Germany's Metro Rocked by Ruble -- Update

By Ellen Emmerentze Jervell 

DÜSSELDORF-- Metro AG said net profit fell 10% in its fiscal first quarter as the ruble's plunge against the euro knocked the shine off the earnings of the German supermarket operator, one of the industry's big investors in Russia.

Despite the "persistently challenging economic environment," the group stuck to its forecast for a slight rise in revenue and operating profit for the fiscal year to end-September.

The group, among Europe's largest supermarket groups alongside Tesco PLC of the U.K. and Carrefour SA of France, said on Tuesday that net profit fell to EUR404 million ($458 million) in the three months to end-December from EUR451 million in the same period last year.

The German company said exchange-rate fluctuations, with the weak ruble largely to blame, knocked EUR60 million off earnings in the quarter. The period is typically the company's most profitable in the year, as it includes the Christmas shopping season. It accounts for about 30% of the company's full-year sales.

The slump in the ruble, with currency having recovered only slightly from a steep fall in December, and Russia's worsening economy have hit foreign companies doing business in the country hard. Metro derives nearly a quarter of its EUR63 billion in yearly revenue from Eastern Europe, including Russia.

Though the ruble has firmed up a bit, the reality of the economic slowdown and surging inflation has hit hard since the holidays, according to industry officials and economists, with consumer confidence falling to record lows.

"The weak ruble obscures our overall good operating performance," Chief Executive Olaf Koch said in a statement. "Adjusted for negative currency effects, our earnings were actually higher than in the same quarter of the previous year."

Metro management remained cautiously optimistic for the rest of the fiscal year, forecasting, on a comparable currency basis, a slight rise in overall sales and in earnings before taxes and interest, adjusted for special items. First-quarter EBIT fell 8% to EUR1.01 billion on a 2.1% drop in revenue to EUR18.3 billion.

Metro's Media-Saturn business, Europe's biggest consumer electronics chain, reported a strong quarter, with a 20 % jump in EBIT, before special items. Despite tough competition from rivals such as Amazon.com, the business continued to expand its online activities, with online sales up than 25% to around EUR500 million in the quarter, accounting for more than 7% of Media-Saturn's total sales.

Amid the dramatic deterioration in the economic conditions in Russia, Metto has been narrowing its geographic focus on more profitable markets.

Metro has sold its Greek wholesale subsidiary Makro Cash & Carry to a local retailer. The sale was completed on January 30. Last year, it pulled out of the Danish market, where its Cash & Carry wholesale operations recorded losses for several years. It also sold its Cash & Carry business in Vietnam.

To focus on turning around its German hypermarket business, Metro also disposed of a number of Real hypermarket stores in Eastern Europe last year.

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