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Metro seeks Russia revamp through bulk discount shift

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05/15/2018 | 12:47pm CEST
FILE PHOTO: German retailer Metro AG supermarket in Duesseldorf

BERLIN (Reuters) - German retailer Metro said on Tuesday it hopes to stabilise its shrinking Russian business in the coming months after overhauling management and introducing bulk discounts to attract more independent traders and restaurant owners.

Metro's shares tumbled last month when it lowered its earnings and sales outlook, citing a poor performance at its Russian operations and the impact of the failure to reach a new wage agreement for employees at its Real hypermarkets.

On Tuesday, Metro reiterated the adjusted outlook it gave for the group's fiscal year that runs to Sept. 31, but gave a more negative forecast for Russia, with sales "considerably below" the prior year and a "strong decrease" in earnings.

Shares in Metro were down 3.3 percent at 0921 GMT, the second-biggest faller on the German mid-cap index <.MDAX>.

"Given ongoing uncertainties, and a particularly challenged third quarter, a discount valuation is likely to persist," said Jefferies analyst James Grzinic, who rates the stock a "hold".

Chief Executive Olaf Koch said he was optimistic that a new management team and pricing policy in Russia could turn the business around, predicting more pain in the third quarter of the fiscal year, but a recovery in the fourth.

"We are convinced that with a refocused strategy, we will stabilise the country towards the end of the year," Koch said.

Metro wants its 91 Russian stores to target more independent traders, hotels and restaurants rather than competing for ordinary shoppers with the likes of X5 and Magnit, which are engaged in a fierce price war.

To that end, it is introducing a new "buy more, pay less" concept for about a third of the goods it sells, a strategy that helped revive sales in Romania and Ukraine, but that analysts said looks set to weigh on profitability.

The Russia business was long a major contributor to profits and Metro had planned to separately list the unit until the Ukraine crisis and sanctions on Moscow dampened the economy.

Metro wants independent traders, hotels and restaurants to account for more than 60 percent of sales in the medium term, up from about 50 percent now, with Koch noting that the total market is worth about 90 billion euros ($107.30 billion).

Quarterly sales for Russia fell 21 percent, while the unit's earnings before interest, taxation, depreciation and amortisation (EBITDA) halved to 35 million euros.

Earlier this month, Metro removed chief operating officer Pieter Boone, who was responsible for Russia. Koch set out other management changes in Russia, and said that Rafael Gasset, the new regional manager, has previously turned around the business in Poland and Romania.

Koch said Russian stores trialling the new prices are already showing a 3-7 percent rise in sales, predicting that it will take four to five months to ramp up the new approach.

Metro has also been hit by a wage dispute at its Real hypermarkets, although structural changes mean it should now be able to pay new hires less from the summer onwards, eventually leading to savings.

(Reporting by Emma Thomasson; Editing by Maria Sheahan and Louise Heavens)

By Emma Thomasson

Stocks mentioned in the article
ChangeLast1st jan.
MAGNIT PAO --End-of-day quote.
MDAX -0.41% 26591.81 Delayed Quote.1.91%
METRO 0.65% 12.335 Delayed Quote.-26.40%
X5 RETAIL GROUP -0.92% 23.78 Delayed Quote.-36.46%
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02/14METRO AG ADR 2018 Q1 - Results - Earnings Call Slides 
2017METRO AG ADR 2017 Q4 - Results - Earnings Call Slides 
Financials (€)
Sales 2018 36 838 M
EBIT 2018 863 M
Net income 2018 367 M
Debt 2018 3 280 M
Yield 2018 5,23%
P/E ratio 2018 11,95
P/E ratio 2019 11,23
EV / Sales 2018 0,21x
EV / Sales 2019 0,21x
Capitalization 4 522 M
Duration : Period :
Metro Technical Analysis Chart | MarketScreener
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Technical analysis trends METRO
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 22
Average target price 13,0 €
Spread / Average Target 6,8%
EPS Revisions
Olaf G. Koch Chief Executive Officer
Juergen B. Steinemann Chairman-Supervisory Board
Philippe Palazzi Chief Operating Officer
Christian Baier Chief Financial Officer
Florian Funck Member-Supervisory Board
Sector and Competitors
1st jan.Capitalization (M$)
METRO-26.40%5 154
SEVEN & I HOLDINGS CO., LTD.-3.44%35 957
TESCO25.59%33 260
AHOLD DELHAIZE12.76%29 382