Rewe Sees Growth through Foreign Expansion

Rewe, Europe's third-largest retail group, aims to raise sales to 40 billion euros in the medium term and keep pretax return on sales stable at 1.5 percent, chief executive Hans Reischl said Wednesday. These targets are to be achieved mostly through an expansion of the group's business on European markets outside Germany.

These markets currently account for 23 percent of total group sales. But Reischl said their share could rise to as much as 40 percent in the medium term. "Bad news about the economy, such as the real level of unemployment and uncertainty surrounding the euro, don't exactly help to boost consumers' propensity to shop," Reischl said.

Nevertheless, Rewe is aiming at sales growth above the sector average this year and at matching last year's operating profit. To achieve these targets the group plans to invest around 700 million euros in the expansion of its business, to be financed exclusively from its gross cash flow of around 1 billion euros.

In its 2001 fiscal year, Rewe booked net sales (excluding value-added tax) of 37.5 billion euros, a rise of 8.4 percent on the previous year. Growth was carried predominantly by its more profitable foreign business, where sales surged 25 percent to 7.7 billion euros.

Rewe forecast double-digit sales growth in its foreign business also for the current year. The group plans to open 110 new supermarkets, mostly in Italy and the Czech Republic.

In Germany, sales rose just 5.3 percent to 29.8 billion euros. In the group's tourism division, sales surged 21 percent to 4.7 billion euros as a result of its investment in tour operator LTU.

Rewe forecast strong growth for its tourism business in 2002 because it was set to turn into a "year of last-minute bookings". Rewe forecast that the results for 2001 would show group operating profit to have come in at around 350 million euros. The final figure will be announced in May.

Of the profit, some 250 million euros is to be set aside as provisions. "This will mean that all risks, including those from the LTU investment, are covered,", said Reischl.

Reischl said that the search for a strategic investor in LTU charter airline was continuing unabated. The airline was rescued from the brink of bankruptcy only through an initiative by the government of its home state of North Rhine-Westphalia.

A number of offers had been received – none of the them from retail groups – for the 49.9 percent stake held by the collapsed Swissair group, he said. RWE holds a 40 percent stake in LTU.

Reischl, a member of the LTU supervisory board, stressed, that LTU had no liquidity problems. But he said that the airline remained in need of restructuring and called for still stricter cost-cutting initiatives from staff and management. "The belt still has to be tightened," he said.