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March 31, 2015

REWE Group is experiencing profitable national and international growth


Increase in turnover of 2.4 per cent to 51.1 billion euros

REWE Combine achieved an increase in turnover of 3 per cent to 42.5 billion euros operating result (EBITA) increased by 29 per cent ++ Independent REWE retailers: EBITA record of 220 million euros ++ National Full-Range Stores recorded a growth of  3.4 per cent, thus outperforming the industry ++ International Full-Range Stores: increase of 1.9 per cent net of currency effects ++ Discount National Stores experienced a like-for-like growth in turnover of 1.5 per cent ++ International Discount Stores: increase of 1.9 per cent net of currency effects ++ toom Baumarkt DIY stores recorded growth of 9.9 per cent ++ Travel and Tourism posted increase in turnover of 6.9 per cent thanks to strong tour operators ++ Investments in modernisation and expansion of 1.4 billion euros in 2014

Despite a stagnation in the German food retail sector in 2014 based on information provided by GfK and a challenging economic framework in Central and Eastern Europe, REWE Group increased its total external turnover from continuing operations by 2.4 per cent to 51.1 billion euros in the previous business year; adjusted for negative currency effects, growth reached 3 per cent. “We can look back to a very successful business year 2014,” said Alain Caparros, CEO of REWE Group, at the presentation of the as yet uncertified figures in Cologne on 31 March 2015. "Our investments of 1.4 billion euros in expansion and modernisation have again brought very positive impetus to our national and international operations. Thanks to our strategy of continuous modernisation as well as innovative formats and sales concepts, we have succeeded in achieving dynamic and profitable self-driven growth – even under difficult market and competitive conditions", said Caparros. "Against this background, we are highly satisfied with our company's turnover development. At the same time, our operating result (EBITA) considerably exceeded our expectations".

The business in Germany made the largest contribution to the turnover growth with an increase of 2.8 per cent to 37.2 billion euros. Foreign turnover in eleven European countries increased by 1.4 per cent to a total of 13.9 billion euros. Negative currency effects reduced the revenue by around 300 million euros. Adjusted for these effects, the increase in turnover abroad amounted to 3.4 per cent in 2014.

The supermarkets of REWE Group in Germany proved particularly successful: the National Full-Range Stores recorded a growth of 3.4 per cent and consequently rank top in the German supermarket business in 2014. "Once again, our medium-sized REWE retailers demonstrated an excellent performance and increased their turnover by 7.4 per cent," Caparros explained. "The medium-sized independent retail constitutes the core of our cooperative group and is now more successful than ever before in our 88 years of corporate history. Our retailers represent our cooperative values, service orientation, high potential for innovation, cooperation and sustainability and have been a key driver of our positive development for many years now. Consequently, we will continue to promote and expand the business of our independent retailers in the future", said Caparros.

The food retail segment was not the only top performer at REWE Group, however. Travel and Tourism and the DIY stores also recorded an outstanding development. "Our tour operators achieved double-digit growth and thus have outperformed most of the competitors – and this also adjusted for acquisitions. At the same time, toom Baumarkt DIY stores scored one of the highest turnover increases in its history", said Caparros.

REWE Group: Record Number of Trainees in Germany
The number of employees in Germany and eleven further European countries rose by 1.1 per cent to 327,548 (continuing operations). In Germany alone, the number of employees increased by 1.2 per cent to 228,124.

The number of trainees in Germany also climbed to a new record high of 7,901 (+ 1.8 per cent) in 2014. In 2014, 3,368 (2013: 3,216) entry-level employees started their career at REWE Group, which is likewise unprecedented in the corporate history.

REWE Combine: Operating Result Continues to Improve
The REWE Combine turnover from continuing operations (excluding independent retail, shareholdings and at-equity entities) grew by 3 per cent to 42.5 billion euros. The REWE Combine operating result (EBITA) increased by 29 per cent from 363 million euros to 468 million euros as against the previous year's comparable figure. The EBITA from continuing operations was around 515 million euros.

Alain Caparros explained: "We have had more conservative projections for the operating result in 2014. But thanks to the considerably better performance of PENNY in Germany and abroad, the operating result of our overall discount business moved into the black. And given the very positive development in all the other segments, we have achieved a noticeably better EBITA than we had budgeted." The EBITA of the independent REWE retailers, which could again be increased compared to the previous year and set a new record high of 220 million euros in 2014, is not included in the REWE Combine operating result of 468 million euros.

The consolidated earnings before interest, tax and depreciation on assets and goodwill (EBITDA) increased by 14.9 per cent from 1.17 billion to 1.35 billion euros as against the previous year's comparable figure.
The cash flow from operating activities before working capital effects was 1.33 billion euros and therefore exceeded the previous year's figure by 14.9 per cent.

