Eurocash Group’s EBITDA in the third quarter of 2017 exceeded PLN 101 million, compared to PLN 123 million a year earlier. Cumulatively for the first three quarters of 2017, normalised EBITDA (i.e. adjusted for a one-off charge concerning potential VAT liabilities, recognised in H1 results) was PLN 259 million, down by 8% from the preceding year. The lower EBITDA mainly resulted from a decline in profitability in the Cash&Carry format and the cigarette and impulse product distribution segment as well as continued investments in the development of innovative retail formats and a fresh product distribution project.
Eurocash Group’s net profit for the third quarter of this year reached PLN 37.5 million, compared to PLN 61.7 million in the same period of 2016. Year-to-date, normalised net profit reached PLN 75 million, compared to nearly PLN 117 million in the previous year. Higher finance costs resulting from an increase in debt also had a negative impact on net profit.
This year’s third quarter was another consecutive period in which Eurocash Group generated strong positive cash flows from operating activities. They reached PLN 215 million (excluding one-off items), which corresponds to double this period’s EBITDA.
Discussion of Eurocash Group’s results
Eurocash Group’s results in this year’s third quarter were affected by three key factors. First of all, revenue from sales is growing thanks to completed acquisitions and investments in new projects. On the other hand, these investments are having a temporary negative impact on the Group’s results. Additional negative impact on the third-quarter results came from lower profitability recorded in the Cash&Carry format and the cigarette and impulse product distribution segment.
Investments in the Retail segment have turned it into Eurocash Group’s most dynamically expanding segment, with sales in the first three quarters of 2017 exceeding PLN 1.6 billion and reaching PLN 561 million in the third quarter alone. This is more than double the figure from the same period last year.
Retail-segment EBITDA for the first nine months of this year reached PLN 28 million, compared to PLN 21 million a year earlier, with the third quarter alone accounting for nearly PLN 8 million, a level similar to that achieved in the same period last year.
“The key driver of the dynamic sales growth in the retail segment is the acquisitions completed at the end of 2016 and start of 2017, especially the acquisition of nearly 250 EKO supermarkets. We are continuing to integrate these locations with Delikatesy Centrum so as to eventually build a nationwide supermarket chain, with a strong brand, including both franchise locations and our own stores. The development of our own retail business has a strategic significance for the future of Eurocash Group and our clients. They will be the beneficiaries of the solutions that we will develop in our own stores, in the context of both logistics and marketing as well as appropriate scale, which will allow us to negotiate competitive purchasing terms and in effect to successfully compete together against the discounters,” said Jacek Owczarek, management board member and CFO at Eurocash Group.
In the first three quarters of this year, 28 EKO stores were rebranded as Delikatesy Centrum. Another nine stores changed the logo in October 2017.
At the end of this year’s third quarter, Eurocash Group’s own retail business included 452 Inmedio locations, 118 Delikatesy Centrum stores and 227 EKO stores (including the 37 that were rebranded as Delikatesy Centrum).
The Group reported sales growth also thanks to focusing on the development of new retail formats (such as Duży Ben, 1minute, abc na kołach and Kontigo) and the distribution of fresh products. In this year’s first three quarters, the Projects segment brought in PLN 395 million in revenue, compared to just under PLN 170 million in the previous year. This segment’s EBITDA for the first three quarters of 2017 came to PLN -39 million (compared to PLN -26 million in the same period of last year), and in the third quarter alone the segment subtracted close to PLN 13 million from Eurocash Group’s EBITDA, compared to PLN -10 million in the previous year.
“High-quality fresh products will be one of Delikatesy Centrum’s competitive advantages, allowing it to successfully compete for clients with the discounters. We must help these stores to gain this advantage because sufficient scale is essential in order to ensure appropriate product quality and freshness. We are treating the other projects we are developing in the same way. By giving our clients – the owners of independent stores in Poland – additional growth opportunities and capabilities to compete with the discounters, we are investing in their development and thus in the future of Eurocash Group. In the short term, these investments obviously mean substantial expenditures, which are weighing on our EBITDA. However, we are certain that in the long term this will bring real positive benefits,” said Jacek Owczarek.
A decline in profitability in the Independent Wholesale segment, especially in the Cash&Carry format and the distribution of cigarettes and impulse products, also had a negative impact on the Group’s EBITDA in this year’s third quarter. This segment’s EBITDA for the first three quarters of 2017 reached PLN 121 million, compared to PLN 156 million in the same period of 2016. In the third quarter alone, EBITDA reached PLN 51 million, versus PLN 73 million in the previous year.
“The lower results in the Independent Wholesale segment were due to a weaker than expected summer, which had a negative impact on beverage and beer sales. As previously announced, in the third quarter we continued to restructure the Cash&Carry chain. This had a positive impact on like-for-like sales, which were slightly up for the second quarter in a row, but in the short term had a negative impact on this format’s profitability, which was burdened by employee costs. Eurocash Serwis is also recording lower results this year due to lower sales and margins on impulse products and additional costs related to logistics reorganisation,” explained Eurocash Group’s CFO.
At the end of the third quarter of 2017, the Cash&Carry chain consisted of 185 locations. The number of stores in the “abc” partner chain, which are the main clients of the Cash&Carry wholesale stores, was 8 659 at the end of September 2017, which is 54 more than at the end of 2016.
