Metro's Q2 earnings fell 29% from a year ago to €40M as revenue remained virtually flat at €15.74B, missing expectations; weak sales in western Europe, continent's debt crisis blamed
August 2, 2011
– Stable sales development in a difficult environment
H1 sales climb 0.1% to € 31.3 billion, Q2 sales went up 0.2% to € 15.7 billion
EBIT before special items reaches € 452 million (H1 2010: € 470 million)
Metro Cash & Carry reports like for like second-quarter growth in all regions
Real increases like for like sales and earnings in the 2nd quarter
Media-Saturn responds to drop in sales and earnings by stepping up its strategic realignment
Earnings forecast for 2011 confirmed; sales now expected to exceed prior year's level
METRO GROUP slightly increased its sales by 0.1% to € 31.3 billion (in local currency: +0.2%) in the first half of 2011. Operating earnings (EBIT) before special items fell short of the high prior-year level coming in at € 452 million. Various factors affected business during the first half of 2011. The continuing debt crisis in Europe as well as higher prices for food and energy affected consumer sentiment.
"Despite unfavourable conditions, METRO GROUP held up well", said the CEO of METRO AG, Dr Eckhard Cordes. "While Metro Cash & Carry, Real and Galeria Kaufhof succeeded in even increasing their earnings despite the challenging market environment, Media-Saturn was particularly affected by a buying restraint regarding consumer electronics in its store-based business". The company had to shoulder a drop in sales and earnings. "We will now vigorously address the challenges facing Media-Saturn and step up the strategic realignment with regard to the online business", said Cordes. "I expect sales and earnings of Media-Saturn to appreciably pick up again in the second half of the year".
Second quarter sales of METRO GROUP benefited from the shift in the Easter business and climbed by 0.2% to € 15.7 billion (in local currency: +1.0%).
In Germany, sales dropped by 1.7% during the first half of the year 2011. At Media-Saturn, sales came in distinctly below the prior-year level, also due to the lack of major sports events. In addition, the media reports about the EHEC incidents and the official warnings led to a clear drop in fruit and vegetable sales at Metro Cash & Carry and Real in May. This notwithstanding, total sales in Germany during the 2nd quarter adjusted for store disposals and divestments came in slightly above the prior-year level.
Sales in the international business climbed by 1.3% to € 19.3 billion (in local currency: +1.4%) during the first half of the year 2011. The international share of sales rose from 61.0% to 61.7%. Sales in the 2nd quarter increased by 0.9% (in local currency: +2.1%). In Western Europe, sales dropped by 1.7% to € 9.8 billion during the first half of the year 2011. In the 2nd quarter, the trend improved slightly - also due to the shift of the Easter business - with sales declining by 1.4% to € 5.0 billion. Sales in Eastern Europe grew by 2.9% to € 8.0 billion during the first half of 2011. In the 2nd quarter, sales improved by 3.2% to € 4.2 billion. This is the highest growth since the 1st quarter 2009. Asia/Africa continues to be the fastest growing region. Sales during the 1st half of 2011 rose distinctly by 14.3% to € 1.5 billion. In the 2nd quarter, sales improved by 4.7% to € 0.6 billion and were affected by negative currency effects. In local currency, sales continued to grow dynamically by 15.7%.
EBIT before special items generated during the first half of the year 2011 dropped from € 470 million to € 452 million. Adjusted for special items, however, EBIT climbed by € 42 million to € 410 million (H1 2010: € 369 million).
Earnings before tax in H1 2011 before special items reached € 129 million (H1 2010: € 193 million). Adjusted for special items, earnings before tax reached € 87 million (H1 2010: € 92 million).
The net profit for the period before special items in H1 2011 reached € 83 million (H1 2010: € 127 million). Adjusted for special items, the net profit for the period dropped from € 59 million to € 54 million. The net profit for the period (adjusted for special items) attributable to the shareholders of METRO AG rose to € 37 million following € 27 million during the year-earlier period.
The earnings per share before special items dropped from € 0.29 to € 0.20. Adjusted for special items, earnings per share rose to € 0.11 following € 0.08 in the first half of 2010.
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The equity ratio was distinctly up from the year-end figure climbing from 18.4% to 19.4%.
METRO GROUP is adjusting its sales forecast for financial year 2011. Although the economy has continued to recover, the ongoing concerns about the European debt crisis are having a significant impact on consumer confidence. In view of this difficult and volatile market environment METRO GROUP now expects sales (adjusted for changes in the portfolio) to exceed prior year's level (previously: over 4%). In addition, the company assumes that the fiscal policy measures to stabilise the public budgets in its high-revenue countries will have been largely implemented.
METRO GROUP remains confident that it will be able to achieve earnings growth before special items of around 10% (basis: EBIT before special items 2010 of €2,415 million), even though the risk-reward profile has adversely changed. This is mainly due to the steep drop in earnings at Media Markt and Saturn in Q2. METRO GROUP expects that measures aimed at securing profits implemented at Media Markt and Saturn will show positive effects in H2, and particularly in Q4. Whether or not the company can meet its earnings target also depends on the continued improvement of macroeconomic conditions and the ability to compensate procurement price increases.
