METRO GROUP Raises Capex on the Back of Solid First Half of 2010

2 August 2010

  • METRO GROUP sales grow by 2.4% to €31.2 billion during the first half of 2010 – Q2 sales increase by 2.4% to €15.7 billion
  • H1 sales in Germany adjusted for store disposals slightly below prior-year level – international sales grow 4.9%
  • EBIT before special items increase by 16.6% to €470 million (H1 2009: €403 million) due to contributions from Shape
  • Capex budget for 2010 raised from €1.9 to 2.1 billion
  • Expansion with 28 new store openings in the first half of 2010
  • Net debt reduced by €134 million

METRO GROUP reported a robust development of business during the first half of 2010. The retail company thus continued the positive trend from the first quarter: sales and earnings increased again in the second quarter. "The economic recovery trend is consolidating; METRO GROUP is developing from a solid basis. Even if the crisis is not over yet, we see clear silver linings on the horizon in an increasing number of countries", says Dr Eckhard Cordes, CEO of METRO GROUP. In an environment that continues to be challenging, METRO GROUP raised its H1 sales by 2.4% to €31.2 billion. Positive currency effects also contributed to this result. EBIT before special items during the first half of 2010 rose by €67 million to €470 million. The efficiency- and value-enhancement programme Shape 2012 contributed materially to this result. Against the backdrop of the robust business trend reported for the first half of 2010 METRO GROUP raises the capital expenditure budget for this year by €0.2 billion to €2.1 billion – coming back basically to the level before the crisis set in. "The increase of the capital expenditure budget is a sign of our confidence: we are focusing more on growth and expansion again – the period of caution is over", says Cordes. The company had continued to expand strongly already during the first half of the year: the sales divisions Metro Cash & Carry, Real as well as Media Markt and Saturn opened a total of 28 new stores. 

All sales divisions contributed to the robust business development in the first half of 2010. In addition, the turnaround programmes at Real Germany and Metro Cash & Carry Germany resulted in positive effects. A strong sales growth was again reported by Media Markt and Saturn who continued to further extend their market leadership. Real showed clear sales and EBIT growth despite numerous price reduction rounds. Galeria Kaufhof and Metro Cash & Carry stood their ground in a challenging market environment. At the same time, the strength of the international positioning of METRO GROUP in different economic regions that allows for a balanced growth potential was demonstrated once again.

From January to June 2010, METRO GROUP generated sales of €31.2 billion (H1 2009: €30.5 billion). This corresponds to a 2.4% sales increase. The sales development in H1 was thereby supported by positive currency effects. However, price effects contributed only to a very small extent to the sales development in H1. In local currency, METRO GROUP's sales grew by 0.6%. The sales development in Q2 2010 was marked by the shift of the Easter business. Q1 benefited from the earlier timing of the Easter business; for that reason Q2 saw a contrary development. Nevertheless, METRO GROUP's sales increased in comparison to Q2 2009. Sales in Q2 2010 grew by 2.4% to €15.7 billion (Q2 2009: €15.3 billion).

Sales in Germany in H1 2010 were slightly below prior year's level, especially due to store disposals, and declined by 1.4% to €12.2 billion. Adjusted for store disposals and divestments, sales were only 0.3% below H1 2009. Q2 was materially characterised by the shift of the Easter business. In addition, the unusually cold weather conditions in April and May impaired the sales development in several categories. The food sales development was marked by deflationary – albeit declining – trends. In contrast, consumer electronics sales developed satisfactorily in connection with the FIFA World Cup.

In H1 2010, international sales grew by 4.9% to €19.0 billion. Also adjusted for currency effects sales rose, namely by 2.0%. Therefore the international share of sales increased from 59.5% to 61.0%. In Q2 2010, sales even increased by 5.4% with support from positive currency effects. In local currency, sales grew by 1.8%. The international share of sales amounted to 61.9% compared to 60.1% in Q2 2009.

Sales in Western Europe (excluding Germany) in H1 2010 grew by 4.0% to €10.0 billion. Adjusted for currency effects, sales increased by 3.5%. Thereby, Q2 sales development almost reached the Q1 level in spite of the shift of Easter business.

