Letter to the shareholders
The past year has been a very important and challenging year for METRO AG. It was the last year of our transformation from a diversified conglomerate to a focused wholesale company. With the disposal of Real, this process has been successfully completed despite all challenges. Today, your company is one of the leading international wholesalers with a clearly focused business model, a robust balance sheet, strong customer centricity and great innovative power.
However, the past year has also been heavily impacted by the Covid-19 pandemic. Our first encounter with it was in China, where we reacted quickly to protect our employees, customers and partners – with great success. This allowed us to effectively stabilise the business and to complete the disposal of METRO China’s majority stake to Wumei. The knowledge and experience gained during the coronavirus crisis in that region helped us enormously in responding quickly to the outbreak of the pandemic in Europe. We set 3 priorities: protect, preserve, grow. What does that mean in concrete terms?
- Protect: our employees, customers and partners are our top priority, which is why we rapidly implemented high safety and hygiene standards in our stores, warehouses and administrative offices.
- Preserve: we have initiated measures for the entire METRO portfolio based on local demand in order to ensure the quality and availability of goods, but also to secure our financial situation.
- Grow: every crisis also brings hidden opportunities. That is why we started looking for new growth opportunities immediately after the outbreak of the pandemic. It includes digital solutions and services as well as collaboration with food suppliers.
Financial year 2019/20 was marked by many unexpected challenges due to the pandemic. We managed to master them consistently. At the same time, we also made progress in many other areas:
In financial year 2019/20, we achieved a great deal despite the tense situation:
- With the completion of the sale of the hypermarket business (Real) and the majority stake in METRO China, we took the last important step in the transformation of a conglomerate into a fully focused wholesale company.
- Through goal-oriented management and the transactions, we were able to reduce METRO AG’s debt by almost €2 billion.
- At the beginning of the financial year, sales showed encouragingly dynamic growth and were at the upper end of our outlook. Even though Q3 was subsequently affected by the lockdowns (−17.5%), in Q4 we already managed to return almost to previous year’s level (−0.5%). Consequently, we were able to gain significant market share, as the available industry figures show.
- For the financial year, we reached results towards the upper end of the outlook range: With a like-for-like sales development of −3.9% (outlook −3.5% to −5%) and a decline in EBITDA adjusted at constant currency of €−205 million (−15.1%) (outlook €−200 million to €−250 million), we reached the adjusted outlook for financial year 2019/20, as given on 3 August 2020, and we are comfortably within the guidance.
- Among other things, this is due to our very promising business performance in Russia, the flexibility of our distribution channels with store-based and delivery business, our support to the successful relaunch of self-employed restaurateurs and the numerous measures taken to strengthen independent traders.
- Our Wholesale 360 strategy, with which we support our customers even more comprehensively through consulting, services and digital solutions, is proving to be very powerful, especially during this crisis. In numerous countries we were able to gain new customers with our extended range of services. We also managed to convince politicians, associations and authorities of our unique role as a partner for small businesses.
- Reported Earnings per share came in at €1.27. On this basis, we will propose a dividend of €0.70 per share to the Annual General Meeting of METRO AG. This dividend proposal corresponds to 55% of the reported earnings per share and is thus in line with our dividend policy.
METRO AG – a focused wholesale company with prospects
A new chapter in METRO AG’s evolution is now beginning. I am firmly convinced that we have created very good conditions for gaining additional market shares with our high-performance teams, expanding our business model with digital solutions and extended services and thus actively shaping further consolidation of the industry sector. The conditions for it have been continuously established in recent years. The key factors here are:
The consistent focus on the needs of the customers: we have seized the opportunity to further increase the METRO customer benefit and to strengthen the partnership with our customers. Our HoReCa customers appreciate the flexibility of our store-based business. They also use our digital tools, for example, for new ordering and pick-up services. In addition, we have implemented extensive programmes for restaurants and bars in public areas in collaboration with various partners, for example, to help them relaunch. In the self-employed and freelance segment, we won back customers and gained many new ones. The key factors here were the consistently high quality and availability of our products. Business with self-employed retailers has grown during the crisis because they have become even more relevant to their customers in terms of local supply during Covid-19.
Customer satisfaction – the key to success: in order to consistently align ourselves to the needs of our customers, we continually ask them for their opinion. With the Net Promoter Score (NPS), we frequently collect feedback and measure customer satisfaction in order to identify improvement potential and prioritise operational projects. The Net Promoter Score was introduced in 24 countries. So far, METRO has received feedback from approximately 3.7 million customers. Besides the quantitative measurement of the satisfaction values, suggestions from customers are also systematically recorded and evaluated.
Our employees and a strong corporate culture: we assess the satisfaction level of our employees several times a year through employee surveys. The survey was particularly important this year. More than 80,000 employees were invited to take part in it. Globally, we received an outstanding feedback rate of 77%. METRO’s global commitment score is 72%, which means that for 10 years now, METRO has been above the global benchmark in retail of 68%. For us, this is a clear sign of a strong corporate culture.
Digitalisation and e-commerce provide support to the operational business: as an omnichannel provider, we are distinguished by a wide network of modern wholesale stores and a delivery business (Food Service Distribution, FSD) with focus on food items including digital services. With METRO MARKETS, we also offer a state-of-the-art marketplace that focuses mainly on non-food items for the hospitality industry. Our customers can choose whether to shop in a store, pick up their pre-ordered goods at the store or have their products delivered. METRO’s business model proved to be crisis-resistant during Covid-19: the combination of stores, delivery and services proves to be extremely adaptable and efficient.
