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Metro Sees Operating Profit Falling on Cash & Carry Spending

Metro AG, Germany’s biggest retailer, forecast a decline in earnings this year as the company invests in its Cash & Carry unit and the economy remains challenging in southern and eastern Europe.

Operating income in the shortened nine-month financial year ended Sept. 30 will “slightly lag” behind the same period of 2012, the Dusseldorf-based company said today. Earnings before interest, taxes and special items will rise “slightly” because of higher income from selling property, it said.

Metro fell as much as 4.5 percent in Frankfurt trading, repeating the drop of March 1 when the company cut its dividend by 26 percent and reported 2012 earnings that missed estimates. The retailer today released full results for last year, showing that fourth-quarter earnings at Cash & Carry, its largest unit, fell 15 percent to 491 million euros ($633 million).

“There remain significant operating challenges in the key businesses, Cash & Carry and Media Markt-Saturn,” John Kershaw and Andrew Gwynn, analysts at Exane BNP Paribas, said in an e-mailed report. “The key question remains how much Ebit is expected to decline in 2013.”

When he became chief executive officer at the beginning of last year, Olaf Koch said that he would focus on Cash & Carry and the Media-Saturn electronics chain as he cuts investment in Kaufhof department stores and Real grocery outlets. Since then, he has agreed to sell Real stores in eastern Europe to Groupe Auchan SA, sold the Makro U.K. wholesale unit to Booker Group Plc and announced Media-Saturn is leaving China.

Kaufhof Plans

A Kaufhof transaction “isn’t on the current agenda,” Koch told journalists today, adding that long-term plans for the unit haven’t changed. Metro suspended talks for the sale of Kaufhof at the start of last year, citing market conditions, though reiterated that selling the unit remained part of its strategy.

Metro shares were down 2.2 percent at 22.44 euros as of 12 p.m. in Frankfurt, the fifth biggest decline in the MDAX Index for medium-sized companies. The retailer was ousted from Germany’s benchmark DAX Index in September after losing 60 percent of its value in less than two years.

Fourth-quarter Ebit before special items fell 12 percent at both the Media Saturn consumer-electronics unit and the Real hypermarket division, and was little changed at Kaufhof.

Sales adjusted for portfolio changes will rise “moderately” in the shortened financial year, Metro said.

The retailer is changing its financial calendar and this fiscal year will be nine months long. For fiscal 2014, Metro forecast a rise in Ebit, excluding one-time items.

Accounting Policy

Metro gets about two-thirds of revenue from the euro area, where the economy will shrink again this year after contracting last year, the first back-to-back decline since the euro’s debut in 1999, according to a European Commission forecast.

“We don’t expect the economic situation to be less difficult this year,” Koch said at the press conference. “We won’t have special factors with an important negative effect this year. 2013 won’t be an easy year, but we are in control.”

The CEO also said “cost discipline” will remain a topic for the company this year and that Metro will continue to have a “conservative” accounting policy.

Sales in western Europe dropped by 4.3 percent to 19.8 billion euros last year after the retailer sold Makro Cash & Carry in the U.K., Metro said. Adjusted for acquisitions and disposals, sales in the region declined by 2.2 percent. Sales in Asia and Africa gained 26 percent last year, making more than 5 percent of the company’s revenue for the first time.

Metro reduced its net debt by 830 million euros to 3.25 billion euros in 2012. Operating cashflow improved by about 250 million euros to 2.34 billion euros.

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