In H1 2010, sales in Eastern Europe grew by 5.6% to €7.8 billion. Sales growth now resulted from an overall positive currency development, following significantly negative currency effects in 2009. Adjusted for currency effects, sales declined by 0.9%. Q2 continued to show a very reserved development also given the still difficult market conditions, especially for non-food. Furthermore, in Poland the period of national mourning, as well as the flooding led to sales declines. All in all, the Eastern European business showed a slight trend improvement in the course of Q2.

Sales in H1 2010 in Asia/Africa grew significantly by 8.6% to €1.3 billion. Adjusted for currency effects, sales increased by 9.1%. Thereby, sales growth in Q2 accelerated. 

Earnings

Earnings in the first half of 2010 developed distinctly better than during the year-earlier period. The positive earnings trend of the first quarter has thus consolidated. Following a distinct drop in earnings in the first half of 2009, METRO GROUP is now again reporting a clear earnings growth.

EBIT in H1 2010 increased significantly by €67 million to €369 million (H1 2009: €302 million) and included €101 million special items (H1 2009: €101 million) relating to Shape 2012. These special items concern expenses incurred in particular for restructuring measures. Of which, €60 million are attributable to Metro Cash & Carry, €16 million to Real, €5 million to Media Markt and Saturn and €1 million to Real Estate. Also adjusted for theses special items, EBIT significantly increased from €403 million to €470 million. The increase resulted from cost savings, but also from productivity gains, relating to Shape 2012. Adjusted for special items, EBIT in Q2 grew by €18 million to €334 million. Also due to the earlier timing of the Easter business, the earnings increase in Q1 was higher than that of Q2.

In H1 2010, EBT amounted to €92 million (H1 2009: €-13 million). Adjusted for special items, EBT was €193 million (H1 2009: €88 million). EPS was €0.08 compared to €-0.14 in H1 2009. Adjusted for special items, EPS also increased significantly from €0.06 to €0.29. The net profit for the period generated in H1 2010 climbed from € -8 million to € 59 million. The profit attributable to the shareholders of METRO AG came in at € 27 million following € -46 million in the year-earlier period. 

METRO GROUP

H1 2010 (in € bn)

H1 2009* (in € bn)

Change

Change in local currency

Sales

31.2

30.5

+2.4%

+0.6%

of which in Germany

12.2

12.4

-1.4%

-1.4.%

of which in Western Europe

(excl. Germany)

10.0

9.6

+4.0%

+3.5%

of which in Eastern Europe

7.8

7.3

+5.6%

-0.9%

of which in Asia/Africa

1.3

1.2

+8.6%

+9.1%

EBIT (excl. special items)

470 mn

403 mn

+67 mn

--

Cash flow from continuing operations before financing activities was on prior year's level and amounted to €-3.2 billion. Year-on-year net debt improved by €134 million. 

Shape 2012 with a rising contribution to earnings – implementation on schedule

The efficiency- and value enhancement programme Shape 2012 again substantially contributed to earnings in the first half of 2010 thereby continuing the trend of the previous quarters. The contribution to earnings of Shape 2012 in the second quarter 2010 rose again as compared to the first quarter. Moreover, the significance of Shape for earnings is set to rise further in the next quarters. "Shape 2012 is increasingly becoming a key driver of our success. Our goal is to come back to the growth rates recorded before the crisis as quickly as possible. Here, we are on the right track with our latest measures", says Cordes. 

A new phase of the Shape programme started in March 2010 and has in the meantime been implemented for the most part. METRO GROUP adopted a new holding structure. One key element is the structuring of Metro Cash & Carry into two business units: the Business Unit Europe/MENA and the Business Unit Asia/New Markets including Russia, Ukraine and Kazakhstan. In parallel, METRO GROUP clearly streamlines its management organisation. The management and administrative functions of the Group holding METRO AG and of Metro Cash & Carry International GmbH were largely integrated effective on 1 July 2010. This simplified workflows at the holding making them more flexible and thus closer aligned with operating business. The further optimisation of the administrative functions and processes is also at the focus during the second half of the year. This involves in particular the realignment of the IT organisation. 

