Metro on a Roll: Scaling Down for Success in the 2023/2024 Financials
Metro, a prominent wholesaler in Düsseldorf, listed on SDax, is taking a step back, setting more modest targets for the upcoming 2023/2024 financial year. The company anticipates a currency-adjusted sales growth of 3% to 7%, a slight deviation from the previous year's figure, despite the challenges posed by the weak Russian rouble and an expected below-average performance in Germany.
Metro reported a 2.7% sales increase to 30.6 billion euros for the past fiscal year. The company's CEO, Steffen Greubel, is optimistic about Metro's future, despite these forecasted obstacles. Dividend-wise, shareholders can rejoice - Metro is proposing a divvy of 55 cents per share for the 2022/2023 financial year, marking its return to dividend payouts after a hiatus.
The company's adjusted EBITDA is predicted to remain relatively consistent with the previous year's figure of 1.17 billion euros. Market analysts estimate a potential decline of 100 million or a modest increase of 50 million euros. However, the previous financial year saw increased costs due to a cyber attack, dragging down the operating profit.
Digging Deeper
The drop in profitability for Metro AG in the previous financial year can be attributed to several specific factors:
- Fixed Cost Inflation: Metro AG has experienced a significant increase in fixed costs, including personnel expenses, which have escalated by roughly 4.2%.
- Higher IT Expenses: The company's IT-related expenses have also contributed to the decline in profitability.
- Lower Disposal Gains: Metro AG has seen reduced disposal gains from real estate development projects, impacting its EBITDA negatively.
- Deterioration in Other Income: The cessation of merger and acquisition transaction license fees has led to a decline in other income.
- Modest Profit Improvement Expected: Although Metro AG forecasts a minor profit improvement from its food service distribution (FSD) business, the initial investment of up to €150 million in operational efficiency measures is expected to impinge on adjusted EBITDA in fiscal 2025.
- Struggle with Lease Payments and Cash Flow: Metro AG's low margin profile and extensive lease payments are likely to result in negative reported free operating cash flow (FOCF) after leases for the next two fiscal years.
- High Leverage: The company's leverage, excluding Russia, has climbed to 3.6x (or 4.0x excluding Russia) from 2.6x (or 2.8x excluding Russia) in the previous fiscal year, signaling high debt levels relative to EBITDA.
- Execution Risks: There are substantial execution risks related to the operating efficiency plan and the sCore strategy, given the current performance and investments required to boost growth.
These factors contribute to Metro AG's reduced targets and predicted operating profit for the forthcoming financial year, despite anticipated sales growth.