Development of the business segments
Metro Cash & Carry with like-for-like 2nd quarter sales growth in all regions
Sales of Metro Cash & Carry during the 1st half of 2011 rose by 1.3% to € 14.8 billion (in local currency: +1.7%). Compared to the prior-year period, the sales growth was affected by the exit from the Moroccan market. Adjusted for sales in Morocco (H1 2010: € 102 million), the sales growth amounted to 2.0%. The sales share of own brands climbed distinctly to 15.2% (H1 2010: 12.7%). Moreover, the dynamic growth in the delivery business continued; turnover with deliveries reached € 733 million (H1 2010: € 503 million). In the 2nd quarter 2011, sales developed better than during the 1st quarter due to the shift in the Easter business, and rose by 1.4% (in local currency: +3.0%).
In Germany, sales in the 1st half of 2011 receded by 3.3% to € 2.4 billion mainly on account of store divestments. Like for like, sales came in at the level of the prior-year period. The low-margin business with tobaccos and telephone cards was further reduced. Adjusted for this merchandise category, like for like sales climbed appreciably by 2.3%. In the 2nd quarter, sales developed distinctly better than in the 1st quarter, mainly due to the shift in the Easter business. Like for like, sales improved by 1.9%. Adjusted for tobaccos and telephone cards, like for like sales even grew by 4.3%. As the official supplier for the Eurovision Song Contest in Düsseldorf, Metro Cash & Carry Germany presented itself to a broad public as a professional supplier of hospitality and catering solutions. In addition, Metro Cash & Carry also had the opportunity to position itself at numerous official events during the application phase for the 2018 Winter Olympics.
The international share in sales generated during the 1st half of 2011 climbed from 82.7% to 83.5%. In Western Europe, sales in H1 2011 dropped slightly by 0.7% to € 5.6 billion (in local currency: -0.8%). The 2nd quarter 2011 showed a trend improvement, also due to the Easter business; sales saw the first climb since the 3rd quarter 2008.
In Eastern Europe, sales grew strongly by 3.5% to € 5.4 billion (in local currency: +4.0%) during the first half of 2011. The 2nd quarter showed a distinct trend improvement: sales rose by 4.0% to reach € 2.9 billion. While the sales trend in Romania and Greece continued to be affected by the challenging general economic conditions, like for like sales in Russia, Ukraine and Kazakhstan improved significantly.
Sales in Asia/Africa increased by 10.7% to € 1.3 billion (in local currency: +14.3%) during the first half of 2011. Here, the market exit from Morocco was clearly more than compensated by a strong sales growth in Asia. All countries reported a double-digit growth rate. The strong Q1 growth momentum persisted also in the 2nd quarter. In local currency, all countries were able to achieve a double-digit sales growth.
EBIT before special items reached € 293 million following € 270 million in the first half of 2010. This rise in earnings is mainly attributable to margin improvements achieved in the framework of Shape 2012. Also net of special items EBIT rose distinctly by € 63 million to € 273 million.
During the first half of 2011, Metro Cash & Carry opened five new stores, thereof also in the growth countries Turkey, Russia and China. For 2012 it is planned to open the first Metro Cash & Carry store in Indonesia.
Real improved like for lake sales and earnings in Q2 2011
Sales of Real declined by 1.7% to € 5.4 billion (in local currency: -1.5%) in the first half of 2011, in part due to store divestments. The 2nd quarter developed better than the prior-year period as a result of the Easter business and positive price effects, among other reasons. Second quarter sales climbed by 0.2% to € 2.8 billion. Like for like, sales even grew by 1.6%.
In Germany, H1 2011 sales dropped by 1.6% to € 4.0 billion over the year-earlier period on the grounds of the divestment of eight stores. Like for like, however, sales climbed by 0.4%. The share of own brands in food sales reached 16.4% (H1 2010: 16.1%). The 2nd quarter benefited from the Easter business. In May, EHEC concerns resulted in a consumer reluctance to buy fruit and vegetables. This notwithstanding, Real was able to increase like for like sales by 3.1%, as a result of a higher customer frequency, among other reasons. Also the Real Onlineshop continued to develop successfully. The assortment now comprises more than 9,000 articles. In the 2nd quarter 2011, sales already amounted to € 6 million with an average sales slip of more than € 130.
Sales in Eastern Europe dropped by 1.9% to € 1.4 billion during the 1st half of 2011. While consumer sentiment in Romania and Poland continued to be affected by the financial crisis, Russia and Ukraine again reported a double-digit like for like growth. In the 2nd quarter, a better sales trend than in the 1st quarter was achieved. Sales in local currency dropped only slightly by 0.5%.