Own brands continue to grow in importance

The sales divisions of METRO GROUP are increasingly focusing on the extension of their own brand assortments. The core of the own brand strategy is a streamlined brand portfolio that is purposefully tailored to the needs of the main customer groups. With their higher margins as compared to those of A brands, the own brand products are to contribute to the growth and earnings targets of METRO GROUP. First success has already been achieved: within twelve months, Metro Cash & Carry Germany increased significantly the share of own brands. The target is to extend the own brand share to distinctly over 20% in the medium term – also at the international level. Overall, the share of own brand products in total sales of Metro Cash & Carry rose by one percentage point to 12.0% during the first half of the year. Real increased the share of its quality own brands Real Quality and Real Bio as well as of the premium own brand Real Selection. The share of the discount brand Tip, by contrast, dropped slightly on account of the continued fierce price competition in food retailing. The mix thus improved with a view to margins, even if the share of food own brands remained basically unchanged at 16%. The target for food products is 25% of total sales. Also Media Markt and Saturn are now entering the own brand business. The two sales brands are planning the introduction of own brands in Germany in the segment of white goods and small electrical appliances for the fourth quarter 2010. Here, Germany has been chosen as the test market. 

METRO GROUP further drives international expansion

By raising the planned capital expenditure budget for 2010 from € 1.9 billion to € 2.1 billion, METRO GROUP laid the foundation for a further acceleration of its international expansion. This capital expenditure budget largely corresponds to the targeted medium-term budget of at least € 2.2 billion. In total, METRO GROUP now plans to open more than 95 new stores in 2010. The growth focus is on the regions Eastern Europe and Asia as well as on the sales divisions Metro Cash & Carry and Media-Saturn.

For the fourth quarter 2010, METRO GROUP in addition also plans two market entries. In early October, Saturn will open its first store in Russia where Media Markt has already been active for four years. Moreover, the start of Media Markt in China is imminent: starting from autumn 2010, the first Media Markt stores are to be opened in Shanghai. By the middle of the decade, Media-Saturn sees a potential for more than 100 stores in China that will create a substantial number of jobs. In the long term, Media-Saturn plans to open several hundred Media Markt stores in China.

With the market entry of Metro Cash & Carry in Egypt at the end of June METRO GROUP is now represented in 34 countries. 

Development of business:

Metro Cash & Carry Germany with a package of measures in the first half of the year

One year after its launch, the turnaround programme of Metro Cash & Carry Germany is showing first positive results on the cost side and in terms of sales. Overall, the positive trend of the first quarter continued to stabilise. Metro Cash & Carry reported a gratifying sales growth, especially in the important core assortments of fresh meat, fruit & vegetables and fresh fish. Sales in these merchandise categories improved significantly thanks to a more targeted customer address. At the same time, the sales and administration expenses were reduced further. The target remains to increase earnings at Metro Cash & Carry Germany to around € 150 million until 2012. The turnaround of Metro Cash & Carry Germany is supported by a growth offensive. In the framework of an extensive investment programme numerous wholesale stores are modernised, additional innovative concepts introduced and the store portfolio and administrative structures optimised.

Metro Cash & Carry is also purposefully extending the delivery service launched in 2009 in Germany. Business grew dynamically during the first half of 2010. In total, goods with a value of €57 million (H1 2009 €38 million) were delivered in the first six months of the year. 

H1 2010 sales at Metro Cash & Carry amounted to €14.6 billion and remained unchanged year-on-year. Adjusted for currency effects, sales decreased by 2.0%. The general macroeconomic environment remained challenging in the first half of the year. Especially non-food sales continued to suffer from significant buying reticence. However, the food sales development was broadly stable and price effects contributed only moderately thereto. Adjusted for the shift of the Easter business, Q2 showed no material trend change compared to Q1 2010.

In Germany, sales in H1 2010 decreased by 3.3% to €2.5 billion. This decline reflects the store network optimisation (two closures in Q4 2009 and three in Q1 2010) as well as the realignment of the assortment structure. Especially the targeted reduction of the low-margin tobacco and telephone cards business continued further in H1 2010. Like-for-like sales adjusted for these two categories increased slightly by 0.1% in H1. The non-food focus on seasonal spot deals delivered the first positive results. However, so far these could only partly compensate the sales decline.

