Dec 12, 2013
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Metro targets marked profit rise as cuts dividend

Dec 12, 2013

COLOGNE, Germany - Metro, Europe's fourth-biggest retailer, is aiming for a significant improvement in profitability next year when it will launch a campaign to update its global image after it reported a net loss and cancelled its dividend.

The sprawling German group, which runs cash and carries, supermarkets, department stores and Europe's top consumer electronics chain, is in the midst of slimming down its portfolio and cutting costs to try to revive its fortunes.

Metro on Thursday reported earnings before interest and tax (EBIT), before special items, of 728 million euros ($1 billion) for the shortened 2013 business year to September. It had hoped to "slightly exceed" the 706 million euros of the prior year.

But it reported a net loss of 71 million euros, falling short of analysts' average forecast for a net profit of 29 million euros, and said it would not pay a dividend.

The company took hits to earnings from the bankruptcy of its former subsidiary Praktiker as well as restructuring costs and steps like cutting down poor-selling non-food product lines at its core cash-and-carry (C&C) business.

Divestments helped it cut net debt by 2.3 billion euros to 5.4 billion.

"Metro ...improved its balance sheet position and, in our view, has a significant opportunity to reduce working capital via its non-food range review across all its C&C operations," said Cantor Davis analyst Mike Dennis.

Metro shares, which jumped last month after it said it might list up to a quarter of its Cash & Carry Russia business on the stock market next year, were up 3.4 percent at 0937 GMT, compared with a slightly weaker European retail index .SXRP.

The stock trades at 16.5 times forward earnings, a small discount to Europe's biggest retailer Carrefour, but well ahead of Britain's struggling Tesco with a multiple of 10.5.


Noting that economic momentum would remain muted, Metro forecast "slight absolute sales growth" for its new 2013/14 reporting year, while EBIT before special items should "markedly exceed" a comparative level of 1.7 billion euros from the 2012/13 period.

Metro, which runs over 2,200 outlets in 32 countries but gets just over two thirds of sales from Germany and other western European countries, has been cutting prices at its cash and carries, as well as revamping product ranges and investing in its delivery arm.

In March, Chief Executive Olaf Koch took over direct responsibility for the cash and carry business, which accounts for almost half of group sales and which has been hit hard by a downturn among independent retail and hospitality industries.

Metro, which presented its results at a revamped cash and carry store in the Germany city of Cologne, said it was encouraged by 20 percent growth in sales of its delivery service to 2 billion euros and a slight rise in sales of higher-margin own-brand products to 17 percent of the total.

Aiming to improve its ties with independent entrepreneurs, Koch presented a new slogan for the cash and carry business "You & Metro" to be the focus of an international image campaign in 2014, when the company celebrates its 50th anniversary.

Metro, which shocked investors in March when it trimmed its dividend for the first time in over 14 years, is moving its financial year to start on October 1 to avoid reporting requirements interfering with the crucial Christmas sales period.

$1 = 0.7251 euros

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