Metro and the art of the magical balance sheet
After all, a man who can make nearly €580m in goodwill disappear off a corporate balance sheet in a perfectly legal way is little less than a financial wizard.
Under the demerger, Metro Cash & Carry and 'real,-' hypermarket subsidiaries are to be spun off in an independent unit which will seek a separate listing. Meanwhile, electronics retailer Media-Saturn will stay part of the Metro Group which will be renamed Ceconomy. This is an elegant, if long-delayed, move to unlock shareholder value, provided one subscribes to the view that the sum of the parts is worth more than the whole.
The goodwill for 'real,-', partly inherited from numerous acquisitions over the last 20-odd years and stated as €638m in Metro Group's last annual report, has long been a headache for management when planning annual budgets. But this seemingly intractable problem has now been solved thanks to the possibilities for creating new companies under IFRS balance sheet law.
This is certainly true to the extent that there is no obligation for the new Metro AG to assume the historic goodwill of the former Plc and it is perfectly legitimate to revalue the new balance sheet. The move has been called "a historic chance" by some because the huge amount of goodwill has always been a stumbling block for the sale of 'real,-' to new investors.
Here one is reminded of former Metro subsidiary Adler where the clothing chain could only be sold after a goodwill amortization of around €300m.
The conjuring act also extends to sister Cash & Carry where the goodwill of the HoReCa, Multispecialists and Trader business divisions is to be reduced by €1.3bn against Metro's last balance sheet.
Perhaps this cautionary measure is justified when one looks at Metro's own figures for its Cash & Carry arm. Sales for business year 2015/16 did not even meet 2013/14 levels in Germany, France, Russia, Poland, Spain, the Czech Republic, Belgium or the Netherlands and have stagnated in Italy, Rumania and Turkey. In China, there was a mere plus of €3m against 2014/15.
Given a steady decline in sales at 'real,-' from €7.9bn in 2013/14 to €7.5bn in 2015/16, it is very hard to see how Metro will be able to sell the demerger as a growth story to international investors.
Not all of Metro's conjuring tricks, however, find favour. German trades union Verdi is not happy that top managers at 'real,-' received "a fat bonus" for performance-related services in 2016. Verdi sees this as unfair when staff had to accept big pay compromises, including a considerably lower Christmas bonus, as a precondition for further investment in the company.
This only goes to prove that, whether you are David Copperfield, Uri Geller or just another retailer trying to sell a growth story, there will always be a doubting Thomas.
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Readers are also referred to Metro's own publication: "MWFS Group Kombinierter Abschluss für die zum 30. September 2016, 2015 und 2014 endenden Geschäftsjahre"