After winning the strategically important SBB tender, the Valora Group is reporting on its business model as well as its growth strategy and communicating its mid-term targets until 2025 at today's Investors' Day. Valora has made good progress this year, but corrects its profit targets in 2019 due to applicable accounting standards (IFRS 16) for the new SBB contracts; free cash flow is not affected by this. Valora expects major profit growth as of 2021. With its forward-looking foodvenience focus, resilient business model and growth potential, the company is optimistic about the coming years. The attractive dividend remains ensured.
At today's Investors' Day, Valora is reporting on its planned development and its ambitious but realistic mid-term targets until 2025. External sales are expected to grow by +2% to +3% per year. The gross profit margin is expected to improve by +0.5 percentage points and the EBIT margin by +0.2 percentage points per year on average. Earnings per share (EPS) are likely to improve by +7% per year as of 2022 in particular. The new margin and profit targets will not yet be achieved in 2019 and 2020 owing to the effects of the SBB tender won end of April 2019 for 262 kiosk and convenience outlets from 2021. This is because of the associated early conversion and corresponding investments worth about CHF 60 million in 2019 and 2020. On average, however, the targets remain valid until 2025.
Good start to 2019 but amended profit targets
Valora had a good start to the new year. Excluding the SBB effect, Valora's EBIT was up 9.3% to CHF 34 million in the first five months of 2019 compared to the same period of the previous year and the company remains on track to achieve its operational targets for the current financial year. Due to the early conversion of the SBB locations and applicable accounting standards (IFRS 16), Valora now expects EBIT of around CHF 90 million for the 2019 financial year; while free cash flow expectations are unchanged. For 2020, Valora expects a comparable result to 2019, with profit scheduled to increase markedly as of 2021.
Growth thanks to higher share of food, expansion and high demand for pretzels
Valora is focusing on a retail segment gaining in importance due to the growing mobility of the population and constant increase in the demand for on-the-go shopping and snacks. As a foodvenience provider, the company is well-positioned for future sales and profit growth. Valora will benefit particularly from the conversion of the kiosk into the convenience sales outlets and the introduction of the new kiosk concept as part of its offer to the SBB. This will enable Valora to consistently expand the proportion of food and beverages available as part of its overall offering, both at the SBB sites and throughout its network. This will have a positive effect on the gross profit margin and the EBIT margin.
Growth will also be driven by the planned expansion of its network by some 50 sales outlets per year net. In the retail division this expansion will primarily be achieved with the avec convenience format, while food service expansion will hinge on the exploitation of the potential available in Germany, Austria and the Netherlands. Because of declining footfall, the expansion of BackWerk at inner-city locations will proceed slower than originally assumed. However, the format will still progress through new locations, such as at service stations and through shop-in-shop solutions.
Finally, the company remains optimistic about its growth prospects over the coming years in its integrated value chain with the production of pretzels for its own sales formats and especially also for third-party providers. After the doubling of the capacity of the current line of Ditsch USA in 2018, capacity will be expanded further by the completion of another production line in the US in 2019 and two additional lines in Germany at the beginning of 2020. Thanks to this expansion, Valora will be even better equipped in future to meet the high demand for pretzels and underscore its position as a leading producer worldwide. Furthermore, the company is planning additional investments, depending on expected market demand, between 2021 and 2025 worth in the region of EUR 80 million.
A highly resilient business model
All important rental contracts for outlets at heavily frequented locations have a remaining term of at least five years. The major SBB locations with their continually growing footfall are secured until 2030 following the successful outcome of the tender. The business model centres on impulse-driven purchases and on-the-go consumption, which places it beyond the direct reach of e-commerce. Valora's range also mainly consists of affordable products and the need for everyday items remains unaffected by economic downturns, thus contributing to the business model's high resilience to economic cycles.
Attractive dividend secure
“Valora is looking forward to the future with great confidence. Thanks to the high resilience of the business model, expected constant growth and the solid balance sheet, the attractive dividend for shareholders is ensured for the next years – in spite of substantial investments in the conversion of the SBB sites and the expansion of production capacity,” states Michael Mueller, CEO of the Valora Group, at the Investors' Day.