Hachette Distribution Services

Hachette Distribution Services
INVESTOR DAY
PARIS
February 1, 2005
1
AGENDA
ÎHDS: world leader in press distribution and travel retail
ÎA strong track record of growth
ÎGrowing and creating value in ECE
2
HDS Mission Statement
Î Hachette Distribution Services (HDS) is a company
dedicated to marketing media products and convenience
services to its customers all over the world
Î Our mission is to facilitate access to the diversity of
ideas and cultures
3
Equal split between Retail and Distribution
2003 consolidated sales: €4,333m
Press
Distribution
49%
Travel Retail
29%
Retail of
Media &
Entertainment
Products
22%
4
68% of HDS sales are outside France
Distribution: mainly in Europe & America
Travel Retail: nearly ¾ in France
Rest of
Europe
20%
America &
ASPAC
7%
America &
ASPAC
41%
France
73%
Retail of Media & Entertainment
Products: mainly in Europe
America &
ASPAC
7%
Rest of
Europe
46%
5
Geographical breakdown of HDS consolidated sales in 2003
France
47%
Rest of
Europe
59%
HDS: a world leader in Travel Retail
2003
Sales
(€m)
4000
3500
Food & Beverage Travel Retail
Specialty Travel Retail
News&Gift Travel Retail
3000
2500
2000
1500
1000
500
6
Sources: annual reports, HDS estimates – only travel retail sales shown here
Heinemann
Elior
BAA - WDF
Aldeasa
Dufry
Nuance
HDS
DFS
Autogrill
Compass/SSP
0
Development of our Travel Retail activities in 2004 (I)
ÎRelay: our world brand continued to grow
z Successful rollout of our new store design
z 100 new Relay stores in 2004
Paris
7
Paris
Development of our Travel Retail activities in 2004 (II)
ÎIn airports, Aelia continued to expand
z Effective response to collapse of Terminal E
z Penetration of the UK with Belfast and Luton airports
Belfast Airport
8
Luton Airport
(London)
Development of our Travel Retail activities in 2004 (III)
ÎSpecialty retail formats in train stations and airports
z Over 10 openings of Virgin and Payot Libraire points of sale in travel locations
z New concepts to meet the needs of customers and landlords (L’Occitane,
Godiva, Dans Mon Panier Neuf, Bijoux Terner, Voyage Café… )
Paris Gare du Nord
9
Paris Gare de Lyon
Outlook for HDS Travel Retail
ÎTravel retail will remain one of HDS’s main growth drivers
ÎNew country openings for Relay
ÎNew airports for Aelia
ÎNew store concepts in all platforms
Australia
10
Canada
Poland
Singapore
USA
Retail of Media & Entertainment Products (I)
ÎOver 1,060 press stores in city centers and shopping malls
z 90 openings in 2004, first stores in Russia
z Inmedio now the leading brand in central Europe, present in 4 countries
Moscow
11
Bucarest
Retail of Media & Entertainment Products (II)
ÎVirgin Megastore is back on track, and has successfully established its
new commercial formula
z With 54 megastores (Virgin, Le Furet du Nord and Payot Libraire), HDS
operates a strong network in France and Switzerland
ÎVirginMega.fr (a joint company
between HDS and LAB) is the no.1
legal music downloading platform in
France
z Ahead of Apple’s iTune and FNAC’s
fnacmusic.com
Virginmega.fr
12
Outlook for Retail of Media & Entertainment Products
ÎHDS now has a proven model for growth in press retail in central Europe
z Selective openings in premium locations
z Development in new countries
ÎVirgin Megastore will consolidate its positions
Virgin
Metz
13
Le Furet du Nord
Lille
Inmedio
Savoya Park
Payot
Sion
Press distribution is about service to publishers and retailers
Publisher A
Publisher B
Publisher C
National
distributor: sales promotion, relationship with
publishers, monitoring of
wholesalers
Wholesaler X
14
Press
wholesalers:
reliable and cost-effective
distribution of press,
monitoring of retail network
Wholesaler Z
Unique position in Press Distribution
ÎHDS is by far the most international player in press distribution
z Strong network in order to share best practice and maintain operational
excellence
z Proven ability to enter new markets and participate in privatizations
z Ever-expanding network of press-import specialists, offering better service
to exporting publishers
ÎVery strong position wherever present
z In press distribution, size matters
z HDS has a proven ability to win and retain customers
15
Objectives for Press Distribution
ÎMaintain operational excellence
z Keep costs low while innovating and developing new services
ÎGrow market share
z Outstanding service, aggressive commercial activity
ÎContinue to diversify our wholesale companies
z Distribute new products and services to retail networks
ÎPenetrate new countries
z Seize opportunities in developing markets
16
AGENDA
ÎHDS: world leader in press distribution and travel retail
ÎA strong track record of growth
ÎGrowing and creating value in ECE
17
Weak market growth since 2000
Annual growth in HDS’s main markets, 2000-2003
Europe
Travel Retail
Media & Entertainment Products
Press Distribution
(1)
18
North America
+2% / +3%
-1% / +1%
+1% / +2%(1)
N/A
0% / +1%
Market trend in France only
Source: Best’n Most, Eurocontrol, HDS Estimates
-1% / 0%
Asia
-2% / 0%
Drivers
Air traffic, rail traffic