EBIT before special items improved by 15 million to € -11 million € (H1 2010: € -26 million). Also net of special items, EBIT improved by 31 million to € -11 million (H1 2010: €-42 million). Here, the 2nd quarter showed a highly positive development of earnings due to the shift in the Easter business, among other reasons.
Media-Saturn steps up strategic realignment
Sales of Media-Saturn dropped by 0.5% to € 9.3 billion during the 1st half of 2011. Here, the 2nd quarter developed less favourably than the 1st quarter. This is in particular attributable to the high prior-year level of sales which benefited from the FIFA World Championship, on the one hand, while the consumer electronics industry is presently suffering from a lack of product innovations, on the other.
Against the backdrop of this sales decline the strategic realignment of Media-Saturn was stepped up. "During the past few months we have very intensively addressed the risks and opportunities inherent in the online business. The quick implementation of our strategy is now the top priority", says Cordes. The new corporate strategy is based on an integration of the store-based business with the online business and is to serve as a basis for further growth. For the year 2015 we target € 5 billion in online sales. Here, in addition to the strong brands Media Markt and Saturn, also Redcoon as one of the leading European online retailers will play a major role. The online growth is to be accelerated also by way of further acquisitions. The core elements of the company's realignment also include the topic areas of price and cost leadership.
In Germany, sales receded slightly by 0.4% to € 4.1 billion during the 1st half of 2011. In the 2nd quarter 2011 sales dropped by 3.0% over the prior-year period when the FIFA World Championship had led to additional sales in the field of TVs and accessories. Business was affected by the buying restraint on the part of the customers. Still this year, Media-Saturn will launch two more own brand under the names of PEAQ and isy. The PEAQ assortment comprises premium consumer electronics products that will be offered at prices ranging slightly below the price level of comparable A brands. Under the brand name of isy, Media-Saturn will present a broad assortment of accessories that are comparable to the traditional brands in terms of quality and design.
In Western Europe, sales declined by 3.1% to € 4.0 billion during the 1st half of 2011. The challenging economic environment as well as the high year-on-year basis equally resulted in an appreciable drop in sales. In France, sales were significantly lower in view of the divestment of our business activities. The 2nd quarter showed a slight trend improvement over the 1st quarter in Western Europe. In June, the French antitrust authorities approved the divestment of the 35 Saturn stores in France to the HTM Group. The deconsolidation took effect from 30 June 2011.
In Eastern Europe, sales rose by 6.5% during the 1st half of 2011. Like for like, however, sales receded due to the continued buying restraint on the part of consumers. However, the overall trend improved during the 2nd quarter as compared to the 1st quarter. While like for like sales in Poland continued to decline, like for like sales in Russia and Turkey saw a gratifying development.
In Asia, H1 sales amounted to € 39 million. Of this amount, € 21 million were generated during the 2nd quarter 2011. In June, the third store was opened in Shanghai. The customer feedback continues to develop very positively.
EBIT before special items reached € 22 million (H1 2010: € 123 million). Adjusted for special items, EBIT dropped to € 29 million (H1 2010: € 118 million). In the 2nd quarter, EBIT before special items dropped from € 41 million to € -44 million. The strong like for like drop in sales, especially in Germany, as well as a sharpening of the price profile in the context of the new strategy materially contributed to this significant decline in earnings. Moreover, higher operational losses in France, start-up losses in China as well as higher expenses in the framework of the further implementation of the multichannel strategy weighed on earnings.
Galeria Kaufhof continues localisation strategy
Sales of Galeria Kaufhof receded by 1.8% to € 1.6 billion during the 1st half of 2011. Like for like, however, sales only dropped by 1.0%. In Germany, sales during the 1st half declined by 2.4% to € 1.4 billion (like for like: -1.4%). In this context, the 2nd quarter showed a better trend than the 1st quarter due to the Easter effect. Galeria Kaufhof announced to close four locations upon expiry of their respective lease agreements next year. To increase the attractiveness of the remaining locations, a total of 17 department stores have been extensively remodelled during the 1st half of 2011. Galeria Kaufhof in addition also proceeded with the individual adjustment of its department stores to local customer demands. In Western Europe, sales during the 1st half of 2011 climbed distinctly by 3.8% to reach € 0.2 billion. During this period, business continued to benefit from a positive trend in textiles sales.
EBIT before special items during the 1st half of 2011 improved to € -31 million (H1 2010: € -34 million). This was mainly owed to the 2nd quarter where earnings improved significantly by € 11 million to reach € -4 million. Including special items, EBIT came in at € -42 million (H1 2010: € -34 million).
METRO GROUP is one of the largest and most international retailing companies. In 2010 the Group reached sales of around € 67 billion. The company has a headcount of some 280,000 employees and operates more than 2,100 stores in 33 countries. The Group's performance is based on the strength of its sales brands which operate independently in their respective market segment: Metro/Makro Cash & Carry - the international leader in self-service wholesale, Real hypermarkets, Media Markt and Saturn - European market leader in consumer electronics retailing, and Galeria Kaufhof department stores.