Sales in Q2 showed a weaker development compared to Q1 mainly due to the shift of the Easter business. Adjusted for this effect and a less favourable trading days constellation, Q2 did not materially differ from the prior quarter.

Sales in Western Europe declined by 1.6% to €5.7 billion in H1 2010. Adjusted for currency effects, sales decreased by 1.8%. Sales in like-for-like terms came in 1.5% below prior year's level. Despite the still difficult market environment, the trend in Q2 – adjusted for the shift of the Easter business - continued to stabilise.

H1 2010 sales in Eastern Europe grew by 1.1% to €5.3 billion. Adjusted for currency effects, sales declined by 4.3%. Especially non-food sales remained very challenging and were mainly responsible for the decline in like-for-like sales. Food sales developed markedly better than non-food sales. Thereby, the region shows an increasingly mixed development. Whilst countries like Greece and Hungary still reported declining sales trends in Q2, the sales trends in Russia and Ukraine improved. Overall Q2 showed a slight trend improvement.

Sales in Asia/Africa in H1 2010 grew by 11.6% to €1.2 billion. All countries reported sales growth. The trend seen in Q1 2010 gained further momentum in Q2.

EBIT in H1 2010 improved significantly and increased by €16 million to €210 million. Also before special items, EBIT grew considerably and totalled €270 million compared to €235 million in H1 2009. This earnings improvement was mainly attributable to cost savings from the Shape 2012 programme. In Q2, the positive earnings trend continued. 

Metro Cash & Carry

H1 2010 (in € bn)

H1 2009* (in € bn)

Change

Change in local currency

Sales

14.6

14.6

0.0%

-2.0%

of which in Germany

2.5

2.6

-3.3%

-3.3%

of which in Western Europe

(excl. Germany)

5.7

5.7

-1.6%

-1.8%

of which in Eastern Europe

5.3

5.2

+1.1%

-4.3%

of which in Asien/Afrika

1.2

1.1

+11.6%

+12.1%

EBIT (excl. special items)

270 mn

235 mn

+35 mn

--

Real significantly boosts sales and EBIT despite price reduction rounds

Price competition in food retailing has continued unabated in 2010: six price reduction rounds have already been conducted this year – following twelve last year. The competitiveness of Real is demonstrated by the fact that Real again outperformed the total hypermarket sector in the first half of 2010 under still difficult market conditions. The Real webshop was launched in the middle of May and offered an initial assortment of more than 2,000 products from the six categories: Electronics & Photography, House & Garden, Babies & Toddlers, Health & Wellness, Toys, as well as Sports & Leisure. It is to be extended to 4,000 - 5,000 products already by the end of the year. 

In H1 2010, sales at Real grew by 2.2% to €5.5 billion. The dynamic expansion into Eastern European growth markets and the positive currency effects contributed to this increase. Adjusted for currency effects, sales rose by 0.3%. Q2 showed thereby a weaker development than Q1 mainly because of the Easter shift.

In Germany, sales in H1 2010 mainly declined due to store disposals by 2.8% to €4.0 billion. Like-for-like sales decreased only slightly by 0.9%. In general, both the unrelenting food price deflation, as well as the growing shift in customer demand for value-for-money private labels restrained the sales development.

The sales development in Eastern Europe continued to gain momentum in H1 2010 and increased by 19.3% to €1.5 billion. Aside from expansion, also significant positive currency effects supported this development. Nonetheless, also adjusted for currency effects, sales grew notably by 9.9%. Q2 like-for-like sales developed weaker than in Q1. The sales development in Poland was restrained by the period of national mourning, as well as by the flooding. In contrast, Real in Russia reported significant like-for-like sales growth in Q2.

EBIT in H1 2010 improved significantly by €27 million to €-42 million (H1 2009: €-69 million). This development is owed to both the German repositioning and the Eastern European business. Thanks to Shape 2012, Real in Germany was able to improve gross margin and reduce costs further. The positive sales development in Eastern Europe, especially in Q1, led to an earnings improvement. Before special items, EBIT increased significantly by €43 million to €-26 million (H1 2009: €-69 million). Thereby, the earnings increase in Q1 was higher than in Q2 due to the Easter shift. 

