GERMANY: Profits at retailer Metro Group slump

METRO GROUP increases sales 2012 in a challenging consumer environment 20/03/2013

METRO GROUP increases sales 2012 in a challenging consumer environment

Sales rose by 1.2% to € 66.7 billion (adjusted for portfolio measures: +2.3%);

EBIT before special items reached around € 2.0 billion Operating cash flow improved by around € 250 million

Net debt down € 830 million to € 3.2 billion

Dividend of € 1.00 per ordinary share

Proposed Guidance for short financial year 2013: moderate rise in sales before portfolio adjustments expected, EBIT before special items including real estate income up from year-earlier period

In financial year 2012, METRO GROUP recorded a robust development overall in a challenging macroeconomic environment. Group sales rose by 1.2% to € 66.7 billion; adjusted for portfolio measures, sales climbed by 2.3%. EBIT before special items came in at € 1.976 billion and therefore in line with the revised guidance. At the same time, the company improved its operating cash flow by 11.9% to € 2.340 billion and reduced its net debt by 20.4% to € 3.245 billion. ]

"The continued challenging consumer environment in many European countries resulting from the sovereign debt crisis again impacted business development at METRO GROUP in 2012", said Olaf Koch, Chairman of the Management Board of METRO AG. "Thanks to first successes of our measures to enhance the customer value we nevertheless met our guidance and significantly improved our cash flow and debt position". A dividend of € 1.00 per ordinary share (in 2011: € 1.35) will be proposed to the Annual General meeting. This corresponds to a payout ratio of 52.9% following 51.3% one year earlier.

METRO GROUP last year invested intensively into the further development of the company and initiated numerous strategic and structural changes. "2012 was the year of realignment for METRO GROUP. In all sales lines we focused our services and processes on creating a value added for the customer", said Koch. With the successful expansion of the delivery and multichannel activities, the improvement of the product ranges and their price position as well as the further strengthening of the own brands, METRO GROUP has significantly driven the customer orientated realignment of its business. In addition, METRO GROUP appreciably streamlined its portfolio last year in order to concentrate on the core business activities. This entailed high one-off expenses that have impacted earnings in 2012. "We have implemented fundamental changes during the past year. This came at a price and was also painful in many ways – but we are clearly changing for the better. In 2012, we have created first conditions for long-term growth".

In financial year 2012, METRO GROUP's sales lines succeeded in increasing their market share in numerous countries. In addition, the company focused on new distribution channels and formats, an assortment that even better meets customer demands as well as extended customer advice and services. Multichannel sales grew across the Group in 2012. At Media-Saturn, for example, online sales more than doubled to nearly reach € 0.8 million; Media-Saturn thus generated around 4% of its sales online. At Galeria Kaufhof online sales more than doubled year on year. The Group also reported growth in own brand sales: at METRO Cash & Carry, the share of own brand sales climbed to 16.7%, at Real to 13.2% and at Galeria Kaufhof it reached 19%. In addition, METRO Cash & Carry stepped up its delivery sales by more than 30% to € 2.2 billion.

Development of business in 2012 Despite tougher market conditions, especially in Southern Europe, METRO GROUP increased sales by 1.2% to € 66.7 billion in financial year 2012. In local currency, the growth came in at 0.8%. Adjusted for the divestment of MAKRO Cash & Carry in the UK and Media-Saturn in France, sales even climbed by 2.3%.

In Germany, sales rose by 0.6% to € 25.6 billion. International sales even went up by 1.6%. The international share of sales thus increased slightly from 61.4% to 61.6%. In Western Europe, sales dropped by 4.3% to € 19.8 billion. One reason for this – apart from the challenging economic situation in Southern Europe – was in particular the divestment of MAKRO Cash & Carry in the UK. Adjusted for these portfolio effects sales in Western Europe only receded by 2.2%. Sales in Eastern Europe by contrast grew appreciably by 4.8% to € 17.8 billion. A very dynamic growth was reported in the region Asia/Africa. Here, sales climbed significantly by 26.2% to 3.5 billion. With these results, the share of sales of this region in 2012 for the first time surpassed 5% of the total sales of METRO GROUP. The operating profit (EBIT) before special items amounted to € 1,976 million and thus developed within the guided range of around € 2 billion. Including special items, Group EBIT declined by € 722 million to € 1,391 million. The special items totalling € 585 million include, in particular, restructuring expenses, goodwill impairments and impairments in connection with the sale of MAKRO Cash & Carry in the UK as well as the termination of Media Markt's Chinese business and effects from the sale of Real's Eastern European business. The largest part of these one-off expenses are investments into the future and growth of the company. In this regard, the expected positive effects will in the medium term more than compensate the special items now recognised.

