Successful 2007 Financials for Metro Group: Strong Foundation for Future Value-Creating Growth Strategy

18 March 2008

Value-creating Growth Strategy

METRO Group closed the financial year 2007 with strong sales and EBIT growth. Furthermore, Dr. Eckhard Cordes, CEO of METRO Group, presented the key points for the future strategic direction of METRO Group. "Our successful financials in 2007 build a strong foundation for the future value-creating growth strategy of METRO Group", said Cordes. "In the past weeks we have analysed METRO Group’s situation in detail. On this basis we developed our strategy to sustainably increase METRO Group’s profitability as our highest goal."

Metro Cash & Carry, the most important growth driver, will continue emphatically to further develop its business and internationalisation. "We will push our expansion in Eastern Europe and Asia forward and gain significant market shares in the markets of tomorrow", said Cordes. Moreover, METRO Group is currently exploring expansion possibilities in other countries. The introduction of new services ought to increase the division’s productivity in the more developed markets in Western Europe. For example, the customer relationship management will be intensified and a general delivery alternative will be looked into.

In 2007, Real stabilised its sales development and is working hard to achieve the turnaround. To accelerate this process, Joël Saveuse, Chairman of Real’s Management Board, will be appointed to the Management Board of METRO AG. Saveuse will be given a three-year contract. For the successful turnaround a two-year timeframe has been determined. Saveuse has set up a process organisation for this purpose. "The programme is well structured, the accountability clearly assigned and the project monitoring tools are in place", said Cordes.

The turnaround in Germany shall be achieved by the further implementation of the new marketing approach, a stronger emphasis on private labels, a higher competence in fresh food and further cost reductions. The new marketing approach will be supported by an advertising campaign. Furthermore, Real’s store base in Germany includes around 40 substantially underperforming stores. These stores generated losses of 40 to 50 million Euro last year. Real’s management will seek solutions for the future of these stores and disposals cannot be ruled out. Real’s successful expansion in Eastern Europe will be intensified with around 15 new store openings per year. In 2008, the market entry into the Ukraine is scheduled. Real, including the international business, aims to generate an EBIT margin between 2% and 3% in the medium-term.

Media Markt and Saturn’s aggressive expansion strategy in recent years will be continued. "Media Markt and Saturn is, besides Metro Cash & Carry, the most important and successful growth driver of METRO Group", said Cordes. "In order to further generate above-average growth in a dynamic and competitive environment, it is essential to be able to react quickly and flexibly in every respect. We are preparing ourselves for that in the coming years." An enlarged services offer should increase the general appeal of the format further. In 2008, the expansion in Russia and Turkey will progress, and furthermore, the market entry into Luxembourg is planned.

In 2007, Galeria Kaufhof again significantly increased its profitability, especially thanks to the successful execution of the trading-up strategy. "Galeria Kaufhof is a successful company", said Cordes. "But it is not a strategic part of METRO Group. Against this background, we are in a comfortable position to examine all our alternatives without any time pressure."

In future, METRO Group will gear its dividend policy closer to the earnings development and offer an attractive payout ratio.

Outlook

Group sales in 2008 are expected to grow by more than 6%.

METRO Group expects an EBIT increase (before special items) in 2008 between 6% and 8%.

METRO Group’s capex is estimated to exceed €2.2 billion. Metro Cash & Carry expects to open around 40 stores, Real c.15 hypermarkets, and Media Markt and Saturn more than 70 stores per year.

In the context of METRO Group’s value-creating growth strategy, sales are expected to increase by more than 6% per annum in the medium-term and EBIT growth before special items by more than 8%.