N/A
Books / music / video
/ games / magazines
N/A
Press market
HDS has a strong track record
Sales growth
EBIT growth
€m Sales
€m EBIT
5 000
100
3,294
4,333
4 500
90
4 000
80
92
+ 14.7% CAGR
+ 9.6% CAGR
3 500
70
3 000
60
2 500
50
2 000
40
1 500
30
1 000
20
500
10
0
0
2000
19
61
2003
2000
2003
Acquisitions have played a major role
Half of HDS’s growth comes from
acquisitions
Split of €1,039m sales increase (2000 – 2003)
100%
100%
90%
90%
80%
80%
70%
548
Organic
growth
70%
60%
60%
50%
50%
40%
Acquisitions
20%
17
Australia (40%)
230
Travel Retail
France
40%
Virgin Group
30%
30%
20
Split of €491m sales
from companies acquired since 2000
491
244
20%
10%
10%
0%
0%
Retail has grown faster than distribution
Sales growth 2000-2003
€3.3bn
€4.3bn
100%
90%
80%
55%
70%
49%
Press
distribution:
+ 5% p.a.
60%
50%
40%
15%
22%
30%
+14% p.a.
20%
10%
30%
29%
2000
2003
0%
Travel Retail
21
Retail:
Media & Entertainment
Press Distribution
Forecast growth in HDS’s markets
Forecast annual market growth, 2004-2007
Europe
North America
Asia
Drivers
Travel Retail
+2% / +3%
+1% / +2%
+2% / +3%
Air traffic, rail traffic
Media & Entertainment Products
0% / +1%
N/A
N/A
Books / music / video
/ games / magazines
0% / +1%
N/S
Press market
Press Distribution
(1)
22
Market trend in France only
Source: ACI, HDS estimates
(1)
0% / +1%
HDS will continue to grow
HDS: organic growth forecasts
Overall growth: 3%
100%
90%
Press
Distribution
1 – 2% p.a.
80%
70%
60%
50%
Media &
Entertainment
Products
4 – 5% p.a.
40%
30%
20%
Travel Retail
4 – 5% p.a.
10%
0%
2003
23
2007
Balanced profitability across all segments
Business contribution(*) as
% of conso. sales 2003
Travel Retail
N&G Travel Retail
2,9%
Specialty & Duty Free
Retail of Media &
Entertainment Products
Press Distribution
Newsstands
Media Entertainment Products
National Distribution
Wholesale
24
0,9%
(*): Business contribution: operating profit before head office costs
2,9%
AGENDA
ÎHDS: world leader in press distribution and travel retail
ÎA strong track record of growth
ÎGrowing and creating value in ECE
25
Growing and creating value in ECE
Î By acquisition (Hungarian example)
Î Greenfield (Polish example, similar story in Czech Republic)
Î By building a portfolio of projects
26
27
Acquisition
Lapker - Hungary
28
Historical background
Î 1994-1998:
z After extensive preparation, rapid privatization process of Magyar
Posta’s fragmented press distribution sector (7 wholesalers and
1,300 kiosks) in 1997-1998
Ö Successful bid by Lapker (85% HDS, 15% publishers)
Î 1998-1999:
z Fierce competition for distribution to chains
Î 1999:
z Creation of Kisker, Lapker’s retail company: new formats in travel
retail and shopping malls
29
The transformation plan: “Lapker 2001”
Î Operating costs cut by 30%-35%
Î Improved quality of service
Î More customer-focused approach
Î New services to:
z publishers
z stores
Î Cultural changes based on initiative, efficiency, expertise
and team spirit
30
Retail modernization: Achievements
Î Modernization of the retail network
z Relay
z Inmedio
Î Modern retail chain management methods
z Training
z IT
z NRI
z etc
Î Secured press market share & profitability growth
31
A major player in the press market
Î 97% market share in distribution (single copy sales)
Î >30% market share in press retail
z 110 Relay
z 120 Inmedio
z 950 kiosks
32
Our store formats in Hungary
33
Company profile: 2003
Î Sales = €300m
Î EBIT = €15m
Î EBIT/sales = 5.0%
Î EBIT/capital employed = 81%
Î Value creation = €10m
34
Keys to success
Î Effective privatization preparation/negotiation
Î Delivering more than we promised
Î Strong management
Î Clear strategy
Î Efficient support from HDS
Î Self-belief
35
Greenfield
HDS Polska - Poland
36
Sustained growth
ÎOctober 1997:
z CEO hired
ÎNovember 18, 1998:
z First store opened
ÎJune 2001:
z 100 stores
ÎJuly 2002:
z First profit … and profitable ever since
ÎDecember 2004:
z 272 stores (3rd largest chain in the HDS Group) :
„ 101 Relay
„ 163 Inmedio
„ 8 Voyage Café
37
Company profile 2004
Î EBIT/ sales = 3.9%
Î EBIT/capital employed = 34%
Î Cash contributor, despite rapid expansion
(1 store per week)
Î Main competitors: Ruch, Kolporter, Empik
38
Building on success
Î Development of new concepts
z Voyage and Inmedio café
Î Exporting Inmedio brand
z Leverage on mall developers
Î Leveraging management team (see Russia)
39
Our store formats in Poland
40
Keys to success
Î Entry at the right time (start of international investment in retail)
Î Right management
Î Optimum exchange of know-how between HDS and experienced
local management team
Î Best of both worlds
z Focus on value creation and ROI vs. size
z Store concept and locations
z NRI
z HR
41
Our store formats in Czech Republic
42
Building a portfolio of projects
Other ECE countries
43
Historical background
Î Fall of the Berlin wall
Î Start-up in ECE through our German entity
Î Low-cost start-ups focused initially on international press
44
Status today
Î All companies are profitable
Î Systematic review of markets: choosing the right
z time
z speed
z method
for further development.