Real

H1 2010 (in € bn)

H1 2009* (in € bn)

Change

Changes in local currency

Sales

5.5

5.4

+2.2%

+0.3%

of which in Germany

4.0

4.2

-2.8%

-2.8%

of which in Eastern Europe

1.5

1.2

+19.3%

+9.0%

EBIT (excl. special items)

-26 mn

-69 mn

+43 mn

--

Media Markt and Saturn: market leadership further extended

Media Markt and Saturn continued their dynamic growth in the first half of 2010 and further strengthened their market leadership in Europe. Bestselling items were TVs and large domestic appliances. In this context, the second quarter saw a noticeably boost in sales on account of the FIFA World Cup. Successful campaigns like "Das ist mein WM-Laden" (That's my World Cup store) in combination with innovative sales promotions delivered growth impetus, especially in typical consumer electronics. The pilot phase for the development of the online business started on schedule. In the second quarter, Austria and the Netherlands started with their online platforms; the assortment will be gradually extended. 

H1 2010 sales at Media Markt and Saturn grew by 7.6% to €9.3 billion. Adjusted for currency effects, sales increased by 6.2%. Like-for-like sales grew by 0.7% in a still difficult macroeconomic environment.

In Germany, sales in H1 reached a new record and came in at €4.2 billion. In like-for-like terms, sales increased by 0.4%. Sales in Q2 grew by 4.2% and 2.9% in like-for-like terms.

Sales in Western Europe grew dynamically in H1 2010 by 12.7% to €4.2 billion (adjusted for currency effects: 11.8%). Besides the significant sales improvement in the high-revenue countries Italy and Spain all countries increased sales; with distinctly double-digit growth rates in some. Also in like-for-like terms, sales grew tangibly by 4.9%. Market share in nearly all countries was gained, significantly even in some.

In Eastern Europe, sales in H1 2010 grew by 12.8% (adjusted for currency effects 3.6%). Hereby, still no growth impetus came from the macroeconomic environment. Many consumers continued to hold back purchases of big-ticket items. Sales growth was driven by positive currency effects and progressive expansion. The expansion markets, Turkey and Russia, delivered significant like-for-like sales growth. All in all, Q2 showed a slight trend improvement against the backdrop of a very heterogeneous development in the individual countries. In particular the sales development in Poland was adversely affected by the period of national mourning, as well as by the severe flooding. In contrast, the sales development in Russia and Turkey picked up significantly. Whilst the regions Germany and Western Europe benefited from the FIFA World Cup, Eastern Europe lacked material impetuses.

EBIT amounted to €118 million (H1 2009: €131 million). The good gross profit development only partly compensated the increased marketing expenses and start-up costs, incurred especially in Q2. These start-up costs included expenses for the upcoming market entry into China, as well as for the set-up of the online and private label business. EBIT before special items in H1 totalled €123 million (H1 2009: €133 million). 

Media Markt and Saturn

H1 2010 (in € bn)

H1 2009* (in € bn)

Change

Change in local currency

Sales

9.3

8.7

+7.6%

+6.2%

of which in Germany

4.2

4.1

+1.8%

+1.8%

of which in Western Europe

(excluding Germany)

4.2

3.7

+12.7%

+11.8%

of which in Eastern Europen

1.0

0.9

+12.8%

+3.6%

EBIT (excl. special items)

123mn

133 mn

-10 mn

--

Galeria Kaufhof stands its ground in a challenging market environment

In a challenging market environment on account of the poor weather conditions, Galeria Kaufhof again demonstrated its role as the concept and system leader in the German department store sector during the first half of the year. 

In H1 2010, sales at Galeria Kaufhof grew by 0.4% above prior year's level to €1.6 billion. In like-for-like terms, sales were on prior year's level. Thereby, Q1 showed a better development than Q2 due to the Easter shift.

In Germany, sales at Galeria Kaufhof increased by 0.5% to €1.4 billion. The important and high-margin Easter business had a positive impact on Q1 in 2010, but was missing in Q2 compared to prior year. Additionally, the unusually cold weather in April and May had an adverse effect. These effects impaired the sales development of the important textile categories.

In Western Europe, sales were also almost on prior year's level and came in at €0.2 billion. In Q2, textile sales in this region also suffered from the cold weather and the Easter shift. Furthermore, changes in Belgian legislation regarding seasonal sales led to a revenue shift to July.

EBIT in H1 2010 increased significantly by €37 million to €-34 million. H1 2009 included special items of €25 million. Excluding special items, EBIT increased by €12 million. In Q2, EBIT before special items also increased from €-19 million to €-15 million thanks to an improved cost and inventory management. Usually, department stores in Germany only achieve a positive result in the fourth quarter. 

Kaufhof

H1 2010 (in € mn)

H1 2009* (in € mn)

Change

Change in local currency

Sales

1,584

1.578

+0.4%

+0.4%

of which in Germany

1,429

1.423

+0.5%

+0.5%

of which in Western Europe

(excluding Germany)

155

155

-0.2%

-0.2%

EBIT (excl. special items)

-34

-46

+12 Mio. €

--

In April 2010, Galeria Kaufhof won two awards from the Deutsche Dialogmarketingverband (German Marketing Dialogue Association): gold in the "Retail" category, and bronze in the "Customer loyalty" category for the "Galeria against empty wardrobes" advertising campaign. 

Real Estate

The segment Real Estate comprises all METRO GROUP's real estate assets, as well as all real estate-related services. The real estate management actively contributes to METRO GROUP's value creation. The international expansion, the active asset- and portfolio management, as well as the optimised resource deployment are to secure and systematically enhance the value of the real estate in the long run.

EBIT was €269 million compared to €253 million in the prior year. Before special items, EBIT increased from €256 million to €270 million. These earnings mainly constitute rental income paid by METRO GROUP's divisions. The earnings improvement reflects in particular the incremental rental income resulting from Metro Cash & Carry's expansion. 

Development of the store network

In the first half of 2010, 28 stores were opened and 43 were closed, respectively sold. Of these, 17 openings and 29 closures took place in the second quarter 2010. Metro Cash & Carry opened its first wholesale store in Egypt.

26 Grillpfanne locations were closed down in the first half of 2010. In total, four Metro Cash & Carry wholesale stores were opened in the first half of 2010. In the framework of the store network optimisation, three wholesale stores in Germany and one in Portugal were disposed of. Real opened one hypermarket in Romania. Nine hypermarkets were closed or divested, of which eight in Germany and one in Turkey. Media Markt and Saturn opened 23 stores and closed one location in Hungary. In Germany, Galeria Kaufhof closed three department stores as announced. METRO GROUP thus operated a total of 2,112 locations as the end of June 2010. 

Key financials Q2 2010

Sales

Q2 2010 (in € bn)

Q2 2009 (in € bn)

Change

Change in local currency

METRO GROUP

15.7

15.3

+2.4

+0.2

Metro Cash & Carry

7.7

7.7

+0.6

-2.1

Real

2.8

2.8

+0.1

-1.9

Media Markt und Saturn

4.4

4.0

+9.3%

+7.7%

Kaufhof

0.8

0.8

-2.6%

-2.6%

Real Estate

--

--

--

--

EBIT (excl. special items)

Q2 2010 (in € mn)

Q2 2009* (in € mn)

Change (in € mn)

METRO GROUP

334

316

+18

Metro Cash & Carry

245

225

+20

Real

-2

-16

+14

Media Markt und Saturn

41

55

-14

Kaufhof

-15

-19

+4

Real Estate

132

124

+8

METRO GROUP is one of the largest and most international retailing companies. In 2009 the Group reached sales of around € 66 billion. The company has a headcount of some 290,000 employees and operates around 2,100 stores in 34 countries. The Group's performance is based on the strength of its sales brands which operate independently in their respective market segment: Metro/Makro Cash & Carry – the international leader in self-service wholesale, Real hypermarkets, Media Markt and Saturn – European market leader in consumer electronics retailing, and Galeria Kaufhof department stores.