REPORT BY THE MANAGEMENT BOARD

The year of 2017 was an exceptional and successful one for REWE Group. The cooperative business group generated powerful growth of 3.7 billion euros, a record amount in terms of revenue increase. What’s particularly gratifying is that we didn’t achieve this increase in revenue solely through the takeover of Kaiser’s Tengelmann branches in Berlin, Bavaria and North Rhine-Westphalia, through the founding of Supermärkte Nord Vertriebs GmbH & Co. KG (SuNo) with its sky stores, and through the consolidation of the newly established joint venture with REWE Dortmund eG. Rather, the group also produced very strong organic growth. In the highly competitive German food retail sector, REWE achieved the strongest revenue increase in the supermarket sector, even without including the acquired branches. PENNY improved on the revenue increase it achieved in 2016. Likewise, our international business developed exceptionally well, particularly in Central and Eastern Europe. Not least because of the good performance of toom Baumarkt DIY stores and our Travel and Tourism division, we are very satisfied with the overall growth of REWE Group, a result that is primarily due to the outstanding work and commitment of our employees. Amidst tough competition for trade and tourism, our staff represent a decisive competitive edge for us. We are still reaping the fruits of our consistent policy of expansion, modernisation and innovation, which will continue to form the cornerstones of our profitable growth strategy. Our goal is to provide the best service for our customers – in all places and at all times. This also includes our commitment to sustainability and healthy nutrition. As part of this commitment, REWE Group is taking such steps in 2018 as significantly cutting the amount of sugar and salt contained in about 200 store-brand products.

The independent retailers under the REWE Group umbrella also produced satisfying results once again. In 2017, REWE partner retailers increased revenue by 8.5 per cent. The stores of our independent REWE retailers are an important driver of our growth. The promotion of independent retail is not just a part of our cooperative philosophy: It also contributes decisively to the positive economic performance of the entire company.

The number of employees in Germany and other European countries rose by 6.1 per cent to 345,434 (continuing operations). In Germany, the number of employees climbed by 7.7 per cent from 235,897 to 254,097 in 2017. The number of employees outside Germany increased by 1.7 per cent to 91,337.

Compared with 2016 (as of 30 September), REWE Group increased the number of trainees by 2.8 per cent last year from 8,168 to 8,394.

The revenue of REWE Combine from continuing operations rose last year by 8.3 per cent from 45.6 billion euros to 49.4 billion euros. In Germany, REWE Combine grew by 9.5 per cent and abroad by 5.7 per cent.

Excluding special items – the takeover of Kaiser’s Tengelmann branches and SuNo as well as the consolidation of the joint venture with REWE Dortmund – revenue increased by 4.4 per cent.

The unadjusted operating result from continuing operations totalled 491 million euros. Not including the aforementioned special items, EBITA of REWE Combine was 594 million euros in the 2017 business year. This total represented an increase of about 20 million euros from the previous year’s figure – also adjusted for special items – of 574 million euros (unadjusted previous year’s figure: 997 million euros).

EBITA of REWE Combine does not include the operating result of REWE partner retailers under the umbrella of the Cologne-based REWE. This figure amounted to around 290 million euros, equalling the high level of the previous year.

The annual profit of REWE Combine totalled 338 million euros for 2017. The difference from the previous year is solely due to the aforementioned special items.

REWE Combine’s earnings before interest, taxes, depreciation and amortisation (EBITDA) climbed from 1.53 billion euros to 1.65 billion euros compared with the previous year’s figure (excluding one-time special items in the 2016 business year). 

Cash-effective investments in property and intangible assets made in 2017 totalled 1.9 billion euros, significantly above the high level of the previous year. 

Equity reached a new high of 6.2 billion euros in 2017. The equity ratio amounted to 31.7 per cent. As of 31 December 2017, the net financial debt without finance leases totalled 752 million euros and remains at a low level.

During the ongoing business year, REWE Combine is continuing to move ahead with its investment activities and boosting the total for 2018 to 2.4 billion euros. The focus of investing activities is on the expansion and modernisation of our sales networks; the acquisition of real estate, technology and logistics; and the qualification of our employees. REWE Group will invest around 1.5 billion euros in Germany and around 900 million euros in other European countries. 

REWE Group believes it is well-prepared to meet future challenges. Due to the takeover of the Kaiser’s Tengelmann branches and the need for renovation at sky, REWE Group will have a temporary charge against earnings. But it will significantly improve its competitive position through investments and modernisation. We will remain on this path. We are strengthening our stationary business in Germany with concepts such as REWE 2020 and PENNY 2020. At the same time, we will remain on the road towards digitalisation and optimise our omnichannel concepts. With our high investments that we have also planned beyond 2018, we want to significantly increase the speed of our profitable revenue growth.