45
Methodology
Î Business plan
Î Go/no-go
Î Pilot (when applicable)
Î Go/no-go
Î Monthly visit and follow-up
Î Strategic framework, market trends and results
guide daily decisions
46
3 categories
Î Decision taken/pilot launched in:
z Romania
z Russia
Î Thanks to success of operations, BP to be launched in:
z Bulgaria
z Slovakia
z Serbia
Î Other “top of the list” countries:
z Ukraine (political change)
z Croatia
47
ECE - Key indicators for 2004
12,000
8
10,058
7.3
7
10,000
6
8,000
5
4
6,000
3.3
2,796
4,000
3
2
2,000
1
0
0
Czech
Republic
Hungary
Slovak
Republic
Russia
Poland
Bulgaria
GDP per capital (USD)
GDP growth (%)
48
Source: IMF
Romania
Serbia
And
Montenegro
MMP in Romania
A new start in retail
49
Background
Î HDS was already present in press distribution (mainly
international)
Î New management hired to work on development strategy
ÖDecision to build a retail network, synergetic with our
distribution activities
„ Creation of a chain of Inmedio & Relay stores in big cities
„ Target for end 2007: 80 points of sale, including 20 Relays
50
Key figures – retail project
ÎBP:
z
z
z
z
IRR = 31.2%
NPV = €3.9m (total project)
Minimum cash position = -€1m
Cumulative investment over 5 years = €2.9m
ÎPilot:
z
z
z
z
Average annual sales > €160k
Profitability >7%
ROI >40%
Even in the development period, company net profit at breakeven
ÎDecision taken to roll out
51
Our formats in Romania
52
Russia
53
HDS CIS
Î After extensive strategic analysis, decision to start
greenfield retail operations, under HDS Polska’s
supervision
Î Creation of a chain of POS, starting in Moscow
Î 185 POS due to be opened by 2009: 95 Relays,
90 Inmedio in shopping malls
54
Key figures – HDS CIS retail project
ÎBP:
z
z
z
z
z
IRR = 20.3%
NPV = $7.9m (total project)
Minimum cash position = -$6.1m
Cumulative investment over 5 years = $7.0m
2009 EBIT = $1.1m at 2.1% of sales
ÎPilot:
z First shop opened in December 2004
55
Bulgaria, Slovakia, Serbia
56
Bulgarpress, IPS & Global Press today … and tomorrow
Now:
Company
Start
1993
> 90%
Chains?
1991
> 90%
Segment well-established
Greenfield not possible
> 90%
Distribution to chains
National distribution (9% M.S.)
Development is ongoing
2001
57
Market Share
Int’l press
Domestic press plans
Retail
plans
At least
one BP
in 2005
New market opportunities
58
Ukraine & Croatia - Key indicators
59
2003
Ukraine
Croatia
Population
47.6m
4.4m
GDP per capita
($)
1,293
7,300
GDP growth
12.5%
3.7%
Inflation
8.2%
<2.0%
Why?
Size, political change
Development, tourism
Source: IMF World Economy Outlook Sept. 04 and local statistics
HDS in ECE – Overall outlook
60
Outlook for 2008 (existing projects only)
Number of countries*
8
Number of stores
2,000
Staff
1,300
Sales (€m, 100%)
520
EBIT (€m, 100%)
26
+ many new ideas …
61
* Bulgaria, Hungary, Poland, Czech Republic, Romania, Russia, Serbia, Slovakia