Upbeat Metro hails end to period of caution

Metro, the world’s fourth-largest retail group, said it would increase its capital expenditure as it struck a more confident note about its likely results for 2010 amid more signs of global economic recovery.

A rise in capital spending from a planned €1.9bn this year to €2.1bn, which will return Metro towards more normal levels of investment, was “a sign of our confidence”, said Eckhard Cordes, chief executive. “We are focusing more on growth and expansion again – the period of caution is over.”

Metro, which operates in 34 countries and gets almost half of its sales from its cash and carry business, said there had been a “robust business trend” in the first half of 2010. Sales rose 2.4 per cent to €31.2bn ($40.8bn), although the rise was 0.6 per cent in local currency terms.

Earnings before interest and tax for the six months to the end of June rose from €302m a year ago to €369m, including €101m of restructuring measures and other one-off items. Net income was €59m compared with an €8m loss in 2009.

Earnings were helped by a cost-cutting and restructuring programme known as Shape 2012. Christopher Hogbin, a retail analyst at Bernstein Research, said in a note: “The profit improvement was more than explained by the contribution from Shape 2012, which provided €73m of incremental benefit in the quarter.”

Metro retained a target of about €2.2bn in earnings before interest and tax for 2010, but suggested this target – which excludes the cost of an ongoing restructuring programme and other special items – was now more likely to be achieved.

A “World Cup” effect helped lift sales at the group’s Media Markt and Saturn electronics stores. Second-quarter sales at the chain rose more than 9 per cent compared with a year ago, although quarterly earnings dipped by €14m to €41m because of costs related to the chain’s expansion into China and a strategy to launch a range of own-brand goods in Germany this year.

Mr Cordes reiterated that there was no hurry to sell the profitable but non-strategic Kaufhof department store chain in Germany. Metro believes a sale to private equity groups is most likely but financing conditions have remained fragile, most recently because of the Greek debt crisis.

Selling Kaufhof is made more complex by the ongoing sale in Germany of the rival, insolvent, Karstadt chain. Karstadt’s administrator expects to sell the chain to Nicolas Berggruen, a US-based investor, but the deal has been repeatedly delayed. Mr Cordes said he had no knowledge of a reported plan by Maurizio Borletti, an Italian retail entrepreneur, to try to mount a bid for Karstadt.

Mr Hogbin said Metro had “modestly raised” capital expenditure, which the group usually expects to be about €2.2bn a year.

Shares fell on Monday morning 1.3 per cent to €42.04.