|
Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning ladies and gentlemen and welcome to the Arcandor conference call. At this time all participants are in listen-only mode until we conduct the question answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS). Just to remind you, this conference call is being recorded.
I would now like to hand over to the Chairperson, Mr. Detlef Neveling. Please begin your meeting and I'll be standing by.
DETLEF NEVELING, HEAD OF IR, ARCANDOR AG: Yes ladies and gentlemen, a very warm welcome to our conference call. Our topic today is the interim report for the nine months 2007/2008 and the third quarter of our current business year. As usual I'm being joined by two gentlemen today; it's Thomas Middelhoff, our CEO and Peter Diesch, our CFO. And I'll now hand over to Dr. Peter Diesch, our CFO.
PETER DIESCH, CFO, ARCANDOR AG: Hello ladies and gentlemen, this is Peter Diesch speaking. I would like to briefly guide you through the numbers. If you could start on page number three, just preliminary remarks. As in the previous quarters we will use numbers on a pro-forma basis. The main reasons are again explained on charts four and five; those charts are well known to you and they indicate the necessity to work with pro-forma numbers.
Necessity number one is the fact that we successively increased our stake first in the, what we call the old Thomas Cook AG, and then finally started business middle of last year with the new Thomas Cook Plc. So just comparing numbers with the previous year, as IFRS, would like to ask us -- would not give us any comparisons which would make sense from an analytical point of view.
And the next effect is that we had in the previous year a shortened financial year from only January to September, so again IFRS would request us to compare the first nine months, which end with September of the previous year with the first nine months of this year, which end with June. And again especially because the peak of the business, profit and cash flow developments of Thomas Cook happened in the year -- in the months to come, this comparison on one hand on September numbers and the other hand on June numbers do not make any sense.
So what we are comparing is full quarter with full quarter and full nine months as if Thomas Cook Group Plc had existed all the time throughout '06/'07 as we have the structure today.
Just this as a preliminary remark, I would like to guide you now to page number seven. Page number seven gives you, just as an overview, the highlight of the nine months. The adjusted Group EBITDA has more than tripled. The divisional adjusted operating EBITDA more than doubled, reflecting an increase by EUR123 million to EUR204 million. The adjusted Group sales increased by 1.1% if you adjust for currency fluctuations, especially between the British pound and the euro, and declines by the same 1.1% to EUR13.5 billion on a pure euro basis.
We have to digest this translation effect because the exchange rates quite significantly changed between pounds sterling and euro. And in analyzing the Thomas Cook numbers more closely, we will give you numbers in euro and numbers in pounds sterling in order to really identify the business performance.
Now a short word on Thomas Cook; we have a strong improvement in earnings. Sales rose by 7.2% on a pounds sterling basis. This is important because the balance sheet is in pounds sterling and their main bulk of the business is UK business anyhow. The adjusted EBITDA increased by EUR153 million to EUR104 million. So this is the very strong increase and significantly underlying that, Thomas Cook is on a very good track.
Primondo is showing a strong turnaround. The adjusted sales rose by close to 10% to EUR3.3 billion. And adjusted EBITDA increased by EUR55 million to EUR38 million, so a swing from the negative into a clear positive area.
Karstadt caused us some problems. Karstadt's business was hit by cautious consumer spending and the cost problem, which we will explain later on through this presentation more precisely. And which of course are already addressed by a future efficiency improvement, cash flow improvement and cost reduction program which is already on its way and performed by the new management team in place. Adjusted sales decreased by 3.9% to EUR3.1 billion and EBITDA fell to EUR62 million.
The same numbers I just mentioned you have on a more transparent design on page eight. So again you can see the tremendous swing of Thomas Cook from the negative EUR49.1 million to a plus of more than EUR150 million in euro currency. You can see the s swing in pounds sterling you can see the sharp swing of Primondo's business from double-digit negative to significant double-digit positive. And I mentioned the issue we have with Karstadt.
On the next page, again what I mentioned, Group sales currency as we have that, those in euros is a minus of 1.1% and is a plus of 1.1% if we adjust currency to the same level as we had previously. I mentioned Group EBITDA and the EBITDA of the operating divisions.
Net financial liabilities quarter-on-quarter fell by some EUR50 million; I will come to that later.
