Friday, 14 Dec 2018

TOTAL ROUNDUP: Metro shocks with forecast reduction – Russia business is weakening

For the 2017/2018 financial year ending at the end of September, the Group now expects only a slight increase in adjusted operating earnings (EBITDA), instead of an increase of around 10 percent. Sales should now only increase by at least 0.5 percent and not by at least 1.1 percent. Currency effects and earnings contributions from real estate transactions are excluded from the forecast.

On the stock market, the profit warning caused a price slump. The previously friendly tending share yielded close to eleven percent by the close of trading. In the end, the shares cost only 13,025 euros. In the low they had fallen even further down to 12.63 euros, which had meant for the MDax listed shares the lowest level since the elimination of the electrical trade in July last year.

Experts assessed the forecast reduction in initial assessments critically. For example market expert Andreas Lipkow of the comdirect Bank, which came to the conclusion that the group probably missed the connection to direct competition and online trading. “This becomes more and more obvious after the split of the group,” he said.

Analyst Bruno Monteyne of the US analysis house Bernstein research put even the credibility of the management into question. He figured that in Russia operating earnings contribution (Ebitda) in the shortest possible time must have fallen by more than half. “Therefore, we can only conclude that the problems facing management in Russia have materially underestimated.”

Russia has been a weak spot for some time now metro -Rich. The country was once a goldmine for foreign traders. Then, about four years ago, the country slid into a serious crisis. The impact is still the largest Russian target group of the Metro to fight – that of independent dealers. As competition from local dealers increases, Metro announced after a difficult holiday season to develop new pricing models and deepen cooperation with dealers. Metro boss Olaf Koch promised in February still visible improvements in Russia from the second half of the year. The Russian gastronomy should give the football World Cup a boost in the summer, he hoped.

On Friday, the company announced that Russia’s revenues in the second half of the year will be weaker than expected due to the deteriorating geopolitical situation. In addition, repositioning in the country devours more money than expected. Overall, this led to a reduction in the earnings contribution of Metro Russia, it said.

The wage dispute at Real also has a financial impact on the Group. At the end of March, Chef Koch had drawn a line under the last stalled negotiations with Verdi about the future payment of the 34,000 real employees. “Although another viable solution has been found and is being implemented, this circumstance will weigh on earnings in the short and medium term, and thus in the third and fourth quarters,” it said. Metro plans to negotiate in future no longer under the roof of the industry association HDE on new collective bargaining agreements.

The way was also paved on Friday. For example, Real’s supervisory board approved the transfer of the retail chain to Metro Services. Verdi was angry and accused the company of wanting to take advantage of the industry’s cut-throat competition at the expense of its employees. Employees are therefore threatened with poverty of old age.

Metro also provided preliminary key data for the first six months. After that, sales dropped from 18.61 billion euros in the previous year to 18.56 billion euros. Like-for-like sales increased by 1.3 percent. Ebitda excluding real estate business fell to 760 million euros. In the previous year Metro had earned 859 million euros including these transactions.

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