May 17, 2012

Metro Group starts new round of cost cutting

Metro Group head office (photo: Ludwig Heimrath)
There is a house in Dusseldorf: Metro headquarters waits for the rising sun
Oh, happy days! With its three-year reconstruction programme (Shape 2012) hardly complete, Metro Group has already embarked on another round of cost-cutting.

New CEO Olaf Koch is apparently preparing to make "painful cuts" only months after arriving at Germany's largest retailer by sales.

Although officially no decision has been taken on the number of redundancies, trade unions believe these could mean up to 800 job losses. At mission control in Dusseldorf some fear that around half of the approx. 4,000 staff could be axed.

Koch (41) wants to reduce group costs by around €100m per annum and has asked all relevant divisions to submit proposals. 

But can all the blood, sweat and tears placate Haniel, Metro's majority shareholder and indebted to the tune of €2.4bn?

Buyer's remorse

Probably not. Last year, Haniel's 34 per cent share in Metro generated earnings of only €157m. These do not even cover the interest Haniel pays on the loans it took out to gain a controlling stake in Metro in 2007. 

So the cost-cutting continues relentlessly. Apparently even five-figure fees for consultancy, one of Metro's last remaining hobbies, must be signed off by the board. Cash & Carry customer loyalty programmes are also being reassessed.

Expansion has been slowed in strategically-important China, which former CEO Dr. Hans-Joachim Körber once intended as Metro's "second home". Group capital expenditure is to be reduced by €200m, and plans to enter Indonesia with C&C stores have already been shelved.

Increasing losses

In the first three months of this year, Metro Group revenues have increased slightly, but losses increased to a multi-year high. On the German home market, ebit losses more than tripled to €106m and earnings declined in Western Europe by nearly €50m.

The general situation is particularly disquieting now that both the retailer's traditional cash cows, Metro Cash & Carry and entertainment electronics subsidiary Media-Saturn, have lost their former dynamism.

Meanwhile, Metro's share price has taken a further hit, and Standard & Poor's, while maintaining a BBB rating for the company, has downgraded its outlook for the company from stable to negative.

Tension at the top

Although Olaf Koch's personal leadership style makes a refreshing change at the top , Metro is still not a happy ship.

Since top manager Joël Saveuse has left the group, there would seem to be tension between German CEO Roland Neuwald and group committee coordinator Didier Fleury at hypermarket subsidiary "real,-". Metro Group already has a long-standing legal dispute with an important minority shareholder at Media-Saturn.

This does not bode well given trade history. To misquote an ancient proverb: "Those retailers whom the Gods wish to destroy, they first make unhappy."

Related articles in German: Lebensmittel Zeitung, no.s 18 & 19, 04.05.2012 viz. 11.05.2012 by Hans-Jürgen Schulz, Christiane Ronke, Mathias Vogel & Gabriel Pilars de Pilar

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