Metro Group's sales in Russia fell sharply

A year after the introduction of anti-Russian sanctions, Metro Group's revenue in Russia fell by 14% (to 3.6 billion euros). In the first half of the current fiscal year, sales decreased from 1.8 to 1.5 billion euros.
16.05.2018
Forbes
Origin source
The German network of hypermarkets Metro Group (No. 805 in the ranking of the 2000 largest public companies of the world Forbes, market capitalization of € 4.12 billion) recorded a sharp decline in market performance in Russia, which before the crisis in relations with Ukraine and the introduction of anti-Russian sanctions has traditionally made the largest contribution to increase in the profit of the retailer.

In October 2017, the Russian Forbes put Metro Group on the second place in the rating of "50 largest foreign companies in Russia".

In the first half of 2017-2018 fiscal year, the total sales of Metro Group in Russia decreased compared to the same period last year from € 1.803 billion to € 1.534 billion? or 14.9%, follows from the announcement of financial results for the second quarter of 2018, published on Tuesday, May 15, on the website of the German company. In the second quarter of this fiscal year, Metro Group's sales in the Russian market fell by 21% (from € 790 million to € 624 million). In the first half of the fiscal year, sales of the group in the world increased in comparable categories by 1.2%. This growth was facilitated by all regions, with the exception of Russia.

"The dynamics of business development in Russia and the negative changes in the exchange rate had a strong negative impact on the sales and profits of the company," said Chairman of the Board of Metro AG Olaf Koch.

He also said that the company has taken a number of steps to restore the growth of its business in Russia. This includes, inter alia, the introduction of a new pricing policy in the stores of the network in Russia in the last quarter, the intensification of commercial initiatives and the expansion of support provided to independent traders.

At the end of April 2018, Metro Group shares fell sharply after the company lowered the forecast of profits and sales, citing poor performance of the Russian unit and the difficulty of signing a new pay contract for employees of Real hypermarkets.

In the beginning of May, Metro made personnel reshuffles, appointing Philip Palazzi as the new operating director of the company. He replaced Peter Boon, who was in charge of the Russian business of the company.

Now the Metro Group has confirmed its April forecast that the company's sales in the world will grow by less than 0.5% in the financial year 2017-2018 (previously reported growth of 1.1%) due to unfavorable conditions on the Russian market. At the same time, the company's sales in Russia will be "substantially lower" than last year's figures, and the profit of the Russian unit will demonstrate "a significant reduction".

Retail and Sanctions

The company Media Group came to Russia in 2001. Since that time, the company has invested over € 2.5 billion in the development of the Russian Metro Cash & Carry network. Currently, 89 Metro Cash & Carry shopping centers operate in 50 regions of the country and more than 60 stores of electronics and home appliances Media Markt.

The growth of business allowed the German company to plan an IPO for its Russian subsidiary: in the first half of 2014, the Metro Group was going to place 25% of its Russian division on the London Stock Exchange and attract at least € 1 billion. But in March 2014 amid a sharp exacerbation of the geopolitical situation (the reunification of Crimea with Russia, the introduction of anti-Russian sanctions by the West) Metro Group postponed these plans for an indefinite period.

In the next year following the introduction of fiscal year sanctions, the Metro Group's business in Russia deteriorated. Compared to 2014/15, the revenue fell by 14% to € 3.6 billion. However, the chairman of the board of Metro AG Olaf Koch said in an interview with Forbes in March 2017 that Russia has always had a high priority for the company from the point of view of business. "Despite a number of negative macroeconomic trends and a reduction in total revenue due to the devaluation of the ruble, this market continues to be attractive for us, especially in the food segment," Koch noted.

He expressed confidence in the success of the franchise project "Beans" (we are talking about a chain of stores "at home", stressing that "entrepreneurs trust the Metro brand and are ready to become a part of our business".

Koch also told Forbes that the Metro Group by the summer of 2017 will be divided into two independent structures. Metro will focus on food sales, including Cash & Carry wholesale and retail chains and Real's food hypermarkets (90% of the business). And the other - Ceconomy - will combine sales of electronics and household appliances (Media Markt and Saturn stores).

In April 2018, it became known that the MediaMarktSaturn group, part of the German retailer of home appliances and electronics Ceconomy, could sell the network of its Media Markt stores in Russia to the structures of billionaire Mikhail Gutseriev "M.Video" and "Eldorado". This was reported April 13 agency Reuters, citing informed sources.

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