Download - Metro Group Capital Markets Day 2016 December 20 2016€¦ · 20.12.2016 · 2 Deborah Weinswig, Managing Director, Fung Global Retail & Technology [email protected] US:

1 DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

December20,2016

Metro Group Demerger: Capital Markets Day 2016

1) MetroGroupwilldemergeintotwocompaniesinmid-2017:Metro,afoodretailerandwholesaler,andCeconomy,aconsumerelectronicsretailerthatoperatesmainlyundertheMediaMarktandSaturnbanners.

2) PresentationsfromthewholesaleandfoodretaildivisionemphasizedthatMetroispredominantlyawholesaler;thatMetroCash&Carrystoresarebeingtailoredtodifferentdemands;andthatitsretailstoresarebeingmademoreinspirationalplacestoshop.

3) PresentationsfromtheelectronicsdivisionnotedCeconomy’sscale;thedynamismoftheEuropeanconsumerelectronicsmarket;howCeconomyhasbeentransformedinrecentyears;andopportunitiesforgrowth.

METROGROUPSETTODEMERGEOnDecember15,Germany’sMetroGroupunveileditspost-demergerplans,atitsCapitalMarketsDayinDüsseldorf.Inmid-2017,thecompanywillsplitintothefollowing:

• Metro:CurrentlytheWholesaleandFoodSpecialistCompany(WFS),whichconsistsofMetroCash&CarryandRealhypermarkets.

• Ceconomy:Theconsumerelectronicscompany,whichconsistslargelyofMediaSaturn.

Separationwillbeona1:1basis,witheachMetroGroupshareholderreceivingoneshareineachofMetroandCeconomy.

Inthefollowingsections,weoutlinekeytakeawaysfromtheCapitalMarketsDay.

METRO:FOODRETAILANDWHOLESALEHereareourtopthreethemesfromMetroGroup’spresentationonitsWFSdivision:

1) WFSisPredominantlyaWholesaleCompanySome80%ofWFSrevenuesandagreatershareofprofitscomefromwholesaling.CEOOlafKochwasatpainstoemphasizetheextentofitswholesaling,andonereasonforthiswasthediscountheperceivesisbeingappliedtothecompany’s


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shares.MetroGrouphastraditionallysufferedfroma“conglomeratediscount”tothesumofitsparts,anditsWFSgetslinkedtoafood-retailvaluationmultiplebyanalysts,Kochsaid.Thereisa“significantdifference”inmultiplesforwholesalers,soMetroGroup’svaluationstandstogainfrombeingviewedasawholesalefirm.

2) WholesaleOpportunitiesareDifferentbyMarketMetroCash&Carryisrecognizingthatitswholesalecustomertypesdifferbymarket,andismovingfromuniformstoresfollowingcentralizedtemplatesandguidancetomoretailored,focusedstores.Theaimofthisistodrivecomparable-salesgrowththroughrelevancy.

Inimplementingthis,thecompanyisfocusingontwotargetgroups:hotel,restaurantsandcafés(HoReCa),andneighborhoodretailstores(“momandpop”stores).

Source:MetroGroup

HoReCaoffersveryattractivemargins,thecompanysaid,whilelower-marginretailcustomerswillremainanimportantelementofthewiderretailsectorand,inEasternEuropeinparticular,areasignificanttargetmarket.Smallcompaniesingeneral,suchasofficesandinstitutions,compriseathirdtargetsegment,buttheyarenotakeytarget,andMetrowillnotadjustitsofferingtocaterparticularlytothesecustomers.

Metroisformattingitsstorestocatertothedominantcustomergroupineachmarket:inItaly,forinstance,HoReCacustomersareatthecenterofMetro’soffering,whileinRomania,smallretailcustomersareitsprincipalcustomers.Differentiatingbyregionisdesignedtounderpincomparablesalesgrowth,whichisthecentralplankofMetro’sgrowthstrategy.

AttheWFSgrouplevel,thecompanyistargetingtotalsalesgrowthof3%ormoreinthemediumterm.Marginresilienceandimprovedcashgenerationarefurtherfinancialprioritiesforthegroup.


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3) WideChoiceisNotSufficienttoSatisfyRetailCustomers“Everythingunderoneroofisnotenough,”declaredKoch;forgroceryshoppersatthecompany’sretailhypermarkets,theshoppingexperienceneedstobe“inspirational.”Tothisend,ReallaunchedanewconceptformatatKrefeldinNovember2016,whichHochdescribedasa“sensation,”andthecompanyupdatedonearlytrading.Thefirstthreeweeksshowed“promisingsignsofsuccess,”withfeedback“soextreme,sopositive”thatWFShasconvictionthatthismodelisthewayforward.

WFSwillconvertselected“superior”Reallocationstothisconcept,aswellasapplying“relevantmodules”fromthemodeltothebulkofitsestate,andimplementonlyselectedelementstothetail-endofitsestate.