With 1.37 billion euros, the investments for the year 2014 held steady at the previous year's high level.

The equity ratio remained high at +30.9 per cent.

"In light of our present excellent balance-sheet situation, we are optimally prepared for future tasks. Our coffers are filled," said Caparros. "Therefore, we will both invest in the expansion of the e-commerce business – in equal measure in the retail sector and in the trade and tourism industry – and continue to modernise our stationary business. At the same time, we will take advantage of the opportunities presented by organic expansion, especially with innovative convenience concepts such as REWE To Go. If market potentials materialise from acquisitions, we are able to seize such opportunities at any time thanks to our equity base, our low net debt and the continuously high credit lines, which have not been exhausted. This is of course always under the premise that the acquisitions are in line with our long-term strategy. We are not looking for expansion simply for expansion's sake. Instead, we are consistently focusing on the sustainable profitability of our business."

Business Segment: National Full-Range Stores
The National Full-Range Stores with REWE, REWE Center, REWE City, REWE To Go and TEMMA generated a turnover increase of 3.4 per cent to 16.9 billion euros in the previous business year. In this vein, REWE has once again proved a recipe for self-driven growth. This is in contrast to the total turnovers of the German food retail sector which, according to the GfK, have been stagnating in 2014. The share of the National Full-Range Stores in the total turnover of REWE Combine amounted to 39.8 per cent.

In spite of a generally good consumer sentiment, consumers remained price sensitive last year. The National Full-Range Stores consistently stayed abreast of the numerous series of price cuts in the German food retail sector with the entry level brand ja!.

A major success for REWE was the introduction of Payback. More than 10 million Payback customers came to the REWE stores in 2014 and a total of 2 million new REWE Payback cards were issued in 2014.

The number of REWE To Go stores doubled over the last year from four to eight. These stores are supplemented by 10 REWE To Go stores at ARAL petrol stations in North Rhine-Westphalia; the experiences gathered in the tests, which will be carried out until early 2016, have been positive with a very good turnover development. The number of TEMMA stores rose by four to a total of nine stores. Both innovative formats recorded high, double-digit increases in turnover.

REWE’s food online business consists of a pick-up service, where customers place their order online and come to pick up their shopping at their convenience time at one of the 13 Drive pick-up stores throughout Germany. Moreover, the REWE Delivery Service is now available in 57 cities throughout Germany. This makes REWE the leading full-range provider in food online retail, which remains a small market, however. Customer acceptance is very high and continues to grow.

The experience gained so far demonstrates that there are product categories such as wine, pet food and pet supplies with a particularly high online affinity. There is still a lot of potential and REWE has a presence in these segments with the online business of Kölner Weinkeller and the online provider ZooRoyal and is well positioned for the future.

In order to create the best possible technology base for the online business, REWE Digital acquired the company commercetools last year. Commercetools is one of the leading technology providers of e-commerce solutions in Europe and has made its mark in the industry with its high-performance cloud software. With commercetools and the advanced web shop technologies, REWE Digital is strengthening its combine-wide digital activities.

Business Segment: International Full-Range Stores
The continuing operations of the International Full-Range Stores encompasses the activities of REWE Group in Austria, the Czech Republic, Slovakia, Russia, Romania, Croatia, the Ukraine and Bulgaria. In June 2014, REWE Group had announced its withdrawal from the Full-Range Store business segment in Italy. The altogether 137 BILLA stores in Italy were divested as packages, among others to Carrefour and Conad.

The revenue of the International Full-Range Stores from continuing business remained level with the previous year with 8.6 billion euros (-0.5 per cent). Negative currency effects in the Central and Eastern European countries reduced the revenue by over 200 million euros. Adjusted for these negative effects, the business segment recorded a turnover growth of 1.9 per cent.

In Austria, the turnover of BILLA, BIPA, MERKUR and ADEG increased by a total of 0.5 per cent compared to the previous year, despite a difficult economic climate and a drop in consumer demand. With a market share of more than 35 per cent, REWE International AG clearly remained the number one in the Austrian food and drug store sector. In the ongoing business year 2015, an additional sum of about 400 million euros will be invested in strengthening the market leadership.

Adjusted for currency effects, the turnover of the seven markets in Central and Eastern Europe, the Full-Range business of which is controlled from Austria, could be increased by 4.9 per cent. Although the targeted turnover in Russia and the Ukraine could be achieved in local currency, the situation in these markets remains challenging due to the political and economic framework.

