Eurocash : Result Q1 2018

Eurocash Group Result Q1 2018

2018-05-11

Press release

11 May 2018

Eurocash Group announces financial results for Q1 2018

Sales growth above market. Improved gross margin and EBITDA

• Eurocash Group's sales, calculated in accordance with the IFRS 15 standard in effect from this year forward, reached PLN 5 billion in the first quarter of 2018, denoting 7.5% growth compared to the same period in 2017.
• Eurocash Group's sales are driven by very good results in the wholesale segment, which expanded by 7.2% y/y, as well as the retail segment, which, taking into account fresh product distribution, grew by 8% y/y.
• Consolidated gross margin on sales in the first quarter of 2018 exceeded 11.6%, compared to 11.4% a year earlier.
• Eurocash Group's EBITDA in Q1 2018 increased by 5.7% y/y to PLN 39.6 million.
• Consolidated net profit was PLN -18.5 million, compared to PLN -15 million in Q1 2017. Eurocash Group's financial result continues to be affected by expenditures on development of strategic projects intended to secure long-term competitiveness for independent entrepreneurs operating retail stores in Poland.
  

'In this year's first quarter, Eurocash Group's sales went up by 7.5%, more than the wide FMCG market, which grew by 6% on average. Our result is all the more meaningful due to the fact that it is not driven by acquisitions but rather mainly by organic growth in the wholesale segment. Moreover, the high average sales growth in the entire market was significantly supported by the fact that the shopping period prior to Easter holidays came in the first quarter this year, while last year it was in the second quarter. However, it should be noted that holiday 'stocking up' is usually done at large-format stores. Thus, our sales growth is even more satisfying, as our sales were mostly to small-format stores,' said Jacek Owczarek, CFO and member of Eurocash Group's management board.

'In the retail segment, we continued to integrate EKO stores. In the first quarter, 41 of them were rebranded to Delikatesy Centrum. An accelerated remodeling has a negative impact on this segment's sales and EBITDA in the short term but we are seeing positive effects of these changes once the rebranded and renovated locations are re-opened. Solid sales growth of nearly 9% in this year's first quarter was recorded by own Delikatesy Centrum stores. Franchise stores in this network are recording strong like-for-like sales growth. Eurocash's wholesale to Delikatesy Centrum franchise stores on a like-for-like basis went up by 8.6% y/y, while retail sales at these locations, on a like-for-like basis, increased by 6.3%,' noted Jacek Owczarek.

Eurocash Group's EBITDA in this year's first quarter was positively influenced mainly by a visible improvement in the wholesale segment, resulting from profitability improvements in the Cash&Carry format, thanks to higher operational effectiveness, as well as strong sales growth at Eurocash Dystrybucja, which is a format covering active distribution of products (with delivery to the client). Positive effects are also coming from the Group's cost optimisation programme, which generated over PLN 14 million in savings in the first quarter. Negative impact on EBITDA came from higher remuneration costs, which were up PLN 22 million on the previous year - Eurocash Group, along with the entire FMCG industry, is feeling the effects of wage pressure.

Negative impact on Eurocash Group's current profitability is also coming from the Projects segment, which includes investments in the development of innovative retail formats such as Duży Ben, abc na kołach and Kontigo as well as a distribution system for high-quality fresh products. In this year's first quarter, these projects subtracted PLN 14 million from the Group's EBITDA (compared to PLN 16 million in the same period last year). 'We are certain that in the long term these investments will translate into higher competitiveness of independent Polish entrepreneurs operating small and medium retail stores, who are Eurocash Group's main clients. Having achieved success with the Faktoria Win and PayUp projects in recent years, this year we decided to make the Duży Ben concept available to franchisees. Moreover, in accordance with our updated strategy presented in March, deliveries of high-quality fresh products, previously implemented only at the Delikatesy Centrum chain, will also cover stores in the other networks supported by Eurocash Group. This project has been very well received by our clients and end consumers, which is confirmed by strong like-for-like sales growth at the Delikatesy Centrum chain,' said Jacek Owczarek.

Eurocash Group's selected consolidated financial results:

1) Value of sales prior to the application of IFRS 15 (presented as in the previous years)

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Eurocash Group is the largest Polish business operating in the wholesale distribution of food and in providing marketing support to independent Polish retailers. The franchise and partner chains supported by Eurocash include over 14,000 independent stores operating under brands such as abc, Groszek, Delikatesy Centrum, Lewiatan, Euro Sklep and Gama.