Telerik Schischmanow, CFO of the REWE Group, explains why it is increasingly important to take precautions, the Group’s planned new directions in financing, and the advantage of being a cooperative.
Telerik Schischmanow, CFO of the REWE Group, explains why it is increasingly important to take precautions, the Group’s planned new directions in financing, and the advantage of being a cooperative.
Mr Schischmanow, the REWE Group achieved much higher revenue and only slightly lower earnings year on year in 2022 in what was a challenging environment. What is your view of this performance?
Telerik Schischmanow: We can consider it a good financial year given the unfavourable circumstances. The diverse impacts of Russia’s invasion of Ukraine caused a great many negative effects on earnings, particularly in food retail in Germany. However, we were able to offset these effects with the positive contributions of other Group divisions. The stable overall results were fuelled in particular by the marked revival in tourism, and also by the positive performance in international business and at Lekkerland. This performance underscores once again the benefits of our broadly diversified portfolio.
Telerik Schischmanow
Member of the Management Board – Chief Financial Officer
The REWE Group invested large amounts in sales prices last year to absorb the impact of inflation for its customers. This cost you in terms of earnings power …
Telerik Schischmanow: … and that’s why it’s only a temporary solution. But we were able to afford this investment because we were very careful with cost items and because we profited from our partnership with the EHA in terms of long-term energy procurement. We are one of the few retailers to have operated an energy hedging strategy for several years now. This really paid off in 2022, and that’s why we plan to maintain it.
The more extraordinary events shape day-to-day business, the harder it gets to make reliable plans. How is the REWE Group setting course for the future in this environment?
Telerik Schischmanow: Management has to employ more agile, dynamic and flexible analysis, discussion and ultimately decision-making processes than before. We can only make short-term plans, and have to use scenarios when it comes to the medium and long term. These simulate key parameters such as energy prices, personnel costs and consumer behaviour and develop real-case, best-case and worst-case scenarios. This way we can keep a constant eye on where we might need to take action.
Such action could require a large amount of financial input. How much does the REWE Group have in terms of financial reserves in order to react to temporary anomalies?
Telerik Schischmanow: Our line of credit is generally between 1 and 1.5 billion euros. This is more than enough to absorb potential blows. If necessary, we can also put the brakes on various cost items for the short to medium term. Or we can stretch our typically high annual investment budget of more than 2.5 billion euros a little. But we would only do that if we were certain that there was no other alternative. Moreover, there is always the possibility of raising additional debt financing for sensible measures. There is therefore sufficient room for maneuver to counteract and reassess priorities at any time.
The REWE Group has a clear objective of further growth. Does it have enough financial strength to continue this approach consistently and under its own steam?
Telerik Schischmanow: Definitely! We have sufficient financing options to realise further growth. It’s true that we took on a lot more debt last year than was previously the case. But that’s absolutely fine given the size and potential of our Group. And I don’t have a problem with borrowing more funds, even though loans are a lot more expensive now with the increase in interest rates. The important thing is to keep debt in a healthy ratio to earnings power, which we do. But we also have to be more mindful than ever to further strengthening earnings power and of our reasons for borrowing more money and what we invest in.
Which investments have the highest priority?
Telerik Schischmanow: We want to accelerate further in digitalisation, IT and logistics. And in real estate too. We want to continue to buy and develop store sites in the future, but also continue to rent store sites. There must be a healthy balance of owned and leased sites in the portfolio. Owned sites protect us from rent increases and give us the authority to make decisions on properties, thereby speeding up the process of extensions and alterations, and adding photovoltaic systems or e-mobility stations. And of course, we mustn’t stop reinforcing – or even expanding – our long-standing pioneering role in sustainability.
Owned sites give us the decision-making authority to implement e-mobility stations for our properties more quickly.
Sustainability is increasingly an issue when it comes to financing, too. Banks are subject to regulatory requirements and want to know how responsibly their customers behave towards the environment and how fairly they treat employees and suppliers. How do banks perceive the REWE Group?
Telerik Schischmanow: The banks believe we have good prospects for covering our financing requirements on the market. We are considered to be a stable, well positioned, transparent and innovative company that does its homework as regards sustainability. That’s important for us, because we don’t want to limit ourselves to traditional financing instruments like syndicated loans and promissory note loans in future. We want to tap into a larger international market in bonds where investors have high standards when it comes to sustainability. We can meet these standards. Just one example – in a few years, when we’re the first food retailer in Germany to use green electricity from a wind farm in the North Sea, and have fitted more and more store and warehouse roofs with photovoltaic systems, we will be able to cover a good 20 per cent of our energy needs in Germany with renewable energy.
Is it an advantage in this context not to be a listed company?
Telerik Schischmanow: Absolutely! As a cooperative, we can afford to invest in sustainable business practices and long-term growth, because we’re not driven by dividends and quarterly reports. We invest up to 99 per cent of what we earn in further development of our business segments. We basically function like a family – if someone isn’t doing so well, we balance things out between ourselves. That gives us stability in many respects, including as an employer. It also enables management to act with foresight and for the coming generation.