Business Segment: National Discount Stores
The restructuring of PENNY Germany, which was launched three years ago, is well on schedule. In 2014, the turnover increased by 0.5 per cent to 6.85 billion euros. On a like-for-like basis, the 2,169 branches (2013: 2,200) generated an increase in turnover of 1.5 per cent and thus have outperformed the German discount market (-1.1 per cent according to GfK). The conversion of the branches to the new PENNY concept has been completed in Western Germany. In Eastern Germany, the branch conversion will have been completed in the ongoing business year 2015.

Significant momentum for the successful business performance could be gained from the ongoing optimisation of the store brand architecture with new brands such as penny to go, Bäckerkrönung, San Fabio and Naturgut, the holiday range "Mein Fest" in the Christmas season as well as customer loyalty programmes with reward schemes.

PENNY therefore remains fully on track as regards the turnaround envisaged for 2016.

In addition to the well-tried marketing measures, PENNY Germany launched the innovative customer radio channel with live presentations "PENNYlive" on 30 March – an absolute novelty in the German food retail sector. PENNYlive started broadcasting in all of the around 2,200 PENNY markets yesterday. From store opening until 8:00 p.m., the PENNYlive radio team entertains the customers with a mix of music, talks, interviews, sweepstakes, product information, offers, news from show business and sports as well as recipes and travel tips.

Business Segment: International Discount Stores
With 4 billion euros, the turnover generated in 2014 by PENNY International in the six countries Italy, Austria, Hungary, the Czech Republic, Romania and Bulgaria remained on the previous year's level (-0.3 per cent). The deflation in the range and, above all, the negative currency effects in Bulgaria, Romania, the Czech Republic and Hungary had a negative impact on the development of the revenue in the 2014 business year. Adjusted for negative currency effects, the turnover of the International Discount Stores increased by 1.9 per cent. The number of stores increased by 2.1 per cent to 1,372.

The Czech Republic remains the strongest foreign market of PENNY, followed by Italy with a turnover of 1.09 billion euros and a turnover growth of 2.6 per cent net of currency effects.

The profitability of the International Discount Stores was not affected by negative currency effects. The EBITA of the business segment exceeded the previous year's figure and at the same time the combine's own projections.

Business Segment: National Specialist Stores
The National Specialist Stores of REWE Group encompass the DIY store activities of toom Baumarkt DIY stores and B1 Discount Baumarkt DIY stores. The turnover of these National Specialist Stores increased by 8.6 per cent to 2.1 billion euros compared to the previous year.

The turnover of toom Baumarkt DIY stores alone (without B1) rose by 9.9 per cent to 1.8 billion euros. This means that toom Baumarkt DIY stores clearly exceeded the average increase in turnover of the other companies in the industry calculated by the German Association of DIY and Gardening Stores (BHB) of 8.8 per cent. On the one hand, this can be attributed to the good overall conditions such as the strong business in spring and the insolvency of the competitors Praktiker and Max Bahr. On the other hand, the measures aimed at strengthening the area performance have yielded considerable success: the increase in area productivity of almost seven per cent was well above the industry average of five per cent.

The consistent continuation of the conceptional repositioning with a focus on the traditional DIY store business was a further success factor. In addition, 16 former Praktiker and Max Bahr branches were modernised and expanded.

With the campaign "Respekt, wer's selber macht" ("Respect to those who do it on their own"), a TV commercial for toom Baumarkt DIY stores has been broadcast for the first time in seven years. The new spots are shown on stations with a strong reach and focus on the appreciation for "DIY".

Business Segment: Travel and Tourism
2014 was again marked by a great number of international conflicts, which led to insecurities among many leisure and business travellers. Nevertheless, the six tour operators, the travel agency sales and the business travel management under the umbrella of REWE Group were able to further consolidate their position as a reliable partner for travel planning and implementation for trips to more than 120 countries worldwide. REWE Group's Travel and Tourism business segment underpinned its position as the second-largest German tour operator in 2014 and increased its invoiced turnover compared to the previous year by 6.9 per cent to 4.9 billion euros. Taken together, Component and Package Tourism generated a turnover growth of about 11 per cent.

The new subsidiary Exim Tours – the leading tour operator in the Czech Republic, Slovakia, Poland and Hungary – also contributed to the turnover increase. The decision to invest in this growth source market has proved to be the right move.

The tour operators of REWE Group are also successfully positioned online: online sales accounted for 20 per cent of the overall turnover generated by the tour operators.

Outlook: Good Start into 2015
Thanks to a stable economic framework and a robust consumer climate especially in Germany, REWE Group reaffirms its expectations for a positive turnover development. The current analysis of the GfK for January and February 2015 proves that REWE and PENNY have demonstrated a significantly stronger development than the competitors. PENNY increased its cumulative turnover in the first two months of the business years by 1.7 per cent, REWE by 4.6 per cent.