The number of franchise stores in the Delikatesy Centrum chain at the end of September 2017 was 1 099, which is 13 more than at the end of 2016, while partner chains serviced by Eurocash Dystrybucja (Groszek, Euro Sklep, Lewiatan, PSD) had a total of 4 830 stores at the end of the third quarter, which is 80 more than at the beginning of this year.
Eurocash Group’s net profit for the third quarter of this year reached PLN 37.5 million, compared to PLN 61.7 million in the same period of 2016. Year-to-date, normalised net profit reached PLN 75 million, compared to nearly PLN 117 million in the previous year. Higher finance costs resulting from an increase in debt also had a negative impact on net profit.
This year’s third quarter was another consecutive period in which Eurocash Group generated strong positive cash flows from operating activities. They reached PLN 215 million (excluding one-off items), which corresponds to double this period’s EBITDA.
Discussion of Eurocash Group’s results
Eurocash Group’s results in this year’s third quarter were affected by three key factors. First of all, revenue from sales is growing thanks to completed acquisitions and investments in new projects. On the other hand, these investments are having a temporary negative impact on the Group’s results. Additional negative impact on the third-quarter results came from lower profitability recorded in the Cash&Carry format and the cigarette and impulse product distribution segment.
Investments in the Retail segment have turned it into Eurocash Group’s most dynamically expanding segment, with sales in the first three quarters of 2017 exceeding PLN 1.6 billion and reaching PLN 561 million in the third quarter alone. This is more than double the figure from the same period last year.
Retail-segment EBITDA for the first nine months of this year reached PLN 28 million, compared to PLN 21 million a year earlier, with the third quarter alone accounting for nearly PLN 8 million, a level similar to that achieved in the same period last year.
“The key driver of the dynamic sales growth in the retail segment is the acquisitions completed at the end of 2016 and start of 2017, especially the acquisition of nearly 250 EKO supermarkets. We are continuing to integrate these locations with Delikatesy Centrum so as to eventually build a nationwide supermarket chain, with a strong brand, including both franchise locations and our own stores. The development of our own retail business has a strategic significance for the future of Eurocash Group and our clients. They will be the beneficiaries of the solutions that we will develop in our own stores, in the context of both logistics and marketing as well as appropriate scale, which will allow us to negotiate competitive purchasing terms and in effect to successfully compete together against the discounters,” said Jacek Owczarek, management board member and CFO at Eurocash Group.
In the first three quarters of this year, 28 EKO stores were rebranded as Delikatesy Centrum. Another nine stores changed the logo in October 2017.
At the end of this year’s third quarter, Eurocash Group’s own retail business included 452 Inmedio locations, 118 Delikatesy Centrum stores and 227 EKO stores (including the 37 that were rebranded as Delikatesy Centrum).
The Group reported sales growth also thanks to focusing on the development of new retail formats (such as Duży Ben, 1minute, abc na kołach and Kontigo) and the distribution of fresh products. In this year’s first three quarters, the Projects segment brought in PLN 395 million in revenue, compared to just under PLN 170 million in the previous year. This segment’s EBITDA for the first three quarters of 2017 came to PLN -39 million (compared to PLN -26 million in the same period of last year), and in the third quarter alone the segment subtracted close to PLN 13 million from Eurocash Group’s EBITDA, compared to PLN -10 million in the previous year.
“High-quality fresh products will be one of Delikatesy Centrum’s competitive advantages, allowing it to successfully compete for clients with the discounters. We must help these stores to gain this advantage because sufficient scale is essential in order to ensure appropriate product quality and freshness. We are treating the other projects we are developing in the same way. By giving our clients – the owners of independent stores in Poland – additional growth opportunities and capabilities to compete with the discounters, we are investing in their development and thus in the future of Eurocash Group. In the short term, these investments obviously mean substantial expenditures, which are weighing on our EBITDA. However, we are certain that in the long term this will bring real positive benefits,” said Jacek Owczarek.
A decline in profitability in the Independent Wholesale segment, especially in the Cash&Carry format and the distribution of cigarettes and impulse products, also had a negative impact on the Group’s EBITDA in this year’s third quarter. This segment’s EBITDA for the first three quarters of 2017 reached PLN 121 million, compared to PLN 156 million in the same period of 2016. In the third quarter alone, EBITDA reached PLN 51 million, versus PLN 73 million in the previous year.
“The lower results in the Independent Wholesale segment were due to a weaker than expected summer, which had a negative impact on beverage and beer sales. As previously announced, in the third quarter we continued to restructure the Cash&Carry chain. This had a positive impact on like-for-like sales, which were slightly up for the second quarter in a row, but in the short term had a negative impact on this format’s profitability, which was burdened by employee costs. Eurocash Serwis is also recording lower results this year due to lower sales and margins on impulse products and additional costs related to logistics reorganisation,” explained Eurocash Group’s CFO.
At the end of the third quarter of 2017, the Cash&Carry chain consisted of 185 locations. The number of stores in the “abc” partner chain, which are the main clients of the Cash&Carry wholesale stores, was 8 659 at the end of September 2017, which is 54 more than at the end of 2016.
The number of franchise stores in the Delikatesy Centrum chain at the end of September 2017 was 1 099, which is 13 more than at the end of 2016, while partner chains serviced by Eurocash Dystrybucja (Groszek, Euro Sklep, Lewiatan, PSD) had a total of 4 830 stores at the end of the third quarter, which is 80 more than at the beginning of this year.
