102m) and Mila acquisition (350m) in 2Q *NET DEBT - the sum of long and short term loans, borrowings and financial liabilities less cash and cash equivalents **Adjusted for one-off item 114 m PLN potential VAT liability payment done in Aug

27 Disclaimer This presentation and the associated slides and discussion contain forward-looking statements. These statements are naturally subject to uncertainty and changes in circumstances. Those forward-looking statements may include, but are not limited to, those regarding capital employed, capital expenditure, cash flows, costs, savings, debt, demand, depreciation, disposals, dividends, earnings, efficiency, gearing, growth, improvements, investments, margins, performance, prices, production, productivity, profits, reserves, returns, sales, share buy backs, special and exceptional items, strategy, synergies, tax rates, trends, value, volumes, and the effects of Eurocash S.A. merger and acquisition activities. These forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to developments in government regulations, foreign exchange rates, oil and gas prices, political stability, economic growth and the completion of ongoing transactions. Many of these factors are beyond the Company's ability to control or predict. Given these and other uncertainties, you are cautioned not to place undue reliance on any of the forward looking statements contained herein or otherwise. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements (which speak only as of the date hereof) to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as maybe required under applicable securities laws. Statements and data contained in this presentation and the associated slides and discussions, which relate to the performance of Eurocash S.A. in this and future years, represent plans, targets or projections. For more information please contact: Cezary Giza Investor Relations Director mobile: