Shape 2012 is paying off: robust earnings development in the third quarter

• Group sales from January to September reached € 46.1 billion – net of currency effects sales went up by 0.3%
• Business affected by currency and price effects
• Development in Germany better than the total market – sales nearly at prior-year level reaching € 18.4 billion
• Shape 2012 showing first positive effects on EBIT
• EBIT before special items reached € 748 million and includes negative currency effects
• Q3 EBIT before special items almost stable – trend clearly improved compared to the first half
• Successful expansion course: after market entry into Kazakhstan now operations in 33 countries – more than 30 new store openings planned until end of the year

METRO Group reports a robust development in the first nine months of 2009 despite the global economic crisis. Against the backdrop of deflationary trends in key food categories, sales reached € 46.1 billion. Net of currency effects, sales went up by 0.3%. In Germany, the company outperformed the total market. Some countries in Eastern Europe and Asia reported a very solid sales development in local currency. Despite the economic crisis, EBIT before special items reached € 748 million during the first nine months of the year. In the third quarter 2009, EBIT before special items came in at € 357 million and thus remained almost stable year-on-year despite a challenging market environment and a currency-related decrease in sales. METRO Group thus achieved a significant improvement of the EBIT trend compared to the first half of the year.

"The consistent restructuring of the group is paying off. Shape 2012 is beginning to take effect", stressed Dr. Eckhard Cordes, CEO of METRO Group. Already this year, the efficiency and value enhancement programme shows first positive effects. 5,000 individual measures have in the meantime been initiated and will now gradually show their cumulative effect until 2012. The strength of the programme is not only the result of cost reductions but in particular of measures aimed at raising sales and enhancing productivity.

METRO Group is further extending its international presence

METRO Group is driving its international expansion. In October, Metro Cash & Carry opened its 50th Russian wholesale store in Kirow. Also in October, Metro Cash & Carry opened its first store in Kazakhstan and celebrated the groundbreaking ceremony for its first store in Egypt which is scheduled to open next year. With the market entry into Kazakhstan, METRO Group is now present in 33 countries. Real celebrated its market entry into the Ukraine in October. Media Markt and Saturn opened their 800th overall store in Greece. Saturn opened its first Turkish store in October. "Also in times of crisis we continue to invest in our growth", said Cordes. The CEO of METRO Group announced that the store network would be distinctly extended in the fourth quarter. Following the opening of 44 new stores during the first nine months, the company is now planning to increase its international presence by more than 30 stores during the last quarter. Investments will focus on the growth regions Eastern Europe and Asia. "Herewith, we are strengthening our outstanding starting position for the next economic upturn", explained Cordes.

Sales development

From January to September 2009, METRO Group generated group sales of € 46.1 billion (9M 2008: € 47.8 billion). This corresponds to a 3.7% decrease which is moderate compared to other industry sectors. Among other things, this development resulted from negative currency effects in Eastern Europe and declining food price inflation. Some merchandise categories even showed a deflationary movement. In local currency, METRO Group sales rose by 0.3%.

In Germany, sales generated from January to September 2009 – contrary to the downward trend in the retail sector – came in at prior-year level and remained almost unchanged reaching € 18.4 billion. This was in particular owed to like-for-like sales growth at Media Markt and Saturn in the 1st and 3rd quarter as well as at Real in the 2nd quarter. Here, METRO Group overall outperformed the total market. Sales in the 3rd quarter 2009 receded by 1.8% to € 6.1 billion. This is attributable to the fact that the prior-year figures included the logistics services for the already divested Extra supermarkets and the AXXE restaurants and motels which have in the meantime been hived off. Net of these no longer applicable sales, 3rd quarter sales also came in almost at the prior years'level. The sales development in international business from January to September 2009 was affected by significant currency effects. Excluding currency effects, sales rose by 0.9%. Translated to euros, however, sales dropped by 5.6% to € 27.7 billion. The international share of sales therefore came down from 61.2% to 60.0%.

In Western Europe (excluding Germany), sales generated during the period from January to September 2009 decreased by 0.9% to € 14.7 billion. Excluding currency effects, sales only went down by 0.3% and thus developed clearly better than the total market. Media Markt and Saturn appreciably boosted sales but could only in part compensate the downward sales development of Metro Cash & Carry. Net of currency effects sales in Eastern Europe climbed by 2.6% during the first nine months 2009. Due to very strong exchange rate effects (-15.6 percentage points) sales translated to euro dropped to € 11.2 billion. In the region Asia/Africa, sales generated during the period from January to September 2009 grew by 9.2% to € 1.8 billion. Net of currency effects sales were slightly up from prior year.

Earnings development

Compared to the first half of 2009, the Q3 earnings development showed a distinct improvement. Against the backdrop of declining sales, EBIT before special items remained almost constant in the third quarter reaching € 357 million (Q3 2008: € 361 million). First positive effects from Shape 2012 contributed to this. EBIT reached € 323 million (Q3 2008: € 361 million). Overall, the earnings development of METRO Group during the first nine months of the year was materially affected by currency effects. EBIT generated during this period came in at € 613 million (9M 2008: € 618 million) and included special items amounting to € 135 million (9M 2008: € 237 million) related to Shape 2012. These include in particular staff-related measures – also in connection with the optimisation of the store portfolio. Net of these special items EBIT reached € 748 million (9M 2008: € 855 million).

Earnings before taxes generated from January to September 2009 amounted to € 139 million (9M 2008: € 259 million). Before special items the earnings before taxes stood at € 274 million (9M 2008: € 496 million). The net profit for the period came in at € 82 million following € -206 million in the year-earlier period. Earnings per share from continuing operations amounted to € 0.06 following € 0.30 during the same period last year. Net of special items, the earnings per share from continuing operations dropped from € 0.80 to € 0.35.

*Prior-year values adjusted due to first-time application of new IFRS accounting standards

First milestone of Shape 2012 reached

The efficiency- and value-enhancing programme Shape 2012 launched in January 2009 has for the first time appreciably contributed to earnings in the third quarter. During this period, METRO Group succeeded in keeping its EBIT stable despite a sales development impacted by the general economic crisis. "It is very encouraging that our pro-active approach of managing costs and generating productivity progress is already bearing fruit", stressed Cordes.

The targeted potential for improving earnings before interest and taxes in the period extending to 2012 and beyond as a result of the successful implementation of Shape 2012 sustainably totals € 1.5 billion. Of this amount, around € 800 million will result from cost savings and improved efficiencies and around € 700 million from productivity gains. The largest part of the cost savings is to be achieved by the sales divisions Metro Cash & Carry and Real and will most likely already be realised by 2011. Also the bulk of the anticipated productivity gains is to be contributed by Metro Cash & Carry and Real. Among these productivity gains are all sales-related measures to improve earnings, e.g. by significantly raising the share of own-brand sales or increasing sales by successfully repositioning country divisions that are currently underperforming.

Important contributions to earnings are to result not only from cost savings but also from operating business. The key task of Shape 2012 is to secure the like-for-like growth of the sales divisions. Based on the organisational changes completed in late June, the sales divisions are now developing detailed plans for improving their earnings situation. To this effect project teams in more than 30 countries are working on around 5,000 measures group-wide.

One success factor for the Shape projects is their systematic approach: each individual project is characterised by clearly defined responsibilities, precise targets, measurable results and a clear project management. "Only this way we can professionally manage such a gigantic undertaking and achieve the overall target", said Cordes. "I am convinced that Shape 2012 will be a big success for METRO Group".

Development of business:

Real estate

Since January 1, 2009 the real estate activities are shown as a separate segment in the Group’s financial statements. The segment comprises all real estate assets owned by METRO Group as well as the related services. The real estate management actively contributes to the value creation of METRO Group. The international expansion, the active asset and portfolio management as well as the optimised use of resources are to secure and systematically enhance the value of the real estate assets in the long term.

EBIT before special items generated from January to September 2009 reached € 379 million following € 371 million one year earlier. This is mainly attributable to income from lease agreements with the METRO Group sales divisions. The improved earnings in particular reflect the higher lease income generated in the course of the expansion of Metro Cash & Carry. The special items amount to € 4 million.

New own-brand strategy for Metro Cash & Carry Germany

The turnaround programme at Metro Cash & Carry Germany is showing first signs of progress, especially with regard to costs. The new delivery service is developing positively, contributing an additional € 70 million to sales in the meantime. Moreover, Metro Cash & Carry Germany launched a new own-brand strategy. Its core is a streamlined brand portfolio tailored to the specific needs of the key customer groups. The own brands represent one element of the turnaround strategy of Metro Cash & Carry Germany to raise its earnings to up to € 150 million until 2012. All own-brand products offer an average price advantage of 15% over comparable A-brand products. Their share in the overall assortment is to more than double until 2012. The company plans to generate around 20% of sales with own-brand products by then.

Adjusted for currency effects, international sales of Metro Cash & Carry generated from January to September 2009 declined by 2.1%. In an overall challenging macroeconomic environment, sales were impaired by sometimes deflationary trends as well as distinctly negative currency effects. Sales decreased by 7.2% to € 22.2 billion. The general pressure on consumer spending is reflected in particular in the development of non-food sales.

In light of the strong international presence at Metro Cash & Carry, earnings were significantly burdened by currency effects, especially in Eastern Europe. EBIT before special items reached € 416 million (9M 2008: € 517 million). The special items include expenses of € 53 million resulting from Shape 2012 for first optimisation measures, mainly in Germany and the United Kingdom. Following a decline in earnings before special items by € 59 million in the first quarter and by € 31 million in the second quarter, the decline in the third quarter amounted to only € 11 million. Hence, the earnings situation in the third quarter developed clearly better than during the first six months of 2009. This was also attributable to first successes of the Shape programme that were able to compensate in part for the sales-related drop in earnings. EBIT reached € 363 million (9M 2008: € 517 million).

METRO Group is one of the largest and most important international retailing companies. In 2008 the Group reached sales of € 68 billion. The company has a headcount of some 300,000 employees and operates around 2,100 stores in 33 countries. The Group’s performance is based on the strength of its sales divisions 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.

For more information about METRO Group Q3 2009 results, please click here >>