At the beginning of the year, Valora’s business was still severely impacted by the pandemic. Omicron constraints dominated the retail and food service sector, especially in the first quarter of 2022. The easing of government restrictions came later than expected, and in Germany even with an additional time lag. Following the gradual lifting of restrictions, however, Valora has experienced a strong recovery in revenue in the last two months.
Net revenue in May and June 2022 above pre-pandemic levels
In the first half of 2022, Valora generated external sales of CHF 1,213.2 million (HY 2021: CHF 1,030.4 million), which is +17.7% or +20.7% in local currency more than in the prior-year period. Net revenue amounted to CHF 943.3 million (HY 2021: CHF 814.1 million), which is up +15.9% or +17.8% in local currency. At -6.1% for the first half of 2022 as a whole, it remained below the pre-pandemic level of 2019, while May and June net revenue came in slightly above the corresponding 2019 figures.
Gross profit for the first half of 2022 amounted to CHF 428.2 million (HY 2021: CHF 356.5 million), a year-on-year increase of +20.1%. The margin improved by +1.6 percentage points to 45.4% and thus to the pre-pandemic levels of 2019. Net operating costs were up by +20.3% due to recovery and acquisition-based growth as well as inflation development. This also includes costs related to M&A and strategic projects of CHF -3.0 million. The absence of the COVID-19 support received in the first half of 2021 also led to a higher cost base.
Increased EBIT in the first half of 2022
Group EBIT came to CHF 8.1 million (HY 2021: CHF 7.4 million). Excluding costs related to M&A and strategic projects, EBIT amounted to CHF 11.1 million, which on a comparable basis is up +41.9% on the prior-year period. This growth was mostly achieved on the back of the results for May and June and without the significant COVID-19 related support of some CHF 30 million which Valora had received in the first half of 2021. Group net profit amounted to CHF -5.4 million compared to CHF -3.8 million in the first half of 2021. The decline was mostly driven by higher tax expenses and the negative EUR/CHF development. Free cash flow was CHF -11.8 million (HY 2021: CHF -0.1 million) and was adversely impacted by higher outflows related to investments and the increase in net working capital resulting from the takeover of additional sales outlets and the general financing of growth.
Strong balance sheet with leverage ratio well below covenant ceiling
On the balance sheet side, Valora confirmed its strength. The Group’s equity ratio before lease liabilities amounted to 50.2% (51.0% as at 31 December 2021). Net debt came to CHF 222.4 million (31 December 2021: CHF 209.3 million), while the leverage ratio at 2.3x EBITDA (FY 2021: 2.2x) was on a par with the pre-pandemic level and well below the covenant ceiling. With the issuance of a new Schuldscheindarlehen worth EUR 100 million with a five- and seven-year term in April 2022, Valora partially refinanced a maturing EUR Schuldscheindarlehen early at attractive conditions and thus improved its long-term financing profile. The transaction was closed in July 2022.
“Based on the Group's strong recovery particularly in the second quarter of 2022 and its enduring resilience throughout the pandemic, Valora is confident about the value-creation potential of its foodvenience strategy,” says Michael Mueller, CEO of Valora Group. Given the latest strong development in sales and although the geopolitical situation has worsened over the past few months, Valora estimates external sales (including the recent strategic initiatives) for full-year 2022 to be on a par with pre-COVID-19 levels and reconfirms its EBIT guidance of CHF 70 million +/- ~10% for the full year 2022 (excluding costs related to M&A and strategic projects).
Further expansion of network
In the reporting period, Valora successfully managed to advance its foodvenience strategy. With the closing of the acquisition of Frittenwerk on 1 July 2022, Valora is setting out to enter the booming fast-casual market, thereby further developing its food service business, which is currently mainly focused on takeaway offerings. Together with the trendy Germany-based format, Valora aims to profit from the development of the fast-casual segment, which boasts above-average growth. Frittenwerk for its part should be further strengthened and enjoy accelerated growth. The intention is to double the network of 27 locations by 2025 and to more than triple the 2021 EBITDA of around EUR 2.5 million. Valora also expects a substantial transfer of know-how from the creative Frittenwerk concept to its other formats.
Also in the Food Service division, the integration of Back-Factory is on track and has progressed very well. The same applies to the expansion of B2B capacity at the production facilities of Ditsch USA, which is expected to be finalised by the end of the first quarter of 2023.
A further success has been achieved with the expansion of the cooperation with Oel-Pool. Valora is taking over 71 additional shops from the service station operator and will be converting them into modern avec stores, subject to the approval of the Swiss Competition Commission. This will not only significantly increase Valora’s presence in the convenience business at service stations, but will also create the largest network of convenience outlets in Switzerland with around 370 avec stores by the end of 2023. Valora is thus approaching a further milestone in its growth-oriented food strategy as the higher-margin share of food in Valora’s overall category mix is continuing to grow.
Store conversions at SBB and other locations in full swing
SBB conversion work is being pushed forward at full speed and is scheduled to be largely completed by the end of 2022. As at the end of the reporting period, more than 60% of total sales outlets had been refurbished across the SBB network. Within the SBB cluster, refurbished stores confirmed stronger growth in food sales compared to those not yet refurbished (+37.0% vs. +13.0%). Beyond the SBB network, most of the 39 stores which were the result of the collaboration with Oel-Pool’s fuel company Moveri (announced last year) were transferred to the avec sales outlet network between January and May 2022.
More avec boxes to be rolled out
The portfolio of Autonomous Stores with the cashier-free avec box and avec 24/7 hybrid stores saw further additions in the first half of 2022, most notably with the opening of new hybrid stores. In the course of the coming months, Valora will open five more avec boxes in Switzerland in addition to the current avec boxes in Arlesheim BL, Urdorf ZH and Oberohringen ZH. Valora is also consistently continuing the roll-out of the k kiosk vending machines in Switzerland.
Group-wide conversion to renewable electricity
As for the objective to reach net zero CO2-emissions by 2050, Valora has made considerable progress. Regarding its own emissions (Scope 1 and 2) Valora will realise 100% conversion to renewable electricity by the end of 2022, which will substantially contribute to its target of reducing its own emissions by half by 2025. Moreover, Valora has also scrutinised the supply chain of its own brands’ products as well as of those produced at Valora sites and together with its partners identified further reduction potential. Valora’s ambitious goal is now to halve CO2-emissions along this supply chain by 2030. The measures focus on aspects such as regenerative farming methods, the expansion of the vegan product range and a further reduction of food waste.
FEMSA and Valora join forces to jointly develop the European market leader in convenience stores and food services
On 5 July 2022, Fomento Económico Mexicano, S.A.B. de C.V. (FEMSA), a leading retail and beverage company with total sales of more than USD 27 billion / CHF 26.5 billion in 2021, announced an all-cash offer to purchase all of the publicly held shares of Valora Holding AG (Valora) for CHF 260.00 per share. This is equivalent to a premium of 57.3% to the volume-weighted average share price of the last 60 trading days and 52.0% to Valora’s closing share price on 4 July 2022. The Valora Board of Directors unanimously recommends that shareholders accept the offer by FEMSA. The transaction process is ongoing. More details can be found at https://femsa.gcs-web.com/valora-transaction.