Wholesale 360 – strengthening the competitiveness of our customers: we are forging ahead with our strategy to become a full-service solution provider for small and medium-sized companies. Under the Wholesale 360 approach, METRO offers a broad portfolio of products, consulting, digital tools, services and equipment as well as an online marketplace. It enables us to position ourselves as the partner of choice for our customers and differentiate ourselves from other wholesalers. For example, we advise our HoReCa customers via a hotline so that they can take advantage of government assistance programmes. Moreover, we work with partners to arrange options for needs-based financing offers.
Acquisitions promote sustainable growth: for us, collaborations and acquisitions are an opportunity to generate sustainable and profitable growth. In most of our target markets, we have highly fragmented competition. Our strong balance sheet allows us to consider consolidating the market through acquisitions of smaller players. For example, in October 2020, we acquired the Aviludo Group, the second-largest Portuguese food supplier based in Quarteira, Algarve. The company will remain largely independent and continue to manage its brand.
Trend towards more sustainability in times of Covid-19: if the crisis had one positive effect, it is that awareness of sustainable development has increased – across all areas: ecological, economic and social. METRO would like to make a contribution in that regard by setting ambitious targets to align our lifestyles and behaviour more strongly towards sustainability. At this point I would like to give 2 examples of how we support our customers in this respect:
For one thing, METRO facilitates climate-friendly outdoor hospitality services. With immediate effect, METRO Germany is offsetting the carbon emissions of all radiant heaters sold by the wholesaler. To this end, the company is acquiring corresponding climate certificates and supporting environmental projects in Germany as well as in 2 other METRO countries. This way, we are doing more than just enabling our customers from the hospitality industry to offer an extended outdoor season and thus realise urgently needed sales; we also make an active contribution to infection and climate protection as well as to the preservation of city centres.
Furthermore, we developed the guideline ‘My sustainable restaurant’: here, we show how and where sustainable concepts can be practically implemented in the hospitality industry. As a partner, we offer restaurateurs specific solutions that can be individually adapted depending on the degree of maturity of the company, including environmentally friendly and social products and services – from recruiting staff, avoiding food waste and reducing waste to implementing energy-saving measures and offering regional products.
These activities are also reflected in the ratings of various indices. In financial year 2019/20, we were once again listed in the Food & Staples Retailing group in the internationally important Dow Jones Sustainability Index World and Europe. METRO also remains a member of the FTSE4Good index series. FTSE4Good is a British index family that has been in existence since 2001 and analyses large and medium-sized companies involved in sustainability and corporate social responsibility. METRO has been listed in the FTSE4Good index since 2017.
Outlook
For financial year 2020/21, METRO’s financial performance will be impacted by the development of the Covid-19 pandemic. First, there is an impact of Covid-19-related governmental restrictions to public life, which is difficult to estimate. Duration and intensity of those restrictions determine that impact but are yet unknown. Second, there is an upside potential, which would result from an earlier than expected widely available vaccination. We therefore plan with different scenarios and update them regularly.
Based on stable exchange rates and no adjustments to the portfolio METRO currently expect sales (both total sales and like-for-like) to be slightly below previous year. EBITDA adjusted is expected to decline by a mid-double-digit million euro amount. This outlook thereby assumes governmental restrictions to public life to last partially until mid Q2 of financial year 2020/21 and a fast and substantial recovery of the hospitality and tourism industry thereafter. Experiences gained from managing the first wave of Covid-19 will, along with cost efficiency and proven measures to protect the business, allow METRO to mitigate the impact on METRO’s operations compared to spring 2020. In line with observations in November 2020, the Management Board expects one month of full lockdown in the entire country portfolio will result in average sales losses of around €400 million equalling sales losses of approximately 1.5 percentage points of sales growth compared to previous year.
Almost 9 years ago, I took over as Chairman of the Management Board of METRO AG. At that time our company was a diversified conglomerate without focus and with very high levels of debt. The transformation of our company into a fully focused wholesaler is now complete. With the start of this new chapter for METRO AG, I have decided not to renew my contract and to leave the company at the end of 2020 – with absolute confidence that we will tackle the Covid-19 pandemic very well. Now that we have repositioned METRO as a focused wholesaler, I think that we have reached a good point in time to hand over the company management to someone new.
METRO has always been more than just a job to me. I am grateful for a total of 11 exciting years on the Management Board of this company. I have truly enjoyed the interaction with great colleagues, passionate customers and so many important partners. My decision to leave was certainly not easy for me. The great goal to provide even more support for these wonderful entrepreneurs in the hospitality and retail sectors has always inspired and motivated me and I feel a strong connection to this company beyond the normal measure. That is why I want to and will remain a friend and supporter of METRO in the future. I would like to thank all our employees for their dedication during this time and especially in the past financial year. Without their commitment, passion and willingness to work for the success of our customers, we would not be where we are today. This success is the result of the hard work of each and every one of our employees – for which I would like to express a very special thank you.
Dear shareholders, I would also like to extend my gratitude to you. I sincerely thank you for your continued trust and the firm conviction with which you stand by METRO AG. The challenging transformation of your company will pay off. Even the current pandemic will not change this outcome. Because METRO AG is a strong international company with a leading role in wholesale, exceptionally strong teams, agile distribution channels, innovative solutions and a robust balance sheet.
Yours truly,
Olaf Koch
Chairman of the Management Board of METRO AG