March 22, 2013

Metro Group's earnings massacre

caricature: Oli Sebel
CEO Olaf Koch hits the button again at Metro
It has almost become a tradition. With depressing regularity, a Metro Group board member gets the chop just before the announcement of the annual results.

This year with its sharp decline in earnings was certainly no different. Long-serving C&C boss Frans Muller has to pack his bags by the end of the month.

The list of sacrificial lambs in the Metro C-suite is growing ever longer and the number of top managers with operational experience ever shorter.

Muller is the fifth board member head to roll at Germany's largest retailer by sales since 2010.

Last year it was the unenviable turn of Joël Saveuse who had been touted to succeed Eckhard Cordes as CEO. In 2011 “vice-CEO” Thomas Unger and veteran Zygmunt Mierdorf found themselves in the ejector seat.

These ritual purges, with further staff cuts planned this year, do not make Metro look a happy ship. Perhaps this is why the Dusseldorf-based company prefers to euphemistically call its Robespierre-like reshuffles "simplifying the organisation of ... top management".

Who will walk the plank next?

No satisfaction at the top

It could be anyone when your CEO is unhappy. “We are not satisfied with the development of our results,” says Olaf Koch.

One must certainly give the man full marks for phlegm and stiff upper lip. But widows and orphans who trusted in the Metro share price have good reason not to be so sanguine.

At any rate, the earnings figures for 2012 look like Custer's troops immediately after Little Bighorn: ebitda (-12 per cent), ebit (-34 per cent), ebt (-45 per cent).

And earnings per share of €0.01 translate to a paltry €3m on net revenues of €66.7bn. This represents a huge gap even to Metro’s reduced dividend proposal of €1 per common share.

Given the fall in earnings at cash-cow divisions Metro C&C and electronics entertainment subsidiary Media-Saturn, even the diminished payout of €300m looks generous.

A scourge for his own back

As from April 1, former car industry executive Olaf Koch will assume operational responsibility for C&C, which makes up nearly half of Metro revenues and the lion’s share of group earnings.

This move could turn out to be a scourge for Koch’s own back. Revenues (€31.7bn) are currently around 2007 levels, but ebit has nearly halved since then.

In Germany, the largest country within Metro's vast C&C empire, revenues have declined by €700m, despite the introduction of delivered wholesale services.

Meanwhile, like-for-like sales have fallen for the third year in a row at a number of country operations, including Poland, Rumania, the Netherlands, Spain, Hungary and Italy.

Although the reasons for this decline vary from country to country, those countries in decline represent nearly half of all global C&C revenues.

Apparently, Koch intends to hone the C&C assortment and reduce the non-food offer. There might also be new store layouts, and ideas could be taken from successful foreign operations in, for instance, France and Russia.

It is not that these initiatives are wrong in themselves; it is not even that we have heard them many times before; but somehow it is all beginning to look like an exercise in pushing deckchairs around the deck of the Titanic.

 
Related article in German: Lebensmittel Zeitung, no. 11, 22.03.2013, by Hans-Jürgen Schulz

 

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