Due to these one-off expenses, earnings before taxes receded to € 810 million (in 2011: € 1,473 million). As the one-off expenses and recurrent losses were not capitalised with deferred taxes, the tax expenses did not drop in proportion to earnings. This resulted in an increase of the tax ratio to 87.5%. The net profit for the period before special items amounted to € 717 million (in 2011: € 979 million) and was adjusted for special items to the amount of € 615 million (in 2011: € 238 million). Including special items the net profit of the period amounted to € 101 million. After deducing the profit attributable to non-controlling interests to the amount of € 98 million, the net profit for the period attributable to the shareholders of METRO AG including special items came in at € 3 million (in 2011: € 631 million). Earnings per share before special items amounted to € 1.89 (in 2011: € 2.63). Including special items, the earnings per share were € 0.01 (in 2011: € 1.93). The Management Board and the Supervisory Board of METRO AG propose to the Annual General Meeting on 8 May 2013 a dividend of € 1.00 (in 2011: € 1.35) per ordinary share and of € 1.06 (in 2011: € 1.485) per preferred share.

Before special items Including special items Earnings METRO GROUP (€ million) 2011 2012 2011 2012 EBIT 2,372 1,976 2,113 1,391 Earnings before taxes 1,732 1,417 1,473 810 Net profit for the period 979 717 741 101 Net profit for the period attributable to the shareholders of METRO AG 859 619 631 3 Earnings per share 2.63 € 1.89 € 1.93 € 0.01 € The operating cash flow of METRO GROUP improved further by around € 250 million: a cash inflow of € 2,340 million (in 2011: € 2,092 million) could be generated from operating activities. The net working capital improved by € 80 million in the course of the year mainly due to strict stock management. Overall, the company succeeded in clearly raising the cash flow from operating and investing activities to € 1.714 billion (in 2011: € 1.020 billion). This is also reflected in the reduction of the net debt by € 830 million to € 3.245 billion.

Outlook

For the short financial year 2013 METRO GROUP expects in spite of the continuing difficult business conditions to generate moderate growth in sales (adjusted for portfolio changes). In the subsequent financial year 2013/14, METRO GROUP expects to see this moderate growth in sales continue compared with the respective period for the previous year. These projections are based on the assumption of virtually unchanged exchange rates. Earnings trends in the short financial year 2013 will be impacted by the uncertain economic situation. As a result, METRO GROUP will continue to closely focus in 2013 and future years on efficient structures and strict cost management.

In the short financial year 2013, METRO GROUP expects EBIT before special items to increase compared to the level achieved in the corresponding period of the previous year (€ 704 million). This projection is based on the assumption of higher income from the sale of real estate assets compared to the year-earlier period. Due also to the lack of major sports events, operating earnings are expected to fall short of the level of the first 9 months of 2012. Here, we base our assumptions on relatively stable earnings contributions from Media-Saturn, Real and Galeria Kaufhof. At METRO Cash & Carry, we anticipate a decline in earnings due to the further investments needed to secure the company's long-term success. In addition, the general economic climate in many countries in Southern and Eastern Europe will remain challenging.

For the short financial year we also expect a positive impact on the cash flow from the divestment of our Real activities in Eastern Europe and a significant reduction of the net debt. Barring a sustained deterioration of economic parameters we expect to generate higher EBIT before special items in the financial year 2013/14 compared to the corresponding period of the previous year.

Besides measures to enhance sales and efficiency, METRO GROUP will further intensify its efforts to improve the cash flow and net working capital in the short financial year. Also capex discipline and a reduction of the net debt remain clear targets for the company. From this, METRO GROUP expects a significant strengthening of the company's financial substance, even if 2013 will be a challenging financial year with regard to the macroeconomic development.

Original source: Metro Group