The business segment Retail Germany generated revenue of 28.6 billion euros. This segment comprises the divisions REWE, PENNY Germany and Retail Germany central businesses. Restructuring work was also initiated in areas that extended beyond the company’s domestic real estate business. The production and sales operation of baked goods sold under the brand name Glocken Bäckerei and the production of meat and sausage products sold under the brand name Wilhelm Brandenburg were assigned to Retail Germany. In the past, they were listed in the business segment Other.

National Full-Range Stores, with REWE, REWE CENTER, REWE CITY and REWE To Go, as well as nahkauf and other wholesale partners, achieved a revenue increase of 15.4 per cent to 21.2 billion euros in 2017. Adjusted for the new additions sky, Kaiser’s Tengelmann branches and the joint venture with REWE Dortmund, revenue increased by 5.8 per cent. As a result, REWE led once again amongst German supermarkets in terms of growth during the year, according to consumer researchers at GfK and TradeDimensions.

Significant factors in REWE’s success included further improved price positioning coupled with the strengthening of regional and local products, convenience and organic products in the range as well as store brands. The continuous advanced training of employees as well as additional employees in stores also made it possible to further improve customers’ perception of service.

The innovative concept REWE To Go also developed successfully. In cooperation with ARAL, the number of petrol stations with REWE To Go has increased in 2017 from 60 to 236.

The development of REWE omnichannel activities is still fully on course. At the end of 2017, REWE Lieferservice (REWE’s delivery service) was available in 75 cities and covers about 40 per cent of Germany’s population. This makes REWE Germany’s No. 1 online supermarket for fresh food products. This service is supplemented by the REWE pickup service, which was available at more than 50 locations at the end of 2017, as well as by the Germany-wide REWE parcel service for partner products.

PENNY Germany generated a revenue increase of 2.5 per cent to 7.4 billion euros. For the second year in a row, the number of PENNY branches in Germany increased again – by 1.2 per cent from 2,148 to 2,174.

At the same time, PENNY continued the roll-out of its concept PENNY 2020 in Germany. In the past year, 850 branches were remodelled under this concept. This work included increasing capacity for fresh goods by enlarging refrigeration areas and expanding the convenience store brands Penny to go and Penny Heat&Eat.

The business segments International Full-Range Stores and International Discount Stores were combined to create a new business segment called Retail International. The business segment Retail International generated revenue of 13.4 billion euros.

The international activities of supermarkets and drugstores in Austria, the Czech Republic, Slovakia, Russia, Bulgaria, Croatia and Ukraine rose by 4.9 per cent (3.8 per cent adjusted for currency effects) from 8.5 billion euros to 8.9 billion euros.

The full-range companies BILLA, BIPA, MERKUR and ADEG in Austria increased their revenue by 1.4 per cent to 6.3 billion euros. The supermarkets grew by 1.9 per cent, while BIPA’s drugstores saw a fall in revenue of 4.7 per cent. The reasons for this were adjustments to the branch portfolio and targeted investments in prices.

In Central and Eastern Europe, BILLA generated a revenue increase of 14.5 per cent (+10.4 per cent adjusted for currency effects) to 2.6 billion euros. The strongest growth came from BILLA Czech Republic with +15.9 per cent (+12.9 per cent adjusted for currency effects).

PENNY International generated revenue of 4.5 billion euros in Italy, Austria, Hungary, Romania and the Czech Republic. Compared to the previous year, this represented a revenue increase of 5.4 per cent (+4.8 per cent adjusted for currency effects).

In the highly competitive market in Austria, PENNY was able to maintain its revenue of the previous year with a slight increase of 0.7 per cent.

The National Specialist Stores business segment encompasses the DIY store activities of toom Baumarkt and B1 Discount Baumarkt. The branches of toom Baumarkt generated an increase in revenue of 2.5 per cent in 2017 to 1.9 billion euros. With this growth, toom Baumarkt DIY stores clearly exceeded the overall revenue increase calculated by the German Association of DIY and Gardening Stores (BHB) of 1.1 per cent. Given the fall in revenue of around 12 million euros at B1, the revenue of the National Specialist Stores business segment increased by 2 per cent to 2.1 billion euros in total.

The Travel and Tourism division of REWE Group, DER Touristik Group, continued to develop positively in 2017 with a 3 per cent increase in invoiced revenue to 6.5 billion euros.

The internationalisation of DER Touristik Group from a German tour operator to a European travel group – with the acquisition of Exim Tours in Eastern Europe in 2012 and the European tour operators, specialists and stores of Kuoni in 2015 – paid off significantly in the past business year. In 2017, companies in the source markets of Eastern and Northern Europe in particular increased their revenue considerably. The destination agencies are also experiencing significant growth. Achieving record sales and earnings, the German travel sales operation was particularly successful once again. This area is becoming increasingly important, especially in times of perceived growing uncertainty in some target markets.