BWG to grow core after successful restructuring

Eighteen months after paying out roughly €250 million to buy leading convenience store group BWG, Leo Crawford has plenty to smile about.

The management buyout team he headed has stripped out non-core assets and delivered sufficient profit growth to allow it to repay €100 million of the money borrowed to fund the acquisition.

BWG's performance in its first full year was also strong enough to facilitate a refinancing of its remaining debt, a move the company reckons will shave about €4 million a year off interest bills. The new terms should cut the 8.5 per cent rate applying to the €110 million it raised in a seven-year bond to a figure below 5 per cent.

With what Mr Crawford calls its "year of reconfiguration" and the refinancing out of the way, BWG is now ready to focus on growing its remaining core businesses - the Spar and Mace chains in the Republic, the Spar chain in south-west England owned through Appleby Westward and the fast-growing UK off-licence franchise Bargain Booze.

Last year BWG produced pre-tax profits of €32 million on sales of €1.84 billion. That included exceptional gains of €12 million on the disposal of wholesale, retail and cash-and-carry operations in England, Scotland and Northern Ireland. But it also allowed for an interest bill of almost €18 million that will fall sharply this year following the refinancing and the repayment of bank loans.

"We're happy enough," Mr Crawford says, referring to the figures. "If you are getting double-digit growth at the moment with inflation very low, then I think that's a good performance."

He agrees that, when compared with the aggressive moves by rival Musgrave on the acquisition trail, BWG might be seen as having retrenched a little but that does not mean the slimmed-down group has ruled out acquisitions.

"We have three good businesses now that we are focusing on and investing in, certainly for 2004, and the emphasis is very much on growing those businesses," he says.

BWG is in the middle of an expansion programme which will see it add 100 new stores under the Spar brand in Ireland by the end of 2006. These will include a growing number of its recently introduced larger euroSpar outlets. Mace is also adding outlets.

This week, it unveiled plans to increase its 500-strong Bargain Booze chain by a further 50 stores each year for the next three years.

The English off-licence group has been one of the big successes for the group since its acquisition in late 1999. At that time, there were 150 outlets; now it is 500 and the group was the main driver of sales growth in 2003, with turnover increasing 47.5 per cent.

However, while Mr Crawford sees Bargain Booze moving out of its north-west base to become a national group in England, there are no plans to introduce the brand into Ireland. Operating a full licence in the UK costs around £700. The same licence in the Republic will set you back about €150,000, a gap that fundamentally alters the economics of the proposal.

Despite the concentration on expanding its current portfolio, Mr Crawford says BWG is not averse to acquisitions. "We now have the refinancing in place which puts our balance sheet in a strong position," he says. "If suitable opportunities came along, we would certainly be keen to look at them."

The recent bid for Londis is a case in point, though Mr Crawford is keen to stress that its approach was not hostile.

"We were invited to make an offer for ADM Londis on the basis of limited information," he says. "It was up to the Londis board to decide whether they wanted to proceed to due diligence but they decided not to for whatever reason.

"I guess you could say we were a little bit surprised," he says of the abrupt rejection of an offer the Londis's advisers KPMG had sought.

Despite the rebuff, Mr Crawford sees scope for consolidation in the sector, especially with recent moves by multiples like Tesco and Superquinn to enter the convenience sector.

"The market has become more competitive and for the independent retailer to compete with the multiples, the more you can improve buying power, the better," he says.

Changing lifestyles have been one of the drivers of growth in the convenience store sector and one of the reasons the multiples have been turning their attention in that direction.

While he is not complacent, Mr Crawford feels that, coming from a standing start and with limited plans to open convenience outlets, the multiples pose a limited short-term threat to groups like BWG, which has 550 stores under its Spar and Mace brands.

The increasing prevalence of convenience foods and the emergence of convenience stores as food service outlets offering hot and cold sandwiches and snacks have been other factors in the changing face of convenience retailing, Mr Crawford notes.

But the biggest issue facing the industry, he believes, is "value". "I think convenience stores are certainly becoming very conscious of competitiveness of the market with regard to price," he says.

"There is definitely a move towards value. That is where the consumer wants to go and for us to be able to compete in the market place, we have got to be conscious of that and offer a combination of value, service, flexibility and convenience."

With like for like operating profit growth of 15 per cent last year, Mr Crawford and his management team seem to have got the balance right to date.

At some stage, probably in about 18 months, they will have to look at how to address the exit strategy of private equity group Electra Partners, which funded the MBO and owns 65 per cent of the group. But for now they are focused on growing the business.