CECONOMY:CONSUMERELECTRONICSCeconomyisa“€22billionstartupcompany”witha“long-lastinghistory,”notedCFOMarkFrese.ThecompanyoperatesMediaMarktandSaturnstoresaswellaspure-playRedcoon.Aswediscussbelow,managementnotedthatthecompanyisthebiggestconsumerelectronicsretailerinEurope,operatesinadynamicmarket,hastransformeditsbusinessinrecentyearsandhasopportunitiestogrowfurther.

1) CeconomyisNumber1inConsumerElectronicsinEuropeWith€22billioninsales,CeconomyisthebiggestconsumerelectronicsretailerinEurope,atarounddoublethesizeofnearestrival,DixonsCarphone.Itisthemarketleaderinninecountries.

Source:MetroGroup


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Source:MetroGroup

Thisscalemeansitbecomes“almostnecessary”forsupplierstopartnerwithCeconomy,notedCEOPieterHaas.Indeed,majorsuppliersaremoredependentonCeconomythanCeconomyisonmajorsuppliers,Haasargued.

Thebreadthofproductrange,meansCeconomyiswell-preparedfortheintegrationoftechnologyandtheInternetofThings,Haassaid.Single-categoryretailerswouldfinditdifficulttocaterforthe“connectedworld.”

Source:MetroGroup

Meanwhile,animprovedserviceofferingisbolsteringMedia-Saturn’sproposition.Servicesspanningcredit,set-up,delivery,digitalcontent,repairsandwarrantiesbroughtin€1.3billionofrevenueforthegroupinfiscal2016.


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2) TheEuropeanConsumerElectronicsMarketisDynamicTheEuropeanconsumerelectronicsmarketisworth€300billion,andCeconomy’sgeographicalpresencemeansitcovers70%ofthistotal.

DynamicsintheEuropeanelectronicsmarketthatwerenotedbythecompanyinclude:

• Growthinsalesofappliancesandtelecomshavedrivenexpansioninthemarketoverthefouryearsthrough2016.Thetotalmarketisgrowingatamodest1%–2%peryear.

• InthecountrieswhereCeconomyoperates,some17.3%ofconsumerelectronicssaleswereonlinein2015,andthecompanyexpectsthistogrowtoa22.3%sharein2020.

• InthemarketswhereCeconomyispresent,multichannelretailersaredrivingonlinegrowth,ratherthanpureplays.

• Thereremainsmuchscopeforconsolidation,withmanycountriesseeingthefivebiggestconsumerelectronicsretailerscapturinglessthan50%ofthemarket.

• Itisexpensivetoconsolidatetheconsumerelectronicsmarket:retailersmustinvestinomnichannelcapabilities,ITandpricinganddataabilities.

3) CeconomyhasbeenTransformedCEOPieterHaasarguedthatCeconomyisfoundedonastrongbase,becausetheconsumerelectronicsbusinesshasspentthepastfewyearsshapingup,slimmingdownandpushingonline.

• Shapingup:Thecompanyhasfocusedoncorebanners,cuttingtheRedcoonandSaturnnameinsomemarketstofocusonthecoreMediaMarktbanner.Ithasalsoconstantlyinvestedinupgradingandremodelingitsstores.

• Slimmingdown:Ithas“cleanedup”itsstoreportfolio,exitinganumberofmarketssuchasFranceandChina,makingsomestoreclosuresand“rightsizing”someotherstorestoreducesalesarea.

Source:MetroGroup

• HaasnotedthatMediaSaturn“inventedsupermarketsforelectronicsbutdigitalizationtookusbysurprise.”Whilethecompanywas“latetodigitalization,”itwasnotaslateassomecompanies,andithasmaderapidprogresssincefirstlaunchinge-commercein2010.Some8.9%ofgroupsaleswereonlineinfiscal2016.Aswediscussinthenextsection,pushingupthisproportionisoneofthecompany’sobjectivestogrowsalesinthecomingperiod.


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Source:MetroGroup

4) OpportunitiesforGrowthCeconomymayalreadybeEurope’sbiggestconsumerelectronicsretailer,butHaasnotedthatpocketsofgrowthopportunitiesremain.Amongtheleversthatthecompanycanpulltogrowthetopandbottomlinesare:

• Growingonlinesalesinitskeymarkets:online’sshareofsalesatCeconomylagsitsshareofthetotalconsumerelectronicsmarketinthecompany’smajormarkets.

• Openingnewstores,acrossavarietyofformatsincludingsmallerstores.

• Expandingitsservicesandsolutionsofferingtoboostsalesandmargins.Thecompanyisaimingfor10%oftotalrevenuestocomefromservicesinthemid-term.

• Utilizingdatatooffergreaterpersonalizationofcommunicationsandofferstocustomers.

Thecompanyhasamid-termambitiontogrowsalesataCAGRof3%ormore,inthecontextof“moderate”annualgrowthof1%–2%intheoverallconsumerelectronicsmarket.Itistargetinga5%EBITDAmargin,upfromthe3.6%marginachievedinfiscal2016.


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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst

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