March 7, 2014

Metro Group's Russian winter

Metro C&C Russia (photo: Metro Group)
Stumbling on the steppe: Metro C&C in Russia
The crisis in the Crimea and the sharp decline of the rouble appear to have placed a big question mark in the minds of investors over the London IPO of Metro Group's Russian Cash & Carry business. If you pursue profit in a foreign country with a repressive regime, one shouldn't be too surprised if international politics suddenly foil your best-laid plans.

But, if your company urgently needs to reduce indebtedness and to raise money for the improvement of operations, then it is perhaps ill-advised to make any project in Russia a part of your turnaround strategy. Such, however, would seem to be the current situation of Metro Group in the dark empire of Uncle Vlad.

"It's the worst conceivable moment for an initial public offering, and the rouble is near a record low," says Bankhaus Metzler analyst Stefan Wimmer.

Some of the consequences are outlined by Zacharias Sautner at the Frankfurt School of Finance & Management: "The purchase prices for Russian companies in euros, dollars and pounds have fallen due to the exchange rate." The finance expert also sees higher import prices for the company which it is unlikely to be able to pass on to hard-pressed Russian consumers. If the Russian central bank raises interest rates to compensate the decline in the rouble, then the cost of capital will also increase for foreign retailers.

Timing is everything

No wonder then that, despite great buoyancy on the DAX, Dow Jones and the FTSE, shares in the Dusseldorf-based company took a 7-per-cent hit on Monday. Although they have since recovered strength, the recent disappointing float of Russian rival Lenta doesn't look encouraging. Numerous analysts have been worried enough to revise their share price targets for Metro downwards.

The cash-strapped group may now be obliged to scrap the sale of a 25-per-cent stake in Metro Cash & Carry Russia which had been slated for the first half of this year.

At Metro Group's recent annual meeting, CEO Olaf Koch expressed hopes that proceeds from the Russian transaction, estimated at around €1bn, could be used to increase much needed investment in existing operations.

Thus the current problems in the Ukraine are not good news for the retail/wholesale giant whose Russian C&C subsidiary posted 2013 revenues of 183bn roubles (€4.3bn) and a juicy ebit of 20bn roubles.

Even Metro's current annual capex, set to be raised towards €1.6bn, is only around half that of what rival Schwarz Group has been able to invest for a number of years. So Mother Russia must prove less cruel.


Related articles in German: Lebensmittel Zeitung, Nr. 9 & 10, 28.02.2013 u. 07.03.2013 von Hans-Jürgen Schulz & Hans Bielefeld


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