Working capital has a serious swing into a very attractive area of minus EUR709.1 million. This sharp decrease of working capital is due to the fact that we have, out of the huge customer advance payments we received now in the Thomas Cook division, a serious reduction of working capital due to an increase in accounts payable.
The next page, we have again the sales numbers in euros for Thomas Cook, which is the minus I mentioned and in national currency, which is a significant plus. And I think this is especially interesting because many people are talking about consumer sentiment and so on and we think this figure seriously proves that Thomas Cook, despite all rumors, is on a very, very strong track growing the business. And the reason for that will be later on explained by Thomas Middelhoff through an interesting analysis we have from a consumer poll.
Primondo, I mentioned is a plus of 9.3%; Karstadt a minus of 3.9%.
On the next page you have got again in the form of a table the divisional EBITDAs; I don't want to repeat those. We have a slight increase of costs at the holding level. This is mainly due to consultancy fees which we have to digest in the course of this big and very complex real estate transaction.
On the next page you can see again in the form of a picture, the movement of working capital. As I mentioned, this is going down from minus EUR94.5 million, which is already an attractive negative working capital, to more than minus EUR700 million. And I mentioned the main reason is now the huge pile of customer advance payments coming in at Thomas Cook. And I just want to remind you that we always mentioned the attractive pattern of working capital, which within the Group, between Thomas Cook and our home shopping and department store business, nicely balances because they are not in the same pattern but a pattern which nicely counterbalances over time in the consolidated balance sheet.
On the next page, again a short explanation how net financial liabilities from end of March to end of June developed. We have an overall consolidated operating cash flow of EUR320 million. We have CapEx of EUR150 million and payout for interest, pensions and miscellaneous of around EUR120 million.
I would like to go now to the Q3 numbers where we can show good development for two out of the three businesses. The adjusted Group sales increased slightly. If you adjust currency on previous year and they decreased by some 4.1% to EUR4.7 billion on a pure euro basis for the reasons I mentioned already. The adjusted operating EBITDA reached EUR53 million.
We have an earnings increase at Thomas Cook and at Primondo as well and the Karstadt with regrettably a significant decrease in earnings.
Thomas Cook has a positive development, an increase of sales by nearly 5% in national currency, an earnings rise in national currency by 12%. And even on an EBIT -- even on a euro basis, which suffers from the translation as well transactions effects, we have still an increase by close to 4% and which is around EUR4 million.
Primondo shows good sales and earnings growth. Adjusted sales grew by 14% to EUR1 billion and adjusted EBITDA improved significantly by nearly EUR20 million.
Karstadt is hit, as I mentioned already, by cautious consumer spending and a cost problem, which I will come on more precisely later on.
The same numbers as I just mentioned, on the next page; we can skip that.
On page 17 you have again an analysis which shows you what is the influence on the EBITDA of the operational segments. A positive contribution of Thomas Cook of nearly EUR4 million. If you would look at that, and I think we have a picture in a minute, in pounds sterling this would be a plus of GBP9 million. We have a significant plus of EUR18.5 at Primondo but regrettably this is wiped out by the decrease at Karstadt.
On the next slide, just again what I've said already verbally. In local currency, in the currency of Thomas Cook's balance sheet, we have a plus of nearly 5% which we think is a very, very good track record in today's environment, which regrettably translates in euros to a minus of 10.2%.
The efficiency capacity management is showing a clear impact. We further on reduced unprofitable capacities and Thomas Middelhoff later on will give you a more precise analysis how this translates immediately into a positive impact on the bottom line. We have at Thomas Cook a very positive development in all the markets.
EBITDA, I mention that on page 19, in pounds sterling we have a plus of 12% or a plus of more than GBP8 million. And it needs to be clearly mentioned that within this quarterly result we had to digest more than GBP20 million for fuel hedging, or in euros more than EUR30 million are compensated within these numbers for the cost of fuel hedging. So we think this shows a tremendous success of efficiency improvement and profit orientation. The Thomas Cook management is performing day-by-day and it would be just lovely to assume that we wouldn't have had the necessity to hedge fuel to such an extent, and would not even -- would not had only the chance to avoid hedging costs but would have also had lower fuel costs; then you'd get a really impressive vision what this business can deliver in terms of earnings and in terms of cash flow.
On the next page 20, again some details on Primondo. This is a plus of 14.3% which we think shows a very good development of the business. This is again a double-digit sales growth. We had already more than 14%...
|
